<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. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
IN HOME HEALTH, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
IN HOME HEALTH, INC.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Items 22(a)(2) of Schedule A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
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:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / 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:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------
4) Date Filed:
------------------------------------------------------------------------
<PAGE>
DRAFT 05/31/95
IN HOME HEALTH, INC.
CARLSON CENTER, SUITE 500
601 LAKESHORE PARKWAY
MINNETONKA, MINNESOTA 55305-5214
[DATE]
Dear Stockholder:
At a special meeting called for [DATE], stockholders of In Home Health, Inc.
(the "Company") will be asked to consider a proposed investment of approximately
$41.9 million in the Company by Manor Healthcare Corp. ("Manor Healthcare").
Approximately $21.9 million of this investment will provide the funding for a
tender offer by the Company to repurchase approximately 40% of the Company's
outstanding Common Stock. Company stockholders will receive separate written
materials describing the tender offer.
The proposed Manor Healthcare investment is described in the attached Proxy
Statement, which I invite you to review carefully. Stockholders are being asked
to authorize the sale and issuance to Manor Healthcare of approximately
6,440,000 shares of Common Stock, 200,000 shares of Series A Preferred Stock and
a three-year warrant to purchase up to 6,000,000 additional shares of Common
Stock. The Series A Preferred Stock would pay a 12% cumulative dividend, would
be convertible into 10,000,000 shares of Common Stock and would have voting
rights on an as-if-converted basis. Manor Healthcare would own or have the right
to acquire shares that would then have approximately 70% of the Company's
combined voting power and would effectively control the Company. Stockholders
are also being asked to approve amendments to the Company's Articles of
Incorporation and Stock Option Plans which are related to the Manor Healthcare
investment.
The Board of Directors believes the proposed transaction has a number of
advantages, including:
(i) providing new capital for expansion of Company operations;
(ii) providing cash to enable repurchase of approximately 40% of the
Company's currently outstanding shares from stockholders wishing to
sell;
(iii) expanding the Company's operations through a strategic relationship
with a financially strong partner in a closely related segment of the
health care industry;
(iv) strengthening the Company's general competitive position in the ongoing
consolidation of the U.S. health care industry.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MANOR HEALTHCARE
INVESTMENT, AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE PROPOSALS RELATING
TO THAT INVESTMENT.
It is important that your shares be represented and voted at the meeting.
Whether or not you plan to attend the special meeting, please sign and date the
enclosed proxy card and return it promptly in the enclosed postage-paid
envelope. Please note that a failure to vote in effect constitutes a vote
against the proposals related to the Manor Healthcare investment. Accordingly,
we urge you to take a moment now to sign, date and mail your proxy.
On behalf of the Board of Directors, thank you for your cooperation and
continued support.
Sincerely,
Judy M. Figge
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
IN HOME HEALTH, INC.
------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
[DATE OF MEETING]
MINNEAPOLIS, MINNESOTA
---------------------
To the Stockholders of
IN HOME HEALTH, INC.:
Notice is hereby given that a Special Meeting of Stockholders of In Home
Health, Inc. (the "Company") will be held on [WEEKDAY, DATE] at [TIME], local
time, at [LOCATION], to consider and act upon three proposals (the "Investment
Proposals") related to the Securities Purchase and Sale Agreement dated as of
May 2, 1995 between the Company and Manor Healthcare Corp. ("Manor Healthcare"),
as it may be amended from time to time (the "Purchase Agreement"). A copy of the
Purchase Agreement as presently in effect is attached as Appendix I to the
enclosed Proxy Statement. The Investment Proposals are summarized as follows:
1. To approve the Purchase Agreement and the transactions on the part of
the Company thereunder, including the issuance and sale to Manor
Healthcare of approximately 6,440,000 shares of Common Stock, 200,000
shares of Series A Preferred Stock and a three-year warrant to purchase
up to 6,000,000 additional shares of Common Stock (Proposal One);
2. To approve an amendment to Article III of the Articles of Incorporation
of the Company to provide that the Board of Directors, in designating the
voting rights of any series of preferred stock, may provide that shares
of preferred stock have voting rights equal to the number of shares of
Common Stock into which they are convertible (Proposal Two);
3. To approve amendments to the Company's 1987 and 1995 Stock Option Plans
to: (i) provide that the options of non-employee directors of the Company
will vest upon a change in control of the Company; (ii) increase the
total number of shares of Common Stock available under the 1995 Stock
Option Plan from 650,000 to 1,300,000 in order to permit the granting of
options for an aggregate 650,000 shares to five officers or employees of
the Company as of the closing of the Purchase Agreement; and (iii) impose
a limit of 300,000 shares that can be issued to any participant under
each Plan during any fiscal year (Proposal Three).
THE APPROVAL OF EACH INVESTMENT PROPOSAL IS CONTINGENT UPON THE APPROVAL OF
ALL INVESTMENT PROPOSALS. UNLESS ALL INVESTMENT PROPOSALS ARE APPROVED BY THE
STOCKHOLDERS AT THE SPECIAL MEETING, NONE OF THE PROPOSALS WILL BE EFFECTED BY
THE COMPANY. Holders of record of shares of Common Stock of the Company at the
close of business on [RECORD DATE] are entitled to notice of and to vote at the
Special Meeting and any adjournments thereof.
By Order of the Board of Directors,
Kenneth J. Figge, SECRETARY
Minneapolis, Minnesota
[MAILING DATE]
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE SIGN AND
DATE THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
Proxies are revocable at any time prior to the time they are voted, and
stockholders who are present at the Special Meeting may withdraw their proxies
and vote in person if they so desire.
<PAGE>
IN HOME HEALTH, INC.
CARLSON CENTER, SUITE 500
601 LAKESHORE PARKWAY
MINNETONKA, MINNESOTA 55305-5214
------------------------
PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
[MEETING DATE]
------------------------
INTRODUCTION
This Proxy Statement is furnished by the Board of Directors of In Home
Health, Inc. (the "Company") in connection with the solicitation of proxies to
be voted at a Special Meeting of Stockholders which will be held at [LOCATION]
at [TIME], local time, on [WEEKDAY], [DATE], and at any adjournments thereof
(the "Special Meeting") for the purpose of submitting to a vote of the
stockholders the proposals described in the attached Notice of Special Meeting
(the "Investment Proposals"). This Proxy Statement and the accompanying form of
proxy are being mailed to stockholders on or about [MAILING DATE].
Shares represented by properly executed proxies received prior to or at the
Special Meeting, unless such proxies have been revoked, will be voted in
accordance with the instructions indicated in the proxies. If no instructions
are indicated on a properly executed proxy of the Company, the proxy will be
voted in accordance with the recommendations of the Board of Directors.
A stockholder may revoke a proxy at any time before it is exercised by
filing with the Secretary of the Company a written revocation or a duly executed
proxy bearing a later date or by voting in person at the Special Meeting. Any
written notice revoking a proxy should be sent to the attention of Kenneth J.
Figge, Secretary, In Home Health, Inc., Carlson Center, Suite 500, 601 Lakeshore
Parkway, Minnetonka, Minnesota 55305-5214.
The cost of soliciting proxies will be borne by the Company. The Company
expects to solicit proxies by mail, but directors, officers, and regular
employees of the Company may also solicit in person or by telephone, facsimile
or mail. The Company has retained [SOLICITING COMPANY] to assist in the
solicitation for a fee estimated at [FEE] plus reasonable expenses. The Company
may also reimburse brokers, nominees, fiduciaries or other custodians their
reasonable expenses for sending proxy material to, and obtaining instructions
from, persons for whom they hold Common Stock of the Company.
1
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TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTION......................................................................... 1
TABLE OF CONTENTS.................................................................... 2
SUMMARY.............................................................................. 3
VOTING SECURITIES AND PRINCIPAL HOLDERS.............................................. 8
INVESTMENT PROPOSALS................................................................. 9
Background of the Investment Proposals............................................. 9
Reasons for the Purchase Agreement Transactions.................................... 11
Board of Directors Recommendations................................................. 11
Opinion of Financial Advisor....................................................... 12
Description of the Investment by Manor Healthcare.................................. 16
Common Stock Investment by Manor Healthcare...................................... 16
Company Self-Tender Offer........................................................ 16
Purchase of Series A Preferred Stock............................................. 16
Stock Purchase Warrant........................................................... 18
Registration Rights Agreement.................................................... 18
Description of the Purchase Agreement.............................................. 19
Purchase and Sale of Securities.................................................. 19
Conditions to Closing............................................................ 19
Representations and Warranties; Indemnification.................................. 19
Covenants........................................................................ 20
Conduct of Business Pending Closing.............................................. 20
Termination...................................................................... 21
Company Payments in the Event of Termination..................................... 21
Effects of the Investment on the Company........................................... 21
Use of Proceeds.................................................................. 21
Pro Forma Financial Effect....................................................... 22
Percentage Ownership by Manor Healthcare After Closing........................... 24
Changes to Company Management...................................................... 24
Board of Directors............................................................... 24
Management Personnel............................................................. 25
Post-Closing Covenants........................................................... 27
Future Arrangements.............................................................. 27
Source of Funds.................................................................... 27
Information Concerning Manor Healthcare............................................ 27
PROPOSAL 1 -- APPROVAL OF PURCHASE AGREEMENT......................................... 29
Reasons for Approval............................................................... 29
Control Share Acquisition Act Approval............................................. 29
Required Vote...................................................................... 29
PROPOSAL 2 -- AMENDMENT TO ARTICLES OF INCORPORATION................................. 30
Reasons for the Amendment.......................................................... 30
Required Vote...................................................................... 30
PROPOSAL 3 -- AMENDMENT OF STOCK OPTION PLANS........................................ 31
Reasons for the Amendments......................................................... 31
Summary of the Plans............................................................... 32
Grants of Options.................................................................. 33
Federal Income Tax Treatment....................................................... 33
Required Vote...................................................................... 33
STOCKHOLDER PROPOSALS FOR 1996 ANNUAL MEETING........................................ 34
OTHER MATTERS........................................................................ 34
APPENDIX I -- Securities Purchase and Sale Agreement dated as of May 2, 1995 between
In Home Health, Inc. and Manor Healthcare Corp. .....................
APPENDIX II -- Certificate of Designation for Series A Preferred Stock...............
APPENDIX III -- Opinion of Hambrecht & Quist LLC.....................................
APPENDIX IV -- Manor Healthcare Corp. Information Statement..........................
</TABLE>
2
<PAGE>
SUMMARY
THE FOLLOWING IS A BRIEF SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE
IN THIS PROXY STATEMENT. REFERENCE IS MADE TO, AND THIS SUMMARY IS QUALIFIED IN
ITS ENTIRETY BY, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS
CONTAINED IN THIS PROXY STATEMENT, THE APPENDICES HERETO AND DOCUMENTS REFERRED
TO HEREIN.
<TABLE>
<S> <C>
PARTIES TO THE PURCHASE AGREEMENT:
In Home Health, Inc. .............. In Home Health, Inc., a Minnesota corporation (the
"Company"), provides health care services to clients
of all ages in their homes. Since its organization in
1984, the Company has grown to 41 offices in 19
geographic markets throughout the United States. The
Company provides a variety of services which include
skilled nursing, infusion therapy and hospice,
rehabilitation and personal care.
The Company's executive offices are located at Carlson
Center, Suite 500, 601 Lakeshore Parkway, Minnetonka,
Minnesota 55305-5214 and its telephone number is (612)
449-7500.
Manor Healthcare Corp. ............ Manor Healthcare Corp., a Delaware corporation ("Manor
Healthcare"), is a subsidiary of Manor Care, Inc., a
publicly-held corporation with consolidated revenues
of $1.2 billion in its fiscal year ended May 31, 1994,
of which approximately 79% was derived from health
care related services. Manor Healthcare owns, operates
or manages 172 nursing centers (including 10 medical
and physical rehabilitation centers and 15 assisted
living centers) which provide high acuity services,
skilled nursing care, intermediate nursing care,
custodial care and assisted living services,
principally for residents over the age of 65. Manor
Healthcare also owns approximately 82.3% of Vitalink
Pharmacy Services, Inc., a public company that
operates 17 institutional pharmacies in five states.
Manor Healthcare also owns and operates an acute care
general hospital and five nursing assistant training
schools.
Manor Healthcare's nursing centers generally provide
five types of services: high acuity services for
persons who require complex medical and physical
rehabilitation services; skilled nursing care for
persons who require 24 hour-a-day professional
services of a registered nurse or a licensed prac-
tical nurse; intermediate care for persons needing
less intensive nursing care; custodial care for
persons needing a minimum level of care; and assisted
living for persons needing some supervision and
assistance with personal care.
Substantially all of Manor Healthcare's nursing
centers are currently certified to receive benefits
provided under Medicare and under programs
administered by the various states to provide medical
assistance to the medically indigent ("Medicaid").
However, Manor Healthcare attempts to locate and
operate its nursing centers in a manner designed to
attract patients who pay directly to the facilities
for services
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3
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<S> <C>
without benefit of any government assistance program.
Patients seeking the services of the nursing centers
come from a variety of sources and are principally
referred by hospitals and physicians.
Manor Healthcare's principal executive offices are
located at 10750 Columbia Pike, Silver Spring,
Maryland 20901 and its telephone number is (301)
681-9400.
SPECIAL MEETING OF THE COMPANY STOCKHOLDERS:
Time, Date and Place............... The Special Meeting will be held at [TIME], local time
on [DATE] at [LOCATION]
Purpose of Special Meeting......... The purpose of the Special Meeting is to consider and
vote upon three related proposals (the "Investment
Proposals"):
(1) The first proposal is to approve the Securities
Purchase and Sale Agreement dated as of May 2, 1995
between the Company and Manor Healthcare (the
"Purchase Agreement"), attached hereto as Appendix I,
and the transactions on the part of the Company
thereunder. The Purchase Agreement provides for an
investment of approximately $41.9 million by Manor
Healthcare in various securities of the Company
including Series A Preferred Stock, a Warrant and
Common Stock of the Company, as set forth in the
Purchase Agreement and summarized in this Proxy State-
ment (the "Investment"). See "Proposal One -- Approval
of Purchase Agreement."
(2) The second proposal is an amendment to Article III
of the Articles of Incorporation of the Company to
make it clear that any series of preferred stock may
have voting rights equal to the number of shares of
Common Stock into which the shares of the preferred
stock are convertible. See "Proposal Two -- Amendment
to Articles of Incorporation."
(3) The third proposal is to approve amendments to the
Company's 1987 and 1995 Stock Option Plans to: (i)
provide that the options of non-employee directors of
the Company will vest upon a change in control of the
Company; (ii) increase the total number of shares of
Common Stock available under the 1995 Stock Option
Plan from 650,000 to 1,300,000 in order to permit the
granting of options for an aggregate 650,000 shares to
five officers or employees of the Company as of the
closing of the transactions contemplated by the
Purchase Agreement; and (iii) impose a limit of
300,000 shares that can be issued to any participant
under each Plan during any fiscal year. See
"Investment Proposals -- Changes to Company Management
-- Management Personnel" and "Proposal Three --
Amendment of Stock Option Plans."
Approval of each Investment Proposal is contingent on
the approval of all Investment Proposals. Unless all
Investment Proposals are approved at the Special
Meeting, and certain other conditions to closing are
met, including the successful completion of a
self-tender offer by the Company, none of the
</TABLE>
4
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<S> <C>
Proposals will be effected by the Company. See
"Investment Proposals -- Description of the Purchase
Agreement -- Conditions to Closing."
Record Date........................ Only holders of record of shares of Common Stock
outstanding as of the close of business on [RECORD
DATE], 1995 (the "Record Date") are entitled to notice
of and to vote at the Special Meeting.
Vote Required for Approval......... Approval of Proposal One will require the affirmative
vote of (i) a majority of the shares of Common Stock
outstanding on the Record Date, and (ii) a majority of
such outstanding shares excluding those held by
officers and directors of the Company. See "Proposal
One -- Approval of Purchase Agreement -- Required
Vote." Approval of Proposal Two will require the
affirmative vote of a majority of the shares of Common
Stock outstanding on the Record Date. See "Proposal
Two -- Amendment to Articles of Incorporation --
Required Vote." Approval of Proposal Three will
require the affirmative vote of a majority of all the
votes present and entitled to vote at the Special
Meeting. See "Proposal Three -- Amendment of Stock
Option Plans -- Required Vote."
Opinion of Financial Advisor
Regarding the Investment.......... The Company's financial advisor, Hambrecht & Quist
LLC, has rendered an opinion to the Board of Directors
of the Company that the transactions contemplated by
the Purchase Agreement are fair, from a financial
point of view, to the Company and its stockholders.
See "Investment Proposals -- Opinion of Financial
Advisor" and the opinion of Hambrecht & Quist LLC
attached hereto as Appendix III.
Board Recommendation............... THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY
RECOMMENDS APPROVAL OF THE INVESTMENT PROPOSALS.
TERMS OF THE INVESTMENT:
Company Self-Tender Offer; Common
Stock Investment by Manor
Healthcare........................ As part of the Investment, Manor Healthcare will
purchase for $3.40 per share approximately 6,440,000
shares of Common Stock. This purchase of Common Stock
will be made concurrently with the closing of a
self-tender offer by the Company for the same number
of shares at $3.40 per share (the "Self-Tender
Offer"), which will be funded out of the proceeds of
the purchase by Manor Healthcare. The terms of the
Self-Tender Offer are described in a Tender Offer
Statement dated , 1995, being mailed to the
stockholders of the Company on or about [MAILING
DATE].
Investment in Series A Preferred
Stock............................. As part of the Investment, Manor Healthcare will
purchase 200,000 shares of Series A Preferred Stock
for $20 million cash. The Series A Preferred Stock
pays cumulative dividends at a rate of 12%, which are
payable, at the Company's
</TABLE>
5
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<S> <C>
option, in cash or in shares of Common Stock. The
Preferred Stock is convertible into 10,000,000 shares
of Common Stock subject to anti-dilution adjustment.
The Series A Preferred Stock votes together with the
Common Stock as if the Series A Preferred Stock had
been fully converted. Thus, each share of Series A
Preferred Stock initially has 50 votes.
Warrant............................ As part of the Investment, Manor Healthcare will
receive a three-year Warrant to purchase up to
6,000,000 shares of Common Stock of the Company at an
exercise price of $3.75 per share (the "Warrant").
EFFECTS ON THE COMPANY:
Ownership by Manor Healthcare in
the Company....................... Upon consummation of the transactions contemplated by
the Purchase Agreement, Manor Healthcare will directly
own approximately 6,440,000 shares of the Common
Stock, 200,000 shares of the Series A Preferred Stock
and a Warrant to acquire up to an additional 6,000,000
shares of the Common Stock of the Company. Manor
Healthcare would then own shares having approximately
63% of the Company's total voting power. Assuming
complete exercise of the Warrant, Manor Healthcare
would hold approximately 70% of the Company's
outstanding voting power.
Post-Closing Operations............ Manor Healthcare has agreed that, for a period of at
least two years following the closing of the Purchase
Agreement: the Company's corporate headquarters will
be maintained in the Minneapolis, Minnesota
metropolitan area (unless otherwise unanimously
approved by the Company's Board of Directors); the
Common Stock of the Company will continue to be
publicly traded; and the Company will continue to
operate in the lines of business in which it currently
engages.
Effects on Management of the
Company........................... Upon consummation of the Investment, the conditional
resignations of two directors of the Company (S.
Marcus Finkle and Sheldon Lieberbaum) will become
effective and the Company's Board of Directors will be
expanded to seven members, four of which have been
designated by Manor Healthcare, as described under
"Investment Proposals -- Changes to Company
Management." At the same time Mark Gildea, an officer
of Manor Healthcare, will become Chief Executive
Officer and a director of the Company. Judy Figge will
continue as President and will be named as Chairperson
of the Board of Directors of the Company. Ms. Figge
and Kenneth Figge, the Company's Executive Vice
President and Chief Financial Officer, will each be
employed by the Company pursuant to two-year
employment agreements. Ms. Figge and Mr. Figge will
continue as members of the Company's Board of
Directors. James Lynn, who is also a member of the
Board of Directors, will be offered a two-year
employment agreement. Cathy Reeves, the Company's Vice
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6
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<S> <C>
President of Operations, and Margaret Maxon, the
Company's Vice President of Customer Relations, will
each be offered one-year employment agreements by the
Company. See "Investment Proposals -- Changes to
Company Management -- Management Personnel."
CLOSING:
Conditions to Closing.............. Consummation of the Investment and the Self-Tender
Offer by the Company is conditioned upon the
fulfillment of certain conditions set forth in the
Purchase Agreement. These include completion of the
Self-Tender Offer by the Company pursuant to which at
least 5,635,000 shares of Common Stock shall have been
tendered and accepted for purchase, approval of the
Investment Proposals at the Special Meeting, the
completion of requirements under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, the continuing
accuracy of the representations of the parties made in
the Purchase Agreement, the performance of the
obligations of each party under the Purchase
Agreement, and the absence of threatened or pending
litigation challenging the transaction. The Purchase
Agreement may be terminated prior to closing in a
number of circumstances: by mutual consent of the
Company and Manor Healthcare; if the transaction is
not completed by September 15, 1995; if any required
regulatory approval is denied or if any governmental
entity enjoins or prohibits the consummation; if the
stockholders of the Company fail to approve the
Purchase Agreement; or if a party materially breaches
the Purchase Agreement and does not cure such breach
within 10 business days after receipt of proper notice
of such breach. See "Investment Proposals --
Description of the Purchase Agreement."
Closing Date....................... The Closing is expected to be held on the second
business day following the satisfaction or waiver of
all of the conditions to Closing, unless otherwise
agreed.
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7
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VOTING SECURITIES AND PRINCIPAL HOLDERS
Only holders of record of the Company's Common Stock, par value $.01 (the
"Common Stock"), at the close of business on [RECORD DATE] (the "Record Date")
are entitled to vote at the Special Meeting. As of the close of business on
[RECORD DATE], there were outstanding 16,102,105 shares of Common Stock. Such
shares are each entitled to one vote.
The following table presents information provided to the Company as to the
beneficial ownership of the Common Stock as of [RECORD DATE] by persons known to
the Company to hold 5% or more of such stock and by all directors and executive
officers as of the end of the last fiscal year and by all current directors and
executive officers as a group. All shares represent sole voting and investment
power, unless indicated to the contrary. Some officers and directors of the
Company may tender all or a portion of their shares in connection with the
Self-Tender Offer.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENT OF
OF BENEFICIAL OWNER OWNERSHIP SHARES
- ------------------------------ ------------------ -----------
<S> <C> <C>
Judy M. Figge (1)(2)(3) 652,172(4)(5) 4.0%
Kenneth J. Figge (2)(3) 406,150(4)(5) 2.5%
S. Marcus Finkle (2) 134,100(5) *
Sheldon Lieberbaum (2) 34,100(5) *
James J. Lynn (2) 70,860(5) *
Cathy R. Reeves (3) 72,869(5) *
Harry W. Alcorn, Jr. (3) 32,500(5) *
Wesley N. Perry (3) 41,874 *
All Current Directors and
Executive Officers as a Group
(7 persons) 1,390,216(5) 8.5%
<FN>
- ------------------------
* Less than one percent
(1) Ms. Figge's business address is Carlson Center, Suite 500, 601 Lakeshore
Parkway, Minnetonka, Minnesota 55305-5214.
(2) Director of the Company.
(3) Executive officer named in Summary Compensation Table of the proxy
statement for the Company's 1995 Annual Meeting. Mr. Perry resigned as an
officer in November of 1994.
(4) Kenneth J. Figge is the husband of Judy M. Figge. Their respective holdings
of Company Common Stock listed above do not reflect the other's holdings,
as each of Ms. Figge and Mr. Figge disclaim beneficial ownership of the
other's shares of Company Common Stock.
(5) Includes 85,500 shares for Ms. Figge, 52,300 shares for Mr. Figge, 14,100
shares for each of Messrs. Finkle and Lieberbaum, 44,100 shares for Mr.
Lynn, 54,500 shares for Ms. Reeves, 32,500 shares for Mr. Alcorn and
284,150 shares for all current directors and officers as a group which may
be acquired within sixty days upon exercise of outstanding stock options.
Does not include options to purchase 300,000 shares to be granted to Ms.
Figge, 200,000 shares to be granted to Mr. Figge, and 50,000 shares to be
granted to each of Mr. Lynn, Ms. Reeves and Margaret Maxon, effective upon
closing of the Purchase Agreement. Also does not include an additional
20,900 shares for each of Messrs. Finkle and Lieberbaum that will become
exercisable upon the approval of Proposal Three at the Special Meeting.
</TABLE>
8
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INVESTMENT PROPOSALS
CERTAIN ASPECTS OF THE INVESTMENT PROPOSALS ARE SUMMARIZED BELOW. THIS
SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE PURCHASE AGREEMENT AND OTHER APPENDICES TO THIS PROXY
STATEMENT, EACH OF WHICH IS HEREBY INCORPORATED HEREIN BY REFERENCE.
STOCKHOLDERS ARE URGED TO READ THE APPENDICES TO THIS PROXY STATEMENT IN THEIR
ENTIRETY.
THE APPROVAL OF EACH INVESTMENT PROPOSAL IS CONTINGENT ON THE APPROVAL OF
ALL INVESTMENT PROPOSALS. UNLESS ALL INVESTMENT PROPOSALS ARE APPROVED BY THE
STOCKHOLDERS AT THE MEETING, ALL INVESTMENT PROPOSALS WILL BE DEEMED TO HAVE
BEEN REJECTED BY THE STOCKHOLDERS.
BACKGROUND OF THE INVESTMENT PROPOSALS
The background of the proposed Purchase Agreement with Manor Healthcare
involves the Company's participation in the Medicare program, which accounted
for 74%, 73% and 68% of the Company's revenues in its fiscal years ended
September 30, 1994, 1993 and 1992, respectively. While these percentages are
higher than the Company would prefer, the Company has not been able to reduce
the relative proportion of its Medicare business because of the very high
percentage of home health service recipients who are Medicare beneficiaries and
the impracticality of refusing Medicare patients referred to the Company by
valued referral sources.
The Medicare program's method for paying for home health services, unlike
that for inpatient hospital services, is based on cost reimbursement. Under this
system, the Medicare program pays the portion of the provider's costs which it
believes are allowable under Medicare regulations and not in excess of certain
ceilings. Thus for a significant portion of its overall business, namely the
Medicare portion, the Company cannot establish in advance a price for a
particular service or services. Instead, to recognize revenue under the Medicare
program, the Company keeps detailed accounting records as to its costs and each
fiscal year submits a cost report, based on incurred expenses believed to be
reimbursable, to one of the fiscal intermediaries (typically members of the Blue
Cross Association or insurance companies) who administer the Medicare program
for home health services. Pursuant to generally accepted accounting principles,
the Company recognizes revenue for services to Medicare beneficiaries at the
time it provides the services and incurs the costs that it believes are
reimbursable.
The cost reports submitted by home health providers to the Medicare fiscal
intermediaries are subject to audit and retroactive adjustment or disallowance,
and these procedures often occur years after the cost report was filed. If the
fiscal intermediary believes that the provider has been overpaid, the amount of
the alleged overpayment is setoff from undisputed payments owed to the provider
for subsequent years. While the provider has the right to an administrative
appeal, these appeals often take years to be heard.
While the Company (and to its knowledge, many other providers of home health
services) have always had some disputes concerning Medicare reimbursement,
beginning in fiscal 1993 the magnitude of these disputes began to increase. This
in turn has forced the Company to curtail its growth and to establish reserves
which have substantially eroded the Company's profitability.
During fiscal 1993 and 1994 the Company's Board of Directors became
progressively more concerned about the reductions in the Company's profitability
and in its cash and working capital due to Medicare disputes, and ultimately
concluded that the Company should consider additional financing, a strategic
partnership or a sale of the Company. The Board of Directors was also concerned
that to remain competitive in the face of the continuing integration of the
health care industry it might be advantageous for the Company to enter into some
form of partnership or alliance to broaden the scope of services it could offer.
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The Board authorized the Company to enter into a financial advisory
agreement with Hambrecht & Quist LLC ("Hambrecht & Quist") on September 19, 1994
to investigate these alternatives and on September 21, 1994 the Company issued a
press release to publicly announce the retention of Hambrecht & Quist. The
Company also separately continued very preliminary discussions which had taken
place over an extended period of time with an integrated health care company.
The announcement of the retention of Hambrecht & Quist led to several
preliminary inquiries concerning the possibility of some form of transaction
with the Company. Ultimately eleven entities entered into confidentiality
agreements in order to obtain nonpublic information concerning the Company or to
conduct varying degrees of "due diligence" inquiries. In March 1995 nonbinding
"indication of interest" letters were received from two companies other than
Manor Healthcare, both of which already had a substantial presence in the home
health industry. One of these firms proposed discussions concerning an
acquisition of all the Company's outstanding Common Stock for $2.65 per share in
cash, and the other proposed discussion of an acquisition of all outstanding
Common Stock for a price in the $2.75 to $3.25 per share range, payable entirely
in the form of stock of the acquiring entity.
In March an indication of interest was also received from Manor Healthcare,
and this led to a presentation by Manor Healthcare representatives to the
Company's Board of Directors on April 5, 1995. The Board of Directors concluded
from this presentation that there might be a good strategic fit between Manor
Healthcare and the Company for several reasons. Manor Healthcare was not
providing home health services and was anxious to enter that field to complement
its existing business. The Company's Board of Directors believed that this might
lead Manor Healthcare to be willing to provide more value to Company
stockholders than would a firm that was already in the industry and simply
seeking to increase its market share. Manor Healthcare's parent corporation was
well established and had a strong balance sheet. It also was interested in a
strategic partnership, rather than a complete acquisition. The Company's Board
of Directors found this attractive in that it might allow both liquidity for the
Company's stockholders who wished to sell all or a portion of their shares and a
continued investment opportunity in a potentially stronger Company for those who
continue as Company stockholders. Thus the Company's Board of Directors decided
to pursue further discussions with Manor Healthcare's representatives.
On April 18, 19 and 20 representatives of the Company and Manor Healthcare
met in New York City to continue negotiations concerning a possible transaction.
On April 24, 1995 the Company's Board of Directors met in Minneapolis to review
the status of the negotiations and outstanding issues. A representative of
Hambrecht & Quist participated in these discussions. At that meeting the Board
appointed a Special Committee consisting of S. Marcus Finkle and Sheldon
Lieberbaum (the Company's two non-employee directors) to be ready to evaluate
any definitive offer. The Company was advised that the Board of Directors of
Manor Healthcare's parent corporation met later that week on April 27, 1995 and
approved making an offer to the Company.
The Special Committee of the Company's Board of Directors met by conference
telephone call on Monday, May 1, 1995 to discuss Manor Healthcare's now
definitive proposal and to consult with a representative of Hambrecht & Quist.
There was considerable discussion and Hambrecht & Quist orally opined that the
proposed transaction was fair to the Company and its stockholders from a
financial point of view. The Special Committee unanimously resolved to approve
the proposed transaction and recommend it to the Company's Board of Directors.
On May 2, 1995 the Company's Board of Directors met in Minneapolis (with
Messrs. Finkle and Lieberbaum participating by telephone conference call) and
unanimously approved the proposed transaction and the Purchase Agreement. Later
that day the Purchase Agreement was signed. The conditional employment
agreements of Mr. Figge and Mr. Figge and conditional resignations of Mr. Finkle
and Mr. Lieberbaum (all of which become effective only if and when the Purchase
Agreement is closed) were also executed on May 2, 1995 as required by the
Purchase Agreement.
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REASONS FOR THE PURCHASE AGREEMENT TRANSACTIONS
The reasons for the Company's Board of Directors authorizing the Purchase
Agreement and proposed transactions thereunder and recommending them to the
Company's stockholders include the following:
(i) the proposed transactions would provide substantial new cash and
working capital to the Company which, among other things, should allow it to
grow more quickly;
(ii) the proposed transactions would provide a means for stockholders
who wish to sell all or a portion of their Company holdings to do so, in
whole or in part, at a premium to recent market prices;
(iii) the proposed transactions would bring the Company into a strategic
relationship with a large and financially strong partner in a closely
related segment of the health care industry, which the Board of Directors
believes will give the Company opportunities to offer its services to a
large group of new potential patients; and
(iv) the proposed transactions would, in the opinion of the Board of
Directors, strengthen the Company's general competitive position in the
ongoing consolidation of the U.S. health care industry.
BOARD OF DIRECTORS RECOMMENDATIONS
The Board of Directors has reviewed and considered the terms and conditions
of the Investment Proposals and believes that the Investment Proposals are fair
to, and are advisable and in the best interests of, the Company and its
stockholders and has unanimously approved the Investment Proposals and
unanimously recommends that stockholders vote for approval of the Investment
Proposals. The Company's directors and executive officers (who currently hold
Common Stock representing in the aggregate less than 10% of the Company's
outstanding Common Stock) have indicated that they intend to vote all shares of
voting stock over which they exercise voting power as of the close of business
on the Record Date in favor of approval of the Investment Proposals.
The Board of Directors, in recommending that the stockholders of the Company
approve the Investment Proposals, considered the reasons outlined above and a
number of factors, including (a) the current business and prospects of the
Company, the financial and operational condition of the Company and the
long-term strategy of the Company; (b) the substantial increase in the Company's
available cash and access to capital that will occur as a result of Manor
Healthcare's Investment and the resulting increased ability of the Company to
take advantage of strategic opportunities which may be available from time to
time and to generally strengthen its competitive position in the home health
care services industry; (c) the terms of the Purchase Agreement and other
documents relating to the Investment Proposals; (d) the extent of independence
that the Company will retain following the consummation of the transactions
contemplated by the Purchase Agreement; (e) the alternatives to Manor
Healthcare's Investment in the Company, including alternative public or private
financing and seeking an alternative investor; (f) the written opinion of
Hambrecht and Quist to the effect that the consideration to be received by the
Company in the Investment is fair to the Company and its stockholders from a
financial point of view; (g) that the closing of the transactions contemplated
by the Purchase Agreement is conditioned upon approval by the Company's
stockholders of the Investment Proposals; (h) certain consequences that could
result from the transactions contemplated by the Investment Proposals that are
described below under "Effects of the Investment on the Company;" and (i)
certain possible implications of the Company having a single controlling
stockholder, including potential conflicts of interest and the potential
discouraging effect on other transactions.
THE BOARD OF DIRECTORS BELIEVES THAT THE INVESTMENT PROPOSALS ARE FAIR TO,
AND ARE ADVISABLE AND IN THE BEST INTERESTS OF, THE COMPANY AND ITS STOCKHOLDERS
AND HAS UNANIMOUSLY APPROVED THE INVESTMENT PROPOSALS AND UNANIMOUSLY RECOMMENDS
THAT THE STOCKHOLDERS OF THE COMPANY VOTE "FOR" APPROVAL OF THE INVESTMENT
PROPOSALS.
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The Board of Directors reserves its right, pursuant to the Purchase
Agreement, to amend or waive the provisions of the Purchase Agreement and the
other documents related thereto in all respects before or after approval of the
Investment Proposals by the Company's stockholders. In addition, the Board of
Directors reserves the right to terminate the Purchase Agreement in accordance
with its terms notwithstanding stockholder approval.
OPINION OF FINANCIAL ADVISOR
The Company engaged Hambrecht & Quist to act as its financial advisor in
connection with the Company's review of strategic and financial planning
matters. Hambrecht & Quist was subsequently engaged to render an opinion as to
the fairness from a financial point of view of the Investment to the Company and
its stockholders. Hambrecht & Quist undertook a presentation to the Special
Committee of the Board of Directors on May 1, 1995 and to the entire Board of
Directors on May 2, 1995 and rendered its oral opinion (subsequently confirmed
in writing) that, as of such date, the Investment was fair to the holders of
Common Stock from a financial point of view. For purposes of its opinion,
Hambrecht & Quist defined the Investment as collectively: (i) the purchase by
Manor Healthcare of an aggregate of approximately 6,440,000 shares of Common
Stock for $3.40 per share in cash, (ii) the purchase by Manor Healthcare for $20
million of 200,000 shares of Series A Preferred Stock, which are convertible
into an aggregate of 10,000,000 shares of Common Stock, and a three-year Warrant
to purchase up to 6,000,000 shares of Common Stock at a purchase price of $3.75
per share, and (iii) the Self-Tender Offer by the Company for approximately
6,440,000 shares of Common Stock at a cash purchase price of $3.40 per share.
A COPY OF HAMBRECHT & QUIST'S OPINION DATED MAY 2, 1995 WHICH SETS FORTH THE
ASSUMPTIONS MADE, MATTERS CONSIDERED, THE SCOPE AND LIMITATIONS OF THE REVIEW
UNDERTAKEN AND THE PROCEDURES FOLLOWED BY HAMBRECHT & QUIST IS ATTACHED AS
APPENDIX III TO THIS PROXY STATEMENT. THE COMPANY'S STOCKHOLDERS ARE ADVISED TO
READ THE OPINION IN ITS ENTIRETY. No limitations were placed on Hambrecht &
Quist by the Special Committee of the Board of Directors of the Company with
respect to the investigation made or the procedures followed in preparing and
rendering its opinion. Stockholders should note that the opinion was provided
solely for the use of the Board of Directors of the Company in its evaluation of
the Investment and was not on behalf of, and was not intended to confer rights
or remedies upon Manor Healthcare, any security-holder of the Company or Manor
Healthcare, or any person other than the Company's Board of Directors.
In its review of the Investment, and in arriving at its opinion, Hambrecht &
Quist, among other things, (i) reviewed the publicly available consolidated
financial statements of the Company for recent years and interim periods to date
and certain other relevant financial and operating data of the Company made
available to Hambrecht & Quist from the internal records of the Company; (ii)
discussed with certain members of the management of the Company the business,
financial condition and prospects of the Company; (iii) reviewed certain
financial and operating information, including certain projections provided by
the management of the Company, relating to the Company, and discussed such
projections with certain members of the management of the Company; (iv) reviewed
publicly available consolidated financial statements of Manor Healthcare for
recent years and interim periods to date; (v) discussed with certain members of
the management of Manor Healthcare the business, financial condition and
prospects of Manor Healthcare; (vi) reviewed the recent reported prices and
trading activity for the Common Stock of the Company and Manor Care, Inc. and
compared such information and certain financial information of the Company and
Manor Care, Inc. with similar information for certain other companies engaged in
businesses we considered comparable to those of the Company and Manor
Healthcare; (vii) discussed with parties other than Manor Healthcare the
possibility of a transaction or series of transactions involving a business
combination with the Company; (viii) reviewed the terms, to the extent publicly
available, of certain comparable transactions; (ix) reviewed the Purchase
Agreement; and (x) performed such other analyses and examinations and considered
such other information, financial studies, analyses and investigations and
financial, economic and market data as Hambrecht & Quist deemed relevant.
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Hambrecht & Quist did not assume any responsibility for independent
verification of any of the information concerning the Company or Manor
Healthcare considered in connection with its review of the Investment and, for
purposes of its opinion, assumed and relied upon the accuracy and completeness
of all such information. Hambrecht & Quist did not prepare or obtain any
independent evaluation or appraisal of any of the assets or liabilities of the
Company or Manor Healthcare, nor did they conduct a physical inspection of the
properties and facilities of the Company or Manor Healthcare. With respect to
the financial forecasts and projections made available to Hambrecht & Quist and
used in their analyses, Hambrecht & Quist assumed that they reflected the best
currently available estimates and judgments of the expected future financial
performance of the Company or Manor Healthcare. Hambrecht & Quist assumed that
neither the Company nor Manor Healthcare was a party to any pending
transactions, including external financings, recapitalizations or merger
discussions, other than the Investment and those in the ordinary course of
conducting their respective businesses. Hambrecht & Quist's opinion was
necessarily based upon market, economic, financial and other conditions as they
existed and could be evaluated as of the date of the opinion, and any change in
such conditions would require a reevaluation of such opinion. Hambrecht & Quist
expressed no opinion as to the price at which the Company's Common Stock would
trade subsequent to the Closing.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant quantitative methods of financial analyses and
the application of those methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to summary description. Accordingly,
in arriving at its opinion, Hambrecht & Quist did not attribute any particular
weight to any analysis or factor considered by it, but rather made qualitative
judgments as to the significance and relevance of each analysis and factor. No
company or transaction used in Hambrecht & Quist's analyses is identical to the
Company, Manor Healthcare or the Investment. Accordingly, the analyses performed
by Hambrecht & Quist were not purely mathematical; rather they involved complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the public
trading values of the companies or company to which they are compared.
Accordingly, Hambrecht & Quist believes that its analyses and the summary set
forth below must be considered as a whole and that selecting portions of its
analyses, without considering all analyses, or of the summary, without
considering all factors and analyses, could create an incomplete view of the
processes underlying the analyses set forth in the Hambrecht & Quist
presentation to the Company's Board and its opinion. In performing its analyses,
Hambrecht & Quist made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many of
which are beyond the control of the Company and Manor Healthcare (including the
maintenance of government and private sector reimbursement practices and the
absence of any macroeconomic dislocations as evidenced by unusually high
unemployment or inflation). The analyses performed by Hambrecht & Quist (and
summarized below) are not necessarily indicative of actual values or actual
future results, which may be significantly more or less favorable than suggested
by such analyses. Additionally, analyses relating to the values of businesses do
not purport to be appraisals or to reflect the prices at which businesses
actually may be sold.
COMPARABLE PUBLIC COMPANY ANALYSIS. Hambrecht & Quist compared selected
historical and projected financials, operating and stock market performance data
of the Company to the corresponding data of certain publicly traded health
services companies that Hambrecht & Quist considered comparable based on market
value and strategic focus. Comparisons were analyzed for the following companies
in the home healthcare business (the "Home Healthcare Group"): Abbey Healthcare
Group, Inc., American HomePatient, Inc., Caretenders Health Corp., Homedco
Group, Inc., Hooper Holmes, Inc., Interim Services, Inc., Lincare Holdings,
Inc., Olsten Corp. Pediatric Services of America, Inc., Rotech Medical Corp.,
Staff Builders, Inc., and Transworld Home Healthcare, Inc. For each of the
foregoing companies, Hambrecht & Quist analyzed the equity market value of each
company as a multiple of last twelve months' net income, 1994 net income, 1995
estimated net income, and 1996 forecasted net income, and Hambrecht & Quist
analyzed the enterprise value of each company (calculated as market equity value
plus preferred stock and long-term debt minus cash)
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as a multiple of each company's last twelve months' and latest quarter
annualized revenues, EBIT (earnings before interest and taxes) and EBITDAR
(earnings before interest, taxes, depreciation, amortization and rent). All
multiples were based on closing stock prices on April 27, 1995. All forecasted
data for such comparable companies were based on publicly-available independent
estimates by selected investment banking firms. Specifically, the average last
twelve months' net income multiple for the comparable companies implied an
equity value for the Company of less than zero (in view of the Company's
historic losses); the average 1994 net income multiple for the comparable
companies implied an equity value for the Company of $5.8 million; the average
1995 net income multiple for the comparable companies implied an equity value
for the Company of $35.9 million; and the average 1996 net income multiple for
the comparable companies implied an equity value for the Company of $38.3
million. The average last twelve months' net revenue multiple implied an
enterprise value for the Company of $203.0 million; the average annualized
latest quarter net revenue multiple implied an enterprise value for the Company
of $182.5 million; the average last twelve months' EBITDAR multiple implied an
enterprise value for the Company of $82.2 million; the average annualized latest
quarter EBITDAR multiple implied an enterprise value for the Company of $105.7
million; the average last twelve month's EBIT multiple implied an enterprise
value for the Company of $21.6 million; the average annualized latest quarter
EBIT multiple implied an enterprise value for the Company of $66.4 million.
Hambrecht & Quist noted that the Company and the comparable companies tended to
trade as a function of earnings in general and forecasted earnings in
particular, thus making the revenue multiples a less reliable indicia of value.
The foregoing implied values were compared with a valuation of the Company of
approximately $55.2 million as implied by the self-tender price of $3.40 per
share and a valuation of approximately $66.5 million as implied by the purchase
by Manor Healthcare of 16.4 million shares (assuming conversion of the Series A
Preferred Stock) of Common Stock for approximately $41.9 million. Hambrecht &
Quist also noted that the 1995 estimated net income multiples implied a value of
$2.22 per share of the Company's Common Stock based on management's estimates of
the likely results for 1995; Hambrecht & Quist noted that the current trading
price of the Company common stock represented a 24% premium to such implied
value and the self-tender price represented a 53% premium to such implied value.
SELECTED ACQUISITIONS ANALYSIS. Using publicly-available information,
Hambrecht & Quist analyzed the purchase prices and transaction values (as equity
value multiples of net income, tangible book value, cash flow from operations,
and as enterprise value multiples of revenue, EBIT, EBDIT (earnings before
depreciation, interest and taxes), and net operating assets) in the following
selected completed and pending merger and acquisition transactions in the health
services industry in 1994 and 1995: Lincare Holdings, Inc./Coram Healthcare
Corp., Continental Medical Systems, Inc./Horizon Healthcare Corp., Diagnostek,
Inc./Value Health, Inc., Abbey Healthcare Group, Inc./Homedco Group, Inc.,
Caremark, Inc. (infusion)/Coram Healthcare Corp., Hillhaven Corp./Horizon
Healthcare Corp., Southern Health Management Corp./TheraTx, Inc., Mariner Health
Group, Inc./Convalescent Services, Inc., Pharmacy Management Services,
Inc./Beverly Enterprises, Inc., Advacare, Inc./ Medaphis Corp., Salick Health
Care, Inc./Zeneca Group PLC, Medstat Group, Inc./Thomson Corp., American Medical
Holdings Inc./National Medical Enterprises Inc., Healthtrust Inc./Columbia-HCA
Healthcare Corp., CareNetwork Inc./Humana Inc., Relife, Inc./Healthsouth
Rehabilitation Corp., Nichols Institute/Corning, Inc., GenCare Health Systems,
Inc./United HealthCare Corp., Intergroup Healthcare Corp./Foundation Health
Corp., Hallmark Healthcare Corp./Community Health Systems, Inc., Community Care
Network, Inc./Value Health Inc., Allied Clinical Laboratories, Inc./National
Health Laboratories Inc., Home Nutritional Services, Inc./W.R. Grace & Co.,
Ramsay-HMO Inc./ United HealthCare Corp., Providence Health Care Inc./The
Multicare Companies, Inc., Coordinated Medical Services Inc./Healthsource, Inc.,
Complete Health Services Inc./United HealthCare Corp., T2 Medical, Inc./Coram
Healthcare Inc., HealthInfusion, Inc./Coram Healthcare Inc., Curaflex Health
Services, Inc./Coram Healthcare Inc., Medisys, Inc./Coram Healthcare Inc.,
Critical Care America, Inc./Caremark International Inc., TakeCare Inc./FHP
International Corp., EPIC Healthcare Group, Inc./HealthTrust Inc., Pinnacle Care
Corp./Mariner Health Group, Inc., and Mediplex Group Inc./Sun Healthcare Group,
Inc. Specifically, the average last twelve months' net income multiple for the
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comparable transactions implied an equity value for the Company of less than
zero (in view of the Company's historic losses); the average tangible book value
multiple for the comparable transactions implied an equity value for the Company
of $85.0 million; the average operating cash flow multiple for the comparable
transactions implied an equity value for the Company of $16.1 million. The
average last twelve months' net revenue multiple for comparable transactions
implied an enterprise value for the Company of $203.0 million; the average last
twelve months' EBITDA multiple for comparable transactions implied an enterprise
value for the Company of $94.0 million; the average last twelve months' EBIT
multiple for comparable transactions implied an enterprise value for the Company
of $16.4 million; the average net operating asset multiple for comparable
transactions implied an enterprise value for the Company of $92.0 million.
PRIVATE PLACEMENT DISCOUNT ANALYSIS. Hambrecht & Quist reviewed
publicly-available data regarding the private placement of equity securities by
31 publicly-traded companies in 1993 and 1994. It was noted that purchasers of
such private placements typically acquired the securities at an average discount
of 26% (before placement fees) to the public market price at the time of the
purchase and that in many such transactions issuers had undertaken to provide
freely-tradable securities to the purchasers within a short period of time.
Hambrecht & Quist observed that it was unlikely that the Company would have been
capable of privately placing $20 million of equity securities with typical
institutional purchasers in any event, but if it were able to do so the
foregoing data suggested that such equity would have to be freely-tradable in
the near-term and have to be sold at a price ranging from $1.66 to $1.86 per
share. This compared with the purchase price paid by Manor Healthcare of $2.00
per share (on an as-converted basis), which is a premium of 7% to 21% over such
expected range.
WARRANT VALUATION ANALYSIS. Hambrecht & Quist analyzed the Warrant to be
purchased by Manor Healthcare. Under the Black-Scholes option valuation formula
the value of a warrant for a single share of Common Stock would be from $0.37 to
$1.02, depending on the measure which was used of the Company's Common Stock
volatility. Thus under the Black-Scholes formula the value of the Warrant would
range from $2.2 million to $6.1 million. Hambrecht & Quist observed that, since
the Warrant would be less liquid than a typical freely tradeable option, its
valuation would likely be lower than the Black-Scholes formula would indicate.
STOCK TRADING HISTORY ANALYSIS. Hambrecht & Quist examined the history of
the trading prices and volume of the shares of the Common Stock, and the
relationship between movement in the prices of such shares and movements in
certain stock indices and certain indices derived from the Home Healthcare Group
during the period from April 28, 1994 to April 28, 1995. Such data was used to
analyze the historical public market valuation of the Company as compared with
the historic public market valuation of the companies comprising the Home
Healthcare Group. At any given point in the period, such data indicated whether
the Company's value was higher or lower relative to such blended indices. For
such period, the Common Stock under-performed on a relative basis the public
stocks comprising the Home Healthcare Group and the Nasdaq composite index.
Similarly, Hambrecht & Quist examined the history of the trading prices and
volume of the shares of the Common Stock of Manor Care, Inc., and the
relationship between movement in the prices of such shares and movements in
certain stock indices and certain indices derived from a compilation of
comparable nursing and extended care companies (the "Nursing Group") during the
period from April 28, 1994 to April 28, 1995. Hambrecht & Quist noted that Manor
Care, Inc. had appreciated 23% from January 1, 1994 to April 17, 1995, as
compared with an appreciation of 16% for the Nursing Group; the Company had
appreciated 7% from January 1, 1994 to April 27, 1995, as compared with an
appreciation of 75% for the Home Healthcare Group. Accordingly, Hambrecht &
Quist observed that Manor Care, Inc. was operated in a fashion in which the
public market valued it more than comparable companies and that the Investment
may permit the Company to exploit certain management skills from Manor
Healthcare for the benefit of its own stockholders.
GENERAL. The foregoing description of Hambrecht & Quist's opinion is
qualified in its entirety by reference to the full text of such opinion, which
is attached at Appendix III to this Proxy Statement.
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Hambrecht & Quist, as part of its investment banking services, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, corporate restructurings, strategic alliances,
negotiated underwritings, secondary distributions of listed and unlisted
securities, private placements and valuations for corporate and other purposes.
Hambrecht & Quist may in the future provide additional investment banking or
other financial advisory services to the Company.
Pursuant to an engagement letter dated September 19, 1994, as supplemented
by a letter dated May 31, 1995, the Company has agreed to pay Hambrecht & Quist
a retainer of $60,000 and a fee (the "Fairness Opinion Fee") of $250,000 (paid
in connection with the delivery of the Fairness Opinion). The Company has also
agreed to pay Hambrecht & Quist a transaction fee (the "Transaction Fee") upon
the Closing of the Purchase Agreement, of $950,000. The Fairness Opinion Fee
shall be credited against the total Transaction Fee. In addition, pursuant to a
Dealer Manager Agreement dated June , 1995, the Company has engaged Hambrecht
& Quist to act as dealer manager in connection with the Self-Tender Offer and
has agreed to pay Hambrecht & Quist a fee of $250,000 for such services. The
Company has agreed to indemnify Hambrecht & Quist against certain liabilities,
including liabilities under the federal securities laws or relating to or
arising out of Hambrecht & Quist's engagement as financial advisor or services
as dealer-manager and related matters. The Company has also agreed to pay
Hambrecht & Quist a nonaccountable expense allowance of $250,000 in connection
with its services related to the Investment and its fairness opinion and to
reimburse certain accountable expenses related to its services as
dealer-manager.
DESCRIPTION OF THE INVESTMENT BY MANOR HEALTHCARE
COMMON STOCK INVESTMENT BY MANOR HEALTHCARE. Pursuant to the terms of the
Purchase Agreement and as part of the Investment, Manor Healthcare will purchase
for $3.40 per share approximately 6,440,000 shares of Common Stock for a total
purchase price of approximately $21.9 million. The terms and conditions of the
purchase are as set forth in the Purchase Agreement attached to this Proxy
Statement as Appendix I.
COMPANY SELF-TENDER OFFER. In connection with the Investment, the Company
is conducting the Self-Tender Offer for approximately 6,440,000 shares of its
Common Stock at an offering price of $3.40 per share. In the event that an
amount of shares of Common Stock less than or greater than 6,440,000 shares are
tendered in the Self-Tender Offer, the Company and Manor Healthcare will
mutually determine whether the Company will accept for purchase such lesser
number of shares or all or any portion of such greater number of shares. To the
extent that the number of shares accepted for purchase in the Self-Tender Offer
is greater than or less than 6,440,000 shares, the number of shares of Common
Stock to be purchased by Manor Healthcare in the Investment will increase or
decrease accordingly. The Company and Manor Healthcare have agreed that the
tendering of at least 5,635,000 shares of Common Stock in the Self-Tender Offer
will be sufficient to permit them to make the mutual determination to proceed
with the completion of the Self-Tender Offer and the concurrent Closing of the
Purchase Agreement. Some officers and directors of the Company may tender all or
a portion of their shares in connection with the Self-Tender Offer. The
Company's Self-Tender Offer will be funded out of the proceeds of the purchase
of Common Stock by Manor Healthcare. The terms of the Self-Tender Offer are
described in a Tender Offer Statement dated [DATE], 1995, being mailed to the
stockholders of the Company on or about [DATE], 1995.
PURCHASE OF SERIES A PREFERRED STOCK. The Company has authorized 1,000,000
shares of preferred stock, $1.00 par value per share, none of which is currently
outstanding. Pursuant to the terms of the Purchase Agreement, Manor Healthcare
will purchase 200,000 shares of the Series A Preferred Stock for a purchase
price of $20 million. The Board of Directors of the Company has adopted a
Certificate of Designation reserving 200,000 shares of the authorized preferred
stock as Series A Preferred Stock. As a condition to the Closing of the Purchase
Agreement, the Company will cause the Certificate of Designation to become
effective. The rights and preferences of the Series A Preferred Stock are
indicated below.
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RANK. With respect to the payment of dividends and the distribution of
assets on liquidation, dissolution and winding up of the Company, the Series A
Preferred Stock ranks senior to the Common Stock and on a parity with or senior
to each other series of preferred stock thereafter issued by the Company.
LIQUIDATION VALUE. The liquidation value of the Series A Preferred Stock is
equal to $100 per share.
DIVIDENDS. Holders of Series A Preferred Stock are entitled to receive when
and as declared by the Board of Directors, cumulative dividends at the rate of
12% of the Liquidation Value per annum, per share, payable in equal quarterly
payments on the business day preceding the last business day of each March,
June, September and December (each, a "Quarterly Dividend Payment Date"),
commencing with the first Quarterly Dividend Payment Date following the Closing.
Dividends shall accrue on a daily basis and shall cumulate from the date of
original issue of the Series A Preferred Stock. Accrued but unpaid dividends
shall accrue as of the Quarterly Dividend Payment Date on which they first
became payable and may be paid in the form of either cash or shares of common
stock having a market value equal to the dividend amount. However, if any
quarterly dividend, redemption payment, repurchase payment, or accrued and
unpaid dividend payment due upon conversion of the Series A Preferred Stock is
not paid when due, then the holders of the Series A Preferred Stock shall be
entitled to additional dividends which shall accrue in respect of such payments
at the rate of 12% of the Liquidation Value per annum, compounded quarterly and
shall be added to such payments. No dividends may be paid to or declared or set
aside for the benefit of holders of any class or series of stock ranking on a
parity with the Series A Preferred Stock in the payment of dividends if at the
time there shall be any current or accumulated cash dividends payable to the
Series A Preferred Stock, unless at the same time a like proportionate dividend,
pro rata based on the annual dividend rates of the Series A Preferred Stock and
such parity stock, shall at the same time be paid to or declared and set aside
for the benefit of holders of the Series A Preferred Stock entitled to receive
such dividend.
LIQUIDATION PREFERENCE. In the event of any liquidation, dissolution or
winding up of the Company, holders of Series A Preferred Stock will be entitled
to receive in preference to holders of any stock ranking junior to the Series A
Preferred Stock, the Liquidation Value of $100 per share plus an amount equal to
all accrued but unpaid dividends thereon on the date of final distribution to
such holders. If, upon any liquidation, dissolution or winding up of the
Company, such payment shall not have been made in full to the holders of all
outstanding shares of Series A Preferred Stock, the holders of Series A
Preferred Stock and all other classes or series of stock of the Company ranking
on a parity therewith in the distribution of assets, shall share ratably in any
distribution of assets in proportion to the full amounts to which they would
otherwise be respectively entitled.
VOTING RIGHTS. The holders of Series A Preferred Stock shall have, in
addition to any voting rights provided by law, the right to vote as a single
class with the Common Stock on an as-if-converted basis. The effect of this
provision is that holders of Series A Preferred Stock will be entitled to cast
50 votes for each share of Series A Preferred Stock, subject to adjustment, as
described below. The holders of shares of Series A Preferred Stock shall have
the right to vote as a separate class on (i) all matters as to which the holders
are entitled to vote under the Minnesota Business Corporation Act; (ii) any
amendment, alteration or repeal of any provision of the Company's Articles of
Incorporation or Certificate of Designation that would adversely affect the
rights, powers or preferences of the Series A Preferred Stock; and (iii) any
proposed creation of a class or series of preferred stock ranking on a parity
with the Series A Preferred Stock as to dividends or on liquidation.
Authorization of any of the foregoing actions requires the affirmative vote of
the holders of at least two-thirds of the outstanding shares of the Series A
Preferred Stock. In addition, the holders of shares of Series A Preferred Stock
shall have the right to vote as a class with the holders of Common Stock on all
matters as to which the holders of Common Stock are entitled to vote. The number
of votes per share which the holders of Preferred Stock may cast shall be
adjusted, upon any change in the Conversion Price as described below, to equal
the number of shares of Common Stock into which it would then be convertible
(whether or not such conversion is restricted or prohibited for any reason).
17
<PAGE>
CONVERSION. Each share of Series A Preferred Stock shall be convertible
(subject to the anti-dilution provisions thereof) at any time at the option of
the holder thereof, unless previously redeemed, into a number of shares of
Common Stock of the Company calculated as described below, initially 50 shares.
This conversion number shall be obtained by calculating (to the nearest 1/100 of
a share) the number of shares of Series A Preferred Stock to be converted
multiplied by a fraction, the numerator of which shall be equal to the
Liquidation Value for each share of Series A Preferred Stock and the denominator
of which shall be the Conversion Price (initially $2.00 per share of Common
Stock), subject to adjustment and as defined in the Company's Certificate of
Designation. If the Company shall default on the applicable payment date in the
payment of any redemption or repurchase price, as the case may be, the right of
conversion shall continue until the Series A Preferred Stock is redeemed or
repurchased.
The Series A Preferred Stock provides for adjustments upon the occurrence of
certain events including, but not limited to, stock dividends, stock
subdivisions or reclassifications or combinations, issuance of rights or
warrants to holders of Common Stock generally entitling them to purchase Common
Stock at a price less than the then-current market price thereof or
distributions to holders of Common Stock generally of evidences of indebtedness
or assets (other than those described in the preceding clause). In addition,
upon the occurrence of any merger or combination or similar transaction, the
Series A Preferred Stock is convertible into the consideration received by the
holders of the Common Stock in such merger, combination or similar transaction.
REDEMPTION PROVISIONS. The Series A Preferred Stock is not redeemable prior
to the fifth anniversary date after issuance (the "Redemption Date"). On and
after such date, the Series A Preferred Stock shall be redeemable in cash, at
the option of the Company, in whole at any time or in part from time to time,
upon no less than 30 days and no more than 60 days prior written notice by the
Company to the holders thereof. Conversions shall be permitted until the close
of business on the business day immediately preceding the Redemption Date. The
redemption price for the Series A Preferred Stock is $100 per share, plus an
amount equal to all accrued and unpaid dividends thereon.
REPURCHASE PROVISIONS. The Series A Preferred Stock is not repurchasable
prior to the fifth anniversary date after issuance (the "Repurchase Date"). On
and after the Repurchase Date and unless such shares have been previously
converted, the holders of the Series A Preferred Stock may require the Company
to repurchase all or a portion of such holder's Series A Preferred Stock for
cash, at the option of the Company, in whole at any time or in part from time to
time, upon no less than 30 days and no more than 60 days prior written notice to
the Company. Conversions of shares shall be permitted until the close of
business on the business day immediately preceding the Repurchase Date. The
repurchase price for the Series A Preferred Stock is $100 per share, plus an
amount equal to all accrued and unpaid dividends thereon.
No shares of Common Stock, preferred stock issued on a parity with the
Series A Preferred Stock, or Series A Preferred Stock may be purchased, redeemed
or otherwise acquired for value by the Company unless all dividends accrued on
the Series A Preferred Stock shall have been paid or declared and funds for
payment of the dividends set aside.
STOCK PURCHASE WARRANT. Pursuant to the terms of the Purchase Agreement,
the Company will issue to Manor Healthcare a three-year Common Stock Purchase
Warrant allowing the holder to purchase up to 6,000,000 shares of Common Stock
of the Company at an exercise price of $3.75 per share (the "Warrant"). The
exercise price of the Warrant is subject to the same anti-dilution provisions as
are applicable to the Series A Preferred Stock. See "Description of the
Investment by Manor Healthcare -- Purchase of Series A Preferred Stock --
Conversion."
REGISTRATION RIGHTS AGREEMENT. Pursuant to the Purchase Agreement, on the
Closing Date the Company and Manor Healthcare will enter into a Registration
Rights Agreement covering the securities being purchased by Manor Healthcare.
Manor Healthcare will have the right to require the Company to use its best
efforts to register under the Securities Act of 1933, at the Company's expense,
all or any portion of the Common Stock, the Common Stock purchasable upon
exercise of the Warrant,
18
<PAGE>
or the Common Stock into which the Series A Preferred Stock, directly or
indirectly, is convertible ("Registrable Securities") for sale in an
underwritten public offering. The Company will not be entitled to sell its
securities in any such registration for its own account without the consent of
Manor Healthcare. In addition, if the Company at any time seeks to register
under the Securities Act of 1933 for sale to the public any of its securities,
the Company must include, at Manor Healthcare's request, Manor Healthcare's
Registrable Securities in the registration statement, subject to underwriter
cutback provisions.
DESCRIPTION OF THE PURCHASE AGREEMENT
PURCHASE AND SALE OF SECURITIES. The Purchase Agreement provides for Manor
Healthcare to purchase approximately 6,440,000 shares of Common Stock, $.01 par
value, of the Company, 200,000 shares of Series A Preferred Stock and the
Warrant to purchase up to 6,000,000 additional shares of Common Stock of the
Company. The aggregate purchase price for the Common Stock, the Warrant and the
Series A Preferred Stock is approximately $41.9 million. Certain terms and
conditions of the Purchase Agreement are summarized below. See "Description of
the Investment by Manor Healthcare."
CONDITIONS TO CLOSING. The Purchase Agreement contains certain conditions
which must be met or waived prior to the Closing of the Purchase Agreement,
including the following:
CONSUMMATION OF THE COMPANY SELF-TENDER OFFER. The Company must complete
the Self-Tender Offer to purchase at least 5,635,000 shares of Common Stock at a
purchase price of $3.40 per share.
COMPANY STOCKHOLDER APPROVAL. The stockholders of the Company are required
to approve and adopt the Purchase Agreement and related Investment by Manor
Healthcare, including the amendments to the Company's Articles of Incorporation
and Stock Option Plans included herein as Proposals Two and Three, respectively.
NO ORDER. There shall be no statute, rule, regulation or other restriction
in effect promulgated by a governmental or regulatory authority or federal or
state court of competent jurisdiction which would prohibit or otherwise limit
the consummation of the transactions contemplated by the Purchase Agreement.
AMENDMENT TO ARTICLES OF INCORPORATION. An amendment to the Articles of
Incorporation of the Company effecting the amendment described herein as
Proposal Two shall have been filed with the Minnesota Secretary of State, to
become effective on the Closing Date.
CONSENTS AND PERMITS. The Company shall have obtained all necessary
consents, approvals and other authorizations required to effect the transactions
contemplated by the Purchase Agreement.
LENDER CONSENTS. Manor Healthcare and its parent company, Manor Care, Inc.,
must obtain waivers from their lenders under a certain Competitive Advance and
Multi-Currency Revolving Credit Facility Agreement, dated as of November 30,
1994, as to (i) the applicability of the covenants in such agreement to the
Company and (ii) any requirement that the Company provide a guaranty of the
obligations under such agreement.
REGISTRATION RIGHTS AGREEMENT. The Registration Rights Agreement described
above under "Registration Rights Agreement" shall have been executed.
There can be no assurance that each of the conditions to the Closing will be
satisfied or waived. If the Closing does not occur on or prior to the Closing
Date, the Purchase Agreement will terminate without any action by the Company or
Manor Healthcare. In the event one or more of these conditions are not met or
waived, the Purchase Agreement may be terminated. See "Termination" below.
REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION. The Purchase Agreement
contains extensive representations and warranties given by the Company to Manor
Healthcare, designed to provide Manor Healthcare with adequate and complete
disclosure regarding such matters as the Company's
19
<PAGE>
participation in the Medicare and Medicaid programs, compliance with various
laws and environmental matters, the accuracy of the Company's financial
statements, payment of taxes by the Company and any pending or threatened
litigation involving the Company, among other things. Under the terms of the
Purchase Agreement, the representations and warranties contained therein will
survive until December 31, 1996. The Company has agreed to indemnify Manor
Healthcare and its affiliates from and against any losses they may suffer as a
result of any breach of such representations or warranties or any material
misstatement contained in this Proxy Statement or in documents delivered to
stockholders in connection with the Self-Tender Offer (the "Tender Offer
Documents") or material omission from this Proxy Statement or the Tender Offer
Documents, provided that Manor Healthcare gives written notice to the Company of
such a claim on or prior to December 31, 1996.
COVENANTS. The Purchase Agreement contains certain covenants including the
following:
HART-SCOTT-RODINO FILING. The applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act") with
respect to the transactions contemplated by the Purchase Agreement shall have
expired or been terminated prior to Closing. To the extent applicable, the
Company and Manor Healthcare shall make all filings and furnish all information
required by the HSR Act with respect to the transactions contemplated by the
Purchase Agreement and shall use their best efforts to obtain the early
termination of the waiting period under the HSR Act provided that neither the
Company nor Manor Healthcare shall be required to agree to dispose of or hold
separate any portion of its business or assets.
PRE-CLOSING ACTIVITIES. From and after the date of the Purchase Agreement
until the Closing, the Company and Manor Healthcare shall act with good faith
towards, and shall use their best efforts to consummate, the transactions
contemplated by the Purchase Agreement, and neither the Company nor Manor
Healthcare will take any action that would prohibit or impair its ability to
consummate the transactions contemplated by the Purchase Agreement.
ACQUISITION PROPOSALS. The Company has agreed in the Purchase Agreement
that prior to the Closing neither the Company nor any of its officers, directors
or employees will, and the Company will direct and use its best efforts to cause
its employees, agents and representatives (including, without limitation, any
consultant, financial advisor, attorney or accountant retained by the Company)
not to, initiate, solicit or encourage, directly or indirectly, any inquiries or
the making of any proposal or offer to stockholders, or make any public
announcement regarding the same, with respect to (i) a tender offer or exchange
offer for any securities of the Company; (ii) a merger, consolidation, business
combination or similar transaction; (iii) any purchase, lease, exchange, pledge,
mortgage, transfer or other disposition of at least 20% of the assets of, or any
equity securities of, the Company (an "Acquisition Proposal") or engage in
negotiations, provide information or discuss an Acquisition Proposal with any
person, or otherwise facilitate any effort or attempt to make or implement an
Acquisition Proposal.
Nothing contained in the Purchase Agreement, however, prohibits the Company
and its directors from making to the stockholders any recommendation and related
filing with the Securities Exchange Commission, as required by Rules 14d-9 and
14e-2 under the Securities Exchange Act of 1934, with respect to any tender
offer, or from informing the stockholders of the Company in the proxy materials
with respect to the meeting of stockholders called to consider the transactions
contemplated by the Purchase Agreement of information that is material to the
vote with respect to such transactions, or from changing or withdrawing the
recommendation of the directors with respect to such transactions if the
directors conclude that such change or withdrawal is required by their fiduciary
duties (as determined in good faith by the Board of Directors of the Company
upon the advice of counsel).
CONDUCT OF BUSINESS PENDING CLOSING. The Company has agreed, among other
things, that as and after the date of the Purchase Agreement and up to the date
of Closing, the Company will use its best efforts to conduct its business in the
ordinary course pursuant to ordinary business terms and consistent with past
practice. The Company has further agreed that, without Manor Healthcare's prior
written consent it will not, among other things: (i) sell, pledge, dispose of,
lease or encumber any
20
<PAGE>
of its assets; (ii) amend its Articles of Incorporation or bylaws; (iii) split,
combine or reclassify its shares or declare any dividends on its capital stock;
(iv) redeem any of its own shares (other than pursuant to the Self-Tender
Offer); (v) effect any plan of liquidation, dissolution, merger,
recapitalization or other reorganization; or (vi) create or otherwise acquire or
fund any new subsidiary. The Company has also agreed that it will not: (i)
issue, pledge or dispose of any shares of capital stock (except for shares
issuable upon the exercise of outstanding options), or issue any additional
options, warrants or rights to purchase shares of its capital stock; (ii)
acquire or invest in another business; (iii) incur any indebtedness, either
directly or through the guaranty of the debt of others; (iv) effect any change
in its capitalization; (v) change any assumption underlying, or method of
calculating, any bad debt, contingencies, provisions or other reserves; (vi)
pay, discharge or satisfy any claims, liabilities or obligations or collect,
accelerate the collection of, any amounts owed, other than in the ordinary
course of business; (vii) waive, release or transfer any rights of value or
modify or change in any material respect an existing license, lease, contract or
other document; or (viii) make any tax election or settle or compromise any
income or other tax liability. Moreover, the Company may not effect any change
in any form of employee benefit plan or other benefits granted to its employees
or former employees, except for increasing the compensation or fringe benefits
of non-officer employees in the ordinary course of business and consistent with
past practice or as otherwise required by law.
TERMINATION. At any time prior to the Closing, the Purchase Agreement and
the transactions contemplated thereby may be terminated (i) by mutual written
agreement of the Company and Manor Healthcare; (ii) if the Closing shall not
have been consummated on or before September 15, 1995; (iii) if any law,
regulation or non-appealable final order or judgment is effected that makes
consummation of the transactions contemplated by the Purchase Agreement illegal
or otherwise prohibited; (iv) if the Company's stockholders fail to approve the
Purchase Agreement; (v) by Manor Healthcare upon certain material breaches or
defaults by the Company; or (vi) by the Company upon certain material breaches
or defaults by Manor Healthcare.
COMPANY PAYMENTS IN THE EVENT OF TERMINATION. The Company has agreed to pay
Manor Healthcare $1,300,000 for Manor Healthcare's costs associated with
entering into the Purchase Agreement in the event the Purchase Agreement is
terminated (a) by Manor Healthcare due to (i) a breach by the Company of its
"no-shop" or conduct of business obligations of Sections 7.9 and 7.13 of the
Purchase Agreement; (ii) a willful breach by the Company of the Purchase
Agreement which is not cured within 10 days after notice thereof from Manor
Healthcare; (iii) withdrawal or modification of certain documents delivered to
Manor Healthcare prior to execution of the Purchase Agreement, including the
resignation letters submitted by Messrs. Finkle and Lieberbaum, the resolutions
adopted by the Company's Board of Directors approving the Purchase Agreement and
the Investment and a legal opinion delivered by Lindquist & Vennum P.L.L.P. as
to the effect of certain aspects of the Minnesota Business Corporation Act on
the Investment; (iv) withdrawal or modification of the Board of Directors'
approval or recommendation of the Purchase Agreement, the Investment or related
transactions; (v) withdrawal or modification by the Special Committee of the
Board of Directors of its approval of the Purchase Agreement, the Investment or
related transactions; or (vi) a recommendation of the Board of Directors to its
stockholders to accept an Acquisition Proposal or a failure by the Company's
Board of Directors to recommend to its stockholders that they not tender shares
into any such Acquisition Proposal, or the acquisition by any person other than
Manor Healthcare or its affiliates of the right to acquire beneficial ownership
of 20% or more of the Company's outstanding Common Stock; or (b) by the Company
if its Board of Directors fails to make or withdraws its recommendation that
stockholders approve the Purchase Agreement if there is an Acquisition Proposal
at such time or if the Board recommends that its stockholders accept or approve
an Acquisition Proposal.
EFFECTS OF THE INVESTMENT ON THE COMPANY
USE OF PROCEEDS. On the date of the initial purchase of the Company's
Common Stock and Series A Preferred Stock under the Purchase Agreement (the
"Closing"), the Company will receive approximately $41.9 million in cash from
Manor Healthcare in consideration for the issuance to
21
<PAGE>
Manor Healthcare of approximately 6,440,000 shares of Common Stock, 200,000
shares of Series A Preferred Stock, and a three-year Warrant to purchase up to
6,000,000 additional shares of Common Stock for $3.75 per share. Substantially
all of the proceeds from the sale of the Common Stock will be used to fund the
Self-Tender Offer. The $20 million in proceeds from the issuance of the Series A
Preferred Stock and the Warrant, net of the transaction expenses (such net
proceeds are referred to herein as the "Transaction Proceeds"), will be invested
in interest bearing securities pending application as described below. Expenses
of the transaction, to be borne by the Company, are estimated to be $2 million.
The Transaction Proceeds will be available to the Company for general
corporate purposes. The Company anticipates that it will principally utilize the
Transaction Proceeds to invest in the expansion of Company operations into the
eight geographic areas where Manor Healthcare is present and the Company is not
and to finance the Company's continued operations. Except as described above,
the Company does not currently have any commitments or understandings regarding
the use of the Transaction Proceeds.
There can be no assurance that the Company will be successful in its efforts
to utilize the Transaction Proceeds in a manner that contributes to the
profitable growth of the Company's business or that the Transaction Proceeds
will not be used in such a way as to dilute the per share earnings or equity of
the Company after giving effect to the purchase of shares of Series A Preferred
Stock by Manor Healthcare. See "Investment Proposals -- Purchase of Series A
Preferred Stock -- Repurchase Provisions."
PRO FORMA FINANCIAL EFFECT. The Investment will have the effect of
increasing the Company's cash and equity (net of estimated transaction expenses)
by approximately $18 million. The investment of this cash is expected to also
increase the Company's interest income and therefore increase the Company's net
income. However, because the Series A Preferred Stock bears a dividend, the pro
forma effect of the Series A Preferred Stock would be to reduce earnings per
share, on both a primary and fully-diluted basis. The following Pro Forma
Balance Sheet as of March 31, 1995 and Statement of Income for the six month
period then ended reflect these changes.
22
<PAGE>
IN HOME HEALTH, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
At March 31, 1995
(Unaudited)
(Amounts in thousands except per share amounts)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
--------- ----------------- -----------
<S> <C> <C> <C>
CURRENT ASSETS...................................................... $ 18,091 $ 18,000(1) $ 36,091
PROPERTY, NET....................................................... 11,620 11,620
OTHER ASSETS........................................................ 21,551 21,551
--------- -------- -----------
TOTAL ASSETS........................................................ $ 51,262 $ 18,000 $ 69,262
--------- -------- -----------
--------- -------- -----------
CURRENT LIABILITITES................................................ $ 15,520 $ 15,520
LONG-TERM DEBT...................................................... 2,719 2,719
DEFERRED ITEMS...................................................... 3,663 3,663
REDEEMABLE PREFERRED STOCK -- authorized 1,000 shares............... 18,500 18,500
SHAREHOLDERS' EQUITY:
Common stock -- authorized 40,000 shares.......................... 160 160
Additional paid-in capital........................................ 23,862 (500)(1)(2) 23,362
Retained earnings................................................. 5,338 5,338
--------- -------- -----------
Total shareholders' equity........................................ 29,360 (500) 28,860
--------- -------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.......................... $ 51,262 $ 18,000 $ 69,262
--------- -------- -----------
--------- -------- -----------
<FN>
- ------------------------
(1) Represents net proceeds to the Company after deduction of estimated
transaction expenses of $2,000 relating to the Investment and Self-Tender
Offer. Estimated transaction expenses include Hambrecht & Quist transaction
and tender offer fees, legal and accounting fees and printing costs.
(2) Includes the Company's valuation of the Warrant of $1,500.
</TABLE>
23
<PAGE>
IN HOME HEALTH, INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the Six Months Ended March 31, 1995
(Unaudited)
(Amounts in thousands except per share amounts)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
--------- -------------- -----------
<S> <C> <C> <C>
REVENUE.................................................................. $ 64,927 $ 64,927
OPERATING EXPENSES:
Direct costs of revenue................................................ 36,735 36,735
General, administrative and selling expenses........................... 26,179 26,179
--------- -----------
Total operating expenses............................................... 62,914 62,914
--------- -----------
INCOME FROM OPERATIONS................................................... 2,013 2,013
INTEREST EXPENSE, NET.................................................... 449 (450)(1) (1)
--------- ------ -----------
INCOME BEFORE INCOME TAXES............................................... 1,564 450 2,014
INCOME TAX EXPENSE....................................................... 721 180(2) 901
--------- ------ -----------
NET INCOME............................................................... $ 843 $ 270 $ 1,113
--------- ------ -----------
--------- ------ -----------
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE:
Primary................................................................ $ 0.05 $ (0.01)
--------- -----------
--------- -----------
Fully Diluted.......................................................... $ 0.05 $ (0.01)
--------- -----------
--------- -----------
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING:
Primary................................................................ 16,205 16,205
--------- -----------
--------- -----------
Fully Diluted.......................................................... 16,245 16,245
--------- -----------
--------- -----------
<FN>
- ------------------------
(1) Assumes an increase in interest income due to earnings on invested cash
proceeds at an assumed interest rate of 5%.
(2) Assumes an incremental tax rate of 40%.
(3) In computing net income per share, pro forma net income of $1,113 was
reduced by an assumed dividend of $1,200 and preferred stock accretion of
$150, yielding a loss of ($237) which was divided by the weighted average
common and common equivalent shares outstanding.
</TABLE>
PERCENTAGE OWNERSHIP BY MANOR HEALTHCARE AFTER CLOSING. Upon consummation
of the transactions contemplated by the Purchase Agreement, Manor Healthcare
will directly own approximately 6,440,000 shares of the Common Stock of the
Company and 200,000 shares of the Series A Preferred Stock, representing
approximately 63% of the then existing voting power of the Company. Upon full
exercise of the Warrant to acquire up to an additional 6,000,000 shares of the
Common Stock of the Company, Manor Healthcare would own approximately 70% of the
Company's total voting power.
CHANGES TO COMPANY MANAGEMENT
BOARD OF DIRECTORS. Pursuant to the terms of the Purchase Agreement and
effective immediately following Closing of the Purchase Agreement, the Company's
Board of Directors will be expanded from five to seven members, four of whom
will be nominees of Manor Healthcare. In connection therewith, S. Marcus Finkle
and Sheldon Lieberbaum have submitted their resignations as Directors of the
Company to take effect immediately upon Closing of the Purchase Agreement.
Certain of the amendments to the Stock Option Plans set forth in Proposal Three
herein are designed to allow the
24
<PAGE>
outstanding options held by Messrs. Finkle and Lieberbaum to be immediately
vested in full notwithstanding their resignations. Messrs. Finkle and Lieberbaum
currently hold options to purchase 35,000 shares each, of which 14,100 shares
each are currently vested.
The four nominees of Manor Healthcare who will be elected to fill the
newly-created vacancies as directors of the Company are set forth below:
MARK L. GILDEA, age 43, has served as President, Alternate Site Services
Division of Manor Healthcare since December 1994. Previously he served as
Vice President of Managed Care of Manor Healthcare from December 1993 to
December 1994. Prior to joining Manor Healthcare, he was employed as
Executive Vice President of Option Care, Inc. from October 1992 to December
1993. He was previously employed by Caremark, Inc. for over 10 years,
including as Area Vice President.
DONALD C. TOMASSO, age 50, has served as President, Long Term Care Division,
of Manor Healthcare since February 1995, as Chief Operating Officer of Manor
Healthcare from May 1991 to February 1995, and as a Director of Manor
Healthcare since June 1991. He has been Chairman and Chief Executive Officer
of Vitalink Pharmacy Services, Inc. since February 1995 and was its Vice
Chairman from September 1991 to February 1995. Mr. Tomasso was previously
employed by Marriott Corporation for more than five years, including as
Executive Vice President/General Manager of the Roy Rogers Division.
JOSEPH BUCKLEY, age 47, has served as President, Assisted Living Division of
Manor Healthcare since February 1995 and was Senior Vice
President-Information Resources and Development of Manor Care, Inc. from
June 1990 to February 1995. He previously served as Vice President-
Information Resources of Manor Care, Inc. from July 1989 to June 1990 and as
Vice President-Real Estate of Manor Care, Inc. from September 1983 to July
1989.
JAMES H. REMPE, age 65, has served as Senior Vice President, General Counsel
and Secretary of Manor Care, Inc. since August 1981. He has served in the
same capacities with Choice Hotels International, Inc. since February 1981
and with Manor Healthcare since December 1980. He has been Secretary of
Vitalink Pharmacy Services, Inc. since January 1983 and was its Senior Vice
President and a Director from January 1983 to September 1991.
It is anticipated that each of the foregoing individuals will be able to serve
as directors effective immediately following the closing of the Purchase
Agreement. However, one or more other individuals may be substituted for the
foregoing nominees if specified by Manor Healthcare in writing prior to the
closing of the Purchase Agreement, provided that any such substitutions must be
agreed to by the Company.
As a result of the foregoing, Manor Healthcare will effectively control the
actions of the Company's Board of Directors following the closing of the
Purchase Agreement. In addition, Manor Healthcare will control approximately 63%
of the voting power of the stockholders of the Company immediately following the
Investment. As such, Manor Healthcare will be able to effectively control the
outcome of any stockholder votes, including the election of directors, following
the Closing of the Purchase Agreement. However, Manor Healthcare has agreed in
the Purchase Agreement that so long as Judy Figge and Kenneth Figge are employed
by the Company, Manor Healthcare will vote, or cause to be voted, all shares of
Common Stock beneficially owned by them in favor of their election to the Board
of Directors. In addition to the Figges, James Lynn will continue to serve as a
director following the Closing of the Purchase Agreement.
MANAGEMENT PERSONNEL. Pursuant to the terms of the Purchase Agreement and
effective upon Closing of the Purchase Agreement, Mark L. Gildea will be elected
as Chief Executive Officer of the Company. The terms of the Purchase Agreement
require that Mr. Gildea devote at least approximately 75% of his entire working
time to the affairs of the Company, while the balance of his working time will
25
<PAGE>
be devoted to Manor Healthcare and its affiliates other than the Company. The
Company will be responsible for the payment of his compensation, but will be
reimbursed by Manor Healthcare for 25% of the costs associated with the
employment of Mr. Gildea by the Company.
EMPLOYMENT AGREEMENTS. Concurrent with the execution of the Purchase
Agreement, the Company executed employment agreements with Judy Figge and
Kenneth Figge, which agreements are contingent upon and will be made effective
following the closing of the Purchase Agreement. Each of these employment
agreements expire by their terms on September 30, 1997, unless earlier
terminated or extended beyond that date. Ms. Figge's employment agreement
specifies that she will serve the Company as its President and Chairperson of
the Board of Directors, reporting to the Chief Executive Officer of the Company.
Ms. Figge will be paid a base salary of $300,000 per annum until September 30,
1996 and $315,000 per annum from October 1, 1996 to September 30, 1997. Mr.
Figge's employment contract specifies that he will serve the Company as its
Chief Financial Officer, receiving a base salary of $226,000 per annum until
September 30, 1996 and $237,000 per annum from October 1, 1996 to September 30,
1997. Each of Ms. Figge and Mr. Figge will be reimbursed for all reasonable
travel, hotel, entertainment or other expenses, including a monthly automobile
allowance, cellular phone, the use of a personal computer and facsimile machine
at their home and life insurance premiums on policies owned by the Figges. The
automobiles currently leased by the Company for use by the Figges will be
assigned to the Figges as soon as practicable after the closing of the Purchase
Agreement. The Figges will also be entitled to participate in all of the benefit
plans or programs of the Company, and will be eligible to receive annual bonuses
in accordance with the current management incentive compensation plan of the
Company, wherein cash bonuses may be awarded based on a designated percentage up
to 75% of base salary depending on the Company's performance.
Under their employment agreements, Ms. Figge and Mr. Figge will also be
granted stock options to purchase 300,000 shares and 200,000 shares,
respectively, of Common Stock pursuant to an amendment to the Company's 1995
Stock Option Plan described in Proposal Three. These options will have an
exercise price equal to the fair market value of the Common Stock on the date of
the Closing, will be immediately vested upon the grant thereof (but will not be
exercisable until after January 1, 1997) and will have a term of ten years from
the date of grant, although they will expire on the later of (i) March 31, 1997,
or (ii) the date that is 90 days after the termination of employment. These
options will also be subject to forfeiture in their entirety in the event that,
on or prior to December 31, 1996, the Board of Directors of Manor Healthcare or
of the Company shall have (a) formed in good faith a belief that Ms. Figge or
Mr. Figge, as the case may be, had actual conscious knowledge that a
representation or warranty included in the Purchase Agreement or any schedule,
exhibit or appendix thereto was materially untrue at the time of Closing of the
Purchase Agreement and (b) commenced an action in a court of competent
jurisdiction with respect to such believed material representation and such
court determines that Manor Healthcare's or the Company's belief was correct. If
such court determines that such belief was incorrect, the options will be
exercisable until the date that is the later of 90 days after (x) the
termination of employment or (y) the date of the court's decision.
Pursuant to the terms of the Purchase Agreement, the Company will also offer
employment agreements to James Lynn, Cathy Reeves and Margaret Maxon under the
terms provided in the Purchase Agreement. If executed, Mr. Lynn's employment
agreement extends for a period of two years following the closing of the
Purchase Agreement and requires Mr. Lynn to provide 60 to 80 hours of human
resources/training services for the Company each month, for which he will be
compensated at a rate of $90,000 per annum. Mr. Lynn will also be eligible to
receive annual bonuses based on the Company's financial performance up to a
maximum amount equal to 50% of his base salary. Mr. Lynn will also be entitled
to participate in the Company's benefit plans or programs otherwise available to
executives of the Company. Mr. Lynn's employment agreement contemplates the
granting of options to Mr. Lynn to purchase 50,000 shares of Common Stock at an
exercise price equal to the fair market value of the Common Stock on the date of
grant. These options will be immediately vested upon the grant thereof, will be
exercisable immediately and will have a term of 10 years from the date of grant,
provided, however, that the options will expire within three months after
termination of employment.
26
<PAGE>
The employment agreements to be offered to Ms. Reeves and Ms. Maxon will
extend for a term of one year following the closing of the Purchase Agreement
and contemplate that each will serve the Company as an officer-employee. Ms.
Reeves is currently the Vice President of Operations and Chief Operating Officer
of the Company and Ms. Maxon is the Vice President of Customer Relations. These
employment agreements contemplate a base salary of $137,500 per annum for Ms.
Reeves and $129,250 per annum for Ms. Maxon. Each will be eligible to receive
bonuses in accordance with the Company's management incentive compensation plan
and each will be entitled to participate in the Company's benefit plans
generally available to its executives. Each of Ms. Reeves and Ms. Maxon will be
granted options to purchase 50,000 shares of Common Stock at an exercise price
equal to the fair market value of the Common Stock on the date of grant. Each of
these options will be immediately vested upon the grant thereof, will be
exercisable immediately and will have a term of ten years from the date of
grant, provided, however, that such options will expire within three months
after termination of employment.
Each of the employment agreements with Ms. Figge, Mr. Figge, Mr. Lynn, Ms.
Reeves and Ms. Maxon has severance provisions designed to pay to the employee
severance payments equal to the amount due for the remaining term of the
applicable employment agreement if such employee's employment is terminated due
to death, disability or resignation or retirement of the employee for "Good
Reason". "Good Reason" is defined to include any request that the employee
permanently relocate to a location not in the Minneapolis, Minnesota
metropolitan area or a failure or refusal by the Company to provide duties for
the employee to perform which are consistent with such employee's position. Each
of the employment agreements, other than Mr. Lynn's, also contains agreements
not to compete with the Company during the term of the employment agreement and
for a period of one year following termination, in the case of Ms. Figge and Mr.
Figge, or for the greater of six months or the remaining term of the employment
agreement in the case of Ms. Reeves and Ms. Maxon.
POST-CLOSING COVENANTS. Manor Healthcare has agreed that, for a period of
two years following the Closing of the Purchase Agreement, the Company's
corporate headquarters will be maintained in the Minneapolis, Minnesota
metropolitan area (unless otherwise unanimously approved by the Board of
Directors); the Common Stock of the Company will continue to be publicly traded;
and the Company will continue to operate in the lines of business in which it
currently engages.
FUTURE ARRANGEMENTS. Subsequent to the Closing, the Company and Manor
Healthcare may determine to discuss entering into, or enter into, agreements or
arrangements which they deem prudent and mutually beneficial for the provisions
of services between them on terms that are fair to each party. Such services may
include, without limitation, administrative services, financial or treasury
management services, reimbursement matter services, legal services, accounting
services and other similar types of services.
SOURCE OF FUNDS
Manor Healthcare has informed the Company that the approximately $41.9
million to be used to make the Investment will come from its operating cash flow
and existing lines of credit available to it.
INFORMATION CONCERNING MANOR HEALTHCARE
Manor Healthcare is a subsidiary of Manor Care, Inc., a publicly held
corporation with consolidated revenues of $1.2 billion in its fiscal year ended
May 31, 1994, of which approximately 79% was derived from health care related
services. Manor Healthcare owns, operates or manages 172 nursing centers
(including 10 medical and physical rehabilitation centers and 15 assisted living
centers) which provide high acuity services, skilled nursing care, intermediate
nursing care, custodial care and assisted living services, principally for
residents over the age of 65. Manor Healthcare also owns approximately 82.3% of
Vitalink Pharmacy Services, Inc., a public company that operates 17
institutional pharmacies in five states. Manor Healthcare also owns and operates
an acute care general hospital and five nursing assistant training schools.
27
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Manor Healthcare's nursing centers generally provide five types of services:
high acuity services for persons who require complex medical and physical
rehabilitation services; skilled nursing care for persons who require 24
hour-a-day professional services of a registered nurse or a licensed practical
nurse; intermediate care for persons needing less intensive nursing care;
custodial care for persons needing a minimum level of care; and assisted living
for persons needing some supervision and assistance with personal care.
Substantially all of Manor Healthcare's nursing centers are currently
certified to receive benefits provided under Medicare and under programs
administered by the various states to provide medical assistance to the
medically indigent ("Medicaid"). However, Manor Healthcare attempts to locate
and operate its nursing centers in a manner designed to attract patients who pay
directly to the facilities for services without benefit of any government
assistance program. Patients seeking the services of the nursing centers come
from a variety of sources and are principally referred by hospitals and
physicians.
Certain other information regarding Manor Healthcare, as supplied by Manor
Healthcare to the Company, is contained in Appendix IV -- Manor Healthcare Corp.
Information Statement.
Manor Healthcare's principal executive offices are located at 10750 Columbia
Pike, Silver Spring, Maryland 20901 and its telephone number is (301) 681-9400.
28
<PAGE>
PROPOSAL ONE
APPROVAL OF PURCHASE AGREEMENT
REASONS FOR APPROVAL
The Board of Directors of the Company has unanimously approved the Purchase
Agreement for the reasons described above in this Proxy Statement and is
submitting the Purchase Agreement to the stockholders of the Company for
approval. Schedule D of the Bylaws of the National Association of Securities
Dealers Inc. requires stockholder approval for consummation of the Investment.
CONTROL SHARE ACQUISITION ACT APPROVAL
The Minnesota Control Share Acquisition Act (the "Act") requires that any
party making a "control share acquisition" must obtain the approval of the
stockholders of the issuing public corporation. A control share acquisition is
defined as any acquisition that would cause the acquiring person to exceed
certain thresholds of voting power in the election of directors (20%, 33 1/3% or
50%). Any direct purchase of shares from the issuer is excluded from the
definition of "control share acquisition." Thus, the Company believes the
Investment by Manor Healthcare does not constitute a control share acquisition,
even though the Investment will result in Manor Healthcare beneficially owning
shares exceeding the applicable threshold of voting power of the Company.
However, if the Investment were deemed to be a control share acquisition and
the requisite stockholder approval were not obtained under the Act, Manor
Healthcare would be unable to vote the shares exceeding the thresholds set forth
in the Act, and such shares would be subject to redemption upon the terms set
forth in the statute. In order to avoid any claim that the Investment
constitutes a control share acquisition which has not obtained the requisite
stockholder approval, the Company and Manor Healthcare intend that the approval
of Proposal One will also constitute the stockholder approval that would be
required under the specific requirements of the Act. As required by the Act,
Manor Healthcare has delivered to the Company an information statement regarding
the terms of the acquisition. This information statement is attached as Appendix
IV to this Proxy Statement.
REQUIRED VOTE
Approval of Proposal One requires the affirmative vote of (i) the holders of
a majority of the shares of the Company's Common Stock outstanding on the Record
Date and entitled to vote at the Special Meeting, provided that the total vote
cast on the proposal represents over 50% in interest of all Common Stock
entitled to vote on the proposal, and (ii) a majority of such outstanding shares
excluding all "interested" shares. The term "interested shares" includes any
shares held by officers of the Company, directors who are also employees of the
Company or by Manor Healthcare. Manor Healthcare does not currently own any
shares of the Company's voting stock. The number of shares currently held by
officers and employee-directors of the Company, which would be excluded from the
vote contemplated in clause (ii) above, is 966,066 shares. If not otherwise
specified, properly executed proxies will be voted in favor of approval of the
Purchase Agreement.
Approval of Proposal One is conditioned on the approval of Proposals Two and
Three.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
APPROVAL OF PROPOSAL ONE.
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PROPOSAL TWO
AMENDMENT TO ARTICLES OF INCORPORATION
REASONS FOR THE AMENDMENT
The Board of Directors of the Company has unanimously approved an amendment
to Article III of the Articles of Incorporation of the Company to provide that
the Directors, in designating the voting rights of any series of preferred stock
of the Company, may provide that each share of preferred stock has voting rights
equal to the number of shares of Common Stock into which the shares of preferred
stock are convertible (the "Amendment"). The Board of Director's resolution
approving the Amendment states:
NOW, THEREFORE, BE IT RESOLVED, that Article III of the Company's
Articles of Incorporation be, and it hereby is, amended subject to
approval by the Company's shareholders and contingent upon the closing
of the Investment Agreement, by adding the following sentence to the
existing text of Article III:
"In addition, as to any series of Preferred Stock which may have
voting rights fixed by resolution of the Board of Directors, the
Board of Directors is authorized to provide in the resolution
fixing the voting rights of any series of Preferred Stock that
each share of such Preferred Stock has voting rights equal to the
number of shares of Common Stock in to which each such share of
Preferred Stock may be convertible at any time."
The Board of Directors believes that adoption of the Amendment clarifies the
power of the Board to provide that preferred stock may have voting rights on an
as-if-converted basis and that adoption of the Amendment is in the best
interests of the Company.
REQUIRED VOTE
The affirmative vote of the holders of a majority of shares of the Company's
Common Stock outstanding on the Record Date and entitled to vote at the Special
Meeting is necessary to approve the Amendment. If not otherwise specified,
properly executed proxies will be voted in favor of the Amendment.
Approval of Proposal Two is conditioned on the approval of Proposals One and
Three.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
APPROVAL OF PROPOSAL TWO.
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PROPOSAL THREE
AMENDMENT OF STOCK OPTION PLANS
The Board of Directors of the Company has unanimously approved amendments to
the Company's 1987 and 1995 Stock Option Plans (the "Plans") to: (i) provide
that the options of non-employee directors of the Company will vest upon a
change in control of the Company and that upon a change of control, the Board
may grant certain options that depart from the terms of the Plans; (ii) increase
the total number of shares available under the 1995 Stock Option Plan from
650,000 to 1,300,000 in order to permit the granting of options under the Plan,
in the aggregate amount of 650,000 shares, to five officers or employees of the
Company as of the Closing Date; and (iii) impose a limit of 300,000 shares that
can be issued to any participant under each Plan during any fiscal year. The
Board of Directors believes that adoption of these amendments is in the best
interests of the stockholders of the Company and recommends that stockholders of
the Company vote in favor of Proposal Three.
REASONS FOR THE AMENDMENTS
The Company's 1987 Stock Option Plan (the "1987 Plan") was adopted by the
Board of Directors and approved by the stockholders on April 15, 1987. The
Company's 1995 Stock Option Plan (the "1995 Plan") was adopted by the Board of
Directors and approved by the stockholders on November 8, 1994 and January 20,
1995, respectively. The 1987 Plan and 1995 Plan (the "Plans") allow issuance of
options covering up to 2,500,000 shares and 650,000 shares, respectively, of
Common Stock. If an option expires without being exercised, the shares covered
by that option again become available for issuance under the new options.
As described under "Investment Proposals -- Changes to Company Management --
Management Personnel -- Employment Agreements," concurrently with the Closing of
the Purchase Agreement, the Company shall grant to the following officers and
employees pursuant to the 1995 Plan options to purchase an aggregate 650,000
shares of Common Stock: Ms. Figge, 300,000 shares; Mr. Figge, 200,000 shares;
Mr. Lynn, 50,000 shares; Ms. Reeves, 50,000 shares; and Ms. Maxon, 50,000
shares.
In connection with the approval of the Investment and related transactions,
on May 2, 1995 the Board of Directors of the Company approved an amendment to
the 1995 Plan to increase the number of shares available under the 1995 Plan by
650,000 shares to a total of 1,300,000 shares. The purpose of this amendment is
to permit the Company to grant the options to purchase 650,000 shares of Common
Stock as contemplated by the Purchase Agreement, without depleting the reserve
of shares available for issuance under the 1995 Plan. These shares can be used
by the Board of Directors in the future to attract and retain employees.
On May 2, 1995, the Board of Directors also approved an amendment to each of
the Plans, subject to stockholder approval, by changing the title of Article
XIII to "Merger, Consolidation or Change of Control" and adding a new Section
13.2 reading as follows:
"13.2 CHANGE IN CONTROL. In the event that the Company closes and
consummates any transaction which has been approved by the Company's
stockholders which, while not a merger or consolidation, involves a
change in control of the Company, then, notwithstanding any other
provision of the Plan, (i) the Board or the Committee may grant as a
part of such transaction Options which are not subject to the
termination provisions of Article IX and having such other terms and
provisions as the Board or the Committee deems appropriate, and (ii) any
outstanding Option held by non-employee members of the Board of
Directors shall be immediately vested in full."
Clause (i) of this amendment permits the granting of the options to the five
individuals described above with terms that depart from the terms of the 1995
Plan. The effect of clause (ii) of this amendment is to cause the options held
by non-employee directors to become vested in full as of the Closing Date of the
Purchase Agreement, which will permit Messrs. Finkle and Lieberbaum to obtain
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vesting of all of their stock options as of the Closing Date, which will also be
the effective date of their resignations. Messrs. Finkle and Lieberbaum each
hold options to purchase 35,000 shares of Common Stock which were granted
pursuant to the 1987 Plan.
In 1993, Section 162(m) was added to the Internal Revenue Code of 1986 (the
"Code"). The inclusion of this section limits the Company's deduction for
federal income tax purposes of compensation in excess of $1 million per
individual paid to the Company's Chief Executive Officer and its four highest
paid executive officers. Compensation plans which are performance based within
the requirements of Code Section 162(m), are approved by the Company's
stockholders, and granted by a committee consisting solely of two or more
outside directors as defined in Code Section 162(m) will not be subject to the
deduction limit. Stock options awarded under a plan that satisfies the
conditions of Code Section 162(m) qualify as performance based compensation.
Therefore, in order to satisfy one of the conditions of Code Section 162(m), on
May , 1995 the Board of Directors of the Company adopted the following
amendment to the Plans:
ARTICLE VII, TERMS OF STOCK OPTION. A new Section 7.8 shall be
added at the end thereof, to read as follows:
"ANNUAL LIMIT ON ALL STOCK OPTIONS. No eligible person shall be
granted any stock options for more than 300,000 shares of stock in
the aggregate during any fiscal year period, subject to
adjustments pursuant to Section 5.3. For this purpose, each fiscal
year period shall begin each October 1 and shall end on the
following September 30."
The addition of Section 7.8 imposes a limitation on the number of shares
that may be issued to any employee. This change is necessary to bring the Plans
into compliance with the requirements of Code Section 162(m). The options to Ms.
Figge, Mr. Figge, Mr. Lynn, Ms. Reeves and Ms. Maxon described above will be
granted by the Compensation Committee of the Board which will, immediately upon
the consummation of the transactions for which stockholder approval is being
sought, consist of at least three persons who will qualify as outside directors
as defined in Code Section 162(m). By adopting this change, the Company may
deduct any compensation expense resulting from the grant or exercise of options
issued under the Plans without regard to the limitations under Code Section
162(m), including the options to the individuals described above.
SUMMARY OF THE PLANS
The purpose of the Plans is to promote the interests of the Company and its
stockholders by aiding in attracting, retaining, and motivating Company
employees. All Company employees (approximately 5,000 persons) are eligible for
options. Each option qualifying as an incentive stock option must have an
exercise price not less than 100% (110% for a 10% or more stockholder) of the
fair market value of the Common Stock on the day the option is granted.
Generally the fair market value is the closing sale price reported on the Nasdaq
National Market on the date of grant. On , 1995, the last day for which
information was available at the time this Proxy Statement was printed, the
closing sale price was $ per share.
The Plans allow the Board of Directors to designate any option at the time
of grant as either an "incentive stock option" or a "nonqualified option" for
tax purposes. The Board of Directors also designates at the time of grant the
number of shares covered, exercise price, vesting schedule and expiration date
of each option. No option may be exercised more than ten years after the date of
grant.
Generally speaking, if an option holder's employment by the Company
terminates for a reason other than death or disability, options held by that
person will expire if not exercised within three months following termination of
employment. If an option holder dies or becomes permanently disabled, his
options will generally expire in one year if not exercised by his estate or
legal representative.
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The number, kind and price of the shares subject to each outstanding option
will be adjusted in the event of stock splits, stock dividends, or similar
changes in the Company's outstanding securities. In the event of a
reorganization of the Company, appropriate provision will be made for the
continuation of any outstanding options, or the substitution or new options, on
an equitable basis. In addition, the Plans grant broad discretion to the Board
of Directors to take such action as it may deem necessary or advisable and fair
and equitable to optionees in the event of a change in control of the Company, a
tender or exchange offer for all or part of the Common Stock of the Company, a
merger or consolidation of the Company or a sale of all or substantially all of
the Company's assets, including authority to provide for earlier, later,
extended or additional terms for the exercise of the whole or any installments
of outstanding options, alternate forms of payment or other modifications.
The 1987 Plan and 1995 Plan expire on April 15, 1997 and November 8, 2004,
respectively. The Board of Directors may terminate or amend either Plan. Any
amendment to increase the number of shares covered by either Plan, change the
class of eligible employees, or reduce the minimum option price for incentive
stock options to less than fair market value requires stockholder approval
within twelve months after it is adopted by the Board of Directors in order to
become effective. The Board of Directors may delegate its plenary authority to
administer either Plan to a committee of not fewer than three directors, two of
which may or may not be eligible to receive options under either plan.
GRANTS OF OPTIONS
There are currently options to purchase approximately 75,000 shares
outstanding under the 1995 Plan. During the last three fiscal years (October 1,
1991 to September 30, 1994) the Company has granted under the 1987 Plan options
to purchase a total of 330,000 shares to executive officers at an average price
of $3.61 per share and options for a total of 693,000 shares to other employees
at exercise prices ranging from $1.88 to $5.94 per share.
FEDERAL INCOME TAX TREATMENT
Generally the grant of either an incentive stock option or a nonqualified
option under the Plans will not cause recognition of income by the optionee or
entitle the Company to an income tax deduction. Upon exercise of an option the
tax treatment will generally vary depending on whether the option is an
incentive stock option or a nonqualified option. The exercise of an incentive
stock option will generally not cause recognition of income by the optionee or
entitle the Company to a tax deduction. However, the amount by which the fair
market value of the shares obtained exceeds the exercise price on the day of
exercise is an item of tax preference to the optionee for alternative minimum
tax purposes.
The exercise of a nonqualified option will generally cause the optionee to
recognize taxable income equal to the difference between the exercise price and
the fair market value of the stock obtained on the day of exercise. The Company
must then in most cases obtain from the optionee funds to meet tax withholding
requirements arising from that income recognition. The exercise of a
nonqualified option will also generally entitle the Company to an income tax
deduction equal to the amount of the income recognized by the exercising option
holder. The deduction by the Company may be denied unless the Plan also
satisfies the requirements of Code Section 162(m).
The foregoing discussion of the federal income tax treatment of options is
necessarily general and any option holder should consult his tax advisor as to
his own particular circumstances and applicable laws and regulations.
REQUIRED VOTE
The affirmative vote of the holders of a majority of the Company's Common
Stock present and entitled to vote on this matter at the Special Meeting is
necessary to approve the proposed amendments to the Plans. If not otherwise
specified, properly executed proxies will be voted in favor of these amendments.
However, if the shares present and entitled to vote on Proposal Three would not
33
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constitute a quorum for the transaction of business at the Special Meeting, then
Proposal Three must be approved by a majority of the voting power of the minimum
number of shares that would constitute such a quorum.
Approval of Proposal Three is conditioned on the approval of Proposals One
and Two.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
APPROVAL OF PROPOSAL THREE.
STOCKHOLDER PROPOSALS FOR 1996 ANNUAL MEETING
Stockholders are advised that any proposals of stockholders intended to be
presented at the 1996 Annual Meeting of Stockholders must be received by the
Company on or before September 17, 1995 for inclusion in the Company's proxy
statement and form of proxy relating to that meeting. In addition, the bylaws of
the Company establish an advance notice requirement for any proposal of business
to be considered at an annual meeting of stockholders that is not made by or at
the recommendation of a majority of the directors then in office. In general,
written notice must be delivered to the Secretary of the Company at its
principal executive office, Carlson Center, Suite 500, 601 Lakeshore Parkway,
Minnetonka, Minnesota 55305-5214, within certain time periods in advance of the
meeting and must contain specified information concerning the matter to be
brought before the meeting and the stockholder proposing the matter. Any
stockholder desiring a copy of the bylaws of the Company will be furnished one
without charge upon written request to the Secretary of the Company.
OTHER MATTERS
Under Minnesota law and the bylaws of the Company, no other business may be
transacted at the Special Meeting.
Under Minnesota law, if the shares present and entitled to vote on an item
of business would not constitute a quorum for the transaction of business at the
meeting, then the item must be approved by a majority of the voting power of the
minimum number of shares that would constitute such a quorum. Votes cast by
proxy or in person at the Special Meeting will determine whether or not a quorum
is present. Abstentions will be treated as shares that are present and entitled
to vote for purposes of determining the presence of a quorum, but as unvoted for
purposes of determining the approval of the matter submitted to the
stockholders. If a broker indicates on the proxy that it does not have
discretionary authority as to certain shares to vote on a particular matter,
those shares will not be considered as present and entitled to vote with respect
to that matter.
By Order of the Board of Directors,
Kenneth J. Figge, SECRETARY
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APPENDIX I
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
------------------------
SECURITIES PURCHASE AND SALE AGREEMENT
---------------
BETWEEN
IN HOME HEALTH, INC.
AND
MANOR HEALTHCARE CORP.
---------------
DATED AS OF MAY 2, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ---------------------------------------------------------------------- ----
<C> <C> <S> <C> <C>
1. Definitions; Certain References ................................. 2
1.1 Definitions .............................................. 2
2. Closing ......................................................... 4
2.1 Time and Place of the Closing ............................ 4
2.2 Transactions at the Closing .............................. 4
3. Conditions to the Execution of This Agreement ................... 5
3(a) Resignation of Directors ......................... 5
3(b) Installation of New Directors .................... 6
3(c) Directors' Resolutions ........................... 6
3(d) Opinion of Seller's Counsel ...................... 6
3(e) Employment Agreements ............................ 6
4. Conditions to the Closing ....................................... 6
4.1 Conditions Precedent to the Obligations of Each Party .... 6
4.1(a) Seller Shareholder Approval ...................... 6
4.1(b) No Order ......................................... 6
4.1(c) Hart-Scott-Rodino ................................ 6
4.1(d) Articles of Incorporation Amendment .............. 6
4.1(e) Consents and Permits ............................. 6
4.1(f) Consummation of the Issuer Self-Tender ........... 6
4.1(g) Determination of Finder's Fee .................... 7
4.1(h) Lender Consents .................................. 7
4.2 Conditions Precedent to the Obligations of the
Purchaser ................................................ 7
4.2(a) Compliance by the Seller ......................... 7
4.2(b) No Legal Action .................................. 7
4.2(c) Legal Opinion .................................... 7
4.2(d) Delivery of the Transaction Documents and
Securities, Etc. ................................ 8
4.2(e) No Material Adverse Effect ....................... 8
4.2(f) Appointment of Directors ......................... 8
4.3 Conditions Precedent to Obligations of the Seller ........ 8
4.3(a) Compliance by the Purchaser ...................... 8
4.3(b) No Legal Action .................................. 8
4.3(c) Legal Opinions ................................... 8
4.3(d) Delivery of the Transaction Documents, Etc. ...... 9
5. Representations and Warranties of the Seller .................... 9
5.1 Organization, Good Standing, Power, Authority, Etc. ...... 9
5.2 Capitalization, Etc. ..................................... 9
5.3 Title to Shares Acquired in Issuer Self-Tender ........... 10
5.4 Registration Rights ...................................... 10
5.5 Proxy Statement and Issuer Tender Offer Documents; SEC
Documents ............................................... 10
5.6 Authority and Qualification of the Seller ................ 10
5.7 No Subsidiaries .......................................... 10
5.8 No Contravention, Conflict, Breach, Etc. ................. 10
5.9 Consents ................................................. 11
5.10 No Existing Violation, Default, Etc. ..................... 11
5.11 Licenses and Permits ..................................... 11
5.12 Trademarks ............................................... 12
5.13 Title to Properties ...................................... 12
5.14 Environmental Matters .................................... 12
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE
- ---------------------------------------------------------------------- ----
<C> <C> <S> <C> <C>
5.15 Taxes .................................................... 13
5.16 Litigation ............................................... 13
5.17 Labor Matters ............................................ 14
5.18 Contracts ................................................ 14
5.19 Finder's Fees ............................................ 14
5.20 Financial Statements ..................................... 14
5.21 No Material Adverse Change ............................... 14
5.22 Investment Company ....................................... 15
5.23 Contingent Liabilities ................................... 15
5.24 No Change of Control Puts ................................ 15
5.25 Exemption from Registration; Restrictions on Offer and
Sale of Same or Similar Securities ...................... 15
5.26 ERISA .................................................... 15
5.27 Securities ............................................... 16
5.28 No Material Misstatement ................................. 16
5.29 Insurance Coverage ....................................... 17
5.30 Third-Party Payment ...................................... 17
6. Representations and Warranties of the Purchaser ................. 18
6.1 Organization, Good Standing, Power, Authority, Etc. ...... 18
6.2 No Conflicts; No Consents ................................ 18
6.3 Purchase for Investment .................................. 18
6.4 Financial Statements ..................................... 18
6.5 Finder's Fees ............................................ 18
6.6 Provision of Information ................................. 19
7. Covenants of the Parties ........................................ 19
7.1 Restriction on Transfer .................................. 19
7.2 Certificates for Securities, Conversion Shares and Warrant
Shares to Bear Legends .................................. 19
7.3 Removal of Legends ....................................... 19
7.4 Pre-Closing Activities ................................... 20
7.5 Information .............................................. 20
7.6 Further Assurances ....................................... 20
7.7 Shareholders' Meeting; Proxy Statement and Issuer Tender
Offer Documents ......................................... 20
7.8 Hart-Scott-Rodino ........................................ 21
7.9 Acquisition Proposals .................................... 21
7.10 Access ................................................... 21
7.11 Publicity ................................................ 22
7.12 Reservation of Shares; Compliance with Law upon Issuance
of Conversion Shares or Warrant Shares; Listing ......... 22
7.13 Conduct of Business by the Seller Pending the Closing .... 22
7.14 Notice of Certain Events ................................. 23
7.15 Location of Corporate Headquarters ....................... 24
7.16 Continuing Reporting Company ............................. 24
7.17 Scope of Business ........................................ 24
7.18 Employment Agreements .................................... 24
7.19 Future Arrangements ...................................... 24
7.20 Chief Executive Officer .................................. 25
8. Termination ..................................................... 25
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE
- ---------------------------------------------------------------------- ----
<C> <C> <S> <C> <C>
9. Survival of Representations and Warranties ...................... 26
10. Successors and Assigns .......................................... 26
11. Indemnity ....................................................... 26
12. Miscellaneous ................................................... 27
12.1 Notices .................................................. 27
12.2 Expenses ................................................. 28
12.3 Remedies ................................................. 28
12.4 Governing Law; Consent to Jurisdiction; Waiver of Jury
Trial ................................................... 28
12.5 Severability; Interpretation ............................. 29
12.6 Headings ................................................. 29
12.7 Entire Agreement ......................................... 29
12.8 Counterparts ............................................. 29
12.9 Modification or Amendment ................................ 29
12.10 Waiver ................................................... 29
Signatures ........................................................... 29
</TABLE>
<TABLE>
<CAPTION>
EXHIBITS
- --------------------------------------------------------------------------------
<S> <C> <C>
A -- Form of Warrant
B -- Form of Certificate of Designation of Convertible Preferred Stock
C -- Articles of Incorporation of the Seller
C-1 -- Form of Articles of Incorporation Amendment
D -- Employment Agreement for Judy M. Figge
E -- Employment Agreement for Kenneth J. Figge
F -- Form of Registration Rights Agreement
G -- Form of Resolution Adopted by the Directors of the Seller
H -- Form of Employment Agreement for James J. Lynn
I -- Form of Opinion of Lindquist & Vennum, counsel to the Seller
J -- Form of Opinion of Cahill Gordon & Reindel, counsel to the Purchaser
K -- By-Laws of the Seller
K-1 -- Form of Amendment of the By-Laws of the Seller
L -- Form of Employment Agreement for Cathy R. Reeves
M -- Form of Employment Agreement for Margaret L. Maxon
</TABLE>
<TABLE>
<CAPTION>
SCHEDULES
- ------------------------------------------------------------------------------
<S> <C> <C>
3(b) -- Purchaser Director Designees
5.2 -- Capitalization
5.8(a) -- Compensation and Benefit Plans
5.8(b) -- Material Contracts
5.9 -- Consents
5.11 -- Licenses
5.12 -- Trademark Exceptions
5.13 -- Material Encumbrances
5.15 -- Taxes
5.16 -- Litigation
5.21 -- Material Adverse Effect
5.29 -- Insurance Policies
5.30 -- Schedules of Medicare and Medicaid Disputes
7.13 -- Conduct of Business Exceptions
</TABLE>
iii
<PAGE>
SECURITIES PURCHASE AND SALE AGREEMENT
SECURITIES PURCHASE AND SALE AGREEMENT ("AGREEMENT") dated as of May 2,
1995, between IN HOME HEALTH, INC., a Minnesota corporation (the "SELLER"), and
MANOR HEALTHCARE CORP., a Delaware corporation (the "PURCHASER").
WHEREAS, the Seller desires to sell to the Purchaser and the Purchaser
desires to purchase from the Seller (i) an aggregate of 6,440,000 shares (the
"SHARES") of common stock, par value $.01, of the Seller (the "COMMON STOCK"),
(ii) a warrant, in the form of EXHIBIT A attached hereto, to purchase initially
an aggregate of 6,000,000 shares of Common Stock (the "WARRANT") and (iii) an
aggregate of 200,000 shares of convertible preferred stock having an aggregate
liquidation preference of $20,000,000 (the "PREFERRED STOCK"), to be established
pursuant to a Certificate of Designation of Convertible Preferred Stock in the
form of EXHIBIT B attached hereto, for the consideration and upon the terms and
subject to the conditions set forth herein (the purchase of the securities
described in (i), (ii) and (iii) above are herein referred to as the
"INVESTMENT"); and
WHEREAS, the Board of Directors of the Seller has determined that the
Investment on the terms and conditions contained in this Agreement, and each of
the other transactions contemplated herein, are consistent with and in
furtherance of the long-term business strategy of the Seller and are fair to,
and in the best interests of, the Seller and its shareholders and has approved
and adopted this Agreement and each of the other transactions contemplated
herein and intends to recommend the approval and adoption of this Agreement and
the Investment by the shareholders of the Seller as well as the amendment to the
Seller's Articles of Incorporation referred to herein; and
WHEREAS, the Board of Directors of the Seller duly formed, in accordance
with the requirements of Section 302A.673 (Subdivision 1, paragraph (d)) of the
Minnesota Business Corporation Act (the "MINNESOTA BCA") and Section 302A.675
(Subdivision 2) of the Minnesota BCA, a committee of disinterested directors (as
defined in Section 302A.673 (Subdivision 1, paragraph (d)(3)) of the Minnesota
BCA) (the "COMMITTEE") to evaluate the Investment, this Agreement and the
transactions contemplated herein, and said Committee has approved the
Investment, this Agreement and the transactions contemplated herein prior to the
date hereof for purposes of each of Section 302A.673 (Subdivision 1, paragraph
(a)) and Section 302A.675 (Subdivision 2) of the Minnesota BCA; PROVIDED,
HOWEVER, that the Investment, this Agreement and the transactions contemplated
herein, including the Issuer Self-Tender (as defined in Section 1.1 hereof), do
not constitute a "takeover offer" within the meaning of Section 302A.011
(Subdivision 53) of the Minnesota BCA and that, therefore, the approval of the
Investment, this Agreement and the transactions contemplated herein by the
Committee as it relates to Section 302A.675 (Subdivision 2) of the Minnesota BCA
is not legally required for the provisions of Section 302A.675 (Subdivision 1)
of the Minnesota BCA to be inapplicable to the Purchaser; and
WHEREAS, (i) the Investment, this Agreement and the transactions
contemplated herein, including the Issuer SelfTender, do not constitute a
"control share acquisition" within the meaning of Section 302A.011 (Subdivision
38) of the Minnesota BCA, (ii) Section 302A.671 of the Minnesota BCA is not
applicable to the Investment and the transactions contemplated herein, (iii)
upon the Closing, the Purchaser will beneficially own capital stock of the
Seller having voting power in the election of directors of over fifty percent
(50%) and, therefore, any subsequent purchase of shares of Common Stock by the
Purchaser (so long as it shall have continually beneficially owned capital stock
of the Seller having voting power in the election of directors of over fifty
percent (50%)) will not be subject to Section 302A.671 of the Minnesota BCA and
(iv) if subclauses (i), (ii) and (iii) above were found to be incorrect by a
court of competent jurisdiction, the approval by the shareholders of the Seller
of this Agreement and the Investment (the "SELLER SHAREHOLDER APPROVAL") shall
constitute approval of a control share acquisition of capital stock of the
Seller having voting power in the election of directors of over fifty percent
(50%) as contemplated by Section 302A.671 (Subdivision 2, paragraph (d)(3)) of
the Minnesota BCA, and such approval shall mean that all shares of Preferred
Stock and all shares of Common Stock acquired in the Investment, whether, in the
case of shares of Common Stock, immediately at the Closing or upon conversion of
the Preferred Stock or exercise of the Warrants (including any increase in the
number of shares pursuant to the anti-dilution provisions thereof), (i) shall be
accorded in the case of the Preferred Stock, the voting rights set forth in the
Preferred Stock
<PAGE>
Designation and, in the case of the Common Stock, the same voting rights as all
other shares of Common Stock, in each case as contemplated by Section 302A.671
(Subdivision 4a, paragraph (a)) of the Minnesota BCA and (ii) shall not be
subject to redemption pursuant to Section 302A.671 (Subdivision 6) of the
Minnesota BCA.
NOW, THEREFORE, in consideration of the premises and of the respective
representations, warranties, covenants, agreements and conditions contained
herein, the Seller and the Purchaser agree as follows:
1. DEFINITIONS; CERTAIN REFERENCES.
1.1 DEFINITIONS. (a) The terms defined in this Section 1.1, whenever used
in this Agreement, shall have the following meanings for all purposes of this
Agreement.
"ACT" means the Securities Act of 1933, as amended and the rules and
regulations thereunder.
"AFFILIATE" means, with respect to any person or entity, (i) any person or
entity that is at the time in question, directly or indirectly, in control of,
or controlled by, or under common control with, such person or entity (as the
term "control" is defined in Rule 12b-2 under the Exchange Act) and (ii) any
person or entity acting in such a manner with such person or entity or any
Affiliate thereof as would constitute them a "person" within the meaning of
Section 14(d)(2) of the Exchange Act.
"ARTICLES OF INCORPORATION" means the articles of incorporation of the
Seller on file with the Secretary of State of the State of Minnesota, a true and
correct copy of which is attached hereto as Exhibit C.
"ARTICLES OF INCORPORATION AMENDMENT" means the amendment to Article III of
the Articles of Incorporation as set forth in EXHIBIT C-1 attached hereto.
"CONVERSION SHARES" means the shares of Common Stock issuable or issued upon
conversion of the Preferred Stock pursuant to the terms of this Agreement and
the Preferred Stock Designation.
"EMPLOYMENT AGREEMENTS" means, collectively, the employment agreements
between the Seller and (i) Judy M. Figge in the form of EXHIBIT D attached
hereto, (ii) Kenneth J. Figge in the form of EXHIBIT E attached hereto, (iii)
James J. Lynn in the form of EXHIBIT H attached hereto, (iv) Cathy R. Reeves in
the form of EXHIBIT L attached hereto and (v) Margaret L. Maxon in the form of
EXHIBIT M attached hereto.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended and the
rules and regulations thereunder.
"ISSUER SELF-TENDER" means the tender offer by the Seller for 6,440,000
shares of the Common Stock pursuant to the Issuer Tender Offer Documents at a
purchase price of $3.40 per share net to the sellers thereof in cash.
"ISSUER TENDER OFFER DOCUMENTS" means all documents required to be filed
under the Exchange Act and any applicable state law, including, without
limitation, a Schedule 13E-4 filed under the Exchange Act, in connection with
the Issuer Self Tender; and "ISSUER TENDER OFFER DOCUMENT" means any one such
document.
"MATERIAL ADVERSE EFFECT" means, with respect to any event, occurrence,
failure of event or occurrence, change, state of affairs, breach, default,
violation, fine, penalty or failure to comply (each, a "CIRCUMSTANCE"),
individually or taken together with all other circumstances contemplated by or
in connection with any or all of the representations and warranties made in this
Agreement, a reduction in the carrying value of assets or an increase in the
carrying value of liabilities of the Seller, a decrease in the Seller's
stockholders' equity, the creation or increase of a loss contingency (as that
term is defined in Statement of Financial Accounting Standards No. 5), a
negative adjustment to the Seller's results of operations historically or
prospectively or the reduction in the value of any agreement to the Seller of,
in each case, $350,000 or more.
2
<PAGE>
"PREFERRED STOCK DESIGNATION" means the certificate of designation adopted
by the Board of Directors of the Seller designating the Preferred Stock in the
form of EXHIBIT B attached hereto.
"PROXY STATEMENT" means the proxy statement with respect to this Agreement,
the Investment, the Articles of Incorporation Amendment and the other
transactions contemplated by this Agreement, including pursuant to the other
Transaction Documents and the Issuer Tender Offer Documents sent to the holders
of the Common Stock in compliance with the Exchange Act, and including the
information required by Rule 14f-1 under the Exchange Act, as the same may be
amended or supplemented in accordance herewith.
"REGISTRABLE SECURITIES" means the Shares, the Conversion Shares and the
Warrant Shares and any other securities issued or issuable (including as a
result of the operation of "anti-dilution adjustment" provisions in the
Preferred Stock and the Warrant) with respect to the Shares, the Conversion
Shares or the Warrant Shares by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization or pursuant to a dividend, distribution or issuance of
other assets or securities; PROVIDED, HOWEVER, that a security ceases to be a
Registrable Security when it is no longer a Restricted Security.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement
covering the Registrable Securities by and between the Seller and the Purchaser
in the form of EXHIBIT F attached hereto, as amended, supplemented and modified
from time to time in accordance with the terms thereof.
"RESTRICTED SECURITY" means any Registrable Security until such Registrable
Security (i) has been effectively registered under the Act and disposed of by
the Purchaser or any other holder in accordance with a registration statement
filed under the Act covering such disposition by the Purchaser or such holder or
(ii) is distributed to the public pursuant to Rule 144 under the Act.
"SEC" means the Securities and Exchange Commission.
"SEC DOCUMENTS" means all documents filed by the Seller with the SEC.
"SECURITIES" means the Shares, the Warrant and the Preferred Stock.
"SUBSIDIARY" means any corporation, limited or general partnership, joint
venture, association, joint stock company, trust, unincorporated organization,
or other entity analogous to any of the foregoing of which a majority of the
equity ownership (whether voting stock, or comparable interest) is, at the time,
owned, directly or indirectly by the Seller.
"TRANSACTION DOCUMENTS" means this Agreement, the Employment Agreements, the
Preferred Stock Designation, the Registration Rights Agreement and the Warrant.
"WARRANT SHARES" means the shares of Common Stock issuable or issued upon
exercise of the Warrant pursuant to the terms of this Agreement and the Warrant.
3
<PAGE>
(b) In addition, the following terms shall have the meanings set forth in
the Sections set forth below opposite such terms:
<TABLE>
<CAPTION>
DEFINED TERMS SECTION
- ---------------------------------------- ------------------
<S> <C>
Acquisition Proposal.................... 7.9
Agreement............................... First Paragraph
Board Increase.......................... 4.1(c)
Closing................................. 2.1
Closing Date............................ 2.1
Committee............................... Recitals
Common Stock............................ Recitals
Compensation and Benefit Plans.......... 5.8
Consents................................ 4.1(e)
Contracts............................... 5.8
Encumbrances............................ 5.3
Environmental Laws...................... 5.14
ERISA................................... 5.26
HSR Act................................. 4.1(c)
Indemnified Person...................... 11
Investment.............................. Recitals
Licenses................................ 5.11
Losses.................................. 11
Minnesota BCA........................... Recitals
Option Plan............................. 5.2
Option Plans............................ 5.2
Preferred Stock......................... Recitals
Programs................................ 5.30
Purchase Price.......................... 2.2
Purchaser............................... First Paragraph
Purchaser Indemnified Matter............ 11
Purchaser Indemnified Person............ 11
Representatives......................... 7.10
Seller.................................. First Paragraph
Seller Indemnified Matter............... 11
Seller Indemnified Person............... 11
Seller Shareholder Approval............. Recitals
Shares.................................. Recitals
Stock Options........................... 5.2
Trademarks.............................. 5.12
Warrant................................. Recitals
</TABLE>
2. CLOSING.
2.1 TIME AND PLACE OF THE CLOSING. The transactions described in Section
2.2 shall occur at a closing (the "CLOSING") which shall take place at the
offices of Lindquist & Vennum, 4200 IDS Center, 80 South Eighth Street,
Minneapolis, Minnesota on the second business day following the first date on
which all of the conditions to Closing set forth in Section 4 (other than the
conditions set forth in Sections 4.2(c), (d)(i)-(iii) and (f) and 4.3(c) and
(d), which shall be satisfied at the Closing) hereof have first been satisfied
or waived in accordance with the terms of this Agreement, or at such other place
and time as the Seller and the Purchaser shall agree upon. The "CLOSING DATE"
shall be the date the Closing occurs.
2.2 TRANSACTIONS AT THE CLOSING. At the Closing, subject to the terms and
conditions of this Agreement, the Seller shall issue and sell to the Purchaser,
and the Purchaser shall purchase, the
4
<PAGE>
Securities. The purchase price for the Securities (the "PURCHASE PRICE") shall,
subject to Section 4.1(f), aggregate $41,896,000, which is comprised of (i)
$20,000,000 for the Preferred Stock and the Warrant and (ii) $21,896,000 for the
Shares. At the Closing, the Seller shall deliver to the Purchaser (i) a
certificate or certificates for the Shares, (ii) a certificate for the Warrant
and (iii) a certificate or certificates for the Preferred Stock, each in the
names, amounts and denominations previously provided to the Seller by the
Purchaser against payment by the Purchaser of the Purchase Price by wire
transfer at the Closing of federal (same day) funds to an account designated by
the Seller.
3. CONDITIONS TO THE EXECUTION OF THIS AGREEMENT. This Agreement shall not
be executed until the following conditions are satisfied (unless expressly
waived in writing by the Purchaser):
(a) RESIGNATION OF DIRECTORS. The Seller shall have provided to the
Purchaser letters of resignation, addressed to the Seller (and expressly
providing that the Purchaser may rely on such letters) in form and substance
satisfactory to the Purchaser and effective immediately upon consummation of
the Closing, from S. Marcus Finkle and Sheldon Lieberbaum, each of whom is a
member of the current Board of Directors of the Seller.
(b) INSTALLATION OF NEW DIRECTORS. The Purchaser shall have received
resolutions of the Board of Directors of the Seller in the form of EXHIBIT G
attached hereto to the effect that each of them will take any action
necessary to effect the appointment to the Board of Directors of the Seller,
immediately upon consummation of the Closing, of the four nominees of the
Purchaser specified on SCHEDULE 3(B) attached hereto or for such other
nominees in lieu of any thereof as may otherwise be specified by the
Purchaser in writing prior to the Closing Date and agreed to by the Seller,
and to the effect that such resolution shall not be rescinded, modified or
waived without the prior written approval of the Purchaser.
(c) DIRECTORS' RESOLUTIONS. The Purchaser shall have received
resolutions of the Board of Directors of the Seller, certified by the
Secretary of the Seller, in form and substance satisfactory to the Purchaser
and evidencing (i) the due authorization of the execution and delivery of
this Agreement and the other Transaction Documents, the Investment, the
issuance of the Securities, the Conversion Shares and the Warrant Shares and
the transactions contemplated hereby and thereby, and (ii) approval of the
Articles of Incorporation Amendment, the increase of the size of the
Seller's Board of Directors to seven members effective on the Closing Date
(the "BOARD INCREASE"), and the amendment of the by-laws of the Seller in
the form of EXHIBIT K-1 attached hereto. The Purchaser shall also have
received certified resolutions of the Committee in form and substance
satisfactory to the Purchaser evidencing the due authorization of this
Agreement and the Investment.
(d) OPINION OF SELLER'S COUNSEL. The Purchaser shall have received an
opinion of Lindquist & Vennum, counsel for the Seller, addressed to the
Purchaser and in form and substance satisfactory to the Purchaser (i) to the
effect of subclauses (i), (ii) and (iii) in the final Recital of this
Agreement, and as to the accuracy of subclause (iv) of such Recital, (ii) to
the effect that the approval of the shareholders pursuant to the Proxy
Statement of the Seller of the Articles of Incorporation Amendment shall,
upon the filing of an appropriate amend-ment to the Articles of
Incorporation, effectuate the Articles of Incorporation Amendment, (iii) as
to the approval and authorization by the Board of Directors of this
Agreement and the other Transaction Documents, the Investment, the issuance
of the Securities, the Issuer Self-Tender and the related transactions
contemplated herein (subject to obtaining the Seller Shareholder Approval),
(iv) as to the Board Increase on the Closing Date and (v) as to the approval
of this Agreement and the Investment by the Committee and to the effect that
such approval shall have the legal effect described in the penultimate
Recital of this Agreement.
(e) EMPLOYMENT AGREEMENTS. The Employment Agreements set forth as
Exhibits D and E attached hereto shall have been executed concurrently with
the execution of this Agreement.
5
<PAGE>
4. CONDITIONS TO THE CLOSING.
4.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF EACH PARTY. The respective
obligations of the Purchaser and the Seller to be discharged under this
Agreement on or prior to the Closing Date are subject to satisfaction of the
following conditions at or prior to the Closing Date (unless expressly waived in
writing by the Purchaser and the Seller, to the extent permitted by applicable
law, at or prior to the Closing Date):
(a) SELLER SHAREHOLDER APPROVAL. This Agreement, the Investment, the
Articles of Incorporation Amendment and an amendment to the Company's 1995
Stock Option Plan shall have been approved and adopted by the requisite vote
of the shareholders of the Seller in accordance with all state and federal
law, including the Minnesota BCA, and such approval shall (i) constitute the
Seller Shareholder Approval having the legal effects described in the final
Recital of this Agreement, (ii) satisfy the shareholder approval
requirements of the Nasdaq National Market and (iii) subject to filing of an
appropriate amendment to the Articles of Incorporation, effectuate the
Articles of Incorporation Amendment.
(b) NO ORDER. No governmental or regulatory authority or federal or
state court of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive
order, decree, injunction or other order (whether temporary, preliminary or
permanent) which is in effect and which has the effect of making the
Investment or the other transactions contemplated hereby or any portion of
it illegal or otherwise prohibiting consummation of all or any portion of
the Investment or the other transactions contemplated hereby or which has
the effect of placing any limitations or restrictions (other than those
contemplated by Section 7.1 hereof) on the ability of the Purchaser to (i)
vote, dispose of, retain or otherwise act in respect of any of the
Securities, the Conversion Shares or the Warrant Shares (other than
restrictions imposed by the federal and state securities laws) or (ii) enter
into any arrangement or transaction with the Seller or any of its
subsidiaries after the acquisition of the Securities, the Conversion Shares
or the Warrant Shares.
(c) HART-SCOTT-RODINO. The applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR ACT") with
respect to the transactions contemplated by this Agreement shall have
expired or been terminated.
(d) ARTICLES OF INCORPORATION AMENDMENT. An amendment to the Articles
of Incorporation of the Seller that satisfies the requirements of Minnesota
law effectuating the Articles of Incorporation Amendment shall have been
filed by the Seller with the Secretary of State of the State of Minnesota
and become effective on the Closing Date.
(e) CONSENTS AND PERMITS. The Seller shall have received all consents,
approvals, authorizations, orders, registrations, filings or qualifications
("CONSENTS") of or with any (A) court or (B) governmental agency or body or
(C) other third party (whether acting in an individual, fiduciary or other
capacity) identified on SCHEDULE 5.9 attached hereto as necessary to be
obtained or made prior to the Closing Date in connection with the
transactions contemplated by this Agreement and the other Transaction
Documents, the Proxy Statement and the Issuer Tender Offer Documents,
including the issuance and sale of the Securities to the Purchaser, and
shall have provided the Purchaser evidence of the same in form and substance
satisfactory to the Purchaser.
(f) CONSUMMATION OF THE ISSUER SELF-TENDER. The Seller shall have,
with the Purchaser's prior written consent (which may not be withheld if all
other conditions to the Closing shall have been satisfied or validly
waived), accepted for purchase in the Issuer Self-Tender pursuant to the
Issuer Tender Offer Documents (without any waiver or modification of any
condition contained therein (unless expressly consented to in writing by the
Purchaser in its discretion)) an aggregate of 6,440,000 shares of Common
Stock at a cash purchase price of $3.40 per share; PROVIDED, HOWEVER, that
in the event that an amount of shares of Common Stock less than or greater
than
6
<PAGE>
6,440,000 shares shall have been tendered in the Issuer Self-Tender, the
Purchaser and the Seller shall mutually determine and agree upon whether the
Seller shall accept for purchase such lesser amount of shares of Common
Stock or any portion of the amount of shares of Common Stock in excess of
6,440,000 shares (in addition to the 6,440,000 shares) at a cash purchase
price of $3.40 per share in the Issuer Self-Tender, whereupon at the Closing
the Purchaser shall pay to the Seller in accordance with Section 2.2 an
amount equal to the aggregate cash consideration to be paid by the Seller in
the Issuer Self-Tender in lieu of the amount provided for in clause (ii) of
the second sentence of Section 2.2, and the aggregate Purchase Price for the
Securities referred to in such sentence shall be similarly adjusted so that
such aggregate Purchase Price will equal the sum of $20,000,000 plus the
amount to be paid at Closing in accordance with this proviso. Upon any
agreed upon determination by the Purchaser and the Seller in accordance with
the proviso in the preceding sentence, the Seller shall make appropriate
changes to the Issuer Tender Offer Documents and extend the Issuer
Self-Tender for the period required by applicable law. The Purchaser and the
Seller agree that the tendering of at least 5,635,000 shares of Common Stock
in the Issuer Self-Tender shall be sufficient to permit them to make the
mutual determination and agreement contemplated by the proviso in the second
preceding sentence.
(g) DETERMINATION OF FINDER'S FEE. The aggregate fee payable to
Hambrecht & Quist Incorporated referred to in Section 5.19 shall have been
determined and agreed to by Hambrecht & Quist Incorporated and such fee
shall be satisfactory to each of the Purchaser and the Seller.
(h) LENDER CONSENTS. Manor Care, Inc. and the Purchaser shall have
obtained the consent of its lenders under that certain Competitive Advance
and Multi-Currency Revolving Credit Facility Agreement dated as of November
30, 1994 to a waiver of (i) the applicability of the covenants therein to
the Seller and (ii) any requirement that the Seller provide a guaranty of
the obligations under said credit facility.
4.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PURCHASER. The
obligations of the Purchaser to be discharged under this Agreement on or prior
to the Closing Date are subject to satisfaction of the following conditions at
or prior to the Closing Date (unless expressly waived in writing by the
Purchaser, to the extent permitted by applicable law, at or prior to the Closing
Date):
(a) COMPLIANCE BY THE SELLER. All of the terms, covenants and
conditions of this Agreement and the other Transaction Documents to be
complied with and performed by the Seller at or prior to the Closing Date
shall have been complied with and performed by it, and the representations
and warranties made by the Seller in this Agreement and in the other
Transaction Documents and in all exhibits, schedules, appendices and
attachments to any thereof shall be true and correct at and as of the
Closing Date, with the same force and effect as though such representations
and warranties had been made at and as of the Closing Date.
(b) NO LEGAL ACTION. No action, suit, investigation or other
proceeding that (i) relates to the transactions contemplated by this
Agreement or any other Transaction Document or by the Proxy Statement or the
Issuer Tender Offer Documents or (ii) could reasonably be expected to have a
Material Adverse Effect shall have been instituted before any court or
instituted or, to the knowledge of the Purchaser, threatened by any
governmental body which presents a risk, in the judgment of the Purchaser,
of a limitation on, or restraint or prohibition of, the transactions
contemplated by this Agreement, any other Transaction Document, the Proxy
Statement or the Issuer Tender Offer Documents or of the obtaining of
damages or other relief in connection therewith by the Purchaser.
(c) LEGAL OPINION. The Purchaser shall have received at and as of the
Closing Date a legal opinion of Lindquist & Vennum, counsel for the Seller,
dated the Closing Date addressed to the Purchaser and in form and substance
satisfactory to the Purchaser, substantially in the form of EXHIBIT I
attached hereto.
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(d) DELIVERY OF THE TRANSACTION DOCUMENTS AND SECURITIES, ETC.
(i) The Seller shall have duly authorized, executed and delivered
each of the Transaction Documents (other than this Agreement).
(ii) The Seller shall have duly authorized, issued and delivered the
Securities.
(iii) The Seller shall have executed and delivered all such other
documents and certificates as the Purchaser shall reasonably request,
evidencing to the reasonable satisfaction of the Purchaser and its
counsel such matters as the taking of all necessary corporate action by
the Seller in order to consummate the transactions to be consummated by
the Seller contemplated by the Transaction Documents, the Proxy Statement
and the Issuer Tender Offer Documents.
(iv) The letters, the resolutions, legal opinion and Employment
Agreements attached as Exhibits D and E hereto referred to in Section 3
hereto shall not have been rescinded, modified or waived and shall remain
in full force and effect at the Closing Date.
(e) NO MATERIAL ADVERSE EFFECT. There shall not have occurred, since
September 30, 1994, any event, condition, change, occurrence or
circumstance, which has had or is reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect and the Purchaser shall have
received a certificate signed by each of the Seller's chief executive
officer and chief financial officer (in their capacity as officers of the
Seller and not personally), dated the Closing Date, to the same effect as
well as certificates of the treasurer, controller and chief operating
officer (in their capacity as officers of the Seller and not personally) of
the Seller, dated the Closing Date, to the same effect with respect to their
respective areas of responsibility.
(f) APPOINTMENT OF DIRECTORS. There shall have been appointed to the
Board of Directors of the Seller, effective on the Closing Date, four
Directors chosen by the Purchaser in accordance with Section 3(b) hereof.
4.3 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLER. The obligations of
the Seller to be discharged under this Agreement at or prior to the Closing Date
are subject to satisfaction of the following conditions at or prior to the
Closing Date (unless waived by the Seller, to the extent permitted by applicable
law, at or prior to the Closing Date):
(a) COMPLIANCE BY THE PURCHASER. All of the terms, covenants and
conditions of this Agreement to be complied with and performed by the
Purchaser at or prior to the Closing shall have been complied with and
performed by it, and the representations and warranties made by the
Purchaser in this Agreement shall be true and correct at and as of the
Closing Date, with the same force and effect as though such representations
and warranties had been made at and as of the Closing Date.
(b) NO LEGAL ACTION. No action, suit, investigation or other
proceeding that relates to the transactions contemplated by this Agreement
and the other Transaction Documents, the Proxy Statement or the Issuer
Tender Offer Documents shall have been instituted before any court or
instituted or, to the knowledge of the Seller, threatened by any
governmental body which presents a risk, in the judgment of the Seller, of a
limitation on, or restraint or prohibition of, the transactions contemplated
by this Agreement, the other Transaction Documents, the Proxy Statement or
the Issuer Tender Offer Documents or of the obtaining of damages or other
relief in connection therewith.
(c) LEGAL OPINIONS. The Seller shall have received at and as of such
Closing Date legal opinions of Cahill Gordon & Reindel, counsel for the
Purchaser, and the General Counsel of Manor Care, Inc., dated the Closing
Date addressed to the Seller and in form and substance satisfactory to the
Seller, substantially in the form of EXHIBIT J attached hereto.
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(d) DELIVERY OF THE TRANSACTION DOCUMENTS, ETC.
(i) The Purchaser shall have duly authorized, executed and delivered
each of the Transaction Documents (other than this Agreement) to which
the Purchaser is a party.
(ii) The Purchaser shall have executed and delivered all such other
documents and certificates as the Seller shall reasonably request,
evidencing to the reasonable satisfaction of the Seller and its counsel
such matters as the taking of all necessary corporate action by the
Purchaser in order to consummate the transactions to be consummated by
the Purchaser contemplated by the Transaction Documents.
5. REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller hereby
represents and warrants to the Purchaser on and as of the date hereof and on and
as of the Closing Date as follows:
5.1 ORGANIZATION, GOOD STANDING, POWER, AUTHORITY, ETC. The Seller is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Minnesota. The Seller has the full corporate power and authority
to execute and deliver this Agreement and each other Transaction Document and,
subject to obtaining Seller Shareholder Approval, to perform in a full and
timely manner each of its obligations hereunder and thereunder and in respect of
the Issuer Self-Tender. The Seller has taken all action required by law, its
Articles of Incorporation, its by-laws or otherwise required to be taken by it
to authorize the execution, delivery and, subject to obtaining Seller
Shareholder Approval, performance by it of this Agreement and each other
Transaction Document and in respect of the Issuer Self-Tender. This Agreement
has been duly executed and is, and upon execution and delivery thereof at the
Closing each of the other Transaction Documents will be, a valid and binding
obligation of the Seller. True and complete copies of the Articles of
Incorporation and the by-laws of the Seller are attached hereto as EXHIBIT C and
EXHIBIT K, respectively. No amendments to the Articles of Incorporation or
by-laws of the Seller have been authorized other than the Articles of
Incorporation Amendment (subject to approval of the shareholders of the Seller)
and the amendment to the by-laws set forth as EXHIBIT K-1 attached hereto (which
has been adopted by the Board of Directors of the Seller to become effective at
the Closing).
5.2 CAPITALIZATION, ETC. (a) The authorized capital stock of the Seller
consists of (i) 40,000,000 shares of Common Stock, of which as of the date of
this Agreement (1) 16,073,819 shares were issued and outstanding and (2)
1,803,850 shares were reserved for future issuance pursuant to outstanding stock
options ("STOCK OPTIONS") granted pursuant to the Seller's Stock Option Plan of
1987, as amended, 1995 Stock Option Plan and Employee Stock Purchase Plan
(collectively, the "OPTION PLANS" and individually, an "OPTION PLAN"), and such
number includes 96,000 shares reserved for issuance upon exercise of warrants to
purchase the Seller's Common Stock at an exercise price of $6.00 per share and
which expire in January 1996; and (ii) 1,000,000 shares of preferred stock, of
which no shares are issued and outstanding. The Seller has no treasury shares.
Except as described in SCHEDULE 5.2 attached hereto, as of the date of this
Agreement, no shares of capital stock of the Seller are reserved for any
purpose. All outstanding shares of capital stock of, or other equity interests
in, the Seller have been duly authorized and validly issued and are fully paid
and nonassessable, and have not been issued in violation of (nor are any of the
authorized shares of capital stock of, or other equity interests in, the Seller
subject to) any preemptive or similar rights created by statute, the charter or
bylaws of the Seller, or any agreement to which the Seller is a party or bound.
(b) Except as set forth in SCHEDULE 5.2 attached hereto, there are no
options, warrants or other rights (including registration rights), agreements,
arrangements or commitments of any character to which the Seller is a party
relating to the issued or unissued capital stock of the Seller or obligating the
Seller to grant, issue or sell any shares of the capital stock of the Seller, by
sale, lease, license or otherwise. There are no obligations, contingent or
otherwise, of the Seller to (i) repurchase, redeem or otherwise acquire any
shares of Common Stock (other than through the Issuer Self-Tender); or (ii)
provide funds to, or make any investment in (in the form of a loan, capital
contribution or otherwise), or provide any guarantee with respect to the
obligations of, any other person. The Seller (x) does not directly or indirectly
own, (y) has no agreements to purchase or otherwise acquire and
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(z) does not hold any interest convertible into or exchangeable or exercisable
for, any capital stock of or other equity interest in any corporation,
partnership, joint venture or other business association or entity. Except as
disclosed on Schedule 5.8(a) attached hereto, there are no agreements,
arrangements or commitments of any character (contingent or otherwise) pursuant
to which any person is or may be entitled to receive any payment based on the
revenues or earnings, or calculated in accordance therewith, of the Seller.
There are no voting trusts, proxies or other agreements or understandings to
which the Seller is a party or by which the Seller is bound with respect to the
voting of any shares of capital stock of the Seller.
(c) The Seller has delivered to the Purchaser complete and correct copies of
each of the Option Plans, including all amendments thereto. SCHEDULE 5.2
attached hereto sets forth a complete and correct list of all outstanding
options setting forth (i) the exercise price of each outstanding Stock Option,
(ii) the number of Stock Options exercisable, and (iii) a general description of
the vesting schedules of the Stock Options. SCHEDULE 5.2 attached hereto sets
forth a complete and correct list of all restricted stock awards including the
recipients and the number of shares received or to be received by each.
5.3 TITLE TO SHARES ACQUIRED IN ISSUER SELF-TENDER. Upon consummation of
the Issuer Self-Tender, the Seller will be the lawful beneficial owner of all
the shares of Common Stock acquired upon consummation of the Issuer Self-Tender,
free and clear of all liens, claims, charges, encumbrances, restrictions, rights
and options to purchase, voting trusts or agreements, calls and commitments of
any kind (collectively, "ENCUMBRANCES").
5.4 REGISTRATION RIGHTS. The Purchaser shall, by virtue of its purchase of
Securities hereunder or conversion of the Preferred Stock for Conversion Shares
or exercise of the Warrant for Warrant Shares, be a holder of Registrable
Securities, as defined in the Registration Rights Agreement, and be entitled to
the rights of such a holder under such Registration Rights Agreement.
5.5 PROXY STATEMENT AND ISSUER TENDER OFFER DOCUMENTS; SEC DOCUMENTS. Each
of the Proxy Statement and each Issuer Tender Offer Document will comply in all
material respects with the Exchange Act. None of the Proxy Statement or any
Issuer Tender Offer Document will include any untrue statement of a material
fact or will omit to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. Each SEC Document, as of the date of its filing with the SEC,
complied as to form in all material respects with the requirements of the Act
and Exchange Act and did not include any untrue statement of a material fact or
omit to state any material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
5.6 AUTHORITY AND QUALIFICATION OF THE SELLER. The Seller has the
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the SEC Documents, the Proxy Statement and
the Issuer Tender Offer Documents and as currently owned, leased or conducted.
The Seller is duly qualified to transact business as a foreign corporation and
is in good standing in each jurisdiction in which the conduct of its business or
its ownership, leasing or operation of property requires such qualification,
other than any failure to be so qualified or in good standing as would not,
singly or in the aggregate with all such other failures, reasonably be expected
to have a Material Adverse Effect.
5.7 NO SUBSIDIARIES. The Seller has no Subsidiaries.
5.8 NO CONTRAVENTION, CONFLICT, BREACH, ETC. The execution, delivery and
performance of each Transaction Document by the Seller and the consummation of
the transactions herein and therein contemplated to be performed by the Seller,
and the consummation of the Issuer Self-Tender, do not and will not constitute
or result in (1) a breach or violation of, or a default under, the Articles of
Incorporation or by-laws of the Seller, (2) a breach or violation of, a default
under or an event triggering any payment or other obligation pursuant to, any of
the Seller's existing bonus, deferred compensation, pension, retirement,
profit-sharing, thrift, savings, employee stock ownership, stock
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bonus, stock purchase, restricted stock and stock option plans, stock
appreciation rights, all employment or severance contracts, and all similar
arrangements of the Seller (the "COMPENSATION AND BENEFIT PLANS") or any grant
or award made under any of the foregoing, (3) a breach, violation or event
triggering a right of termination of, or a default under, or the acceleration of
or the creation of a lien, pledge, security interest or other encumbrance on
assets (with or without the giving of notice or the lapse of time or both)
pursuant to any provision of any agreement, lease of real or personal property,
marketing agreement, contract, note, mortgage, indenture, arrangement or other
obligation ("CONTRACTS") of the Seller or any law, rule, ordinance or regulation
or judgment, decree, order or award to which the Seller is subject or any
governmental or non-governmental authorization, consent, approval, registration,
franchise, license or permit under which the Seller conducts any of its
business, or (4) any other change in the rights or obligations of any party
under any of the Seller's Contracts. Set forth on SCHEDULE 5.8(A) attached
hereto is a true and complete list of all Compensation and Benefit Plans. Set
forth on SCHEDULE 5.8(B) attached hereto is a true and complete list of all
Contracts having a value or imposing remaining obligations on the Seller of at
least $150,000.
5.9 CONSENTS. Except as required by the HSR Act and the Seller Shareholder
Approval, no Consent of or with any (A) court or (B) government agency or body
or (C) other third party (whether acting in an individual, fiduciary or other
capacity) is required for the consummation of the transactions contemplated by
this Agreement and the other Transaction Documents, the Proxy Statement or the
Issuer Tender Offer Documents to be performed by the Seller, except (1) such as
have been obtained and made and are in full force and effect or such others as
will be obtained or made prior to the Closing (all of which consents, approvals,
etc. are described in SCHEDULE 5.9 attached hereto) and (2) such as may be
required under the Act and state securities laws in connection with the
performance by the Seller of its obligations under the Registration Rights
Agreement.
5.10 NO EXISTING VIOLATION, DEFAULT, ETC. The Seller is not in violation
of (A) its Articles of Incorporation or by-laws or (B) any applicable law,
ordinance, administrative or governmental rule or regulation (except for any
violations, singly or in the aggregate, which do not have a Material Adverse
Effect and except as set forth on SCHEDULE 5.30 attached hereto) or (C) any
order, decree or judgment of any court of governmental agency or body having
jurisdiction over the Seller. No event of default or event that, but for the
giving of notice or the lapse of time or both, would constitute an event of
default exists or, upon the consummation by the Seller of the transactions
contemplated by any Transaction Document, the Proxy Statement or the Issuer
Tender Offer Documents, will exist, under any Contract or any lease, permit,
license or other agreement or instrument to which the Seller is a party or by
which the Seller is bound or to which any of the properties, assets or
operations of the Seller is subject (except for any events of default or other
defaults which, singly or in the aggregate, do not have a Material Adverse
Effect). The Seller has appropriate policies in effect requiring that each
employee of the Seller be instructed and directed as to the scope of any medical
License that the Seller is permitted to provide services under and, to the best
knowledge of the Seller, there are no material violations of such policies by
any employee of the Seller.
5.11 LICENSES AND PERMITS. The Seller has such certificates, permits,
licenses, franchises, consents, approvals, orders, authorizations and clearances
from appropriate governmental agencies and bodies ("LICENSES") as are necessary
to own, lease or operate its properties and to conduct its business in the
manner described in the SEC Documents, the Proxy Statement and the Issuer Tender
Offer Documents and as presently conducted and all such Licenses are valid and
in full force and effect, other than any failure to have any such License or any
failure of any such License to be valid and in full force and effect as would
not, singly or in the aggregate with all such other failures, reasonably be
expected to have a Material Adverse Effect. The Seller is in compliance with its
obligations under such Licenses and no event has occurred that allows, or after
notice or lapse of time would allow, revocation or termination of such Licenses,
other than any such failure to be in compliance with such obligations or any
such revocation or termination as would not, singly or in the aggregate with all
such other failures, revocations or terminations, reasonably be expected to have
a Material Adverse Effect. The Seller has no knowledge of any facts or
circumstances that could result in an inability of the Seller to
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renew any License. Neither the execution and delivery by the Seller of any of
the Transaction Documents nor the consummation of any of the transactions
contemplated herein or therein (including the conversion of the Preferred Stock
and the exercise of the Warrant) will result in any revocation or termination of
any License or any requirement that the Purchaser be licensed in respect of any
of the Seller's Licenses. Set forth on SCHEDULE 5.11 attached hereto is a true
and complete list of all Licenses held by the Seller and the expiration date of
each such License.
5.12 TRADEMARKS. Except as set forth on SCHEDULE 5.12 attached hereto, the
Seller owns or has obtained valid licenses for all trademarks, trademark
registrations and trade names described in the SEC Documents, Proxy Statement
and Issuer Tender Offer Documents as being owned, licensed or used by the Seller
or that are necessary for the conduct of its business as described in the SEC
Documents, Proxy Statement and Issuer Tender Offer Documents (collectively,
"TRADEMARKS"), other than any such Trademark the failure of which to own or
obtain as would not, singly or in the aggregate with all such other failures,
reasonably be expected to have a Material Adverse Effect and the Seller is not
aware, after due inquiry, of any claim to the contrary or any challenge by any
third party to the rights of the Seller with respect to any such Trademarks or
to the validity or scope of any such Trademarks, which claims or challenges
would, singly or in the aggregate with all other claims or challenges,
reasonably be expected to have a Material Adverse Effect; and the Seller does
not have any claim against a third party with respect to the infringement by
such third party of any such Trademarks, which infringements would, singly or in
the aggregate with all such other infringements, reasonably be expected to have
a Material Adverse Effect.
5.13 TITLE TO PROPERTIES. The Seller has good and marketable title to all
properties (real and personal) owned by the Seller which are necessary for the
conduct of the business of the Seller as set forth in the SEC Documents, the
Proxy Statement and the Issuer Tender Offer Documents and as currently conducted
free and clear of any mortgage, pledge, lien, security interest, claim or
encumbrance of any kind that would, except to the extent described on SCHEDULE
5.13 attached hereto, materially interfere with the conduct of the business of
the Seller, and all properties held under lease by the Seller are held under
valid, subsisting and enforceable leases, other than any failure of any such
lease to be valid, subsisting or enforceable as would not, singly or in the
aggregate with all such other failures, reasonably be expected to have a
Material Adverse Effect.
5.14 ENVIRONMENTAL MATTERS. (a) The properties, assets and operations of
the Seller are in full compliance with all applicable federal, state, local and
foreign laws, rules and regulations, orders, decrees, judgments, permits and
licenses relating to public and worker health and safety and to the protection
and clean-up of the natural environment and activities or conditions related
thereto, including, without limitation, those relating to the generation,
handling, disposal, transportation or release of hazardous materials, including,
without limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986 (collectively, "ENVIRONMENTAL LAWS"), other than any
such failure to be in compliance as would not, singly or in the aggregate with
all such other failures, reasonably be expected to have a Material Adverse
Effect; PROVIDED, HOWEVER, that, as to the handling, disposal, transportation or
release of hazardous materials by persons other than the Seller, the foregoing
representation is subject to the knowledge of the Seller. With respect to such
properties, assets and operations, including any previously owned, leased or
operated properties, assets or operations, there are no past, present or
reasonably anticipated future events, conditions, circumstances, activities,
practices, incidents, actions or plans of the Seller that may interfere with or
prevent compliance or continued compliance in all material respects with
applicable Environmental Laws, other than any such interference or prevention as
would not, singly or in the aggregate with any such other interference or
prevention, reasonably be expected to have a Material Adverse Effect. To the
best knowledge of the Seller, it is not the operator of any underground storage
tanks (as defined below) located upon and/or serve any of the Seller's premises.
"Underground storage tank" for the purposes of this Agreement shall mean any one
or combination of tanks, including appurtenant pipes, lines, fixtures and other
related equipment, used to contain an accumulation of hazardous materials, the
volume of
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which, including the volume of the appurtenant pipes, lines, fixtures and other
related equipment, is ten percent (10%) or more below the ground. The term
"HAZARDOUS MATERIALS" shall mean those substances, including any medical wastes,
that are regulated by or form the basis for liability under any applicable
Environmental Laws.
(b) The Seller is not, to the best of Seller's knowledge, the subject of any
federal, state, local or foreign investigation, and the Seller has not received
any notice or claim (or is aware of any facts that would form a reasonable basis
for any claim), nor entered into any negotiations or agreements with any third
party, relating to any liability or remedial action or potential liability or
remedial action under Environmental Laws, nor are there any pending, anticipated
or, to the best knowledge of the Seller, threatened actions, suits or
proceedings against or affecting the Seller or its properties, assets or
operations, in connection with any such Environmental Laws.
5.15 TAXES. For purposes of this Section 5.15, "TAX" or "TAXES" shall mean
all federal, state, local and foreign taxes, duties, levies, charges and
assessments of any nature, including social security payments and deductibles
relating to wages, salaries and benefits and payments to subcontractors (to the
extent required under applicable tax law), and also including all interest,
penalties and additions imposed with respect to such amounts. Except for
liabilities and penalties which would not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect and except as set
forth on SCHEDULE 5.15 attached hereto, (i) all tax returns, statements, reports
and forms (including estimated tax returns and reports) required to be filed
with any taxing authority by or on behalf of the Seller (collectively, the
"RETURNS") have been or will be filed when due in accordance with all applicable
laws except where failure so to file would not subject the Seller to liabilities
or penalties; (ii) as of the time of filing, the Returns correctly reflected
(and, as to any Returns not filed as of the date hereof, will correctly reflect)
the facts regarding the income, business, assets, operations, activities and
status of the Seller and any other information required to be shown therein;
(iii) the Seller has timely paid, withheld or made provision for all taxes shown
as due and payable on the Returns that have been filed; (iv) the Seller has made
or will on or before the Closing Date make provision for all taxes payable by
the Seller for any tax period (or portion thereof) ending on or before the
Closing Date for which no Return has yet been filed; (v) the charges, accruals
and reserves for taxes with respect to the Seller for any tax period (or portion
thereof) ending on or before the Closing Date reflected on the books of the
Seller are adequate to cover such taxes; (vi) all Returns have been filed with
respect to taxable years of the Seller through the taxable years ended September
30, 1994; (vii) the Seller is not delinquent in the payment of any tax or has
requested any extension of time within which to file or send any Return, which
Return has not since been filed or sent; (viii) the Seller (or any member of any
affiliated or combined group of which the Seller is or has been a member) has
not granted any extension or waiver of the limitation period applicable to any
Returns; (ix) there is no claim, audit, action, suit, proceeding or
investigation now pending or threatened against or with respect to the Seller of
which the Seller is aware in respect of any tax or assessment; and (x) there are
no liens for taxes upon the assets of the Seller except liens for current taxes
not yet due. References to the Seller in this Section 5.15 shall be deemed to
include references to any former Subsidiaries of the Seller at the time such
were Subsidiaries of the Seller.
5.16 LITIGATION. Except as set forth on SCHEDULE 5.16 attached hereto,
there are no pending actions, suits, proceedings or investigations by, against
or affecting the Seller or any of its properties, assets or operations, or with
respect to which the Seller is responsible by way of indemnity or otherwise,
that are required under the Exchange Act to be described in the SEC Documents
filed prior to the date of this Agreement which are not so described. No pending
or, to the knowledge of the Seller, threatened actions, suits, proceedings or
investigations by, against or affecting the Seller or any of its properties,
assets or operations, or with respect to which the Seller is responsible by way
of indemnity or otherwise, whether or not disclosed in such SEC Documents, (x)
would, except as set forth on SCHEDULE 5.16 attached hereto, singly or in the
aggregate with all such other actions, suits, investigations or proceedings,
reasonably be expected to have a Material Adverse Effect, or (y) could adversely
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affect the ability of the Seller to perform its obligations under this Agreement
or any other Transaction Document or in respect of the Issuer Self-Tender; and,
to the best knowledge of the Seller after due inquiry, no such actions, suits,
proceedings or investigations are threatened or contemplated and there is no
reasonable basis, to the best knowledge of the Seller after due inquiry, for any
such action, suit, proceeding or investigation whether or not threatened or
contemplated. The Seller has previously disclosed to the Purchaser all claims
known to it for medical malpractice, if any, to which the Seller is subject.
5.17 LABOR MATTERS. No labor disturbance by the employees of the Seller
exists or, to the knowledge of the Seller, is threatened. The Seller is not a
party to any collective bargaining agreements or similar agreements or
arrangements with any labor organization or labor representative. To the best of
the Seller's knowledge, no union organizing activities with respect to any of
the Seller's employees are occurring or threatened.
5.18 CONTRACTS. All of the Seller's material contracts that are required
to be described in the SEC Documents, the Proxy Statement or the Issuer Tender
Offer Documents, or to be filed as exhibits thereto, are in full force and
effect. Neither the Seller nor, to the best knowledge of the Seller, any other
party is in breach of or default under any such contracts except for such
breaches and defaults by parties other than the Seller which, singly or in the
aggregate, have not had and would not have a Material Adverse Effect.
5.19 FINDER'S FEES. No broker, finder or other party is entitled to
receive from the Seller any investment banking fee, financial advisory fee,
dealer manager fee, finder's fee, brokerage fee, proxy or other solicitation
fee, success fee, or any other fee, commission, payment, indemnity or expense
reimbursement or other consideration as a result of the transactions
contemplated by this Agreement, the Proxy Statement or the Issuer Tender Offer
Documents, except that the Seller has agreed to pay Hambrecht & Quist
Incorporated certain fees.
5.20 FINANCIAL STATEMENTS. The audited consolidated financial statements
and related schedules and notes included in the SEC Documents, and to be
included in the Proxy Statement and the Issuer Tender Offer Documents, comply
and, in the case of the Proxy Statement and the Issuer Tender Offer Documents,
will comply in all material respects with the requirements of the Exchange Act
and the Act and the rules and regulations of the SEC thereunder, were prepared
in accordance with generally accepted accounting principles consistently applied
throughout the periods involved and fairly present the consolidated financial
condition, results of operations, cash flows and changes in stockholders' equity
of the Seller at the dates and for the periods presented. The unaudited
quarterly consolidated financial statements and the related notes included in
the SEC Documents, and to be included in the Proxy Statement and the Issuer
Tender Offer Documents, present and will present fairly the consolidated
financial condition, results of operations and cash flows of the Seller at the
dates and for the periods to which they relate, subject to year-end audit
adjustments (consisting only of normal recurring accruals), have been and will
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis and have been and will have been prepared on a
basis substantially consistent with that of the audited financial statements
referred to above except as otherwise stated therein. No additional adjustment
to the recorded book value of the Seller's consolidated assets as reflected on
its December 31, 1994 balance sheet is necessary or appropriate.
5.21 NO MATERIAL ADVERSE CHANGE. (a) Except as set forth on SCHEDULE 5.21
attached hereto, since September 30, 1994 (i) the Seller has conducted its
business in the ordinary course and has not incurred any material liability or
obligation (indirect, direct or contingent) or entered into any material oral or
written agreement or other transaction that is not in the ordinary course of
business (other than the Transaction Documents and the Issuer Self-Tender) or
that could reasonably be expected to result in any Material Adverse Effect; (ii)
the Seller has not sustained any material loss or interference with its business
or properties from fire, flood, windstorm, accident or other calamity (whether
or not covered by insurance); (iii) there has been no material change in the
indebtedness of
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the Seller, no change in the capital stock of the Seller and no dividend or
distribution of any kind declared, paid or made by the Seller on any class of
its capital stock; (iv) there has been no event or condition which has caused a
Material Adverse Effect, nor any development, occurrence or state of facts or
circumstances that could, singly or in the aggregate, reasonably be expected to
result in a Material Adverse Effect; (v) there has been no amendment,
modification or supplement to any material term of any Contract required to be
identified on SCHEDULE 5.8(B) attached hereto or any equity security; and (vi)
there has been no material change by the Seller in accounting principles,
practices or methods.
(b) Since September 30, 1994, other than in the ordinary course of business
consistent with past practice and other than the Employment Agreements, there
has not been any increase in the compensation or other benefits payable, or
which could become payable, by the Seller, to its officers or key employees, or
any amendment of any of the Compensation and Benefit Plans.
5.22 INVESTMENT COMPANY. The Seller is not an "investment company" within
the meaning of the Investment Company Act of 1940, as amended.
5.23 CONTINGENT LIABILITIES. Except as fully reflected or reserved against
in the financial statements included in the SEC Documents filed immediately
prior to the date of this Agreement, or disclosed in the footnotes contained in
such financial statements, the Seller had no liabilities (including tax
liabilities) at the date of such financial statements, absolute or contingent,
that were material either individually or in the aggregate to the Seller.
5.24 NO CHANGE OF CONTROL PUTS. Neither the execution and delivery by the
Seller of any of the Transaction Documents (including this Agreement) nor the
consummation of any of the transactions contemplated thereunder or hereunder
including the conversion of the Preferred Stock and/or the exercise of the
Warrant, nor the consummation of the Issuer Self-Tender, gives rise to any
obligation of the Seller to, or any right of any holder of any security of the
Seller to, require the Seller to, purchase, offer to purchase, redeem or
otherwise prepay or repay any such security, or deposit any funds to effect the
same.
5.25 EXEMPTION FROM REGISTRATION; RESTRICTIONS ON OFFER AND SALE OF SAME OR
SIMILAR SECURITIES. Assuming the representations and warranties of the Purchaser
set forth in Section 6.3 are true and correct, the offer and sale of the
Securities made pursuant to this Agreement will be exempt from the registration
requirements of the Act. Neither the Seller nor any person acting on behalf of
the Seller has, in connection with the offering of the Securities, engaged in
(A) any form of general solicitation or general advertising (as those terms are
used within the meaning of Rule 502(c) under the Act), (B) any manner involving
a public offering within the meaning of Section 4(2) of the Act, or (C) any
action which would require the registration of the offering and sale of the
Securities pursuant to this Agreement under the Act or which would violate
applicable state securities or "blue sky" laws. The Seller will not, directly or
indirectly, make any offer or sale of Securities or of securities of the same or
a similar class as the Securities if as a result the offer and sale of
Securities contemplated hereby could fail to be entitled to exemption from the
registration requirements of the Act. As used herein, the terms "OFFER" and
"SALE" have the meanings specified in Section 2(3) of the Act.
5.26 ERISA. Except as listed in SCHEDULE 5.8(A) attached hereto, neither
the Seller nor any of its ERISA Affiliates maintains or sponsors, nor is it
required to make contributions to nor does it otherwise have any liability with
respect to, any pension, profit sharing, thrift or other retirement plan,
employee stock ownership plan, deferred compensation, stock purchase,
performance share, bonus or other incentive plan, severance plan, health or
group insurance plan, welfare plan or other similar plan, agreement, or policy,
whether or not such plan is intended to be qualified under Section 401(a) of the
Code, including, without limitation, any employee benefit plan within the
meaning of Section 3(3) of ERISA (the "Plans"). The Seller and its ERISA
Affiliates are in compliance in all material respects with the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), the Internal
Revenue Code of 1986, as amended (the "CODE") and all other applicable statutes
and governmental rules and regulations with respect to the Plans. To the best
knowledge of the Seller,
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after due inquiry, there are no actions, suits or claims pending or threatened
(other than routine claims for benefits) with respect to any Plan. Neither the
Seller nor any of its ERISA Affiliates has incurred or reasonably expects to
incur any material liability under or pursuant to Title IV of ERISA. Except for
the Supplemental Executive Retirement Plan listed on SCHEDULE 5.8(A) attached
hereto, each Pension Plan is intended to qualify under Section 401(a) of the
Code and has received a favorable determination letter from the Internal Revenue
Service as to such qualification that addresses plan provisions required by the
Tax Reform Act of 1986 and have been amended to comply with subsequent federal
income tax legislation (other than P.L. 103-465), and with respect to each such
Pension Plan intended to be so qualified, Seller is not aware of any event or
condition which would cause such Pension Plan to fail to be so qualified. No
prohibited transactions described in Section 406 of ERISA or Section 4975 of the
Code have occurred which could result in material liability to the Seller. The
consummation of the transactions contemplated by this Agreement will not result
in an increase in the amount of compensation or benefits (except as contemplated
in the Employment Agreements) or accelerate the vesting or timing of payment of
any benefits or compensation (except as contemplated in the Employment
Agreements) payable to or in respect of any employee of the Seller. The
transactions contemplated by this Agreement will not result in any "parachute
payments" (within the meaning of Section 280G(b) of the Code). As used herein
the term "PENSION PLAN" means a "pension plan", as such term is defined in
Section 3(1) of ERISA (other than a Multiemployer Plan) established or
maintained by the Seller or any of its ERISA Affiliates or as to which the
Seller or any of its ERISA Affiliates has contributed or otherwise may have any
liability. "MULTIEMPLOYER PLAN" means a "multiemployer plan", as such term is
defined in Section 4001(a)(3) of ERISA to which the Seller or any of its ERISA
Affiliates is or has been obligated to contribute or otherwise may have any
liability. "ERISA AFFILIATE" means any trade or business (whether or not
incorporated) which is under common control or would be considered a single
employer with the Seller within the meaning of Section 414(b), (c), (m) or (o)
of the Code and the regulations promulgated under those sections.
5.27 SECURITIES. (a) The Shares, when issued and delivered to and paid for
by the Purchaser pursuant to this Agreement, will be validly issued, fully paid
and nonassessable, and will be free of preemptive or similar rights and
Encumbrances (except as provided in Section 7.1 hereof).
(b) The Warrant, when executed, issued and delivered to and paid for by the
Purchaser pursuant to this Agreement, will be validly issued, fully paid and
nonassessable, and will be free of preemptive or similar rights and any
Encumbrances (except as provided in Section 7.1 hereof), and will be a legal,
valid and binding obligation of the Seller enforceable against the Seller in
accordance with its terms.
(c) The Preferred Stock, when issued and delivered to and paid for by the
Purchaser pursuant to this Agreement, will be validly issued, fully paid and
nonassessable, and will be free of preemptive or similar rights and Encumbrances
(except as provided in Section 7.1 hereof).
(d) The Conversion Shares and the Warrant Shares (in sufficient amounts to
satisfy the initial conversion and exercise requirements of the Preferred Stock
and the Warrant) have been duly reserved for issuance upon conversion of the
Preferred Stock and exercise of the Warrant, as the case may be, and have been
duly authorized by the Seller and, when issued upon such exercise or conversion
in accordance with the terms of the Preferred Stock or the Warrant, as the case
may be, will be validly issued, fully paid and nonassessable, and such shares
will be free of preemptive or similar rights and Encumbrances (except as
provided in Section 7.1 hereof).
5.28 NO MATERIAL MISSTATEMENT. No exhibit, schedule or certificate
furnished or to be furnished by or on behalf of the Seller to the Purchaser in
connection with any Transaction Document contains or will contain any material
misstatement of fact or omits or will omit to state any material fact necessary
to make the statements, in light of the circumstances under which they are made
by the Seller, not misleading. Any assumptions, projections, forecasts or other
estimates of future results provided to the Purchaser by the Seller were
prepared by the Seller in good faith on a basis believed by it to be reasonable
and in a manner consistent with similar projections, forecasts or other
estimates previously prepared by the Seller.
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5.29 INSURANCE COVERAGE. The Seller has insurance policies and fidelity
bonds covering its assets, business, equipment, properties, operations,
employees, officers and directors of the type and in amounts customarily carried
by persons conducting business similar to that of the Seller. All premiums due
and payable under all such policies and bonds have been paid, and the Seller is
otherwise in full compliance with the terms and conditions of all such policies
and bonds, except where the failure to have made payment or to be in full
compliance would not reasonably be expected to result in a Material Adverse
Effect. The reserves established by the Seller in respect of all matters as to
which the Seller self-insures, including for workers' compensation and workers'
medical coverage, are adequate and appropriate, except as set forth on Schedule
5.29. Set forth on SCHEDULE 5.29 attached hereto is a true and complete list of
all insurance policies, fidelity bonds and self-insurance provisions of the
Seller.
5.30 THIRD-PARTY PAYMENT. (a) The Seller is a certified participating
provider in and under all federal Medicare and Medicaid programs and, to the
extent required, all other third-party payment programs from which it receives
revenues (collectively, "PROGRAMS"). No action, investigation or proceeding is
pending, or to the best of the Seller's knowledge, after due inquiry, threatened
to suspend, limit, terminate, condition, or revoke the status of the Seller as a
provider in any such Program, and the Seller has not been provided notice by any
third-party payor or any administrator on behalf thereof of its intention to
suspend, limit, terminate, revoke, condition or fail to renew in whole or in
part or which action, investigation, proceeding, suspension, limitation,
termination, revocation, condition, or failure of renewal, would, singly or in
the aggregate, have a Material Adverse Effect, except as expressly set forth in
Schedule 5.30 attached hereto.
(b) The Seller has filed on a timely basis all claims, cost reports or
annual filings required to be filed pursuant to any federal or state
governmental or regulatory authority (including pursuant to the Social Security
Act) to secure payments for services rendered by it under any Program, except
where the failure to file such claim, report or other filing would not, singly
or in the aggregate, have a Material Adverse Effect. The Seller has provided the
Purchaser access to all such cost reports. Except as expressly set forth on
Schedule 5.30 attached hereto, the Seller has paid, or caused to be paid, all
refunds, discounts, adjustments, or amounts owing that have become due pursuant
to such claims, reports or filings, and the Seller does not have any knowledge
or notice of any material changes required to be made to any cost reports,
claims or filings made by them for any period or of any deficiency in any such
claim, report, or filing, except for changes and deficiencies that, singly or in
the aggregate, would not have a Material Adverse Effect.
(c) The Seller has not received any notice of pending or threatened
investigations by any Program which poses a risk to the Seller's participation
in any Program or, except as disclosed on SCHEDULE 5.30 attached hereto, may
result in any adjustments to reimbursements that have been paid. All billing
practices by the Seller to all third-party payors, including under all state and
federal Programs and with private insurance companies, have been in material
compliance with all applicable laws, regulations and, to the best knowledge of
the Seller, policies of all such third-party payors, except for disputed or
contested matters identified on SCHEDULE 5.30 attached hereto. Neither the
Seller, nor any Affiliate thereof, nor any director, officer or employee
thereof, is a party to any contract, lease, agreement or arrangement, including
any joint venture or consulting agreement with any physician, hospital, nursing
facility, home health agency or other person who is in a position to make or
influence referrals to or otherwise generate business for the Seller to provide
services, lease space, lease equipment or engage in any other venture or
activity which is prohibited by law or regulations, except as set forth on
SCHEDULE 5.30 attached hereto. Set forth on SCHEDULE 5.30 attached hereto is an
accurate and complete description of all disputes or contested matters relating
to the Seller's participation in any Medicare or Medicaid Program.
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6. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser hereby
represents and warrants to the Seller that:
6.1 ORGANIZATION, GOOD STANDING, POWER, AUTHORITY, ETC. The Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Purchaser has the full power and authority to
execute and deliver this Agreement and each other Transaction Document (to the
extent it is a party thereto), and to perform its obligations under this
Agreement and each other Transaction Document (to the extent it is a party
thereto). The Purchaser has taken all action required by law, the Purchaser's
certificate of incorporation (if applicable), its by-laws (if applicable) or
otherwise required to be taken by it to authorize the execution and delivery of
each Transaction Document (to the extent it is a party thereto) and the
consummation of the transactions contemplated hereby and thereby to be performed
by it as of or on the Closing Date. This Agreement has been duly executed and
is, and upon execution and delivery thereof at the Closing each of the other
Transaction Documents (to the extent it is a party thereto) will be, a valid and
binding obligation of the Purchaser.
6.2 NO CONFLICTS; NO CONSENTS. Neither the execution and delivery of this
Agreement or any other Transaction Document by the Purchaser nor the
consummation by the Purchaser of the Investment contemplated hereby or thereby
will (a) conflict with, or result in a breach of, any provision of its
certificate of incorporation or by-laws or (b) assuming that the waiting period
under the HSR Act has expired or been terminated, violate any statute or law or
any judgment, order, writ, injunction, decree, rule or regulation applicable to
the Purchaser and/or any of its subsidiaries. Except as contemplated by this
Agreement, no Consent of any governmental or regulatory authority is required in
connection with the execution and delivery of, and the performance by the
Purchaser of its obligations under, this Agreement or any other Transaction
Document to which it is a party (except such as have been obtained or made).
6.3 PURCHASE FOR INVESTMENT. The Purchaser is purchasing the Securities
for investment in an unregistered private placement for its own account and not
with a view to, or for sale in connection with, any distribution thereof which
would be in violation of the Act; PROVIDED HOWEVER, that the disposition of the
Securities, the Conversion Shares and the Warrant Shares shall at all times be
within the sole discretion of the Purchaser.
6.4 FINANCIAL STATEMENTS. The audited consolidated financial statements
and related schedules and notes included or incorporated by reference in the
annual report on Form 10-K for the most recent fiscal year of Manor Care, Inc.,
of which the Purchaser is a wholly owned subsidiary ("Manor Care"), filed by
Manor Care with the SEC comply in all material respects with the requirements of
the Exchange Act, were prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved and fairly
present the consolidated financial condition, results of operations, cash flows
and changes in stockholders' equity of Manor Care at the dates and for the
periods presented. The unaudited quarterly consolidated financial statements and
the related notes included in the quarterly report on Form 10-Q filed by Manor
Care with the SEC for the most recent fiscal quarter of Manor Care ended after
the end of its most recent fiscal year present fairly the consolidated financial
condition, results of operations and cash flows of Manor Care at the dates and
for the periods to which they relate, subject to year-end audit adjustments
(consisting only of normal recurring accruals), have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis and
have been prepared on a basis substantially consistent with that of the audited
financial statements referred to above except as otherwise stated therein. The
Purchaser is not in material violation of any material law or material
governmental rule or regulation known to the Purchaser to be applicable to it.
6.5 FINDER'S FEES. No broker, finder or other party is entitled to receive
from the Purchaser any investment banking fee, financial advisory fee, dealer
manager fee, finder's fee, brokerage fee, proxy
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or other solicitation fee, success fee, or any other fee, commission, payment,
indemnity or expense reimbursement or other consideration as a result of the
transactions contemplated by this Agreement, the Proxy Statement or the Issuer
Tender Offer Documents.
6.6 PROVISION OF INFORMATION. The information to be provided by the
Purchaser to the Seller in the information statement to be delivered pursuant to
Section 302A.671 (Subdivision 2) of the Minnesota BCA, and any information
expressly so required by the Exchange Act to be furnished by the Purchaser for
inclusion in the Proxy Statement or the Issuer Tender Offer Documents, will
contain the information so required with respect thereto, and the factual
information provided therein will not contain any untrue statement of material
fact or omit to state any material fact necessary to make the statements made
therein, in light of the circumstances under which they are made, not
misleading. The Purchaser will promptly notify the Seller in writing of any
material change in any of the information so provided.
7. COVENANTS OF THE PARTIES.
7.1 RESTRICTION ON TRANSFER. The Purchaser represents and warrants to and
agrees with the Seller that the Purchaser will not dispose of any of the
Securities, Warrant Shares or Conversion Shares, except pursuant to (i) an
effective registration statement under the Act or (ii) an applicable exemption
from registration under the Act. In connection with any disposition by the
Purchaser pursuant to clause (ii) of the preceding sentence, the Purchaser shall
furnish to the Seller an opinion of counsel reasonably satisfactory to the
Seller to the effect that such exemption from registration is available in
connection with such sale.
7.2 CERTIFICATES FOR SECURITIES, CONVERSION SHARES AND WARRANT SHARES TO
BEAR LEGENDS. (A) So long as the Securities are Registrable Securities
(treating the Warrants and the Preferred Stock as Registrable Securities for
purposes of this Section 7.2) the Securities shall be subject to a stop-transfer
order and the certificate or certificates therefor shall bear the following
legend by which each holder thereof shall be bound:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE [AND THE SHARES OF
COMMON STOCK OR OTHER SECURITIES ISSUABLE UPON CONVERSION OR EXERCISE
HEREOF] MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (I) AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, OR (II) AN
APPLICABLE EXEMPTION FROM REGISTRATION THEREUNDER. ANY SALE PURSUANT TO
CLAUSE (II) OF THE PRECEDING SENTENCE MUST BE ACCOMPANIED BY AN OPINION
OF COUNSEL REASONABLY SATISFACTORY TO IN HOME HEALTH, INC. TO THE EFFECT
THAT SUCH EXEMPTION FROM REGISTRATION IS AVAILABLE IN CONNECTION WITH
SUCH SALE.
(B) So long as the Conversion Shares or the Warrant Shares are Registrable
Securities the Conversion Shares or the Warrant Shares or other securities
issued upon conversion of the Securities shall, unless previously issued
pursuant to an effective registration statement under the Act, be subject to a
stop-transfer order and the certificate or certificates evidencing any such
Conversion Shares or Warrant Shares or other securities shall bear the following
legend by which each holder thereof shall be bound:
"THE SHARES OR OTHER SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT
BE OFFERED OR SOLD EXCEPT PURSUANT TO (I) AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933, OR (II) AN APPLICABLE
EXEMPTION FROM REGISTRATION THEREUNDER. ANY SALE PURSUANT TO CLAUSE (II)
OF THE PRECEDING SENTENCE MUST BE ACCOMPANIED BY AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO IN HOME HEALTH, INC. TO THE EFFECT THAT SUCH
EXEMPTION FROM REGISTRATION IS AVAILABLE IN CONNECTION WITH SUCH SALE.
7.3 REMOVAL OF LEGENDS. After termination of the requirement that all or
part of such legend be placed upon a certificate representing any of the
Securities, the Conversion Shares or the Warrant
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Shares, the Seller shall, upon receipt of evidence reasonably satisfactory to it
that such requirement has terminated and upon the written request of the holders
of any of the Securities, Conversion Shares or Warrant Shares, to issue
certificates for the Securities, Conversion Shares or Warrant Shares, as the
case may be, issue Securities, Conversion Shares or Warrant Shares, as the case
may be, that do not bear such legend.
7.4 PRE-CLOSING ACTIVITIES. From and after the date of this Agreement
until the Closing, the Seller and the Purchaser shall act with good faith
towards, and shall use their best efforts to consummate, the purchase and sale
contemplated by this Agreement, and neither the Seller nor the Purchaser will
take any action that would prohibit or impair its ability to consummate the
purchase and sale contemplated by this Agreement; PROVIDED, HOWEVER, that
nothing in this Section 7.4 shall be deemed to be in derogation of Section 8.
The Seller will use its best efforts to obtain or make each of the consents,
approvals, authorizations, filings, registrations, etc. as are set forth on
SCHEDULE 5.9 attached hereto and which shall not have been obtained or made
prior to the execution of this Agreement. The Seller will not amend, modify,
extend, withdraw or terminate the Issuer Self-Tender without the prior approval
of the Purchaser; provided, that, upon a termination of this Agreement pursuant
to Section 8, the Seller may take any action contemplated by this sentence.
7.5 INFORMATION. So long as any Security, Conversion Share or Warrant
Share is outstanding, the Seller shall file with the SEC the annual reports,
quarterly reports and the information, documents and other reports that are
required to be filed with the SEC pursuant to Sections 13 and 15 of the Exchange
Act, whether or not the Seller has or is required to have a class of securities
registered under the Exchange Act and whether or not the Seller is then subject
to the reporting requirements of the Exchange Act, at the time the Seller is or
would be required to file the same with the SEC and, within 30 days after the
Seller is or would be required to file such reports, information or documents
with the SEC, to mail copies of such reports, information and documents to the
holders of the Securities, Conversion Shares or Warrant Shares.
7.6 FURTHER ASSURANCES. Subject to Section 8 hereof, each party shall
execute and deliver such additional instruments and other documents and shall
take such further actions as may be necessary or appropriate to effectuate,
carry out and comply with all of the terms of this Agreement and the
transactions contemplated hereby, including, without limitation, making
application as soon as practicable hereafter for all consents and approvals
required in connection with the transactions contemplated hereby and diligently
pursuing the receipt of such consents and approvals in good faith thereafter.
7.7 SHAREHOLDERS' MEETING; PROXY STATEMENT AND ISSUER TENDER OFFER
DOCUMENTS. (a) The Seller shall, as promptly as practicable, call and convene a
meeting of the holders of its voting stock and shall recommend, and shall use
its best efforts (including the preparation and circulation of the Proxy
Statement) to obtain, the approval of such holders of the transactions
contemplated by this Agreement.
(b) Neither the Proxy Statement nor any Issuer Tender Offer Document shall
be filed with the SEC, and no amendment or supplement to the Proxy Statement or
any Issuer Tender Offer Document shall be filed with the SEC, without prior
consultation with the Purchaser and its counsel or if the Purchaser shall not be
reasonably satisfied with the contents of any such document, amendment or
supplement. If any event shall occur, condition exist or information become
known the effect of which would be to cause the Proxy Statement or any Issuer
Tender Offer Document to contain any untrue statement of material fact or omit
to state any material fact required to be stated therein in order to make the
statement contained therein not misleading, the Seller shall, subject to prior
consultation with the Purchaser and its counsel, promptly amend or supplement
the Proxy Statement or Issuer Tender Offer Document to correct such misstatement
or omission. The Seller shall notify the Purchaser promptly of the receipt by it
of any comments from the SEC or its staff and of any request by
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the SEC for amendments or supplements to the Proxy Statement or any Issuer
Tender Offer Document and shall supply the Purchaser with copies of all
correspondence between it and its representatives, on the one hand, and the SEC
or the members of its staff, on the other hand, with respect to the Proxy
Statement or any Issuer Tender Offer Document.
7.8 HART-SCOTT-RODINO. To the extent applicable, the Seller and the
Purchaser shall make all filings and furnish all information required by the HSR
Act with respect to the transactions contemplated by the Transaction Documents,
the Proxy Statement and the Issuer Tender Offer Documents and shall use their
best efforts to obtain the early termination of the waiting period thereunder;
PROVIDED, HOWEVER, that neither the Seller nor the Purchaser shall be required
to agree to dispose of or hold separate any portion of its business or assets.
7.9 ACQUISITION PROPOSALS. The Seller agrees that, prior to the Closing,
neither the Seller nor any of its officers, directors or employees nor any
agents, consultants, financial advisors, attorneys or accountants for any of
them shall initiate, solicit or encourage, directly or indirectly, any inquiries
or the making of any proposal or offer (including, without limitation, any
proposal or offer to stockholders of the Seller) with respect to, or that may
reasonably be expected to lead to (i) a tender offer or exchange offer for any
securities of the Seller, (ii) a merger, consolidation, business combination,
share exchange or similar transaction involving the Seller, (iii) any purchase,
lease, exchange, pledge, mortgage, transfer or other disposition of at least 20%
of the assets of, or any equity securities of, the Seller (except for pledges of
assets to commercial lenders in connection with a commercial lending
arrangement), (iv) any public announcement of a proposal, plan or intention to
do any of the foregoing or (v) any agreement or arrangement to engage in any of
the foregoing with any person or persons other than the Purchaser (any of the
foregoing being hereinafter referred to as an "ACQUISITION PROPOSAL") or engage
in any negotiations concerning, or provide any information or data to or have
any discussions with any person relating to, an Acquisition Proposal, or
otherwise facilitate directly or indirectly any effort or attempt to make or
implement an Acquisition Proposal. The Seller 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. The Seller
will take the necessary steps to inform the individuals or entities referred to
in the first sentence hereof of the obligations undertaken in this Section 7.9.
The Seller will notify the Purchaser 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
Seller. Nothing contained in this Agreement shall prohibit the Seller and its
directors from (i) making to the stockholders any recommendation and related
filing with the SEC, as required by Rules 14e-2 and 14d-9 under the Exchange
Act, with respect to any tender offer, (ii) informing the shareholders of the
Seller in the Proxy Statement of information that is material to the vote with
respect to the transactions contemplated thereby, or (iii)(x) changing or
withdrawing the recommendation of the directors with respect to this Agreement
and such transactions or (y) engaging in negotiations concerning, or providing
information or data to or having discussions with any person relating to, an
unsolicited BONA FIDE Acquisition Proposal in writing made by such person;
PROVIDED, HOWEVER, that, prior to any action referred to in this subclause (y),
the Seller shall notify the Purchaser of any such Acquisition Proposal and as to
the terms thereof, if, in any such case under this clause (iii), the directors
conclude that any action described in clause (iii) is required by their
fiduciary duties (as determined in good faith by the Board of Directors of the
Seller upon the advice of independent legal counsel and based upon, if so
requested by the Board of Directors, financial analyses provided by a financial
advisor to the Board of Directors).
7.10 ACCESS. The Seller shall afford the Purchaser's officers, employees,
counsel, accountants, agents, financial advisors, consultants and other
authorized representatives ("REPRESENTATIVES") reasonable access during normal
business hours before the Closing to its properties, books, contracts, records
and personnel and advisors (who will be instructed by the Seller to cooperate)
and the Seller shall furnish promptly to the Purchaser all information
concerning its business, properties and personnel as the Purchaser or its
Representatives may reasonably request; PROVIDED, HOWEVER, that
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any review will be conducted in a way that will not interfere unreasonably with
the conduct of the Seller's business; PROVIDED, FURTHER, HOWEVER, that no review
pursuant to this Section 7.10 shall affect or be deemed to modify any
representation or warranty made by the Seller or any right or remedy of the
Purchaser arising from any breach thereof. The Purchaser will keep all
information and documents obtained pursuant to this Section 7.10 which
represents material non-public information on a confidential basis in accordance
with the terms and provisions of the Confidentiality Agreement dated as of
January 3, 1995 between the parties to this Agreement.
7.11 PUBLICITY. The Seller and the Purchaser will consult with each other
before issuing any press release or otherwise making any public statements with
respect to this Agreement, the Proxy Statement, the Issuer Self-Tender or the
transactions contemplated hereby and shall not issue any such press release or
make any such public statement prior to such consultation, except as may be
required by law or by obligations pursuant to any listing agreement with any
securities exchange.
7.12 RESERVATION OF SHARES; COMPLIANCE WITH LAW UPON ISSUANCE OF CONVERSION
SHARES OR WARRANT SHARES; LISTING. (a) The Seller shall at all times reserve
and keep available, out of its authorized and unissued stock, solely for the
purpose of effecting the exercise of the Warrant or conversion of the Preferred
Stock, such number of shares of its Common Stock free of preemptive rights as
shall from time to time be sufficient to effect the exercise of the entire
Warrant or conversion of all of the shares of Preferred Stock from time to time.
(b) So long as any of the Preferred Stock or the Warrant are outstanding,
the Seller shall use its best efforts to obtain any approvals or consents of any
governmental agency or authority under state or federal law that may be required
so that the Conversion Shares and the Warrant Shares may be lawfully issued or
transferred and delivered and entitled to the benefits of each other share of
Common Stock then issued and outstanding, and to list or obtain admission for
trading, with effect from such date of issuance or delivery, on such securities
exchange or market on which the Common Stock is then listed or admitted for
trading, the Conversion Shares and the Warrants Shares issued upon conversion or
exercise of the Preferred Stock or the Warrant.
7.13 CONDUCT OF BUSINESS BY THE SELLER PENDING THE CLOSING. Except as
otherwise expressly contemplated hereby or as disclosed on SCHEDULE 7.13
attached hereto, the Seller covenants and agrees as follows that, as and after
the date of this Agreement and up to the Closing, unless the Purchaser shall
otherwise expressly agree in writing:
(a) The Seller shall use its best efforts to maintain and preserve its
business organization, assets, employees and advantageous business
relationships and conduct its business in the ordinary course pursuant to
ordinary business terms and consistent with past practice;
(b) The Seller shall not directly or indirectly do any of the following:
(i) sell, pledge, dispose of, lease or encumber any assets of the Seller
(including, without limitation, in respect of any indebtedness or accounts
receivable owed to it or any claims held by it); (ii) amend its Articles of
Incorporation or by-laws; (iii) split, combine or reclassify any shares of
its capital stock or declare, set aside or pay any dividend or distribution,
payable in cash, stock, property or otherwise with respect to any of its
capital stock; (iv) redeem, purchase or otherwise acquire or offer to
redeem, purchase or otherwise acquire any of its capital stock (other than
pursuant to the Issuer Self-Tender); (v) adopt a plan of complete or partial
liquidation or resolutions providing for the complete or partial
liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization of the Seller; (vi) create, form or
acquire any Subsidiary or transfer any assets or liabilities to any new
Subsidiary of the Seller; or (vii) authorize or propose any of the
foregoing, or enter into any contract, agreement, commitment or arrangement
to do any of the foregoing;
(c) The Seller shall not, directly or indirectly, (i) except for shares
of Common Stock issuable upon exercise of options outstanding on the date of
this Agreement, issue, sell, pledge, dispose of or encumber, or authorize,
propose or agree to the issuance, sale, pledge or disposition of, any
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shares of, or any options, warrants or rights of any kind to acquire any
shares of or any securities convertible into or exchangeable or exercisable
for any shares of, its capital stock of any class or any other securities in
respect of, in lieu of, or in substitution for shares of Common Stock
outstanding on the date of this Agreement; (ii) acquire (by merger,
consolidation or acquisition of stock or assets) any corporation,
partnership or other business organization or division thereof or make any
investment either by purchase of stock or securities, contributions to
capital, property transfer or purchase of any property or assets of any
other individual or entity; (iii) incur any indebtedness for borrowed money
or issue any debt securities or enter into any hedging, option, derivative
or similar transaction or assume, guarantee, endorse or otherwise as an
accommodation become responsible for, the obligations of any other
individual or entity, or make any loans or advances provide credit support
to any entity; (iv) authorize, recommend or propose any change in its
capitalization; (v) change any assumption underlying, or method of
calculating, any bad debt, contingency, provision or other reserve; (vi)
pay, discharge or satisfy any claims, liabilities or obligations (absolute,
accrued, contingent or otherwise), other than the payment, discharge or
satisfaction of liabilities (including accounts payable) in the ordinary
course of business pursuant to ordinary business terms and consistent with
past practice, or collect, or accelerate the collection of, any amounts owed
(including accounts receivable) other than the collection in the ordinary
course of business; (vii) waive, release, grant or transfer any rights of
value or modify or change in any material respect any existing license,
lease, contract or other document; or (viii) authorize or propose any of the
foregoing, or enter into or modify any contract, agreement, commitment or
arrangement to do any of the foregoing;
(d) The Seller shall not adopt or amend (except as may be required by
law) any bonus, profit sharing, compensation, stock option, pension,
retirement, deferred compensation, employment or other employee benefit
plan, agreement, trust, fund or other arrangement for the benefit or welfare
of any employee or former employee or pay any benefit not required by any
existing plan, arrangement or agreement, except that, with respect to
employees who are not officers, in the ordinary course of business and
consistent with past practice, the Seller may increase the compensation or
fringe benefits of any such employee; PROVIDED, HOWEVER, that the aggregate
increase for any such employee shall not exceed any approved pay scales for
fiscal year 1995 for employees of equal rank and responsibility and the
Seller shall not amend such pay scales or promote any employee to circumvent
any compensation limitations contained in such pay scales;
(e) The Seller shall not take any action with respect to the grant of
any severance or termination pay or with respect to any increase of benefits
payable under its severance or termination pay policies in effect on the
date hereof other than the provision of severance or termination benefits in
the ordinary course of business consistent with past practice to non-officer
employees of the Seller;
(f) The Seller shall not make any tax election or settle or compromise
any federal, state, local or foreign income or other tax liability; and
(g) The Seller shall not agree, in writing or otherwise, to take any of
the foregoing actions or any action which would make any representation or
warranty in Section 5 hereof untrue or incorrect in any respect.
7.14 NOTICE OF CERTAIN EVENTS. The Seller shall promptly notify the
Purchaser, confirmed in writing, of any of the following on or prior to the
Closing:
(a) 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 any Transaction Document, the Proxy Statement
or the Issuer Tender Offer Documents;
(b) Any notice of other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by any Transaction Document, the Proxy Statement or the Issuer
Tender Offer Documents;
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(c) Any actions, suits, claims, investigations or proceedings commenced
or, to its best knowledge threatened against, relating to or involving or
otherwise affecting the Seller that, if pending on the date of this
Agreement, would have been required to have been disclosed pursuant to
Sections 5.15 and 5.16 or that relate to the consummation of the
transactions contemplated by any Transaction Document, the Proxy Statement
or the Issuer Tender Offer Documents;
(d) The Board of Directors of the Seller determining to withdraw or
modify a recommendation to approve this Agreement and the transactions
contemplated by any Transaction Document, the Proxy Statement or the Issuer
Tender Offer Documents, or the Committee determining to withdraw or modify
in any respect its approval of this Agreement, the Investment and the
transactions contemplated hereby and thereby;
(e) Any notice of, or other communication relating to, a default or
event that, with notice or lapse of time or both, would become a default,
received by the Seller subsequent to the date of this Agreement and prior to
the Closing Date, under any Contract, or any circumstances of which the
Seller is aware that are reasonably likely to result in such a default or
event or any Material Adverse Effect;
(f) Any material adverse change in the condition (financial or
otherwise), properties, business, results of operations, prospects or
solvency of the Seller or to the interest of stockholders in the Seller, or
the occurrence of any event which, so far as reasonably can be foreseen at
the time of its occurrence, is reasonably likely to result in any such
change; and
(g) Any breach by the Seller of any of its representations, warranties,
covenants or agreements contained in any Transaction Document or any
circumstance that has resulted in or is reasonably likely to result in any
such representation or warranty being untrue, or any such covenant or
agreement not being performed or complied with, or any condition not being
fulfilled as of the Closing Date.
7.15 LOCATION OF CORPORATE HEADQUARTERS. Subsequent to the Closing, the
Purchaser shall cause the corporate headquarters of the Seller to be maintained
in the Minneapolis, Minnesota metropolitan area for a period of two years after
the Closing Date; provided, that, the Purchaser shall not be bound by this
Section 7.15 if the Board of Directors of the Seller acting unanimously
determines that the Purchaser need not be so bound.
7.16 CONTINUING REPORTING COMPANY. For a period of two years after the
Closing Date, the Purchaser shall cause the Seller (i) to continue to file the
periodic reports required to be filed under Section 13 of the Exchange Act, (ii)
to maintain its corporate existence, (iii) not to seek to cause the Common Stock
to cease to be traded on the Nasdaq National Market (other than in conjunction
with the listing of the Common Stock on a national securities exchange) and (iv)
not to effect a "Rule 13e-3 transaction" within the meaning of Rule 13e-3
promulgated under the Exchange Act.
7.17 SCOPE OF BUSINESS. For a period of two years after the Closing Date,
the Purchaser shall not, and the Purchaser shall cause its Affiliates not to,
limit the Seller's ability to continue to operate in the lines of business, and
provide the services and products to third parties (which may include Affiliates
of the Purchaser), that it engages in and provides as of the Closing Date.
7.18 EMPLOYMENT AGREEMENTS. On or prior to the Closing Date, the Seller
shall offer to each named individual in each of the Employment Agreements
attached as Exhibits H, L and M hereto the opportunity to enter into his or her
respective Employment Agreement on the Closing Date and shall execute on the
Closing Date each Employment Agreement that the named individual therein elects
to accept. The Purchaser agrees that as long as Judy M. Figge and Kenneth J.
Figge are employed by the Company, the Purchaser will vote, or cause to be
voted, all shares of Common Stock beneficially owned by the Purchaser and its
Affiliates in favor of their election to the Board of Directors.
7.19 FUTURE ARRANGEMENTS. Subsequent to the Closing, the parties hereto
may determine to discuss entering into, or enter into, agreements or
arrangements which they deem prudent and
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mutually beneficial for the provision of services between the parties on terms
that are fair to each party. Such services may include, without limitation,
administrative services, financial or treasury management services,
reimbursement matter services, legal services, accounting services and other
similar types of services.
7.20 CHIEF EXECUTIVE OFFICER. Immediately upon consummation of the
Closing, Mark Gildea will be employed as the Chief Executive Officer of the
Seller and will devote at least approximately 75% of his entire working time to
the affairs of the Seller and the balance of his working time will be spent on
the affairs of the Purchaser and its Affiliates (other than the Seller). The
Purchaser will reimburse the Seller for 25% (or such lesser percentage to the
extent that Mr. Gildea devotes more than 75% of his time to the Seller) of the
costs associated with the employment of Mr. Gildea by the Seller.
8. TERMINATION. (a) This Agreement shall terminate upon either party
giving notice of the termination of this Agreement as a result of the occurrence
of any of the following:
(i) by mutual written agreement of the Seller and the Purchaser;
(ii) if the Closing shall not have been consummated on or before
September 15, 1995;
(iii) prior to Closing if after the date hereof there shall be any law or
regulation enacted or promulgated that makes consummation of the
transactions contemplated hereby illegal or otherwise prohibited or if
consummation of the transactions contemplated hereby would violate any
non-appealable final order, decree or judgment of any court or governmental
body having competent jurisdiction; or
(iv) the Seller's shareholders fail to provide the requisite vote to
approve this Agreement and the transactions contemplated by this Agreement
at the meeting duly held for such purpose pursuant to Section 7.7.
(b) This Agreement may be terminated by the Purchaser upon the occurrence of
any of the following:
(i) (x) the Seller shall have breached Section 7.9 or 7.13, (y) the
Seller shall have breached any of its representations or warranties or other
covenants or agreements contained in this Agreement, which breach pursuant
to this subclause (y) is not cured within ten days after notice from the
Purchaser to the Seller specifying such breach or (z) the letters,
resolutions or legal opinion referred to in Section 3 hereof shall have been
withdrawn or modified;
(ii) the Board of Directors of the Seller shall have withdrawn or
modified its approval or recommendation of this Agreement and the
transactions contemplated hereby or by the other Transaction Documents, the
Proxy Statement or the Issuer Tender Offer Documents, or the Board of
Directors of the Seller, upon request by the Purchaser, shall fail promptly
to reaffirm such approval or recommendation, or shall have resolved to do
any of the foregoing;
(iii) the Committee shall have withdrawn or modified its approval of this
Agreement or the Investment, or the Committee, upon request by the
Purchaser, shall fail promptly to reaffirm such approval, or shall have
resolved to do any of the foregoing; or
(iv) (x) the Board of Directors of the Seller shall have recommended to
the shareholders of the Seller an Acquisition Proposal or shall have
resolved to do so, (y) a tender offer or exchange offer for all or a portion
of the Seller's Common Stock shall be commenced and Seller's Board of
Directors shall not have recommended that stockholders not tender shares of
Common Stock into such tender or exchange offer, or (z) any person (other
than the Purchaser) or group (within the meaning of Section 13(d) of the
Exchange Act) shall have acquired, or obtained the right to acquire,
beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act)
of 20% or more of the outstanding shares of the Common Stock.
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(c) This Agreement may be terminated by the Seller upon the occurrence of
any of the following:
(i) The Purchaser shall have breached any of its representations,
warranties, covenants or agreements contained in this Agreement, which
breach is not cured within ten days after notice from the Seller to the
Purchaser specifying such breach; or
(ii) If the Board of Directors of the Seller (x) fails to make or
withdraws its recommendation that shareholders of the Seller approve this
Agreement and the transactions contemplated hereby if there is at such time
an Acquisition Proposal or (y) recommends that shareholders of the Seller
accept or approve an Acquisition Proposal, in each case only if the Board of
Directors concludes that such action is required by their fiduciary duties
(as determined in good faith by the Board of Directors of the Seller upon
the advice of independent legal counsel and based upon, if so requested by
the Board of Directors, financial analyses of a financial advisor to the
Board of Directors).
(d) If this Agreement is terminated pursuant to this Section 8, this
Agreement shall forthwith become void and be of no further force or effect and
all obligations of the Seller and Purchaser under this Agreement shall
terminate, except that (i) the provisions of Sections 10, 11, 12.2, 12.4 and
12.7 hereof shall survive such termination and shall remain in full force and
effect and (ii) such termination shall not constitute a waiver by or bar against
the exercise by any party to this Agreement of any rights or remedies at law or
in equity that such party may have by reason of a breach of any breach of
representation, warranty or covenant of this Agreement by the other party.
9. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties contained in this Agreement and in each other Transaction Document
shall survive the execution and delivery of this Agreement, the termination of
this Agreement, the delivery of the Securities and any examination or
investigation made by any party to this Agreement or any of their successors and
assigns; provided, however, that, the representations and warranties contained
in this Agreement shall not survive, and shall be of no further force and
effect, after December 31, 1996.
10. SUCCESSORS AND ASSIGNS. All covenants and agreements contained in this
Agreement by or on behalf of the parties hereto shall bind, and inure the
benefit of, the respective successors and assigns of the parties hereto;
PROVIDED, HOWEVER, that (a) the Seller may not assign any of its rights or
obligations under this Agreement and (b) the rights of the Purchaser hereunder
may not be assigned (except to Affiliates of the Purchaser) without the prior
written consent of the Seller (which consent shall not be unreasonably withheld
or delayed).
11. INDEMNITY. The Seller agrees to indemnify and hold harmless the
Purchaser and each of its Affiliates (including the respective officers,
directors, employees and agents of the Purchaser and its Affiliates) (each, a
"SELLER INDEMNIFIED PERSON") from and against any and all expenses, claims,
liabilities, losses, damages, obligations, penalties, fines, costs and
disbursements of any kind or nature (collectively, "LOSSES") (or actions or
suits in respect thereof) in any way resulting from, related to or arising out
of or in connection with a breach by the Seller of any of its representations or
warranties made herein or in any Schedule, Exhibit or other appendix hereto or
any material misstatement contained in or any material omission from the Proxy
Statement or any Issuer Tender Offer Document or any of the transactions
contemplated hereby or thereby (each, a "SELLER INDEMNIFIED MATTER"), and to
reimburse from time to time upon demand therefor, each Seller Indemnified Person
for any actual or threatened legal and other expenses incurred by it in
connection with or relating to investigating, preparing to defend or defending
any actions, claims or other proceedings (including any investigation or
inquiry) arising in any manner out of or in connection with a Seller Indemnified
Matter (whether or not such Seller Indemnified Person is named party in such
action, claim or proceeding); PROVIDED, HOWEVER, that the Seller shall not be
responsible to any Seller Indemnified Person for any Losses to the extent that
it is finally judicially determined by a court of competent jurisdiction that
such Losses result solely and directly from the gross negligence or willful
misconduct of the Seller Indemnified Person.
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The Purchaser agrees to indemnify and hold harmless the Seller and each of
its Affiliates (including the respective officers, directors, employees and
agents of the Seller and its Affiliates) (each, a "PURCHASER INDEMNIFIED
PERSON") from and against any and all Losses (or actions or suits in respect
thereof) in any way resulting from, related to or arising out of or in
connection with a breach by the Purchaser of its representations and warranties
made herein or any material misstatement contained in or any material omission
from factual information with respect to the Purchaser furnished in writing by
the Purchaser to the Seller specifically for inclusion in the Proxy Statement or
any Issuer Tender Offer Document (each, a "PURCHASER INDEMNIFIED MATTER"), and
to reimburse, from time to time upon demand therefor, each Purchaser Indemnified
Person for any actual or threatened legal and other expenses incurred by it in
connection with or relating to investigating, preparing to defend or defending
any actions, claims or other proceedings (including any investigation or
inquiry) arising in any manner out of or in connection with a Purchaser
Indemnified Matter (whether or not such Purchaser Indemnified Person is a named
party in such action, claim or proceeding); PROVIDED, HOWEVER, that the
Purchaser shall not be responsible to any Purchaser Indemnified Person for any
Losses to the extent that it is finally judicially determined by a court of
competent jurisdiction that such Losses result solely and directly from the
gross negligence or willful misconduct of the Purchaser Indemnified Person.
The indemnification and expense reimbursement obligations in this Section 11
shall terminate and be of no further force and effect after December 31, 1996,
except with respect to any claim, action, suit or proceeding as to which the
party seeking indemnification shall have given written notice to the
indemnifying party on or prior to December 31, 1996. No Seller Indemnified
Person or Purchaser Indemnified Person seeking indemnity hereunder shall settle
any matter without the prior consent of the indemnifying person (which consent
shall not be unreasonably withheld).
12. MISCELLANEOUS.
12.1 NOTICES. All notices or other communications given or made hereunder
shall be validly given or made if in writing and delivered by facsimile
transmission or in person at, or mailed by registered or certified mail, return
receipt requested, postage prepaid, to, the following addresses (and shall be
deemed effective at the time of receipt thereof).
If to the Seller:
IN HOME HEALTH, INC.
Carlson Center, Suite 500
601 Lakeshore Parkway
Minnetonka, Minnesota 55305-5214
Attention: President
Facsimile #: (612) 449-7599
with a copy to:
Lindquist & Vennum
4200 IDS Center
80 South Eighth Street
Minneapolis, Minnesota 55402
Attention: Richard D. McNeil
Facsimile #: (612) 371-3207
If to the Purchaser:
MANOR HEALTHCARE CORP.
10750 Columbia Pike
Silver Spring, Maryland 20901
Attention: President, Alternate Site Division
Facsimile #: (301) 905-4586
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with a copy to:
Manor Healthcare Corp.
10750 Columbia Pike
Silver Spring, Maryland 20901
Attention: General Counsel
Facsimile: (301) 905-4029
or to such other address as the party to whom notice is to be given may have
previously furnished notice in writing to the other in the manner set forth
above.
12.2 EXPENSES. Each party shall bear its own expenses, including the fees
and expenses of any attorneys, accountants, investment bankers, brokers, finders
or other intermediaries or other persons engaged by it, incurred in connection
with this Agreement or the other Transaction Documents contemplated hereby and
the other transactions; PROVIDED, HOWEVER, that if this Agreement is terminated
by the Purchaser pursuant to any of Sections 8(b)(i)(x), 8(b)(i)(y) (if the
breach serving as the basis for termination was wilful), 8(b)(i)(z), 8(b)(ii),
8(b)(iii) or 8(b)(iv) or by the Seller pursuant to Section 8(c)(ii), the Seller
shall promptly pay to the Purchaser an amount equal to $1,300,000, which amount
is inclusive of all of the Purchaser's costs and expenses and related time and
effort in investigating, negotiating, preparing, entering into and performing
this Agreement and the transactions contemplated herein. Any payment required to
be made pursuant to this Section 12.2 shall be made as promptly as practicable
but not later than three business days after termination of this Agreement and
shall be made by wire transfer of immediately available funds to an account
designated by the Purchaser.
12.3 REMEDIES. (a) Each of the Seller and the Purchaser acknowledges that
the other party would not have an adequate remedy at law for money damages in
the event that any of the covenants or agreements of the other party in this
Agreement were not performed in accordance with its terms, and it is therefore
agreed that each of the Purchaser and the Seller, in addition to and without
limiting any other remedy or right it may have, will have the right to an
injunction or other equitable relief in any court of competent jurisdiction
(subject to Section 12.4) enjoining any such breach and enforcing specifically
the terms and provisions hereof, and each of the Purchaser and the Seller hereby
waive any and all defenses they may have on the ground of lack of jurisdiction
or competence of the court to grant such an injunction or other equitable
relief.
(b) All rights, powers and remedies provided under this Agreement or
otherwise available in respect hereof at law or in equity shall be cumulative
and not alternative, and the exercise or beginning of the exercise of any
thereof by any party shall not preclude the simultaneous or later exercise of
any other such right, power or remedy by such party.
12.4 GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL. (A)
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF MINNESOTA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
(B) THE SELLER AND THE PURCHASER EACH HEREBY IRREVOCABLY AND
UNCONDITIONALLY: (I) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT, OR FOR
RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NON-
EXCLUSIVE GENERAL JURISDICTION OF THE FEDERAL COURTS OF THE STATE OF MINNESOTA;
(II) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH COURTS
AND WAIVES TRIAL BY JURY AND ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO
THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION
OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR
CLAIM THE SAME; (III) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR
PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED
MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID,
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TO IT AT ITS ADDRESS SET FORTH IN SECTION 12.1 OR AT SUCH OTHER ADDRESS OF WHICH
THE PURCHASER SHALL HAVE BEEN NOTIFIED PURSUANT THERETO; AND (IV) AGREES THAT
NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE IN FEDERAL COURT IN ANY
OTHER JURISDICTION.
12.5 SEVERABILITY; INTERPRETATION. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, each of the Seller and the Purchaser directs
that such court interpret and apply the remainder of this Agreement in the
manner which it determines most closely effectuates their intent in entering
into this Agreement, and in doing so particularly take into account the relative
importance of the term, provision, covenant or restriction being held invalid,
void or unenforceable.
12.6 HEADINGS. The index and section headings herein are for convenience
only and shall not affect the construction hereof.
12.7 ENTIRE AGREEMENT. This Agreement and the other Transaction Documents
and the schedules, exhibits, annexes and appendices hereto and thereto embodies
the entire agreement between the parties relating to the subject matter hereof
and thereof and any and all prior oral or written agreements, representations or
warranties, contracts, understandings, correspondence, conversations, and
memoranda, whether written or oral, between the Purchaser and the Seller or
between or among any agents, representatives, parents, subsidiaries, affiliates,
predecessors in interest or successors in interest, with respect to the subject
matter hereof, are merged herein and replaced hereby.
12.8 COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original and all of which together shall be
deemed to be one and the same instrument.
12.9 MODIFICATION OR AMENDMENT. At any time prior to the Closing Date or
thereafter, the parties hereto may modify or amend this Agreement, by written
agreement executed and delivered by duly authorized officers of the respective
parties.
12.10 WAIVER. The conditions to each of the parties' obligations to
consummate the transactions contemplated hereby and to perform the acts
contemplated on its part hereunder are for the sole benefit of such party and
may be waived by such party in whole or in part to the extent permitted by
applicable law. No failure or delay by any party in insisting upon the strict
performance of any covenant, duty, agreement or condition of this Agreement or
in exercising any right or remedy consequent upon breach thereof shall
constitute a waiver of any such breach or of any other covenant, duty, agreement
or condition, any such waiver being made only by a written instrument executed
and delivered by the waiving party.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
IN HOME HEALTH, INC.
By: __/s/____________________________
Name:
Title:
MANOR HEALTHCARE CORP.
By: __/s/____________________________
Name:
Title:
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APPENDIX II
THE WARRANT REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK OR
OTHER SECURITIES ISSUABLE UPON EXERCISE HEREOF MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO (I) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933, OR (II) AN APPLICABLE EXEMPTION FROM REGISTRATION THEREUNDER. ANY SALE
PURSUANT TO CLAUSE (II) OF THE PRECEDING SENTENCE MUST BE ACCOMPANIED BY AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO IN HOME HEALTH, INC. TO THE EFFECT
THAT SUCH EXEMPTION FROM REGISTRATION IS AVAILABLE IN CONNECTION WITH SUCH SALE.
VOID AFTER 5:00 P.M. MINNEAPOLIS, MINNESOTA
TIME ON , 1998
[THREE YEARS AFTER THE CLOSING DATE]
IN HOME HEALTH, INC.
WARRANT TO PURCHASE SHARES OF COMMON STOCK
, 1995
THIS IS TO CERTIFY THAT, FOR VALUE RECEIVED, Manor Healthcare Corp., or its
assigns (the "HOLDER"), is entitled to purchase, subject to the provisions of
this warrant (the "WARRANT," such term to include any warrant issued in
substitution therefor), from In Home Health, Inc., a Minnesota corporation (the
"COMPANY"), Six Million (6,000,000) duly authorized, validly issued, fully paid
and nonassessable shares (the "INITIAL SHARES") of the common stock, par value
$.01 per share, of the Company (the "COMMON STOCK") at a purchase price of $3.75
per share (the "INITIAL WARRANT EXERCISE PRICE") at any time or from time to
time during the period from the date hereof to , 1998 (the "EXPIRATION
DATE"). The number of Shares to be received upon the exercise of this Warrant
and the price to be paid for each Share may be adjusted from time to time as
hereinafter set forth. (The Initial Shares deliverable upon such exercise, and
as adjusted from time to time, are referred to herein as "SHARES" and the
exercise price for a Share in effect at any time and as adjusted from time to
time is hereinafter referred to as the "EXERCISE PRICE".) References to the
"COMPANY" herein shall include successors to the Company as contemplated by
Section (i) below.
(a) EXERCISE OF WARRANT. This Warrant may be exercised by the Holder in
whole or in part at any time or from time to time on or after the date hereof to
, 1998; PROVIDED, HOWEVER, if the Expiration Date is a day on which banking
institutions in the State of New York are authorized by law to close, then on
the next succeeding day which shall not be such a day. This Warrant may be
exercised by presentation and surrender hereof to the Company at its principal
office, or at the office of its transfer agent, if any, with the Purchase Form
annexed hereto duly executed and accompanied by payment of the Exercise Price by
certified or bank cashier's check for the number of Shares specified in such
Purchase Form. As soon as practicable after each such exercise of the Warrant,
but not later than seven (7) days from the date of such exercise, the Company
shall issue and deliver to the Holder a certificate or certificates for the
Shares issuable upon such exercise, registered in the name of the Holder or its
designee. If this Warrant should be exercised in part only, the Company shall,
upon surrender of this Warrant for cancellation, execute and deliver a new
Warrant evidencing the rights of the Holder thereof to purchase the balance of
the Warrant Shares purchasable hereunder. Upon receipt by the Company of this
Warrant at its office, or by the stock transfer agent of the Company at its
office, in proper form for exercise, the Holder shall be deemed to be the holder
of record of the Shares issuable upon such exercise, notwithstanding that the
stock transfer books for the Company shall then be closed or that certificates
representing such Shares shall not then be physically delivered to the Holder.
The Company will, at the time of each exercise of this Warrant, upon the request
of the Holder, acknowledge in writing its continuing obligation to afford to the
Holder all rights (including without limitation any rights to registration of
the Shares issued upon such exercise pursuant to that certain Registration
Rights Agreement dated as of , 1995 by and between the Company and
the Holder (the "REGISTRATION RIGHTS AGREEMENT")) to which the Holder shall
continue to be
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entitled after such exercise in accordance with the terms of this Warrant and
the Registration Rights Agreement; PROVIDED, HOWEVER, that if the Holder shall
fail to make any such request, such failure shall not affect the continuing
obligation of the Company to afford such rights to the Holder.
(b) ISSUANCE OF SHARES. The Company covenants that at all times it shall
have the authority to issue and/or deliver upon exercise of this Warrant such
number of authorized Shares as shall be required for issuance and delivery upon
exercise of the Warrants. The Company covenants that all Shares which shall be
issuable upon exercise of the Warrants shall, at the time of delivery, be duly
authorized and validly issued, fully paid, nonassessable, free from all taxes,
liens and charges with respect to the issue thereof.
(c) FRACTIONAL SHARES. No fractional Shares or scrip representing
fractional Shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a Share called for upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the then current market value of a share of Common Stock,
determined in accordance with Section (f)(8) below (except that the
determination shall be based on the current market value of a share of Common
Stock on the last trading day before the date of exercise and not on an average
over the preceding twenty trading days as otherwise contemplated by Section
(f)(8)).
(d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT.
(1) This Warrant is exchangeable without expense, at the option of the
Holder, upon presentation and surrender hereof to the Company or at the
office of its transfer agent, if any, for other Warrants of different
denominations but of like tenor entitling the holder(s) thereof to purchase
in the aggregate the same number of Shares purchasable hereunder.
(2) The Company may treat the person in whose name any Warrant is
registered on the register kept at the office of the Company or its transfer
agent, if any, as the owner and holder thereof for all purposes,
notwithstanding any notice to the contrary, except that, if and when any
Warrant is properly assigned in blank, the Company may (but shall not be
obligated to) treat the bearer thereof as the owner of such Warrant for all
purposes, notwithstanding any notice to the contrary. A Warrant, if properly
assigned, may be exercised by a new holder without a new Warrant first
having been issued. The Company shall cause to be kept at its principal
office or at the office of its transfer agent, if any, a register for the
registration and transfer of Warrants. The names and addresses of holders of
Warrants, the transfers thereof and the names and addresses of transferees
of Warrants shall be registered in such register. The Holder will not make
any transfers of this Warrant except pursuant to an effective registration
statement or under an applicable exemption from registration under the
Securities Act of 1933. The Holder agrees to notify the Company promptly
following any transfer of any Warrant; PROVIDED, HOWEVER, that the failure
to give such notice will not affect the effectiveness of a transfer that is
made otherwise in compliance with the terms hereof.
(3) Upon surrender of this Warrant to the Company at its principal
office or at the office of its transfer agent, if any, with the Assignment
Form annexed hereto duly executed and funds sufficient to pay any transfer
tax, the Company shall, without charge, execute and deliver a new Warrant in
the name of the assignee named in such instrument of assignment and this
Warrant shall promptly be cancelled. This Warrant may be divided or combined
with other Warrants which carry the same rights upon presentation hereof at
the principal office of the Company or at the office of its stock transfer
agent, if any, together with a written notice specifying the names and
denominations in which new Warrants are to be issued and signed by the
Holder hereof. (The term "WARRANT" as used herein includes any Warrants into
which this Warrant may be divided or exchanged.)
(4) Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory indemnification, and
upon surrender and cancellation of this Warrant, if mutilated,
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the Company at its expense will execute and deliver a new Warrant of like
tenor and date. Any such new Warrant executed and delivered shall constitute
an additional contractual obligation on the part of the Company, whether or
not this Warrant so lost, stolen, destroyed, or mutilated shall be at any
time enforceable by anyone.
(e) RIGHTS OF ACTION. All rights of action with respect to the Warrant are
vested in the Holder (or its respective assigns) and the Holder of the Warrant
without consent of the holder of any other Warrant, may, in its own behalf and
for its own benefit, enforce against the Company its rights to exercise the
Warrant for the purchase of Shares in the manner provided herein. The Company
stipulates that the remedies at law of the holder of this Warrant in the event
of any default or threatened default by the Company in the performance of or
compliance with any of the terms of this Warrant or under the Registration
Rights Agreement are not and will not be adequate and that, to the fullest
extent permitted by law, such terms may be specifically enforced by a decree for
the specific performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise.
(f) ANTI-DILUTION PROVISIONS. The Exercise Price in effect at any time and
the number and kind of securities purchasable upon the exercise of this Warrant
shall be subject to adjustment from time to time upon the happening of certain
events at any time after May 2, 1995 as follows:
(1) In case the Company shall (i) make a distribution on its outstanding
Common Stock in shares of Common Stock; (ii) subdivide or reclassify its
outstanding shares of Common Stock into a greater number of shares; or (iii)
combine or reclassify its outstanding shares of Common Stock into a smaller
number of shares, then the Exercise Price in effect at the time of the
record date for such distribution or the effective date of such subdivision,
combination or reclassification shall be proportionately adjusted so that
the same shall equal the price determined by multiplying the Exercise Price
in effect immediately prior to such date by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such record date or effective date and the denominator of which
shall be the number of shares of Common Stock outstanding immediately after
such distribution, subdivision, combination or redistribution; provided,
that, if as a result of a reclassification the Company's Common Stock shall
no longer be outstanding, the Holder of this Warrant shall be entitled to
receive the aggregate number and kind of equity securities which, if this
Warrant had been exercised by such Holder immediately prior to the effective
date of such reclassification, the Holder would have been entitled to
receive upon such reclassification with respect to Shares acquired upon such
exercise.
(2) In case the Company shall fix a record date for the issuance of
rights or warrants to holders of its shares of Common Stock entitling them
to subscribe for or purchase shares of Common Stock (or securities
convertible into or exercisable for shares of Common Stock) at a price (or
having a conversion or exercise price per share) less than the current
market price of a share of Common Stock (as defined in Subsection (8) below)
on the last date on which a regular way trade of the Common Stock would
result in a purchaser being a holder of record on the record date mentioned
below (the "EX-DIVIDEND DATE"), the Exercise Price shall be adjusted so that
the same shall equal the price determined by multiplying the Exercise Price
in effect immediately prior to the date of such issuance by a fraction, the
numerator of which shall be the sum of the number of shares of Common Stock
outstanding on the record date mentioned below and the number of additional
shares which the aggregate offering price of the total number of shares so
offered (or the aggregate conversion or exercise price of the securities so
offered) would purchase at the current market price per share of Common
Stock (as defined in Subsection (8) below), and the denominator of which
shall be the sum of the number of shares of Common Stock outstanding on the
record date mentioned below and the number of additional shares offered for
subscription or purchase (or into which the securities so offered are
convertible or for which they are exercisable). Such adjustment shall be
made successively whenever such rights or warrants are issued and shall
become effective immediately after the record date for the determination of
shareholders entitled to receive such rights or warrants; and, to the extent
that shares are not delivered (or
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securities convertible into or exercisable for shares are not delivered),
after the expiration of such rights or warrants the Exercise Price shall be
readjusted to the Exercise Price which would then be in effect had the
adjustments made upon the issuance of such rights or warrants been made upon
the basis of delivery of only the number of shares (or securities
convertible into or exercisable for shares) actually delivered.
(3) In case the Company shall distribute to the holders of its Common
Stock evidences of its indebtedness or assets (excluding regular quarterly
cash dividends in the ordinary course and distributions referred to in
Subsection (1) above, but including other cash dividends or distributions
and dividends or distributions of shares of capital stock other than Common
Stock) or subscription rights or warrants (excluding those referred to in
Subsection (2) above), then in each such case the Exercise Price in effect
thereafter shall be determined by multiplying the Exercise Price in effect
immediately prior thereto by a fraction, the numerator of which shall be the
total number of shares of Common Stock outstanding on the record date for
the distribution multiplied by the current market price per share of Common
Stock (as defined in Subsection (8) below) on the record date for such
distribution, less the fair market value (as determined in good faith by the
Board of Directors of the Company) of said assets or evidences of
indebtedness so distributed or of such rights or warrants, and the
denominator of which shall be the total number of shares of Common Stock
outstanding on the record date for the distribution multiplied by such
current market price per share of Common Stock on the record date for such
distribution. Such adjustment shall be made successively whenever such a
record date is fixed. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of shareholders entitled to receive such
distribution.
(4) In case the Company shall issue shares of Common Stock (excluding
shares of Common Stock issued (i) in any of the transactions described in
Subsection (1) above and (ii) upon exercise of stock options outstanding May
2, 1995 or granted on the date of this Warrant) for no consideration or for
a consideration per share of Common Stock less than the current market price
per share (as defined in Subsection (8) below) on the date the Company fixes
the offering price of such additional shares of Common Stock, the Exercise
Price in effect thereafter shall equal the price determined by multiplying
the Exercise Price in effect immediately prior thereto by a fraction, the
numerator of which shall be the sum of the number of shares of Common Stock
outstanding immediately prior to the issuance of such additional shares of
Common Stock and the number of shares which the aggregate consideration
received (determined as provided in Subsection (7) below) for the issuance
of such additional shares of Common Stock would purchase at such current
market price per share, and the denominator of which shall be the number of
shares of Common Stock outstanding immediately after the issuance of such
additional shares of Common Stock. Such adjustment shall be made
successively whenever such an issuance is made.
(5) In case the Company shall issue any securities convertible into,
exercisable for or exchangeable for shares of Common Stock (excluding
securities issued in transactions described in Subsections (2) and (3)
above) for no consideration or for a consideration per share of Common Stock
initially deliverable upon conversion, exercise or exchange of such
securities (determined as provided in Subsection (7) below) less than the
current market price per share of Common Stock (as defined in Subsection (8)
below) immediately prior to the issuance of such securities, the Exercise
Price shall be adjusted immediately thereafter so that it shall equal the
price determined by multiplying the Exercise Price in effect immediately
prior thereto by a fraction, the numerator of which shall be the sum of the
number of shares of Common Stock outstanding immediately prior to the
issuance of such securities and the number of shares of Common Stock which
the aggregate consideration received (determined as provided in Subsection
(7) below) for such securities would purchase at such current market price
per share immediately prior thereto, and the denominator of which shall be
the sum of the number of shares of Common Stock outstanding immediately
prior to
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such issuance and the maximum number of shares deliverable upon conversion
of, exercise for, or in exchange for such securities at the initial
conversion, exercise or exchange price or rate. Such adjustment shall be
made successively whenever such an issuance is made.
(6) Whenever the Exercise Price payable upon exercise of this Warrant is
adjusted pursuant to Subsections (1), (2), (3), (4) and (5) above, the
number of shares of Common Stock purchasable upon exercise of this Warrant
shall simultaneously be adjusted by multiplying the number of Shares
issuable upon exercise of this Warrant immediately preceding the adjustment
by the Exercise Price in effect immediately preceding the adjustment and
dividing the product so obtained by the Exercise Price, as adjusted.
(7) For purposes of any computation respecting consideration received
pursuant to Subsection (4) and (5) above, the following shall apply:
(A) In the case of the issuance of shares of Common Stock for cash,
the consideration shall be the amount of such cash, provided that in no
case shall any deduction be made for any commissions, discounts or other
expenses incurred by the Company for any underwriting of the issue or
otherwise in connection therewith;
(B) In the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair market value thereof as
determined in good faith by the Board of Directors of the Company
(irrespective of the accounting treatment thereof), whose determination,
absent manifest error, shall be conclusive; and
(C) In the case of the issuance of securities convertible into,
exercisable for or exchangeable for shares of Common Stock, the aggregate
consideration received therefor shall be deemed to be the consideration
received by the Company for the issuance of such securities plus the
additional minimum consideration, if any, to be received by the Company
upon the conversion, exercise or exchange thereof (the consideration in
each case to be determined in the same manner as provided in clauses (A)
and (B) of this Subsection (7)).
(8) For the purpose of any computation under Subsections (2), (3), (4)
and (5) above, the current market price per share of Common Stock at any
date shall be deemed to be the average of the daily closing prices for 20
consecutive trading days ending on the trading day immediately prior to such
date. The closing price for each day shall be the last sale price regular
way or, in the case no such reported sale takes place on such day, the
average of the last reported bid and asked prices regular way, in either
case on the principal national securities exchange or the Nasdaq National
Market on which the Common Stock is listed or admitted for trading, or, if
the Common Stock is not listed or admitted for trading on a national
securities exchange or the Nasdaq National Market, the closing price for
each day shall be the average of the highest reported bid and lowest
reported asked prices on such day as reported by Nasdaq or other similar
organizations if Nasdaq is no longer reporting such information, or, if such
information is not so available, the fair market price as determined in good
faith by the Board of Directors of the Company.
(9) All calculations under this Section (f) shall be made to the nearest
one-tenth of a cent or to the nearest one-hundredth of a share, as the case
may be.
(10) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly cause a notice setting forth the adjusted Exercise
Price and adjusted number of Shares issuable upon exercise of each Warrant
to be mailed to the Holder, at its last address appearing in the Warrant
register, and shall cause a certified copy thereto to be mailed to its
transfer agent, if any. The Company may retain a firm of independent
certified public accountants selected by the Board of Directors of the
Company (who may be the regular accountants employed by the Company) to make
any computation required by this Section (f) (other than any computation of
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the fair value of property as determined in good faith by the Board of
Directors of the Company), and a certificate signed by such firm shall be
conclusive evidence of the correctness of such adjustment.
(11) In the event that at any time, as a result of an adjustment made
pursuant to Subsection (1) above, the Holder of this Warrant thereafter
shall become entitled to receive any equity securities of the Company, other
than shares of Common Stock, thereafter the number of such other equity
securities so receivable upon exercise of this Warrant shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent
as practicable to the provisions with respect to the shares of Common Stock
contained in Subsections (1) to (9), inclusive above.
(12) Irrespective of any adjustments in the Exercise Price or the number
of kind of shares purchasable upon exercise of this Warrant, each Warrant
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in this Warrant.
(g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be adjusted
as required by the provisions of the foregoing Section (f), the Company shall
forthwith file at its principal office and with its transfer agent, if any, a
certificate showing the adjusted Exercise Price determined as herein provided,
setting forth in reasonable detail the facts requiring such adjustment,
including a statement of the number of additional shares of Common Stock, if
any, and such other facts as shall be necessary to show the reason for and the
manner of computing such adjustment. Each such officer's certificate shall be
made available at all reasonable times for inspection by the Holder or any
holder of a Warrant executed and delivered pursuant to Section (a) hereof and
the Company shall, forthwith after each such adjustment, mail a copy by
certified mail of such certificate to the Holder or any such holder.
(h) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be
outstanding (i) if the Company shall make any distribution in shares of Common
Stock (other than dividends on the Company's preferred stock paid in shares of
Common Stock) or (ii) if the Company shall offer to the holders of shares of
Common Stock for subscription or purchase by them any share of any class or any
other right or (iii) if any capital reorganization of the Company,
reclassification of the Common Stock or other equity interests in the Company,
sale, lease or transfer of all or substantially all of the property and assets
of the Company to another entity, merger or consideration with another entity,
or the voluntary or involuntary dissolution or liquidation of the Company shall
be effected, then in any such case, the Company shall cause to be mailed by
certified mail to the Holder, at least fifteen days prior to the date specified
in (x) or (y) below, as the case may be, a notice containing a brief description
of the proposed action and stating the date on which (x) a record is to be taken
for the purpose of such dividend, distribution or rights or (y) such
reclassification, reorganization, conveyance, lease, merger or consolidation,
dissolution or liquidation is to take place and the date, if any is to be fixed,
as of which the holders of shares of Common Stock or other securities shall
receive cash or other property deliverable upon such reclassification,
reorganization, conveyance, dissolution or liquidation.
(i) RECLASSIFICATION, REORGANIZATION OR RELATED ACTIVITIES. In case of any
reclassification, capital reorganization or other similar activity which results
in a change in the outstanding shares of Common Stock or in case of the merger
or consolidation of the Company with another entity or any sale, assignment,
lease or conveyance to another entity of all or substantially all of the
property or assets of the Company in one or a series of related transactions,
the Company shall, as a condition precedent to such transaction, cause effective
provisions to be made so that the Holder shall have the right thereafter by
exercising this Warrant at any time prior to the expiration of the Warrant, to
purchase the kind and amount of shares and other securities and property
receivable upon such reclassification, capital reorganization or similar
activity, change, merger or consolidation, or sale, assignment, lease or
conveyance which would have been received had this Warrant been exercised
immediately prior to such reclassifications, capital reorganization, similar
activity, change, merger or consolidation, or sale, assignment, lease or
conveyance. Any such provision shall include provision for adjustments which
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Warrant. The foregoing provisions of this Section (i) shall
similarly apply to
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successive reclassifications, capital reorganizations and changes of shares and
to successive mergers or consolidations or sales, assignments, leases or
conveyances. In the event that in connection with any such capital
reorganization, reclassification or related change, merger or consolidation or
sale, assignment, lease or conveyance, provision is made for the substitution or
payment, in whole or in part, for the Common Stock of the Company of a different
security of the Company, any such issuance shall be treated as a
reclassification covered by the provisions of Subsection (1) of Section (f)
above.
In case any event shall occur as to which the provisions of Section (f)
hereof are not strictly applicable but the failure to make any adjustment would
not, in the opinion of the Holder, fairly protect the purchase rights
represented by this Warrant in accordance with the essential intent and
principles of such Section, then, in each such case, at the request of the
Holder, the Company shall appoint a firm of independent certified public
accountants of recognized national standing (which may be the regular auditors
of the Company), which shall give their opinion upon the adjustment, if any, on
a basis consistent with the essential intent and principles established in
Section (f) hereof, necessary to preserve, without dilution, the purchase rights
represented by this Warrant. Upon receipt of such opinion, the Company will
promptly mail a copy thereof to the Holder of this Warrant and shall make the
adjustments, if any, described therein.
The Company will not, by amendment of its certificate of incorporation or
through any consolidation, merger, reorganization, transfer of assets,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of this Warrant,
but will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such action as may be necessary or appropriate in order
to protect the rights of the holder of this Warrant against dilution or other
impairment. Without limiting the generality of the foregoing, the Company (a)
will not permit the par value of any shares of stock receivable upon the
exercise of this Warrant to exceed the amount payable therefor upon such
exercise, (b) will take all such action as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable shares of stock on the exercise of the Warrants from time to time
outstanding, and (c) will not take any action which results in any adjustment of
the Exercise Price if the total number of shares of Common Stock (or other
securities) issuable after the action upon the exercise of all of the Warrants
would exceed the total number of shares of Common Stock (or other securities)
then authorized by the Company's certificate of incorporation and available for
the purpose of issue upon such exercise.
(J) GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF MINNESOTA APPLICABLE TO CONTRACTS MADE
AND TO BE PERFORMED WHOLLY WITHIN THAT STATE WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW.
(k) ASSIGNMENT. This Warrant may be transferred or assigned by the Holder
or any subsequent holder as provided herein. The Company may not assign its
obligations hereunder except to the extent permitted in Section (i).
IN HOME HEALTH, INC.
By:
-----------------------------------
Its:
-----------------------------------
Attest:
- --------------------------------------
Title:
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PURCHASE FORM
Dated: ____________, 19__
The undersigned hereby irrevocably elects to exercise the within Warrant to
the extent of purchasing an aggregate of _______ shares of Common Stock of In
Home Health, Inc. (the "SHARES") and hereby makes payment of $_______. A new
Warrant covering _______ shares should be issued to the undersigned.
INSTRUCTION FOR REGISTRATION OF SHARES
Name
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(Please typewrite or print in block letters)
Address
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Signature
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ASSIGNMENT FORM
FOR VALUE RECEIVED,
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hereby sells, assigns and transfers unto
Name
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(Please typewrite or print in block letters)
Address
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the right to purchase shares represented by this Warrant to the extent of
_______ shares as to which such right is exercisable and does hereby irrevocably
constitute and appoint _______ Attorney, to transfer the same on the books of
the Company with full power of substitution in the premises.
Dated: , 19_
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Signature
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APPENDIX III
HAMBRECHT & QUIST LLC
ONE BUSH STREET
SAN FRANCISCO, CA 94104
(415) 576-3300
May 2, 1995
The Special Committee of the Board of Directors
In Home Health, Inc.
Carlson Center, Suite 500
601 Lakeshore Parkway
Minnetonka, Minnesota 55305-5214
Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to In Home Health, Inc. ("In Home" or the "Company") and the holders of its
outstanding shares of common stock of the proposed strategic partnership with
Manor Care, Inc. as more fully described below.
We understand that In Home and Manor Healthcare Corp., a wholly-owned
subsidiary of Manor Care, Inc. ("Manor Care"), propose to enter into a
Securities Purchase and Sale Agreement (the "Agreement") pursuant to which Manor
Care will purchase from In Home, (i) an aggregate of 6,440,000 shares of common
stock, par value $.01 (the "Common Stock"), of the Company, (ii) an aggregate of
200,000 shares of convertible preferred stock having an aggregate liquidation
preference of $20,000,000 (the "Preferred Stock") and convertible into an
aggregate of 10,000,000 shares of Common Stock, and (iii) a three-year warrant
(the "Warrant") to purchase up to 6,000,000 shares of Common Stock at a purchase
price of $3.75 per share. The Agreement provides that the aggregate purchase
price for the Preferred Stock and Warrant is $20,000,000, and the aggregate
purchase price for the Common Stock is $21,896,000. We also understand that the
Agreement contemplates that the Company shall commence a self-tender for
6,440,000 shares of Common Stock at a cash purchase price of $3.40 per share for
the purpose of delivering such shares to Manor Care as described above. The
foregoing transactions collectively constitute the "Proposed Transaction."
Hambrecht & Quist LLC ("Hambrecht & Quist"), as part of its investment
banking services, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, corporate
restructurings, strategic alliances, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. We have acted as financial advisor
to the Board of Directors and the Special Committee of the Board of Directors of
In Home in connection with the Proposed Transaction and will receive a fee for
our services (including the rendering of this opinion). Hambrecht & Quist may in
the future provide additional investment banking or other financial advisory
services to the Company.
In connection with our review of the Proposed Transaction, and in arriving
at our opinion, we have, among other things:
(i) reviewed the publicly available consolidated financial statements of
the Company for recent years and interim periods to date and certain other
relevant financial and operating data of the Company made available to us
from the internal records of the Company;
(ii) discussed with certain members of the management of the Company the
business, financial condition and prospects of the Company;
(iii) reviewed certain financial and operating information, including
certain projections provided by the management of the Company, relating to
the Company, and discussed such projections with certain members of the
management of the Company;
(iv) reviewed publicly available consolidated financial statements of
Manor Care for recent years and interim periods to date;
<PAGE>
(v) discussed with certain members of the management of Manor Care the
business, financial condition and prospects of Manor Care;
(vi) reviewed the recent reported prices and trading activity for the
common stock of the Company and Manor Care and compared such information and
certain financial information of the Company and Manor Care with similar
information for certain other companies engaged in businesses we consider
comparable to those of the Company and Manor Care;
(vii) discussed with parties other than Manor Care the possibility of a
transaction or series of transactions involving a business combination with
the Company;
(viii) reviewed the terms, to the extent publicly available, of certain
comparable transactions;
(ix) reviewed the Agreement; and
(x) preformed such other analyses and examinations and considered such
other information, financial studies, analyses and investigations and
financial, economic and market data as we deemed relevant.
We have not assumed any responsibility for independent verification of any
of the information concerning the Company or Manor Care considered in connection
with our review of the Proposed Transaction and, for purposes of the opinion set
forth herein, we have assumed and relied upon the accuracy and completeness of
all such information. We have not prepared or obtained any independent
evaluation or appraisal of any of the assets or liabilities of the Company or
Manor Care, nor have we conducted a physical inspection of the properties and
facilities of the Company or Manor Care. With respect to the financial forecasts
and projections made available to us and used in our analyses, we have assumed
that they reflect the best currently available estimates and judgments of the
expected future financial performance of the Company. We have assumed that
neither the Company nor Manor Care is a party to any pending transactions,
including external financings, recapitalizations or merger discussions, other
than the Proposed Transaction and those in the ordinary course of conducting
their respective businesses. Our opinion is necessarily based upon market,
economic, financial and other conditions as they exist and can be evaluated as
of the date of this letter, and any change in such conditions would require a
reevaluation of this opinion. We express no opinion as to the price at which In
Home Common Stock will trade subsequent to the Closing (as defined in the
Agreement).
Our advisory services and the opinion expressed herein are provided solely
for the use of the Board of Directors of In Home in its evaluation of the
Proposed Transaction and are not on behalf of, and are not intended to confer
rights or remedies upon Manor Care, any security-holder of In Home or Manor
Care, or any person other than In Home's Board of Directors. Except as required
by applicable law, including without limitation federal securities laws, our
opinion may not be published or otherwise used or referred to, nor shall any
public reference to Hambrecht & Quist be made, without our prior consent.
Based upon and subject to the foregoing and after considering such other
matters as we deem relevant, we are of the opinion that as of the date hereof
the Proposed Transaction is fair to the Company and the holders of the Common
Stock from a financial point of view. We express no opinion, however, as to the
adequacy of any consideration received in the Proposed Transaction by Manor
Care, Inc. or any of its affiliates.
Very truly yours,
HAMBRECHT & QUIST LLC
By /s/
- --------------------------------------
David Golden
MANAGING DIRECTOR
2
<PAGE>
APPENDIX IV
INFORMATION STATEMENT
This Information Statement relates to the proposed acquisition by Manor
Healthcare Corp., a Delaware corporation ("Manor Healthcare"), of securities of
In Home Health, Inc., a Minnesota corporation (the "Company"), pursuant to the
terms of that certain Securities Purchase and Sale Agreement, dated as of May 2,
1995, between Manor Healthcare and the Company (the "Purchase Agreement"). As
expressly contemplated by the Purchase Agreement, the acquisition of securities
of the Company by Manor Healthcare pursuant to the terms thereof will not
constitute a "control share acquisition" within the meaning of Section 302A.011
(Subdivision 38) of the Minnesota Business Corporation Act (the "Minnesota
BCA")). However, Manor Healthcare and the Company have agreed that Manor
Healthcare will furnish to the Company the information statement required in
respect of transactions constituting "control share acquisitions" so that the
approval of the Agreement, Manor Healthcare's investment pursuant thereto and
the other transactions contemplated therein by the Company's shareholders shall
constitute a shareholder approval satisfying the requirements of Section
302A.671 (Subdivision 4a, paragraph (b)) of the Minnesota BCA in the event that
the investment in the Company by Manor Healthcare pursuant to the Agreement were
ever to be characterized by a court of competent jurisdiction as a "control
share acquisition."
The following items refer to the lettered paragraphs of Section 302A.671
(Subdivision 2) of the Minnesota BCA.
ITEM (A) IDENTITY AND BACKGROUND
Manor Healthcare is a corporation organized under the laws of the State of
Delaware with its principal business address at 10750 Columbia Pike, Silver
Spring, Maryland 20901. Manor Healthcare is a wholly owned subsidiary of Manor
Care, Inc., a Delaware corporation which is publicly traded on the New York
Stock Exchange.
Manor Healthcare and its subsidiaries, own, operate or manage 172 nursing
centers (including 10 medical and physical rehabilitation centers and 15
assisted living facilities), which provide high acuity services, skilled nursing
care, intermediate nursing care, custodial care and assisted living, principally
for residents over the age of 65. Manor Healthcare also owns approximately 82.3%
of Vitalink Pharmacy Services, Inc., a Delaware corporation which is publicly
traded on the Nasdaq National Market, and which operates institutional
pharmacies.
Attached hereto as SCHEDULE I is a list of each affiliate of Manor
Healthcare and their respective states of incorporation.
ITEM (B) REFERENCE TO STATUTE
This information statement is being made under Section 302A.671 (Subdivision
2) of the Minnesota BCA.
ITEM (C) PRIOR INTEREST IN SECURITIES OF IN HOME HEALTH, INC.
None of the persons identified in Item (a) above (including the entities
listed on Schedule I hereto) beneficially own, directly or indirectly, any
shares of any class or series of the Company. Manor Healthcare is a party to the
Purchase Agreement pursuant to which, on consummation of the transactions
contemplated therein, it will acquire the securities of the Company listed in
Item (d) below.
ITEM (D) NUMBER AND CLASS OF SECURITIES OF THE COMPANY TO BE ACQUIRED
Upon the consummation of the transactions contemplated by the Purchase
Agreement, Manor Healthcare will acquire (i) an aggregate of 6,440,000 shares of
common stock, par value $.01 per share, of the Company (the "Common Stock") (or
such other amount as may be mutually agreed to by the Company and Manor
Healthcare pursuant to the terms of the Purchase Agreement), (ii) a warrant to
purchase initially an aggregate of 6,000,000 shares of Common Stock of the
Company and (iii) an
<PAGE>
aggregate of 200,000 shares of Series A Preferred Stock, par value $1.00 per
share, of the Company, having a liquidation preference of $20,000,000 and
initially convertible into 10,000,000 shares of Common Stock (the "Series A
Preferred Stock").
Upon the consummation of the transactions contemplated by the Purchase
Agreement, Manor Healthcare will beneficially own capital stock of the Company
having voting power in the election of directors of over 50 percent.
ITEM (E) TERMS OF THE SECURITIES ACQUISITION
Pursuant to the Purchase Agreement the Company will sell to Manor Healthcare
and Manor Healthcare will purchase from the Company (i) an aggregate of
6,440,000 shares of Common Stock of the Company (or such other amount as may be
mutually agreed to by the Company and Manor Healthcare pursuant to the terms of
the Purchase Agreement), (ii) a warrant to purchase initially an aggregate of
6,000,000 shares of Common Stock of the Company and (iii) an aggregate of
200,000 shares of Series A Preferred Stock.
The funds required for the purchase of the Company securities by Manor
Healthcare will aggregate $41,896,000, subject to the adjustment provisions of
Section 4.1(f) of the Purchase Agreement. Manor Healthcare will provide such
funds out of its operating cash flow and existing lines of credit available to
it. The Company will not provide any cash or credit support in connection with
Manor Healthcare's investment.
In connection with the Purchase Agreement, upon the Closing Date referred to
below, the Board of Directors of the Company will be increased in size from 5
persons to 7 persons. Messrs. S. Marcus Finkle and Sheldon Lieberbaum will
resign from the Board of Directors and Messrs. Mark L. Gildea, Donald C.
Tomasso, Joseph Buckley and James H. Rempe will be elected to fill the vacancies
and newly created seats on the Board of Directors of the Company.
In connection with the Purchase Agreement, the Company has agreed to enter
into a registration rights agreement wherein Manor Healthcare will be entitled
to certain demand and "piggyback" registration rights with respect to shares of
the Company Common Stock owned by Manor Healthcare or acquired upon conversion
of the Series A Preferred Stock or exercise of the warrant.
The Purchase Agreement contains various covenants of both the Company and
Manor Healthcare limiting their respective activities including, as to the
Company, limitations on the Company's ability to solicit, initiate or encourage
certain defined acquisition proposals, and limitations on the Company's conduct
of its business prior to the consummation of Manor Healthcare's investment.
Covenants in the Purchase Agreement placing limitations on Manor Healthcare
include the following:
(i) Manor Healthcare will not dispose of any of the shares acquired in
the investment, except pursuant to (A) an effective registration statement
under the Securities Act of 1933, as amended (the "Securities Act") or (B)
an applicable exemption from registration under the Securities Act;
(ii) for a period of two years after the date of consummation of Manor
Healthcare's investment in the securities of the Company (the "Closing
Date"), Manor Healthcare shall cause the Company (A) to continue to file the
periodic reports required to be filed under Section 13 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), (B) to maintain its
corporate existence, (C) not to seek to cause the Common Stock to cease to
be traded on the Nasdaq National Market (other than in conjunction with the
listing of the Common Stock on a national securities exchange) and (D) not
to effect a "Rule 13e-3 transaction" within the meaning of Rule 13e-3
promulgated under the Exchange Act;
(iii) for a period of two years after the Closing Date, Manor Healthcare
shall not, and Manor Healthcare shall cause its affiliates not to, limit the
Company's ability to continue to operate in the lines of business, and
provide the services and products to third parties (which may include
affiliates of Manor Healthcare), that it engages in and provides as of the
Closing Date;
2
<PAGE>
(iv) Manor Healthcare will reimburse the Company for the costs associated
with the employment of Mr. Mark L. Gildea as chief executive officer of the
Company to the extent of the working time devoted by Mr. Gildea to the
affairs of Manor Healthcare and its affiliates; and
(v) so long as Judy M. Figge and Kenneth J. Figge are employed by the
Company, Manor Healthcare will vote, or cause to be voted, all shares of
Common Stock beneficially owned by Manor Healthcare and its affiliates in
favor of their election to the Board of Directors of the Company.
The following are in response to clauses (1)-(7) of Item (e):
(1) Manor Healthcare has no current plans or proposals to liquidate or
dissolve the Company.
(2) Manor Healthcare has no current plans or proposals to sell all or a
substantial part of the Company's assets, or merge the Company or exchange
its shares with any other person. As noted above, pursuant to the Purchase
Agreement, Manor Healthcare has covenanted that, for a period of two years
after the Closing Date, the Company will continue its corporate existence
and shall not effect a "Rule 13e-3 transaction."
(3) Manor Healthcare has no current plans or proposals to change the
location of the Company's principal place of business or its principal
executive office or of a material portion of its business activities.
However, Manor Healthcare and the Company have agreed in the Purchase
Agreement that subsequent to the Closing Date, Manor Healthcare and the
Company may determine to discuss entering into, or enter into, agreements or
arrangements which they deem prudent and mutually beneficial for the
provision of services between the parties on terms that are fair to each
party, and that such services may include, without limitation,
administrative services, financial or treasury management services,
reimbursement matter services, legal services, accounting services and other
similar types of services. The effect of any such agreement could be a
consolidation of some of the Company's administrative or other functions
with those of Manor Healthcare or its affiliates at locations other than
where the Company's principal place of business, principal executive offices
or a material portion of its business activities are currently located.
Manor Healthcare has agreed in the Purchase Agreement to cause the corporate
headquarters of the Company to be maintained in the Minneapolis, Minnesota
metropolitan area for a period of two years after the Closing Date;
provided, that, Manor Healthcare shall not be bound by such covenant if the
Company's Board of Directors unanimously determines that Manor Healthcare
need not be so bound.
(4) Manor Healthcare has no current plans or proposals to change
materially the Company's management or policies of employment, except that
Mr. Mark Gildea, currently president of Manor Healthcare's Alternate Site
Services Division, will become chief executive officer of the Company. In
addition, as contemplated by (3) above, Manor Healthcare and the Company may
enter into agreements relating to administrative and other services which
could affect the Company's management or policies of employment, and upon a
review of the Company's management and policies of employment subsequent to
the Closing Date, Manor Healthcare, its nominees to the Company's Board of
Directors or Mr. Gildea may suggest, propose or effect other changes.
(5) Manor Healthcare has no current plans or proposals to change
materially the Company's charitable or community contributions or its
policies, programs, or practices relating thereto.
(6) Manor Healthcare has no current plans or proposals to change
materially the Company's relationship with its suppliers or customers or the
communities in which it operates. However, upon a review of the Company's
relationships with suppliers or customers or the communities in which it
operates subsequent to the Closing Date, Manor Healthcare, its nominees to
the Company's Board of Directors or Mr. Gildea may suggest, propose or
effect changes.
3
<PAGE>
(7) Manor Healthcare has no current plans or proposals to make any other
material change in the Company's business, corporate structure, management
or personnel (other than the aforesaid change in the composition of the
Board of Directors of the Company). After the Closing Date, Manor Healthcare
would expect to conduct a comprehensive review of the Company's business,
operations, management, corporate structure and personnel and Manor
Healthcare, its nominees to the Board of Directors or Mr. Gildea may
suggest, propose or effect changes to any thereof.
4
<PAGE>
SCHEDULE I
April 11, 1995
MANOR CARE, INC.(DE)
ARCHIVE RETRIEVAL SYSTEMS, INC. (MD)
Archive Acquisition, Inc. (MD)
BOULEVARD MOTEL CORP.(MD)
Biscayne Land Associates, Inc. (FL)
Biscayne Properties, Inc.(FL)
Bowling Green Inn -- Brandywine, Inc.(DE)
Cardinal Beverage Corp.(MO)
Everglades Beverage Corp.(FL)
Fairways Beverage Corp.(FL)
Fairways, Inc.(FL)
MCHD Cypress Creek Corp.(FL)
MCHD Ft. Lauderdale Corp.(FL)
MCHD Hampton Corp.(VA)
MCH Management, Inc.(MD)
West Montgomery Hotel Holdings, Inc.(MD)
CACTUS HOTEL CORP.(AZ)
CHOICE HOTELS INTERNATIONAL, INC. (Formerly Quality Inns International,
Inc.)(DE)
CH Europe, Inc. (D)
Choice Capital Corp.(DE)
Choice Hotels Canada Inc. (50%)(ON,CN)
Choice Hotels (Cayman) Ltd. (10%)(CAYMAN ISLANDS)
Choice Hotels International Asia Pacific Pty. Ltd.(S. AUSTRALIA)
Choice Hotels International Pty. Ltd. (Formerly Quality Inn Pty. Ltd.) (D)
Choice Hotels (Ireland) Limited (D)
Choice Hotels Japan, Inc. (Formerly Quality Hotels Japan, Inc.)(DE)
Choice Hotels of Brazil, Inc.(DE)
Choice Hotels Pacific Asia K.K. (Formerly Quality Hotels Pacific Asia, Inc.)
(D)(JAPAN)
Choice Hotels Pty. Ltd. (Formerly Quality Hotels Pty.Ltd.) (D) (AUSTRALIA)
Choice Hotels Systems, Inc.(ON,CN)
Choice Hotels Venezuela, C.A. (20%) (VENEZUALA)
Clarion Hotel Pty. Ltd. (Formerly Royale Hotels Pty. Ltd.) (D) (AUSTRALIA)
Comfort Hotels Pty. Ltd. (D) (AUSTRALIA)
Comfort Inn Pty. Ltd. (D) (AUSTRALIA)
Comfort Inns New Zealand Limited (Formerly Quality Inns New Zealand Limited)
(D) (NEW ZEALAND)
Choice Hotels Argentina S.A. (ARGENTINA)
QI Capital Corp. (D) (DE)
Quality Hotels (Ireland) Limited (D) (IRELAND)
Quality Hotels Limited (Formerly Quality Hotels (China) Limited (50%; 50%
Manor Care, Inc.) (D) (HONG KONG)
Quality Hotels and Resorts, Inc. (D) (DE)
Baltimore Hotel Management, Inc. (D)(MD)
Myrtle Beach Hotel Management, Inc. (D) (SC)
Quality Inter-Americas, Inc. (D) (DE)
Sleep Inn Pty. Ltd. (D) (AUSTRALIA)
COLEWOOD REALTY CORP. (MD)
COMFORT CALIFORNIA, INC. (CA)
GULF HOTEL CORP. (LA)
5
<PAGE>
HEFRU FOOD SERVICES, INC. (CA)
INDUSTRIAL WASTES, INC. (PA)
MANOR CARE AVIATION, INC. (DE)
MANOR CARE OF BETHESDA, INC. (Formerly Institutional Supply, Inc.) (MD)
MANOR HEALTHCARE CORP. (DE)
American Hospital Building Corporation (DE)
Americana Healthcare Center of DuPage County, Inc. (Formerly
Engineering & Design Corporation) (D) (IL)
Americana Healthcare Center of Lake County, Inc. (D) (IL)
Americana Healthcare Center of Palos Township, Inc. (IL)
Americana Healthcare Corporation of Georgia (GA)
Americana Healthcare Corporation of Naples (FL)
Baily Nursing Home, Inc. (PA)
Bowling Green Inn of St. Tammany, Inc. (D) (LA)
Cenco Care Corporation (D) (NV)
J. Lewis Small Co. (D) (DE)
Cenco Hospital Management Corp. (D)(CA)
Center Pavilion Hospital Corporation (D) (TX)
Community Hospital of Mesquite, Inc. (TX)
DeKalb Healthcare Corporation (DE)
Distco, Inc. (MD)
Eisele & Company, Inc. (D) (TN)
Elmhurst Americana, Inc. (D) (DE)
Executive Advertising, Inc. (MD)
Four Seasons Nursing Centers, Inc.(DE)
Healthcare Construction Corp.(NC)
Jacksonville Healthcare Corporation (DE)
Joliet Americana, Inc. (D) (DE)
Leader Nursing and Rehabilitation Center of Bethel Park, Inc. (DE)
Leader Nursing and Rehabilitation Center of Gloucester, Inc. (MD)
Leader Nursing and Rehabilitation Center of Scott Township, Inc. (DE)
Leader Nursing and Rehabilitation Center of Virginia, Inc. (VA)
Manor Care of Akron, Inc. (OH)
Manor Care of Arizona, Inc. (DE)
Manor Care of Arlington, Inc. (VA)
Manor Care of Boca Raton, Inc. (FL)
Manor Care of Boynton Beach, Inc. (FL)
Manor Care of Brevard, Inc. (D) (FL)
Manor Care of Broward, Inc. (D) (FL)
Manor Care of California, Inc. (D) (CA)
Manor Care of Canton, Inc. (OH)
Manor Care of Charleston, Inc. (SC)
Manor Care of Cincinnati, Inc. (OH)
Manor Care of Colorado, Inc. (D) (DE)
Manor Care of Columbia, Inc. (SC)
Manor Care of Dade, Inc. (D) (FL)
Manor Care of Darien, Inc. (CT)
Manor Care of Delaware County, Inc. (DE)
Manor Care of Dunedin, Inc. (FL)
Manor Care of Florida, Inc. (FL)
Manor Care of Hinsdale, Inc. (IL)
Manor Care of Kansas, Inc. (DE)
Manor Care of Kentucky, Inc. (D) (DE)
6
<PAGE>
Manor Care of Kingston Court, Inc. (PA)
Manor Care of Largo, Inc. (MD)
Manor Care of Lee, Inc. (D) (FL)
Manor Care of Lexington, Inc. (SC)
Manor Care of Meadow Park, Inc. (WA)
Manor Care of Miamisburg, Inc. (DE)
Manor Care of Nebraska, Inc. (D) (DE)
Manor Care of North Olmsted, Inc. (OH)
Manor Care of Orange County, Inc. (D) (FL)
Manor Care of Pinehurst, Inc. (NC)
Manor Care of Plantation, Inc. (FL)
Manor Care of Rolling Meadows, Inc. (IL)
Manor Care Rosewood, Inc. (D) (TN)
Manor Care of Rossville, Inc. (MD)
Manor Care of Sarasota, Inc. (FL)
Manor Care of Union County, Inc. (D) (MD)
Manor Care of Willoughby, Inc. (OH)
Manor Care of Wilmington, Inc. (DE)
Manor Care of York (North), Inc. (PA)
Manor Care of York (South), Inc. (PA)
Medical Aid Training Schools, Inc. (DE)
MHC Second Acquisition Corp. (D) (DE)
MHC Third Acquisition Corp. (D) (DE)
MHC Fourth Acquisition Corp. (D) (DE)
MHC Fifth Acquisition Corp. (D) (DE)
MHC Sixth Acquisition Corp. (D) (DE)
MHS, INC. (Formerly Maternity and Homemaking Service, Inc.) (D) (NY)
Moorhead Americana, Inc. (D) (IL)
Moorhead Nursing Homes, Inc. (D) (MN)
Nightingale Nursing Home, Inc. (The) (PA)
Peak Rehabilitation, Inc. (DE)
PE Liquidating Corp. (D) (PA)
PLM, Inc. (DE)
Rehab Source, Inc. (IL)
Roland Park Nursing Center, Inc. (MD)
Silver Spring -- Wheaton Nursing Home, Inc. (MD)
Stewall Corporation (MD)
Charles Manor, Inc. (MD)
Chesapeake Manor, Inc. (MD)
Pneumatic Concrete, Inc. (80%; 20% Manor Healthcare Corp.) (TN)
Stratford Manor, Inc. (VA)
Stutex Corp. (TX)
TotalCare Clinical Laboratories, Inc. (DE)
Vitalink Pharmacy Services, Inc. (Formerly TotalCare Pharmacy Services,
Inc., formerly
Midwest Medical Facilities Corporation) (82.3%) (DE)
Manor Care of Illinois, Inc. (D) (IL)
Manor Care of Ohio, Inc. (D) (OH)
Vitalink Infusion Services, Inc. (Formerly Vitalink Billing Services,
Inc.) (DE)
White, Mack and Wart, Inc. (OR)
Winter Park Nursing Center, Inc. (71.4%) (DE)
MANOR LIVING CENTERS, INC. (DE)
MNR FINANCE CORP. (DE)
MRS, INC. (DE)
7
<PAGE>
PORTFOLIO ONE, INC. (Formerly Chemlime Corporation) (NJ)
QCM BEVERAGES, INC. (49%; 51% Texas resident) (TX)
QCM CORPORATION (D) (TX)
QI ADVERTISING AGENCY, INC. (DE)
QUALITY ARIZONA, INC. (D) (AZ)
QUALITY HOTELS EUROPE, INC. (Formerly Quality Inns Europe, Inc., formerly Manor
Care Aviation I, Inc.) (DE)
QH Europe, Inc. (D)
QUALITY INNS WORLD MARKETING CORPORATION (DE)
QUALITY INSURANCE ASSOCIATES, INC. (D) (MD)
REVERE GROUP, INC. (THE) (D) (DE)
SUNBURST HOTEL CORP. (TX)
THICKET, INC. (THE) (Non-Profit; owned by members) (TX)
PARTNERSHIPS
Booth Limited Partnership (1% Jacksonville Healthcare Corporation, General
Partner; 99% Manor Healthcare Corp., Limited Partner)
Clinical Laboratory Associates Partnership, a general partnership (50%
TotalCareClinical Laboratories, Inc., General Partner)
Colewood Limited Partnership (1% American Hospital Building Corporation, General
Partner; 99% Executive Advertising, Inc., Limited Partner)
Deca Limited Partnership (94% DeKalb Healthcare Corporation, General Partner)
KLTHC/MCM Partnership, a general partnership (50% Manor Care of Miamisburg,
Inc., General Partner)
PLM Limited Partnership (50% Winter Park Nursing Center, Inc., General Partner)
QH Europe Partnership (80% Quality Hotels Europe, Inc., 20% Choice Hotels
International, Inc.)
Choice Hotels (Deutschland) G.m.b.H. (99%; 1% CHI)(GERMANY)
Choice Hotels (France) S.a.r.l. (99%; 1% CHI)(FRANCE)
Manor Care Hotels International, Inc. (Formerly Manor Care Aviation II,
Inc.)(DE)
Choice Hotels Benelux S.A. (51%)(FRANCE)
Manor Care Hotels (France) S.A.(FRANCE)
Manor Care Hotels No. 1(FRANCE)
Manor Care Hotels No. 2(FRANCE)
Manor Care Hotels No. 3(FRANCE)
Manor Care Hotels No. 4(FRANCE)
Quality Hotels Limited (Formerly QI Hotels (U.K.) Limited)(99%; 1% CHI)(UK)
Choice Hotels (UK) Limited(UK)
Quality Hotels Europe (Alsdorf) G.m.b.H. (99%; 1% QHE) (D) (GERMANY)
Quality Hotels Europe (Herleshausen) G.m.b.H. (99%, 1% QHE) (D) (GERMANY)
Quality Hotels Europe (Jena) G.m.b.H. (formerly Quality Hotels Europe
(Deutschland) G.m.b.H) (99%; 1% QHE) (GERMANY)
Quality Hotels Europe (Leipzig) G.m.b.H. (99%; 1% QHE) (D) (GERMANY)
Quality Hotels Europe (Peine) G.m.b.H. (99%; 1% QHE) (GERMANY)
Quality Hotels Europe (Troisdorf) G.m.b.H. (99%; 1% QHE) (GERMANY)
(D) = dormant companies
Subsidiaries are wholly-owned except where indicated.
8
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PROXY -- IN HOME HEALTH, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR A SPECIAL MEETING OF STOCKHOLDERS TO BE HELD JULY , 1995
The undersigned hereby appoints and
, or either of them, as proxies with full power
of substitution to vote all of the shares of common stock which the undersigned
would be entitled to vote if personally present at the Special Meeting of
Stockholders of In Home Health, Inc. to be held July , 1995 at .m. at
, Minneapolis, Minnesota or at any adjournments
thereof, upon any and all matters which may properly be brought before the
meeting or adjournments thereof, hereby revoking all former proxies.
(1) PROPOSAL TO APPROVE SECURITIES PURCHASE AND SALE AGREEMENT DATED AS OF MAY
2, 1995 BETWEEN IN HOME HEALTH, INC. AND MANOR HEALTHCARE CORP. AND THE
TRANSACTIONS THEREUNDER
/ / FOR / / AGAINST / / ABSTAIN
(2) PROPOSAL TO APPROVE AN AMENDMENT TO ARTICLE III OF THE ARTICLES OF
INCORPORATION OF THE COMPANY
/ / FOR / / AGAINST / / ABSTAIN
(3) PROPOSAL TO APPROVE AMENDMENTS TO THE COMPANY'S 1987 AND 1995 STOCK OPTION
PLANS
/ / FOR / / AGAINST / / ABSTAIN
(4) In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meetings.
<PAGE>
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED ON
PROPOSALS (1), (2) AND (3) IN ACCORDANCE WITH THE SPECIFICATIONS
MADE AND "FOR" SUCH PROPOSALS IF THERE IS NO SPECIFICATION.
PLEASE DATE AND SIGN exactly as your name(s) appears below indicating, where
proper, the official position or representative capacity in which you are
signing. When signing as executor, administrator, trustee or guardian, give full
title as such; when shares have been issued in names of two or more persons, all
should sign.
Dated , 1995
-------------------------------
----------------------------------
Signature of Stockholder
<PAGE>
IN HOME HEALTH, INC.
STOCK OPTION PLAN
OF 1987
Effective April 15, 1987
as amended through
February 21, 1992
<PAGE>
IN HOME HEALTH, INC.
STOCK OPTION PLAN
ARTICLE I. ESTABLISHMENT AND PURPOSE
1.1 ESTABLISHMENT. In Home Health, Inc., a Minnesota corporation
("Company"), hereby establishes a stock option plan for key employees selected
for participation in the Plan which shall be known as the "STOCK OPTION PLAN OF
1987" (the "Plan"). It is intended that certain of the options issued pursuant
to the Plan to employees of the Company may constitute incentive stock options
within the meaning of section 422A of the Internal Revenue Code, and that other
options, if any, issued pursuant to the Plan shall constitute nonstatutory
options. The Board shall determine which options are to be incentive stock
options and which are to be nonstatutory options and shall enter into option
agreements with recipients accordingly.
1.2 PURPOSE. The purpose of this Plan is to enhance stockholder investment
by attracting, retaining and motivating key employees of the Company, and to
encourage stock ownership by such employees by providing them with a means to
acquire a proprietary interest in the Company's success.
ARTICLE II. DEFINITIONS
2.1 DEFINITIONS. Whenever used herein, the following terms shall have the
respective meanings set forth below, unless the context clearly requires
otherwise, and when said meaning is intended, the term shall be capitalized.
(a) "BOARD" means the Board of Directors of the Company.
(b) "CODE" means the Internal Revenue Code of 1986, as amended.
(c) "COMMITTEE" shall mean the Committee provided for by Article IV
hereof, which may be created at the discretion of the Board.
(d) "COMPANY" means In Home Health, Inc., a Minnesota corporation.
(e) "DATE OF EXERCISE" means the date the Company receives notice, by an
Optionee, if the exercise of an Option pursuant to section 8.1 of this Plan.
Such notice shall indicate the number of shares of Stock the Optionee
intends to exercise.
(f) "EMPLOYEE" means any person, including an officer or director of the
Company, who is employed by the Company.
(g) "FAIR MARKET VALUE" means the fair market value of Stock upon which
an option is granted under this Plan.
(h) "INCENTIVE STOCK OPTION" means an Option granted under this Plan
which is intended to qualify as an "incentive stock option" within the
meaning of Section 422A of the Code.
(i) "NONSTATUTORY OPTION" means an Option granted under this Plan which
is not intended to qualify as an incentive stock option within the meaning
of Section 422A of the Code. Nonstatutory Options may be granted at such
times and subject to such restrictions as the Board shall determine without
conforming to the statutory rules of Section 422A of the Code applicable to
incentive stock options.
(j) "OPTION" means the right, granted under this Plan, to purchase
Stock of the Company at the option price for a specified period of time. For
purposes of this Plan, an Option may be either an Incentive Stock Option or
a Nonstatutory Option.
(k) "OPTIONEE" means an Employee designated by the Board to participate
in the Plan.
(l) "PARENT CORPORATION" shall have the meaning set forth in Section
425(e) of the Code with the Company being treated as the employer
corporation for purposes of this definition.
(m) "SUBSIDIARY CORPORATION" shall have the meaning set forth in Section
425(f) of the Code with the Company being treated as the employer
corporation for purposes of this definition.
<PAGE>
(n) "SIGNIFICANT SHAREHOLDER" means an individual who, within the
meaning of Section 422A(b)(6) of the Code, owns stock possessing more than
ten percent of the total combined voting power of all classes of stock of
the Company or of any Parent Corporation or Subsidiary Corporation of the
Company. In determining whether an individual is a Significant Shareholder,
an individual shall be treated as owning stock owned by certain relatives of
the individual and certain stock owned by corporations in which the
individual is a shareholder, partnerships in which the individual is a
partner, and estates or trusts of which the individual is a beneficiary, all
as provided in Section 425(d) of the Code.
(o) "STOCK" means the Common Stock of the Company.
2.2 GENDER AND NUMBER. Except when otherwise indicated by the context, any
masculine terminology when used in this Plan also shall include the feminine
gender, and the definition of any term herein in the singular also shall include
the plural.
ARTICLE III. ELIGIBILITY AND PARTICIPATION
3.1 ELIGIBILITY AND PARTICIPATION. All Employees are eligible to
participate in this Plan and receive Incentive Stock Options and/or Nonstatutory
Options hereunder. Optionees in the Plan shall be selected by the Board from
among those Employees who, in the opinion of the Board, are in a position to
contribute materially to the Company's and its Subsidiary Corporations'
continued growth and development and to its long-term financial success.
ARTICLE IV. ADMINISTRATION
4.1 ADMINISTRATION. The Plan shall be administered by the Board of
Directors or by a Committee of two or more persons who are disinterested persons
within the meaning of SEC Regulation 16b-3. The Committee shall be appointed by
the Board and shall serve at the pleasure of the Board. Where a Committee has
been created by the Board, references in the Plan to actions to be taken by the
Board shall be deemed to refer to the Committee, except where limited by the
Plan or by the Board.
The Committee shall have the power and authority:
(i) to select the officers and other key employees of the Company and
its Subsidiaries to whom Options may from time to time be granted hereunder;
(ii) to determine whether and to what extent Incentive Stock Options,
Nonstatutory Options, or a combination of the foregoing, are to be granted
hereunder;
(iii) to determine the number of shares to be covered by each such Option
granted hereunder; and
(iv) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of Options granted hereunder.
The Committee shall also have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable; to interpret the terms and provisions of the
Plan and any Option issued under the Plan (and any agreements relating thereto);
and to otherwise supervise the administration of the Plan. The Committee may
delegate its authority to officers of the Company for the purpose of selecting
employees who are not officers of the Company for purposes of (i) above.
All decisions made by the Committee pursuant to the provisions of the Plan
shall be final and binding on all persons, including the Company and Optionees.
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ARTICLE V. STOCK SUBJECT TO THE PLAN
5.1 NUMBER. The total number of shares of Stock hereby made available and
reserved for issuance under the Plan shall be 2,500,000. The aggregate number of
shares of Stock available under this Plan shall be subject to adjustment as
provided in section 5.3. The total number of shares of Stock may be authorized
but unissued shares of Stock, or shares acquired by purchase as directed by the
Board from time to time in its discretion, to be used for issuance upon exercise
of Options granted hereunder.
5.2 UNUSED STOCK. If an Option shall expire or terminate for any reason
without having been exercised in full, the unpurchased shares of Stock subject
thereto shall (unless the Plan shall have terminated) become available for other
Options under the Plan.
5.3 ADJUSTMENT IN CAPITALIZATION. In the event of any change in the
outstanding shares of Stock by reason of a stock dividend or split,
recapitalization, reclassification, or other similar corporate change, the
aggregate number of shares of Stock set forth in Section 5.1 shall be
appropriately adjusted by the Board, whose determination shall be conclusive;
provided however, that fractional shares shall be rounded to the nearest whole
share. In any such case, the number and kind of shares that are subject to any
Option (including any Option outstanding after termination of employment) and
the Option price per share shall be proportionately and appropriately adjusted
without any change in the aggregate Option price to be paid therefor upon
exercise of the Option.
ARTICLE VI. DURATION OF THE PLAN
6.1 DURATION OF THE PLAN. Subject to the stockholder approval, the Plan
shall be in effect for ten years from the date of its adoption by the Board. Any
Options outstanding at the end of said period shall remain in effect in
accordance with their terms. The Plan shall terminate before the end of said
period, if all Stock subject to it has been purchased pursuant to the exercise
of Options granted under the Plan.
ARTICLE VII. TERMS OF STOCK OPTIONS
7.1 GRANT OF OPTIONS. Subject to section 5.1, Options may be granted to
Employees at any time and from time to time as determined by the Board. The
Board shall have complete discretion in determining the number of Options
granted to each Optionee. In making such determinations, the Board may take into
account the nature of services rendered by such Employees, their present and
potential contributions to the Company, and such other factors as the Board in
its discretion shall deem relevant. The Board also shall determine whether an
Option is to be an Incentive Stock Option or a Nonstatutory Option.
The total Fair Market Value (determined at the date of grant) of shares of
Stock with respect to which Incentive Stock Options are exercisable for the
first time by the Optionee during any calendar year under all plans of the
Company under which Incentive Stock Options may be granted (and all such plans
of any Parent Corporations and any Subsidiary Corporations of the Company) shall
not exceed $100,000. (Hereinafter, this limitation is sometimes referred to as
the "$100,000 Limitation.")
The written Option agreements with the Optionees shall contain such
provisions as may be necessary to implement the $100,000 Limitation, taking into
account the restrictions on exercise which already exist upon the Option or
Options held by the Optionee which are subject to the $100,000 Limitation. Where
an Option holder already holds Options subject to the $100,000 Limitation, and
the Optionee is granted a new Incentive Stock Option under this plan, the Board
or Committee may, if permitted by the Code and the regulations and
interpretations thereunder, impose the restrictions upon exercisability which
are necessary to implement the $100,000 Limitation in whole or in part upon the
previously issued Option or Options to accelerate the exercisability of the
newly granted Incentive Stock Option.
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Nothing in this Article VII of the Plan shall be deemed to prevent the grant
of Options in excess of the $100,000 Limitation where such excess amount is
treated as a Nonstatutory Option.
The Board is expressly given the authority to issue amended Options with
respect to shares of Stock subject to an Option previously granted hereunder. An
amended Option amends the terms of an Option previously granted and thereby
supersedes the previous Option.
7.2 NO TANDEM OPTIONS. Where an Option granted under this Plan is intended
to be an Incentive Stock Option, the Option shall not contain terms pursuant to
which the exercise of the Option would affect the Optionee's right to exercise
another Option, or vice versa, such that the Option intended to be an Incentive
Stock Option would be deemed a tandem stock option within the meaning of the
regulations under Section 422A of the Code.
7.3 OPTION AGREEMENT. As determined by the Board on the date of grant,
each Option shall be evidenced by an Option Agreement (the "Option Agreement")
that includes the nontransferability provisions of Section 10.2 hereof and
specifies: whether the Option is an Incentive Stock Option or a Nonstatutory
Option; the Option price; the duration of the Option; the number of shares of
Stock to which the Option applies; any vesting or serial exercise restrictions
which the Board may impose; and any other terms or conditions which the Board
may impose.
All Option Agreements shall incorporate the provisions of this Plan by
reference, with certain provisions to apply depending upon whether the Option
Agreement applies to an Incentive Stock Option or to a Nonstatutory Option.
7.2 OPTION PRICE. No Incentive Stock Option granted pursuant to this Plan
shall have an Option price that is less than the Fair Market Value of Stock on
the date the Option is granted. Incentive Stock Options granted to Significant
Shareholders shall have an Option price of not less than 110 percent of the Fair
Market Value of Stock on the date of grant. The Option price for Nonstatutory
Options shall be established by the Board and shall not be subject to the
restrictions applicable to Incentive Stock Options.
7.5 TERM OF OPTIONS. Each Option shall expire at such time as the Board
shall determine when it is granted, provided however that no Option shall be
exercisable later than the tenth anniversary date of its grant. By its terms, an
Incentive Stock Option granted to a Significant Shareholder shall not be
exercisable after five years from the date of grant.
7.6 EXERCISE OF OPTIONS. Options granted under the Plan shall be
exercisable at such time and be subject to such restrictions and conditions as
the Board shall in each instance approve, which need not be the same for all
Optionees.
7.7 PAYMENT. Payment for all shares of Stock shall be made at the time
that an Option, or any part thereof, is exercised, and no shares shall be issued
until full payment therefore has been made. Payment shall be made (i) in cash,
or (ii) if acceptable to the Board, in stock or in some other form; provided,
however, in the case of an Incentive Stock Option, that said other form of
payment does not prevent the Option from qualifying for treatment as an
"incentive stock option" within the meaning of the Code.
ARTICLE VIII. WRITTEN NOTICE, ISSUANCE
OF STOCK CERTIFICATES, STOCKHOLDER PRIVILEGES
8.1 WRITTEN NOTICE. An Optionee wishing to exercise an Option shall give
written notice to the Company, in the form and manner prescribed by the Board.
Full payment for the shares exercised pursuant to the Option must accompany the
written notice.
8.2 ISSUANCE OF STOCK CERTIFICATES. As soon as practicable after the
receipt of written notice and payment, the Company shall deliver to the Optionee
or to a nominee of the Optionee a certificate or certificates for the requisite
number of shares of Stock.
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8.3 PRIVILEGES OF A STOCKHOLDER. An Optionee or any other person entitled
to exercise an Option under this Plan shall not have stockholder privileges with
respect to any Stock covered by the Option
until the date of issuance of a stock certificate for such stock.
ARTICLE IX. TERMINATION OF EMPLOYMENT
9.1 DEATH. If an Optionee's employment terminates by reason of death, the
Option may thereafter be exercised at any time prior to the expiration date of
the Option or within 12 months after the date of such death, whichever period is
the shorter, by the person or persons entitled to do so under the Optionee's
will or, if the Optionee shall fail to make a testamentary disposition of an
Option or shall die intestate, the Optionee's legal representative or
representatives. The Option shall be exercisable only to the extent that such
Option was exercisable as of the date of death.
9.2 TERMINATION OTHER THAN FOR CAUSE OR DUE TO DEATH. In the event of an
Optionee's termination of employment, other than by reason of death, the
Optionee may exercise such portion of his Option as was exercisable by him at
the date of such termination (the "Termination Date") at any time within three
(3) months of the Termination Date; provided, however, that where the Optionee
is terminated due to disability within the meaning of Code Section422A(c)(7), he
may exercise such portion of his Option as was exercisable by him on his
Termination Date within One year of his Termination Date. In any event, the
Option cannot be exercised after the expiration of the term of the Option.
Options not exercised within the applicable period specified above shall
terminate.
In the case of an Employee, a change of duties or position within the
Company or an assignment of employment in a Subsidiary Corporation or Parent
Corporation of the Company, if any, or from such a Corporation to the Company,
shall not be considered a termination of employment for purposes of this Plan.
The Option Agreements may contain such provisions as the Board shall approve
with reference to the effect of approved leaves of absence upon termination of
employment.
9.3 TERMINATION FOR CAUSE. In the event of an Optionee's termination of
employment by the Company for cause, any Option or Options held by him under the
Plan, to the extent not exercised before such termination, shall forthwith
terminate.
ARTICLE X. RIGHTS OF OPTIONEES
10.1 SERVICE. Nothing in this Plan shall interfere with or limit in any
way the right of the Company to terminate any Employee's employment at any time,
nor confer upon any Employee any right to continue in the employ of the Company.
10.2 NONTRANSFERABILITY. All Options granted under this Plan shall be
nontransferable by the Optionee, other than by will or the laws of descent and
distribution, and shall be exercisable during the Optionee's lifetime only by
the Optionee.
ARTICLE XI. OPTIONEE'S
TRANSFER OR LEAVE OF ABSENCE
11.1 OPTIONEE'S TRANSFER OR LEAVE OF ABSENCE. For Plan purposes --
(a) a transfer of an Optionee from the Company to a Subsidiary
Corporation or Parent Corporation, or from one such Corporation to another,
or
(b) a leave of absence for an Optionee (i) which is duly authorized in
writing by the Company, and (ii) if the Optionee holds an Incentive Stock
Option, which qualifies under the applicable regulations under the Code
which apply in the case of incentive stock options,
shall not be deemed a termination of employment. However, under no circumstances
may an Optionee exercise an Option during any leave of absence, unless
authorized by the Board.
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ARTICLE XII. AMENDMENT,
MODIFICATION, AND TERMINATION OF THE PLAN
12.1 AMENDMENT, MODIFICATION, AND TERMINATION OF THE PLAN. The Board may
at any time terminate, and from time to time any may amend or modify the Plan,
provided, however, that no such action of the Board, without approval of the
stockholders, may --
(a) increase the total amount of Stock which may be purchased through
Options granted under the Plan, except as provided in section 5.1;
(b) change the class of Employees eligible to receive Options;
No amendment, modification, or termination of the Plan shall in any manner
adversely affect any outstanding Option under the Plan without the consent of
the Optionee holding the Option.
ARTICLE XIII. MERGER OR CONSOLIDATION
13.1 MERGER OR CONSOLIDATION. (a) Subject to any required action by the
stockholders, if the Company shall be the surviving corporation in any merger or
consolidation, any Option granted hereunder shall pertain to and apply to the
Securities to which a holder of the number of shares of Stock subject to the
Option would have been entitled in such merger or consolidation.
(b) A dissolution or a liquidation of the Company or a merger and
consolidation in which the Company is not the surviving corporation shall cause
every Option outstanding hereunder to terminate as of the effective date of such
dissolution, liquidation, merger or consolidation. However, the Optionee either
(i) shall be offered a firm commitment whereby the resulting or surviving
corporation in a merger or consolidation will tender to the Optionee an option
(the "Substitute Option") to purchase its shares on terms and conditions both as
to number of shares and otherwise, which will substantially preserve to the
Optionee the rights and benefits of the Option outstanding hereunder granted by
the Company, or (ii) shall have the right immediately prior to such dissolution,
liquidation, merger, or consolidation to exercise any unexercised Options
whether or not then exercisable, subject to the provisions of this Plan. The
Board shall have absolute and uncontrolled discretion to determine whether the
Optionee has been offered a firm commitment and whether the tendered Substitute
Option will substantially preserve to the Optionee the rights and benefits of
the Option outstanding hereunder. In any event, any Substitute Option for an
Incentive Stock Option shall comply with the requirements of Code Section
425(a).
Notwithstanding the foregoing provisions providing that Options shall or may
become immediately exercisable in full upon the dissolution or liquidation of
the Company, or in certain mergers or consolidations, Incentive Stock Options
shall become immediately exercisable in full only to the extent that this is
permitted under the $100,000 Limitation as this Limitation is interpreted by the
Code and the regulations and decisions thereunder. To the extent an Incentive
Stock Option is not exercisable due to this Limitation, the unexercised portion
of the Option shall terminate. However, in the case of a merger, consolidation,
or other form of reorganization, the surviving corporation or its parent
corporation shall have the right, but not the obligation, to issue Substitute
Options for the portion not exercisable, as provided above.
ARTICLE XIV. SECURITIES REGISTRATION
14.1 SECURITIES REGISTRATION. In the event that the Company shall deem it
necessary or desirable to register under the Securities Act of 1933, as amended,
or any other applicable statute, any Options or any Stock with respect to which
an Option may be or shall have been granted or exercised, or to qualify any such
Options or Stock under the Securities Act of 1933, as amended, or any other
statute, then the Optionee shall cooperate with the Company and take such action
as is necessary to permit registration or qualified of such Options or Stock.
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Unless the Company has determined that the following representation is
unnecessary, each person exercising an Optionee under the Plan may be required
by the Company, as a condition to the issuance of the shares pursuant to
exercise of the Option, to make a representation in writing (a) that he is
acquiring such shares for his own account for investment and not with a view to,
or for sale in connection with, the distribution of any part thereof, and (b)
that before any transfer in connection with the resale of such shares, he will
obtain the written opinion of counsel for the Company, or other counsel
acceptable to the Company, that such shares may be transferred. The Company may
also require that the certificates representing such shares contain legends
reflecting the foregoing.
ARTICLE XV. TAX WITHHOLDING
15.1 TAX WITHHOLDING. Whenever shares of Stock are to be issued in
satisfaction of Options exercised under this Plan, the Company shall have the
power to require the recipient of the Stock to remit to the Company in amount
sufficient to satisfy federal, state, and local withholding tax requirements.
ARTICLE XVI. INDEMNIFICATION
16.1 INDEMNIFICATION. To the extent permitted by law, each person who is
or shall have been a member of the Board shall be indemnified and held harmless
by the Company against and from any loss, cost, liability, or expense that may
be imposed upon or reasonably incurred by him in connection with or resulting
from any claim, action, suit, or proceeding to which he may be a party or in
which he may be involved by reason of any action taken or failure to act under
the Plan and against and from any and all amounts paid by him in settlement
thereof, with the Company's approval, or paid by him in satisfaction of judgment
in any such action, suit, or proceeding against him, provided he shall give the
Company an opportunity, at its own expense, to handle and defend the same before
he undertakes to handle and defend it on his own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification to
which such persons may be entitled under the Company's articles of incorporation
or bylaws, as a matter of law, or otherwise, or any power that the Company may
have to indemnify them to hold them harmless.
ARTICLE XVII. REQUIREMENTS OF LAW
17.1 REQUIREMENTS OF LAW. The granting of Options and the issuance of
shares of Stock upon the exercise of an Option shall be subject to all
applicable laws, rules and regulations and to such approvals by any governmental
agencies or national securities exchange as may be required.
17.2 GOVERNING LAW. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of Minnesota.
ARTICLE XVIII. EFFECTIVE DATE OF PLAN
18.1 EFFECTIVE DATE. The Plan shall be effective on April 15, 1987, the
date of its adoption by the Board.
ARTICLE XIX. COMPLIANCE WITH CODE
19.1 COMPLIANCE WITH CODE. Incentive Stock Options granted hereunder are
intended to qualify as "incentive stock options" under Code Section422A. If any
provision of this Plan is susceptible to more than one interpretation, such
interpretation shall be given thereto as is consistent with Incentive Stock
Options granted under this Plan being treated as incentive stock options under
the Code.
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ARTICLE XX. NO OBLIGATION TO EXERCISE OPTION
20.1 NO OBLIGATION TO EXERCISE. The granting of an Option shall impose no
obligation upon the holder thereof to exercise such Option.
IN HOME HEALTH, INC.
Dated: February 21, 1992 By /s/ KENNETH J. FIGGE
------------------------------------
Kenneth J. Figge, SECRETARY
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IN HOME HEALTH, INC.
1995 STOCK OPTION PLAN
<PAGE>
IN HOME HEALTH, INC.
STOCK OPTION PLAN
ARTICLE I. ESTABLISHMENT AND PURPOSE
1.1 ESTABLISHMENT. In Home Health, Inc., a Minnesota corporation
("Company"), hereby establishes a stock option plan for key employees selected
for participation in the Plan which shall be known as the "1995 STOCK OPTION
PLAN" (the "Plan"). It is intended that certain of the options issued pursuant
to the Plan to employees of the Company may constitute incentive stock options
within the meaning of section 422A of the Internal Revenue Code, and that other
options, if any, issued pursuant to the Plan shall constitute nonstatutory
options. The Board shall determine which options are to be incentive stock
options and which are to be nonstatutory options and shall enter into option
agreements with recipients accordingly.
1.2 PURPOSE. The purpose of this Plan is to enhance stockholder investment
by attracting, retaining and motivating key employees of the Company, and to
encourage stock ownership by such employees by providing them with a means to
acquire a proprietary interest in the Company's success.
ARTICLE II. DEFINITIONS
2.1 DEFINITIONS. Whenever used herein, the following terms shall have the
respective meanings set forth below, unless the context clearly requires
otherwise, and when said meaning is intended, the term shall be capitalized.
(a) "BOARD" means the Board of Directors of the Company.
(b) "CODE" means the Internal Revenue Code of 1986, as amended.
(c) "COMMITTEE" shall mean the Committee provided for by Article IV
hereof, which may be created at the discretion of the Board.
(d) "COMPANY" means In Home Health, Inc., a Minnesota corporation.
(e) "DATE OF EXERCISE" means the date the Company receives notice, by an
Optionee, if the exercise of an Option pursuant to section 8.1 of this Plan.
Such notice shall indicate the number of shares of Stock the Optionee
intends to exercise.
(f) "EMPLOYEE" means any person, including an officer or director of the
Company, who is employed by the Company.
(g) "FAIR MARKET VALUE" means the fair market value of Stock upon which
an option is granted under this Plan.
(h) "INCENTIVE STOCK OPTION" means an Option granted under this Plan
which is intended to qualify as an "incentive stock option" within the
meaning of Section 422A of the Code.
(i) "NONSTATUTORY OPTION" means an Option granted under this Plan which
is not intended to qualify as an incentive stock option within the meaning
of Section 422A of the Code. Nonstatutory Options may be granted at such
times and subject to such restrictions as the Board shall determine without
conforming to the statutory rules of Section 422A of the Code applicable to
incentive stock options.
(j) "OPTION" means the right, granted under this Plan, to purchase
Stock of the Company at the option price for a specified period of time. For
purposes of this Plan, an Option may be either an Incentive Stock Option or
a Nonstatutory Option.
(k) "OPTIONEE" means an Employee designated by the Board to participate
in the Plan.
(l) "PARENT CORPORATION" shall have the meaning set forth in Section
425(e) of the Code with the Company being treated as the employer
corporation for purposes of this definition.
(m) "SUBSIDIARY CORPORATION" shall have the meaning set forth in Section
425(f) of the Code with the Company being treated as the employer
corporation for purposes of this definition.
<PAGE>
(n) "SIGNIFICANT SHAREHOLDER" means an individual who, within the
meaning of Section 422A(b)(6) of the Code, owns stock possessing more than
ten percent of the total combined voting power of all classes of stock of
the Company or of any Parent Corporation or Subsidiary Corporation of the
Company. In determining whether an individual is a Significant Shareholder,
an individual shall be treated as owning stock owned by certain relatives of
the individual and certain stock owned by corporations in which the
individual is a shareholder, partnerships in which the individual is a
partner, and estates or trusts of which the individual is a beneficiary, all
as provided in Section 425(d) of the Code.
(o) "STOCK" means the Common Stock of the Company.
2.2 GENDER AND NUMBER. Except when otherwise indicated by the context, any
masculine terminology when used in this Plan also shall include the feminine
gender, and the definition of any term herein in the singular also shall include
the plural.
ARTICLE III. ELIGIBILITY AND PARTICIPATION
3.1 ELIGIBILITY AND PARTICIPATION. All Employees are eligible to
participate in this Plan and receive Incentive Stock Options and/or Nonstatutory
Options hereunder. Optionees in the Plan shall be selected by the Board from
among those Employees who, in the opinion of the Board, are in a position to
contribute materially to the Company's and its Subsidiary Corporations'
continued growth and development and to its long-term financial success.
ARTICLE IV. ADMINISTRATION
4.1 ADMINISTRATION. The Plan shall be administered by the Board of
Directors or by a Committee of two or more persons who are disinterested persons
within the meaning of SEC Regulation 16b-3. The Committee shall be appointed by
the Board and shall serve at the pleasure of the Board. Where a Committee has
been created by the Board, references in the Plan to actions to be taken by the
Board shall be deemed to refer to the Committee, except where limited by the
Plan or by the Board.
The Committee shall have the power and authority:
(i) to select the officers and other key employees of the Company and
its Subsidiaries to whom Options may from time to time be granted hereunder;
(ii) to determine whether and to what extent Incentive Stock Options,
Nonstatutory Options, or a combination of the foregoing, are to be granted
hereunder;
(iii) to determine the number of shares to be covered by each such Option
granted hereunder; and
(iv) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of Options granted hereunder.
The Committee shall also have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable; to interpret the terms and provisions of the
Plan and any Option issued under the Plan (and any agreements relating thereto);
and to otherwise supervise the administration of the Plan. The Committee may
delegate its authority to officers of the Company for the purpose of selecting
employees who are not officers of the Company for purposes of (i) above.
All decisions made by the Committee pursuant to the provisions of the Plan
shall be final and binding on all persons, including the Company and Optionees.
ARTICLE V. STOCK SUBJECT TO THE PLAN
5.1 NUMBER. The total number of shares of Stock hereby made available and
reserved for issuance under the Plan shall be 650,000. The aggregate number of
shares of Stock available under
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this Plan shall be subject to adjustment as provided in section 5.3. The total
number of shares of Stock may be authorized but unissued shares of Stock, or
shares acquired by purchase as directed by the Board from time to time in its
discretion, to be used for issuance upon exercise of Options granted hereunder.
5.2 UNUSED STOCK. If an Option shall expire or terminate for any reason
without having been exercised in full, the unpurchased shares of Stock subject
thereto shall (unless the Plan shall have terminated) become available for other
Options under the Plan.
5.3 ADJUSTMENT IN CAPITALIZATION. In the event of any change in the
outstanding shares of Stock by reason of a stock dividend or split,
recapitalization, reclassification, or other similar corporate change, the
aggregate number of shares of Stock set forth in Section 5.1 shall be
appropriately adjusted by the Board, whose determination shall be conclusive;
provided however, that fractional shares shall be rounded to the nearest whole
share. In any such case, the number and kind of shares that are subject to any
Option (including any Option outstanding after termination of employment) and
the Option price per share shall be proportionately and appropriately adjusted
without any change in the aggregate Option price to be paid therefor upon
exercise of the Option.
ARTICLE VI. DURATION OF THE PLAN
6.1 DURATION OF THE PLAN. Subject to the stockholder approval, the Plan
shall be in effect for ten years from the date of its adoption by the Board. Any
Options outstanding at the end of said period shall remain in effect in
accordance with their terms. The Plan shall terminate before the end of said
period, if all Stock subject to it has been purchased pursuant to the exercise
of Options granted under the Plan.
ARTICLE VII. TERMS OF STOCK OPTIONS
7.1 GRANT OF OPTIONS. Subject to section 5.1, Options may be granted to
Employees at any time and from time to time as determined by the Board. The
Board shall have complete discretion in determining the number of Options
granted to each Optionee. In making such determinations, the Board may take into
account the nature of services rendered by such Employees, their present and
potential contributions to the Company, and such other factors as the Board in
its discretion shall deem relevant. The Board also shall determine whether an
Option is to be an Incentive Stock Option or a Nonstatutory Option.
The total Fair Market Value (determined at the date of grant) of shares of
Stock with respect to which Incentive Stock Options are exercisable for the
first time by the Optionee during any calendar year under all plans of the
Company under which Incentive Stock Options may be granted (and all such plans
of any Parent Corporations and any Subsidiary Corporations of the Company) shall
not exceed $100,000. (Hereinafter, this limitation is sometimes referred to as
the "$100,000 Limitation.")
The written Option agreements with the Optionees shall contain such
provisions as may be necessary to implement the $100,000 Limitation, taking into
account the restrictions on exercise which already exist upon the Option or
Options held by the Optionee which are subject to the $100,000 Limitation. Where
an Option holder already holds Options subject to the $100,000 Limitation, and
the Optionee is granted a new Incentive Stock Option under this plan, the Board
or Committee may, if permitted by the Code and the regulations and
interpretations thereunder, impose the restrictions upon exercisability which
are necessary to implement the $100,000 Limitation in whole or in part upon the
previously issued Option or Options to accelerate the exercis-ability of the
newly granted Incentive Stock Option.
Nothing in this Article VII of the Plan shall be deemed to prevent the grant
of Options in excess of the $100,000 Limitation where such excess amount is
treated as a Nonstatutory Option.
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The Board is expressly given the authority to issue amended Options with
respect to shares of Stock subject to an Option previously granted hereunder. An
amended Option amends the terms of an Option previously granted and thereby
supersedes the previous Option.
7.2 NO TANDEM OPTIONS. Where an Option granted under this Plan is intended
to be an Incentive Stock Option, the Option shall not contain terms pursuant to
which the exercise of the Option would affect the Optionee's right to exercise
another Option, or vice versa, such that the Option intended to be an Incentive
Stock Option would be deemed a tandem stock option within the meaning of the
regulations under Section 422A of the Code.
7.3 OPTION AGREEMENT. As determined by the Board on the date of grant,
each Option shall be evidenced by an Option Agreement (the "Option Agreement")
that includes the nontransferability provisions of Section 10.2 hereof and
specifies: whether the Option is an Incentive Stock Option or a Nonstatutory
Option; the Option price; the duration of the Option; the number of shares of
Stock to which the Option applies; any vesting or serial exercise restrictions
which the Board may impose; and any other terms or conditions which the Board
may impose.
All Option Agreements shall incorporate the provisions of this Plan by
reference, with certain provisions to apply depending upon whether the Option
Agreement applies to an Incentive Stock Option or to a Nonstatutory Option.
7.2 OPTION PRICE. No Incentive Stock Option granted pursuant to this Plan
shall have an Option price that is less than the Fair Market Value of Stock on
the date the Option is granted. Incentive Stock Options granted to Significant
Shareholders shall have an Option price of not less than 110 percent of the Fair
Market Value of Stock on the date of grant. The Option price for Nonstatutory
Options shall be established by the Board and shall not be subject to the
restrictions applicable to Incentive Stock Options.
7.5 TERM OF OPTIONS. Each Option shall expire at such time as the Board
shall determine when it is granted, provided however that no Option shall be
exercisable later than the tenth anniversary date of its grant. By its terms, an
Incentive Stock Option granted to a Significant Shareholder shall not be
exercisable after five years from the date of grant.
7.6 EXERCISE OF OPTIONS. Options granted under the Plan shall be
exercisable at such time and be subject to such restrictions and conditions as
the Board shall in each instance approve, which need not be the same for all
Optionees.
7.7 PAYMENT. Payment for all shares of Stock shall be made at the time
that an Option, or any part thereof, is exercised, and no shares shall be issued
until full payment therefore has been made. Payment shall be made (i) in cash,
or (ii) if acceptable to the Board, in stock or in some other form; provided,
however, in the case of an Incentive Stock Option, that said other form of
payment does not prevent the Option from qualifying for treatment as an
"incentive stock option" within the meaning of the Code.
ARTICLE VIII. WRITTEN NOTICE, ISSUANCE
OF STOCK CERTIFICATES, STOCKHOLDER PRIVILEGES
8.1 WRITTEN NOTICE. An Optionee wishing to exercise an Option shall give
written notice to the Company, in the form and manner prescribed by the Board.
Full payment for the shares exercised pursuant to the Option must accompany the
written notice.
8.2 ISSUANCE OF STOCK CERTIFICATES. As soon as practicable after the
receipt of written notice and payment, the Company shall deliver to the Optionee
or to a nominee of the Optionee a certificate or certificates for the requisite
number of shares of Stock.
8.3 PRIVILEGES OF A STOCKHOLDER. An Optionee or any other person entitled
to exercise an Option under this Plan shall not have stockholder privileges with
respect to any Stock covered by the Option until the date of issuance of a stock
certificate for such stock.
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ARTICLE IX. TERMINATION OF EMPLOYMENT
9.1 DEATH. If an Optionee's employment terminates by reason of death, the
Option may thereafter be exercised at any time prior to the expiration date of
the Option or within 12 months after the date of such death, whichever period is
the shorter, by the person or persons entitled to do so under the Optionee's
will or, if the Optionee shall fail to make a testamentary disposition of an
Option or shall die intestate, the Optionee's legal representative or
representatives. The Option shall be exercisable only to the extent that such
Option was exercisable as of the date of death.
9.2 TERMINATION OTHER THAN FOR CAUSE OR DUE TO DEATH. In the event of an
Optionee's termination of employment, other than by reason of death, the
Optionee may exercise such portion of his Option as was exercisable by him at
the date of such termination (the "Termination Date") at any time within three
(3) months of the Termination Date; provided, however, that where the Optionee
is terminated due to disability within the meaning of Code Section422A(c)(7), he
may exercise such portion of his Option as was exercisable by him on his
Termination Date within One year of his Termination Date. In any event, the
Option cannot be exercised after the expiration of the term of the Option.
Options not exercised within the applicable period specified above shall
terminate.
In the case of an Employee, a change of duties or position within the
Company or an assignment of employment in a Subsidiary Corporation or Parent
Corporation of the Company, if any, or from such a Corporation to the Company,
shall not be considered a termination of employment for purposes of this Plan.
The Option Agreements may contain such provisions as the Board shall approve
with reference to the effect of approved leaves of absence upon termination of
employment.
9.3 TERMINATION FOR CAUSE. In the event of an Optionee's termination of
employment by the Company for cause, any Option or Options held by him under the
Plan, to the extent not exercised before such termination, shall forthwith
terminate.
ARTICLE X. RIGHTS OF OPTIONEES
10.1 SERVICE. Nothing in this Plan shall interfere with or limit in any
way the right of the Company to terminate any Employee's employment at any time,
nor confer upon any Employee any right to continue in the employ of the Company.
10.2 NONTRANSFERABILITY. All Options granted under this Plan shall be
nontransferable by the Optionee, other than by will or the laws of descent and
distribution, and shall be exercisable during the Optionee's lifetime only by
the Optionee.
ARTICLE XI. OPTIONEE'S
TRANSFER OR LEAVE OF ABSENCE
11.1 OPTIONEE'S TRANSFER OR LEAVE OF ABSENCE. For Plan purposes --
(a) a transfer of an Optionee from the Company to a Subsidiary
Corporation or Parent Corporation, or from one such Corporation to another,
or
(b) a leave of absence for an Optionee (i) which is duly authorized in
writing by the Company, and (ii) if the Optionee holds an Incentive Stock
Option, which qualifies under the applicable regulations under the Code
which apply in the case of incentive stock options,
shall not be deemed a termination of employment. However, under no circumstances
may an Optionee exercise an Option during any leave of absence, unless
authorized by the Board.
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ARTICLE XII. AMENDMENT,
MODIFICATION, AND TERMINATION OF THE PLAN
12.1 AMENDMENT, MODIFICATION, AND TERMINATION OF THE PLAN. The Board may
at any time terminate, and from time to time any may amend or modify the Plan,
provided, however, that no such action of the Board, without approval of the
stockholders, may --
(a) increase the total amount of Stock which may be purchased through
Options granted under the Plan, except as provided in section 5.1;
(b) change the class of Employees eligible to receive Options;
No amendment, modification, or termination of the Plan shall in any manner
adversely affect any outstanding Option under the Plan without the consent of
the Optionee holding the Option.
ARTICLE XIII. MERGER OR CONSOLIDATION
13.1 MERGER OR CONSOLIDATION. (a) Subject to any required action by the
stockholders, if the Company shall be the surviving corporation in any merger or
consolidation, any Option granted hereunder shall pertain to and apply to the
Securities to which a holder of the number of shares of Stock subject to the
Option would have been entitled in such merger or consolidation.
(b) A dissolution or a liquidation of the Company or a merger and
consolidation in which the Company is not the surviving corporation shall cause
every Option outstanding hereunder to terminate as of the effective date of such
dissolution, liquidation, merger or consolidation. However, the Optionee either
(i) shall be offered a firm commitment whereby the resulting or surviving
corporation in a merger or consolidation will tender to the Optionee an option
(the "Substitute Option") to purchase its shares on terms and conditions both as
to number of shares and otherwise, which will substantially preserve to the
Optionee the rights and benefits of the Option outstanding hereunder granted by
the Company, or (ii) shall have the right immediately prior to such dissolution,
liquidation, merger, or consolidation to exercise any unexercised Options
whether or not then exercisable, subject to the provisions of this Plan. The
Board shall have absolute and uncontrolled discretion to determine whether the
Optionee has been offered a firm commitment and whether the tendered Substitute
Option will substantially preserve to the Optionee the rights and benefits of
the Option outstanding hereunder. In any event, any Substitute Option for an
Incentive Stock Option shall comply with the requirements of Code Section
425(a).
Notwithstanding the foregoing provisions providing that Options shall or may
become immediately exercisable in full upon the dissolution or liquidation of
the Company, or in certain mergers or consolidations, Incentive Stock Options
shall become immediately exercisable in full only to the extent that this is
permitted under the $100,000 Limitation as this Limitation is interpreted by the
Code and the regulations and decisions thereunder. To the extent an Incentive
Stock Option is not exercisable due to this Limitation, the unexercised portion
of the Option shall terminate. However, in the case of a merger, consolidation,
or other form of reorganization, the surviving corporation or its parent
corporation shall have the right, but not the obligation, to issue Substitute
Options for the portion not exercisable, as provided above.
ARTICLE XIV. SECURITIES REGISTRATION
14.1 SECURITIES REGISTRATION. In the event that the Company shall deem it
necessary or desirable to register under the Securities Act of 1933, as amended,
or any other applicable statute, any Options or any Stock with respect to which
an Option may be or shall have been granted or exercised, or to qualify any such
Options or Stock under the Securities Act of 1933, as amended, or any other
statute, then the Optionee shall cooperate with the Company and take such action
as is necessary to permit registration or qualified of such Options or Stock.
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Unless the Company has determined that the following representation is
unnecessary, each person exercising an Optionee under the Plan may be required
by the Company, as a condition to the issuance of the shares pursuant to
exercise of the Option, to make a representation in writing (a) that he is
acquiring such shares for his own account for investment and not with a view to,
or for sale in connection with, the distribution of any part thereof, and (b)
that before any transfer in connection with the resale of such shares, he will
obtain the written opinion of counsel for the Company, or other counsel
acceptable to the Company, that such shares may be transferred. The Company may
also require that the certificates representing such shares contain legends
reflecting the foregoing.
ARTICLE XV. TAX WITHHOLDING
15.1 TAX WITHHOLDING. Whenever shares of Stock are to be issued in
satisfaction of Options exercised under this Plan, the Company shall have the
power to require the recipient of the Stock to remit to the Company in amount
sufficient to satisfy federal, state, and local withholding tax requirements.
ARTICLE XVI. INDEMNIFICATION
16.1 INDEMNIFICATION. To the extent permitted by law, each person who is
or shall have been a member of the Board shall be indemnified and held harmless
by the Company against and from any loss, cost, liability, or expense that may
be imposed upon or reasonably incurred by him in connection with or resulting
from any claim, action, suit, or proceeding to which he may be a party or in
which he may be involved by reason of any action taken or failure to act under
the Plan and against and from any and all amounts paid by him in settlement
thereof, with the Company's approval, or paid by him in satisfaction of judgment
in any such action, suit, or proceeding against him, provided he shall give the
Company an opportunity, at its own expense, to handle and defend the same before
he undertakes to handle and defend it on his own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification to
which such persons may be entitled under the Company's articles of incorporation
or bylaws, as a matter of law, or otherwise, or any power that the Company may
have to indemnify them to hold them harmless.
ARTICLE XVII. REQUIREMENTS OF LAW
17.1 REQUIREMENTS OF LAW. The granting of Options and the issuance of
shares of Stock upon the exercise of an Option shall be subject to all
applicable laws, rules and regulations and to such approvals by any governmental
agencies or national securities exchange as may be required.
17.2 GOVERNING LAW. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of Minnesota.
ARTICLE XVIII. EFFECTIVE DATE OF PLAN
18.1 EFFECTIVE DATE. The Plan shall be effective on November 8, 1994, the
date of its adoption by the Board.
ARTICLE XIX. COMPLIANCE WITH CODE.
19.1 COMPLIANCE WITH CODE. Incentive Stock Options granted hereunder are
intended to qualify as "incentive stock options" under Code Section422A. If any
provision of this Plan is susceptible to more than one interpretation, such
interpretation shall be given thereto as is consistent with Incentive Stock
Options granted under this Plan being treated as incentive stock options under
the Code.
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ARTICLE XX. NO OBLIGATION TO EXERCISE OPTION.
20.1 NO OBLIGATION TO EXERCISE. The granting of an Option shall impose no
obligation upon the holder thereof to exercise such Option.
IN HOME HEALTH, INC.
By ________/s/_KENNETH J. FIGGE_______
Kenneth J. Figge, SECRETARY
Adopted by the Board of Directors: November 8, 1994
Approved by Shareholders: March 2, 1995
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