<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. 2)
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement. [ ] Confidential, for use of the
Commission only (as permitted by
Rule 14a-6(e)(2)).
[X] Definitive proxy statement.
[ ] Definitive additional materials.
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12.
IN HOME HEALTH, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of filing fee (check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies: Common
Stock, par value $.03 per share, of In Home Health, Inc. and Series A
Preferred Stock, par value $1.00, par value $1.00 per share, of In Home
Health, Inc.
--------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies: 5,604,298
shares of Common Stock and 200,000 shares of Series A Preferred Stock
based on the number of shares outstanding on November 20, 2000.
--------------------------------------------------------------------------------
(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): The filing
fee of $1,734 was calculated pursuant to Exchange Act Rule 0-11(c)(1),
and is the product of multiplying (A) 1/50 of 1% by an amount equal to
(B) the sum of (x) the product of 5,604,298 shares of Common Stock and
200,000 shares of Preferred Stock, less 3,396,735 shares of Common
Stock and 200,000 of Preferred Stock already owned by ManorCare Health
Services, Inc. (representing the only shares of the issuer to be
exchanged for cash or other consideration in the transaction) by $3.70
per share, and (y) the aggregate amount anticipated to be paid to
certain persons holding options to purchase shares of Common Stock in
consideration of the cancellation of such options.
--------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction: $8,668,985.
--------------------------------------------------------------------------------
(5) Total fee paid: $1,734.
--------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
--------------------------------------------------------------------------------
[x] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid: $1,734
--------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.: Amendment No. 2 to
Transaction Statement on Schedule 13E-3
--------------------------------------------------------------------------------
(3) Filing Party: In Home Health, Inc., Manor Care Health Services, Inc.,
IHHI Acquisition Corp., Manor Care of America, Inc. and Manor Care,
Inc.
--------------------------------------------------------------------------------
(4) Date Filed: November 27, 2000
--------------------------------------------------------------------------------
<PAGE> 2
IN HOME HEALTH, INC.
601 CARLSON PARKWAY, SUITE 500
MINNETONKA, MINNESOTA 55305-5214
(952) 449-7500
November 27, 2000
Dear Shareholder:
You are cordially invited to attend a special meeting of shareholders of In
Home Health, Inc. to be held at the Radisson Hotel and Conference Center, 3131
Campus Drive, Plymouth, Minnesota, on Thursday, December 28, 2000 at 9:00 a.m.,
Central Time.
At the special meeting, you will be asked to consider and vote upon the
approval and adoption of the Agreement and Plan of Merger, dated as of September
13, 2000, by and among ManorCare Health Services, Inc., IHHI Acquisition Corp.
and In Home Health, Inc. and the related merger of IHHI Acquisition Corp., a
wholly owned subsidiary of ManorCare Health Services, Inc., with and into In
Home Health, Inc. In Home Health, Inc. shall continue as the surviving
corporation. The merger agreement calls for you to receive $3.70 in cash,
without interest, for each of your shares of common stock of In Home Health,
Inc. The accompanying proxy statement explains the proposed merger and provides
specific information concerning the special meeting. Please read these materials
carefully.
In Home Health Inc.'s Board of Directors formed a special committee of
directors, who have no interest in the transaction other than that one member is
Chairman of the Board and Interim Chief Executive Officer and President of In
Home Health, Inc. and a holder of In Home Health, Inc. common stock and the
other member is a temporary consultant for In Home Health, Inc., (i) to mitigate
any conflict of interest in evaluating this merger proposal and (ii) to
negotiate the proposals, including the terms of the merger agreement and related
agreements, with ManorCare Health Services, Inc. and IHHI Acquisition Corp.
The Board of Directors of In Home Health, Inc., acting on the unanimous
recommendation of the special committee, has unanimously approved and adopted
the merger agreement and declared the merger agreement advisable. The special
committee and the entire Board of Directors believe that the terms and
provisions of the merger agreement and the proposed merger are fair to and in
the best interests of In Home Health, Inc.'s shareholders (other than ManorCare
Health Services, Inc., IHHI Acquisition Corp. and their affiliates). Therefore,
THE BOARD OF DIRECTORS, BASED ON THE RECOMMENDATION OF THE SPECIAL COMMITTEE,
RECOMMENDS THAT YOU VOTE IN FAVOR OF THE APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY. In reaching its decision,
the special committee and the Board of Directors considered, among other things,
the written opinion as of September 12, 2000 of Houlihan Lokey Howard & Zukin
Financial Advisors, Inc., the special committee's financial advisor, that the
$3.70 per share cash consideration to be received by the shareholders of In Home
Health, Inc. (other than ManorCare Health Services, Inc., IHHI Acquisition Corp.
and their affiliates) in connection with the merger is fair to them from a
financial point of view.
The proposed merger is an important decision for In Home Health, Inc. and
its shareholders. The proposed merger cannot occur unless, among other things,
the merger agreement is approved and adopted by the affirmative vote of a
majority of the voting power of all outstanding shares of common and preferred
stock of In Home Health, Inc. voting as a single class (with each share of
common stock being entitled to cast one (1) vote per share and each share of
preferred stock being entitled to cast approximately 16.67 votes per share).
MANORCARE HEALTH SERVICES, INC. OWNS AND HAS AGREED TO VOTE A MAJORITY OF ALL
OUTSTANDING SHARES OF COMMON AND PREFERRED STOCK OF IN HOME HEALTH, INC. IN
FAVOR OF THE MERGER. ACCORDINGLY, THE MERGER WILL BE APPROVED AND ADOPTED
WITHOUT THE VOTE OF ANY OTHER SHAREHOLDER. Whether or not you plan to attend the
special meeting, I urge you to sign, date and promptly return the enclosed proxy
card to ensure that your
<PAGE> 3
shares will be voted at the special meeting. Failure to return an executed proxy
card will constitute, in effect, a vote against approval and adoption of the
merger agreement and the transactions contemplated thereby.
On behalf of the board of directors, I urge you to consider the enclosed
materials carefully.
Sincerely,
C. MICHAEL FORD SIGNATURE
C. Michael Ford
Chairman of the Board,
Member of the Special Committee and
Interim Chief Executive Officer and
President
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION PASSED UPON THE
FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
This notice, proxy statement and proxy are being mailed to In Home Health,
Inc.'s shareholders beginning about November 27, 2000.
<PAGE> 4
IN HOME HEALTH, INC.
601 CARLSON PARKWAY, SUITE 500
MINNETONKA, MINNESOTA 55305-5214
(952) 449-7500
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
<TABLE>
<S> <C>
Date: Thursday, December 28, 2000
Time: 9:00 a.m., Central Time
Radisson Hotel and Conference
Place: Center
3131 Campus Drive
Plymouth, Minnesota
</TABLE>
A special meeting of the shareholders of In Home Health, Inc. is being held for
the following purpose:
- To consider and vote upon the Agreement and Plan of Merger, dated as of
September 13, 2000, by and among ManorCare Health Services, Inc., IHHI
Acquisition Corp. and In Home Health, Inc., as it may be amended from
time to time, and the transactions contemplated thereby, including the
merger of IHHI Acquisition Corp. with and into In Home Health, Inc.,
pursuant to which In Home Health, Inc. shall continue as the surviving
corporation and shareholders of the common stock of In Home Health, Inc.
(other than ManorCare Health Services, Inc., IHHI Acquisition Corp. and
their affiliates) shall receive $3.70 in cash, without interest, for each
share of In Home Health, Inc.'s common stock.
Only shareholders of record on November 24, 2000 are entitled to notice of,
and to vote at, the special meeting.
Shareholders of In Home Health, Inc. who do not vote in favor of the merger
agreement may elect to exercise their dissenters' rights and to receive, in
cash, the judicially determined fair value of their shares of stock in lieu of
the $3.70 per share merger consideration if the merger is completed.
Shareholders who wish to dissent must notify In Home Health, Inc. in writing
prior to the vote and strictly follow the Minnesota law procedures explained in
the accompanying proxy statement.
The merger is described in the accompanying proxy statement, which you are
urged to read carefully. A copy of the Agreement and Plan of Merger is attached
as Annex A to the accompanying proxy statement.
By Order of the Board of Directors
C. MICHAEL FORD SIGNATURE
C. Michael Ford
Chairman of the Board,
Member of the Special Committee and
Interim Chief Executive Officer and
President
Minnetonka, Minnesota
November 27, 2000
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary Term Sheet.......................................... 1
Questions and Answers About the Merger...................... 2
Summary..................................................... 6
The Special Meeting....................................... 6
Special Factors........................................... 6
Recommendation of the Special Committee and In Home
Health, Inc.'s Board of Directors..................... 6
Factors Considered by the Special Committee............ 7
Fairness Opinion of Houlihan Lokey Howard & Zukin
Financial Advisors, Inc............................... 7
Purpose and Effects of the Merger...................... 8
Interests of Certain Persons in the Merger............. 8
Financing of the Merger................................ 8
The Merger Agreement...................................... 8
The Merger Consideration............................... 8
Conditions to the Merger............................... 9
Termination of the Merger Agreement.................... 9
Acquisition Proposals.................................. 10
Dissenters' Rights........................................ 11
Selected Consolidated Financial Data of In Home Health,
Inc....................................................... 12
Cautionary Statement Regarding Forward-Looking Statements... 14
Information Concerning the Special Meeting.................. 15
Time, Place and Date...................................... 15
Purpose of the Special Meeting............................ 15
Recommendation of Board of Directors and Special
Committee.............................................. 15
Record Date; Voting at the Meeting; Quorum................ 16
Required Vote............................................. 16
Voting and Revocation of Proxies.......................... 17
Proxy Solicitation........................................ 17
The Parties................................................. 18
In Home Health, Inc....................................... 18
ManorCare Health Services, Inc............................ 18
IHHI Acquisition Corp..................................... 18
Special Factors............................................. 18
Background of the Merger.................................. 18
Recommendation of the Special Committee and Board of
Directors; Fairness of the Merger...................... 28
Special Committee...................................... 28
Board of Directors of In Home Health, Inc.............. 32
Opinion of Financial Advisor to the Special Committee..... 32
Report of Third Party Financial Consultant to In Home
Health, Inc............................................ 39
Certain Projections....................................... 40
Development of the Financial Projections............... 40
Projections Relied Upon by Houlihan Lokey in Their
Fairness Opinion...................................... 45
Financial Projections Prepared but not Used by In Home
Health, Inc........................................... 47
Warning Regarding Reliance on Financial Projections....... 49
Recent Developments....................................... 51
ManorCare Health Services, Inc.'s Purpose and Reasons for
the Merger............................................. 51
</TABLE>
i
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Interests of Certain Persons in the Merger; Certain
Relationships.......................................... 52
Directors and Management of the Surviving
Corporation........................................... 52
Determination of Indemnification Eligibility........... 53
Indemnification Agreements............................. 54
Officer and Director Compensation and Employment
Agreements............................................ 54
Other Arrangements with Affiliates..................... 54
Additional Consideration to be Paid to Heartland Advisors,
Inc.................................................... 55
Certain Effects of the Merger............................. 56
Plans for In Home Health, Inc. after the Merger........... 56
Conduct of the Business of In Home Health, Inc. if the
Merger is not Consummated.............................. 57
Accounting Treatment...................................... 57
Financing of the Merger................................... 57
Certain Federal Income Tax Consequences................... 57
Fees and Expenses......................................... 58
The Merger Agreement........................................ 58
The Merger; Merger Consideration.......................... 58
The Payment Fund; Payment for Shares of Common Stock...... 59
Transfers of Common Stock................................. 60
Treatment of Stock Options................................ 60
Conditions................................................ 60
Representations and Warranties............................ 61
Covenants................................................. 62
No Solicitation........................................... 64
Termination............................................... 65
Fees and Expenses......................................... 66
Amendment/Waiver.......................................... 66
Certain Litigation.......................................... 66
Dissenters' Rights.......................................... 67
Market for the Common Stock................................. 69
Common Stock Market Price Information; Dividend
Information............................................ 69
Common Stock Purchase Information......................... 70
Security Ownership of Certain Beneficial Owners and
Management................................................ 71
Directors and Management.................................... 72
In Home Health, Inc....................................... 72
ManorCare Health Services, Inc. and IHHI Acquisition
Corp................................................... 73
Independent Auditors........................................ 73
Stockholder Proposals....................................... 73
Where You Can Find More Information......................... 74
Other Business.............................................. 74
Available Information....................................... 74
</TABLE>
ii
<PAGE> 7
Annex A: Agreement and Plan of Merger dated as of September 13, 2000 by and
Among ManorCare Health Services, Inc., IHHI Acquisition Corp. and In
Home Health, Inc.
Annex B: Houlihan Lokey Howard & Zukin Financial Advisors, Inc. Fairness Opinion
Annex C: Sections of the Minnesota Business Corporation Act Relating to
Dissenters' Rights
Annex D: Directors and Executive Officers of Manor Care, Inc., Manor Care of
America, Inc., ManorCare Health Services, Inc. and IHHI Acquisition
Corp.
Annex E: Simione Central Consulting, Inc. Report
iii
<PAGE> 8
SUMMARY TERM SHEET
This Summary Term Sheet highlights selected information contained in this
proxy statement and may not contain all of the information that is important to
you. We urge you to read this entire proxy statement carefully, including the
annexes.
- Stockholder vote -- You are being asked to approve and adopt the merger
agreement and the transactions contemplated by the merger agreement, by which
IHHI Acquisition Corp. will be merged into In Home Health, Inc. The merger
agreement must be approved and adopted by the affirmative vote of a majority
of the voting power of the outstanding shares of In Home Health, Inc. common
and preferred stock. ManorCare Health Services, Inc. has the right to cast
approximately 75.8% of the votes entitled to be cast at the special meeting
and has agreed to vote for the merger agreement. Consequently, the merger will
be approved. The merger agreement is not required to be approved by a majority
of the unaffiliated shareholders. See "Information Concerning the Special
Meeting" beginning on page 15.
- Payment -- In the merger, each share of In Home Health, Inc. common stock
owned by In Home Health, Inc.'s shareholders (other than ManorCare Health
Services, Inc., IHHI Acquisition Corp. and their affiliates) will be converted
into the right to receive $3.70 in cash, without interest or other payment
thereon. You will not own any In Home Health, Inc. common stock after
completion of the merger. See "The Merger Agreement" beginning on page 58.
- Parties -- The parties to the merger agreement are ManorCare Health Services,
Inc., IHHI Acquisition Corp. and In Home Health, Inc. IHHI Acquisition Corp.
is a newly formed Minnesota corporation that is wholly owned by ManorCare
Health Services, Inc., a Delaware corporation. See "The Parties" beginning on
page 18.
- Tax consequences -- Generally, the merger will be taxable for U.S. federal
income tax purposes. You will recognize taxable gain or loss in the amount of
the difference between $3.70 and your adjusted tax basis for each share of In
Home Health, Inc. common stock that you own. See "Special Factors -- Certain
Federal Income Tax Consequences" beginning on page 57.
- Conditions -- The merger agreement and the transactions contemplated by the
merger agreement are subject to In Home Health, Inc. shareholder approval as
well as other conditions, including obtaining necessary consents and approvals
and In Home Health, Inc. entering into written agreements regarding stock
options with each employee of In Home Health, Inc. who currently holds options
to purchase shares of In Home Health, Inc. common stock. The agreements will
provide that the employees will surrender all of their unexercised options
which will be canceled and the employees will receive an amount of cash equal
to the sum of $250.00, plus the number of shares of common stock subject to
options surrendered with a purchase or exercise price less than $3.70 per
share multiplied by the difference, between $3.70 and the purchase or exercise
price, plus the number of shares of common stock subject to options
surrendered with a purchase or exercise price of at least $3.70 per share
multiplied by $0.10. See "The Merger Agreement -- Conditions" beginning on
page 60.
- After the merger -- Upon completion of the merger, ManorCare Health Services,
Inc. is expected to own all of the outstanding shares of stock of the
surviving corporation. See "Special Factors -- Certain Effects of the Merger"
beginning on page 56.
- Dissenters' rights -- Shareholders who oppose the merger may dissent and seek
the fair value of their shares, but only if they comply with all of the
Minnesota law procedures explained in this proxy statement. Generally, in
order to exercise dissenters' rights, among other things, you must NOT vote in
favor of the merger agreement; and you must file with In Home Health, Inc.
BEFORE the vote on the merger a written notice of intent to demand the "fair
value" of the In Home Health, Inc. common shares you own. See "Dissenters'
Rights" beginning on page 67 and Annex C to this proxy statement.
1
<PAGE> 9
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT IS THE PROPOSED TRANSACTION?
A: ManorCare Health Services, Inc. will acquire In Home Health, Inc. by
merging IHHI Acquisition Corp., a wholly-owned subsidiary of ManorCare
Health Services, Inc., into In Home Health, Inc. with In Home Health, Inc.
continuing as the surviving corporation.
Q: WHO ARE MANORCARE HEALTH SERVICES, INC. AND IHHI ACQUISITION CORP.?
A: ManorCare Health Services, Inc. together with its subsidiaries and
affiliates, are providers of a range of health care services, including
skilled nursing care, assisted living, subacute medical care,
rehabilitation therapy, home health care, and management services for
subacute care, rehabilitation therapy, vision care, and eye surgery. The
most significant portion of the business of ManorCare Health Services, Inc.
together with its subsidiaries and affiliates, relates to long-term care,
including skilled nursing care and assisted living. IHHI Acquisition Corp.
was formed in connection with the proposed merger by ManorCare Health
Services, Inc.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: Shareholders of In Home Health, Inc. common stock (other than ManorCare
Health Services, Inc., IHHI Acquisition Corp. and shareholders who properly
exercise their dissenters' rights) will be entitled to receive $3.70 in
cash, without interest, for each share of In Home Health, Inc.'s common
stock. If you own stock options to purchase shares of In Home Health, Inc.
common stock, you will be entitled to receive an amount in cash equal to
the sum of:
- two-hundred and fifty dollars ($250); plus
- an amount equal to the number of shares of In Home Health, Inc. common
stock subject to options with a purchase or exercise price less than
$3.70 per share, multiplied by the difference between $3.70 and the
purchase or exercise price for such option as set forth in the applicable
option agreement; plus
- an amount equal to the number of shares of In Home Health, Inc. common
stock subject to options with a purchase or exercise price of at least
$3.70 per share multiplied by $0.10 (such payment to be net of applicable
withholding taxes).
Q: WHY IS THE IN HOME HEALTH, INC. BOARD OF DIRECTORS RECOMMENDING THAT I VOTE
FOR THE MERGER AGREEMENT?
A: In the opinion of the Board of Directors of In Home Health, Inc., based
upon the unanimous recommendation of the special committee, the terms and
provisions of the merger agreement and the proposed merger are fair to and
in the best interests of In Home Health, Inc.'s shareholders (other than
ManorCare Health Services, Inc., IHHI Acquisition Corp. and their
affiliates), and the board of directors has accordingly unanimously
approved and adopted the merger agreement and declared it advisable. To
review the background and reasons for the merger in greater detail, see
"Special Factors -- Background of the Merger" on pages 18 to 28.
2
<PAGE> 10
Q: SINCE CERTAIN MEMBERS OF THE BOARD OF DIRECTORS ARE ALSO OFFICERS AND
DIRECTORS OF MANORCARE HEALTH SERVICES, INC., WHAT CONFLICTS OF INTEREST
DOES THE BOARD OF DIRECTORS HAVE IN RECOMMENDING APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT?
A: Two of the four members of the Board of Directors have a conflict of
interest in recommending approval and adoption of the merger agreement
because they are officers and directors of ManorCare Health Services, Inc.
or of one of its subsidiaries or affiliates. To counteract this conflict of
interest, the board of directors' recommendation is based on the unanimous
recommendation of the special committee, which consisted of those directors
who have no relationship to ManorCare Health Services, Inc. and, as such,
did not have a conflict of interest in making the recommendation. To review
the factors considered by the special committee and the Board of Directors
in approving and adopting the merger agreement, see "Special
Factors -- Recommendation of the Special Committee and Board of Directors;
Fairness of the Merger" on pages 28 to 32.
Q: HOW DID THE BOARD OF DIRECTORS CONCLUDE THE PRICE PER SHARE I WILL RECEIVE
IN THE PROPOSED MERGER IS FAIR TO ME?
A: The Board of Directors formed a special committee consisting of two
directors, who have no interest in the transaction other than that one
director is Chairman of the Board and Interim Chief Executive Officer and
President of In Home Health, Inc. and is a holder of In Home Health, Inc.
common stock and the other director is a temporary consultant to In Home
Health, Inc., to evaluate and negotiate the terms of the merger agreement
with ManorCare Health Services, Inc.
The special committee independently selected and retained its own legal and
financial advisors to assist it in the negotiation and evaluation of the
merger agreement. In addition, the special committee received an opinion
from Houlihan Lokey Howard & Zukin Financial Advisors, Inc. ("Houlihan
Lokey"), its financial advisor, on which the special committee and the
entire Board of Directors relied, that as of its date the $3.70 per share
of common stock you will receive in the proposed merger is fair to you from
a financial point of view (assuming you are a person other than ManorCare
Health Services, Inc., IHHI Acquisition Corp. or an affiliate of either).
Among other factors, the special committee also reviewed and considered:
- historical trading data;
- the likely future prospects for In Home Health, Inc. and the
shareholders' ability to benefit from those prospects;
- a report provided by Simione Central Consulting, Inc., a third party
financial consultant to In Home Health, Inc. ("Simione Central"),
regarding whether the underlying assumptions and methodologies used by In
Home Health, Inc. provided a reasonable basis for In Home Health, Inc.'s
financial projections; and
- the fact that $3.70 is higher than $3.375, the price paid for In Home
Health, Inc. common stock in arm's length transactions between ManorCare
Health Services, Inc. and three shareholders on June 28 and 29, 2000, one
of which was for a block of In Home Health, Inc. common stock which gave
ManorCare Health Services, Inc. a majority of the In Home Health, Inc.
common stock. See "Special Factors -- Additional Consideration to be Paid
to Heartland Advisors, Inc." on page 55.
Q: WHAT ARE THE DISADVANTAGES TO ME OF MERGING IN HOME HEALTH, INC. WITH IHHI
ACQUISITION CORP.?
A: Following the proposed merger, you will no longer be a shareholder of In
Home Health, Inc. and therefore will no longer benefit from the earnings or
growth of In Home Health, Inc.
3
<PAGE> 11
Q: WHAT VOTE IS REQUIRED TO APPROVE AND ADOPT THE MERGER AGREEMENT?
A: The holders of a majority of the voting power of all outstanding shares of
In Home Health, Inc.'s common and preferred stock, voting as a single
class, must vote to approve and adopt the merger agreement (with each share
of preferred stock being entitled to cast approximately 16.67 votes per
share). As of the record date, ManorCare Health Services, Inc. owned
approximately 61.3% of In Home Health, Inc.'s common stock in the aggregate
and 100% of In Home Health, Inc.'s preferred stock in the aggregate, all of
which it has agreed to vote in favor of the merger agreement. Accordingly,
ManorCare Health Services, Inc. has the right to cast approximately 75.8%
of the votes entitled to be cast at the special meeting. This fact assures
that the merger agreement will be approved and adopted at the special
meeting. However, this proxy statement is being sent to you to comply with
the Securities Exchange Act of 1934, as amended, and the Minnesota Business
Corporation Act.
Q: WHAT DO I NEED TO DO NOW IF I AM IN FAVOR OF THE MERGER?
A: Please mark your vote on and sign, date and mail your proxy card in the
enclosed return envelope as soon as possible, so that your shares may be
represented at the special meeting or attend the special meeting.
Q: WHAT RIGHTS DO I HAVE IF I OPPOSE THE MERGER?
A: Shareholders who oppose the merger may dissent and seek the fair value of
their shares, but only if they comply with all of the Minnesota law
procedures explained on pages 67 to 69 and in Annex C to this proxy
statement. Generally, in order to exercise dissenters' rights, among other
things:
- you must NOT vote in favor of the merger agreement; and
- you must file with In Home Health, Inc. BEFORE the vote on the merger a
written notice of intent to demand the "fair value" of the In Home
Health, Inc. common shares you own.
Q: WHO CAN VOTE ON THE MERGER?
A: All shareholders of record as of the close of business on November 24, 2000
will be entitled to notice of, and to vote at, the special meeting to
approve and adopt the merger agreement and the transactions contemplated
thereby.
Q: SHOULD I SEND MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, we will send you a transmittal form and
written instructions for exchanging your stock certificates.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will ONLY vote your shares if you provide instructions on how
to vote. You should follow the directions provided by your broker regarding
how to instruct your broker to vote your shares.
Q: MAY I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. Just send in a written revocation or another signed proxy card with a
later date to In Home Health, Inc., at 601 Carlson Parkway, Suite 500,
Minnetonka, Minnesota 55305-5214, Attention: C. Michael Ford, Interim Chief
Executive Officer and President, so that it is received BEFORE the vote at
the special meeting.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working toward completing the merger as quickly as possible. If the
merger agreement is approved and adopted and the other conditions to the
merger are satisfied, we expect to complete the merger shortly after the
special meeting.
4
<PAGE> 12
Q: WHAT ARE THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO ME?
A: You will recognize taxable gain or loss in an amount equal to the
difference between the cash consideration you receive in the merger and
your tax basis in In Home Health, Inc. common stock surrendered in the
merger. To review the federal income tax consequences to shareholders in
greater detail, see "Special Factors -- Certain Federal Income Tax
Consequences" on pages 57 to 58. We urge you to consult your own financial
and tax advisor to better understand how the merger will affect your
specific tax situation.
Q: WHAT OTHER MATTERS WILL BE VOTED ON AT THE SPECIAL MEETING?
A: We do not expect that any other matters will be voted upon at the special
meeting.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have more questions about the merger or would like additional copies
of this proxy statement, you should contact C. Michael Ford, Interim Chief
Executive Officer and President of In Home Health, Inc. at (952) 449-7500.
5
<PAGE> 13
SUMMARY
The following summary highlights selected information contained elsewhere
in this proxy statement. This summary may not contain all of the information
that is important to you, and is qualified in its entirety by the more detailed
information contained elsewhere in this proxy statement, including the annexes
to it, and in the documents incorporated by reference. To understand the
proposed merger fully and for a more complete description of the terms of the
proposed merger, you should read carefully this entire proxy statement,
including the annexes to it, and the documents incorporated by reference.
THE SPECIAL MEETING (SEE PAGE 15)
A special meeting of shareholders of In Home Health, Inc. will be held at
9:00 a.m., Central Time, on Thursday, December 28, 2000 at the Radisson Hotel
and Conference Center, 3131 Campus Drive, Plymouth, Minnesota. At the special
meeting, you will be asked to consider and vote on a proposal to approve and
adopt the merger agreement described in this proxy statement.
Only holders of shares of In Home Health, Inc. common and preferred stock
who are holders at the close of business on the record date, November 24, 2000,
will be entitled to notice of, and to vote at, the special meeting. As of the
record date there were approximately 5,604,298 shares of common stock
outstanding and entitled to vote held by approximately 1,028 shareholders of
record and 200,000 shares of preferred stock outstanding and entitled to vote,
all of which are held by ManorCare Health Services, Inc. Each share of common
stock is entitled to cast one (1) vote per share. Each share of preferred stock
is entitled to cast approximately 16.67 votes per share.
Minnesota law requires that the holders of a majority of the voting power
of all outstanding shares of In Home Health, Inc. common and preferred stock
vote to approve and adopt the merger agreement. As of the record date, ManorCare
Health Services, Inc. owned 3,396,735 shares of In Home Health, Inc. common
stock in the aggregate, representing approximately 61.3% of the outstanding
shares of common stock as of the record date and 200,000 shares of preferred
stock in the aggregate, representing 100% of the outstanding shares of preferred
stock as of the record date. Based on the number of shares outstanding on the
record date, 8,937,632 votes are eligible to be cast at the special meeting.
ManorCare Health Services, Inc. has the right to cast approximately 75.8% of the
votes entitled to be cast at the special meeting all of which it has agreed to
vote in favor of the merger agreement. This fact assures that the merger
agreement will be approved and adopted at the special meeting. However, this
proxy statement is being sent to you to comply with the requirements of the
Securities Exchange Act of 1934, as amended, and the Minnesota Business
Corporation Act. To review a more detailed description of the interests of
ManorCare Health Services, Inc., see "Information Concerning the Special
Meeting -- Required Vote" on pages 16 to 17.
SPECIAL FACTORS (SEE PAGE 18)
RECOMMENDATION OF THE SPECIAL COMMITTEE AND IN HOME HEALTH, INC.'S BOARD OF
DIRECTORS (SEE PAGE 28)
On July 10, 2000, ManorCare Health Services, Inc. sent a letter to the
Chairman of the Board of In Home Health, Inc., C. Michael Ford, regarding its
desire to negotiate a business combination with In Home Health, Inc. in which In
Home Health, Inc. would be acquired by ManorCare Health Services, Inc. The board
of directors sought to mitigate the potential conflicts of interest involved by
forming a special committee of directors who are not affiliated with ManorCare
Health Services, Inc. and have no interest in the transaction other than that
one director is Chairman of the Board and Interim Chief Executive Officer and
President of In Home Health, Inc. and is a holder of In Home Health, Inc. common
stock and the other director is a temporary consultant to In Home Health, Inc.,
to receive, study, negotiate and make recommendations to the board of directors
in connection with any proposed acquisition of In Home Health, Inc. by ManorCare
Health Services, Inc. The special committee is comprised of Mr. Ford and Eugene
Terry. Mr. Terry is the Chairman of the special committee. Each is a director of
In Home Health, Inc. and is not and will not become a director or officer of
ManorCare Health Services, Inc. or remain as a director of the surviving company
following the merger.
6
<PAGE> 14
The board of directors, acting on the unanimous recommendation of the
special committee, unanimously approved and adopted the merger agreement and
declared it advisable. The board of directors recommends that you vote to
approve and adopt the merger agreement and the transactions contemplated
thereby. The board of directors believes that the merger and the terms and
provisions of the merger agreement (including the $3.70 per share cash purchase
price) are fair to and in the best interests of In Home Health, Inc.'s
shareholders (other than ManorCare Health Services, Inc., IHHI Acquisition Corp.
and their affiliates).
FACTORS CONSIDERED BY THE SPECIAL COMMITTEE (SEE PAGE 28)
In reaching its decision to approve and adopt, and recommend approval and
adoption of, the merger agreement, the special committee considered a number of
factors. These include, among others, the following:
- the belief that the merger will provide In Home Health, Inc. shareholders
a premium for their shares based on the fact that the $3.70 per share to
be received by In Home Health, Inc.'s shareholders in the merger is
higher than $3.375, the price paid for In Home Health, Inc. common stock
in arm's length transactions between ManorCare Health Services, Inc. and
three shareholders on June 28 and 29, 2000. One such arm's length
transaction was for a block of In Home Health, Inc. common stock which
gave ManorCare Health Services, Inc. a majority of the In Home Health,
Inc. common stock. See 'Special Factors -- Additional Consideration to be
Paid to Heartland Advisors, Inc." on page 55.
- the fact that the $3.70 per share represents a 88% premium over the
closing price ($1.969) of In Home Health, Inc. common shares on May 31,
2000, the day before the public announcement of the receipt of ManorCare
Health Services, Inc.'s letter to In Home Health, Inc. demanding a
special meeting;
- the fact that withdrawal of ManorCare Health Services, Inc.'s offer would
likely have an adverse impact on the market price of the common stock and
future liquidity of the common stock;
- the fact that In Home Health, Inc. may not have sufficient independent
directors to comply with the rules of the Nasdaq Stock Market and may be
de-listed;
- the fact that no competing bidder is likely to emerge given that
ManorCare Health Services, Inc. owns 61.3% of the outstanding common
stock of In Home Health, Inc. and 100% of the outstanding preferred stock
of In Home Health, Inc. and has the right to cast 75.8% of the votes
entitled to be cast regarding any merger, consolidation or exchange
agreement concerning In Home Health, Inc.;
- the presentation of Houlihan Lokey, the financial advisor to In Home
Health, Inc., at a meeting of the special committee on September 12,
2000, including the opinion of Houlihan Lokey that the consideration to
be received by the shareholders of In Home Health, Inc. (other than
ManorCare Health Services, Inc., IHHI Acquisition Corp. and their
affiliates) in connection with the merger is fair to them from a
financial point of view;
- a report provided by Simione Central, a third party financial consultant
to the special committee, regarding whether the underlying assumptions
and methodologies used by In Home Health, Inc. provided a reasonable
basis for In Home Health, Inc.'s financial projections;
- the fact that a significant portion of the preferred stock becomes
subject to redemption in October, 2000 and viable financing alternatives
have not been identified;
- the limitations In Home Health, Inc. suffered and would likely continue
to suffer as a public company, including its limited trading volume,
limited recognition in its trading group and lack of institutional
sponsorship, as well as lack of research attention from analysts, all of
which adversely affect the trading market and the value of In Home
Health, Inc. common stock.
Additional factors considered by the special committee are set forth on
pages 28 to 32.
FAIRNESS OPINION OF HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS, INC.
(SEE PAGE 32)
At a meeting of the special committee held on September 12, 2000, Houlihan
Lokey rendered its oral opinion to the special committee that, as of such date
and based on and subject to the assumptions, factors and
7
<PAGE> 15
limitations stated therein, the $3.70 per share cash consideration to be
received by shareholders of In Home Health, Inc. (other than ManorCare Health
Services, Inc., IHHI Acquisition Corp. and their affiliates) in connection with
the merger is fair to them from a financial point of view. Such opinion was
subsequently confirmed in writing and is dated September 12, 2000. The Houlihan
Lokey opinion is included as Annex B at the end of this proxy statement. Please
read this opinion carefully.
PURPOSE AND EFFECTS OF THE MERGER (SEE PAGES 51 AND 56)
The purpose of the merger is to permit ManorCare Health Services, Inc. to
acquire all of the shares of In Home Health, Inc.'s common stock and as a result
In Home Health, Inc. common stock will cease to be listed for trading on the
Nasdaq National Market or any securities exchange or automated quotation system.
If the merger is completed, each share of IHHI Acquisition Corp. common stock
shall be converted into and become one share of common stock of the surviving
corporation. In Home Health, Inc. common stock would cease to be publicly traded
and would be canceled and retired and cease to exist and holders of In Home
Health, Inc. common stock (other than ManorCare Health Services, Inc., IHHI
Acquisition Corp.) will be entitled to receive $3.70 per share in cash, without
interest, provided that any shareholders who properly dissent from the merger
will be entitled to seek the fair value of their shares in accordance with the
Minnesota law requirements explained in this proxy statement. Following the
merger, all of the outstanding capital stock of the surviving corporation in the
merger would be owned by ManorCare Health Services, Inc.
INTERESTS OF CERTAIN PERSONS IN THE MERGER (SEE PAGE 52)
ManorCare Health Services, Inc. and certain directors of In Home Health,
Inc. who are also directors and officers of ManorCare Health Services, Inc. or
its affiliates have relationships or interests in the merger that are different
from your interests as a shareholder or that may present a conflict of interest.
The special committee was aware of these interests and considered them in
recommending and approving the merger agreement.
Upon consummation of the merger, the shareholders of ManorCare Health
Services, Inc. will indirectly own 100% of the outstanding common stock of the
surviving corporation. Such ownership will arise from the conversion, upon the
consummation of the merger, of all of the outstanding shares of common stock of
IHHI Acquisition Corp., a wholly owned subsidiary of ManorCare Health Services,
Inc., into all of the outstanding shares of common stock of the surviving
corporation.
FINANCING OF THE MERGER (SEE PAGE 57)
At the closing of the merger, ManorCare Health Services, Inc. and IHHI
Acquisition Corp. expect to pay aggregate consideration of approximately
$8,668,985 to the holders of In Home Health, Inc.'s common stock (other than
ManorCare Health Services, Inc., IHHI Acquisition Corp. and their affiliates)
and holders of options to purchase shares of In Home Health, Inc. common stock
to acquire 100% of In Home Health, Inc. common stock and to cash out all In Home
Health, Inc. stock options which will be financed from ManorCare Health
Services, Inc.'s working capital. The parties anticipate that In Home Health,
Inc., ManorCare Health Services, Inc. and IHHI Acquisition Corp. will require
approximately $1,250,000 to pay for In Home Health, Inc.'s, ManorCare Health
Services, Inc.'s and IHHI Acquisition Corp.'s expenses and costs relating to the
merger agreement and the transactions contemplated thereby.
THE MERGER AGREEMENT (SEE PAGE 58)
THE MERGER CONSIDERATION (SEE PAGE 58)
If the merger is completed and you did not properly exercise your
dissenters' rights, you will be entitled to receive $3.70 per share in cash for
each share of In Home Health, Inc. common stock you own, without interest.
8
<PAGE> 16
CONDITIONS TO THE MERGER (SEE PAGE 60)
A number of conditions must be satisfied before any of In Home Health,
Inc., ManorCare Health Services, Inc. or IHHI Acquisition Corp. is obligated to
complete the merger, including, among others, the following:
- the merger must be approved and adopted by a majority of the voting power
held by the shareholders of In Home Health, Inc.; and
- there must be no legal or judicial restraints or prohibitions preventing
completion of the merger.
Pursuant to the merger agreement, ManorCare Health Services, Inc. agrees to
vote, or cause to be voted, all of the shares of In Home Health, Inc. common and
preferred stock owned by ManorCare Health Services, Inc., IHHI Acquisition Corp.
or any of its other subsidiaries and affiliates in favor of the approval and
adoption of the merger agreement.
Additional conditions must be satisfied by In Home Health, Inc. or waived
before either ManorCare Health Services, Inc. or IHHI Acquisition Corp. is
obligated to complete the merger, including:
- In Home Health, Inc. must have performed or complied with all covenants
to be performed or complied with by In Home Health, Inc. pursuant to the
terms of the merger agreement.
- The representations and warranties made by In Home Health, Inc. in the
merger agreement must be true and correct in all material respects,
except as qualified by materiality or material adverse effect.
- In Home Health, Inc. shall have entered into written agreements regarding
stock options, with each employee of In Home Health, Inc. who currently
holds options to purchase shares of In Home Health, Inc. common stock.
The agreements will provide that the employees will surrender all of
their unexercised options which will be canceled and the employees will
receive an amount of cash equal to the sum of $250.00, plus the number of
shares of common stock subject to options surrendered with a purchase or
exercise price less than $3.70 per share multiplied by the difference
between $3.70 and the purchase or exercise price, plus the number of
shares of common stock subject to options surrendered with a purchase or
exercise price of $3.70 or greater per share multiplied by $0.10.
Additional conditions must be satisfied by ManorCare Health Services, Inc.
and IHHI Acquisition Corp. or waived before In Home Health, Inc. is obligated to
complete the merger, including:
- ManorCare Health Services, Inc. and IHHI Acquisition Corp. must have
performed or complied with all covenants to be performed or complied with
by them pursuant to the terms of the merger.
- The representations and warranties made by ManorCare Health Services,
Inc. and IHHI Acquisition Corp. in the merger agreement must be true and
correct in all material respects, except as by materiality or material
adverse effect.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 65)
The In Home Health, Inc. special committee and the ManorCare Health
Services, Inc. board of directors may mutually agree at any time (including any
time after the special meeting) to terminate the merger agreement. In addition,
either the In Home Health, Inc. special committee or ManorCare Health Services,
Inc. may terminate the merger agreement if:
- the merger has not been completed by January 31, 2001; or
- a final court order or other governmental action prohibits the merger.
The ManorCare Health Services, Inc. board of directors may also terminate
the merger agreement if:
- the conditions to ManorCare Health Services, Inc.'s and IHHI Acquisition
Corp.'s obligation to effect the merger have not been satisfied on or
prior to the earlier to occur of the closing of the merger or November
30, 2000.
9
<PAGE> 17
In Home Health, Inc. may also terminate the merger agreement, prior to the
shareholders' approval of the merger agreement, if:
- In Home Health, Inc. receives a superior proposal from a third party;
- the board of directors of In Home Health, Inc. conclude that failure to
enter into an agreement with respect to such superior proposal presented
by a third party would result in non-compliance by the board of directors
of In Home Health, Inc. with its fiduciary duties to shareholders of In
Home Health, Inc.;
- In Home Health, Inc. has given IHHI Acquisition Corp. and ManorCare
Health Services, Inc. written notice at least five (5) days prior to the
earlier of such determination and the entering into such agreement;
- simultaneously with such termination, In Home Health, Inc. enters into
such third party superior proposal; and
- In Home Health, Inc. pays to ManorCare Health Services, Inc. cash in the
amount equal to the sum of all reasonable out of pocket costs and
expenses incurred by or on behalf of ManorCare Health Services, Inc.
and/or IHHI Acquisition Corp. in connection with or related to the merger
agreement and the transactions contemplated thereby, including without
limitation, the merger, plus $70,000.
ACQUISITION PROPOSALS (SEE PAGE 64)
In the merger agreement, In Home Health, Inc. agrees to cease and terminate
any existing solicitation, initiation, encouragement, activity, discussion or
negotiation with any person or entity conducted by In Home Health, Inc. or any
of its respective officers, directors, employees, agents or representatives with
respect to any proposed, potential or contemplated proposal or offer for tender
or exchange offer, merger consolidation or other business combination involving
In Home Health, Inc., or any proposal to acquire in any manner an equity
interest which could result in such party having a direct or indirect equity
interest in or acquiring all or a material portion of the assets of In Home
Health, Inc., other than the transactions contemplated by the merger agreement.
In the merger agreement, In Home Health, Inc. also agrees from and after the
date of the merger agreement that, without the prior written consent of IHHI
Acquisition Corp., In Home Health, Inc. will not and will not authorize or
permit any of its respective officers, directors, employees, agents or
representatives to, directly or indirectly, solicit, initiate or encourage or
take any other action reasonably designed to facilitate any inquiries or the
making of any proposal which constitutes or would reasonably be expected to lead
to a contemplated proposal or offer for tender or exchange offer, merger
consolidation or other business combination involving In Home Health, Inc., or
any proposal to acquire in any manner an equity interest which could result in
such party having a direct or indirect equity interest in or acquiring all or a
material portion of the assets of In Home Health, Inc., other than the
transactions contemplated by the merger agreement.
In Home Health, Inc. may engage in discussions or negotiations with a third
party who (without any solicitation, initiation or encouragement, directly or
indirectly, by or with In Home Health, Inc. or any of its respective officers,
directors, employees, agents or representatives) seeks to initiate such
discussions or negotiations and may furnish such third party information
concerning In Home Health, Inc. and its business, properties and assets if, and
only to the extent that:
- the third party has first made a bona fide acquisition proposal to the
board of directors of In Home Health, Inc. in writing prior to the date
upon which the merger agreement shall have been approved and adopted by
the required vote of the shareholders of In Home Health, Inc.;
- In Home Health, Inc.'s board of directors conclude in good faith (after
consultation with its financial advisor) that the transaction
contemplated by such acquisition proposal is reasonably capable of being
completed, taking into account all legal, financial, regulatory and other
aspects of the such acquisition proposal and the party making such
acquisition proposal, and could, if consummated, reasonably be expected
to result in a transaction more favorable to In Home Health, Inc.'s
shareholders from a financial point of view than the merger contemplated
by the merger agreement; and
10
<PAGE> 18
- In Home Health, Inc.'s board of directors shall have concluded in good
faith, after considering applicable provisions of state law, and after
consultation with outside counsel, that such action is required for the
board of directors to act in a manner consistent with its fiduciary
duties under applicable law.
In Home Health, Inc. shall as promptly as practicable notify ManorCare
Health Services, Inc. and IHHI Acquisition Corp. of the following:
- that In Home Health, Inc. has received a bona fide acquisition proposal
from a third party;
- that In Home Health, Inc. is permitted to furnish information to, or to
enter into discussions or negotiations with, such third party pursuant to
the merger agreement; and
- of the identity of the third party making such acquisition proposal and
of all the terms and conditions of such proposal.
In Home Health, Inc. shall keep ManorCare Health Services, Inc. and IHHI
Acquisition Corp. reasonably informed of the status and material terms of such
acquisition proposal and promptly advise the third party making such acquisition
proposal that In Home Health, Inc. will not participate in negotiations or
discussions with or provide information to such third party, unless and until
such third party authorizes In Home Health, Inc. to notify ManorCare Health
Services, Inc. and IHHI Acquisition Corp. of the acquisition proposal and of the
identity of the third party making such acquisition proposal and of all the
terms and conditions of such proposal.
DISSENTERS' RIGHTS (SEE PAGE 67)
Any shareholder who does not wish to accept $3.70 per share cash
consideration in the merger has the right under Minnesota law to dissent from
the merger and obtain payment in cash for the "fair value" of the In Home
Health, Inc. common shares owned by such shareholder after the merger is
completed. These "dissenters' rights" are subject to a number of restrictions
and technical requirements. Generally, in order to exercise dissenters' rights,
among other things:
- you must NOT vote in favor of the merger agreement; and
- you must file with In Home Health, Inc., at 601 Carlson Parkway, Suite
500, Minnetonka, Minnesota 55305-5214, Attention: C. Michael Ford,
Interim Chief Executive Officer and President, BEFORE the vote on the
merger a written notice of intent to demand the "fair value" of the In
Home Health, Inc. common shares you own.
Merely voting against the merger agreement without delivering the
appropriate notice to In Home Health, Inc. will not preserve your dissenters'
rights under Minnesota law. A beneficial owner of shares of common stock who is
not the record owner of such shares may assert dissenters' rights as to shares
held on such person's behalf, provided that such beneficial owner submits a
written consent of the record owner to In Home Health, Inc. at or before the
time such rights are asserted and the shares that are beneficially owned are not
voted in favor of the merger. Annex C to this proxy statement contains the
Minnesota statutes relating to your dissenters' rights. Failure to follow all of
the steps required by this statute will result in the loss of your dissenters'
rights.
11
<PAGE> 19
SELECTED CONSOLIDATED FINANCIAL DATA OF IN HOME HEALTH, INC.
The following table sets forth selected consolidated financial data for In
Home Health, Inc. as of and for each of the five fiscal years ended September
30, 1999, and as of and for the nine month periods ended June 30, 1999 and 2000.
No separate financial information is provided for ManorCare Health Services,
Inc. or IHHI Acquisition Corp. since the offer is not contingent upon financing
and IHHI Acquisition Corp. is a special purpose entity formed in connection with
the proposed merger and has no independent operations. No pro forma data giving
effect to the proposed merger is provided because In Home Health, Inc. does not
believe such information is material to shareholders in evaluating the proposed
merger agreement because (i) the proposed merger consideration is all cash and
(ii) if the proposed merger is completed, the common stock of In Home Health,
Inc. would cease to be publicly traded.
The financial information for In Home Health, Inc. as of and for each of
the five fiscal years ended September 30, 1999, has been derived from audited
consolidated financial statements of In Home Health, Inc. previously filed with
the Securities and Exchange Commission. The financial information for In Home
Health, Inc., as of and for the nine month periods ended June 30, 1999 and 2000,
has been derived from unaudited consolidated financial statements of In Home
Health, Inc. previously filed with the Securities and Exchange Commission. The
following financial information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operation" and the
Consolidated Financial Statements of In Home Health, Inc. and the notes thereto
included in In Home Health, Inc.'s Annual Reports on Form 10-K for the five
fiscal years ended September 30, 1999, and In Home Health, Inc.'s Quarterly
Reports on Form 10-Q for the nine month periods ended June 30, 2000 and 1999.
<TABLE>
<CAPTION>
FOR THE NINE FOR THE NINE
MONTH MONTH
FOR THE FISCAL YEARS ENDED PERIOD PERIOD
SEPTEMBER 30 ENDED ENDED
-------------------------------------------------- JUNE 30, JUNE 30,
1995 1996 1997(1) 1998 1999 1999 2000
---- ---- ------- ---- ---- ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue........................... $129,816 $125,086 $110,139 $97,008 $80,046 $59,815 $71,299
Operating Expenses:
Direct costs of revenue
(primarily payroll related
costs)........................ 74,082 67,108 70,570 53,885 43,312 32,338 40,844
General, administrative and
selling expenses.............. 51,960 59,792 59,560 41,173 33,891 25,473 28,330
Restructuring charge (credit)... -- -- 2,476 (499) (267) (198) --
-------- -------- -------- ------- ------- ------- -------
Total operating expenses...... 126,042 126,900 132,606 94,559 76,936 57,613 69,174
-------- -------- -------- ------- ------- ------- -------
Income (Loss) From Operations..... 3,774 (1,814) (22,467) 2,449 3,110 2,202 2,125
Net interest (expense) income..... (767) 649 530 1,001 1,132 846 849
-------- -------- -------- ------- ------- ------- -------
Income (loss) before income
taxes........................... 3,007 (1,165) (21,937) 3,450 4,242 3,048 2,974
Income tax expense (benefit)...... 1,386 (183) (1,780) -- -- -- (1,853)
-------- -------- -------- ------- ------- ------- -------
Net income (loss)................. $ 1,621 $ (982) $(20,157) $ 3,450 $ 4,242 $ 3,048 $ 4,827
======== ======== ======== ======= ======= ======= =======
Net income (loss) available to
common shareholders............. $ 1,621 $ (3,501) $(22,852) $ 803 $ 1,644 $ 1,100 2,877
-------- -------- -------- ------- ------- ------- -------
Basic earnings (loss) per
share(2)........................ $ 0.30 $ (0.64) $ (4.19) $ 0.15 $ 0.30 $ .20 0.52
-------- -------- -------- ------- ------- ------- -------
Diluted earnings (loss) per
share(2)........................ $ 0.30 $ (0.64) $ (4.19) $ 0.15 $ 0.30 $ .20 $ 0.51
-------- -------- -------- ------- ------- ------- -------
</TABLE>
-------------------------
(1) Fiscal 1997 revenue was reduced by $17,101,000 due to Medicare reserve
adjustments. See Note 5 to the financial statements on Form 10-K for the
fiscal year ended September 30, 1999, incorporated by reference.
(2) Number reflects the one-for-three reverse stock split effective December 1,
1998.
12
<PAGE> 20
<TABLE>
<CAPTION>
AS OF THE FISCAL YEARS ENDED
SEPTEMBER 30 AS OF AS OF
--------------------------------------------------- JUNE 30, JUNE 30,
1995 1996 1997 1998 1999 1999 2000
---- ---- ---- ---- ---- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current Assets........................ $21,394 $44,053 $34,004 $37,299 $35,017 $32,897 $34,436
Total Assets.................... $57,559 $82,683 $50,224 $48,360 $48,149 $42,781 $50,271
Current Liabilities................... $21,289 $33,170 $25,008 $23,076 $21,335 $16,539 $20,559
Long-Term Debt........................ $ 2,443 $ 1,080 $ 278 $ 44 $ 43 $ 48 $ 28
Redeemable Convertible Preferred
Stock............................... $ -- $18,766 $19,061 $12,584 $12,782 $12,732 $12,932
Shareholders' Equity.................. $30,509 $26,758 $ 3,588 $11,129 $12,839 $12,229 $15,751
</TABLE>
The ratio of In Home Health, Inc.'s combined fixed charges and preference
security dividends to earnings for each of the fiscal years ended September 30,
1999, 1998, 1997, 1996 and 1995, was 1.05, 0.88, (4.46), (0.06) and 3.53,
respectively, and at June 30, 2000 was 0.99. For fiscal years 1998, 1997 and
1996, the deficiency of earnings to combined fixed charges and preference
security dividends was $550, $25,937 and $4,920, respectively. At June 30, 2000,
In Home Health, Inc.'s book value per share of common stock was $2.84.
13
<PAGE> 21
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
This proxy statement contains or incorporates by reference forward-looking
statements and information relating to In Home Health, Inc. that are based on
the opinions of In Home Health, Inc.'s management as well as assumptions made by
and information currently available to In Home Health, Inc., including multiple
financial projections for future periods based on various assumptions.
Forward-looking statements include statements concerning plans, objectives,
goals, strategies, future events or performance, and underlying assumptions and
other statements which are other than statements of historical facts, including
statements regarding the completion of the proposed merger. When used in this
document, the words "anticipate," "believe," "estimate," "expect," "plan,"
"intend," "project," "predict," "may," and "should" and similar expressions, are
intended to identify forward-looking statements. Such statements reflect the
current view of In Home Health, Inc. with respect to future events, including
the completion of the proposed merger, and are subject to numerous risks,
uncertainties and assumptions. Many factors could cause the actual results,
performance or achievements of In Home Health, Inc. to be materially different
from any future results, performance or achievements that may be expressed or
implied by such forward-looking statements, including, among others:
- government regulation and other legislative proposals that apply to home
health agencies, such as those owned by In Home Health,
Inc. -- including, in particular:
- Medicare reimbursement rates and payment systems, including changes
to the rates and interim payment system established under the
Balanced Budget Act of 1997 and implementation of a prospective
payment system in October 2000;
- changes to reimbursement regulations by the Health Care Financing
Administration;
- inclusion and regulation of pharmaceutical products under Medicare;
and
- changes to federal and state licensing and certification
regulations, including those related the Certificates of Need
necessary for operation of the home health agencies owned by In Home
Health, Inc.
- third party reimbursement, especially as third party reimbursement may be
affected by changes to Medicare reimbursement rates and Health Care
Financing Administration regulations, state Medicaid programs and private
insurance;
- competition and factors affecting the health care industry in
general -- including an increase in the number of competitive entrants in
the home health care industry and resulting negative effects on In Home
Health, Inc.'s ability to attract and retain customers;
- anti-remuneration and anti-referral laws that affect In Home Health,
Inc.'s ability to establish and maintain relationships with referral
sources, including payors, hospitals, physicians and other health care
professionals; and
- each of the assumptions, methodologies and other factors discussed under
the section entitled "Special Factors -- Certain Projections."
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results can vary materially from
those described herein as anticipated, believed, estimated, expected, planned or
intended. Neither In Home Health, Inc. nor ManorCare Health Services, Inc.
intends, or assumes any obligation, to update these forward-looking statements
to reflect actual results, changes in assumptions or changes in the factors
affecting such forward-looking statements. See "Special Factors -- Warning
Regarding Reliance on Financial Projections."
14
<PAGE> 22
INFORMATION CONCERNING THE SPECIAL MEETING
TIME, PLACE AND DATE
This proxy statement is furnished in connection with the solicitation by
the board of directors of In Home Health, Inc. of proxies from the holders of
shares of common stock, par value $.03 per share of In Home Health, Inc. for use
at a special meeting of shareholders to be held at 9:00 a.m., Central Time, on
Thursday, December 28, 2000, at the Radisson Hotel and Conference Center, 3131
Campus Drive, Plymouth, Minnesota or at any adjournment(s) or postponement(s)
thereof, pursuant to the enclosed notice of special meeting of shareholders.
PURPOSE OF THE SPECIAL MEETING
At the special meeting, the shareholders of In Home Health, Inc. will be
asked to consider and vote upon the approval and adoption of the Agreement and
Plan of Merger, dated as of September 13, 2000, by and among In Home Health,
Inc., ManorCare Health Services, Inc. and IHHI Acquisition Corp., as heretofore
and hereafter amended, and the transactions contemplated thereby. A copy of the
merger agreement is attached to this proxy statement as Annex A. The merger
agreement provides for the merger of IHHI Acquisition Corp. with and into In
Home Health, Inc., whereby In Home Health, Inc. shall continue as the surviving
corporation. Pursuant to the merger agreement, each outstanding share of common
stock (other than common stock held by ManorCare Health Services, Inc., IHHI
Acquisition Corp. and their affiliates) will be converted into the right to
receive $3.70 per share in cash, without interest, provided that shareholders
who properly exercise their rights under Minnesota law to dissent from the
merger will be entitled to seek the fair value of their shares. The holders of a
majority of all outstanding shares of In Home Health, Inc. common and preferred
stock, voting as a single class, must vote to approve and adopt the merger
agreement (with each share of common stock being entitled to cast one (1) vote
per share and each share of preferred stock being entitled to cast approximately
16.67 votes per share).
RECOMMENDATION OF BOARD OF DIRECTORS AND SPECIAL COMMITTEE
The special committee consisting of Mr. C. Michael Ford and Mr. Eugene
Terry was appointed by the board of directors to, among other things, review and
evaluate the terms of the merger and to make a recommendation to the board of
directors regarding the fairness of the merger to the holders of common stock.
Mr. Ford and Mr. Terry have no interest in the transaction other than that Mr.
Ford is currently serving as Chairman of the Board and Interim Chief Executive
Officer and President of In Home Health, Inc. and holds 16,671 shares of In Home
Health, Inc. common stock and Mr. Terry is a director and temporary consultant
for In Home Health, Inc. Neither Mr. Ford nor Mr. Terry have any equity interest
in ManorCare Health Services, Inc. or its parent corporation or the surviving
corporation. Neither Mr. Ford nor Mr. Terry is an officer or director of or
otherwise affiliated with ManorCare Health Services, Inc. The special committee
concluded that the terms and provisions of the merger agreement are fair to and
in the best interests of the holders of common stock (other than ManorCare
Health Services, Inc., IHHI Acquisition Corp. and their affiliates), and
unanimously recommended that the board of directors approve and adopt and
declare advisable the merger agreement.
At a meeting held on September 12, 2000, acting on the unanimous
recommendation of the special committee, the board of directors unanimously
approved and adopted the merger agreement, concluded that the terms and
provisions of the merger agreement are advisable and that the merger agreement
and the transactions contemplated thereby, including the merger, are fair to and
in the best interests of the holders of common stock (other than ManorCare
Health Services, Inc., IHHI Acquisition Corp. and their affiliates), and
approved a recommendation that the shareholders of In Home Health, Inc. approve
and adopt the merger agreement and the transactions contemplated thereby. The
special committee and the board of directors, in reaching their respective
decisions, considered a number of factors, including the opinion of Houlihan
Lokey, the financial advisor to the special committee, that, as of the date of
such opinion and based upon and subject to various considerations, assumptions
and limitations stated therein, the $3.70 per share cash consideration to be
received by the shareholders of In Home Health, Inc. (other than ManorCare
Health Services, Inc., IHHI
15
<PAGE> 23
Acquisition Corp. and their affiliates) in the merger was fair to the
shareholders of In Home Health, Inc. (other than ManorCare Health Services,
Inc., IHHI Acquisition Corp. and their affiliates) from a financial point of
view. A copy of Houlihan Lokey's opinion is attached as Annex B to this proxy
statement. See "Special Factors -- Recommendation of the Special Committee and
Board of Directors; Fairness of the Merger" and "Special Factors -- Opinion of
Financial Advisor to the Special Committee." The special committee also
considered a report from Simione Central, a third party financial consultant to
In Home Health, Inc., regarding whether the underlying assumptions and
methodologies used by In Home Health, Inc. provided a reasonable basis for In
Home Health, Inc.'s financial projections. See "Special Factors --
Recommendation of the Special Committee and Board of Directors; Fairness of the
Merger" and "Special Factors -- Report of Third Party Financial Consultant to
Special Committee."
BASED ON THE UNANIMOUS RECOMMENDATION OF ITS SPECIAL COMMITTEE, THE BOARD
OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
RECORD DATE; VOTING AT THE MEETING; QUORUM
Acting under authority granted to him by the board of directors, Bruce
Schroeder, the Interim Chief Financial Officer, Interim Chief Operating Officer,
Interim Treasurer and Interim Secretary of In Home Health, Inc., has fixed the
close of business on November 24, 2000 as the record date for the special
meeting. Only shareholders of record as of the close of business on November 24,
2000 will be entitled to notice of and to vote at the special meeting.
As of the close of business on the record date, In Home Health, Inc. had
outstanding approximately 5,604,298 shares of common stock, held of record by
approximately 1,028 registered holders. Holders of the common stock are entitled
to one (1) vote per share. As of the close of business on the Record Date, In
Home Health, Inc. had outstanding 200,000 shares of preferred stock, all of
which are held by ManorCare Health Services, Inc. Holders of the preferred stock
are entitled to cast approximately 16.67 votes per share. The presence in person
or by proxy of the holders of a majority of the voting power of the outstanding
common and preferred stock entitled to vote at the special meeting constitutes a
quorum. If a broker returns a "non-vote" proxy, indicating lack of authority to
vote on the merger and shares as to which a shareholder abstains will be deemed
present in determining whether there is a quorum at the special meeting.
REQUIRED VOTE
Under Minnesota law and the In Home Health, Inc. articles of incorporation
and by-laws, the merger agreement must be approved by the affirmative vote of
the holders of a majority of the voting power of the outstanding shares of
common and preferred stock, voting as a single class. The merger agreement is
not required to be approved and adopted by the affirmative vote of a majority of
the voting power of the unaffiliated shareholders of In Home Health, Inc. As of
the record date, ManorCare Health Services, Inc., owned 3,396,735 shares of
common stock in the aggregate, representing approximately 61.3% of the
outstanding shares of common stock as of the record date and 200,000 shares of
preferred stock in the aggregate, representing 100% of the outstanding shares of
preferred stock as of the record date. Each share of common stock is entitled to
cast one (1) vote per share. Each share of preferred stock is entitled to cast
approximately 16.67 votes per share. Approximately 4,468,817 affirmative votes
will be necessary to satisfy this voting requirement. ManorCare Health Services,
Inc. has the right to cast approximately 6,730,069 or 75.8% of the votes
entitled to be cast at the special meeting, all of which they have agreed in the
merger agreement to vote in favor of the merger agreement. This fact assures
that the merger agreement will be approved and adopted at the special meeting.
This proxy statement is being sent to you to comply with the Securities Exchange
Act of 1934, as amended and the Minnesota Business Corporation Act. The
directors and executive officers of In Home Health, Inc. have informed In Home
Health, Inc. that they intend to vote their shares (16,671 shares in the
aggregate or approximately .3% of the outstanding shares of common stock as of
the record date) in favor of the merger agreement and the transactions
contemplated thereby.
16
<PAGE> 24
Because Minnesota law requires the merger agreement to be approved by the
affirmative vote of the holders of a majority of the voting power of the
outstanding shares of common and preferred stock, failure to return an executed
proxy card or to vote in person at the special meeting or abstaining from the
vote will constitute, in effect, a vote against approval of the merger agreement
and the transactions contemplated thereby for purposes of Minnesota law.
Similarly, broker non-votes and abstentions will have the same effect as a vote
against approval of the merger agreement and the transactions contemplated
thereby.
VOTING AND REVOCATION OF PROXIES
The enclosed proxy card is solicited on behalf of the board of directors.
The giving of a proxy does not preclude the right to revoke the proxy and then
vote in person should any shareholder giving the proxy so desire. Shareholders
have an unconditional right to revoke their proxy at any time prior to its
exercise, either by filing with In Home Health, Inc., at 601 Carlson Parkway,
Suite 500, Minnetonka, Minnesota 55305-5214, Attention: C. Michael Ford, a
written revocation or a duly executed proxy bearing a later date prior to the
shareholder vote. Attendance at the special meeting will not, by itself,
constitute revocation of a proxy.
All shares of common stock represented at the special meeting by properly
executed proxies received prior to or at the special meeting, unless previously
revoked, will be voted at the special meeting in accordance with the
instructions on the proxies. Any signed proxies without voting instructions will
be voted "FOR" the approval and adoption of the merger agreement and the
transactions contemplated thereby. As explained below in the section entitled
"Dissenters' Rights," a vote in favor of the merger agreement means that the
shareholder owning those shares will not have the right to dissent and seek the
fair value, under the dissenters' rights statutes, of such shareholder's shares.
In Home Health, Inc. does not know of any matters, other than as described in
the notice of special meeting of shareholders, which are to come before the
special meeting. Under Minnesota law, the business conducted at a special
meeting of shareholders is limited to the purpose stated in the notice of the
meeting. Thus no other business may be conducted at the special meeting, other
than as stated in the notice of meeting that accompanies this proxy statement.
The merger is also subject to a number of additional conditions. See "The Merger
Agreement -- Conditions."
PROXY SOLICITATION
The cost of preparing, assembling and mailing this proxy statement, the
notice of special meeting of shareholders and the enclosed proxy card will be
borne by In Home Health, Inc. In Home Health, Inc. is requesting that banks, and
other custodians, nominees and fiduciaries forward copies of the proxy material
to their principals and request authority for the execution of proxies. In Home
Health, Inc. will reimburse such persons for their expenses in so doing. In
addition to the solicitation of proxies by mail, the directors, officers and
employees of In Home Health, Inc. may, without receiving any additional
compensation, solicit proxies by telephone, telefax, telegram or in person.
No person is authorized to give any information or make any representation
not contained in this proxy statement, and if given or made, such information or
representation should not be relied upon as having been authorized.
IN HOME HEALTH, INC. SHAREHOLDERS SHOULD NOT SEND ANY CERTIFICATES
REPRESENTING SHARES OF COMMON STOCK WITH THEIR PROXY CARD. IF THE MERGER IS
CONSUMMATED, THE PROCEDURE FOR THE EXCHANGE OF CERTIFICATES REPRESENTING SHARES
OF COMMON STOCK WILL BE AS SET FORTH IN THIS PROXY STATEMENT. SEE "THE MERGER
AGREEMENT -- THE PAYMENT FUND; PAYMENT FOR SHARES OF COMMON STOCK" AND "THE
MERGER AGREEMENT -- TRANSFERS OF COMMON STOCK."
17
<PAGE> 25
THE PARTIES
IN HOME HEALTH, INC.
In Home Health, Inc., a Minnesota corporation, was incorporated in
Minnesota on April 1, 1983. As of June 30, 2000 it provided in home health care
services from 39 offices in 20 geographic markets located in 15 states under the
trade names "In Home Health" or "Home Health Plus." In Home Health, Inc.
specializes in providing comprehensive health care services to clients of all
ages in their homes. In Home Health, Inc.'s services primarily include nursing,
infusion therapy, hospice, rehabilitation, personal care and homemaking. The
principal office and business address of In Home Health, Inc. is 601 Carlson
Parkway, Suite 500, Minnetonka, Minnesota 55305. The telephone number of In Home
Health, Inc. is (612) 449-7500.
For additional information concerning In Home Health, Inc., see "Where You
Can Find More Information" and "Available Information."
MANORCARE HEALTH SERVICES, INC.
ManorCare Health Services, Inc., a Delaware corporation and the successor
to Manor Healthcare Corp., was incorporated in Delaware on October 18, 1968, and
is a wholly-owned subsidiary of Manor Care of America, Inc., a Delaware
corporation formerly known as Manor Care, Inc., which is a wholly-owned
subsidiary of Manor Care, Inc., a Delaware corporation formerly known as HCR
Manor Care, Inc. ManorCare Health Service, Inc., together with its subsidiaries
and affiliates, is a provider of a range of health care services, including
skilled nursing care, assisted living, subacute medical care, rehabilitation
therapy, home health care, and management services for subacute care,
rehabilitation therapy, vision care, and eye surgery. The most significant
portion of the business of ManorCare Health Services, Inc., together with its
subsidiaries and affiliates, relates to long-term care, including skilled
nursing care and assisted living. The principal offices and business addresses
of Manor Care, Inc., Manor Care of America, Inc. and ManorCare Health Services,
Inc. is 333 North Summit Street, Toledo, Ohio 43604. The telephone number of
Manor Care, Inc., Manor Care of America, Inc. and ManorCare Health Services,
Inc. is (419) 252-5500.
IHHI ACQUISITION CORP.
IHHI Acquisition Corp. is a Minnesota corporation that was incorporated on
July 28, 2000 by ManorCare Health Services, Inc. in connection with the proposed
merger. IHHI Acquisition Corp. has not been engaged in any business activities
other than those in connection with the merger. The principal office and
business address of IHHI Acquisition Corp. is 333 North Summit Street, Toledo,
Ohio 43604. The telephone number of IHHI Acquisition Corp. is (419) 252-5500.
SPECIAL FACTORS
BACKGROUND OF THE MERGER
On October 24, 1995, Manor Healthcare Corp., a Delaware corporation and the
predecessor to ManorCare Health Services, Inc., consummated an agreement with In
Home Health, Inc. pursuant to which Manor Healthcare Corp. acquired 6,750,000
shares of In Home Health, Inc. common stock, 200,000 shares of In Home Health,
Inc. preferred stock and a warrant exercisable for three years to purchase up to
6,000,000 shares of In Home Health, Inc. common stock. The warrant expired
unexercised on October 24, 1998. On December 1, 1998, In Home Health, Inc.
common stock underwent a one-for-three reverse stock split. As a result of the
foregoing, ManorCare Health Services, Inc. held 2,250,000 shares of In Home
Health, Inc. common stock and 200,000 shares of In Home Health, Inc. preferred
stock, convertible into 3,333,334 shares of In Home Health, Inc. common stock,
as a result of the 1995 acquisitions. The preferred stock entitles ManorCare
Health Services, Inc. to an annual dividend in the amount of $2.4 million per
year, which was originally payable in cash or common stock. The preferred stock
is redeemable by In Home Health, Inc. on or after October 24, 2000, at a price
of $20 million and ManorCare Health Services, Inc. may require redemption of up
to 65% of the preferred stock at an aggregate price of $13 million on or after
October 24, 2000. As of the
18
<PAGE> 26
date of this proxy statement, neither In Home Health, Inc. nor ManorCare Health
Services, Inc. has exercised its right to cause the redemption of any shares of
preferred stock.
Pursuant to its articles of incorporation, each share of In Home Health,
Inc. preferred stock has the voting rights of the underlying In Home Health,
Inc. common stock on an as-converted basis. However, on December 22, 1998,
ManorCare Health Services, Inc. and In Home Health, Inc. entered into an
agreement pursuant to which ManorCare Health Services, Inc. irrevocably waived
all of the voting rights of the preferred stock, except voting rights with
respect to proposals presented to the holders of In Home Health, Inc. common
stock to: (i) wind-up, dissolve or liquidate In Home Health, Inc. or revoke or
forfeit its charter; (ii) amend its articles of incorporation; (iii) merge or
consolidate or enter into an exchange agreement with another corporation; or
(iv) sell, lease, transfer, or otherwise dispose of all or substantially all of
In Home Health, Inc.'s assets not in the usual and regular course of business.
In exchange, In Home Health, Inc. irrevocably waived its right to pay dividends
on the In Home Health, Inc. preferred stock in the form of shares of In Home
Health, Inc. common stock and agreed to pay all such dividends in cash. Because
the special meeting is being held to vote on a proposed merger of In Home Health
Services, Inc., ManorCare Health Services, Inc. has the right to exercise the
voting rights of its In Home Health, Inc. preferred stock on an as-converted
basis, which currently represent approximately 16.67 votes per share of
preferred stock.
In November 1999, Wolfgang von Maack announced his intention to resign as
Chief Executive Officer and President of In Home Health, Inc. to pursue other
opportunities. The board of directors (other than Mr. von Maack) requested that
Mr. von Maack remain in his present position; however, in December 1999, Mr. von
Maack submitted his resignation as Chief Executive Officer and President of In
Home Health, Inc., in each case effective February 15, 2000. Mr. von Maack
continued to serve as a director of In Home Health, Inc. and as Chairman of the
board.
On January 5, 2000, a meeting of the In Home Health, Inc. board of
directors was held in Atlanta, Georgia. All five of the members of the board of
directors were present. At that meeting, the board directed the search for a
replacement for Mr. von Maack begin and elected C. Michael Ford to serve as the
Interim Chief Executive Officer and President of In Home Health, Inc. until the
position could be filled.
On February 14, 2000, a meeting of the In Home Health, Inc. board of
directors was held telephonically. All of the members of the board of directors
on that date participated on the call. At the meeting, the board confirmed the
election of Mr. Ford as the Interim Chief Executive Officer and President of In
Home Health, Inc. effective as of February 15, 2000. Also at that meeting, the
board considered whether Mr. von Maack should remain as Chairman of the Board
and decided to defer the determination of that issue at that time.
On February 16, 2000, Mr. Ford telephoned Paul A. Ormond, ManorCare Health
Services, Inc.'s Chief Executive Officer, to inform ManorCare Health Services,
Inc. of his appointment as Interim Chief Executive Officer and President, and to
discuss the board of directors' plans for In Home Health, Inc. for the next 100
days. The purpose of the call was to initiate a positive environment and to
provide assurances that the board of directors was actively managing In Home
Health, Inc. during the period it was looking for a new Chief Executive Officer
and President. On or about this time, Mr. Ford also asked In Home Health, Inc.'s
financial management to prepare financial projections for In Home Health, Inc.
to take into account certain proposed changes to Medicare regulations applicable
to home health care agencies, including the visit division of In Home Health,
Inc. and to determine if In Home Health, Inc. would have sufficient resources to
meet its preferred stock obligations. See "Special Factors -- Certain
Projections."
On February 21, 2000, just prior to In Home Health, Inc.'s annual meeting
of shareholders, Mr. Ford contacted Mr. Ormond to confirm that ManorCare Health
Services, Inc. intended to vote its shares at the annual meeting. Mr. Ormond
assured Mr. Ford that ManorCare Health Services, Inc. intended to vote its
shares at the meeting and that, as such, there would be a sufficient number of
shares represented to constitute a quorum to properly convene the annual
meeting.
On February 23, 2000, In Home Health, Inc. held its annual shareholders
meeting in Minnetonka, Minnesota. At this meeting, each of C. Michael Ford,
James J. Lynn, Wolfgang von Maack, Judith I. Storfjell
19
<PAGE> 27
and Eugene Terry was elected to the board of directors, and the selection of
Deloitte & Touche LLP as In Home Health, Inc.'s independent auditors was
ratified.
Also on February 23, 2000, following the annual shareholders meeting, a
meeting of the In Home Health, Inc. board of directors was held in Minnetonka,
Minnesota. All of the members of the board of directors were present at that
meeting. At that meeting the directors discussed In Home Health, Inc.'s
preparation for the prospective payment system for home health services under
Medicare that was scheduled to replace the interim payment system on October 1,
2000. The board noted that In Home Health, Inc.'s visit division profitability
under the new Medicare prospective payment system would be more sensitive to
patient case mix, and that careful thought needed to be given to what changes in
the philosophy and behavior of In Home Health, Inc.'s personnel were needed to
prepare In Home Health, Inc. to change over to the new payment system. Also at
that meeting, Mr. von Maack resigned as Chairman of the Board. Mr. Ford was
elected to replace Mr. von Maack as the Chairman of the Board effective
immediately. Also, a number of proposals regarding Mr. Ford's compensation for
his services as Interim Chief Executive Officer and President were approved and
offered to Mr. Ford for his consideration.
On February 29, 2000, the board of directors of In Home Health, Inc. held a
telephonic meeting. All of the members of the board of directors participated on
the call. At the meeting, the directors discussed Mr. Ford's compensation for
his services as Interim Chief Executive Officer and President. In addition, Mr.
Ford presented and the board approved a plan for the next 100 days.
On March 22, 2000, Mr. Ford met with Mr. Ormond and discussed In Home
Health, Inc.'s plan for the next 100 days. The discussion included In Home
Health, Inc.'s liquidity, In Home Health, Inc.'s commitment to redeeming $13
million in preferred stock in October 2000, the necessity of obtaining borrowed
funds to make that payment, the progress in obtaining such financing, the
initial projections for the current and future periods, and the board's program
to hire a chief executive officer. Copies of In Home Health, Inc.'s March 2000
financial projections were distributed at this meeting. See "Special
Factors -- Certain Projections." Between March and July 2000, Mr. Ford
communicated regularly with Mr. Ormond.
On March 24, 2000, the board of directors of In Home Health, Inc. met in
Atlanta, Georgia. Four of the members of the board of directors were present in
person at the meeting and Mr. von Maack participated by telephone. At the
meeting Mr. Ford reported on his March 22, 2000 meeting with Mr. Ormond
including discussions with respect to the preferred stock redemption issue. Mr.
Ford also discussed the level of confidence that various directors and
management placed in In Home Health, Inc.'s financial projections for fiscal
year 2001 and 2002 as they related to In Home Health, Inc.'s profits for visit
services. At the meeting, the board also considered a report on personnel
training programs that were being developed by In Home Health, Inc. to implement
the new Medicare prospective payment system for home health services and
discussed the potential impact of the new Medicare prospective payment system on
In Home Health, Inc.'s cash flow. Among other things, the board discussed
different alternatives to finance the redemption of the preferred stock owned by
ManorCare Health Services, Inc., and that the covenants that would apply to In
Home Health, Inc. with respect to such financing were likely to impose
significant limitations on In Home Health, Inc.'s flexibility with regard to
operations. In addition, the uncertainties surrounding ManorCare Health
Services, Inc.'s intentions with respect to a potential business combination and
redemption of the preferred stock made the recruitment of chief executive
officer candidates and the operation of the business more challenging.
On May 4, 2000, the board of directors of In Home Health, Inc. met in
Minnetonka, Minnesota. Four of the members of the board of directors were
present in person at the meeting and Mr. Terry participated by telephone. At the
meeting, the size of the board of directors was expanded to six members and
Stephen Jessup was elected as a director. Also at this meeting, Mr. Ford
resigned as Chairman of the Board and Interim Chief Executive Officer and
President effective May 31, 2000. The board accepted Mr. Ford's resignation and
appointed Mr. von Maack to serve as the Chairman of the Board, Chief Executive
Officer and President, effective June 1, 2000.
On May 22, 2000, In Home Health, Inc.'s board of directors received a
letter from Mr. Ormond, expressing ManorCare Health Services, Inc.'s desire to
work more closely with In Home Health, Inc. and to
20
<PAGE> 28
enter into discussions to pursue common goals for In Home Health, Inc. and
ManorCare Health Services, Inc. In particular, Mr. Ormond stated that he sought
to increase significantly ManorCare Health Services, Inc.'s stock ownership in
In Home Health, Inc. in an effort to remove any questions of ManorCare Health
Services, Inc.'s continued commitment to In Home Health, Inc. Mr. Ormond's
letter also noted that ManorCare Health Services, Inc.'s preliminary analysis
indicated that it should be able to offer In Home Health, Inc.'s shareholders a
meaningful premium to the then current trading price of In Home Health, Inc.'s
common stock, which was approximately $2.00 per share. In addition, Mr. Ormond
expressed satisfaction with the interim leadership of In Home Health, Inc. and
the constructive attitude that Mr. Ford had fostered as In Home Health, Inc.'s
Interim Chief Executive Officer and President. In his letter, Mr. Ormond
specifically requested that Mr. Ford remain in the position of Interim Chief
Executive Officer and President of In Home Health, Inc. until ManorCare Health
Services, Inc. and In Home Health, Inc. completed strategic discussions
regarding expanding ManorCare Health Services, Inc.'s role and stock ownership
in In Home Health, Inc.
Also on May 22, 2000, following receipt of Mr. Ormond's letter, the
directors of In Home Health, Inc. held a meeting at In Home Health, Inc.'s
headquarters in Minnetonka, Minnesota at which all directors were present. At
the meeting they discussed how to respond to Mr. Ormond's letter. The board
determined to retain an investment banking firm and to engage legal counsel to
advise the board with respect to the proposals by ManorCare Health Services,
Inc. and to address financing and other strategic matters related to In Home
Health, Inc. At this meeting, the board decided to respond to Mr. Ormond's
letter by informing him that In Home Health, Inc. planned to retain an
investment banker and that the banker would contact him. Also at this meeting,
the board appointed Mr. Ford to serve as Interim Chairman and Chief Executive
Officer and Judith Storfjell as Interim Chief Operating Officer and President of
In Home Health, Inc. Each of these appointments was made effective immediately
to continue through June 30, 2000, at which time the positions were to be
re-evaluated. Among other things, the directors also considered a report on the
status of In Home Health, Inc.'s visit division's preparation for the new
Medicare prospective payment system for home health services and a report on
various financing alternatives with respect to the redemption of the preferred
stock.
On May 23, 2000, ManorCare Health Services, Inc. filed with the Securities
and Exchange Commission an amended Schedule 13D Statement of Beneficial
Ownership, which is required to be filed by all shareholders of public companies
holding 5% or more of any equity security class. In this filing, ManorCare
Health Services, Inc. stated that ManorCare Health Services, Inc. may buy or
sell additional shares of In Home Health, Inc. capital stock depending on
market, economic and other factors and conditions, including an ongoing
evaluation of In Home Health, Inc.'s financial condition, operations and
prospects, the actions of In Home Health, Inc.'s management and board of
directors and other future developments, regulatory requirements and the
relative attractiveness of alternative business and investment opportunities.
Also in this filing, ManorCare Health Services, Inc. stated that it reserved the
right to formulate or make plans or proposals, and take such actions with
respect to their investment as it may determine.
On May 31, 2000, Mr. Ford received a letter from ManorCare Health Services,
Inc. exercising its right to demand that In Home Health, Inc. call a special
meeting of its shareholders. In the letter, ManorCare Health Services, Inc.
stated that the purpose of the special meeting would be to: (i) remove all
directors of In Home Health, Inc. other than Mr. Ford and Mr. Eugene Terry,
including without limitation, Mr. Wolfgang von Maack, Mr. Steven Mr. Jessup, Dr.
James J. Lynn and Ms. Judith I. Storfjell (or any of their successors), and any
other directors thereafter appointed prior to the special meeting; (ii) fix the
number of directors of the board of directors of In Home Health, Inc. at six;
and (iii) elect four new directors identified by ManorCare Health Services, Inc.
to fill the vacancies created by such removal. In the letter, ManorCare Health
Services, Inc. also requested that, in accordance with In Home Health, Inc.'s
by-laws, the board of directors of In Home Health, Inc. call the special
shareholders meeting within thirty (30) days, and hold the meeting within ninety
(90) days, of its receipt of the letter. The letter included the five-year
employment history for each of the ManorCare Health Services, Inc. director
nominees and was accompanied by a consent from each of these individuals to
serve on the board of directors.
In its May 31, 2000 letter to Mr. Ford, ManorCare Health Services, Inc.
also requested that In Home Health, Inc. delay sending notice of the special
shareholders meeting until the end of the 30-day period so that ManorCare Health
Services, Inc. and In Home Health, Inc. could engage in discussions concerning
actions
21
<PAGE> 29
which ManorCare Health Services, Inc. believed would be in the best interests of
all shareholders. ManorCare Health Services, Inc. also requested that the
special meeting be held as promptly as possible after the notice was sent and
within thirty (30) days from the sending of the notice. In addition, ManorCare
Health Services, Inc. requested that the board of directors refrain from
entering into or modifying any compensation arrangements with any of the
officers or directors of In Home Health, Inc. prior to the special shareholders
meeting and from taking any other action which could limit or restrict the
directors' ability to maximize shareholder value following the special meeting.
On May 31, 2000, following receipt of the letter from ManorCare Health
Services, Inc., the board of directors of In Home Health, Inc. met at In Home
Health, Inc.'s offices in Minnetonka, Minnesota. Mr. Ford, Mr. Terry, Mr. Jessup
and Dr. Lynn were present at the meeting. Mr. von Maack and Dr. Storfjell were
not present.
At this meeting the directors considered presentations from several
investment banking firms and decided to retain Houlihan Lokey to advise the
board with respect to the proposals by ManorCare Health Services, Inc. and
others regarding financing for In Home Health, Inc. and other strategic matters.
Also at this meeting, the board accepted Mr. von Maack's resignation as a
director of In Home Health, Inc. and resolved to continue the search to fill the
position of Chief Executive Officer.
On June 1, 2000, In Home Health, Inc. issued a press release announcing its
receipt of the May 31, 2000 letter from ManorCare Health Services, Inc.
requesting the calling of a special shareholders meeting. In this press release,
In Home Health, Inc. also announced that it had retained Houlihan Lokey as its
investment banker to advise and assist the board of directors in evaluating and
responding to ManorCare Health Services, Inc. and to explore other alternatives
to enhance shareholder value. In Home Health, Inc. also disclosed that Mr. von
Maack had resigned from the board of directors on May 31, 2000.
Also on June 1, 2000, ManorCare Health Services, Inc. filed with the
Securities and Exchange Commission an amended Schedule 13D Statement of
Beneficial Ownership in which it disclosed that it had delivered to In Home
Health, Inc. a request to call a special shareholders meeting pursuant to the
May 31, 2000 letter.
On June 5, 2000, In Home Health, Inc. filed a Current Report on Form 8-K
with the Securities and Exchange Commission, which included as exhibits copies
of the May 22, 2000 and May 31, 2000 letters from ManorCare Health Services,
Inc., and the June 1, 2000 press release.
On June 12, 2000, In Home Health, Inc. executed an engagement agreement
with Houlihan Lokey, pursuant to which it retained Houlihan Lokey to advise and
assist the board of directors, in evaluating and responding to ManorCare Health
Services, Inc. and exploring other alternatives to enhance shareholder value.
Houlihan Lokey received a copy of the initial version of the financial
projections prepared by In Home Health, Inc.'s financial management and
delivered to the board of directors on March 24, 2000. See "Special
Factors -- Certain Projections."
On June 14, 2000, a meeting of the In Home Health, Inc. board of directors
was held in Minnetonka, Minnesota. Mr. Ford, Dr. Lynn and Ms. Storfjell were
present in person at the meeting and Mr. Jessup and Mr. Terry participated by
telephone. At the meeting Mr. Ormond addressed In Home Health, Inc.'s board of
directors via telephone conference on ManorCare Health Services, Inc.'s behalf.
Mr. Ormond requested that each of Mr. Jessup, Mr. Lynn and Ms. Storfjell resign
from the board and that the individuals identified in the May 31, 2000 letter
from ManorCare Health Services, Inc. be appointed to the board. He also
requested that In Home Health, Inc. provide financial and other information to
ManorCare Health Services, Inc. to facilitate due diligence preparatory to
ManorCare Health Services, Inc.'s acquisition of the shares of In Home Health,
Inc. common stock that it did not already own. In addition, Mr. Ormond requested
that In Home Health, Inc. consult with ManorCare Health Services, Inc. regarding
hiring a new Chief Executive Officer and consider means by which ManorCare
Health Services, Inc. could offer managerial and financial assistance. During
this call, Mr. Ormond also expressed an interest in having ManorCare Health
Services, Inc. enter into a management services agreement with In Home Health,
Inc. At the meeting, after Mr. Ormond hung up from the call, the board of
directors unanimously approved a resolution to oppose the proposals made by
22
<PAGE> 30
ManorCare Health Services, Inc. and determined to prepare a response to Mr.
Ormond's points. Later on June 14, 2000, Mr. Terry, a member of In Home Health,
Inc.'s board of directors, had a separate telephone conversation with Mr.
Ormond. During this conversation, Mr. Ormond reiterated ManorCare Health
Services, Inc. requests that he had communicated to the entire board of
directors earlier that day, including its request that the board of directors
place a ManorCare Health Service, Inc. nominee on the board.
On June 15, 2000, a meeting of the In Home Health, Inc. board of directors
was held in Minnetonka, Minnesota. Mr. Ford, Dr. Lynn, Mr. Terry and Dr.
Storfjell were present in person at the meeting and Mr. Jessup was not present.
At the meeting the board discussed the ManorCare Health Services, Inc. proposals
made by Mr. Ormond the day before and Mr. Terry reported on his conversation
with Mr. Ormond. Mr. Terry reported that Mr. Terry informed Mr. Ormond that In
Home Health, Inc. was willing to give ManorCare Health Services, Inc.
representation on In Home Health, Inc.'s board of directors and to seek
ManorCare Health Services, Inc.'s input on hiring a Chief Executive Officer
candidate. In addition Mr. Terry and Mr. Ormond discussed the possibility of
restructuring certain features of In Home Health, Inc.'s preferred stock held by
ManorCare Health Services, Inc. The board determined to continue discussions
with Mr. Ormond on those points. Concern was expressed regarding morale among In
Home Health, Inc.'s staff and management and consideration was given to a
variety of proposals with regard to severance, "stay pay" packages and other
incentives to encourage employees to stay with In Home Health, Inc.
On June 16, 2000, In Home Health, Inc. responded to Mr. Ormond's requests
made on June 14, 2000, through a letter offering to engage in a constructive
dialogue regarding ManorCare Health Services, Inc.'s proposals if ManorCare
Health Services, Inc. agreed to postpone its demand for the special shareholders
meeting. ManorCare Health Services, Inc. rejected this offer. Later that day, In
Home Health, Inc. filed its preliminary notice and proxy materials for the
special shareholders meeting with the Securities and Exchange Commission.
On June 19, 2000, Mr. Terry and Mr. Ormond had a further telephone
conversation in which Mr. Ormond conveyed to Mr. Terry his disappointment in In
Home Health, Inc.'s response to his proposals.
On June 20, 2000, all directors of In Home Health, Inc. participated in a
telephonic meeting. At the meeting, Mr. Ford requested that he and Mr. Terry be
provided independent counsel in view of the fact that Mr. Lynn, Ms. Storfjell
and Mr. Jessup had independent legal representation. The board agreed that
members of the board of directors should be afforded individual counsel.
Therefore, the board decided that In Home Health, Inc. would pay for Mr. Ford
and Mr. Terry to retain independent legal counsel. On June 26, 2000, Eugene
Terry interviewed a Minneapolis law firm to serve as legal counsel to Mr. Ford
and Mr. Terry.
On June 27, 2000, a meeting of the In Home Health, Inc. board of directors
was held in Minnetonka, Minnesota at which all of the members of the board of
directors were present. At the meeting, Mr. Ford and Mr. Terry expressed their
desire to withdraw their previous vote in favor of and to abstain from the
recommendation to solicit votes in opposition to ManorCare Health Services,
Inc.'s proposals, which was voted on at the June 14, 2000 board meeting. Mr.
Ford and Mr. Terry said they were concerned about the chances of ManorCare
Health Services, Inc.'s proposals being defeated and there was not sufficient
justification for the costs being incurred. It was unanimously agreed to
reconsider the proposal, and the June 14, 2000 proposal was reconfirmed with
three directors voting in favor of the proposal to oppose ManorCare Health
Services, Inc. and Mr. Ford and Mr. Terry abstaining. Also at the meeting, Mr.
Ford resigned as Interim Chief Executive Officer and Dr. Storfjell was appointed
as Interim Chief Executive Officer and President of In Home Health, Inc. Mr.
Ford continued as Chairman of the Board. At this meeting, Houlihan Lokey
reported on contacts with potential investors. Among other things, the board
(with Mr. Ford and Mr. Terry abstaining) also authorized management to enter
into a contract with a proxy solicitation firm to solicit shareholder proxies in
connection with the special meeting and discussed potential permanent Chief
Executive Officer candidates. Dr. Storfjell made a presentation and led a
discussion on the new prospective payment system for Medicare payment for home
health services. The board was informed that the financial projections prepared
by the financial management of In Home Health, Inc. and based on In Home Health,
Inc.'s then current expectations regarding the new Medicare prospective payment
system could result in a 23% operating profit margin on In Home Health, Inc.'s
Medicare business, that generates approximately 50% of
23
<PAGE> 31
In Home Health, Inc.'s revenues. This represented a significant increase in the
profit margin for that business compared to fiscal year 2000, as management
believed that In Home Health, Inc. would break even under the current cost
reimbursement system. See "Special Factors -- Certain Projections." Houlihan
Lokey and management reported on various financing alternatives and potential
investors. Following this meeting, Mr. Terry and Mr. Ford met with their legal
counsel to discuss the developments at the meeting.
On each of June 29 and 30, 2000, ManorCare Health Services, Inc. filed with
the Securities and Exchange Commission an amendment to ManorCare Health
Services, Inc.'s Schedule 13D Statement of Beneficial Ownership. In these
filings, ManorCare Health Services, Inc. reported that on June 28 and 29, 2000
it had purchased from three shareholders (and obtained from each of these
sellers irrevocable proxies to vote) a total of 1,146,735 shares of In Home
Health, Inc. common stock. Each of these purchases was made pursuant to a
privately negotiated transaction between ManorCare Health Services, Inc. and the
selling shareholder and was financed from working capital. Each purchase was
made at $3.375 per share (and in one case relating to 454,401 shares of In Home
Health, Inc. common stock, ManorCare Health Services, Inc. also agreed to pay
any higher price subsequently paid in a tender offer made within ninety days).
As a result of these purchases, ManorCare Health Services, Inc. increased
ManorCare Health Services, Inc.'s holdings of In Home Health, Inc. common stock
to a total of 3,396,735 shares, or 61.3% of the outstanding voting power of In
Home Health, Inc. common stock. In addition, ManorCare Health Services, Inc.
continued to own 200,000 shares, or 100% of the preferred stock of In Home
Health, Inc., convertible into an additional 3,333,334 shares of common stock.
Following these purchases, ManorCare Health Services, Inc. owned, on an
as-converted basis, an aggregate of 6,730,069 shares of In Home Health, Inc.
common stock, or 75.8% of the outstanding voting power of In Home Health, Inc.
See "Special Factors -- Additional Consideration to be Paid to Heartland
Advisors, Inc."
On June 29, 2000, a telephonic meeting of the In Home Health, Inc. board of
directors was held in which all of the directors participated. The board
discussed ManorCare Health Services, Inc.'s recent purchases of In Home Health,
Inc. common stock. In light of these purchases and ManorCare Health Service
Inc.'s acquisition of the voting control of the common stock, Mr. Jessup, Dr.
Lynn and Dr. Storfjell advised the board of directors that, because ManorCare
Health Services, Inc. had the votes to elect the board of directors of its
choice, they did not want to needlessly cause In Home Health, Inc. to incur the
expense of holding the special meeting demanded by ManorCare Health Services,
Inc. Mr. Jessup and Dr. Lynn resigned effective June 30, 2000. Following the
June 29, 2000 meeting, Mr. Ford and Mr. Terry had several conversations with Dr.
Storfjell regarding certain compensation matters related to her agreement to
provide services to In Home Health, Inc. Upon resolution of these matters, which
resulted in the payment of $16,000 to Dr. Storfjell, Dr. Storfjell resigned as a
director of In Home Health, Inc. effective on July 7, 2000.
On July 7, 2000, Mr. Ford and Mr. Terry, being all of the remaining
directors of In Home Health, Inc., held a telephonic meeting. At this meeting,
the board acknowledged the resignations of Mr. Jessup, Dr. Lynn and Dr.
Storfjell, and re-appointed Mr. Ford to serve as Interim Chief Executive Officer
and President of In Home Health, Inc. At this meeting, the directors also
elected M. Keith Weikel and Geoffrey G. Meyers (two of the four individuals
identified as director nominees in ManorCare Health Services, Inc.'s May 31,
2000 letter) to the board of directors to fill two of the vacancies created by
the resignations. Following the election of Mr. Weikel and Mr. Meyers as
directors of In Home Health, Inc., ManorCare Health Services, Inc. withdrew its
demand for the special shareholders meeting in a letter to In Home Health, Inc.
dated July 10, 2000. In Home Health, Inc. never prepared, filed or mailed to
shareholders any definitive proxy materials regarding the special shareholders
meeting requested by ManorCare Health Services, Inc. in its May 31, 2000 letter.
On July 10, 2000, ManorCare Health Services, Inc. delivered a letter to In
Home Health, Inc. advising In Home Health, Inc. of ManorCare Health Services,
Inc.'s desire to negotiate a business combination with In Home Health, Inc. in
which In Home Health, Inc.'s shareholders would receive $3.375 in cash for each
share of In Home Health, Inc. common stock, and In Home Health, Inc. would be
acquired by ManorCare Health Services, Inc. In this letter, ManorCare Health
Services, Inc. indicated its preference to proceed towards a prompt consummation
of a negotiated transaction with In Home Health, Inc., subject to its due
diligence review and receipt of regulatory approvals, but not subject to
ManorCare Health Services, Inc.'s
24
<PAGE> 32
receipt of third-party financing. ManorCare Health Services, Inc. entered a
confidentiality agreement with In Home Health, Inc. dated as of July 10, 2000,
and began to conduct due diligence thereafter. On July 11, 2000, ManorCare
Health Services, Inc. filed an amendment to its Schedule 13D Statement of
Beneficial Ownership in which it reported the delivery of this letter to In Home
Health, Inc.
On July 11, 2000, a meeting of the In Home Health, Inc. board of directors
was held telephonically. All the directors were present on the call. The board
of directors elected a special committee consisting of Mr. Ford and Mr. Terry
and authorized the hiring of counsel for the special committee to assist the
special committee in reporting and recommending action to the board of
directors. Mr. Terry acted as Chairman of the special committee.
On July 12, 2000, In Home Health, Inc. filed a Current Report on Form 8-K
disclosing the acquisition of additional shares of In Home Health, Inc. common
stock by ManorCare Health Systems, Inc. and the change in the composition of the
board of directors. In this filing, In Home Health, Inc. also disclosed that the
board of directors intended to elect two additional ManorCare Health Services,
Inc. nominees to the board following expiration of applicable regulatory waiting
times.
On July 14, 2000, ManorCare Health Services, Inc. filed a Schedule 13E-3
with the Securities and Exchange Commission in connection with the proposed
appointment of two additional ManorCare Health Services, Inc. nominees to the
board of directors of In Home Health, Inc., pursuant to which it would acquire
control of the board.
On July 18, 2000, In Home Health, Inc. filed an Information Statement
pursuant to Rule 14f-1 of the Securities Exchange Act of 1934 in connection with
a change in the majority of the board of directors of In Home Health, Inc as it
was contemplated that the board of directors would be increased to six (6)
members.
On July 19, 2000, a meeting of the special committee was held at the
offices of In Home Health, Inc. in Minnetonka, Minnesota, which was attended by
counsel to the special committee. The special committee discussed operating
results for the quarter ended June 30, 2000, the engagement of financial
advisors to render a fairness opinion with respect to a proposed transaction
involving ManorCare Health Services, Inc. and the historical trading prices of
shares of In Home Health, Inc. common stock. The special committee also
discussed issues that would likely arise in a merger agreement, including the
price to be paid to shareholders and indemnification issues. At this meeting,
the special committee also reviewed with its legal advisors the role and duties
of the special committee.
On July 21, 2000, a lawsuit captioned Stanley Erskine v. In Home Health,
Inc., et al. was filed in Hennepin County District Court in Minneapolis,
Minnesota, naming In Home Health, Inc., Manor Care, Inc. (the parent corporation
of ManorCare Health Services, Inc.), Paul A. Ormond, Clyde Michael Ford, Eugene
Terry, Keith Weikel and Geoffrey Meyers as defendants. In addition, the
plaintiff indicated an intention to add the ManorCare Health Services, Inc.
nominees as defendants to the action if and when such individuals were elected
to the board. The suit was styled as a class action on behalf of the plaintiff
and other similarly situated shareholders of In Home Health, Inc. and alleged
breach of fiduciary duties and misrepresentation by In Home Health, Inc.'s
directors, among other claims. See "Certain Litigation."
On July 24, 2000, In Home Health, Inc.'s Information Statement pursuant to
Rule 14f-1 and ManorCare Health Services, Inc.'s Schedule 13E-3 were mailed to
In Home Health, Inc. shareholders in connection with the proposed appointment of
ManorCare Health Services, Inc. nominees to the board of directors of In Home
Health, Inc.
On July 26, 2000, a meeting of the In Home Health, Inc. board of directors
was held at which all four directors were present in person. At the meeting,
compensation of the special committee was approved, together with
indemnification agreements for the members of the special committee, and the
status of the transaction was reviewed in general. The board agreed that the
members of the special committee would be entitled to receive compensation for
their services at the rate of $200 per hour, with total compensation not to be
less than $25,000 or in excess of $35,000. Mr. Terry reported on the status of
negotiations with Houlihan Lokey pursuant to which he sought to change Houlihan
Lokey's agreement from an engagement by In Home
25
<PAGE> 33
Health, Inc. to an engagement by the special committee, and to modify the scope
of such engagement from providing general investment banking services to
rendering a fairness opinion in connection with the merger proposed by ManorCare
Health Services, Inc. The board of directors also reviewed preliminary financial
projections prepared by the management of In Home Health, Inc., including the
assumptions considered with respect to the new Medicare prospective payment
system for home health services, scheduled for implementation on October 1,
2000. The board reviewed the projections prepared on July 21, 2000 by the
financial management of In Home Health, Inc. in detail, noting a number of
additional factors for consideration and requested that the management of In
Home Health, Inc. prepare revised financial projections, after evaluating the
additional factors proposed for consideration. See "Special Factors -- Certain
Projections."
On July 27, 2000, the special committee met with its financial advisors,
Houlihan Lokey, regarding preparation and revision of financial projections for
In Home Health, Inc. to enable Houlihan Lokey to conduct its analysis of the
fairness of the ManorCare Health Services, Inc. proposal.
On August 1, 2000, the members of the special committee and In Home Health,
Inc. executed the indemnification agreements approved at the July 26, 2000 board
of directors meeting.
On August 2, 2000, Mr. Ford had an initial discussion with Simione Central,
a third party financial consultant specializing in the health care industry,
regarding the engagement of Simione Central to review the assumptions and
methodologies underlying the financial projections of In Home Health, Inc. See
"Special Factors -- Certain Projections."
On August 7, 2000, Mr. Ford signed a revised engagement agreement among
Houlihan Lokey, In Home Health, Inc. and the special committee, which superceded
the engagement letter executed on June 12, 2000. The August 7, 2000 engagement
letter provided that the scope of Houlihan Lokey's engagement was changed to a
rendering of an opinion to the special committee as to the fairness, from a
financial point of view, to the shareholders (other than ManorCare Health Care
Services, Inc. and IHHI Acquisition Corp.) of the consideration to be received
by them in connection with the proposed merger.
On August 9, 2000, the special committee discussed a strategy to request
that ManorCare Health Services, Inc. increase the price it proposed to offer for
the common stock of In Home Health, Inc. with its legal advisors and Houlihan
Lokey in preparation for a meeting to be held with ManorCare Health Services,
Inc. on August 10, 2000.
On August 10, 2000, the members of the special committee, together with a
representative of Houlihan Lokey, met with representatives of ManorCare Health
Services, Inc., including Paul Ormond. The participants discussed whether the
proposed merger consideration was fair to the shareholders of In Home Health,
Inc. (other than ManorCare Health Services, Inc., IHHI Acquisition Corp. and
their affiliates). Mr. Terry indicated that a price higher than $3.375 per share
was necessary. The meeting concluded with ManorCare Health Services, Inc.
unwilling to increase the proposed merger consideration of $3.375 per share. Mr.
Ormond stated his belief that the financial projections prepared by In Home
Health, Inc. were overly optimistic.
On August 14, 2000, the special committee telephonically interviewed
representatives from Simione Central regarding their qualifications to perform a
review of In Home Health, Inc. financial projections.
On August 15, 2000, In Home Health, Inc. provided revised drafts of
financial projections to Houlihan Lokey to assist them with their analysis of
the fairness of the ManorCare Health Services, Inc. proposal. See "Special
Factors -- Certain Projections."
On August 17, 2000, at a telephonic meeting of the board of directors of In
Home Health, Inc. at which all directors were present, the board reviewed the
pending shareholder litigation and authorized the retention of special counsel
for purposes of analyzing whether the board of directors was entitled to
indemnification under Minnesota law. At this meeting, the directors of In Home
Health, Inc. determined to defer the appointment of the two additional ManorCare
Health Service nominees as directors to avoid, among other things, having those
individuals named as defendants to the Erskine suit and potential contractual
obligations that might result if the action were considered a change of control.
26
<PAGE> 34
On August 21, 2000, In Home Health, Inc. formally engaged Simione Central
to evaluate whether the assumptions and methodologies underlying the August 15,
2000 version of the financial projections prepared by In Home Health, Inc. were
reasonable. Simione Central conducted its fieldwork at the offices of In Home
Health, Inc. during the week of August 20, 2000.
On August 24, 2000, the special committee met with Simione Central
regarding Simione Central's progress in reviewing In Home Health, Inc.'s August
15, 2000 financial projections.
On August 30, 2000, the special committee had discussions with a
representative of ManorCare Health Services, Inc. and Simione Central regarding
the results of Simione Central's review of the In Home Health, Inc. August 15,
2000 financial projections.
On August 31, 2000, the special committee had discussions with a
Minneapolis law firm that had not previously represented In Home Health, Inc. or
any of the directors named in the Erskine suit regarding retaining the firm to
act as special legal counsel to provide an opinion regarding indemnification
eligibility of the directors as required by the Minnesota Business Corporation
Act. In Home Health, Inc. executed an engagement letter with the law firm, to
represent In Home Health, Inc. as special legal counsel to provide an opinion
regarding indemnification of directors under the Minnesota Business Corporation
Act.
On September 1, 2000, Mr. Ormond called Mr. Ford to inquire about the
status of In Home Health, Inc.'s financial projections. Mr. Ford indicated
further work was necessary to refine the projections. Throughout the last week
of August and the first week of September, Mr. Ford and Mr. Ormond spoke
frequently by telephone to discuss the state of Simione Central's review, the
development of the new assumptions and methodologies for In Home Health, Inc.'s
financial projections and ManorCare Health Services, Inc.'s willingness to
engage in a transaction.
On September 5, 2000, the special committee had discussions with a
representative of ManorCare Health Services, Inc. and Simione Central regarding
the results of Simione Central's review of In Home Health, Inc.'s August 15,
2000 financial projections. See "Special Factors -- Certain Projections."
On September 8, 2000, in connection with the Erskine matter, the special
legal counsel delivered its written report to Mr. Ford, in which it concluded
that each of the directors of In Home Health, Inc. was entitled to
indemnification by In Home Health, Inc. and to the advance and/or reimbursement
by In Home Health, Inc. of reasonable expenses incurred by such director in
connection therewith.
Also on September 8, 2000, In Home Health, Inc. provided new versions of
financial projections to Houlihan Lokey that reflected input received from
Simione Central but reflected higher operating income than Simione Central's
estimates. Based on further discussions with Houlihan Lokey during the period
from September 8-12, 2000, financial management of In Home Health, Inc. made
certain further revisions to the financial projections and delivered final
versions of the financial projections to Houlihan Lokey on September 12, 2000.
See "Special Factors -- Certain Projections."
On September 12, 2000, at a meeting of the special committee, the special
committee considered the presentation of Houlihan Lokey regarding their
assessment of the fairness of ManorCare Health Services, Inc.'s offer of $3.375
per share of In Home Health, Inc. common stock. Mr. Ford and legal counsel to
the special committee attended the meeting in person in Chicago and Mr. Terry
was present by telephone. The special committee considered the terms and
conditions of the merger agreement with its legal counsel, and based on
extensive discussions with Houlihan Lokey and legal counsel, the special
committee determined that an increase in the price per share to be paid by
ManorCare Health Services, Inc. to $3.70 would support fairness and allow them
to recommend the approval and adoption of the merger agreement to the full
board. After several negotiating sessions between the special committee, its
legal counsel, ManorCare Health Services, Inc., represented by Mr. Ormond, and
ManorCare Health Services, Inc.'s associate general counsel, ManorCare Health
Services, Inc. agreed to increase its offer price to $3.70 per share of In Home
Health, Inc. common stock. Based on this agreement, the special committee
determined that the merger contemplated by the merger agreement was fair to and
in the best interest of In Home Health, Inc. and its shareholders (other than
ManorCare Health Services, Inc., IHHI Acquisition Corp. and their affiliates)
and approved the merger agreement and recommended the approval of the merger
agreement to the full board.
27
<PAGE> 35
On September 12, 2000, a meeting of the board of directors of In Home
Health, Inc. was held in Chicago following the meeting of the special committee.
Mr. Weikel, Mr. Meyers and Mr. Ford were present in person at the meeting and
Mr. Terry participated by telephone. At the meeting the board also authorized In
Home Health, Inc. to promptly advance and/or reimburse each of the directors of
In Home Health, Inc. for all reasonable losses, charges, damages, claims,
expenses and costs suffered or incurred by any of the directors in connection
with the shareholder lawsuit discussed above. The board of directors appointed
Bruce Schroeder, an employee of Manor Care, Inc., as the Interim Chief Operating
Officer of In Home Health, Inc. The board reviewed in detail the terms and
conditions of the merger agreement with legal counsel to the special committee
and Houlihan Lokey gave a summary of its presentation to the special committee
regarding its analysis with respect to fairness of the merger consideration. The
special committee members and Houlihan Lokey responded to numerous questions by
the other directors regarding the questions of fairness to shareholders and
related matters. The board then approved and adopted the merger agreement and
declared the merger agreement advisable and fair to and in the best interests of
In Home Health, Inc. and its shareholders and declared that the merger agreement
shall be submitted to a vote of the shareholders of In Home Health, Inc. at a
special meeting thereof as soon as practicable after execution and delivery of
the merger agreement. The board recommended that the shareholders of In Home
Health, Inc. approve and adopt the merger agreement and authorized either of the
Chief Executive Officer or the Chief Financial Officer of In Home Health, Inc.
to call a special meeting of shareholders for the purpose of approving and
adopting the merger agreement. The board also authorized the preparation and
filing of a proxy statement and a Transaction Statement on Schedule 13E-3.
On September 13, 2000, In Home Health, Inc., ManorCare Health Services,
Inc. and IHHI Acquisition Corp. entered into an Agreement and Plan of Merger. In
Home Health, Inc. and ManorCare Health Services, Inc. issued a joint press
release disclosing the execution of the merger agreement.
On September 14, 2000, In Home Health, Inc. filed a Current Report on Form
8-K disclosing the execution of the merger agreement. ManorCare Health Services,
Inc. also filed an amendment to its Schedule 13D Statement of Beneficial
Ownership disclosing the execution of the merger agreement.
RECOMMENDATION OF THE SPECIAL COMMITTEE AND BOARD OF DIRECTORS; FAIRNESS OF THE
MERGER
On September 12, 2000, the special committee approved the merger agreement,
determined that the merger and the terms and provisions of the merger agreement
are fair to and in the best interests of In Home Health, Inc.'s shareholders
(other than ManorCare Health Services, Inc., IHHI Acquisition Corp. and their
affiliates), and unanimously recommended to the entire board of directors that
it, among other things, approve and adopt and declare advisable the merger
agreement.
At a meeting of the board of directors held immediately following the
special committee's meeting on September 12, 2000, at which all directors of In
Home Health, Inc. were present, the board of directors considered the
recommendations of the special committee. The board of directors unanimously
concluded that the terms and provisions of the merger agreement are advisable
and fair to and in the best interests of In Home Health, Inc.'s shareholders
(other than ManorCare Health Services, Inc., IHHI Acquisition Corp. and their
affiliates), approved and adopted the merger agreement, declared the merger
agreement advisable and recommended that the shareholders approve and adopt the
merger agreement and the transactions contemplated thereby.
Recommendation of the Special Committee
In approving, and recommending that the entire board of directors approve
and adopt, the merger agreement, and in declaring, and recommending that the
entire board of directors declare, the merger agreement advisable and the
transactions contemplated thereby to be fair to and in the best interests of In
Home Health, Inc.'s shareholders, the special committee considered the following
factors, each of which, in the opinion of the special committee, supported its
determination.
- Limitations as a Public Company. The special committee considered the
fact that In Home Health, Inc.'s limited trading volume, limited
recognition in its trading group, lack of institutional sponsorship
28
<PAGE> 36
and limited public float, and lack of research attention from market
analysts, had adversely affected the trading markets for, and the value
of, In Home Health, Inc.'s common stock. The special committee also
considered its discussions with Houlihan Lokey with respect to these
market and trading considerations. The special committee noted that
public markets have not assigned significant earnings or EBITDA multiples
to comparable companies and have not provided increased valuations to
comparable companies from anticipated operation under the prospective
payment system being implemented pursuant to the Balanced Budget Act of
1997 and the Omnibus Consolidated and Emergency Supplemental
Appropriations Act. The special committee also considered the fact that
In Home Health, Inc. may not have sufficient independent directors to
comply with the rules of the Nasdaq Stock Market and may be de-listed.
The special committee concluded that under the circumstances then
existing, the $3.70 per share cash consideration to be received by the
public shareholders, or shareholders other than ManorCare Health
Services, Inc., IHHI Acquisition Corp. and their affiliates, pursuant to
the merger agreement was preferable to continuing to hold shares in In
Home Health, Inc. Accordingly, the special committee concluded that
shareholder value was not likely to be maximized were In Home Health,
Inc. to remain a public company.
- Financial Performance and Future Prospects. The special committee
considered its knowledge of In Home Health, Inc.'s business, operations,
assets, financial condition, operating results and prospects in light of
the consideration offered under the terms of the merger agreement. With
respect to prospects, the special committee considered the projections
and uncertainties related to adoption of the prospective payment system
and pending legislation. The special committee also considered earlier
projections provided by In Home Health, Inc. management. The special
committee considered Simione Central's comments related to the validity
of the assumptions incorporated in the projections and the scope of work
and qualifications of Simione Central. The special committee also
considered that if the merger agreement is not consummated, In Home
Health, Inc. could suffer adverse impacts as a result of disagreements
with its major shareholder, which could affect cash flow, access to
capital, and retention of management personnel. The special committee
also considered the impact that these factors had and could have on the
value of In Home Health, Inc. common stock. See "Special
Factors -- Certain Projections."
- Opinion of Houlihan Lokey Howard & Zukin Financial Advisors, Inc. The
special committee received Houlihan Lokey's presentation at the September
12, 2000 meeting, including the opinion of Houlihan Lokey to the effect
that, as of the date of its opinion and based upon and subject to the
matters stated in its opinion, the $3.70 per share merger consideration
to be received by In Home Health, Inc.'s public shareholders in the
merger was fair to In Home Health, Inc.'s shareholders (other than
ManorCare Health Services, Inc., IHHI Acquisition Corp. and their
affiliates) from a financial point of view. THE FULL TEXT OF HOULIHAN
LOKEY'S WRITTEN OPINION, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY HOULIHAN LOKEY, IS
ATTACHED AS ANNEX B TO THIS PROXY STATEMENT AND IS INCORPORATED HEREIN BY
REFERENCE. SHAREHOLDERS ARE URGED TO, AND SHOULD, READ THE OPINION OF
HOULIHAN LOKEY CAREFULLY. In addition, the presentation of and the
factors considered by Houlihan Lokey in its fairness opinion as discussed
under "Special Factors -- Opinion of Financial Advisor to the Special
Committee" supported the special committee's determination.
- Market Price and Premium. The special committee considered that (1) the
$3.70 per share to be received by In Home Health, Inc.'s shareholders in
the merger is higher than the $3.375 per share paid for In Home Health,
Inc. common stock in arm's length transactions between ManorCare Health
Services, Inc. and three shareholders on June 28 and 29, 2000, one of
which was for a block of In Home Health, Inc. common stock which gave
ManorCare Health Services, Inc. a majority of the In Home Health, Inc.
common stock; (2) the $3.70 per share to be received by In Home Health,
Inc. shareholders in the merger represents an 88% premium over the
closing price of $1.969 per share of In Home Health, Inc. common stock as
quoted by the Nasdaq on May 31, 2000, the day before the public
announcement of the receipt of ManorCare Health Services, Inc.'s letter
to In Home Health, Inc. demanding a special meeting; (3) the fact that
withdrawal of ManorCare Health Services, Inc.'s offer could have an
adverse impact on the market price of In Home Health, Inc.'s common stock
and
29
<PAGE> 37
future liquidity of In Home Health, Inc.'s common stock; and (4) the
consideration to be received by In Home Health, Inc. shareholders (other
than ManorCare Health Services, Inc., IHHI Acquisition Corp. and their
affiliates) in the merger will consist entirely of cash. The special
committee adopted the market trading analysis of Houlihan Lokey with
respect to the current and historical prices of In Home Health, Inc.
common stock and considered the per share merger consideration in
relation to the current and historical prices. See "Special
Factors -- Additional Consideration to be Paid to Heartland Advisors,
Inc."
- Redemption of Preferred Stock. The special committee also considered the
fact that a portion of the preferred stock owned by ManorCare Health
Services, Inc. would become redeemable on October 24, 2000 and that
ManorCare Health Services, Inc. would likely cause a portion of the
preferred stock to be redeemed thereafter. The redemption of the
preferred stock would be beneficial to net income available to common
shareholders and earnings per share, because it would no longer be
necessary to pay dividends on the preferred stock. The special committee
considered the fact that In Home Health, Inc. would have to borrow funds
to redeem the preferred stock, the fact that In Home Health, Inc. did not
have any financing commitment that would allow such borrowings from any
subordinated debt lenders, and that the only interest expressed in
providing funding was by one second tier lender which, in the view of the
board, proposed onerous terms. As such, the special committee considered
the fact that redemption of the preferred stock would likely have an
adverse impact on In Home Health, Inc.'s liquidity.
- Negotiations with ManorCare Health Services, Inc. The special committee
considered the history of negotiations with respect to the merger
agreement and the transactions contemplated thereby as the product of
arm's-length negotiations between ManorCare Health Services, Inc. and the
special committee which, among other things, led to:
- an increase in ManorCare Health Services, Inc.'s offer from $3.375
per share to the $3.70 per share to be received by the In Home
Health, Inc. shareholders in the merger, combined with the special
committee's belief that $3.70 per share was the highest price that
ManorCare Health Services, Inc. would offer;
- provisions in the merger agreement providing that In Home Health,
Inc. may, under certain circumstances, engage in discussions or
negotiations with, and furnish information or access to, third
parties who submit a written acquisition proposal for a transaction,
together with the ability of In Home Health, Inc. to terminate the
merger agreement in order to permit In Home Health, Inc. to enter
into such a transaction.
See "Special Factors -- Background of the Merger" and "The Merger
Agreement."
- Terms of the Merger Agreement. The special committee considered the terms
and conditions of the merger agreement, the proposed closing date, the
fact that the offer is not contingent upon financing and the belief that
the merger can be rapidly consummated without regulatory obstacles.
- Other Potential Investors and Buyers. The special committee considered
that a third party had approached ManorCare Health Services, Inc. to
purchase its equity interest in In Home Health, Inc. and that ManorCare
Health Services, Inc. had declined to pursue the proposal. The special
committee also considered that two potential investors in In Home Health,
Inc. had been identified. The proposals of such investors were considered
inadequate by In Home Health, Inc. because, among other things, the price
per share offered was substantially less than the market price of the
common stock of In Home Health, Inc. and less than the per share
consideration offered by ManorCare Health Services, Inc. under the merger
agreement. The special committee also considered the fact that no other
bidder is likely to emerge given that ManorCare Health Services, Inc.
owns 61.3% of the outstanding common stock of In Home Health, Inc.
Accordingly, the special committee believed that it was not likely that
any party other than ManorCare Health Services, Inc. would propose and
complete a transaction on terms more favorable to In Home Health, Inc.'s
shareholders (other than ManorCare Health Services,
30
<PAGE> 38
Inc., IHHI Acquisition Corp. and their affiliates) than the merger. The
special committee believed that the length of time between the public
announcement of ManorCare Health Services, Inc.'s indications of interest
in In Home Health, Inc. and the date of the merger agreement provided a
substantial amount of time within which to gauge the current level of
interest in In Home Health, Inc. and to permit potential buyers to come
forward.
- Special Committee Composition and Retention of Advisors. The special
committee considered that it was composed of directors who have no
interest in the transaction other than that Mr. Ford is serving as
Chairman of the Board and Interim Chief Executive Officer and President
of In Home Health, Inc. until such time as a permanent Chief Executive
Officer is appointed and is a holder of In Home Health, Inc. common
stock. Mr. Terry is not affiliated with In Home Health, Inc. (except in
his capacity as a director and temporary consultant). Neither will have
any equity interest in the surviving corporation, ManorCare Health
Services, Inc. or IHHI Acquisition Corp. The special committee also
considered that it had retained and was advised by its own legal counsel
and Houlihan Lokey, its own financial advisor, who negotiated on behalf
of the special committee, assisted the special committee in evaluating
the proposed transaction and provided the special committee with
financial and legal advice.
- Regulatory Approvals. The special committee considered that there were no
regulatory approvals required to consummate the merger.
- Availability of Dissenters' Rights. As discussed in this proxy statement
under "Dissenters' Rights", the special committee considered the fact
that Minnesota law entitles shareholders, who do not vote in favor of the
merger and who file a written notice of intent with In Home Health, Inc.,
to obtain the "fair value" of their shares, as determined by a court, if
the merger is completed.
The special committee also considered a variety of risks and other
potential negative factors concerning the merger. These included the following:
- Loss of Equity Interest. The special committee considered the fact that
if the merger agreement is approved and adopted, the current shareholders
of In Home Health, Inc. (other than ManorCare Health Services, Inc., IHHI
Acquisition Corp. and their affiliates) will not participate in the
future growth of In Home Health, Inc. Because of the risks and
uncertainties associated with In Home Health, Inc.'s future prospects,
the special committee concluded that the merger was preferable to
enabling the holders of such stock to have a speculative potential future
return.
- Potential Conflicts of Interests. The special committee considered the
potential conflicts of interests of the members of the board of directors
nominated by ManorCare Health Services, Inc.
- Taxation of Transaction. The cash consideration to be received by In Home
Health, Inc. shareholders in the merger will result in a taxable
transaction to the shareholders.
- Recourse Against ManorCare Health Services, Inc. The special committee
considered that it would be difficult to enforce the merger agreement
against ManorCare Health Services, Inc., in the event of its breach, due
to its control of In Home Health, Inc.
In considering the merger, the special committee considered Houlihan
Lokey's analyses, recommendations and opinion to determine the going concern
value of In Home Health, Inc. The special committee did not attempt to determine
the liquidation value of In Home Health, Inc. and gave little consideration to
the book value of In Home Health, Inc. (which was $2.84 on June 30, 2000)
because they believed those measures were not relevant to the market value of In
Home Health, Inc.'s business and would be considerably less than the merger
consideration of $3.70 per share. While the special committee reviewed with
Houlihan Lokey its various financial analyses and reviewed with the officers of
In Home Health, Inc. its historical and projected results, the special committee
did not independently generate its own separate financial analysis of the merger
transaction.
The special committee concluded that the positive factors outweighed the
negative factors. Because of the variety of the factors considered, the special
committee did not make specific assessments of, quantify or otherwise assign
relative weights to the specific factors considered in reaching any
determination. The determination was made after consideration of all of the
factors together.
31
<PAGE> 39
The special committee did not consider it necessary to require approval of
the merger agreement and the merger by at least a majority of In Home Health,
Inc.'s shareholders who were not affiliated with ManorCare Health Services, Inc.
or IHHI Acquisition Corp. or to retain any additional unaffiliated
representative to act on behalf of shareholders who were not affiliated with
ManorCare Health Services, Inc. The special committee believed there were
sufficient procedural safeguards in place to ensure the procedural fairness of
the merger. These safeguards include:
- the board of directors established a special committee to consider and
negotiate the merger agreement;
- the committee was comprised of two independent directors who will have no
continuing interest in In Home Health, Inc. after completion of the
merger;
- the special committee received a fairness opinion from Houlihan Lokey;
- the special committee negotiated the terms of the merger with the
assistance of its independent financial advisors and lawyers;
- as discussed in this proxy statement under "Dissenter's Rights",
Minnesota law entitles shareholders who do not vote in favor of the
merger and who file a written notice of intent with In Home Health, Inc.
to obtain the fair value of their shares, as determined by a court, if
the merger is completed.
Recommendation of the Board of Directors of In Home Health, Inc.
In reaching its determination referred to above, the board of directors
considered and relied upon the special committee's conclusions, recommendations,
unanimous approval and adoption of the merger agreement, declaration of the
merger agreement's advisability and Houlihan Lokey's opinion that, as of the
date of such opinion, based upon and subject to various considerations,
assumptions and limitations stated therein, the $3.70 per share in cash to be
received by In Home Health, Inc.'s shareholders in the merger was fair to such
shareholders (other than ManorCare Health Services, Inc., IHHI Acquisition Corp.
and their affiliates) from a financial point of view, and the related analyses
presented by Houlihan Lokey.
THE BOARD OF DIRECTORS BELIEVES THAT THE MERGER IS ADVISABLE AND IS FAIR TO
AND IN THE BEST INTERESTS OF IN HOME HEALTH, INC. AND THE HOLDERS OF COMMON
STOCK (OTHER THAN MANORCARE HEALTH SERVICES, INC., IHHI ACQUISITION CORP. AND
THEIR AFFILIATES) AND, BASED UPON THE UNANIMOUS RECOMMENDATION OF THE SPECIAL
COMMITTEE, RECOMMENDS APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY TO IN HOME HEALTH, INC.'S SHAREHOLDERS.
OPINION OF FINANCIAL ADVISOR TO THE SPECIAL COMMITTEE
The special committee engaged Houlihan Lokey to render an opinion as to the
fairness, from a financial point of view, of the merger of In Home Health, Inc.
and IHHI Acquisition Corp. to the public shareholders of In Home Health, Inc.
(other than ManorCare Health Services, Inc., IHHI Acquisition Corp. and their
affiliates). Houlihan Lokey is a nationally recognized investment-banking firm
that provides financial advisory services in connection with mergers and
acquisitions, financial restructuring, business valuations and private
placements of debt and equity securities. Houlihan Lokey has extensive
experience in the healthcare industry and, more specifically, In Home health
care. The professionals within Houlihan Lokey's Healthcare Investment Banking
Group have worked on dozens of transactions involving home health care
companies.
At the meeting of the special committee held on September 12, 2000,
Houlihan Lokey rendered its oral opinion to the special committee that, as of
such date, based on and subject to the assumptions, factors and limitations set
forth in the opinion and as described below, the consideration to be received by
the shareholders of In Home Health, Inc. (other than ManorCare Health Services,
Inc., IHHI Acquisition Corp. and their affiliates) in connection with the merger
is fair to them from a financial point of view. Such opinion was subsequently
confirmed in writing and is dated September 12, 2000.
The special committee agreed that In Home Health, Inc. would pay Houlihan
Lokey a fee of $300,000 for its preparation and delivery of the fairness
opinion, plus Houlihan Lokey's out-of-pocket expenses. No portion of Houlihan
Lokey's fee is contingent upon the successful completion of the merger and the
amount of
32
<PAGE> 40
the fee is not based on the size of this transaction. In Home Health, Inc.'s
board of directors did not limit Houlihan Lokey in any way in the investigations
it made or the procedures it followed in rendering its opinion. In addition, In
Home Health, Inc. agreed to indemnify Houlihan Lokey and its affiliates against
certain liabilities, including but not limited to any liabilities under federal
securities laws that may arise out of the engagement of Houlihan Lokey.
THE FULL TEXT OF HOULIHAN LOKEY'S OPINION DATED SEPTEMBER 12, 2000 IS
ATTACHED AS ANNEX B TO THIS PROXY STATEMENT AND IS INCORPORATED HEREIN BY
REFERENCE. WE URGE YOU TO READ THE OPINION IN ITS ENTIRETY. HOULIHAN LOKEY'S
WRITTEN OPINION IS ADDRESSED TO THE SPECIAL COMMITTEE, IS DIRECTED ONLY TO THE
FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE CONSIDERATION TO BE PAID TO THE
SHAREHOLDERS OF IN HOME HEALTH, INC. (OTHER THAN MANORCARE HEALTH SERVICES,
INC., IHHI ACQUISITION CORP. AND THEIR AFFILIATES) PURSUANT TO THE MERGER
AGREEMENT AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER OF IN HOME
HEALTH, INC. AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE SPECIAL MEETING.
While Houlihan Lokey acted as financial advisor and provided financial
analyses and a fairness opinion to the special committee, Houlihan Lokey was not
requested and did not make any recommendation to the special committee as to the
form or amount of the consideration to be received by the unaffiliated
shareholders of In Home Health, Inc. in the merger, which was determined through
negotiations between the parties to the merger. The opinion does not address In
Home Health, Inc.'s underlying business decision to proceed with or effect the
merger.
In arriving at its opinion regarding the fairness of the merger from a
financial point of view, Houlihan Lokey, among other things:
- reviewed copies of the merger agreement and draft copies of this proxy
statement;
- met with certain members of the senior management of In Home Health, Inc.
to discuss the operations, financial condition, future prospects and
projected operations and performance of In Home Health, Inc., and met
with In Home Health, Inc.'s counsel to discuss certain matters;
- visited, on several occasions, In Home Health, Inc.'s headquarters in
Minnetonka, Minnesota;
- reviewed forecasts and financial projections prepared by In Home Health,
Inc.'s management with respect to In Home Health, Inc. for the fiscal
years ended September 2000 through 2003, which Houlihan Lokey received in
final form on September 12, 2000;
- reviewed the historical market prices and trading volume for In Home
Health, Inc.'s publicly traded securities;
- researched and analyzed the current environment and various trends within
the healthcare industry in general, and the home health care industry,
specifically. As a part of the research, Houlihan Lokey had discussions
with various industry sources regarding the current Medicare
reimbursement regulatory and legislative environment, as well as proposed
reimbursement changes and their impact on home health care providers;
- reviewed Simione Central's report;
- reviewed certain other publicly available financial data for certain
companies that Houlihan Lokey deemed comparable to In Home Health, Inc.,
and publicly available prices and premiums paid in other healthcare
transactions that Houlihan Lokey considered appropriate;
- reviewed drafts of certain documents to be delivered at the closing of
the transaction; and
- conducted such other studies, analyses and inquiries as Houlihan Lokey
deemed appropriate.
Houlihan Lokey used various methodologies to assess the fairness, from a
financial point of view, of the merger to In Home Health, Inc.'s public
shareholders, other than ManorCare Health Services, Inc., IHHI Acquisition Corp.
and their affiliates. Houlihan Lokey employed methodologies that provided
estimates as to the aggregate value of In Home Health, Inc. The analyses
required studies of the overall market, economic
33
<PAGE> 41
and industry conditions in which In Home Health, Inc. operates, and the
historical operating results and financial projections of In Home Health, Inc.
In general, healthcare providers, especially publicly traded companies,
have been in a depressed state primarily as a result of Medicare reimbursement
changes enacted by the Balanced Budget Act of 1997. In the Balanced Budget Act,
Medicare reimbursement was reduced by $116 billion over five years. As a result
of this lower reimbursement, healthcare providers have experienced significantly
lower revenue and earnings. As such, access to capital markets has been greatly
reduced, mergers and acquisition activity is at low levels compared to the
period prior to the adoption of the Balanced Budget Act of 1997, and major
healthcare bankruptcy filings have increased.
The various approaches utilized by Houlihan Lokey were (i) the Market
Trading Analysis, (ii) the Market Multiple Approach, (iii) the Comparable
Transactions Approach, and (iv) the Discounted Cash Flow Approach. The analyses
performed by Houlihan Lokey used calculations based on the total number of
shares of In Home Health, Inc. common stock issued and outstanding, determined
on fully-diluted basis.
In the market trading analysis, current and historical market prices and
trading data of the subject company's stock are analyzed to provide background
information and to add context to the other analyses performed by Houlihan Lokey
as described below, and therefore does not provide an indication of value for
the transaction.
The market multiples approach is a method of determining the fair market
value of a company. The approach is one of determining operating levels, which
are considered to be representative of the future performance of the subject
company, and capitalizing these figures by an appropriate risk-adjusted rate.
The capitalization rate is an expression of what investors believe to be a fair
and reasonable rate of return for the particular security, given the inherent
risk of ownership. It also incorporates expectations of growth and rests on the
implicit assumption that some level of earnings will be generated by the
enterprise into perpetuity. The most common means of obtaining capitalization
rates is to examine publicly traded companies with similar risk and growth
profiles compared with the subject company and to use the public company
capitalization rates as a basis for choosing capitalization rates for the
subject company. Capitalization rates obtained in this manner are generally
expressed as ratios of the various operating levels, and are referred to as
market multiples.
The comparable transaction approach analyzes companies that have recently
been sold in the public marketplace. In this approach, the total price paid for
the subject company is related to earnings and cash flow figures which yield
implied transaction multiples. The acquired company is then compared with the
subject company on the basis of risk and expected return, and its transaction
multiples are used as a basis for selecting appropriate multiples for the
subject company.
The discounted cash flow approach is another method of determining the
value of an operating enterprise. This approach entails determining the
appropriate cash flows to discount, based upon projected income statements and
balance sheets for the enterprise. An appropriate discount rate for the
enterprise projections is selected based upon an analysis of alternative
investments, including public company discounts rates. The terminal value, which
is the value of the enterprise at the end of the projected period, is determined
by using a market multiple approach. The summation of the discounted value of
the projected periods and the discounted value of the terminal value determines
the subject company's enterprise value. To determine the fair market value of
the subject company's common equity, adjustments must be made for interest
bearing debt net of cash and any preferred equity.
34
<PAGE> 42
Market Trading Analysis
Houlihan Lokey reviewed current and historical market prices and trading
data concerning In Home Health, Inc.'s common stock for specified periods prior
to and after announcement of ManorCare Health Services, Inc.'s intention to
control the business on June 1, 2000.
<TABLE>
<S> <C>
Closing stock price as of 5/31/00....................... $1.969
Closing stock price as of 9/12/00....................... $3.313
30 to 180 day average trading volume as of 5/31/00...... 4,859 - 10,729 shares
Market capitalization (based on 5/31/00 close).......... $11.3 million
Market capitalization (based on 9/12/00 close).......... $18.9 million
12-month high and low stock price (as of 9/12/00)....... $3.375 - $1.813
</TABLE>
The per share merger price of $3.70 represented an 88% premium over the
closing price of $1.969 on May 31, 2000. This premium compared favorably to
other premiums being paid in healthcare service company transactions. In the
last twelve months for which information was available, March 1999 through March
2000, the median control premium paid for healthcare service companies was
21.4%. Also, the $3.70 merger price compared favorably to the 52-week high stock
price, which occurred on November 17, 1999 at a price of $3.375.
Market Multiple Approach
Using publicly available information, Houlihan Lokey compared selected
financial data of In Home Health, Inc. with similar data of various companies
engaged in businesses considered by Houlihan Lokey to be comparable to that of
In Home Health, Inc. The companies Houlihan Lokey considered comparable were
Amedisys, Inc., National Home Health Care Corp., Star Multi-Care Services, Inc.,
Gentiva Health Services, Inc. and Tender Loving Care Health Services, Inc. In
determining comparable companies, Houlihan Lokey considered home health
companies that deliver clinical services to patients in their homes, which
clinical services are performed primarily by nurses and other related
professionals. Although Houlihan Lokey reviewed certain Home care companies
other than these five companies, Houlihan Lokey determined that the other
companies were not comparable to In Home Health, Inc. due to differences in the
type of business, reimbursement and operating characteristics. Houlihan Lokey
did not consider as comparable companies that derived their revenues primarily
from sales of home health care products (such as respiratory and home medical
equipment) as they involve the distribution of products rather than the
provision of services. For each of the comparable companies, Houlihan Lokey
calculated, reviewed and analyzed numerous financial and operating performance
ratios, as well as numerous market capitalization ratios, such as the ratio of
enterprise value or "EV" (aggregate equity plus total interest-bearing debt less
cash) to each of the following: (i) latest twelve months revenues (based on the
most recent quarterly information publicly available as of September 12, 2000);
(ii) latest twelve months earnings before interest, taxes, depreciation and
amortization, or "EBITDA"; and (iii) latest twelve month earnings before
interest and taxes, or "EBIT".
Three of the five comparable companies were unprofitable on an EBIT basis;
two of them were also unprofitable on an EBITDA basis. As a result, these three
companies were included for revenue multiple calculation purposes, but were
excluded from consideration in evaluating earnings multiples. No analyst
estimates of year forward revenue, EBITDA or EBIT results were available for
Houlihan Lokey to calculate year forward multiples for any of the comparable
companies.
35
<PAGE> 43
The review of the five comparable companies identified above indicated the
following ratios:
<TABLE>
<CAPTION>
LATEST TWELVE MONTHS (1)
-------------------------------------------
EV/REVENUES EV/EBITDA (2) EV/EBIT (2)
----------- ------------- -----------
<S> <C> <C> <C>
Low.................................... 0.18 6.5 8.9
High................................... 0.68 7.3 13.4
Median................................. 0.45 6.9 11.1
Mean................................... 0.42 6.9 11.1
In Home Health, Inc. (implied)......... 0.24 5.1 7.4
</TABLE>
-------------------------
(1) Analysis based on publicly available information at September 12, 2000 for
the latest twelve months for comparable companies.
(2) Results for three of the comparable companies, Amedisys, Star-Multi-Care,
and Tender Loving Care, were excluded from the range.
All multiples were based on closing stock prices on September 12, 2000. The
In Home Health, Inc. implied multiples were below those of the comparable
companies on a median and mean basis. However, Houlihan Lokey believed the
implied multiples for In Home Health, Inc. of 0.24, 5.1 and 7.1 for enterprise
value to revenues, EBITDA and EBIT, respectively, were justified given the
inherent differences between the businesses, operations, and prospects of In
Home Health, Inc. and the comparable companies. Specifically, In Home Health,
Inc. exhibited a compounded annual revenue decline of 13.8% over the last three
years and had four consecutive years of declining revenue. This revenue trend
did not compare favorably to those of the comparable companies. There were also
differences between the size and earning trends of the comparable companies and
In Home Health, Inc. Houlihan Lokey also examined the level of analyst coverage
and trading volume for all of the comparable companies and found that the
comparable companies exhibited little or no coverage by research analysts and
all of the comparable companies exhibited low trading volume. Accordingly,
Houlihan Lokey did not rely heavily on the quantitative results of the market
multiple approach described above, and also made qualitative judgments
concerning differences between the financial and operating characteristics and
prospects of In Home Health, Inc. and the comparable companies that would, in
Houlihan Lokey's opinion, affect the public market valuation of such companies.
Comparable Transaction Approach
Houlihan Lokey reviewed seven merger and acquisition transactions as
reported in filings with the Securities and Exchange Commission, public company
disclosures, press releases, industry and popular press reports, databases and
other sources that satisfied the following criteria:
- transactions in which the target company is classified as a "Home Health
Care Services" company with a Standard Industrial Classification Code of
8082;
- transactions with a target company involved in the services area of the
home health care industry, rather than an equipment provider; and
- recent home health care transactions otherwise deemed comparable by
Houlihan Lokey.
Houlihan Lokey researched financial performance measures for merger and
acquisition transactions involving companies in the home health care industry.
In performing its analysis, Houlihan Lokey considered that the merger and
acquisition transaction environment varies over time because of reimbursement
rates and trends, interest rate and equity market fluctuations and industry
results and growth expectations.
In determining the seven comparable transactions, Houlihan Lokey initially
reviewed 47 transactions that had occurred in the home care industry since
January 1999. All of the transactions involved sales of private companies or
sales of a division within a public company and, as such, none of these
transactions resulted in significant disclosure of detailed financial or
transactional information. Of the 47 transactions reviewed, only seven
transactions had public financial information available that Houlihan Lokey
considered sufficient for
36
<PAGE> 44
analysis. The following transactions were the transactions reviewed by Houlihan
Lokey that it considered to have sufficient public information available:
<TABLE>
<CAPTION>
ACQUIROR TARGET
-------- ------
<S> <C>
Classic Residence by Hyatt Preferred Home Health
Capital General Corporation NuMed Home Health
National Home Health Care Corp. Optimum Home Health of CT, Inc.
New York Health Care, Inc. Manhattan Home Health Care Office
Landauer Hospital Supplies, Inc. Community Care Services, Inc.
Not Disclosed Caretenders Home Nursing Operations
Not Disclosed HealthCor's Espanola Offices
</TABLE>
Houlihan Lokey compared enterprise values or "EV" in the selected
transactions expressed as a multiple of the target's revenues and EBITDA.
Information regarding all seven transactions yielded enterprise value to revenue
multiples; however, only one transaction provided a meaningful enterprise value
to EBITDA multiple as the other six transactions involved the acquisition of
targets with negative EBITDA or for which information was not available. The
summary of the transaction multiples analyzes is as follows:
<TABLE>
<CAPTION>
EV/REVENUES EV/EBITDA
----------- ---------
<S> <C> <C>
Low................................................... 0.05 5.8
High.................................................. 0.92 5.8
Median................................................ 0.45 5.8
Mean.................................................. 0.51 5.8
In Home Health, Inc. (implied)........................ 0.24 5.1
</TABLE>
In light of the lack of sufficient publicly available information regarding
the transactions Houlihan Lokey reviewed and the lack of detailed financial
information on the comparable companies outlined above, Houlihan Lokey did not
place significant reliance on either of these two analyses. However, there were
recent transactions, which Houlihan Lokey considered very relevant, involving In
Home Health, Inc. stock. On June 28 and 29, 2000, ManorCare Health Services,
Inc. purchased from Heartland Advisors, Inc., RS Value Group, LLC and Eastbourne
Capital Management an aggregate of 454,401, 461,734, and 230,600 shares,
respectively, at a price of $3.375 per share in three separate transactions
negotiated at arms-length. All three sellers were financially sophisticated
investors who negotiated directly with ManorCare Health Services, Inc. to sell
their positions. See "Special Factors -- Additional Consideration to be Paid to
Heartland Advisors, Inc."
Discounted Cash Flow Approach
Using the discounted cash flow approach, Houlihan Lokey estimated the
present value of the future cash flows that In Home Health, Inc. could be
expected to produce over a three-year period in fiscal years 2001 through 2003,
under the various assumptions and in accordance with management forecasts and
estimates as to future performance. Houlihan Lokey received numerous sets of
projections from In Home Health, Inc. during the engagement as management
evaluated the appropriateness of the assumptions underlying the financial
projections.
In Home Health, Inc. retained Simione Central to assist management in
assessing the assumptions and methodologies underlying the financial projections
particularly as they related to changes in Medicare reimbursement. In its final
report, Simione Central suggested that the earnings level in the financial
projections of In Home Health, Inc. were too high. Based upon Simione Central's
field work and recommendations, In Home Health, Inc. revised certain assumptions
which resulted in lowering the level of projected earnings. However, even in the
final financial projections, earnings levels in the financial projections were
higher than the Simione Central estimates and in some instances, substantially
higher. See "Special Factors -- Certain Projections."
37
<PAGE> 45
After reviewing the financial projections prepared by In Home Health, Inc.,
on August 9, 2000 Houlihan Lokey requested that In Home Health, Inc. prepare two
additional versions of financial projections based on the full impact of the
current reimbursement rates, as well as proposed changes in reimbursement rates
scheduled to take effect on October 1, 2001. Houlihan Lokey believed it was
important to consider fully the impact of a proposed repeal of the legislated
reductions in Medicare reimbursement rates scheduled to take effect on October
1, 2001 in order to understand the implication for the shareholders of In Home
Health, Inc.
On September 12, 2000, In Home Health, Inc. provided Houlihan Lokey with
base case, best case and worst financial projections in final form. Houlihan
Lokey's fairness opinion is based on these September 12, 2000 financial
projections. As among the base case, best case and worst case, the final
September 12, 2000 projections differed only in their assumptions regarding the
Medicare reimbursement payment rates described above. The base case of the
projections assumed a 60% probability that the pending legislation to repeal the
reductions will pass, whereas the best case assumes the legislation will pass
(and reimbursement rates will not be reduced) the worst case assumes the
legislation will not pass (and the reimbursement rates will be reduced as
presently provided for under current law). Outlined below is the equity value on
a per share basis of In Home Health, Inc.'s financial projections, as more fully
described in the section entitled "Special Factors -- Certain Projections."
RANGE OF IMPLIED EQUITY VALUE PER COMMON SHARE
<TABLE>
<CAPTION>
FINANCIAL PROJECTIONS LOW HIGH MERGER PRICE
--------------------- --- ---- ------------
<S> <C> <C> <C>
Best Case -- Repeal (no reimbursement decrease).... $ 3.24 $ 4.19 $3.70
Base Case -- Probability Approach.................. $ 2.53 $ 3.29 $3.70
Worst Case -- No Repeal (reimbursement decrease)... $ 1.09 $ 1.50 $3.70
</TABLE>
Houlihan Lokey considered the implied equity value per common share under
the best case, base case and the worst case. Under the existing law (i.e., if
the reductions to Medicare reimbursement rates scheduled to take effect on
October 1, 2001 are not repealed), In Home Health, Inc. projects that the worst
case will be the likely outcome. Under the worst case, the implied equity value
per common share would be in the range of $1.09 to $1.50, which represents a
price 59% to 71% lower than $3.70 per share in the proposed merger. Under the
best case, which only occurs if the current law is repealed and reimbursement
rates change, the implied equity value per common share ranged between $3.24 and
$4.19. The mid-point of the best case range is approximately $3.72 per share.
Therefore, under the best case scenario, the mid-point of the implied equity
value per common share approximates the transaction price.
For purposes of its opinion, Houlihan Lokey relied upon and assumed the
accuracy, completeness and fairness of the financial statements and other
information provided to it by In Home Health, Inc. or otherwise made available
to Houlihan Lokey and did not assume responsibility for the independent
verification of such information. Houlihan Lokey relied upon the assurances of
the financial management of In Home Health, Inc. that (1) the information
provided to it by In Home Health, Inc. was prepared on a reasonable basis, (2)
the financial planning data and other business outlook information reflects the
best currently available estimates of management, (3) management was not aware
of any information or facts that would make the information provided to Houlihan
Lokey incomplete or misleading and (4) there were no material changes in In Home
Health, Inc.'s assets, financial condition, results of operations, business or
prospects since the date of the last financial statements or information made
available to Houlihan Lokey.
Houlihan Lokey drew no specific conclusion from its comparable company,
comparable transaction, discounted cash flow and market trading analyses, but
subjectively factored its observations from these analyses into its qualitative
assessment of the relevant facts and circumstances. Houlihan Lokey's analyses
indicated that the consideration to be received by In Home Health, Inc.'s public
shareholders (other than ManorCare Health Services, Inc., IHHI Acquisition Corp.
and their affiliates) in connection with the merger is fair from a financial
point of view.
Houlihan Lokey analyzed In Home Health, Inc. as a going concern and
accordingly expressed no opinion as to its liquidation value. Houlihan Lokey
expressed no opinion as to the price at which shares of In Home
38
<PAGE> 46
Health, Inc. common stock have traded or at which these shares may trade at any
future time. The opinion is based on information available to Houlihan Lokey and
the facts and circumstances as they existed and were subject to evaluation on
the date of the opinion. Events occurring after that date could materially
affect the assumptions used in preparing the opinion. Houlihan Lokey's opinion
is based on the business, economic, market and other conditions as they existed
as of September 12, 2000 and on the projected financial information provided to
Houlihan Lokey as of such date. Except as set forth above, Houlihan Lokey did
not make any independent appraisal of the specific properties or assets of In
Home Health, Inc.
The summary set forth above describes the material points of more detailed
analyses performed by Houlihan Lokey in arriving at its fairness opinion. The
preparation of a fairness opinion is a complex analytical process involving
various determinations as to the most appropriate and relevant methods of
financial analysis and application of those methods to the particular
circumstances and is therefore not readily susceptible to summary description.
In arriving at its opinion, Houlihan Lokey made qualitative judgments as to the
significance and relevance of each analysis and factor. Accordingly, Houlihan
Lokey believes that its analyses and summary set forth herein must be considered
as a whole. In its analysis, Houlihan Lokey made numerous assumptions with
respect to In Home Health, Inc., industry performance, general business,
economic, and market and financial conditions, many of which are beyond the
control of In Home Health, Inc. The estimates contained in such analyses are not
necessarily indicative of actual values or predictive of future results or
values, which may be more or less favorable than suggested by such analyses.
However, there were no specific factors reviewed by Houlihan Lokey that did not
support its opinion. Additionally, analyses relating to the value of businesses
or securities are not appraisals. Accordingly, such analyses and estimates are
inherently subject to substantial uncertainty.
REPORT OF THIRD PARTY FINANCIAL CONSULTANT TO IN HOME HEALTH, INC.
In Home Health, Inc. retained Simione Central as a third party financial
consultant to the special committee to evaluate whether the underlying
assumptions and methodologies of In Home Health, Inc. provide a reasonable basis
for In Home Health, Inc.'s financial projections.
Simione Central has been involved In Home care for over thirty years and is
considered to be a leading consulting firm to the health care industry. Simione
Central's client base includes hospital-based and hospital-affiliated agencies,
small and large proprietary agencies, visiting nurse associations and national
chain organizations in both urban and rural settings. Simione Central also
serves as one of the reimbursement consultants to the National Association for
Home Care. In Home Health, Inc. selected Simione Central because of its
expertise, reputation and familiarity with the health care service provider
industry in general.
THE FULL TEXT OF THE WRITTEN REPORT OF SIMIONE CENTRAL DATED SEPTEMBER 1,
2000, WHICH SETS FORTH THE MATTERS CONSIDERED AND LIMITS ON THE REVIEW
UNDERTAKEN, IS ATTACHED AS ANNEX E TO THIS PROXY STATEMENT AND IS INCORPORATED
HEREIN BY REFERENCE. SHAREHOLDERS OF IN HOME HEALTH, INC. ARE URGED TO READ THE
REPORT IN ITS ENTIRETY. THE SUMMARY OF THE REPORT OF SIMIONE CENTRAL SET FORTH
IN THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF SUCH REPORT.
In Home Health, Inc. received Simione Central's report dated September 1,
2000. Simione Central examined the underlying assumptions and methodologies used
for the revenue and expense projections prepared by the management of In Home
Health, Inc. dated August 21, 2000, for the fiscal years ending September 30,
2001, 2002 and 2003 of In Home Health, Inc. Simione Central conducted an on-site
review of the assumptions and methodologies used in the financial projections
and had discussions with management of In Home Health, Inc. Simione Central's
examination included such procedures as they considered necessary to evaluate
the assumptions and methodologies used by the management of In Home Health, Inc.
and the preparation and presentation of the projections. Simione Central's
report states that based on quantifiable exceptions to the projections that they
considered quantifiable, In Home Health, Inc.'s "income from operations" would
decrease approximately $420,000 for fiscal year 2000, $4.8 million for fiscal
year 2001, $5.3 million for fiscal year 2002, and $7.0 million for fiscal year
2003, respectively, from the level in the financial projections provided to
Simione Central on August 21, 2000. According to Simione Central, several
exceptions to the projections accounted for the decreases, including the
following:
39
<PAGE> 47
- In the financial projections provided to Simione Central on August 21,
2000, certain revenues and expenses were projected using the base fiscal
year projections for the year ending September 30, 2000. These base year
projections were subsequently revised, based on up to date information,
which resulted in changes to projected revenues and expenses for years
ending 2001, 2002 and 2003.
- The Health Care Financing Administration published final regulations for
a prospective payment system for home health agencies July 3, 2000. In
Home Health, Inc. subsequently revised the projected Medicare revenue for
changes in case mix classifications and revenue weights due to the change
in the final regulations.
- An office was closed after the projections were prepared and the revenues
and expenses related to that office had to be removed for the years 2001,
2002 and 2003.
In Home Health, Inc. and Simione Central are parties to a consulting
engagement letter dated August 21, 2000. The engagement letter provides that In
Home Health, Inc. shall pay Simione Central (1) a fee of $10,000 when Simione
Central initiates the project (which is 40% of the total estimated fees and is
applied toward the total estimated fees) and (2) a total estimated fee of
$25,000 to $30,000. The engagement letter also provides that In Home Health,
Inc. will reimburse Simione Central for its travel time at $80 per hour and its
out-of-pocket expenses. Simione Central's objectives under the consulting
engagement letter are to evaluate whether the underlying assumptions and
methodologies of In Home Health, Inc.'s financial projections provide a
reasonable basis In Home Health, Inc.'s financial projections.
CERTAIN PROJECTIONS
Development of the Financial Projections
As noted above under the section titled "Special Factors -- Background to
the Merger," management of In Home Health, Inc. prepared certain financial
projections to assist the board of directors of In Home Health, Inc. in
assessing the effect of the proposed changes to the Medicare payment system and,
subsequently, for use by the special committee and Houlihan Lokey in evaluating
the fairness of consideration to be paid to shareholders in the merger. In
discussing the preparation and revision of these financial projections, this
section describes changes in assumptions and methods underlying the financial
projections, which resulted in changes to the forecasted results. These changes
in assumptions and methods resulted, in large part, from uncertainty with
respect to Medicare reimbursement rates and the effect of such rates on In Home
Health, Inc.'s revenue. Accordingly, financial management of In Home Health,
Inc. prepared multiple projections from the period from February 2000 through
September 12, 2000, the date on which final projections were delivered to
Houlihan Lokey for use in rendering their fairness opinion. Please refer to
selected information from In Home Health, Inc.'s financial projections set forth
below under the headings "Projections Relied Upon By Houlihan Lokey in Their
Fairness Opinion" and "Financial Projections Prepared But Not Used by In Home
Health, Inc."
The first financial projections were prepared during the spring of 2000 by
the financial management of In Home Health, Inc. These projections were meant to
be a management tool and were not intended to be used in any determination of
the value for In Home Health, Inc. Rather, the financial management of In Home
Health, Inc. prepared these financial projections in response to Mr. Ford's
request that management develop projections to take into account the change,
effective October 2000, from an interim payment cost reimbursement system under
Medicare to a prospective payment (fixed price) system in order that In Home
Health, Inc. could better plan for this adjustment and to determine if In Home
Health, Inc. would have sufficient liquidity to meet its preferred stock
obligations.
The change to the Medicare payment system affects the method and manner by
which home health agencies, such as those owned by In Home Health, Inc., will be
entitled to reimbursement for certain services rendered to patients covered
under Medicare. Under the interim payment system, in effect prior to October
2000, home health agencies were entitled to receive reimbursement for actual
amounts expended in providing care to Medicare patients for certain services,
whereas under the payment system effective as of October 2000, agencies will be
entitled to receive reimbursement on a prospective basis based on statutory
40
<PAGE> 48
rates determined in accordance with a variety of factors, including: the types
of patients; the severity of illness treated by the agency; and the expected
duration of these treatments. Under the prospective payment system, treatment
periods are measured in sixty (60) day increments, referred to as "episodes of
care" or "episodes". Selected information from these initial financial
projections is set forth below under the heading "Financial Projections Prepared
But Not Used by In Home Health, Inc. -- March 2000 Projections."
The March 2000 In Home Health, Inc. financial projections prepared by
financial management to account for the effect of the prospective payment system
and the new Medicare reimbursement rates were delivered to the board of
directors at its March 24, 2000 meeting. Mr. Ford discussed various methods and
assumptions underlying the projections at the meeting, however, no consensus was
reached with respect to potential achievement levels, and the board deferred
further consideration of the projections until a subsequent date.
On June 6, 2000, following the engagement of Houlihan Lokey as In Home
Health, Inc.'s investment banker, In Home Health, Inc.'s financial management
delivered a copy of the March 2000 financial projections to Houlihan Lokey for
its use in advising In Home Health, Inc. with respect to financing alternatives
and other strategic options. As discussed under "Special Factors -- Background
and Reasons for the Merger", Houlihan Lokey was later engaged directly by the
special committee to render a fairness opinion in connection with the merger.
When Houlihan Lokey conducted its due diligence in connection with the fairness
opinion, Houlihan Lokey informed In Home Health, Inc. that they believed the
March 2000 financial projections overstated net income. In particular, Houlihan
Lokey informed In Home Health, Inc. that, in their view, the projections were
not reasonably based as the projections included overly optimistic assumptions
regarding the visit division's ability to transition to the new Medicare payment
system and contained inflated profit margins. Both Houlihan Lokey and Mr. Ford
raised questions regarding the method used to project In Home Health, Inc.'s
revenue in the March 2000 projections -- a method whereby future revenue was
calculated using a fixed anticipated profit margin above expenses, which were
increased at a 5% annual rate from historical levels. As a result, the financial
management of In Home Health, Inc. was asked to revise the financial projections
to calculate Medicare-related revenue on a per-unit basis.
During June and the first three weeks of July 2000, financial management
further revised the financial projections. During this time, financial
management made a number of additional changes to the calculations and methods
used in the projections based on an initial analysis of the final regulations
related to the new Medicare prospective payment system (which were published on
July 3, 2000), and discussions with Houlihan Lokey related to Medicare payment
and related matters. Most significantly, financial management revised the
financial projections to project Medicare-related revenue and costs on a
per-unit basis. Revenue was calculated by using the expected level of
reimbursement under the new Medicare regulations (determined in accordance with
anticipated patient acuity levels) per patient per 60 day treatment period. To
project annual revenue, financial management multiplied the episodic rate by the
number of patients treated by In Home Health, Inc. (based on a sample of In Home
Health, Inc.'s census data) by six, the anticipated number of 60-day episodes
per year (assuming the average length of stay for each episode was the full 60
days).
On July 21, 2000, financial management delivered to the board of directors
of In Home Health, Inc. and Houlihan Lokey revised financial projections. The
July 2000 projections, which were substantially similar to interim draft
versions provided earlier that month, reflected a reduction in the anticipated
income from operations of In Home Health, Inc. from the March 2000 projections.
The income reduction in the July 2000 projections versus the March 2000
projections was approximately $2.0 million, $3.2 million and $3.4 million, for
fiscal years 2001, 2002 and 2003, respectively. Selected information from the
July 2000 financial projections is set forth below under the heading "Financial
Projections Prepared But Not Used by In Home Health, Inc. -- July 2000
Projections."
The July 2000 financial projections were reviewed in detail by the
directors of In Home Health, Inc. (Mr. Ford, Mr. Meyers, Mr. Terry and Mr.
Weikel) at a board meeting on July 26, 2000. At this meeting, the directors
concluded that the financial projections continued to overstate significantly In
Home Health, Inc.'s projected income from operations under the new Medicare
prospective payment system. The directors reviewed financial management's
assumptions and methodologies, and requested that financial management
41
<PAGE> 49
further revise the projections to take into account revised assumptions and
methods that the board believed would more reasonably calculate In Home Health,
Inc.'s projected financial results under the new Medicare payment system and
industry practice. Specifically, the board asked financial management to revise
the financial projections to account for: (i) reductions to census numbers, as
the board believed that the Medicare visits division would not be able to treat
as many patients as a result of transitioning to the new prospective payment
system (but would continue to bear the same fixed costs); (ii) reductions to
revenue based on further analysis of the Medicare rates under the final
prospective payment regulations and, generally, to reflect reduced expectations
under the new system; (iii) increases in the reserve for uncollected receivables
to account for amounts not likely to be collected under the new Medicare payment
system; and (iv) increases in personnel and supply costs necessary to implement
the change to the new Medicare payment system. In addition, the board consulted
with Houlihan Lokey regarding health care industry trends and Medicare
legislative and regulatory matters.
In light of input from the directors of In Home Health, Inc., financial
management made additional modifications to the financial projections from the
July 2000 projections. In addition to changes based on the factors raised by the
board at the July 26, 2000 meeting, financial management also: (i) increased
revenues and profits from In Home Health, Inc.'s hospice business based on the
performance of this business unit during the year 2000, (ii) increased the
number of episodes per year used to calculate Medicare-related revenue based on
In Home Health, Inc.'s experience that the average number of days In Home
Health, Inc. actually provided services to a visit division patient during an
episode was less than 60 days, which resulted in an increase in the number of
episodes per year from six to more than seven; (iii) made certain adjustments to
reflect changes in cost and revenue inflation rates and related profit margins;
and (iv) decreased Medicare-related revenue to take into account a legislated
reduction in Medicare reimbursement rates, scheduled to go into effect in
October 2001 (i.e., one year following the implementation of the prospective
payment system), by including an assumption that a percentage reduction in
Medicare reimbursement rates would result in the equivalent percentage reduction
in net Medicare-related revenue.
On August 9, 2000, financial management delivered to the special committee
and Houlihan Lokey revised financial projections that took into account the
changes discussed above. These projections reflected a reduction in the
anticipated income from operations of In Home Health, Inc. from the July 2000
projections by approximately $2.3 million, $8.1 million and $8.5 million for
fiscal years 2001, 2002 and 2003, respectively. Selected information from these
financial projections is set forth below under the heading "Financial
Projections Prepared But Not Used by In Home Health, Inc. -- August 2000
Projections (Assuming Reduction in Medicare Reimbursement Rates)."
Following receipt of the August 2000 projections that took into account the
legislated reduction in Medicare reimbursement rates, Houlihan Lokey suggested
that financial management prepare a set of alternative projections that did not
give effect to the legislated reduction -- i.e., projections that assumed the
reimbursement rates under the Medicare prospective payment system would remain
in effect at full rates and would not be reduced in October 2001. Although this
reduction is mandated by The Balanced Budget Refinement Act of 1997, certain
companies, analysts and trade associations in the health care industry believed
at that time that the reduction would be repealed before October 1, 2001. In
particular, House Resolution 4219 and Senate Bill 2365 had already been
introduced to eliminate the reduction to Medicare reimbursement payment rates.
If this reduction would be repealed, the amount In Home Health, Inc. receives
under the Medicare reimbursement system would increase.
Accordingly, on August 15, 2000, financial management delivered to the
special committee and Houlihan Lokey an alternative version of the financial
projections that reversed the reduction reflected in the prior version delivered
on August 9, 2000. Compared to the July 2000 projections, the alternative August
2000 financial projections reflected a reduction in the anticipated income from
operations of In Home Health, Inc. by approximately $2.3 million for fiscal year
2001, and an increase in the anticipated income from operations of approximately
$0.6 million and $0.7 million, for fiscal years 2002 and 2003, respectively.
Selected information from the alternative August 2000 financial projections is
set forth below under the heading "Financial Projections Prepared But Not Used
by In Home Health, Inc.--August 2000 Projections (Assuming No Reduction in
Medicare Reimbursement Rates)."
42
<PAGE> 50
Upon review of the August 2000 and alternative August 2000 financial
projections, the special committee continued to believe that numerous
assumptions and methodologies underlying both sets of August 2000 financial
projections needed to be revised. Houlihan Lokey indicated that it did not have
confidence in the financial projections delivered by In Home Health, Inc. to
that date. After several discussions among members of the special committee,
Houlihan Lokey and financial management of In Home Health, Inc. regarding the
projections and their method of preparation and underlying assumptions, the
special committee recommended that In Home Health, Inc. engage an independent
financial consultant with industry expertise to assist In Home Health, Inc.'s
financial management personnel in the preparation of the financial projections.
The special committee considered several consultants and pursuant to its
recommendation, on August 21, 2000, In Home Health, Inc. engaged Simione Central
to evaluate the assumptions and methodologies underlying the financial
projections. A copy of the August 2000 projections was delivered to Simione
Central on August 21, 2000.
Simione Central conducted field work at In Home Health, Inc.'s offices in
Minnetonka, Minnesota during August 2000 and had continuing discussions with the
special committee, members of In Home Health, Inc. financial management and
Bruce Schroeder, a ManorCare Health Services, Inc. employee familiar with the
home health care industry, regarding the assumptions and methodology used by
financial management in developing In Home Health, Inc.'s projections. Following
its field work, Simione Central concluded that some of the underlying
assumptions and methodology used in the projections (including certain
assumptions made pursuant to the recommendation of the board of directors
following the July 26, 2000 meeting) were not appropriate. Simione Central
questioned the methodologies used to project revenues and expenses. With respect
to visit division revenues under the Medicare prospective payment system,
Simione Central believed the use of Medicare certifications, which track
admissions and are made every 61 days, were a more reasonable estimate of
"episodes" than In Home Health, Inc.'s original method based on the average
number of days In Home Health, Inc. actually provided services to a visit
division patient during an episode. According to Simione Central, expenses were
also significantly understated because projected expenses could not be
reconciled to historical expenses incurred by In Home Health, Inc. Financial
management and Simione Central were unable to reconcile their margin analysis
after considerable effort. Simione Central's suggested revisions to the
assumptions underlying the financial projections included: (i) changes to the
underlying methodology used to estimate episodes, which resulted in an increase
to the number of patients treated by the visit division, reversing a previous
reduction made at the suggestion of the board; (ii) revisions to anticipated
Medicare revenue based on changes in case mix classifications and other changes
under the final Medicare reimbursement regulations published on July 3, 2000;
and (iii) reductions in revenue resulting from the anticipated closure of one of
In Home Health, Inc.'s offices. Also, during Simione Central's review of the
projections, certain mathematical errors related to the formulas used in the
spreadsheet program to prepare the projections were corrected. Lastly, Simione
Central noted in its report that it was unable to verify certain data underlying
the projections, including: calculations related to the determination of the
number and duration of episodes of care; various ramifications of the
implementation of the prospective payment system; factors for census shortfall
and reduced expectations; and matters related to the legislated reduction in
reimbursable rates. Based on the foregoing, Simione Central concluded in its
report that it was unable to express an opinion with respect to the assumptions
underlying projections.
As a result of the work conducted by Simione Central, extensive discussions
involving financial management, members of the special committee and the other
directors of In Home Health, Inc., and additional input from representatives of
ManorCare Health Services, Inc., financial management made a variety of positive
and negative adjustments to the August 2000 projections and developed new
projections that were delivered to Houlihan Lokey on September 8, 2000. In
particular, these projections used Simione Central's methodology with respect to
the effect of the prospective payment system on the visit division and set forth
financial management's "base case" scenario which, among other modifications,
reflected a revised approach to the legislated reduction in Medicare
reimbursement rates by assuming a 60% probability that the reduction would be
repealed and 40% probability that the reduction would take effect as currently
legislated.
In addition to these base case projections, Houlihan Lokey requested that
financial management prepare two additional alternative projections to show the
full effect of the legislated Medicare rate reduction ("worst
43
<PAGE> 51
case"), on the one hand, and the repeal/no effect of the legislated reduction
("best case"), on the other. Houlihan Lokey made this request because they
believed a probability-weighted projection was not an actual scenario that could
occur based on either the current or proposed Medicare reimbursement payment
systems. Financial management prepared these alternative versions requested by
Houlihan Lokey, which differed from the base case version only in their
assumptions regarding the impact of the legislated Medicare reimbursement rate
change, and delivered them to Houlihan Lokey on September 8, 2000. When
calculating the base case, best case and worst case projections to give effect
to the legislated Medicare reimbursement rate reductions, In Home Health, Inc.
recognized that although a reduction in the maximum Medicare reimbursement rates
resulted in a reduction of Medicare-related revenue, the percentage reduction in
revenue would not be identical to the maximum percentage reduction in
reimbursement rates as a result of certain cost efficiencies, national averaging
methods and other reimbursement limitations. The best case, base case and worst
case scenarios assume changes to the Medicare-related revenue of 5.6%, 3.0% and
(2.4%), respectively.
Following additional conversations between Houlihan Lokey and financial
management, on September 12, 2000 financial management made minor changes to the
September 8, 2000 projections and delivered final projections -- base case, best
case and worst case -- to Houlihan Lokey on September 12, 2000 (collectively
referred to as the "Final Projections"). The Final Projections were
substantially similar to the prior versions delivered to Houlihan Lokey on
September 8, 2000. The Final Projections reflected a reduction in projected
income from operations as a result of various changes made by the financial
management of In Home Health, Inc. following Simione Central's consultation,
which included, among others, significant increases in the projected costs of
providing services to Medicare patients and decreases in the projected revenues
attributable from such services, as a result of the shift to the new Medicare
reimbursement payment system. The principal differences in projected net income
between each of the Final Projections and the August 2000 projections that
assumed no Medicare reimbursement rate reduction were as follows:
- Base Case. The base case of the Final Projections (i.e., assuming a 60%
probability the rate reduction would be repealed; 60% of additional
income realized) reflected a reduction in the income from operations of
In Home Health, Inc. by approximately $1.6 million, $4.7 million and $6.1
million for fiscal years 2001, 2002 and 2003, respectively, from the
August 2000 projections.
- Best Case. The best case of the Final Projections (i.e., assuming the
Medicare reimbursement rate reduction is repealed without any probability
weighting) reflected a reduction in anticipated income from operations of
In Home Health, Inc. by approximately $1.7 million, $3.3 million and $5.7
million for fiscal years 2001, 2002 and 2003, respectively, from the
August 2000 projections.
- Worst Case. The worst case of the Final Projections (i.e., assuming the
Medicare reimbursement rate reduction as provided in current legislation
without any probability weighting) reflected a reduction in anticipated
income from operations of In Home Health, Inc. by approximately $1.7
million, $7.5 million and $9.0 million for fiscal years 2001, 2002 and
2003, respectively, from the August 2000 projections.
Please refer to the selected information from the Final Projections set
forth below under the heading "Projections Relied Upon By Houlihan Lokey in
Their Fairness Opinion."
Based upon their review of the Final Projections, Houlihan Lokey determined
that while the base case projections supported an opinion that the consideration
of $3.375 per share of In Home Health, Inc. common stock was fair to the
shareholders of In Home Health, Inc. (other than ManorCare Health Services,
Inc., IHHI Acquisition Corp. or their affiliates) from a financial point of
view; however, as noted above, Houlihan Lokey believed it was important to
evaluate the fairness of the transaction under each of the possible Medicare
reimbursement systems that could in fact occur -- i.e., the best case and worst
case scenarios -- which it considered in addition to the base case scenario.
Upon consultation with the special committee, Houlihan Lokey concluded that
$3.70 per share of In Home Health, Inc. common stock represented an appropriate
price per share that would allow a determination of fairness on the basis of the
Final Projections provided by In Home Health, Inc. to account for the best case
scenario. Accordingly, after further discussion with Houlihan Lokey, the special
committee requested that ManorCare Health Services, Inc. increase its offer to
44
<PAGE> 52
$3.70 per share of In Home Health, Inc. common stock in order that Houlihan
Lokey could reach a determination of fairness using the best case, base case and
worst case of the Final Projections.
PROJECTIONS RELIED UPON BY HOULIHAN LOKEY IN THEIR FAIRNESS OPINION
As discussed above, In Home Health, Inc. provided the three alternative
Final Projections to Houlihan Lokey on September 12, 2000 in connection with
their analysis of the fairness from a financial point of view of the merger
consideration to be paid to In Home Health, Inc.'s common shareholders. Set
forth below is summary information from each of these projections. See "Special
Factors -- Background of the Merger" and "Special Factors -- Opinion of
Financial Advisor to the Special Committee."
(A) FINAL PROJECTIONS -- BASE CASE
<TABLE>
<CAPTION>
FISCAL YEARS ENDING SEPTEMBER 30
------------------------------------------------------
1999 2000 E 2001 E 2002 E 2003 E
---- ------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenue..................................... $80,046 $95,867 $106,373 $110,211 $114,291
Total Operating Expenses.................... $76,936 $93,183 $ 99,702 $103,889 $108,789
Income from Operations...................... $ 3,110 $ 2,684 $ 6,671 $ 6,322 $ 5,503
Net Income.................................. $ 4,242 $ 5,666 $ 3,839 $ 3,537 $ 3,225
------- ------- -------- -------- --------
Net Margin %................................ 3.9% 2.8% 6.3% 5.7% 4.8%
</TABLE>
(B) FINAL PROJECTIONS -- BEST CASE
<TABLE>
<CAPTION>
FISCAL YEARS ENDING SEPTEMBER 30
------------------------------------------------------
1999 2000 E 2001 E 2002 E 2003 E
---- ------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenue..................................... $80,046 $95,867 $106,373 $111,635 $115,761
Total Operating Expenses.................... $76,936 $93,183 $ 99,702 $103,917 $108,819
Income from Operations...................... $ 3,110 $ 2,684 $ 6,671 $ 7,718 $ 6,943
Net Income.................................. $ 4,242 $ 5,666 $ 3,839 $ 4,383 $ 4,158
------- ------- -------- -------- --------
Net Margin %................................ 3.9% 2.8% 6.3% 6.9% 6.0%
</TABLE>
(C) FINAL PROJECTIONS -- WORST CASE
<TABLE>
<CAPTION>
FISCAL YEARS ENDING SEPTEMBER 30
------------------------------------------------------
1999 2000 E 2001 E 2002 E 2003 E
---- ------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenue..................................... $80,046 $95,867 $106,373 $107,353 $111,342
Total Operating Expenses.................... $76,936 $93,183 $ 99,702 $103,832 $108,729
Income from Operations...................... $ 3,110 $ 2,684 $ 6,671 $ 3,521 $ 2,614
Net Income.................................. $ 4,242 $ 5,666 $ 3,839 $ 1,839 $ 1,354
------- ------- -------- -------- --------
Net Margin %................................ 3.9% 2.8% 6.3% 3.3% 2.3%
</TABLE>
The following sets forth the principal assumptions included in the
projections set forth above:
(i) Medicare Reimbursement Payment Rate: Each of the base case, best case
and worst case of the projections makes different assumptions concerning the
legislated reduction in Medicare reimbursement rates which is scheduled to
become effective on October 1, 2001. The base case assesses a 60% likelihood
that there will occur a repeal of the reduction to the Medicare reimbursement
payment rates, which results in a net increase to In Home Health, Inc.'s
Medicare reimbursement rates equal to 3.0% for fiscal years 2002 and 2003. The
best case assumes that the reduction will not take effect resulting in a net
increase to In Home Health, Inc.'s Medicare reimbursement rates equal to 5.6%
for fiscal years 2002 and 2003. The worst case assumes that the reduction will
take effect resulting in a net decrease to In Home Health, Inc.'s Medicare
reimbursement rates equal to 2.4% for fiscal years 2002 and 2003. In each case,
the reimbursement rates are
45
<PAGE> 53
based on the final Medicare reimbursement rates pursuant to the regulations
issued on July 3, 2000 and differ only in the assumptions used concerning the
legislated reduction in these rates.
(ii) Cost Inflation Factor: Each projection assumes that In Home Health,
Inc.'s projected fiscal 2000 historical costs for Medicare home health services
will increase at an inflation rate of 5% annually. In addition, each projection
assumes increased costs for fiscal years 2001, 2002 and 2003 of approximately
$1.6 million per year for costs associated with the addition of case reviewers
at In Home Health, Inc.'s agencies to implement the new Medicare regulations,
approximately $1.5 million in fiscal year 2001 and $1.3 million thereafter for
costs associated with additional bad debt expenses under the new Medicare
regulations, and approximately $0.2 million per fiscal year for costs associated
with non-reimbursement of medical supplies.
(iii) Revenues from Medicare-Related Business: Each projection calculates
In Home Health, Inc.'s Medicare-related home health revenues based on the number
of estimated completed episodes multiplied by the weighted-average rate per
episode. Estimated episodes were determined considering historical census trends
and Medicare certifications under the cost reimbursement system. The
weighted-average rate per episode was based on an analysis of approximately
7,000 patient cases managed by In Home Health, Inc. in fiscal year 2000.
(iv) Revenues from Non-Medicare Related Business: Each projection assumes
that the revenues and profitability of In Home Health, Inc.'s non-Medicare
related businesses (e.g., extended hours, infusion care and hospice care) will
achieve modest stable growth rates, considering historical performance. In Home
Health, Inc. achieved significant growth in its hospice business during the last
two years. The forecasts assume stabilization of hospice operations with modest
growth in year-over-year revenue and profitability in fiscal years 2001 through
2003 from projected fiscal year 2000.
(v) Patient Census, Acuity and Case Mix Data: Each projection contains
assumptions related to In Home Health, Inc.'s projected patient population based
on a sample of approximately 7,000 patient cases from January through August,
2000. Based on this sample, financial management of In Home Health, Inc. assumed
a patient acuity factor (also known as an "OASIS score") of 1.3, compared to a
national average of 1.1. In general, a higher patient acuity factor results in
increased Medicare-related revenues for In Home Health, Inc. versus the national
average. The patient acuity factor is determined based on responses to the
required OASIS questionnaire developed by the Health Care Financing
Administration and administered by In Home Health, Inc.'s care professionals.
There is an inherent margin of error in the patient acuity factor because: (1)
the patient questionnaire has only been recently been developed; (2) In Home
Health, Inc.'s care professionals have not had extensive training regarding the
administration of the questionnaire; and (3) the responses involve a level of
subjectivity.
(vi) Other Assumptions: Each projection assumes that In Home Health, Inc.
would remain as an independent entity, and as such would: (1) successfully
obtain financing at an annual rate of 11% to ensure adequate working capital;
(2) redeem $13 million of the outstanding 12% coupon preferred stock in October
2000; (3) redeem $7 million of the remaining outstanding preferred stock during
fiscal year 2001, and (4) be subject to income taxes at a rate of 40% on pretax
income. Additionally, the projections assume that accounts receivable collection
time will increase significantly, as the advanced interim payment system is
replaced by the new episode-based Medicare reimbursement prospective payment
system.
46
<PAGE> 54
FINANCIAL PROJECTIONS PREPARED BUT NOT USED BY IN HOME HEALTH, INC.
(A) MARCH 2000 PROJECTIONS
<TABLE>
<CAPTION>
FISCAL YEARS ENDING SEPTEMBER 30
------------------------------------------------------
1999 2000 E 2001 E 2002 E 2003 E
---- ------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenue..................................... $80,046 $95,775 $110,790 $117,144 $123,001
Total Operating Expenses.................... $76,936 $89,142 $ 98,105 $103,449 $108,674
Income from Operations...................... $ 3,110 $ 2,810 $ 12,685 $ 13,645 $ 14,327
Net Income.................................. $ 4,242 $ 5,537 $ 7,390 $ 8,358 $ 9,324
------- ------- -------- -------- --------
Net Margin %................................ 3.9% 2.9% 11.4% 11.6% 11.6%
</TABLE>
The following sets forth the principal assumptions included in the March
2000 projections:
(i) Medicare Reimbursement Payment Rate: The rates were based on the
preliminary regulations issued in November 1999, subject to adjustment in the
final regulations, effective October 1, 2000.
(ii) Cost Inflation Factor: Costs were adjusted assuming an increase of 5%
per annum.
(iii) Revenues from Medicare-Related Business: Revenues were calculated by
dividing projected fiscal year 2000 Medicare costs by a profit margin factor
estimated from sample revenue and cost data of historical Medicare patient cases
managed.
(iv) Revenues from Non-Medicare Related Business: Revenues were increased
at 5% per annum.
(v) Other Assumptions: The foregoing projections assume that In Home
Health, Inc. would remain as an independent entity, and as such would (1)
successfully obtain financing at an annual rate of 11% to ensure adequate
working capital, (2) redeem $13 million of the outstanding 12% coupon preferred
stock in October 2000, and (3) be subject to income taxes at a rate of 40% on
pretax income.
(B) JULY 2000 PROJECTIONS
<TABLE>
<CAPTION>
FISCAL YEARS ENDING SEPTEMBER 30
------------------------------------------------------
1999 2000 E 2001 E 2002 E 2003 E
---- ------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenue..................................... $80,046 $95,775 $105,262 $110,219 $115,730
Total Operating Expenses.................... $76,936 $89,142 $ 94,625 $ 99,828 $104,819
Income from Operations...................... $ 3,110 $ 2,810 $ 10,637 $ 10,391 $ 10,910
Net Income.................................. $ 4,242 $ 5,537 $ 6,186 $ 6,301 $ 7,042
------- ------- -------- -------- --------
Net Margin %................................ 3.9% 2.9% 10.1% 9.4% 9.4%
</TABLE>
The following sets forth the principal assumptions included in the July
2000 projections:
(i) Medicare Reimbursement Payment Rate: The rates were estimated based on
an initial analysis of the final regulations issued on July 3, 2000, effective
October 1, 2000. Projected Medicare costs were also estimated based on a
projected cost per episode determined based on internal reports developed by In
Home Health, Inc.
(ii) Cost Inflation Factor and Medicare Costs: For fiscal year 2001,
Medicare costs were computed by multiplying projected census times cost per
episode times six (the projected episodes per patient per year). For subsequent
years, these costs were then inflated at a rate of 5% per annum. Non-Medicare
costs were inflated at 5% per annum.
(iii) Revenues from Medicare-Related Business: Medicare revenues for fiscal
year 2001 were computed by multiplying projected census times a blended
reimbursement rate per episode times six (the projected episodes per patient per
year). For fiscal years 2002 and 2003, these revenues were increased at 3% per
annum.
(iv) Revenues from Non-Medicare Related Business: Revenues were increased
at 5% per annum.
47
<PAGE> 55
(v) Other Assumptions: The foregoing projections assume that In Home
Health, Inc. would remain as an independent entity, and as such would (1)
successfully obtain financing at an annual rate of 11% to ensure adequate
working capital, (2) redeem $13 million of the outstanding 12% coupon preferred
stock in October 2000, and (3) be subject to income taxes at a rate of 40% on
pretax income.
(C) AUGUST 2000 PROJECTIONS (ASSUMING REDUCTION IN MEDICARE REIMBURSEMENT
RATES)
<TABLE>
<CAPTION>
FISCAL YEARS ENDING SEPTEMBER 30
------------------------------------------------------
1999 2000 E 2001 E 2002 E 2003 E
---- ------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenue..................................... $80,046 $95,523 $104,488 $103,723 $108,909
Total Operating Expenses.................... $76,936 $92,370 $ 96,155 $101,459 $106,532
Income from Operations...................... $ 3,110 $ 3,153 $ 8,333 $ 2,264 $ 2,377
Net Income.................................. $ 4,242 $ 6,135 $ 4,958 $ 1,373 $ 1,578
------- ------- -------- -------- --------
Net Margin %................................ 3.9% 3.3% 8.0% 2.2% 2.2%
</TABLE>
The following sets forth the principal assumptions included in the August
2000 projections (assuming reduction in Medicare reimbursement rates):
(i) Medicare Reimbursement Payment Rate: The rates were estimated based on
the final regulations issued on July 3, 2000, effective October 1, 2000, and
assume the legislated reduction in Medicare reimbursement rates takes effect
October 1, 2001. Projected Medicare costs were also estimated based on a
projected cost per episode, determined based on internal reports developed by In
Home Health, Inc. The legislated reduction in Medicare reimbursement rates is
fully reflected beginning October 1, 2001.
(ii) Cost Inflation Factor and Medicare Costs: For fiscal year 2001,
Medicare costs were computed by multiplying projected census times cost per
episode times 7.2 (the projected episodes per patient per year based on average
treatment length per episode). For subsequent years, these costs were then
inflated at a rate of 5% per annum. Non-Medicare costs were inflated at 5% per
annum. Medicare and non-Medicare costs are inflated at a rate of 5% per annum.
These projections also assumed additional cost factors resulting in reduced
operating profits, including: lowered expectations resulting from the change to
the new Medicare system; non-reimbursement of supplies; additional staffing
expenses; and projected increases in Medicare-related bad debt expenses.
Additionally, in fiscal year 2001, operating profits were also reduced because
of anticipated temporary census reductions resulting from the transition to the
new Medicare payment system.
(iii) Revenues from Medicare-Related Business: Medicare revenues for fiscal
year 2001 were computed by multiplying projected census times a blended
reimbursement rate per episode times 7.2 (the projected episodes per patient per
year). For fiscal years 2002 and 2003, these revenues were increased at 3% per
annum.
(iv) Revenues from Non-Medicare Related Business: Revenues were increased
at 5% per annum.
(v) Other Assumptions: The foregoing projections assume that In Home
Health, Inc. would remain as an independent entity, and as such would (1)
successfully obtain financing at an annual rate of 11% to ensure adequate
working capital, (2) redeem $13 million of the outstanding 12% coupon preferred
stock in October 2000, and (3) be subject to income taxes at a rate of 40% on
pretax income.
(D) AUGUST 2000 PROJECTIONS (ASSUMING NO REDUCTION IN MEDICARE
REIMBURSEMENT RATES)
<TABLE>
<CAPTION>
FISCAL YEARS ENDING SEPTEMBER 30
------------------------------------------------------
1999 2000 E 2001 E 2002 E 2003 E
---- ------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenue..................................... $80,046 $95,523 $104,488 $112,490 $118,114
Total Operating Expenses.................... $76,936 $92,370 $ 96,155 $101,459 $106,532
Income from Operations...................... $ 3,110 $ 3,153 $ 8,333 $ 11,030 $ 11,582
Net Income.................................. $ 4,242 $ 6,135 $ 4,958 $ 6,694 $ 7,308
------- ------- -------- -------- --------
Net Margin %................................ 3.9% 3.3% 8.0% 9.8% 9.8%
</TABLE>
48
<PAGE> 56
The following sets forth the principal assumptions included in the August
2000 projections (assuming no reduction in Medicare reimbursement rates):
(i) Medicare Reimbursement Payment Rate: The rates were estimated based on
the final rule issued on July 3, 2000, effective October 1, 2000. The projection
also assumes that the legislated reduction in Medicare reimbursement rates is
repealed in its entirety and, thus, does not assume any rate reduction after
October 1, 2001. Projected Medicare costs were also estimated based on a
projected cost per episode, determined based on internal reports developed by In
Home Health, Inc. The projection assumes that the legislated reduction in
Medicare reimbursement rates is repealed in its entirety and does not assume any
rate reduction after October 1, 2001.
(ii) Cost Inflation Factor and Medicare Costs: For fiscal year 2001,
Medicare costs were computed by multiplying projected census times cost per
episode times 7.2 (the projected episodes per patient per year based on average
treatment length per episode). For subsequent years, these costs were then
inflated at a rate of 5% per annum. Non-Medicare costs were inflated at 5% per
annum. Medicare and non-Medicare costs are inflated at a rate of 5% per annum.
These projections also assumed additional cost factors resulting in reduced
operating profits, including: lowered expectations resulting from the change to
the new Medicare system; non-reimbursement of supplies; additional staffing
expenses; and projected increases in Medicare-related bad debt expenses.
Additionally, in fiscal year 2001, operating profits were also reduced because
of anticipated temporary census reductions resulting from the transition to the
new Medicare payment system.
(iii) Revenues from Medicare-Related Business: Medicare revenues for fiscal
year 2001 were computed by multiplying projected census times a blended
reimbursement rate per episode times 7.2 (the projected episodes per patient per
year). For fiscal years 2002 and 2003, these revenues were increased at 3% per
annum.
(iv) Revenues from Non-Medicare Related Business: Revenues were increased
at 5% per annum.
(v) Other Assumptions: The foregoing projections assume that In Home
Health, Inc. would remain as an independent entity, and as such would (1)
successfully obtain financing at an annual rate of 11% to ensure adequate
working capital, (2) redeem $13 million of the outstanding 12% coupon preferred
stock in October 2000, and (3) be subject to income taxes at a rate of 40% on
pretax income.
WARNING REGARDING RELIANCE ON FINANCIAL PROJECTIONS
IN HOME HEALTH, INC. DOES NOT AS A MATTER OF COURSE MAKE PUBLIC PROJECTIONS
AS TO FUTURE REVENUES, EARNINGS, OR OTHER RESULTS. HOWEVER, THE FINANCIAL
MANAGEMENT OF IN HOME HEALTH, INC. PREPARED THE FINANCIAL PROJECTIONS SET FORTH
ABOVE, TO ASSIST THE BOARD OF DIRECTORS OF IN HOME HEALTH, INC. IN ASSESSING THE
EFFECT OF THE PROPOSED CHANGES TO THE MEDICARE PAYMENT SYSTEM AND, SUBSEQUENTLY,
FOR USE BY THE SPECIAL COMMITTEE AND HOULIHAN LOKEY IN EVALUATING THE FAIRNESS
OF CONSIDERATION TO BE PAID TO SHAREHOLDERS IN THE MERGER. THE ACCOMPANYING
FINANCIAL PROJECTIONS WERE NOT PREPARED WITH A VIEW TOWARD PUBLIC DISCLOSURE OR
WITH A VIEW TOWARD COMPLYING WITH THE GUIDELINES ESTABLISHED BY THE AMERICAN
INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS WITH RESPECT TO FINANCIAL PROJECTIONS
OR THE PUBLISHED GUIDELINES OF THE SECURITIES AND EXCHANGE COMMISSION WITH
RESPECT TO PROSPECTIVE FINANCIAL INFORMATION. IN VIEW OF IN HOME HEALTH, INC.'S
FINANCIAL MANAGEMENT, THE FINAL FINANCIAL PROJECTIONS USED BY THE SPECIAL
COMMITTEE AND HOULIHAN LOKEY IN EVALUATING THE FAIRNESS OF CONSIDERATION TO BE
PAID TO SHAREHOLDERS IN THE MERGER, WERE PREPARED ON A REASONABLE BASIS, REFLECT
THE
49
<PAGE> 57
BEST CURRENTLY AVAILABLE ESTIMATES AND JUDGMENTS, AND PRESENT, TO THE BEST OF IN
HOME HEALTH, INC.'S FINANCIAL MANAGEMENT'S KNOWLEDGE AND BELIEF, THE EXPECTED
COURSE OF ACTION AND THE EXPECTED FUTURE FINANCIAL PERFORMANCE OF IN HOME
HEALTH, INC. HOWEVER, THIS INFORMATION IS NOT FACT AND SHOULD NOT BE RELIED UPON
AS NECESSARILY INDICATIVE OF FUTURE RESULTS, AND READERS OF THIS PRELIMINARY
PROXY ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THE FINANCIAL PROJECTIONS.
NEITHER IN HOME HEALTH, INC.'S INDEPENDENT AUDITORS, NOR ANY OTHER
INDEPENDENT ACCOUNTANTS, HAVE COMPILED, EXAMINED, OR PERFORMED ANY PROCEDURES
WITH RESPECT TO THE FINANCIAL PROJECTIONS CONTAINED HEREIN, NOR HAVE THEY
EXPRESSED ANY OPINION OR ANY OTHER FORM OF ASSURANCE ON SUCH INFORMATION OR ITS
ACHIEVABILITY, AND ASSUME NO RESPONSIBILITY FOR, AND DISCLAIM ANY ASSOCIATION
WITH, THE FINANCIAL PROJECTIONS. IN ADDITION, THE VARIOUS VERSIONS OF THE
FINANCIAL PROJECTIONS DISCUSSED HEREIN REFLECT NUMEROUS AND ALTERNATIVE
ASSUMPTIONS, ALL MADE BY FINANCIAL MANAGEMENT OF IN HOME HEALTH, INC., WITH
RESPECT TO INDUSTRY PERFORMANCE, GENERAL AND SPECIFIC BUSINESS, REGULATORY,
ECONOMIC, MARKET AND FINANCIAL CONDITIONS, PROPOSED CHANGES TO THE MEDICARE
REIMBURSEMENT SYSTEM AND OTHER MATTERS, ALL OF WHICH ARE DIFFICULT TO PREDICT
AND MANY OF WHICH ARE BEYOND IN HOME HEALTH, INC.'S CONTROL. THE VARIOUS
VERSIONS OF THE FINANCIAL PROJECTIONS DISCUSSED HEREIN WERE ALSO PREPARED USING
DIFFERENT METHODS.
THE ASSUMPTIONS AND ESTIMATES UNDERLYING THE FINANCIAL PROJECTIONS ARE
INHERENTLY UNCERTAIN AND, THOUGH CONSIDERED REASONABLE BY THE MANAGEMENT OF IN
HOME HEALTH, INC. AS OF THE DATE OF THEIR PREPARATION, ARE SUBJECT TO A WIDE
VARIETY OF SIGNIFICANT BUSINESS, ECONOMIC, AND COMPETITIVE RISKS, AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
CONTAINED IN THE FINANCIAL PROJECTIONS, INCLUDING, AMONG OTHERS, RISKS AND
UNCERTAINTIES, INCLUDING THE FOLLOWING:
- GOVERNMENT REGULATION AND OTHER LEGISLATIVE PROPOSALS THAT APPLY TO HOME
HEALTH AGENCIES, SUCH AS THOSE OWNED BY IN HOME HEALTH,
INC. -- INCLUDING, IN PARTICULAR:
- MEDICARE REIMBURSEMENT RATES AND PAYMENT SYSTEMS, INCLUDING CHANGES TO
THE RATES AND INTERIM PAYMENT SYSTEM ESTABLISHED UNDER THE BALANCED
BUDGET ACT OF 1997 AND IMPLEMENTATION OF A PROSPECTIVE PAYMENT SYSTEM
IN OCTOBER 2000;
- CHANGES TO REIMBURSEMENT REGULATIONS BY THE HEALTH CARE FINANCING
ADMINISTRATION;
- INCLUSION AND REGULATION OF PHARMACEUTICAL PRODUCTS UNDER MEDICARE;
AND
- CHANGES TO FEDERAL AND STATE LICENSING AND CERTIFICATION REGULATIONS,
INCLUDING THOSE RELATED THE CERTIFICATES OF NEED NECESSARY FOR
OPERATION OF THE HOME HEALTH AGENCIES OWNED BY IN HOME HEALTH, INC.
- THIRD PARTY REIMBURSEMENT, ESPECIALLY AS THIRD PARTY REIMBURSEMENT MAY BE
AFFECTED BY CHANGES TO MEDICARE REIMBURSEMENT RATES AND HEALTH CARE
FINANCING ADMINISTRATION REGULATIONS, STATE MEDICAID PROGRAMS AND PRIVATE
INSURANCE;
- COMPETITION AND FACTORS AFFECTING THE HEALTH CARE INDUSTRY IN
GENERAL -- INCLUDING AN INCREASE IN THE NUMBER OF COMPETITIVE ENTRANTS IN
THE HOME HEALTH CARE INDUSTRY AND RESULTING NEGATIVE EFFECTS ON IN HOME
HEALTH, INC.'S ABILITY TO ATTRACT AND RETAIN CUSTOMERS;
- ANTI-REMUNERATION AND ANTI-REFERRAL LAWS THAT AFFECT IN HOME HEALTH,
INC.'S ABILITY TO ESTABLISH AND MAINTAIN RELATIONSHIPS WITH REFERRAL
SOURCES, INCLUDING PAYORS, HOSPITALS, PHYSICIANS AND OTHER HEALTH CARE
PROFESSIONALS;
- EACH OF THE ASSUMPTIONS, METHODOLOGIES AND OTHER FACTORS DISCUSSED UNDER
THE SECTION ENTITLED "SPECIAL FACTORS -- CERTAIN PROJECTIONS."
ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT THE PROJECTED RESULTS ARE
INDICATIVE OF THE FUTURE PERFORMANCE OF IN HOME HEALTH, INC. OR THAT ACTUAL
RESULTS WILL NOT DIFFER MATERIALLY FROM THOSE PRESENTED IN THE FINANCIAL
PROJECTIONS.
See "Cautionary Statement Regarding Forward-Looking Statements."
50
<PAGE> 58
RECENT DEVELOPMENTS
On September 28, 2000, the Commerce Committee of the U.S. House of
Representatives approved a bill which would merely delay for one year, until
October 2002, the legislated reduction in Medicare reimbursement rates.
MANORCARE HEALTH SERVICES, INC.'S PURPOSE AND REASONS FOR THE MERGER
The purpose of ManorCare Health Services, Inc. in proceeding with the
merger is to acquire all of the issued and outstanding capital stock of In Home
Health, Inc. in a transaction providing fair value to In Home Health, Inc.'s
unaffiliated shareholders and to cause the In Home Health, Inc. common stock to
cease to be listed for trading on the Nasdaq National Market or any securities
exchange or automated quotation system.
The acquisition of the entire equity interest in In Home Health, Inc. was
structured as a cash merger in order to accomplish the acquisition in a single
step, without the necessity of incurring the expenses of preparing tender offer
materials. The merger was undertaken at this time in order to protect the value
of ManorCare Health Services, Inc.'s investment in In Home Health, Inc. by
preventing the possible dilution of ManorCare Health Services, Inc.'s investment
in In Home Health, Inc.
ManorCare Health Services, Inc. has concluded that the merger, including
the merger consideration of $3.70 per share in cash and the terms and conditions
of the merger agreement, are fair to In Home Health, Inc. and the holders of the
common stock (other than ManorCare Health Services, Inc., IHHI Acquisition Corp.
and their affiliates) based upon, among other things, the following factors:
- the conclusions and recommendations of the special committee and the
board of directors of In Home Health, Inc., including the special
committees analysis with respect to going concern value, liquidation
value and book value;
- the special committee, consisting of directors who have no interest in
the transaction, other than Mr. Ford's ownership of 16,671 shares of In
Home Health, Inc. common stock, and who are not affiliated with ManorCare
Health Services, Inc., had unanimously approved the merger and
recommended that the board of directors and the shareholders approve and
adopt the merger agreement and the transactions contemplated thereby;
- the merger consideration and the other terms and conditions of the merger
agreement were the result of arm's-length, good faith negotiations
between the special committee and ManorCare Health Services, Inc. and
their respective advisors;
- Houlihan Lokey issued an opinion to the special committee to the effect
that, as of the date of such opinion, based upon and subject to various
considerations, assumptions and limitations stated therein, the $3.70 per
share in cash to be received in the merger was fair to the holders of
common stock (other than ManorCare Health Services, Inc., IHHI
Acquisition Corp. or their affiliates) from a financial point of view;
- the price to be paid in exchange for the In Home Health, Inc. common
stock pursuant to the merger agreement is higher than the price paid for
In Home Health, Inc. common stock in arm's length transactions between
ManorCare Health Services, Inc. and three shareholders on June 28 and 29,
2000 and that one such arm's length transaction was for a block of In
Home Health, Inc. common stock which gave ManorCare Health Services, Inc.
a majority of the In Home Health, Inc. common stock;
- during the substantial period of time which has elapsed between the
public announcement of ManorCare Health Services, Inc.'s indications of
interest in In Home Health, Inc. and the mailing of this proxy statement,
there has been more than sufficient time and opportunity for other
persons to propose alternative transactions to the merger; and
- the other factors referred to above as having been taken into account by
the special committee. See "Special Factors -- Recommendation of the
Special Committee and Board of Directors; Fairness of the Merger" and
"Special Factors -- Opinion of Financial Advisor to the Special
Committee."
51
<PAGE> 59
ManorCare Health Services, Inc., IHHI Acquisition Corp. and their
affiliates did not consider it necessary to require approval of the merger
agreement and the merger by at least a majority of In Home Health, Inc.'s
shareholders who were not affiliated with ManorCare Health Services, Inc. or
IHHI Acquisition Corp. or to retain any additional unaffiliated representative
to act on behalf of shareholders who were not affiliated with ManorCare Health
Services, Inc. for the reasons disclosed by the special committee.
ManorCare Health Services, Inc., IHHI Acquisition Corp. and their
affiliates believe that while there are significant opportunities associated
with their additional investment in In Home Health, Inc. and its ability to
operate In Home Health, Inc. without public shareholders, there are substantial
risks that ManorCare Health Services, Inc. may not realize the anticipated
benefits. ManorCare Health Services, Inc. recognizes that its investment
decision is based on several assumptions, estimates, projections and judgments
regarding the future performance of In Home Health, Inc. In Home Health Inc.'s
actual results may differ materially from those contemplated by ManorCare Health
Services, Inc which could reduce or eliminate the value of ManorCare Health
Services, Inc.'s investment in In Home Health, Inc. In addition, ManorCare
Health Services, Inc. will own a private company with no immediate source of
liquidity and no definitive plan for liquidation of its interest. Following the
merger, ManorCare Health Services, Inc.'s interest in the book value and net
earnings to common stock shareholders will increase from 61.3% to 100%.
INTERESTS OF CERTAIN PERSONS IN THE MERGER; CERTAIN RELATIONSHIPS
In considering the recommendation of the special committee and the board of
directors with respect to the merger, shareholders should be aware that certain
members of the board of directors of In Home Health, Inc. have interests in the
merger that are different from your interests as a shareholder or that may
present actual, potential or the appearance of potential conflicts of interest
in connection with the merger because they are directors and officers of
ManorCare Health Services, Inc. The special committee and the board of directors
were aware of these potential or actual conflicts of interest and considered
them along with other matters described under "Special Factors -- Recommendation
of the Special Committee and Board of Directors; Fairness of the Merger."
DIRECTORS AND MANAGEMENT OF THE SURVIVING CORPORATION
The merger agreement provides that the current directors of IHHI
Acquisition Corp. shall be the directors of the surviving corporation
immediately after the merger. Messrs. Weikel and Meyers and Mr. Steven M.
Cavanaugh, a Vice President of Manor Care, Inc., are the current directors of
IHHI Acquisition Corp. and no determination has been made as to whether
additional persons will be invited to join the board of directors of the
surviving corporation following the merger. The officers of In Home Health, Inc.
immediately prior to the merger will be the officers of the surviving
corporation immediately after the merger; however, Mr. Ford has notified In Home
Health, Inc. that he intends to resign immediately following the consummation of
the merger.
The merger agreement provides that ManorCare Health Services, Inc. agrees
that all rights to indemnification (including advancement of expenses) from In
Home Health, Inc. existing under Minnesota law on the date of the merger
agreement in favor of persons who are officers or directors of In Home Health,
Inc. on the date of the merger agreement or immediately prior to the filing of
the articles of merger with the Minnesota Secretary of State with respect to
actions taken in their capacity as officers and directors of In Home Health,
Inc. prior to or at the time the articles of merger are filed with the Minnesota
Secretary of State as provided in the respective articles of incorporation or
by-laws of In Home Health, Inc. in effect as of the date of the merger agreement
shall survive the merger and shall continue in full force and effect. To the
extent, if any, not provided by a right under one of ManorCare Health Services,
Inc., IHHI Acquisition Corp. and In Home Health, Inc. directors and officers
liability insurance policies, from and after the time articles of merger are
filed with the Minnesota Secretary of State, ManorCare Health Services, Inc.
shall, to the fullest extent permitted by applicable law, indemnify, defend and
hold harmless each director and officer of In Home Health, Inc. against all
losses, expenses (including reasonable attorneys' fees and expenses), claims,
damages or liabilities or amounts paid in settlement arising out of actions or
omissions occurring prior to the time articles of merger are filed with the
Minnesota Secretary of State, and whether asserted or claimed prior to, at
52
<PAGE> 60
or after the time articles of merger are filed with the Minnesota Secretary of
State, that are in whole or in part (i) based on or arising out of the fact that
such person is or was a director or officer of In Home Health, Inc., or (ii)
based on, arising out of or pertaining to the transactions contemplated by the
merger agreement. In the event of any such loss, claim, damage or liability
(whether or not arising before the time articles of merger are filed with the
Minnesota Secretary of State), in addition to any indemnification and hold
harmless hereunder, ManorCare Health Services, Inc. will pay the reasonable fees
and expenses of counsel selected by the directors and officers of In Home
Health, Inc. (including counsel selected prior to the date hereof), promptly
after statements therefore are received and otherwise advance to such directors
and officers of In Home Health, Inc. upon request documented expenses reasonably
incurred.
The merger agreement also provides that ManorCare Health Services, Inc.
agrees that for a period of six (6) years after the time articles of merger are
filed with the Minnesota Secretary of State, it shall cause to be maintained in
effect by or on behalf of the surviving corporation for the benefit of the
officers and directors of In Home Health, Inc. policies of directors' and
officers' liability insurance or "run-off" or "tail" coverage equivalent in
scope and limits of coverage to the current policies maintained by In Home
Health, Inc. with respect to claims arising from facts or events which occurred
prior to or at the time articles of merger are filed with the Minnesota
Secretary of State. However, in no event shall Manor Care, Inc. (the owner of
all the issued and outstanding equity interests of ManorCare Health Services,
Inc.), ManorCare Health Services, Inc. or the surviving corporation be obligated
to expend, in order to maintain or procure such insurance coverage, (i) if such
insurance is purchased as "run-off" or "tail" coverage, an amount exceeding
twelve (12) times the annual premium of In Home Health, Inc.'s directors' and
officers' insurance policy in effect on the date of the merger agreement or (ii)
if such insurance is purchased annually, an amount annually more than two (2)
times the annual premium of In Home Health, Inc.'s directors' and officers'
insurance policy in effect on the date of the merger agreement, but in either
such case ManorCare Health Services, Inc. or the surviving corporation is
obligated to purchase a policy with the greatest coverage available for a cost
not exceeding such amount.
The merger agreement also provides that ManorCare Health Services, Inc.
agrees that for a period of six (6) years after the time articles of merger are
filed with the Minnesota Secretary of State, it shall cause Manor Care, Inc. to
maintain in effect for the benefit of the officers and directors of In Home
Health, Inc. policies of directors' and officers' liability insurance, or
"run-off" or "tail" coverage, pursuant to which directors and officers of
majority-owned subsidiaries of Manor Care, Inc. are entitled to coverage (it
being acknowledged that such policies currently cover the officers and directors
of In Home Health, Inc.), equivalent in scope and limits of coverage to the
current policies maintained by ManorCare Health Services, Inc. with respect to
claims arising from facts or events which occurred during the period prior to
the time articles of merger are filed with the Minnesota Secretary of State
during which ManorCare Health Services, Inc. owned a majority of the voting
stock of In Home Health, Inc. However, in no event will Manor Care, Inc. or
ManorCare Health Services, Inc. be obligated to expend, in order to maintain or
procure such insurance coverage, (i) if such insurance is purchased as "run-off"
or "tail" coverage, an amount exceeding twelve (12) times the annual premium of
the ManorCare Health Services, Inc.'s directors' and officers' insurance policy
in effect on the date of the merger agreement or (ii) if such insurance is
purchased annually, an amount annually more than two (2) times the annual
premium of the ManorCare Health Services, Inc.'s directors' and officers'
insurance policy in effect on the date of the merger agreement, but in either
such case ManorCare Health Services, Inc. will be obligated to purchase a policy
with the greatest coverage available for a cost not exceeding such amount. See
"The Merger Agreement -- Covenants."
DETERMINATION OF INDEMNIFICATION ELIGIBILITY
In Home Health, Inc. retained special legal counsel as permitted by the
Minnesota Business Corporation Act to determine and provide an opinion regarding
whether indemnification is available for the directors of In Home health, Inc.
in connection with the shareholder suit filed in Hennepin County District Court
in Minneapolis, Minnesota, naming In Home Health, Inc., Manor Care, Inc., Paul
A. Ormond, Clyde Michael Ford, Eugene Terry, Keith Weikel and Geoffrey Meyers as
defendants. The special legal counsel provided an opinion stating that the
directors of In Home Health, Inc. are entitled to payment or reimbursement of
53
<PAGE> 61
reasonable expenses, including attorneys' fees and disbursements, in advance of
the final disposition of the shareholder suit. See "Certain Litigation."
INDEMNIFICATION AGREEMENTS
In Home Health, Inc. entered into an indemnification agreement with Eugene
Terry on August 1, 2000. The agreement indemnifies Mr. Terry, against any and
all costs, charges, claims, losses, liabilities, expenses, damages and other
amounts, in the event he is a party on August 1, 2000, becomes a party or is
threatened to be made a party to any threatened, pending or completed action,
suit, claim or proceeding, cause of action or otherwise arising out of or
relating to his agreement to continue to serve as a director and consultant of
In Home Health, Inc. In Home Health, Inc. is not obligated to make any payment
in connection with any action, claim or proceeding against Mr. Terry regarding
any threatened, pending or completed criminal action, suit, claim or proceeding
unless Mr. Terry believed his conduct was lawful. This agreement also provides
for Mr. Terry to receive $200 per hour for time reasonably incurred (or at the
request of counsel) by Mr. Terry for purposes of defending any proceeding.
In Home Health, Inc. entered into an indemnification agreement with C.
Michael Ford on August 1, 2000. The agreement indemnifies Mr. Ford, against any
and all costs, charges, claims, losses, liabilities, expenses, damages and other
amounts, in the event he is a party on August 1, 2000, becomes a party or is
threatened to be made a party to any threatened, pending or completed action,
suit, claim or proceeding, cause of action or otherwise arising out of or
relating to his agreement to continue to serve as a director and officer of In
Home Health, Inc. In Home Health, Inc. is not obligated to make any payment in
connection with any action, claim or proceeding against Mr. Ford regarding any
threatened, pending or completed criminal action, suit, claim or proceeding
unless Mr. Ford believed his conduct was lawful. This agreement also provides
for Mr. Ford to receive $200 per hour for time reasonably incurred (or at the
request of counsel) by Mr. Ford for purposes of defending any proceeding.
OFFICER AND DIRECTOR COMPENSATION AND EMPLOYMENT AGREEMENTS
Each of Mr. Ford and Mr. Terry is compensated for his services to In Home
Health, Inc., whether in his capacity as a director, or in the case of Mr. Ford
as interim Chief Executive Officer and President, or in the case of Mr. Terry,
as a consultant performing such services as may be requested by the board or
management from time to time, at a rate of $200 per hour not to exceed $1,600
per day. In addition, Mr. Ford and Mr. Terry are each compensated for their
services as special committee members in connection with the merger at a rate of
$200 per hour, with a minimum of $25,000 and a maximum of $35,000. These
arrangements for compensation of the special committee were approved by the
board of directors, not including Mr. Ford and Mr. Terry. Mr. Weikel and Mr.
Meyers do not receive any compensation from In Home Health, Inc. for their
service as directors.
On October 24, 2000, In Home Health, Inc., ManorCare Health Services, Inc.,
IHHI Acquisition Corp. and Robert J. Hoffman entered into a Separation Agreement
and Release pursuant to which Mr. Hoffman resigned as the Chief Financial
Officer, Treasurer and Secretary of In Home Health, Inc. In particular, the
Separation Agreement and Release terminated the employment agreement between Mr.
Hoffman and In Home Health, Inc., dated December 31, 1998, pursuant to which Mr.
Hoffman was employed by In Home Health, Inc. at a base salary of $118,000 per
annum. Pursuant to the Separation Agreement and Release, In Home Health, Inc.
agreed to pay Mr. Hoffman severance in an amount equal to 18 months of his base
salary, his bonus for the year ended September 30, 2000, and unpaid amounts of
salary and personal time earned through the termination date. In addition, Mr.
Hoffman has agreed to provide limited consulting services to In Home Health,
Inc. in connection with the consummation of the merger and financial reporting
matters.
OTHER ARRANGEMENTS WITH AFFILIATES
Pursuant to the May 2, 1995 purchase agreement between Manor Healthcare
Corp., the predecessor to ManorCare Health Services, Inc. and In Home Health,
Inc. pursuant to which Manor Healthcare Corp.
54
<PAGE> 62
acquired 6,440,000 shares of In Home Health, Inc. common stock and 200,000
shares of In Home Health, Inc. preferred stock, In Home Health, Inc. and Manor
Healthcare Corp. entered into a registration rights agreement covering the
securities purchased by Manor Healthcare Corp. from In Home Health, Inc. As the
successor to Manor Healthcare Corp., ManorCare Health Services, Inc. has the
right to require In Home Health, Inc. to use its best efforts to register for
sale in an underwritten public offering under the Securities Act of 1933, at In
Home Health, Inc.'s expense, all or any portion of the common stock acquired by
ManorCare Health Services, Inc. and the common stock into which the preferred
stock held by ManorCare Health Services, Inc. is convertible. In Home Health,
Inc. will not be entitled to sell its securities in any such registration for
its own account without the consent of ManorCare Health Services, Inc. In
addition, if In Home Health, Inc. at any time seeks to register under the
Securities Act of 1933 for sale to the public any of its securities, In Home
Health, Inc. must include, at ManorCare Health Services, Inc.'s request, the
common stock acquired by ManorCare Health Services, Inc. and the common stock
into which the preferred stock held by ManorCare Health Services, Inc. is
convertible, in the registration statement, subject to underwriter cutback
provisions.
In connection with the purchase agreement between ManorCare Health
Services, Inc. and Heartland Advisors, Inc., dated June 28, 2000, pursuant to
which ManorCare Health Services, Inc. acquired 454,401 shares of In Home Health,
Inc. common stock for a price per share of $3.375, Heartland Services, Inc.
delivered an irrevocable proxy, dated June 28, 2000, appointing Paul A. Ormond,
M. Keith Weikel, Geoffrey G. Meyers and R. Jeffrey Bixler, each of whom is an
officer of ManorCare Health Services, Inc., as proxies and attorneys-in-fact to
vote the shares of common stock acquired by ManorCare Health Services, Inc.
pursuant to the purchase agreement. See "Special Factors -- Additional
Consideration to be Paid to Heartland Advisors, Inc."
In connection with a letter agreement between ManorCare Health Services,
Inc. and RS Value Group LLC, dated June 29, 2000, pursuant to which ManorCare
Health Services, Inc. acquired 461,734 shares of In Home Health, Inc. common
stock for a price per share of $3.375, RS Value Group LLC delivered an
irrevocable proxy, dated June 29, 2000, appointing Paul A. Ormond, M. Keith
Weikel, Geoffrey G. Meyers and R. Jeffrey Bixler, each of whom is an officer of
ManorCare Health Services, Inc., as proxies and attorneys-in-fact to vote the
shares of common stock acquired by ManorCare Health Services, Inc. pursuant to
the letter agreement.
In connection with a letter agreement between ManorCare Health Services,
Inc. and Eastbourne Capital Management L.L.C., dated June 29, 2000, pursuant to
which ManorCare Health Services, Inc. acquired 230,600 shares of In Home Health,
Inc. common stock for a price per share of $3.375, Eastbourne Capital Management
delivered an irrevocable proxy, dated June 29, 2000, appointing Paul A. Ormond,
M. Keith Weikel, Geoffrey G. Meyers and R. Jeffrey Bixler, each of whom is an
officer of ManorCare Health Services, Inc., as proxies and attorneys-in-fact to
vote the shares of common stock acquired by ManorCare Health Services, Inc.
pursuant to the letter agreement.
ADDITIONAL CONSIDERATION TO BE PAID TO HEARTLAND ADVISORS, INC.
ManorCare Health Services, Inc. and Heartland Advisors, Inc. entered into a
purchase agreement, dated June 28, 2000, pursuant to which ManorCare Health
Services, Inc. acquired 454,401 shares of In Home Health, Inc. common stock for
a price per share of $3.375. Pursuant to the purchase agreement ManorCare Health
Services, Inc. agreed to pay Heartland Advisors, Inc. any higher price
subsequently paid for In Home Health, Inc. common stock in a tender offer made
within ninety days. As a result of discussion with Heartland Advisors, Inc.
subsequent to the signing of the merger agreement, ManorCare Health Services,
Inc. agreed to pay Heartland Advisors, Inc. an additional $147,680, representing
the difference between the $3.375 per share price paid under the purchase
agreement and the $3.70 per share being paid pursuant to the merger agreement
times the number of shares acquired from Heartland Advisors, Inc. This payment
will be made upon the closing of the merger.
55
<PAGE> 63
CERTAIN EFFECTS OF THE MERGER
If the merger is completed, each share of IHHI Acquisition Corp. common
stock shall be converted into and become one share of common stock of the
surviving corporation. In Home Health, Inc. common stock would cease to be
publicly traded and would be canceled and retired and cease to exist and holders
of In Home Health, Inc. common stock (other than ManorCare Health Services,
Inc., IHHI Acquisition Corp., their affiliates) will be entitled to receive
$3.70 per share in cash, without interest, provided that any shareholders who
validly dissent from the merger may seek the fair value of their shares in
accordance with the Minnesota law requirements explained in this proxy
statement. The benefit of the transaction to the holders of common stock (other
than ManorCare Health Services, Inc., IHHI Acquisition Corp. and their
affiliates) is the payment, in cash, of a premium above the market value of such
stock prior to the transaction announcement. This cash payment assures that all
shareholders will receive the same amount for their shares, rather than taking
the risks associated with attempting to sell their shares in the open market.
The detriment to such holders is their inability to participate as continuing
shareholders in the possible future growth of In Home Health, Inc. Following the
merger, all of the outstanding capital stock of the surviving corporation in the
merger would be owned by ManorCare Health Services, Inc. If the merger is
consummated, the holders of In Home Health, Inc.'s common stock will no longer
have any interest in, and will not be shareholders of, In Home Health, Inc. and,
therefore, will not benefit from any future earnings or growth of In Home
Health, Inc. or from any increases in the value of In Home Health, Inc. and will
no longer bear the risk of any decreases in value of In Home Health, Inc. If the
merger is consummated, ManorCare Health Services, Inc. will hold the entire
equity interest in In Home Health, Inc. and will therefore be the sole
beneficiary of any future earnings or growth of In Home Health, Inc. and any
increases in value of In Home Health, Inc. If the merger is consummated,
ManorCare Health Services, Inc. will have a 100% interest in In Home Health,
Inc.'s net book value and net earnings. However, ManorCare Health Services, Inc.
will bear the risk of any decreases in value of In Home Health, Inc. and the
risks associated with the lack of liquidity in its investment in In Home Health,
Inc. See "Special Factors -- Recommendation of the Special Committee and the
Board of Directors; Fairness of the Merger."
The common stock is currently registered under the Securities Exchange Act
of 1934, as amended. As a result of the merger, the common stock will be
de-listed from the Nasdaq National Market and the registration of the common
stock under the Securities Exchange Act of 1934, as amended, will be terminated,
In Home Health, Inc. will be relieved of the obligation to comply with the proxy
rules of Regulation 14A under Section 14 of the Securities Exchange Act of 1934,
as amended, and its officers, directors and beneficial owners of more than 10%
of the common stock will be relieved of the reporting requirements and "short-
swing" trading provisions under Section 16 of the Securities Exchange Act of
1934. Further, In Home Health, Inc. will no longer be subject to periodic
reporting requirements of the Securities Exchange Act of 1934, as amended, and
will cease filing information with the Securities and Exchange Commission.
Accordingly, less information will be required to be made publicly available
than presently is the case.
The articles of incorporation and bylaws of IHHI Acquisition Corp. will be
the articles of incorporation and bylaws of the surviving corporation until
thereafter amended as provided by law.
PLANS FOR IN HOME HEALTH, INC. AFTER THE MERGER
ManorCare Health Services, Inc. currently expects that, except as described
in this proxy statement, the business and operations of the surviving
corporation will be integrated with ManorCare Health Services, Inc.'s Heartland
unit over time.
Except as described in this proxy statement, none of ManorCare Health
Services, Inc., IHHI Acquisition Corp. or In Home Health, Inc. has any present
plans or proposals involving In Home Health, Inc. which relate to or would
result in an extraordinary corporate transaction such as a merger,
reorganization, liquidation, sale or transfer of a material amount of assets, or
any material change in the present dividend policy, indebtedness or
capitalization, or any other material change in In Home Health, Inc.'s corporate
structure or business. However, ManorCare Health Services, Inc. and IHHI
Acquisition Corp. will review proposals or may propose the acquisition or
disposition of assets or other changes in the surviving corporation's business,
corporate
56
<PAGE> 64
structure, capitalization, management or dividend policy which they consider to
be in the best interests of the surviving corporation and its shareholders.
CONDUCT OF THE BUSINESS OF IN HOME HEALTH, INC. IF THE MERGER IS NOT CONSUMMATED
ManorCare Health Services, Inc. would consider entering into a management
agreement whereby ManorCare Health Services, Inc. would provide substantially
all management personnel to In Home Health, Inc.
ACCOUNTING TREATMENT
The merger will be accounted for in accordance with the purchase method of
accounting under U.S. generally accepted accounting principles.
FINANCING OF THE MERGER
The maximum amount of funds required by ManorCare Health Services, Inc. and
IHHI Acquisition Corp. to pay the aggregate merger consideration due to
shareholders and to pay cash to holders of stock options in In Home Health, Inc.
in exchange for the cancellation of such options at the closing of the merger
pursuant to the merger agreement, assuming all shares of common stock and stock
options, in each case, are converted into cash in the merger in accordance with
the merger agreement and there are no dissenting shareholders, is expected to be
approximately $8,668,985 million. The proceeds to pay the merger consideration
will be obtained from ManorCare Health Services, Inc.'s working capital. In Home
Health, Inc., ManorCare Health Services, Inc. and IHHI Acquisition Corp. will
also require approximately $1,250,000 million to pay other expenses and costs
incurred by In Home Health, Inc., ManorCare Health Services, Inc. and IHHI
Acquisition Corp. relating to the transactions and for other general corporate
purposes.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary is a general discussion of certain federal income tax
consequences expected to result to shareholders whose shares of common stock are
converted to cash in the merger. This summary is for general information only
and does not purport to be a complete analysis of all potential tax effects of
the merger. For example, the summary does not consider the effect of any
applicable state, local or foreign tax laws. In addition, the summary does not
address all aspects of federal income taxation that may affect shareholders in
light of their particular circumstances and is not intended for shareholders
(including insurance companies, tax-exempt organizations, financial institutions
or broker-dealers, shareholders who hold their common stock as part of a hedge,
straddle or conversion transaction, shareholders who acquired their common stock
pursuant to the exercise of an employee stock option or otherwise as
compensation, and shareholders who are not citizens or residents of the United
States or that are foreign corporations, foreign partnerships or foreign estates
or trusts as to the United States) who may be subject to special federal income
tax rules not discussed below. The following summary also does not address
holders of stock options. The following summary assumes that shareholders have
held their common stock as "capital assets" (generally, property held for
investment) under the Internal Revenue Code of 1986, as amended.
This summary is based on the current provisions of the Internal Revenue
Code of 1986, as amended, applicable Treasury Regulations promulgated
thereunder, judicial authority and administrative rulings and practice. There
can be no assurance that the Internal Revenue Service will not take a contrary
view. No ruling from the Internal Revenue Service has been or will be sought
with respect to any aspect of the transactions described herein. Future
legislative, judicial or administrative changes or interpretations could alter
or modify the statements and conclusions set forth herein, and any such changes
or interpretations could be retroactive and could affect the tax consequences to
shareholders.
THE DISCUSSION SET FORTH BELOW OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES
IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH
SHAREHOLDER SHOULD CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE PARTICULAR
TAX CONSEQUENCES OF THE TRANSACTIONS DESCRIBED HEREIN, INCLUDING THE
APPLICABILITY AND EFFECT OF STATE, LOCAL AND FOREIGN TAX LAW AND OF CHANGES IN
APPLICABLE LAW.
57
<PAGE> 65
A shareholder that, pursuant to the merger, converts such shareholder's
common stock into cash will recognize a capital gain or loss equal to the
difference between the amount of cash received and such shareholder's tax basis
in the common stock surrendered. In the case of a noncorporate shareholder, any
such capital gain or loss will be taxable at a maximum capital gains rate of 20%
if the holder held the common stock for more than one year at the time of the
merger. Capital gains of corporate shareholders are generally taxable at the
regular income tax rates applicable to corporations. A shareholder's ability to
use any capital loss may be subject to limitations.
A shareholder whose common stock is converted to cash pursuant to the
merger may be subject to backup withholding at the rate of 31% with respect to
the gross proceeds from the conversion of such common stock unless such
shareholder furnishes a correct taxpayer identification number (which for an
individual is the individual's social security number) and certifies that it is
not subject to backup withholding on Form W-9 (or the appropriate substitute or
successor form) or otherwise establishes an exemption from backup withholding. A
shareholder that does not comply with these requirements may also be subject to
penalties imposed by the Internal Revenue Service. Backup withholding is not an
additional tax, but rather is an advance tax payment that is refundable to the
extent it results in an overpayment of tax.
FEES AND EXPENSES
Whether or not the merger is consummated and except as otherwise provided
herein, all fees and expenses incurred in connection with the merger will be
paid by the party incurring such fees and expenses.
Under the terms of the merger agreement, In Home Health, Inc. will pay
ManorCare Health Services, Inc. certain costs, expenses and fees plus $70,000 if
the merger agreement is terminated under certain circumstances.
Estimated fees and expenses to be incurred by In Home Health, Inc. or
ManorCare Health Services, Inc. in connection with the merger, the financing and
related transactions are as follows:
<TABLE>
<S> <C>
Special Committee's Financial Advisor's Fees and Expenses
(1)....................................................... $ 320,000
Securities and Exchange Commission Filing Fees.............. 1,686
Legal, Accounting and Consulting Fees and Expenses.......... 760,000
Printing and Solicitation Fees and Expenses................. 80,000
Special Committee Fees (maximum)............................ 70,000
----------
Total................................................ $1,231,686
==========
</TABLE>
--------------------------------
(1) See "Special Factors -- Opinion of Financial Advisor to the Special
Committee."
To the extent not paid by ManorCare Health Services, Inc. or In Home
Health, Inc. prior to the articles of merger being filed with the Minnesota
Secretary of State, all such fees and expenses will be paid by the surviving
corporation if the merger is consummated. If the merger is not consummated, each
party will bear its respective fees and expenses, except as otherwise provided
in the merger agreement.
THE MERGER AGREEMENT
The following is a summary of the material provisions of the merger
agreement, a copy of which is attached as Annex A to this proxy statement. Such
summary is qualified in its entirety by reference to the full text of the merger
agreement.
THE MERGER; MERGER CONSIDERATION
The merger agreement provides that the merger will become effective upon
the filing of articles of merger with the Secretary of State of the State of
Minnesota or at such other time as the parties may agree and specify in the
articles of merger (the "Effective Time"). If the merger is approved and adopted
at the special meeting by the voting power of a majority of all outstanding
shares of common and preferred stock voting as a single class (with each share
of common stock being entitled to cast one (1) vote per share and each share of
58
<PAGE> 66
preferred stock being entitled to cast approximately 16.67 votes per share), and
the other conditions to the merger are satisfied or waived, it is currently
anticipated that the merger will become effective as soon as practicable after
the special meeting; however, there can be no assurance as to the timing of the
consummation of the merger or that the merger will be consummated.
At the Effective Time, IHHI Acquisition Corp. will be merged with and into
In Home Health, Inc., the separate corporate existence of IHHI Acquisition Corp.
will cease and In Home Health, Inc. will continue as the surviving corporation.
In the merger and at the Effective Time:
- each share of common stock issued and outstanding immediately prior to
the Effective Time (other than common stock held by In Home Health, Inc.,
ManorCare Health Services, Inc., IHHI Acquisition Corp. or dissenting
shareholders) will, by virtue of the merger and without any action on the
part of the holder thereof, be converted into and become the right to
receive the merger consideration of $3.70 per share;
- each share of common and preferred stock issued and outstanding
immediately prior to the Effective Time that is owned by In Home Health,
Inc., ManorCare Health Services, Inc. or IHHI Acquisition Corp. will
automatically be canceled, retired and cease to exist and no payment will
be made with respect thereto;
- each share of common stock of IHHI Acquisition Corp. issued and
outstanding immediately prior to the Effective Time will be converted
into and become one share of common stock of the surviving corporation
and will constitute the only outstanding shares of capital stock of the
surviving corporation;
- dissenting shareholders who do not vote to approve and adopt the merger
agreement and who otherwise strictly comply with the provisions of the
Minnesota Business Corporation Act regarding statutory dissenters' rights
have the right to seek a determination of the fair value of their shares
of common stock and payment in cash therefor under the dissenters' rights
statutes in effect in Minnesota in lieu of the merger consideration; and
- each certificate representing shares of common stock that has been
converted to cash under the terms of the merger agreement will, after the
Effective Time, evidence only the right to receive, upon the surrender of
such certificate, an amount of cash per share equal to the merger
consideration.
THE PAYMENT FUND; PAYMENT FOR SHARES OF COMMON STOCK
On or before the Effective Time of the merger, ManorCare Health Services,
Inc. will enter into an agreement with a bank or trust company selected by
ManorCare Health Services, Inc. and reasonably satisfactory to In Home Health,
Inc. (the "Paying Agent"). As of the Effective Time, ManorCare Health Services,
Inc. will deposit or cause to be deposited with the Paying Agent, cash in the
amount equal to the aggregate merger consideration (such amount being
hereinafter referred to as the "Payment Fund") for the benefit of holders of
shares of the common stock (other than common stock held by dissenting
shareholders and shares to be canceled without consideration pursuant to the
merger agreement).
Within three business days following the Effective Time, the Paying Agent
will mail to each holder of record of shares of common stock that have been
converted pursuant to the merger agreement into the right to receive merger
consideration immediately prior to the Effective Time, a letter of transmittal
and instructions for use in surrendering certificates in exchange for the merger
consideration. No shareholder should surrender any certificates until the
shareholder receives the letter of transmittal and other materials for such
surrender. Upon surrender of a certificate for cancellation to the Paying Agent,
together with a letter of transmittal, duly executed, and such other customary
documents as may be required pursuant to the instructions, the holder of such
certificate will be entitled to receive in exchange therefor the merger
consideration into which the number of shares of common stock previously
represented by such certificate(s) shall have been converted pursuant to the
merger agreement, without any interest thereon, and the certificates so
surrendered will be canceled.
59
<PAGE> 67
If payment of the merger consideration is to be made to a person other than
the person in whose name the certificate surrendered is registered, it will be a
condition of payment that the certificate so surrendered will be properly
endorsed (together with signature guarantees on such certificate) or otherwise
be in proper form for transfer and that the person requesting such payment shall
have paid any transfer or other taxes required by reason of the payment of the
merger consideration to a person other than the registered holder thereof or
establish to the satisfaction of the surviving corporation that such tax has
been paid or is not applicable.
SHAREHOLDERS SHOULD NOT SEND THEIR CERTIFICATES NOW AND SHOULD SEND THEM
ONLY PURSUANT TO INSTRUCTIONS SET FORTH IN THE LETTERS OF TRANSMITTAL TO BE
MAILED TO SHAREHOLDERS PROMPTLY AFTER THE EFFECTIVE TIME. IN ALL CASES, THE
MERGER CONSIDERATION WILL BE PROVIDED ONLY IN ACCORDANCE WITH THE PROCEDURES SET
FORTH IN THIS PROXY STATEMENT AND SUCH LETTERS OF TRANSMITTAL.
Six months after the Effective Time, the surviving corporation shall be
entitled to require the Paying Agent to deliver to the surviving corporation any
portion of the Payment Fund that remains undistributed to or unclaimed by the
holders of certificates (including the proceeds of any investments thereof), and
any holders of certificates who have not theretofore complied with the
above-described procedures to receive payment of the merger consideration may
look only to the surviving corporation for payment of the merger consideration
to which they are entitled.
TRANSFERS OF COMMON STOCK
After the Effective Time, the stock transfer books of In Home Health, Inc.
will be closed, and there will be no further registration or transfers of
certificates on the records of In Home Health, Inc. If, after the Effective
Time, certificates are presented to the surviving corporation, they will be
canceled and exchanged for the merger consideration pursuant to the terms of the
merger agreement (subject to applicable law in the case of dissenting
shareholders).
TREATMENT OF STOCK OPTIONS
It is currently anticipated that at the Effective Time, each outstanding
option to acquire common stock of In Home Health, Inc. will be canceled. In
consideration of such cancellation, In Home Health, Inc. (or, at ManorCare
Health Services, Inc.'s option IHHI Acquisition Corp.) will pay to such holders
of options to purchase shares of In Home Health, Inc. an amount in cash net of
applicable withholding taxes in respect thereof equal to the sum of:
- two-hundred and fifty dollars ($250); plus
- an amount equal to the number of shares of In Home Health, Inc. common
stock subject to options with a purchase or exercise price less than
$3.70 per share, multiplied by the difference between $3.70 and the
purchase or exercise price for such option as set forth in the applicable
option agreement; plus
- an amount equal to the number of shares of In Home Health, Inc. common
stock subject to options with a purchase or exercise price equal to or in
excess of $3.70 per share multiplied by $0.10.
CONDITIONS
The respective obligations of ManorCare Health Services, Inc. and IHHI
Acquisition Corp. and of In Home Health, Inc. to consummate the merger are
subject to the following conditions, among others:
- the approval and adoption of the merger agreement by the affirmative vote
of the holders of a majority of all outstanding shares of common and
preferred stock; and
- the absence of any governmental action or order that makes the merger
illegal or otherwise prohibits consummation of the merger.
60
<PAGE> 68
The obligations of ManorCare Health Services, Inc. and IHHI Acquisition
Corp. to effect the merger are subject to the following additional conditions
being satisfied on the closing date:
- the representations and warranties of In Home Health, Inc. being true and
correct in all material respects, except for representations and
warranties that are qualified by materiality or material adverse effect,
which shall be true and correct in all respects;
- In Home Health, Inc. and each subsidiary of In Home Health, Inc. having
performed or complied with all covenants required to be complied with or
performed by In Home Health, Inc. or such subsidiary pursuant to the
terms of the merger agreement;
- the holders of not more than five percent (5%) of the issued and
outstanding shares of the In Home Health, Inc. common stock immediately
prior to the Effective Time having purported to exercise, or delivered
notice to In Home Health, Inc. of their intention to exercise dissenters'
rights with respect to shares of In Home Health, Inc. common stock;
- there not having occurred any change, event, development or circumstance
that has had, or could reasonably be expected to have, individually or in
the aggregate, a material adverse effect on In Home Health, Inc.;
- the special committee not having withdrawn or rescinded its
recommendation that the shareholders vote in favor of the merger
agreement and the merger; and
- In Home Health, Inc. having entered into written agreements regarding
stock options, in form and substance reasonably satisfactory to ManorCare
Health Services, Inc., with each employee of In Home Health, Inc. who
currently holds options to purchase shares of In Home Health, Inc. common
stock.
The obligations of In Home Health, Inc. to effect the merger are also
subject to the following additional conditions being satisfied on the closing
date:
- the representations and warranties of ManorCare Health Services, Inc. and
IHHI Acquisition Corp. being true and correct in all material respects,
except for representations and warranties that are qualified by
materiality or material adverse effect, which shall be true and correct
in all respects;
- ManorCare Health Services, Inc. and IHHI Acquisition Corp. having
performed or complied with all covenants required to be complied with or
performed by them pursuant to the terms of the merger agreement;
- ManorCare Health Services, Inc. having deposited sufficient funds with
the Paying Agent to permit the exchange of all eligible certificates for
merger consideration pursuant to the merger agreement; and
- Houlihan Lokey not having withdrawn their opinion to the effect that, as
of the date of such opinion, the consideration to be received in the
merger is fair to the shareholders (other than ManorCare Health, Inc.,
IHHI Acquisition Corp. and their affiliates) from a financial point of
view, prior to the closing date.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains representations and warranties of ManorCare
Health Services, Inc., IHHI Acquisition Corp. and In Home Health, Inc.
The representations of ManorCare Health Services, Inc. and IHHI Acquisition
Corp. relate to, among other things:
- their respective organization and qualification to do business and
authority to enter into the merger agreement;
- the absence of a conflict of the merger agreement and the transactions
contemplated thereby, with laws applicable to, and material agreements
of, ManorCare Health Services, Inc. and IHHI Acquisition Corp.;
61
<PAGE> 69
- the consents and filings required with respect to the merger agreement
and the transactions contemplated thereby;
- the accuracy of the information provided by ManorCare Health Services,
Inc. and IHHI Acquisition Corp. for inclusion in this proxy statement and
in filings to be made with the Securities and Exchange Commission with
respect to the proposed merger;
- the brokers used by ManorCare Health Services, Inc. and IHHI Acquisition
Corp.;
- the historical business activities of IHHI Acquisition Corp.; and
- the available cash and/or funds to fund ManorCare Health Services, Inc.
payment obligations pursuant to the merger agreement.
The representations of In Home Health, Inc. relate to, among other things:
- the organization and qualification to do business of In Home Health,
Inc.;
- the capitalization of In Home Health, Inc.;
- In Home Health, Inc.'s authority to enter into the merger agreement;
- the absence of a conflict of the merger agreement and the transactions
contemplated thereby with laws applicable to and material agreements of
In Home Health, Inc.;
- the consents and filings required with respect to the merger agreement
and the transactions contemplated thereby;
- filings made with the Securities and Exchange Commission;
- the financial statements of In Home Health, Inc.;
- the compliance with law and accuracy of the proxy statement and filings
made with the Securities and Exchange Commission with respect to the
proposed merger;
- the In Home Health, Inc. financial statements and the fair presentation
of the consolidated financial position of In Home Health, Inc. by them;
- the brokers used by In Home Health, Inc.;
- the absence of changes in the business of In Home Health, Inc.;
- the legal proceedings involving In Home Health, Inc.;
- the opinion of Houlihan Lokey;
- the intellectual property of In Home Health, Inc.; and
- the tax returns and tax payments of In Home Health, Inc.
COVENANTS
Pursuant to the merger agreement, during the period from the date of the
merger agreement to the Effective Time, unless ManorCare Health Services, Inc.
otherwise agrees in writing, In Home Health, Inc. agrees to, in all material
respects, (i) conduct its business in the usual, regular and ordinary course
consistent with past practice; (ii) maintain and preserve intact its business
organization, employees and advantageous business relationships and retain the
services of its officers and key employees; and (iii) refrain from taking,
authorizing or permitting any action of the type that would be required to be
disclosed pursuant to the merger agreement. Without limiting the generality of
the foregoing, and except as expressly contemplated or permitted by the merger
agreement, or as required by applicable law, rule or regulation, during the
period from
62
<PAGE> 70
the date of the merger agreement to the Effective Time, In Home Health, Inc.
agrees not to, without the prior written consent of ManorCare Health Services,
Inc.:
- issue, sell, grant, dispose of, pledge or otherwise encumber, or
authorize or propose the issuance, sale, disposition or pledge or other
encumbrance of (A) any additional shares of its capital stock or any
securities or rights convertible into, exchangeable for, or evidencing
the right to subscribe for any shares of its capital stock, or any
rights, warrants, option, calls, commitments or any other agreements of
any character to purchase or acquire any shares of its capital stock or
any securities or rights convertible into, exchangeable for, or
evidencing the right to subscribe for, any shares of its capital stock or
(B) any other securities in respect of, in lieu of, or in substitution
for, any shares of its capital stock outstanding on the date hereof other
than pursuant to the proper the exercise of stock options or warrants
outstanding as of the date hereof; (ii) redeem, purchase or otherwise
acquire, or propose to redeem, purchase or otherwise acquire, any of its
outstanding shares of capital stock; or (iii) split, combine, subdivide
or reclassify any shares of its capital stock or declare, set aside for
payment or pay any dividend, or make any other actual, constructive or
deemed distribution in respect of any shares of its capital stock or
otherwise make any payments to its shareholders in their capacity as
such;
- other than in the ordinary course of business consistent with past
practice, incur any indebtedness for borrowed money or guarantee any such
indebtedness or make any loans, advances or capital contributions to, or
investments in, any other person other than In Home Health, Inc.;
- sell, transfer, mortgage, encumber or otherwise dispose of any other than
a direct or indirect wholly owned subsidiary, or cancel, release or
assign any indebtedness to any such person or any claims held by any such
person, (i) pursuant to contracts or agreements in force at the date of
the merger agreement or (ii) pursuant to plans disclosed in writing prior
to the execution of the merger agreement to ManorCare Health Services,
Inc.;
- except for transactions in the ordinary course of business consistent
with past practice, make any material acquisition or investment either by
purchase of stock or securities, merger or consolidation, contributions
to capital, property transfers, or purchases of any property or assets of
any other individual, corporation or other entity other than a wholly
owned subsidiary thereof;
- amend its articles of incorporation, bylaws or similar governing
documents;
- enter into, amend, accelerate, vest or modify any employee benefit plan,
employment agreement or any other agreement, understanding or arrangement
providing for payments by or on behalf of In Home Health, Inc.; or
- make any commitment to or take any of these aforementioned actions.
In Home Health, Inc. agrees to give prompt notice to ManorCare Health
Services, Inc., and ManorCare Health Services, Inc. shall give prompt notice to
In Home Health, Inc., of (i) the occurrence, or non-occurrence of any event the
occurrence or non-occurrence of which would cause any representation or warranty
contained in the merger agreement to be untrue or inaccurate in any material
respect at or prior to the Effective Time and (ii) any material failure of In
Home Health, Inc. or ManorCare Health Services, Inc., as the case may be, to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by it hereunder; provided, however, that the delivery of any notice
pursuant to the merger agreement shall not limit or otherwise affect the
remedies available hereunder to the party receiving such notice.
The initial press release with respect to the execution of the merger
agreement will be a joint press release reasonably acceptable to ManorCare
Health Services, Inc. and In Home Health, Inc. Thereafter, so long as the merger
agreement is in effect, neither In Home Health, Inc., ManorCare Health Services,
Inc. nor any of their respective affiliates shall issue or cause the publication
of any press release or other announcement with respect to the merger, the
merger agreement or the other transactions contemplated thereby without the
prior consultation of the other party, except as may be required by law or by
any listing agreement with a national securities exchange.
63
<PAGE> 71
Except as otherwise required by applicable law, ManorCare Health Services,
Inc. agrees that it will cause In Home Health, Inc. to continue all employee
health and welfare benefits of In Home Health, Inc. (but not equity-based
employee benefits), as they are currently in effect, until March 31, 2001.
ManorCare Health Services, Inc. and In Home Health, Inc. have made further
agreements regarding, among other things, cooperating in the presentation of
required governmental filings, in obtaining required permits and regulatory
approvals and in granting access to information and maintaining confidentiality.
NO SOLICITATION
In Home Health, Inc. shall immediately cease and terminate any existing
solicitation, initiation, encouragement, activity, discussion or negotiation
with any person or entity conducted heretofore by In Home Health, Inc. or any of
its respective officers, directors, employees, agents or representatives with
respect to any proposed, potential or contemplated proposal or offer (other than
by ManorCare Health Services, Inc. or the IHHI Acquisition Corp.) for a tender
or exchange offer, merger, consolidation or other business combination involving
In Home Health, Inc. or any subsidiary of In Home Health, Inc., or any proposal
to acquire in any manner an equity interest which could result in such party
having a direct or indirect equity interest in or acquiring all or material
portion of the assets of In Home Health, Inc. or any subsidiary of In Home
Health, Inc., other than the transactions contemplated by the merger agreement.
From and after the date hereof, without the prior written consent of IHHI
Acquisition Corp., In Home Health, Inc. will not, and will not authorize or
permit any of its respective officers, directors, employees, agents or
representatives to, directly or indirectly, solicit, initiate or encourage
(including by way of furnishing information) or take any other action reasonably
designed to facilitate any inquiries or the making of any proposal which
constitutes or would reasonably be expected to lead to any proposal or offer
(other than by ManorCare Health Services, Inc. or the IHHI Acquisition Corp.)
for a tender or exchange offer, merger, consolidation or other business
combination involving In Home Health, Inc. or any subsidiary of In Home Health,
Inc., or any proposal to acquire in any manner an equity interest which could
result in such party having a direct or indirect equity interest in or acquiring
all or material portion of the assets of In Home Health, Inc. or any subsidiary
of In Home Health, Inc., other than the transactions contemplated by the merger
agreement.
In Home Health, Inc. may engage in discussions or negotiations with a third
party who (without any solicitation, initiation or encouragement, directly or
indirectly, by or with In Home Health, Inc. or any of its respective officers,
directors, employees, agents or representatives) seeks to initiate such
discussions or negotiations and may furnish such third party information
concerning In Home Health, Inc. and its business, properties and assets if, and
only to the extent that:
- the third party has first made a bona fide acquisition proposal to the
board of directors of In Home Health, Inc. in writing prior to the date
upon which the merger agreement shall have been approved and adopted by
the required vote of the shareholders of In Home Health, Inc.;
- In Home Health, Inc.'s board of directors concludes in good faith (after
consultation with its financial advisor) that the transaction
contemplated by such acquisition proposal is reasonably capable of being
completed, taking into account all legal, financial, regulatory and other
aspects of the such acquisition proposal and the party making such
acquisition proposal, and could, if consummated, reasonably be expected
to result in a transaction more favorable to In Home Health, Inc.'s
shareholders from a financial point of view than the merger contemplated
by the merger agreement; and
- In Home Health, Inc.'s board of directors shall have concluded in good
faith, after considering applicable provisions of state law, and after
consultation with outside counsel, that such action is required for the
board of directors to act in a manner consistent with its fiduciary
duties under applicable law.
64
<PAGE> 72
In Home Health, Inc. shall as promptly as practicable notify ManorCare
Health Services, Inc. and IHHI Acquisition Corp.:
- that In Home Health, Inc. has received a bona fide acquisition proposal
from a third party;
- that In Home health, Inc. is permitted to furnish information to, or to
enter into discussions or negotiations with, such third party pursuant to
the merger agreement; and
- of the identity of the third party making such acquisition proposal and
of all the terms and conditions of such proposal.
In Home Health, Inc. will keep ManorCare Health Services, Inc. and IHHI
Acquisition Corp. reasonably informed of the status and material terms of such
acquisition proposal and promptly advise the third party making such acquisition
proposal that In Home Health, Inc. will not participate in negotiations or
discussions with or provide information to such third party, unless and until
such third party authorizes In Home Health, Inc. to notify ManorCare Health
Services, Inc. and IHHI Acquisition Corp. of the acquisition proposal and of the
identity of the third party making such acquisition proposal and of all the
terms and conditions of such proposal.
Without limiting the foregoing, it is understood that any violation of the
restrictions set forth in the preceding sentence by a director or an officer of
In Home Health, Inc. or any investment banker, attorney or other Representative
of In Home Health, Inc., whether or not such person is purporting to act on
behalf of In Home Health, Inc. or otherwise, will be deemed to be a breach of
the merger agreement by In Home Health, Inc.
TERMINATION
The merger agreement may be terminated and the merger and the other
transactions contemplated thereby may be abandoned at any time prior to the
Effective Time, whether before or after the approval and adoption of the
proposed merger by the shareholders of In Home Health, Inc.:
- by the mutual consent of the ManorCare Health Services, Inc. board of
director and the In Home Health, Inc. special committee;
- by either of In Home Health, Inc. special committee or ManorCare Health
Services, Inc. if: (i) any governmental entity shall have issued an
order, decree, or ruling or taken any other action in each case
permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by the merger agreement and such order, decree,
ruling or other action shall have become final and nonappealable; or (ii)
if the Effective Time shall not have occurred by January 31, 2001
(provided that such termination will not be available to any party whose
material breach of any representation, warranty, covenant or agreement
under the merger agreement has been the cause of or resulted in the
failure of the Effective Time to have occurred); and
- by the ManorCare Health Services, Inc. board of directors if any of the
conditions stated in the merger agreement to ManorCare Health Services,
Inc.'s and IHHI Acquisition Corp.'s obligation to effect the merger shall
not have been satisfied on or prior to the earlier to occur of (i) the
closing date, or (ii) November 30, 2000.
In Home Health, Inc. may also terminate the merger agreement, prior to the
shareholders approval of the merger agreement, if:
- In Home Health, Inc. receives a superior proposal from a third party;
- the board of directors of In Home Health, Inc. conclude that failure to
enter into an agreement with respect to a superior proposal presented by
a third party would result in non-compliance by the board of directors of
In Home Health, Inc. with its fiduciary duties to shareholders of In Home
Health, Inc.;
65
<PAGE> 73
- In Home Health, Inc. has given IHHI Acquisition Corp. and ManorCare
Health Services, Inc. written notice at least five (5) days prior to the
earlier of such determination and the entering into such agreement;
- simultaneously with such termination, In Home Health, Inc. enters into
such third party superior proposal; and
- it pays to ManorCare Health Services, Inc. cash in the amount equal to
the sum of all reasonable out of pocket costs and expenses incurred by or
on behalf of ManorCare Health Services, Inc. and/or IHHI Acquisition
Corp. in connection with or related to the merger agreement and the
transactions contemplated thereby, including without limitation, the
merger, plus $70,000.
FEES AND EXPENSES
Whether or not the merger is consummated and except as otherwise provided
herein, all fees and expenses incurred in connection with the merger will be
paid by the party incurring such fees and expenses.
Under the terms of the merger agreement, In Home Health, Inc. will pay
ManorCare Health Services, Inc. certain costs, expenses and fees plus $70,000 if
the merger agreement is terminated under certain circumstances.
AMENDMENT/WAIVER
Before or after approval and adoption of the merger agreement by the
shareholders, the merger agreement, subject to applicable law, may be amended,
modified and supplemented in any and all respects, by the written agreement of
the parties thereto (which, in the case of In Home Health, Inc., shall require
approval of its board of directors upon the recommendation of the In Home
Health, Inc. special committee), at any time prior to the Closing Date with
respect to any of the terms contained therein, provided that after approval and
adoption of the merger agreement by the shareholders of In Home Health, Inc.,
the amount of the Merger Consideration shall not be decreased and the form of
the Merger Consideration shall not be altered without the approval of the
shareholders of In Home Health, Inc.
ManorCare Health Services, Inc., IHHI Acquisition Corp. or In Home Health,
Inc. may waive any condition to its obligations under the merger agreement, or
any breach, default or misrepresentation of any other party under the merger
agreement; provided, however, that no waiver by any party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
CERTAIN LITIGATION
On July 24, 2000, In Home Health, Inc. received notice of a suit filed in
Hennepin County District Court in Minneapolis, Minnesota, on July 21, 2000,
naming In Home Health, Inc., Manor Care, Inc., Paul A. Ormond, Clyde Michael
Ford, Eugene Terry, Keith Weikel and Geoffrey Meyers as defendants. Threats have
also been made to name Rodney A. Hildebrandt and Steven M. Cavanaugh as
defendants. The suit is styled as a class action on behalf of the plaintiff and
other shareholders of In Home Health, Inc. and alleges breach of fiduciary
duties and misrepresentation by In Home Health, Inc.'s directors, among other
claims. In Home Health, Inc. believes that the suit is without merit and intends
to vigorously defend the suit. Defendants have moved to dismiss the complaint
and plaintiffs have also moved to amend their complaint to add claims for
conflict of interest, unjust enrichment and fraud. The hearing on those motions
is currently scheduled for November 27, 2000. The results of such hearing will
not be available at the time of the printing and mailing of this proxy
statement.
66
<PAGE> 74
DISSENTERS' RIGHTS
Sections 302A.471 and 302A.473 of the Minnesota Business Corporation Act
provide to each shareholder the right to dissent from the merger, and obtain
payment in cash for the "fair value" of such shareholder's shares following the
consummation of the merger. The following summary of the applicable provisions
of Sections 302A.471 and 302A.473 of the Minnesota Business Corporation Act is
not intended to be a complete statement of such provisions and is qualified in
its entirety by reference to such sections, the full texts of which are attached
as Annex C to this proxy statement. These sections should be reviewed carefully
by any shareholder who wishes to exercise dissenters' rights or who wishes to
preserve the right to do so, since failure to comply fully with the procedures
set forth herein or therein will result in the loss of dissenters' rights.
Under the Minnesota Business Corporation Act, holders of common stock will
have the right, by fully complying with the applicable provisions of Sections
302A.471 and 302A.473, to dissent with respect to the merger and to receive from
the surviving corporation payment in cash of the "fair value" of their shares of
common stock after the merger is completed. The term "fair value" means the
value of the shares of common stock immediately before the effective date of the
merger.
All references in Sections 302A.471 and 302A.473 and in this summary to a
"shareholder" are to a record holder of the shares of common stock as to which
dissenters' rights are asserted. Except as provided in the next sentence, a
person having beneficial ownership of shares of common stock that are held of
record in the name of another person, such as a broker, nominee, trustee or
custodian, must act promptly to cause the record holder to follow the steps
summarized below properly and in a timely manner in order to perfect whatever
dissenters' rights such beneficial owner may have.
Shareholders who desire to exercise their dissenters' rights must satisfy
all of the following conditions.
Shareholders electing to exercise dissenters' rights must send a written
notice of intent to demand fair value, before the taking of the vote on the
merger agreement, to In Home Health, Inc., 601 Carlson Parkway, Suite 500,
Minnetonka, Minnesota 55305; Attention: C. Michael Ford. The written demand
should specify the shareholder's name and mailing address, the number of shares
owned and that the shareholder intends to demand the fair value of his or her
shares. This written demand must be in addition to and separate from any proxy
or vote against the merger. Voting against, abstaining from voting or failing to
vote on the merger does not by itself constitute a notice of intent to demand
fair value within the meaning of the Minnesota Business Corporation Act.
Shareholders electing to exercise their dissenters' rights under the
Minnesota Business Corporation Act must not vote for approval and adoption of
the merger agreement. A shareholder's failure to vote against the merger
agreement will not constitute a waiver of dissenters' rights. However, if a
shareholder returns a signed proxy but does not specify a vote against adoption
of the merger agreement or direction to abstain, the proxy will be voted for
approval and adoption of the merger agreement, which will have the effect of
waiving that shareholder's dissenters' rights.
An In Home Health, Inc. shareholder may not assert dissenters' rights as to
less than all of the shares registered in such shareholder's name except where
certain shares are beneficially owned by another person but registered in such
holder's name. If a record owner, such as a broker, nominee, trustee or
custodian, wishes to dissent with respect to shares beneficially owned by
another person, such shareholder must dissent with respect to all of such shares
and must disclose the name and address of the beneficial owner on whose behalf
the dissent is made. A beneficial owner of shares of common stock who is not the
record owner of such shares may assert dissenters' rights as to shares held on
such person's behalf, provided that such beneficial owner submits a written
consent of the record owner to In Home Health, Inc. at or before the time such
rights are asserted.
If the merger agreement is approved and adopted by the shareholders of In
Home Health, Inc. at the special meeting, the surviving corporation will send a
written notice to each shareholder who filed a written notice of intent to
demand fair value for such shareholder's shares and did not vote for approval
and adoption of the merger agreement. The notice will contain the address to
which the shareholder shall send a demand for
67
<PAGE> 75
payment and the stock certificates representing the dissenting shares in order
to obtain payment and the date by which they must be received, a form to be used
in connection therewith and other related information.
In order to receive fair value for the shareholder's shares, a dissenting
shareholder must, within 30 days after the date such notice was given (for which
purpose notice by the surviving corporation is deemed to have been given under
Minnesota law when deposited in the U.S. mail), demand the payment of fair value
for his or her shares, and deposit his or her stock certificates with the
surviving corporation at the address specified in such notice. A dissenting
shareholder will retain all rights as a shareholder until the Effective Time.
After a valid demand by a dissenting shareholder for payment and the related
stock certificates are received, or after the Effective Time, whichever is
later, the surviving corporation will remit to each dissenting shareholder who
has complied with the statutory requirements the amount that the surviving
corporation estimates to be the fair value of such shareholder's shares, with
interest commencing five days after the Effective Time at a rate prescribed by
statute. Remittance will be accompanied by the surviving corporation's closing
balance sheet and statement of income for a fiscal year ending not more than 16
months before the Effective Time, together with the surviving corporation's
latest available interim financial statements, an estimate of the fair value of
the shareholder's shares and a brief description of the method used to reach the
estimate, a brief description of the procedure to be followed if such holder
determines to demand supplemental payment and copies of Sections 302A.471 and
302A.473 of the Minnesota Business Corporation Act.
If the dissenting shareholder believes that the amount remitted by the
surviving corporation is less than the fair value of such holder's shares, plus
interest, the shareholder may give written notice to the surviving corporation
of such holder's own estimate of the fair value of the shares, plus interest,
within 30 days after the mailing date of the remittance and demand payment of
the difference. Such notice must be given at the executive offices of In Home
Health, Inc. at the address set forth above. A shareholder who fails to give
such written notice within this time period is entitled only to the amount
remitted by the surviving corporation.
Within 60 days after receipt of a demand for supplemental payment, the
surviving corporation must either pay the shareholder the amount demanded or
agreed to by such shareholder after discussion with the surviving corporation or
petition a court in Hennepin County, Minnesota for the determination of the fair
value of the shares, plus interest. The petition shall name as parties all
shareholders who have demanded supplemental payment and have not reached an
agreement with the surviving corporation. The court, after determining that the
shareholder or shareholders in question have complied with all statutory
requirements, may use any valuation method or combination of methods it deems
appropriate to use, whether or not used by the surviving corporation or the
dissenting shareholder, and may appoint appraisers to recommend the amount of
the fair value of the shares. The court's determination will be binding on all
In Home Health, Inc. shareholders who properly exercised dissenters' rights and
did not agree with the surviving corporation as to the fair value of the shares.
Dissenting shareholders are entitled to judgment in cash for the amount by which
the court-determined fair value per share, plus interest, exceeds the amount per
share, plus interest, remitted to the shareholders by the surviving corporation.
The shareholders shall not be liable to the surviving corporation for any
amounts paid by the surviving corporation which exceed the fair value of the
shares as determined by the court, plus interest. The costs and expenses of such
a proceeding, including the expenses and compensation of any appraisers, will be
determined by the court and assessed against the surviving corporation, except
that the court may, in its discretion, assess part or all of those costs and
expenses against any shareholder whose action in demanding supplemental payment
is found to be arbitrary, vexatious or not in good faith. The court may award
fees and expenses to an attorney for the dissenting shareholders out of the
amount, if any, awarded to such shareholders. If the court finds that the
surviving corporation has failed to comply substantially with Section 302A.473,
the court may assess against the surviving corporation such fees or expenses of
experts or attorneys as the court deems equitable. Fees and expenses of experts
or attorneys may also be assessed against any person who acted arbitrarily,
vexatiously or not in good faith in bringing the proceeding.
The surviving corporation may withhold the remittance of the estimated fair
value, plus interest, for any shares owned by any person who was not a
shareholder, or who is dissenting on behalf of a person who was not a beneficial
owner, on September 13, 2000, the date on which the proposed merger was first
announced to the public (the "Public Announcement Date"). The surviving
corporation will forward to any such dissenting shareholder who has complied
with all requirements in exercising dissenters' rights the notice and all other
68
<PAGE> 76
materials sent after shareholder approval and adoption of the merger to all
shareholders who have properly exercised dissenters' rights, together with a
statement of the reason for withholding the remittance and an offer to pay the
dissenting shareholder the amount listed in the materials if the shareholder
agrees to accept that amount in full satisfaction. The shareholder may decline
this offer and demand payment by following the same procedure as that described
for demand of supplemental payment by shareholders who owned their shares as of
the Public Announcement Date. Any shareholder who did not own shares on the
Public Announcement Date and who fails properly to demand payment will be
entitled only to the amount offered by the surviving corporation. Upon proper
demand by any such shareholder, rules and procedures applicable in connection
with receipt by the surviving corporation of the demand for supplemental payment
given by a dissenting shareholder who owned shares on the Public Announcement
Date will also apply to any shareholder properly giving a demand but who did not
own shares of record or beneficially on the Public Announcement Date, except
that any such shareholder is not entitled to receive any remittance from the
surviving corporation until the fair value of the shares, plus interest, has
been determined pursuant to such rules and procedures.
Shareholders considering exercising dissenters' rights should bear in mind
that the fair value of their shares determined under Sections 302A.471 and
302A.473 of the Minnesota Business Corporation Act could be more than, the same
as or, in certain circumstances, less than the consideration they would have
received pursuant to the merger agreement if they have not exercised dissenters'
rights with respect to their shares, and that the opinion of any investment
banking firm as to fairness, from a financial point of view, is not an opinion
as to fair value under Sections 302A.471 and 302A.473. Under Section 302A.471 of
the Minnesota Business Corporation Act, a shareholder has no right at law or
equity to set aside the adoption of the merger agreement or the consummation of
the merger, except if such adoption or consummation is fraudulent with respect
to such shareholder or In Home Health, Inc. Cash received pursuant to the
exercise of dissenters' rights would generally be taxed in a similar manner as
cash received in the merger. See "Special Factors -- Certain Federal Tax
Consequences."
IF YOU FAIL TO COMPLY FULLY WITH THE STATUTORY PROCEDURE SUMMARIZED ABOVE
YOU WILL FORFEIT YOUR RIGHT OF DISSENT AND WILL RECEIVE THE MERGER CONSIDERATION
FOR YOUR SHARES. SEE ANNEX C.
MARKET FOR THE COMMON STOCK
COMMON STOCK MARKET PRICE INFORMATION; DIVIDEND INFORMATION
In Home Health, Inc.'s common stock is traded on the Nasdaq National Market
under the symbol "IHHI." The following table shows, for the quarters indicated,
the per share high and low closing sale prices of the common stock on the Nasdaq
National Market based on published financial sources.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Fiscal Year Ending September 30, 1998
Third Quarter............................................. $4.125 $2.813
Fourth Quarter............................................ $3.375 $1.500
Fiscal Year Ending September 30, 1999
First Quarter............................................. $2.156 $1.125
Second Quarter............................................ $2.750 $1.094
Third Quarter............................................. $2.000 $1.125
Fourth Quarter............................................ $2.313 $1.500
Fiscal Year Ending September 30, 2000
First Quarter............................................. $3.375 $1.813
Second Quarter............................................ $3.000 $2.125
Third Quarter............................................. $3.000 $1.813
Fourth Quarter............................................ $3.625 $2.875
Fiscal Year Ending September 30, 2001
First Quarter (through November 20, 2000)................. $3.625 $3.500
</TABLE>
69
<PAGE> 77
The above table is adjusted for the one-for-three reverse stock split of
the In Home Health, Inc. common stock on December 1, 1998. In Home Health, Inc.
has not paid any dividends in respect of its common stock during the last two
years.
On May 31, 2000, the last full trading day prior to the public announcement
of an indication of interest in In Home Health, Inc., the high and low sales
prices of the common stock on the Nasdaq National Market were $2.047 and $1.969,
respectively, and the closing sale price was $1.969. On September 12, 2000, the
last full trading day prior to the day on which the execution of the merger
agreement was publicly announced, the closing sale price for the common stock on
the Nasdaq National Market was $3.313. On November 20, 2000, the last trading
day prior to the date this proxy statement was printed, the closing price for
the common stock on the Nasdaq National Market was $3.563. The market price for
common stock is subject to fluctuation and shareholders are urged to obtain
current market quotations.
COMMON STOCK PURCHASE INFORMATION
Except as described in this proxy statement, none of In Home Health, Inc.,
ManorCare Health Services, Inc., Manor Care of America, Inc., Manor Care, Inc.,
IHHI Acquisition Corp. or their executive officers or directors has engaged in
any transaction with respect to the common stock of In Home Health, Inc. within
the past 60 days. Except as set forth below, during the last two years, none of
In Home Health, Inc., ManorCare Health Services, Inc., Manor Care of America,
Inc., Manor Care, Inc. or IHHI Acquisition Corp. has purchased any In Home
Health, Inc. common stock:
<TABLE>
<CAPTION>
PURCHASER PURCHASE DATE NUMBER OF SHARES PURCHASE PRICE
--------- ------------- ---------------- --------------
<S> <C> <C> <C>
ManorCare Health Services, Inc. June 28, 2000 454,401 $3.375
ManorCare Health Services, Inc. June 29, 2000 461,734 $3.375
ManorCare Health Services, Inc. June 29, 2000 230,600 $3.375
</TABLE>
The average purchase price for shares of In Home Health, Inc.'s common stock
purchased by In Home Health, Inc., ManorCare Health Services, Inc., or IHHI
Acquisition Corp. during the third quarter of 2000 was $3.375 per share. See
"Special Factors -- Additional Consideration to be Paid to Heartland Advisors,
Inc."
70
<PAGE> 78
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of the record date,
except as otherwise indicated, concerning the beneficial ownership of In Home
Health, Inc.'s common stock by (1) each person or group known by In Home Health,
Inc. to beneficially own more than 5% of the outstanding shares of common stock;
(2) each director of In Home Health, Inc., (3) In Home Health, Inc.'s Chief
Executive Officer and the other executive officer of In Home Health, Inc.; and
(4) all of In Home Health, Inc.'s directors and executive officers as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF PERCENT OF
OF BENEFICIAL OWNER (1) SHARES COMMON STOCK (%)
----------------------- --------- ----------------
<S> <C> <C>
ManorCare Health Services, Inc.............................. 6,730,069(1) 75.8
333 North Summit Street
Toledo, Ohio 43699-0866
C. Michael Ford, Chairman of the............................ 16,671 *
Board of Directors and Interim Chief
Executive Officer and President
601 Carlson Parkway, Suite 500
Minnetonka, Minnesota 55305
Eugene Terry, Director...................................... 0 *
601 Carlson Parkway, Suite 500
Minnetonka, Minnesota 55305
Bruce Schroeder, Interim Chief Financial.................... 0 *
Officer, Interim Chief Operating Officer,
Interim Treasurer and Interim Secretary (2)
333 North Summit Street
Toledo, Ohio 43604
M. Keith Weikel, Director (2)............................... 0 *
333 North Summit Street
Toledo, Ohio 43604
Geoffrey G. Meyers, Director (2)............................ 0 *
333 North Summit Street
Toledo, Ohio 43604
All directors and executive officers as a group............. 16,671 *
(5 persons)
</TABLE>
-------------------------
* Less than one percent
(1) ManorCare Health Services, Inc. holds of record 3,396,735 shares of common
stock entitled to be voted on all matters brought before the special
meeting. ManorCare Health Services, Inc. also owns 200,000 shares of
preferred stock (convertible into 3,333,334 shares of common stock), which
can be voted only on proposals involving (i) the wind-up, dissolution,
liquidation of In Home Health, Inc. or revocation or forfeiture of In Home
Health, Inc.'s charter; (ii) amendments to In Home Health, Inc.'s articles
of incorporation; (iii) mergers, consolidations, or exchange agreements with
other companies; or (iv) sales, leases, transfers, or dispositions of all or
substantially all of In Home Health, Inc.'s assets not in the usual and
ordinary course of business pursuant to the second preferred stock
modification agreement between In Home Health, Inc. and ManorCare Health
Services, Inc.
(2) Mr. Weikel is Senior Executive Vice President, Chief Operating Officer and
Director of ManorCare Health Services, Inc. Mr. Meyers is Executive Vice
President, Chief Financial Officer and Treasurer of ManorCare Health
Services, Inc. Mr. Schroeder is Assistant Vice President of Manor Care, Inc.
71
<PAGE> 79
DIRECTORS AND MANAGEMENT
IN HOME HEALTH, INC.
Set forth below are the name and business address of each director and
executive officer of In Home Health, Inc., the present principal occupation or
employment of each such person and the name, principal business and address of
the corporation or other organization in which such occupation or employment of
each such person is conducted. Also set forth below are the material
occupations, positions, offices and employment of each such person and the name,
principal business and address of any corporation or other organization in which
any material occupation, position, office or employment of each such person was
held during the last five years. Messrs. Ford, Terry, Weikel and Meyers are
directors of In Home Health, Inc. Each person listed below is a citizen of the
United States.
NAME AND BUSINESS ADDRESS PRINCIPAL OCCUPATIONS
C. Michael Ford..............
601 Carlson Parkway
Suite 500
Minnetonka, Minnesota
55305 Chairman of the Board since February 2000.
Director since November 1998. Mr. Ford has also
served as Interim Chief Executive Officer and
President from February, 2000 to June 28, 2000
and July 7, 2000 to present. Since October 1990
Mr. Ford has been the owner and Chairman of the
Board of Montpelier Corporation, P.O. Box 5128,
Macon, Georgia 31208. Since October 1999, Mr.
Ford has been a director of Krug International
Corporation, 900 Circle 75 Parkway, Suite 1300,
Atlanta, Georgia 30339. Mr. Ford served as Vice
President, Development of HCA-The Healthcare
Company, One Park Plaza, Nashville, Tennessee
37203, from September 1994 to September 1997.
Eugene Terry.................
601 Carlson Parkway
Suite 500
Minnetonka, Minnesota 55305 Director since September 1999. Since 1997, Mr.
Terry has been a principal of TC Solutions, a
consulting, venture capital firm, 17759 Lake
Estate, Boca Raton, Florida 33496. Since 1998,
Mr. Terry has served as a director of Windsor
Capital, 7200 West Camino Real, Boca Raton,
Florida 33433. Since 1994, Mr. Terry has served
as Vice Chairman and director of Proxymed, a
publicly traded Healthcare e-commerce firm,
2501 Davie Road, Fort Lauderdale, Florida
33170. Since 1989, Mr. Terry has served as a
director of Ivonyx, a home infusion company,
1782 North Laurel Park, Livonia, Michigan
48512.
M. Keith Weikel..............
333 North Summit Street
Toledo, Ohio 43604 Director since July 7, 2000. Since 1991, Mr.
Weikel has served as Senior Executive Vice
President of Manor Care, Inc. and director of
Manor Care, Inc., 333 North Summit Street,
Toledo, Ohio 43604.
Mr. Geoffrey G. Meyers.......
333 North Summit Street
Toledo, Ohio 43604 Director since July 7, 2000. Since 1991, Mr.
Meyers has been Executive Vice President, Chief
Financial Officer and Treasurer of Manor Care,
Inc., 333 North Summit Street, Toledo, Ohio
43604.
Bruce Schroeder..............
333 North Summit Street
Toledo, Ohio 43604 Interim Chief Financial Officer, Interim
Treasurer and Interim Secretary since October
24, 2000. Interim Chief Operating Officer since
September 12, 2000. Since September 3, 1999,
Mr. Schroeder has served as Assistant Vice
President for Manor Care, Inc., 333 North
Summit Street, Toledo, Ohio 43604. From
December 1, 1996 to September 3, 1999, he
served as Director of Finance for HCR Home
Health, Inc. 333 North Summit Street, Toledo,
Ohio 43604. From January 1, 1994 to December 1,
1996, Mr. Schroeder served as a financial
analyst for HCR Home Health, Inc. 333 North
Summit Street, Toledo, Ohio 43604.
72
<PAGE> 80
During the last five years, none of In Home Health, Inc., nor, to the
knowledge of In Home Health, Inc., any person named above, (i) has been
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors), or (ii) has been a party to any judicial or administrative
proceeding that resulted in a judgment, decree or final order enjoining such
person from future violations of, or prohibiting activities subject to, federal
or state securities laws, or a finding or any violation of federal or state
securities laws.
MANORCARE HEALTH SERVICES, INC. AND IHHI ACQUISITION CORP.
Certain information with respect to each executive officer and director of
IHHI Acquisition Corp. and ManorCare Health Services, Inc. and their controlling
corporations, Manor Care of America, Inc. and Manor Care, Inc. is set forth on
Annex D attached hereto and is incorporated herein by reference.
During the last five years, none of IHHI Acquisition Corp., ManorCare
Health Services, Inc., Manor Care of America, Inc., Manor Care, Inc., nor, to
the knowledge of IHHI Acquisition Corp., ManorCare Health Services, Inc., Manor
Care of America, Inc., or Manor Care, Inc., any person named on Annex D, (i) has
been convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors), or (ii) has been a party to any judicial or administrative
proceeding that resulted in a judgment, decree or final order enjoining such
person from future violations of, or prohibiting activities subject to, federal
or state securities laws, or a finding or any violation of federal or state
securities laws.
INDEPENDENT AUDITORS
The firm of Deloitte & Touche LLP has served as In Home Health, Inc.'s
independent auditors since 1984. The consolidated financial statements of In
Home Health, Inc. for each of the years in the three year period ended September
30, 1999 included in In Home Health, Inc.'s Annual Report on Form 10-K for the
fiscal year ended September 30, 1999 have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing therein. It is
expected that representatives of Deloitte & Touche LLP will be present at the
special meeting, both to respond to appropriate questions of shareholders of In
Home Health, Inc. and to make a statement if they so desire.
SHAREHOLDER PROPOSALS
The proxy rules of the Securities and Exchange Commission permit
shareholders, after timely notice to issuers, to present proposals for
shareholder action in issuer proxy statements where such proposals are
consistent with applicable law, pertain to matters appropriate for shareholder
action and are not properly omitted by issuer action in accordance with the
proxy rules. If the merger is consummated, there will be no public shareholders
of In Home Health, Inc. and no public participation in any future meetings of
shareholders of In Home Health, Inc. However, if the merger is not consummated,
In Home Health, Inc.'s public shareholders will continue to be entitled to
attend and participate in In Home Health, Inc. shareholders' meetings. If the
merger is not consummated, In Home Health, Inc.'s next annual meeting of
shareholders (for the fiscal year ending September 30, 2000) is expected to be
held on or about March 1, 2001 and proxy materials in connection with that
meeting are expected to be mailed on or about January 16, 2001. Any shareholder
proposals prepared in accordance with the proxy rules for inclusion in In Home
Health, Inc.'s proxy materials for that meeting should have been received by In
Home Health, Inc. on or before September 20, 2000 to have complied with the
rules of the Securities and Exchange Commission. In addition, if In Home Health,
Inc. receives notice of a shareholder proposal after January 26, 2001, such
proposal will be considered untimely pursuant to In Home Health, Inc.'s by-laws
and the persons named as proxies solicited for In Home Health, Inc.'s 2001
Annual Meeting may exercise discretionary voting power with respect to such
proposal.
73
<PAGE> 81
WHERE YOU CAN FIND MORE INFORMATION
The Securities and Exchange Commission allows In Home Health, Inc. to
"incorporate by reference" information into this proxy statement, which means
that In Home Health, Inc. can disclose important information by referring you to
another document filed separately with the Securities and Exchange Commission.
The following documents previously filed by In Home Health, Inc. with the
Securities and Exchange Commission are incorporated by reference in this proxy
statement and are deemed to be a part hereof:
(1) In Home Health, Inc.'s Annual Report on Form 10-K for the fiscal year
ended September 30, 1999;
(2) In Home Health, Inc.'s Quarterly Report on Form 10-Q for the fiscal
quarter ended December 31, 1999;
(3) In Home Health, Inc.'s Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 2000;
(4) In Home Health, Inc.'s Current Report on Form 8-K, filed on June 5,
2000;
(5) In Home Health, Inc.'s Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 2000;
(6) In Home Health, Inc.'s Current Report on Form 8-K, filed on July 12,
2000;
(7) In Home Health, Inc.'s Current Report on Form 8-K, filed on September
14, 2000.
All documents subsequently filed by In Home Health, Inc. pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended, prior to the special meeting, shall be deemed to be incorporated by
reference into this proxy statement. Any statement contained in a document
incorporated by reference herein shall be deemed to be modified or superseded
for all purposes to the extent that a statement contained in this proxy
statement modifies or replaces such statement.
In Home Health, Inc. undertakes to provide by first class mail, without
charge and within one business day of receipt of any written or oral request, to
any person to whom a copy of this proxy statement has been delivered, a copy of
any or all of the documents referred to above which have been incorporated by
reference in this proxy statement, other than exhibits to such documents (unless
such exhibits are specifically incorporated by reference therein). Requests for
such copies should be directed to C. Michael Ford, In Home Health, Inc., 601
Carlson Parkway, Suite 500, Minnetonka, Minnesota 55305; telephone number: (612)
449-7500.
OTHER BUSINESS
Under Minnesota law, the business conducted at a special meeting of
shareholders is limited to the purposes stated in the notice of the meeting.
Thus no other business may be conducted at the special meeting, other than as
stated in the notice of meeting that accompanies this proxy statement.
AVAILABLE INFORMATION
No person is authorized to give any information or to make any
representations, other than as contained in this proxy statement, in connection
with the merger agreement or the merger, and, if given or made, such information
or representations may not be relied upon as having been authorized by In Home
Health, Inc., ManorCare Health Services, Inc. or IHHI Acquisition Corp. The
delivery of this proxy statement shall not, under any circumstances, create any
implication that there has been no change in the information set forth herein or
in the affairs of In Home Health, Inc. since the date hereof.
Because the merger is a "going private" transaction under the rules of the
Securities Exchange Commission, Manor Care, Inc., Manor Care of America, Inc.,
ManorCare Health Services, Inc., IHHI Acquisition Corp. and In Home Health, Inc.
have filed with the Securities and Exchange Commission a Rule 13e-3 Transaction
Statement on Schedule 13E-3 under the Securities Exchange Act of 1934, as
amended,
74
<PAGE> 82
with respect to the merger. This proxy statement does not contain all of the
information set forth in the Schedule 13E-3 and the exhibits thereto. Copies of
the Schedule 13E-3 and the exhibits thereto are available for inspection and
copying at the principal executive offices of In Home Health, Inc. during
regular business hours by any interested shareholder of In Home Health, Inc., or
a representative who has been so designated in writing, and may be inspected and
copied, or obtained by mail, by written request directed to the C. Michael Ford,
In Home Health, Inc., 601 Carlson Parkway, Suite 500, Minnetonka, Minnesota
55305, or from the Securities and Exchange Commission as described below.
In Home Health, Inc. is currently subject to the information requirements
of the Securities Exchange Act of 1934, as amended, and in accordance therewith
files periodic reports, proxy statements and other information with the
Securities and Exchange Commission relating to its business, financial and other
matters. Copies of such reports, proxy statements and other information, as well
as the Schedule 13E-3 and the exhibits thereto, may be copied (at prescribed
rates) at the public reference facilities maintained by the Securities and
Exchange Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549. For further information concerning the Securities and Exchange
Commission's public reference rooms, you may call the Securities and Exchange
Commission at 1-800-SEC-0330. Some of this information may also be accessed on
the World Wide Web through the Securities and Exchange Commission's Internet
address at "http://www.sec.gov." In Home Health, Inc.'s common stock is listed
on the Nasdaq National Market (ticker symbol: IHHI).
75
<PAGE> 83
ANNEX A
AGREEMENT AND PLAN OF MERGER
Agreement and Plan of Merger (this "Agreement"), dated as of September 13,
2000, by and among ManorCare Health Services, Inc., a Delaware corporation
("Parent"), IHHI Acquisition Corp., a Minnesota corporation and a wholly-owned
Subsidiary of Parent (the "Purchaser"), and In Home Health, Inc., a Minnesota
corporation (the "Company" and, together with Purchaser, hereinafter sometimes
referred to as the "Constituent Corporations").
WHEREAS, the Board of Directors of Parent (the "Parent Board"), the Board
of Directors of Purchaser, Parent as the sole shareholder of Purchaser, and the
Board of Directors of the Company, based upon the recommendation of a special
committee of its independent directors (the "Company Special Committee"), have
approved this Agreement, and determined that it is in the best interests of
their respective companies and shareholders to consummate this Agreement and the
transactions provided for herein;
WHEREAS, Parent has proposed acquiring the Company by effecting the Merger
(as defined herein) pursuant to this Agreement, whereby the shares of the
outstanding common stock, par value $.03 per share, of the Company (the "Shares"
or "Company Common Stock"), except as otherwise provided herein, will be
converted into cash at a price of $3.70 per Share;
WHEREAS, Parent is the owner of a majority of the issued and outstanding
shares of the Company Common Stock and all of the issued and outstanding shares
of the preferred stock of the Company, consisting of 200,000 shares of Series A
Preferred Stock, par value $1.00 per share, of the Company (the "Series A
Preferred Stock"), which shares of Series A Preferred Stock are entitled to
vote, together with the shares of Company Common Stock, as a single class with
respect to this Agreement and the Merger (with each share of Series A Preferred
Stock being entitled to cast 16.67 votes per share); and
WHEREAS, the Company, Parent and Purchaser desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger.
NOW, THEREFORE, in consideration of the foregoing premises and the
respective representations, warranties, covenants and agreements set forth
herein, the parties hereto agree as follows:
ARTICLE I.
THE MERGER
Section 1.01 Company Actions.
(a) The Company hereby approves of the Merger and represents that, upon the
recommendation of the Company Special Committee, its Board of Directors, at a
meeting duly called and held, has (i) approved this Agreement (including all
terms and conditions set forth herein) and the transactions contemplated hereby,
including the Merger, determining that the Merger is advisable and that the
terms of the Merger are fair to, and in the best interests of, the Company and
its shareholders, (ii) directed that this Agreement and the Merger be submitted
to a vote of the shareholders of the Company, and (iii) resolved to recommend
that the shareholders of the Company approve and adopt this Agreement and the
Merger. The Company represents that Section 302A.673 of the Minnesota Business
Corporation Act, as amended (the "MBCA"), does not limit in any respect the
transactions contemplated by this Agreement. The Company hereby consents to the
inclusion in the Proxy Documents (as defined herein) of the recommendation of
its Board of Directors described in clause (iii) of the first sentence of this
Section 1.01.
(b) In connection with the Merger, the Company shall promptly furnish or
cause to be furnished to the Parent mailing labels, security position listings
and any available listing or computer file containing the names and addresses of
the record holders of the Shares as of a recent date, and shall furnish the
Parent with such information and assistance as the Parent or its agents may
reasonably request in communicating with the shareholders of the Company with
respect to the Merger. Except for such steps as are necessary to
A-1
<PAGE> 84
disseminate the Proxy Documents and subject to the requirements of applicable
law, Parent shall, and shall cause the Purchaser to, hold in confidence the
information contained in any of such labels and lists and the additional
information referred to in the preceding sentence and shall use such information
only in connection with the Merger.
Section 1.02 The Merger. Subject to the terms and conditions of this
Agreement and the provisions of the MBCA, at the Effective Time (as defined
herein), the Company and the Purchaser shall consummate a merger (the "Merger")
pursuant to which (a) the Purchaser shall be merged with and into the Company
and the separate corporate existence of the Purchaser shall thereupon cease, (b)
the Company shall be the surviving corporation in the Merger (the "Surviving
Corporation"), its name shall continue to be "In Home Health, Inc." and it shall
continue to be governed by the laws of the State of Minnesota, and (c) the
separate corporate existence of the Company with all its rights, privileges,
immunities, powers and franchises shall continue unaffected by the Merger.
Pursuant to the Merger, (x) the Articles of Incorporation of the Purchaser, in
the form attached as Exhibit A hereto, shall be the Articles of Incorporation of
the Surviving Corporation until thereafter amended as provided by law and such
Articles of Incorporation, provided, that Article I of the Articles of
Incorporation of the Surviving Corporation shall be amended at the Effective
Time, without any further action of the shareholders of the Company or
Purchaser, to read in its entirety as follows: "The name of the Corporation is
In Home Health, Inc." and (y) the By-laws of the Purchaser, as in effect
immediately prior to the Effective Time, shall be the By-laws of the Surviving
Corporation until thereafter amended as provided by law, the Articles of
Incorporation and such By-laws. The Merger shall have the effects set forth in
the MBCA.
Section 1.03 Effective Time. Parent shall cause the Purchaser to, and the
Company shall, execute and file on the Closing Date (as defined in Section 1.04)
(or on such later date as Parent and the Company may agree) with the Secretary
of State of the State of Minnesota (the "Secretary of State") appropriate
Articles of Merger (the "Articles of Merger") as provided in the MBCA. The
Merger shall become effective on the date on which the Articles of Merger are
duly filed with the Secretary of State or such later date and time as is agreed
upon by the Constituent Corporations and specified in the Articles of Merger,
and such date and time is hereinafter referred to as the "Effective Time."
Section 1.04 Closing. The closing of the Merger (the "Closing") shall take
place at 10:00 a.m., on a date to be specified by the parties, which shall be as
soon as practicable, but in no event later than the third business day, after
satisfaction or waiver of all of the conditions set forth in Article VI hereof
(the "Closing Date"), at the offices of Latham & Watkins, Sears Tower, Suite
5800, Chicago, Illinois 60606, unless another date, time or place is agreed to
in writing by the parties hereto.
Section 1.05 Directors and Officers of the Surviving Corporation. The
directors of the Purchaser and the officers of the Company immediately prior to
the Effective Time shall, from and after the Effective Time, be the directors
and officers, respectively, of the Surviving Corporation until their successors
shall have been duly elected or appointed or qualified or until their earlier
death, resignation or removal in accordance with the Surviving Corporation's
Articles of Incorporation and By-laws.
Section 1.06 Shareholders' Meeting.
(a) As required by applicable law in order to consummate the Merger, the
Company, acting through its Board of Directors, shall, in accordance with
applicable law: (i) use its reasonable efforts to duly call, give notice of,
convene and hold a special meeting of its shareholders (the "Special Meeting")
as soon as practicable following the date of this Agreement for the purpose of
considering and taking action upon this Agreement; (ii) prepare and file with
the Securities and Exchange Commission ("SEC") a preliminary proxy or
information statement relating to the Merger and this Agreement and use its
reasonable efforts (x) to obtain and furnish the information required to be
included by the federal securities laws (and the rules and regulations
thereunder) in the Proxy Statement (as hereinafter defined) and, after
consultation with Parent, to respond promptly to any comments made by the SEC
with respect to the preliminary proxy or information statement and cause a
definitive proxy or information statement (the "Proxy Statement") to be mailed
to its shareholders, and (y) to obtain the necessary approvals of the Merger and
this Agreement by its shareholders; and (iii) include in the Proxy Statement the
recommendation of the Board that shareholders of the Company
A-2
<PAGE> 85
vote in favor of the approval of the Merger and this Agreement (the Proxy
Statement, together with such related materials sent to the Company
shareholders, collectively, the "Proxy Documents"). The Company shall submit
this Agreement and the Merger to a vote of the shareholders of the Company at
the Special Meeting whether or not the Board of Directors of the Company or the
Company Special Committee determines at any time after its approval of this
Agreement that this Agreement is no longer advisable and recommends that the
shareholders of the Company reject this Agreement.
(b) Parent shall provide the Company with the information concerning Parent
and Purchaser required to be included in the Proxy Statement. Parent shall vote,
or cause to be voted, all of the shares of Company Common Stock and Series A
Preferred Stock then owned by it, the Purchaser or any of its other Subsidiaries
and affiliates in favor of the approval of the Merger and of this Agreement.
ARTICLE II.
CONVERSION OF SECURITIES
Section 2.01 Conversion of Capital Stock.
The manner and basis of converting the shares of capital stock of each of
the Constituent Corporations is set forth in this Section 2.01. As of the
Effective Time, by virtue of the Merger and without any action on the part of
the holders of any shares of Company Common Stock or common stock, par value
$.01 per share, of the Purchaser (the "Purchaser Common Stock"):
(a) Purchaser Common Stock. Each issued and outstanding share of the
Purchaser Common Stock shall be converted into and become one validly issued,
fully paid and nonassessable share of common stock, $.01 par value per share, of
the Surviving Corporation, which shall constitute the only issued and
outstanding shares of capital stock of the Surviving Corporation immediately
after the Effective Time.
(b) Cancellation of Certain Shares. All shares of Company Common Stock
owned by any Subsidiary (as defined in Section 3.01) of the Company and any
shares of Company Common Stock or Series A Preferred Stock owned by Parent, the
Purchaser or any other wholly owned Subsidiary of Parent shall be cancelled and
retired and shall cease to exist and no consideration shall be delivered in
exchange therefor.
(c) Conversion of Shares of Company Common Stock. Each issued and
outstanding share of Company Common Stock (other than Shares to be cancelled in
accordance with Section 2.01(b) and any Dissenting Common Stock (as defined in
Section 2.03 hereof)), shall be converted into the right to receive cash in the
amount of $3.70, without interest, payable to the holder thereof (the "Merger
Consideration"), prorated for fractional shares, upon surrender of the
certificate formerly representing such share of Company Common Stock in the
manner provided in Section 2.02 hereof. All such shares of Company Common Stock,
when so converted, shall no longer be outstanding and shall automatically be
cancelled and retired and shall cease to exist, and each holder of a certificate
representing any such shares shall cease to have any rights with respect
thereto, except the right to receive the Merger Consideration therefor upon the
surrender of such certificate in accordance with Section 2.02 hereof, without
interest.
Section 2.02 Exchange of Certificates.
(a) Paying Agent. Parent shall designate a bank or trust company (the
"Paying Agent") reasonably acceptable to the Company to make the payments of the
funds to which holders of shares of Company Common Stock shall become entitled
pursuant to Section 2.01(c) hereof. Prior to the Effective Time, Parent shall
take all steps necessary to deposit or cause to be deposited with the Paying
Agent such funds for timely payment thereunder. Such funds shall be invested by
the Paying Agent as directed by Parent or the Surviving Corporation.
(b) Exchange Procedures. As soon as practicable after the Effective Time,
but in no event more than three (3) business days thereafter, Parent shall cause
the Paying Agent to mail to each holder of record of a certificate or
certificates, which immediately prior to the Effective Time represented
outstanding shares of
A-3
<PAGE> 86
Company Common Stock (the "Certificates"), whose shares were converted pursuant
to Section 2.01(c) hereof into the right to receive the Merger Consideration,
(i) a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Paying Agent and shall be in such form and
have such other provisions as Parent and the Surviving Corporation may
reasonably specify), and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for payment of the Merger Consideration. Upon
surrender of a Certificate for cancellation to the Paying Agent, together with
such letter of transmittal, duly executed, the holder of such Certificate shall
be entitled to receive in exchange therefor the Merger Consideration (subject to
subsection (f) below), for each share of Company Common Stock (prorated for
fractional shares) formerly represented by such Certificate and the Certificate
so surrendered shall forthwith be cancelled; provided, however, that such
aggregate amount shall be rounded up to the nearest whole cent. If payment of
the Merger Consideration is to be made to a person other than the person in
whose name the surrendered Certificate is registered, it shall be a condition of
payment that the Certificate so surrendered shall be properly endorsed or shall
be otherwise in proper form for transfer and that the person requesting such
payment shall have paid any transfer and other taxes required by reason of the
payment of the Merger Consideration to a person other than the registered holder
of the Certificate surrendered or shall have established to the satisfaction of
the Surviving Corporation that such tax either has been paid or is not
applicable. Until surrendered as contemplated by this Section 2.02, each
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive the Merger Consideration in cash as contemplated by
this Section 2.02.
(c) Lost, Stolen or Destroyed Certificates. In the event that any
Certificate or Certificates shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming such Certificate or
Certificates to have been lost, stolen or destroyed, the amount to which such
person would have been entitled under Section 2.02(b) hereof but for failure to
deliver such Certificate or Certificates to the Paying Agent shall nevertheless
be paid to such person; provided, however, that the Surviving Corporation may,
in its sole discretion and as a condition precedent to such payment, require
such person to give the Surviving Corporation an indemnity agreement in form and
substance satisfactory to the Surviving Corporation and if reasonable deemed
advisable by the Surviving Corporation, a bond in such sum as it may reasonably
direct as indemnity against any claim that may be had against the Surviving
Corporation or Parent with respect to the Certificate or Certificates alleged to
have been lost, stolen or destroyed.
(d) Transfer Books; No Further Ownership Rights in Company Common
Stock. At the Effective Time, the stock transfer books of the Company shall be
closed and thereafter there shall be no further registration of transfers of
shares of Company Common Stock on the records of the Company. From and after the
Effective Time, the holders of Certificates evidencing ownership of shares of
Company Common Stock outstanding immediately prior to the Effective Time shall
cease to have any rights with respect to such Shares, except as otherwise
provided for herein or by applicable law. If, after the Effective Time,
Certificates for Shares subject to Section 2.01(c) are presented to the
Surviving Corporation for any reason, they shall be cancelled in exchange for
the Merger Consideration for each Share represented by such Certificate as
provided in this Article II.
(e) Termination of Fund; No Liability. At any time following six months
after the Effective Time, the Surviving Corporation shall be entitled to require
the Paying Agent to deliver to it any funds (including any interest received
with respect thereto) which had been made available to the Paying Agent and
which have not been disbursed to holders of Certificates, and thereafter such
holders shall be entitled to look only to the Surviving Corporation (subject to
abandoned property, escheat or other similar laws) as general creditors thereof
with respect to the payment of any Merger Consideration that may be payable upon
surrender of any Certificates such shareholder holds, as determined pursuant to
this Agreement, without any interest thereon. Notwithstanding the foregoing,
neither the Surviving Corporation nor the Paying Agent shall be liable to any
holder of a Certificate for Merger Consideration delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
(f) Withholding Taxes. As specified in the Proxy Documents or otherwise
required by law, Parent, the Purchaser, the Surviving Corporation and the Paying
Agent shall be entitled to deduct and withhold from the consideration otherwise
payable to a holder of Shares pursuant to the Offer or Merger such amounts as
Parent,
A-4
<PAGE> 87
the Purchaser, the Surviving Corporation or the Paying Agent is required to
deduct and withhold with respect to the making of such payment under the
Internal Revenue Code of 1986, as amended (the "Code"), or any provision of
state, local or foreign tax law. To the extent amounts are so withheld by
Parent, the Purchaser, the Surviving Corporation or the Paying Agent, the
withheld amounts (i) shall be treated for all purposes of this Agreement as
having been paid to the holder of the Shares in respect of which the deduction
and withholding was made, and (ii) shall be promptly paid over to the applicable
taxing authority.
Section 2.03 Dissenting Common Stock. Notwithstanding any provision of
this Agreement to the contrary, if and to the extent required by the MBCA,
shares of Company Common Stock which are issued and outstanding immediately
prior to the Effective Time and which are held by holders of such shares of
Company Common Stock who have properly exercised dissenters' rights with respect
thereto in accordance with Sections 302A.471 and 302A.473 of the MBCA and have
not withdrawn or lost such rights (the "Dissenting Common Stock"), shall not be
converted into or represent the right to receive the Merger Consideration, and
holders of such shares of Dissenting Common Stock shall be entitled to receive
payment of the fair value of such shares of Dissenting Common Stock in
accordance with the provisions of Section 302A.473 of the MBCA unless and until
such holders fail to perfect or effectively withdraw or otherwise lose their
rights to dissent and payment under Sections 302A.471 and 302A.473 of the MBCA.
If, after the Effective Time, any such holder fails to perfect or effectively
withdraws or loses such right, such shares of Dissenting Common Stock shall
thereupon be treated as if they had been converted into and to have become, for
each such share, at the Effective Time, the right to receive the Merger
Consideration, without any interest thereon. Notwithstanding anything to the
contrary contained in this Section 2.03, if (i) the Merger is rescinded or
abandoned or (ii) the shareholders of the Company do not approve the Merger and
the Merger Agreement, then the right of any shareholder to be paid the fair
value of such shareholder's shares of Dissenting Common Stock pursuant to
Section 302A.473 of the MBCA shall cease. The Company shall give Parent prompt
notice of any notice of intent to demand payment of fair value of any shares of
Company Common Stock under Section 302A.473 of the MBCA received by the Company
with respect to shares of Dissenting Common Stock, and Parent shall have the
right to participate in all negotiations and proceedings with respect to such
demands. The Company shall not, except with the prior written consent of Parent,
make any payment with respect to any dissenters' rights or offer to settle or
settle any demands made by holders of any shares of Dissenting Common Stock.
Section 2.04 Company Option Plans. Parent and the Company shall take all
actions necessary (including, without limitation, the execution and delivery by
the Company and each of the holders of employee stock options to purchase shares
of Company Common Stock ("Options") of one or more agreements of the type
described in Section 6.02(g)) to provide that, effective as of the Effective
Time, (i) each outstanding Option granted under the Company's 1987 Stock Option
Plan and 1995 Stock Option Plan (collectively, the "Stock Plan"), whether or not
then exercisable or vested, shall be cancelled, and (ii) in consideration of
such cancellation, the Company (or, at Parent's option, the Purchaser) shall pay
to such holders of Options an amount in cash in respect thereof equal to the sum
of (A) Two-Hundred and Fifty Dollars ($250); plus (B) the number of shares of
Company Common Stock subject to the unexercised Options to be surrendered by the
holder thereof with a purchase or exercise price less than $3.70 per share,
multiplied by the difference, if any, between $3.70 and the purchase or exercise
price for such Option as set forth in the applicable option agreement; plus (C)
the number of shares of Company Common Stock subject to the unexercised Options
to be surrendered by the holder thereof with a purchase or exercise price of at
least $3.70 per share multiplied by $0.10 (such payment to be net of applicable
withholding taxes). As of the Effective Time, the Stock Plan shall terminate and
all rights under any provision of any other plan, program or arrangement
providing for the issuance or grant of any other interest in respect of the
capital stock of the Company or any Subsidiary of the Company shall be
cancelled. The Company shall take all action necessary to ensure that, after the
Effective Time, no person shall have any right under the Stock Plan or any other
plan, program or arrangement with respect to equity securities of the Company,
or any direct or indirect Subsidiary of the Company.
A-5
<PAGE> 88
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to each of Parent and the Purchaser, as
of the date hereof and at the Closing Date, as follows:
Section 3.01 Corporate Organization. Each of the Company and its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization and has the
corporate power and authority to own or lease all of its properties and assets
and to carry on its business as it is now being conducted. Each of the Company
and its Subsidiaries is duly licensed or qualified to do business in each
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it makes
such licensing or qualification necessary, except where the failure to be so
licensed or qualified would not reasonably be expected to have, when aggregated
with all other such failures, a Material Adverse Effect (as defined below) on
the Company ("Company Material Adverse Effect"). As used in this Agreement, (a)
the term "Material Adverse Effect" means, (i) a material adverse effect on the
business, results of operations, financial condition or prospects of such party
or any of its Subsidiaries, either individually or in the aggregate, including,
without limitation, any adverse effect that results in or gives rise to, or is
reasonably likely to result in or give rise to, the creation, incurrence or
imposition of any liability, individually or in the aggregate, in excess of
$250,000, with respect to such party (including, in the case of the Company, the
Surviving Corporation), or (ii) a material adverse effect on the party's ability
to consummate the transactions contemplated hereby, and (b) the term
"Subsidiary" when used with respect to any party means any corporation,
partnership or other organization, whether incorporated or unincorporated, of
which (i) at least a majority of the securities or other interests having by
their terms voting power to elect a majority of the board of directors or others
performing similar functions with respect to such corporation or other
organization is directly or indirectly beneficially owned or controlled by such
party or by any one or more of its subsidiaries, or by such party and one or
more of its subsidiaries, or (ii) such party or any subsidiary of such party is
a general partner of a partnership or a manager of a limited liability company.
The copies of the Articles of Incorporation and Bylaws (or similar
organizational documents) of the Company, which have previously been made
available to Parent, are true, complete and correct copies of such documents as
in effect as of the date of this Agreement and as of the Closing Date.
Section 3.02 Capitalization.
(a) The authorized capital stock of the Company consists of 13,333,333
shares of Company Common Stock and 1,000,000 shares of preferred stock, of which
200,000 shares have been designated as Series A Preferred Stock. At the close of
business on July 31, 2000, there were 5,540,224 shares of Company Common Stock
issued and outstanding and 200,000 shares of Series A Preferred Stock issued and
outstanding, all of which issued and outstanding Series A Preferred Stock is
owned of record by Parent. As of June 30, 2000, there were 381,385 shares of
Company Common Stock issuable upon the exercise of outstanding Options pursuant
to the Stock Plan. Except as set forth in Section 3.02(a) of the disclosure
schedule of the Company delivered to Parent concurrently herewith (the "Company
Disclosure Schedule"), all of the issued and outstanding shares of Company
Common Stock and Series A Preferred Stock have been duly authorized and validly
issued and are fully paid, nonassessable and free of preemptive rights, with no
personal liability attaching to the ownership thereof. Except as set forth in
Section 3.02(a) of the Company Disclosure Schedule, since June 30, 2000 the
Company has not issued any shares of its capital stock or any securities
convertible into or exercisable for any shares of its capital stock, other than
pursuant to the exercise of stock options referred to above and as disclosed in
Section 3.02(a) of the Company Disclosure Schedule. Except as set forth above or
in Section 3.02(a) of the Company Disclosure Schedule or as otherwise
contemplated or permitted by Section 5.01(a) hereof, as of the date of this
Agreement there are not and, as of the Effective Time there will not be, any
shares of capital stock issued and outstanding or any subscriptions, options,
warrants, calls, commitments or agreements of any character calling for the
purchase or issuance of any securities of the Company, including any securities
representing the right to purchase or otherwise receive any shares of Company
Common Stock or Series A Preferred Stock.
A-6
<PAGE> 89
(b) Except as set forth in Section 3.02(b) of the Company Disclosure
Schedule, the Company owns, directly or indirectly, all of the issued and
outstanding shares of capital stock of each of its Subsidiaries, free and clear
of any liens, charges, encumbrances, pledges, hypothecations, adverse rights or
claims and security interests whatsoever (collectively, "Liens"), and all of
such shares are duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights, with no personal liability
attaching to the ownership thereof. None of the Company's Subsidiaries has or is
bound by any outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character calling for the purchase or issuance of any security
of such Subsidiary, including any securities representing the right to purchase
or otherwise receive any shares of capital stock or any other equity security of
such Subsidiary.
Section 3.03 Authority.
(a) The Company has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby,
subject to obtaining the approval of holders of a majority of the outstanding
shares of Company Common Stock and Series A Preferred Stock, voting together as
a single class (with each share of Series A Preferred Stock being entitled to
cast 16.67 votes per share) prior to the consummation of the Merger in
accordance with Section 302A.613 of the MBCA. The execution, delivery and
performance by the Company of this Agreement, and the consummation by it of the
transactions contemplated hereby, have been duly authorized by its Board of
Directors and, except for obtaining the approval of its shareholders as
contemplated by Section 1.06 hereof, no other corporate action on the part of
the Company is necessary to authorize the execution and delivery by the Company
of this Agreement and the consummation by it of the transactions contemplated
hereby. This Agreement has been duly executed and delivered by the Company and,
assuming due and valid authorization, execution and delivery hereof by the other
parties hereto, is a valid and binding obligation of the Company enforceable
against the Company in accordance with its terms.
(b) The Company Special Committee and Board of Directors of the Company
have approved and taken all corporate action required to be taken by the Company
Special Committee and Board of Directors, respectively, for the consummation of
the transactions contemplated by this Agreement.
Section 3.04 Consents and Approvals; No Violations.
(a) Except for (i) the consents and approvals set forth in Section 3.04(a)
of the Company Disclosure Schedule, (ii) the filing with the SEC of the Proxy
Documents relating to the meeting of the Company's shareholders to be held in
connection with this Agreement and the transactions contemplated hereby, (iii)
the filing of the Articles of Merger with the Secretary of State pursuant to the
MBCA, (iv) the adoption of this Agreement by approval of holders of a majority
of the shares of outstanding Company Common Stock and Series A Preferred Stock,
voting together as a single class (with each share of Series A Preferred Stock
being entitled to cast 16.67 votes per share) and (v) filings, permits,
authorizations, consents and approvals as may be required under, and other
applicable requirements of, the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), no consents or approvals of, or filings, declarations or
registrations with, any federal, state or local court, administrative or
regulatory agency or commission or other governmental authority or
instrumentality, domestic or foreign (each a "Governmental Entity"), are
necessary for the consummation by the Company of the transactions contemplated
hereby, except for such consents, approvals, filings, declarations or
registrations which, if not obtained prior to or at the Closing would not,
either individually or in the aggregate, result in or give rise to a Company
Material Adverse Effect.
(b) Except as set forth in Section 3.04(b) of the Company Disclosure
Schedule, neither the execution and delivery of this Agreement by the Company
nor the consummation by the Company of the transactions contemplated hereby, nor
compliance by the Company with any of the terms or provisions hereof, will (i)
conflict with or violate any provision of the Articles of Incorporation or
Bylaws of the Company or any of the similar organizational documents of any of
its Subsidiaries, or (ii) assuming that the consents and approvals referred to
in Section 3.04(a) and the authorization hereof by the Company's shareholders
are duly obtained in accordance with the MBCA prior to the Closing Date, (x)
violate any statute, code, ordinance, rule, regulation, judgment, order, writ,
decree or injunction applicable to the Company or any of its Subsidiaries, or
any of their respective properties or assets, or (y) violate, conflict with,
result in a breach of
A-7
<PAGE> 90
any provision of or the loss of any benefit under, constitute a default (or an
event which, with notice or lapse of time, or both, would constitute a default)
under, result in the termination of or a right of termination or cancellation
under, accelerate the performance required by, or result in the creation of any
Lien upon any of the respective properties or assets of the Company or any of
its Subsidiaries under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which the Company or any of its Subsidiaries is a
party, or by which they or any of their respective properties or assets may be
bound or affected, except for such conflict, violation, breach or default that
would not, either individually or in the aggregate, result in or give rise to a
Company Material Adverse Effect.
Section 3.05 SEC Reports. Since January 1, 1995, the Company has filed,
and will at all times prior to the Effective Time file, all required forms,
notices, reports, schedules and documents (including all exhibits, schedules,
annexes, amendments and supplements thereto) with the SEC (collectively, the
"Company Reports"), and no such form, notice, report, schedule or document, at
the time it was filed or is filed, contained or will contain any untrue
statement of a material fact or omitted or will omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances in which they were made, not misleading.
As of their respective dates, all Company Reports complied (and all SEC Reports
filed after the date hereof will comply) in all material respects with all
applicable provisions of the Securities Act of 1933, as amended (the "Securities
Act"), and the Exchange Act, and the rules and regulations promulgated
thereunder.
Section 3.06 Financial Statements. Each consolidated balance sheet of the
Company (including the related notes and schedules) included in the Company
Reports fairly presents, in all material respects, the consolidated financial
position of the Company and its Subsidiaries as of the date thereof, and the
other financial statements included in the Company Reports (including the
related notes, where applicable) fairly present, in all material respects
(subject, in the case of the unaudited statements, to audit adjustments normal
in nature and amount), the results of the consolidated operations and changes in
shareholders' equity and consolidated financial position of the Company and its
Subsidiaries for the respective periods or dates therein set forth. Each of such
statements has been prepared in accordance with the requirements of the SEC and
GAAP consistently applied during the periods involved, except in each case as
specifically indicated in such statements or in the notes thereto. The books and
records of the Company and its Subsidiaries have been, and will at all times
prior to the Effective Time be, maintained in all material respects in
accordance with GAAP and any other applicable legal and accounting requirements,
except with respect to normal and recurring period end accruals that are made
only at the end of each fiscal quarter.
Section 3.07 Broker's Fees. Neither the Company nor any Subsidiary of the
Company nor any of their respective officers or directors on behalf of the
Company or such Subsidiaries has employed any financial advisor, broker or
finder or incurred any liability for any broker's fees, commissions or finder's
fees in connection with any of the transactions contemplated hereby, except, in
the case of the Company Special Committee, Houlihan, Lokey, Howard & Zukin
Financial Advisors, Inc. ("Houlihan Lokey"). The Company has delivered to Parent
a true and complete copy of the engagement letter, dated August 7, 2000,
pursuant to which Houlihan Lokey has been engaged by the Special Committee, and
Houlihan Lokey is not entitled to any payments from the Company (or the
Surviving Corporation) except as specifically provided therein.
Section 3.08 Absence of Certain Changes or Events. Except as disclosed in
the Company Reports filed or press releases of the Company (the "Company
Releases") issued prior to the date hereof or as set forth in Section 3.08 of
the Company Disclosure Schedule, since June 30, 2000, (i) the Company and its
Subsidiaries have carried on and operated their respective businesses in all
material respects in the ordinary course of business consistent with past
practice, and (ii) there has not occurred, nor has the Company or any of its
Subsidiaries effected, permitted, authorized or taken any action that has
resulted in, or is reasonably likely to result in:
(a) any event, occurrence or development of a state of circumstances or
facts which has had or reasonably would be expected to have a Company Material
Adverse Effect;
A-8
<PAGE> 91
(b) any amendment of any material term of any outstanding security of the
Company or any of its Subsidiaries;
(c) any incurrence, assumption or guarantee by the Company or any of its
Subsidiaries of any indebtedness for borrowed money other than in the ordinary
course of business and in amounts and on terms consistent with past practices;
(d) any creation or assumption by the Company or any of its Subsidiaries of
any Lien on any material asset other than in the ordinary course of business
consistent with past practices;
(e) any making of any loan, advance or capital contributions to or
investment in any Person other than loans, advances or capital contributions to
or investments in wholly-owned Subsidiaries made in the ordinary course of
business consistent with past practices;
(f) any damage, destruction or other casualty loss (whether or not covered
by insurance) affecting the business or assets of the Company or any of its
Subsidiaries which, individually or in the aggregate, has had or would
reasonably be expected to have a Company Material Adverse Effect;
(g) any transaction or commitment made, or any contract or agreement
entered into, by the Company or any of its Subsidiaries relating to its assets
or business (including the acquisition or disposition of any assets) or any
relinquishment by the Company or any of its Subsidiaries of any contract or
other right, in either case, material to the Company and any of its Subsidiaries
taken as a whole, other than transactions and commitments in the ordinary course
of business consistent with past practice and those contemplated by this
Agreement;
(h) any change in any method of accounting or accounting practice by the
Company or any of its Subsidiaries, except for any such change required by
reason of a concurrent change in generally accepted accounting principles;
(i) any termination, cancellation, acceleration or amendment to any
contract, lease, plan or agreement referred to in Section 3.19 of the Company
Disclosure Schedule to which the Company or any Subsidiary is a party or
pursuant to which any of its assets or properties is bound;
(j) any (i) grant of any new severance or termination arrangement to any
director, officer or employee of the Company or any of its Subsidiaries, (ii)
entering into of any employment, deferred compensation or other similar
agreement (or any amendment to any such existing agreement) with any director or
officer of the Company or any of its Subsidiaries, (iii) increase in benefits
payable under any existing severance or termination pay policies or employment
agreements or (iv) increase in compensation, bonus or other benefits payable to
directors or officers of the Company or any of its Subsidiaries, other than, in
the case of this clause (iv), in the ordinary course of business consistent with
past practice;
(k) any labor dispute, other than routine individual grievances, or any
activity or proceeding by a labor union or representative thereof to organize
any employees of the Company or any of its Subsidiaries, or any lockouts,
strikes, slowdowns, work stoppages or threats thereof by or with respect to such
employees;
(l) the opening or closure, whether on a permanent or temporary basis, of
any office or facility owned, operated or managed, or to be owned, operated or
managed, by the Company or any Subsidiary, or any renewals, terminations, or
extensions of any lease with respect thereto;
(m) any cancellation of any licenses, sublicenses, franchises, permits or
agreements to which the Company or any of its Subsidiaries is a party, or any
notification to the Company or any of its Subsidiaries that any party to any
such arrangements intends to cancel or not renew such arrangements beyond its
expiration date as in effect on the date hereof, which cancellation or
notification, individually or in the aggregate, has had or reasonably could be
expected to have a Company Material Adverse Effect; or
(n) any event, occurrence or development of the type that, had such event,
occurrence or development occurred following the date hereof, would require the
consent of Parent pursuant to the second sentence of Section 5.01 hereof.
A-9
<PAGE> 92
Section 3.09 Legal Proceedings; Liabilities.
(a) Except as set forth in the Company Reports, the Company Releases or in
Section 3.09 of the Company Disclosure Schedule, neither the Company nor any of
its Subsidiaries is a party to and there are not pending or, to the best of the
Company's knowledge, threatened, any legal, administrative, arbitral or other
proceedings, claims, actions or governmental or regulatory investigations of any
nature against the Company or any of its Subsidiaries which, in the aggregate,
would reasonably be expected to have a Company Material Adverse Effect, or which
challenge the validity or propriety of the transactions contemplated.
(b) Except as set forth in the Company Reports, the Company Releases or in
Section 3.09 of the Company Disclosure Schedule, there is no injunction, order,
judgment, decree or regulatory restriction imposed upon the Company, any of its
Subsidiaries or the assets of the Company or any of its Subsidiaries which, when
aggregated with all other such injunctions, orders, judgments, decrees and
restrictions, would reasonably be expected to have a Company Material Adverse
Effect.
(c) Neither the Company nor any of its Subsidiaries has any liabilities
(absolute, accrued, contingent or otherwise), except (i) liabilities described
in the Company's SEC Reports filed prior to the date hereof or reflected on the
Company's consolidated balance sheet (and related notes thereto) as of the end
of its most recently completed fiscal quarter filed in the Company SEC Reports,
(ii) liabilities incurred since the end of the Company's most recently completed
fiscal year in the ordinary course of its business consistent with past
practice, and (ii) liabilities disclosed in Section 3.09(c) of the Company
Disclosure Schedule.
Section 3.10 Compliance with Applicable Law.
(a) Except as disclosed in Section 3.10(a) of the Company Disclosure
Schedule, the Company and each of its Subsidiaries hold, and have at all
applicable times held, all material licenses, franchises, permits and
authorizations necessary for the lawful conduct of their respective businesses
and have complied with, and are not in default in any material respect under
any, applicable law, statute, order, rule, regulation, and/or written policy or
guideline of any Governmental Entity relating to the Company or any of its
Subsidiaries.
(b) Except as disclosed in Section 3.10(b) of the Company Disclosure
Schedule, the Company and each of its Subsidiaries has complied in all material
respects and is currently in material compliance with each law, license, permit,
certificate of need ("CON"), ordinance, or governmental or regulatory rule
("Regulations") to which its business, operations, assets or properties is
subject, including any Regulations related to reimbursement for services
rendered or goods provided and including any applicable federal or state health
care program laws, rules, or regulations, including, but not limited to, those
pertaining to improper inducements, gratuitous payments, fraudulent or abusive
practices, excessive or inadequate services, false claims and/or false
statements, civil money penalties, prohibited referrals, and/or financial
relationships, excluded individuals, controlled substances and licensure. Each
Facility (as hereinafter defined) holds, possesses or lawfully uses in the
operation of its business the licenses, permits, CONs, provider agreements and
certifications under Titles XVIII and XIX of the Social Security Act (the
"Social Security Act," Titles XVIII and XIX of the Social Security Act are
hereinafter referred to collectively as the "Medicare and Medicaid Programs"),
which licenses, permits, CONs, provided agreements and certifications are in
substantial compliance with all Regulations. None of the Company or any of its
Subsidiaries is in default under any order of any court, governmental authority
or arbitration board or tribunal specifically applicable to the Company or any
of its Subsidiaries. As of the date hereof, no action has been taken or
recommended by any governmental or regulatory official, body or authority,
either to: (i) revoke, withdraw or suspend any CON or any license, permit or
other authority to operate any of the Facilities; (ii) terminate or decertify
any participation of any of the Facilities in the Medicare and Medicaid
Programs; or (iii) reduce or propose to reduce the number of licensed beds in
any category, nor, as of the date hereof, has there been any decision not to
renew any provider agreement related to any Facility. In the event that any such
action shall have been taken or recommended subsequent to the date hereof, or if
any decision shall have been made not to renew any such provider agreements, the
Company hereby agrees to provide notice to Parent of the same and to diligently
and in good faith take prompt corrective or remedial action to cure the same. As
used in this Agreement, "Facility" or "Facilities" refers to any office, nursing
home, assisted living facility, home health
A-10
<PAGE> 93
agency, health care center, clinic or pharmacy or other facility or owned,
operated, leased or managed by the Company, Parent or any of their respective
Subsidiaries.
(c) All cost reports ("Cost Reports") required to be filed by the Company
or any Subsidiary with respect to the Facilities under the Medicare and Medicaid
Programs (or any other applicable governmental or private provider regulations)
have been prepared and filed in accordance with applicable laws, rules and
regulations. The Company has paid, has caused a Subsidiary to have paid, or has
made provision to pay through proper recordation of any net liability, any
material overpayments received from the Medicare and Medicaid Programs and any
similar obligations with respect to other reimbursement programs in which the
Company and its Subsidiaries participate. Section 3.10(c) of the Company
Disclosure Schedule sets forth for each Facility the years for which Cost
Reports remain to be settled.
Section 3.11 Company Information. The information relating to the Company
and its Subsidiaries to be provided by the Company to be contained in the Proxy
Documents, or in any other document filed with any other Governmental Entity in
connection herewith, shall not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements therein, in
light of the circumstances in which they are made, not misleading.
Section 3.12 Opinion of Financial Advisor. The Company Special Committee
has received the opinion of Houlihan, Lokey, Howard & Zukin, financial advisor
to the Company Special Committee, to the effect that, as of the date of such
opinion, the consideration to be received in the Merger is fair to the holders,
other than Parent, of shares of Company Common Stock from a financial point of
view.
Section 3.13 Intellectual Property.
(a) As used herein, the term "Intellectual Property" means all trademarks,
service marks, trade names, Internet domain names, e-mail addresses, designs,
logos, slogans and general intangibles of like nature, together with goodwill,
registrations and applications relating to the foregoing; patents and patent
applications, copyrights, including registrations and applications; proprietary
computer programs, including any and all software implementations of algorithms,
models and methodologies whether in source code or object code form, proprietary
databases and compilations, including any and all data and collections of data,
all documentation, including user manuals and training materials, related to any
of the foregoing and the content and information contained on any website
(excluding any off-the-shelf, commercially available shrink-wrapped or
pre-installed word processing, spreadsheet, e-mail and similar programs,
collectively, "Software"); confidential information, customer and supplier
lists, price and discount lists, technology, know-how, inventions, processes,
formulae, algorithms, models and methodologies (such confidential items,
collectively, "Trade Secrets") held for use or used in the business of the
Company as conducted as of the Closing Date or as presently contemplated to be
conducted and any licenses to use any of the foregoing, including those for the
benefit of the Company and those granted by the Company to third parties.
(b) Section 3.13(b) of the Company Disclosure Schedule sets forth, for all
Intellectual Property owned by the Company or any Subsidiary of the Company, a
complete and accurate list, of all United States and foreign: (i) patents and
patent applications; (ii) trademark and service mark registrations (including
Internet domain name registrations), trademark and service mark applications and
material unregistered trademarks and service marks; and (iii) copyright
registrations, copyright applications and material unregistered copyrights.
(c) Section 3.13(c) of the Company Disclosure Schedule lists all contracts
for material Software which is licensed, leased or otherwise used by the Company
or any Company Subsidiary, and all Software which is owned by the Company or any
Company Subsidiary, and identifies which Software is owned, licensed, leased, or
otherwise used, as the case may be.
(d) Section 3.13(d) of the Company Disclosure Schedule sets forth a
complete and accurate list of all agreements granting or obtaining any right to
use or practice any rights under any Intellectual Property, to which the Company
or any Company Subsidiary is a party or otherwise bound, as licensee or licensor
thereunder, including, without limitation, license agreements, settlement
agreements and covenants not to sue (collectively, the "License Agreements").
A-11
<PAGE> 94
(e) Except as set forth on Section 3.13(e) of the Company Disclosure
Schedule: (i) the Company or Subsidiaries of the Company own or have the right
to use all Intellectual Property, free and clear of all Liens; (ii) any
Intellectual Property owned or used by the Company or Subsidiary of the Company
has been duly maintained, is valid and subsisting, in full force and effect and
has not been cancelled, expired or abandoned; (iii) the Company has not received
written notice from any third party regarding any actual or potential
infringement by the Company or any Subsidiary of the Company of any intellectual
property of such third party, and the Company has no knowledge of any basis for
such a claim against the Company or any Subsidiaries of the Company; (iv) the
Company has not received written notice from any third party regarding any
assertion or claim challenging the validity of any Intellectual Property owned
or used by the Company or any Subsidiary of the Company and the Company has no
knowledge of any basis for such a claim; (v) neither the Company nor any
Subsidiary of the Company has licensed or sublicensed its rights in any
Intellectual Property, or received or been granted any such rights, other than
pursuant to the License Agreements; (vi) to the Company's knowledge, no third
party is misappropriating, infringing, diluting or violating any Intellectual
Property owned by the Company or any Subsidiary of the Company; (vii) the
License Agreements are valid and binding obligations of the Company or any
Subsidiary of the Company, enforceable in accordance with their terms, and there
exists no event or condition which will result in a violation or breach of, or
constitute a default by the Company or any Subsidiary of the Company or, to the
knowledge of the Company, the other party thereto, under any such License
Agreement; and (viii) the Company and each of the Subsidiaries of the Company
takes reasonable measures to protect the confidentiality of Trade Secrets
including requiring third parties having access thereto to execute written
nondisclosure agreements.
Section 3.14 Takeover Statutes. The Company has taken all actions
necessary such that no restrictive provision of any "fair price," "moratorium,"
"control share acquisition," "interested shareholder" or other similar
anti-takeover statute or regulation (including, without limitation, Section
302A.671 or Section 302A.673 of the MBCA) (each a "Takeover Statute") or
restrictive provision of any applicable anti-takeover provision in the governing
documents of the Company limits or otherwise affects, or at or after the
Effective Time will limit or otherwise affect, in any respect, Parent, the
Purchaser, the Merger or any other transaction contemplated by this Agreement,
the voting by Parent of its shares of Company Common Stock or Series A Preferred
Stock with respect to this Agreement or the Merger, or any business combination
between the Company and Parent or any affiliate thereof (other than stock
purchases following any tender offer by the Parent or any affiliate thereof
after the date of this Agreement which would be subject to the Section 302A.675
of the MBCA).
Section 3.15 No Other Agreements to Sell the Company. Except pursuant to
this Agreement, the Company has no legal obligation, absolute or contingent, to
any other person to sell any material portion of the assets of the Company or
any of its Subsidiaries, to sell any material portion of the capital stock or
other ownership interest of the Company or any of its Subsidiaries, or to effect
any merger, consolidation or other reorganization of the Company or any of its
Subsidiaries, or to enter into any agreement or arrangement with respect
thereto.
Section 3.16 No Shareholders Rights Plan. The Company has not entered
into, and its Board of Directors has not adopted or authorized the adoption of,
a shareholder rights plan or similar agreement.
Section 3.17 Tax Returns and Tax Payments. The Company and its
Subsidiaries have timely filed (or, as to Subsidiaries, the Company has filed on
behalf of such Subsidiaries) all Tax Returns (as defined below) required to be
filed by it or obtained valid extensions, which extensions have not yet expired.
The Company and its Subsidiaries have paid (or, as to Subsidiaries, the Company
has paid on behalf of such Subsidiaries) all Taxes (as defined below) shown to
be due on such Tax Returns or has provided (or, as to Subsidiaries, the Company
has made provision on behalf of such Subsidiaries for) reserves in its financial
statements for any Taxes that have not been paid, whether or not shown as being
due on any Tax Returns. Neither the Company nor any of its Subsidiaries has
requested any extension of time within which to file any Tax Returns in respect
of any taxable year which have not since been filed, except for such extensions
that have not yet expired, nor made any request for waivers of the time to
assess any Taxes that are pending or outstanding. No claim for unpaid Taxes has
been asserted against the Company or any of its Subsidiaries in writing by a
Governmental Entity which, if resolved in a manner unfavorable to the Company or
any of its Subsidiaries, as the case may
A-12
<PAGE> 95
be, would result, individually or in the aggregate, in a material Tax liability
to the Company and its Subsidiaries taken as a whole. There are no material
Liens for Taxes upon the assets of the Company or any Subsidiary except for
Liens for Taxes not yet due and payable or for Taxes that are being disputed in
good faith by appropriate proceedings and with respect to which adequate
reserves have been provided for. No audit of any Tax Return of the Company or
any of its Subsidiaries is being conducted by a Governmental Entity. None of the
Company or any of its Subsidiaries has made an election under Section 341(f) of
the Code. Neither the Company nor any of its Subsidiaries has any liability for
Taxes of any individual or entity, including, but not limited to, any
corporation, partnership, limited liability company, trust or unincorporated
organization (other than the Company and its Subsidiaries) under Treasury
Regulation Section 1.1502-6 (or any comparable provision of state, local or
foreign law) or by other reason of law (including transferee or successor
liability), or as a result of any contractual obligation to indemnify any person
or entity. As used herein, (a) "Taxes" shall mean all taxes of any kind,
including, without limitation, those on or measured by or referred to as income,
gross receipts, sales, use, ad valorem, franchise, profits, license,
withholding, value added, property or windfall profits taxes, customs, duties or
similar fees, assessments or charges of any kind whatsoever, together with any
interest and any penalties, additions to tax or additional amounts imposed by
any Governmental Entity, domestic or foreign, and (b) "Tax Return" shall mean
any return, report or statement required to be filed with any governmental
authority with respect to Taxes.
Section 3.18 ERISA.
(a) Section 3.18 of the Company Disclosure Schedule contains a correct and
complete list identifying each material "employee benefit plan," as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974 ("Erisa"),
each employment, severance or similar contract, plan, arrangement or policy and
each other plan or arrangement (written or oral) providing for compensation,
bonuses, profit-sharing, stock option or other stock related rights or other
forms of incentive or deferred compensation, vacation benefits, insurance
(including any self-insured arrangements), health or medical benefits, employee
assistance program, disability or sick leave benefits, workers' compensation,
supplemental unemployment benefits, severance benefits and post-employment or
retirement benefits (including compensation, pension, health, medical or life
insurance benefits) which is maintained, administered or contributed to by the
Company or any ERISA Affiliate and covers any employees or former employee of
the Company or any of its Subsidiaries, or with respect to which the Company or
any of its Subsidiaries has any liability. Copies of such plans (and, if
applicable, related trust or funding agreements or insurance policies) and all
amendments thereto and written interpretations thereof have been made available
to Parent together with the most recent annual report (Form 5500) including, if
applicable, related trust or funding agreements or insurance policies) and all
amendments thereto and written interpretations thereof have been made available
to Parent together with the most recent annual report (Form 5500 including, if
applicable, Schedule B thereto) and tax return (Form 990) prepared in connection
with any such plan or trust. Such plans are referred to collectively herein as
the "Employee Plans." For purposes of this Section 3.18, "Erisa Affiliate" of
any person or entity means any other person or entity which, together with such
person or entity, would be treated as a single employer under Section 414 of the
Code.
(b) Neither the Company nor any ERISA Affiliate nor any predecessor thereof
sponsors, maintains or contributes to, or has any actual or reasonably likely
potential liability under, any Employee Plan subject to Title IV of ERISA (other
than a Multiemployer Plan, as defined below). Neither the Company nor any ERISA
Affiliate nor any predecessor thereof contributes to, or has any actual or
reasonably likely potential liability under, any multiemployer plan, as defined
in Section 3(37) of ERISA (a "Multiemployer Plan").
(c) A current favorable Internal Revenue Service determination letter is in
effect with respect to each Employee Plan which is intended to be qualified
under Section 401(a) of the Code (or the relevant remedial amendment period has
not expired with respect to such Employee Plan), and the Company knows of no
circumstance giving rise to a likelihood that such Employee Plan would be
treated as other than qualified by the Internal Revenue Service. The Company has
made available to Parent copies of the most recent Internal Revenue Service
determination letters with respect to each such Plan. Each Employee Plan has
been maintained in compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations, including but
not limited to ERISA and the Code, which are applicable to such Plan.
A-13
<PAGE> 96
(d) Except as set forth in Section 3.18 of the Company Disclosure Schedule,
the consummation of the transactions contemplated by this Agreement will not
(either alone or together with any other event) entitle any employee or
independent contractor of the Company or any of its Subsidiaries to severance
pay or accelerate the time of payment or vesting or trigger any payment of
funding (through a grantor trust or otherwise) of compensation or benefits
under, increase the amount payable or trigger any other material obligation
pursuant to, any Employee Plan. To the knowledge of the Company, there is no
contract, agreement, plan or arrangements covering any employee or former
employee of the Company or any Affiliate that, individually or collectively,
could give rise to the payment of any amount that would not be deductible by the
Company pursuant to the terms of Sections 162(m) or 280G of the Code.
(e) Except as set forth in Section 3.18 of the Company Disclosure Schedule,
or as reflected on the Balance Sheet, neither the Company nor any Subsidiary has
any liability in respect of post-retirement health, medical or life insurance
benefits for retired, former or current employees of the Company or its
Subsidiaries except as required to avoid excise tax under Section 4980B of the
Code.
(f) There has been no amendment to, written interpretation or announcement
(whether or not written) by the Company or any of its affiliates relating to, or
change in employee participation or coverage under, any Employee Plan which
would increase the expense of maintaining such Employee Plan above the level of
the expense incurred in respect thereof for the fiscal year ended September 30,
1999, unless such increase would not individually or in the aggregate, have a
Company Material Adverse Effect.
(g) Neither the Company nor any of its Subsidiaries is a party to or
subject to, or is currently negotiating in connection with entering into, any
collective bargaining agreement or other contract or understanding with a labor
union or labor organization.
(h) Except as set forth in Section 3.18 of the Company Disclosure Schedule,
all contributions and payments accrued under each Employee Plan, determined in
accordance with prior funding and accrual practices, as adjusted to include
proportional accruals for the period ending as of the date hereof, have been
discharged and paid on or prior to the date hereof except to the extent
reflected as a liability on the most recent balance sheet filed by the Company
with the SEC.
(i) Except as set forth in Section 3.18 of the Company Disclosure Schedule,
there is no action, suit, investigation, audit or proceeding pending against or
involving or, to the knowledge of the Company, threatened, against or involving,
any Employee Plan before any court or arbitrator or any state, federal or local
governmental body, agency or official which would, individually or in the
aggregate, have a Company Material Adverse Effect.
Section 3.19 Material Contracts.
(a) Except as expressly disclosed in the Company Reports filed prior to the
date hereof or in Section 3.19 of the Company Disclosure Schedule, neither the
Company nor any of its Subsidiaries is a party to any oral or written (i)
agreement, contract, indenture or other instrument relating to the incurrence or
guarantee of indebtedness for borrowed money in an amount exceeding $100,000,
(ii) partnership, joint venture or limited liability agreement or management
with any person, (iii) agreement, contract, or other instrument relating to any
merger, consolidation, business combination, share exchange, business
acquisition, or for the purchase, acquisition, sale or disposition of any assets
of the Company or any of its Subsidiaries outside the ordinary course of
business, (iv) other contract, agreement or commitment to be performed after the
date hereof which would be a material contract (as defined in Item 601(b)(10) of
Regulation S-K of the SEC), (v) contract, agreement or commitment which
materially restricts the conduct of any line of business by the Company or any
of its Subsidiaries), or (vi) contract, agreement, plan, policy or commitment
which requires any payment by the Company or the Surviving Corporation following
a change in control of the Company, the termination of any employee of the
Company or otherwise in connection with or upon consummation of the transactions
contemplated hereby (such contracts, agreements and commitments described in
clauses (i) -- (vi) are collectively referred to as the "Material Contracts").
(b) Except as expressly disclosed in the Company Reports filed prior to the
date hereof, (i) each of the Material Contracts is a valid and binding
obligation of the Company in accordance with its terms and is in full
A-14
<PAGE> 97
force and effect and (ii) there is no material breach or violation of or default
by the Company or any of its Subsidiaries under any of the Material Contracts,
whether or not such breach, violation or default has been waived, and no event
has occurred which, with notice or lapse of time or both, would constitute a
material breach, violation or default, or give rise to a right of termination,
modification, cancellation, foreclosure, imposition of a lien, prepayment or
acceleration under any of the Company Material Contracts, which breach,
violation or default referred to in clauses (i) or (ii), alone or in the
aggregate with other such breaches, violations or defaults referred to in
clauses (i) or (ii), would be reasonably likely to have a Company Material
Adverse Effect.
Section 3.20 Insurance. All fire and casualty, general liability, business
interruption and product liability insurance policies maintained by the Company
or any of its Subsidiaries are in character and amount at least equivalent to
that carried by persons engaged in similar businesses and subject to the same or
similar perils or hazards.
Section 3.21 Environmental Matters.
(a) No notice, notification, demand, request for information, citation,
summons, complaint or order has been received by or is pending, or, to the
knowledge of the Company or any of its Subsidiaries, threatened by any person
against, the Company or any of its Subsidiaries nor has any material penalty
been assessed against the Company or any of its Subsidiaries with respect to any
(1) alleged violation of any Environmental Law or liability thereunder, (2)
alleged failure to have any permit, certificate, license, approval, registration
or authorization required under any Environmental Law, (3) generation,
treatment, storage, recycling, transportation or disposal of any Hazardous
Substance or (4) discharge, emission or release of any Hazardous Substance, that
in the case of (1), (2), (3) and/or (4), would, either individually or in the
aggregate, reasonably be expected to result in a Company Material Adverse
Effect.
(b) No Hazardous Substance has been discharged, emitted, released or, to
the knowledge of the Company, is present at any property now or previously
owned, leased or operated by the Company or any Subsidiary of the Company, which
circumstance, individually or in the aggregate, would reasonably be expected to
result in a Company Material Adverse Effect; and
(c) To the knowledge of the Company, there are no Environmental Liabilities
that have had or would reasonably be expected to have a Company Material Adverse
Effect.
(d) There has been no environmental investigation, study, audit, test,
review or other analysis conducted of which the Company has knowledge in
relation to the current or prior business of the Company or any property or
facility now or previously owned or leased by the Company or any of its
Subsidiaries which has not been delivered to Parent at least five (5) days prior
to the date hereof.
(e) Except as set forth in Section 3.21 of the Company Disclosure Schedule,
neither the Company nor any Subsidiary owns or leases or has owned or leased any
real property, or conducts or has conducted any operations, in New Jersey or
Connecticut.
(f) For purposes of this Section 3.21, the following items shall have the
meaning set forth below:
(i) "Environmental Laws" means any and all federal, state, local and
foreign statutes, laws, judicial decisions, regulations, ordinances, rules,
judgments, orders, decrees, codes, plans, injunctions, permits,
concessions, grants, franchises, licenses, agreements and governmental
restrictions, relating to human health, the environment or to emissions,
discharge or releases of pollutants, contaminants or other hazardous
substance or wastes into the environment, including without limitation
ambient air, surface water, ground water or land, or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants or other
hazardous substances or wastes or the clean-up or other remediation
thereof.
(ii) "Environmental Liabilities" means any and all liabilities of or
relating to the Company or any of its Subsidiaries, whether contingent or
fixed, actual or potential, known or unknown, which (i) arise under or
relate to matters covered by Environmental Laws and (ii) relate to actions
occurring or conditions existing on or prior to the Effective Time; and
A-15
<PAGE> 98
(iii) "Hazardous Substances" means any pollutant, contaminant, toxic,
radioactive, corrosive or otherwise hazardous substance, material or waste,
including petroleum, its derivatives, by-products and other hydrocarbons,
or any substance having any constituent elements displaying any of the
foregoing characteristics, which in any event is regulated under
Environmental Laws.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Parent and the Purchaser, jointly and severally, represent and warrant to
the Company, as of the date hereof and at the Closing Date, as follows:
Section 4.01 Corporate Organization. Each of Parent and the Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its organization and has the corporate power and
authority to own or lease all of its properties and assets and to carry on its
business as it is now being conducted. Each of Parent and the Purchaser is duly
licensed or qualified to do business in each jurisdiction in which the nature of
the business conducted by it or the character or location of the properties and
assets owned or leased by it makes such licensing or qualification necessary,
except where the failure to be so licensed or qualified would not reasonably be
expected to have, when aggregated with all other such failures, a Material
Adverse Effect on the Parent ("Parent Material Adverse Effect"). The copies of
the Articles or Certificate of Incorporation and Bylaws (or similar
organizational documents) of the Parent and Purchaser, which have previously
been made available to Company, are true, complete and correct copies of such
documents as in effect as of the date of this Agreement and as of the Closing
Date.
Section 4.02 Authority. Each of Parent and the Purchaser has full
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution, delivery and
performance by Parent and the Purchaser of this Agreement, and the consummation
of the transactions contemplated hereby, have been duly authorized by their
Boards of Directors and by Parent as the sole shareholder of Purchaser and no
other corporate action on the part of Parent and the Purchaser is necessary to
authorize the execution and delivery by Parent and the Purchaser of this
Agreement and the consummation by them of the transactions contemplated hereby.
This Agreement has been duly executed and delivered by Parent and the Purchaser,
as the case may be, and, assuming due and valid authorization, execution and
delivery hereof by the Company, is a valid and binding obligation of each of
Parent and the Purchaser, as the case may be, enforceable against them in
accordance with its terms.
Section 4.03 Consents and Approvals; No Violation.
(a) Except for (i) the consents and approvals set forth in Section 4.03(a)
of the disclosure schedule of the Parent delivered to the Company concurrently
herewith (the "Parent Disclosure Schedule"), (ii) the filing with the SEC of the
Proxy Documents, (iii) the filing of the Articles of Merger with the Secretary
of State pursuant to the MBCA, and (iv) filings, permits, authorizations,
consents and approvals as may be required under, and other applicable
requirements of, the Exchange Act and the Securities Act, no consents or
approvals of, or filings, declarations or registrations with, any Governmental
Entity are necessary for the consummation by Parent and the Purchaser of the
transactions contemplated hereby, other than such other consents, approvals,
filings, declarations or registrations that, if not obtained, made or given,
would not reasonably be expected to have, in the aggregate, a Parent Material
Adverse Effect.
(b) Except as set forth in Section 4.03(b) of the Parent Disclosure
Schedule, neither the execution and delivery of this Agreement by Parent or the
Purchaser, nor the consummation by Parent or the Purchaser of the transactions
contemplated hereby, nor compliance by Parent or the Purchaser with any of the
terms or provisions hereof, will (i) conflict with or violate any provision of
the Restated Certificate of Incorporation or Bylaws of Parent, or (ii) assuming
that the consents and approvals referred to in Section 4.03(a) are obtained
prior to the Closing Date, (x) violate any statute, code, ordinance, rule,
regulation, judgment, order, writ, decree or injunction applicable to Parent or
the Purchaser, or any of their respective properties or assets, or (y) violate,
conflict with, result in a breach of any provision of or the loss of any benefit
under, constitute a default (or an event which, with notice or lapse of time, or
both, would constitute a default) under, result in
A-16
<PAGE> 99
the termination of or a right of termination or cancellation under, accelerate
the performance required by, or result in the creation of any Lien upon any of
the respective properties or assets of Parent or the Purchaser under, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, deed of
trust, license, lease, agreement or other instrument or obligation to which
Parent or any of its Subsidiaries is a party, or by which they or any of their
respective properties or assets may be bound or affected.
Section 4.04 Legal Proceedings; Liabilities.
(a) Except as set forth in the any of the forms, notices, reports,
schedules or documents (including all exhibits, schedules, annexes, amendments
and supplements thereto) filed by Parent, Purchaser or any of their affiliates
with the SEC, or any press releases made by any of such entities (collectively,
the "Parent Reports and Releases"), neither Parent nor Purchaser is a party to
and there are not pending or, to the best of Parent's knowledge, threatened, any
legal, administrative, arbitral or other proceedings, claims, actions or
governmental or regulatory investigations of any nature against the Parent or
the Purchaser which, in the aggregate, would reasonably be expected to challenge
the validity or propriety of the transactions contemplated.
(b) Except as set forth in the Parent Reports and Releases, there is no
injunction, order, judgment, decree or regulatory restriction imposed upon the
Parent, Purchaser or their respective assets which, when aggregated with all
other such injunctions, orders, judgments, decrees and restrictions, would
reasonably be expected to have a Parent Material Adverse Effect.
Section 4.05 Broker's Fees. Except as set forth in Section 4.05 of the
Parent Disclosure Schedule, neither Parent nor any Subsidiary of Parent nor any
of their respective officers or directors on behalf of Parent or such
Subsidiaries has employed any financial advisor, broker or finder or incurred
any liability for any broker's fees, commissions or finder's fees in connection
with any of the transactions contemplated hereby.
Section 4.06 Purchaser's Operations. The Purchaser was formed solely for
the purpose of engaging in the transactions contemplated hereby and has not
engaged in any business activities or conducted any operations other than in
connection with the transactions contemplated hereby.
Section 4.07 Available Funds. Parent currently has available cash and/or
the ability to borrow funds under existing credit arrangements in the ordinary
course of business that are adequate to fund Parent's payment obligations
pursuant to Section 2.01 and 2.02 of this Agreement.
Section 4.08 Parent Information. The information relating to Parent and
its Subsidiaries and affiliates to be provided by Parent to be contained in the
Proxy Documents, or in any other document filed with any other Governmental
Entity in connection herewith, will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in light of the circumstances in which they are made, not misleading.
The Proxy Documents (except that no representation is made as to such portions
thereof that relate only to the Company or any of its Subsidiaries) shall comply
in all material respects with the provisions of the Exchange Act and the rules
and regulations thereunder and the Securities Act and the rules and regulations
thereunder, respectively.
ARTICLE V.
COVENANTS
Section 5.01 Conduct of Businesses Prior to the Effective Time. Except as
set forth in Section 5.01 of the Company Disclosure Schedule, as expressly
contemplated or permitted by this Agreement, or as required by applicable law,
rule or regulation, during the period from the date of this Agreement to the
Effective Time, unless Parent otherwise agrees in writing, the Company shall,
and shall cause its Subsidiaries to (i) conduct its business in the usual,
regular and ordinary course consistent with past practice (ii) maintain and
preserve intact its business organization, employees and advantageous business
relationships and retain the services of its officers and key employees, and
(iii) refrain from taking, authorizing or permitting any action of the type that
would be required to be disclosed pursuant to Section 3.08. Without limiting the
generality of the foregoing, and except as set forth in Section 5.01 of the
Company Disclosure Schedule, as expressly
A-17
<PAGE> 100
contemplated or permitted by this Agreement, or as required by applicable law,
rule or regulation, during the period from the date of this Agreement to the
Effective Time, the Company shall not, and shall not permit any of its
Subsidiaries to, without the prior written consent of Parent: (a) (i) issue,
sell, grant, dispose of, pledge or otherwise encumber, or authorize or propose
the issuance, sale, disposition or pledge or other encumbrance of (A) any
additional shares of its capital stock or any securities or rights convertible
into, exchangeable for, or evidencing the right to subscribe for any shares of
its capital stock, or any rights, warrants, option, calls, commitments or any
other agreements of any character to purchase or acquire any shares of its
capital stock or any securities or rights convertible into, exchangeable for, or
evidencing the right to subscribe for, any shares of its capital stock or (B)
any other securities in respect of, in lieu of, or in substitution for, any
shares of its capital stock outstanding on the date hereof other than pursuant
to the proper exercise of stock options or warrants outstanding as of the date
hereof; (ii) redeem, purchase or otherwise acquire, or propose to redeem,
purchase or otherwise acquire, any of its outstanding shares of capital stock;
or (iii) split, combine, subdivide or reclassify any shares of its capital stock
or declare, set aside for payment or pay any dividend, or make any other actual,
constructive or deemed distribution in respect of any shares of its capital
stock or otherwise make any payments to its shareholders in their capacity as
such; (b) other than in the ordinary course of business consistent with past
practice, incur any indebtedness for borrowed money or guarantee any such
indebtedness or make any loans, advances or capital contributions to, or
investments in, any other person other than the Company or its Subsidiaries; (c)
sell, transfer, mortgage, encumber, lease, license or otherwise dispose of any
of its properties or assets to any individual, corporation or other entity other
than a direct or indirect wholly owned Subsidiary, or cancel, release or assign
any indebtedness to any such person or any claims held by any such person, (i)
pursuant to contracts or agreements in force at the date of this Agreement or
(ii) pursuant to plans disclosed in writing prior to the execution of this
Agreement to the Parent; (d) except for transactions in the ordinary course of
business consistent with past practice, make any acquisition or investment
either by purchase of stock or securities, merger or consolidation,
contributions to capital, property transfers, or purchases of any property or
assets of any other individual, corporation or other entity other than a wholly
owned Subsidiary thereof; (e) amend its Articles of Incorporation, Bylaws or
similar governing documents; (f) enter into, amend, accelerate, vest or modify
any employee benefit plan, employment agreement or any other agreement,
understanding or arrangement providing for payments by or on behalf of the
Company or any of its Subsidiaries; or (g) make any commitment to, take any of
the actions prohibited by, or requiring the consent of Parent under, this
Section 5.01.
Section 5.02 No Solicitation.
(a) The Company shall immediately cease and terminate any existing
solicitation, initiation, encouragement, activity, discussion or negotiation
with any person or entity conducted heretofore by the Company, its Subsidiaries
or any of their respective officers, directors, employees, agents or
representatives (collectively, "Representatives") with respect to any proposed,
potential or contemplated Acquisition Proposal (as defined herein).
(b) From and after the date hereof, without the prior written consent of
the Purchaser, the Company will not, and will not authorize or permit any of its
Subsidiaries or Representatives to, directly or indirectly, solicit, initiate or
encourage (including by way of furnishing information) or take any other action
reasonably designed to facilitate any inquiries or the making of any proposal
which constitutes or would reasonably be expected to lead to an Acquisition
Proposal.
(c) Notwithstanding any other provision hereof, the Company may engage in
discussions or negotiations with a third party who (without any solicitation,
initiation or encouragement, directly or indirectly, by or with the Company or
any of its Representatives) seeks to initiate such discussions or negotiations
and may furnish such third party information concerning the Company and its
business, properties and assets if, and only to the extent that, (i)(A) the
third party has first made a bona fide Acquisition Proposal to the Board of
Directors of the Company in writing prior to the date upon which this Agreement
and the Merger shall have been approved by the required vote of the shareholders
of the Company, (B) the Company's Board of Directors concludes in good faith
(after consultation with its financial advisor) that the transaction
contemplated by such Acquisition Proposal is reasonably capable of being
completed, taking into account all legal, financial, regulatory and other
aspects of the Acquisition Proposal and the party making such Acquisition
Proposal, and could, if
A-18
<PAGE> 101
consummated, reasonably be expected to result in a transaction more favorable to
the Company's shareholders from a financial point of view than the Merger
contemplated by this Agreement (any such Acquisition Proposal, a "Company
Superior Proposal"), and (C) the Company's Board of Directors shall have
concluded in good faith, after considering applicable provisions of state law,
and after consultation with outside counsel, that such action is required for
the Board of Directors to act in a manner consistent with its fiduciary duties
under applicable law; (ii) the Company (A) shall as promptly as practicable
notify Parent and the Purchaser (1) that the Company has received a bona fide
Acquisition Proposal from a third party, (2) that the Company is permitted to
furnish information to, or to enter into discussions or negotiations with, such
third party pursuant to clause (i) of this Section 5.02(c), and (3) of the
identity of the third party making such Acquisition Proposal and of all the
terms and conditions of such proposal, and (B) shall keep Parent and the
Purchaser reasonably informed of the status and material terms of such
Acquisition Proposal; and (iii) the Company shall promptly advise the third
party making such Acquisition Proposal that the Company will not participate in
negotiations or discussions with or provide information to such Person, unless
and until such person authorizes the Company to comply with clause (ii) of this
Section 5.02(c).
(d) Without limiting the foregoing, it is understood that any violation of
the restrictions set forth in the preceding sentence by a director or an officer
of the Company or any of its Subsidiaries, or any investment banker, attorney or
other Representative of the Company or any of its Subsidiaries, whether or not
such person is purporting to act on behalf of the Company or any of its
Subsidiaries or otherwise, shall be deemed to be a breach of this Section 5.02
by the Company.
(e) The term "Acquisition Proposal" shall mean any proposal or offer (other
than by Parent or the Purchaser) for a tender or exchange offer, merger,
consolidation or other business combination involving the Company or any
Subsidiary of the Company, or any proposal to acquire in any manner an equity
interest which could result in such party having a direct or indirect equity
interest in or acquiring all or material portion of the assets of the Company or
any Subsidiary of the Company, other than the transactions contemplated by this
Agreement.
Section 5.03 Regulatory Matters. The Company and Parent shall, and Parent
shall cause the Purchaser to, take all actions necessary to comply promptly with
all legal requirements which may be imposed on it with respect to this Agreement
and the transactions contemplated hereby (which actions shall, as applicable,
include, without limitation, filing the notification and report form and
furnishing all other information required in connection with approvals of or
filings with any other Governmental Entity) and shall promptly cooperate with
and furnish information to each other in connection with any such requirements
imposed upon any of them or any of their Subsidiaries in connection with this
Agreement and the transactions contemplated hereby. Each of the Company, Parent
and the Purchaser shall, and shall cause its Subsidiaries to, use its best
efforts to take all actions necessary to obtain (and shall cooperate with each
other in obtaining) any consent, authorization, order or approval of, or any
exemption by, any Governmental Entity or other public or private third party
required to be obtained or made by Parent, the Purchaser, the Company or any of
their respective Subsidiaries in connection with the Merger or the taking of any
action contemplated thereby or by this Agreement.
Section 5.04 Financing. At the Effective Time, Parent and the Purchaser
shall have sufficient funds available (through cash on hand and existing credit
arrangements or otherwise) to pay the Merger Consideration in respect of all
Shares (other than Shares held by Parent of the Purchaser or any of their
Subsidiaries or affiliates) outstanding and to pay all fees and expenses related
to the transactions contemplated by this Agreement.
Section 5.05 Publicity. The initial press release with respect to the
execution of this Agreement shall be a joint press release reasonably acceptable
to Parent and the Company. Thereafter, so long as this Agreement is in effect,
neither the Company, Parent nor any of their respective affiliates shall issue
or cause the publication of any press release or other announcement with respect
to the Merger, this Agreement or the other transactions contemplated hereby
without the prior approval of the other party, except as may be required by law,
by any listing agreement with a national securities exchange or by any rule or
regulation of the
A-19
<PAGE> 102
NASD (in which event, the non-disclosing party shall nevertheless have the
opportunity to review and consult with the disclosing party regarding such
disclosure prior to the making thereof).
Section 5.06 Notification of Certain Matters. The Company shall give
prompt notice to Parent, and Parent shall give prompt notice to the Company, of
(i) the occurrence, or non-occurrence of any event the occurrence or
non-occurrence of which would cause any representation or warranty contained in
this Agreement to be untrue or inaccurate in any material respect at or prior to
the Effective Time, or is of the type which would be required to be disclosed
under Section 3.08, and (ii) any material failure of the Company or Parent, as
the case may be, to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder; provided, however, that the
delivery of any notice pursuant to this Section 5.06 shall not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
Section 5.07 Access to Information. Upon prior notice and subject to
applicable laws relating to the exchange of information, the Company shall, and
shall cause each of its Subsidiaries to, afford to the officers, employees,
accountants, counsel and other representatives of the Parent, and the Purchaser
during the period prior to the Effective Time, access to all its properties,
books, contracts, commitments and records, and to its officers, employees,
accountants, counsel and other representatives and, during such period, the
Company shall, and shall cause its Subsidiaries to, make available to the Parent
and the Purchaser (i) a copy of each report, schedule, registration statement
and other document filed or received by it during such period pursuant to the
requirements of Federal securities laws and (ii) all other information
concerning its business, properties and personnel as the Parent or the Purchaser
may reasonably request.
Section 5.08 Further Assurances. Subject to the terms and conditions of
this Agreement, each of Parent and the Company shall use all reasonable efforts
to take, or cause to be taken, all actions, and to do, or cause to be done, all
things necessary, proper or advisable to consummate and make effective, as soon
as practicable after the date of this Agreement, the transactions contemplated
hereby, including, without limitation, using all reasonable efforts to lift or
rescind any injunction or restraining order or other order adversely affecting
the ability of the parties to consummate the transactions contemplated hereby
and using all reasonable efforts to defend any litigation seeking to enjoin,
prevent or delay the consummation of the transactions contemplated hereby or
seeking material damages.
Section 5.09 Indemnification; Directors' and Officers' Insurance.
(a) Parent agrees that all rights to indemnification (including advancement
of expenses) from the Company existing under Minnesota law on the date hereof in
favor of the persons who are officers or directors of the Company and its
Subsidiaries on the date hereof or immediately prior to the Effective Time (the
"D&O'S") with respect to actions taken in their capacity as directors and
officers prior to or at the Effective Time as provided in the respective
Articles of Incorporation or by-laws of the Company and its Subsidiaries in
effect as of the date hereof shall survive the Merger and shall continue in full
force and effect following the Effective Time. To the extent, if any, not
provided by a right under one of the parties' directors and officers liability
insurance policies, from and after the Effective Time, Parent shall, to the
fullest extent permitted by applicable law, indemnify, defend and hold harmless
each D&O against all losses, expenses (including reasonable attorneys' fees and
expenses), claims, damages or liabilities or amounts paid in settlement arising
out of actions or omissions occurring prior to the Effective Time, and whether
asserted or claimed prior to, at or after the Effective Time, that are in whole
or in part (i) based on or arising out of the fact that such person is or was a
director or officer of the Company, or (ii) based on, arising out of or
pertaining to the transactions contemplated by this Agreement. In the event of
any such loss, claim, damage or liability (whether or not arising before the
Effective Time), in addition to any indemnification and hold harmless hereunder,
Parent shall pay the reasonable fees and expenses of counsel selected by the
D&O's (including counsel selected prior to the date hereof), promptly after
statements therefore are received and otherwise advance to such D&O's upon
request documented expenses reasonably incurred. Nothing contained herein shall
entitle any D&O to any duplicate recovery of any loss, expense, claim, damage or
liability. Parent shall not be liable for any settlement incurred without its
prior written consent, which consent shall not be unreasonably withheld.
A-20
<PAGE> 103
(b) For a period of six (6) years after the Effective Time, Parent shall
cause to be maintained in effect by or on behalf of the Surviving Corporation
for the benefit of the D&O's policies of directors' and officers' liability
insurance or "run-off" or "tail" coverage at least equivalent in scope and
limits of coverage to the current policies maintained by the Company with
respect to claims arising from facts or events which occurred prior to or at the
Effective Time; provided, however, that in no event shall Manor Care, Inc., a
Delaware corporation and the owner of all the issued and outstanding equity
interests of Parent, Parent or the Surviving Corporation be obligated to expend,
in order to maintain or procure such insurance coverage, (i) if such insurance
is purchased as "run off" or "tail" coverage, an amount exceeding twelve (12)
times the annual premium of the Company's directors' and officers' insurance
policy in effect on the date hereof (the "Current Premium") or (ii) if such
insurance is purchased annually, an amount annually more than two (2) times the
Current Premium, but in either such case Parent or the Surviving Corporation
shall be obligated to purchase a policy with the greatest coverage available for
a cost not exceeding such amount.
(c) For a period of six (6) years after the Effective Time, Parent shall
cause Manor Care, Inc. to maintain in effect for the benefit of the D&O's
policies of directors' and officers' liability insurance, or "run-off" or "tail"
coverage, pursuant to which directors and officers of majority-owned
Subsidiaries of Manor Care, Inc. are entitled to coverage (it being acknowledged
that such policies currently cover the D&O's), equivalent in scope and limits of
coverage to the current policies maintained by Parent with respect to claims
arising from facts or events which occurred during the period prior to the
Effective Time during which Parent owned a majority of the voting stock of the
Company; provided, however, that in no event shall Manor Care, Inc. or Parent be
obligated to expend, in order to maintain or procure such insurance coverage,
(i) if such insurance is purchased as "run off" or "tail" coverage, an amount
exceeding twelve (12) times the annual premium of the Parent's directors' and
officers' insurance policy in effect on the date hereof (the "Current Parent
Premium"), or (ii) if such insurance is purchased annually, an amount annually
more than two (2) times the Current Parent Premium, but in either such case
Parent shall be obligated to purchase a policy with the greatest coverage
available for a cost not exceeding such amount.
(d) The covenants contained in this Section 5.09 shall survive the Closing,
shall continue without time limit and are intended to benefit the Company and
each of the indemnified parties.
(e) No provision in this Section 5.09 shall prohibit or restrict the Parent
or the Purchaser from merging the Surviving Corporation with or into another
entity for the purpose of changing the jurisdiction of incorporation,
organization or formation thereof.
Section 5.10 Additional Agreements. In case at any time after the
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement or to vest the Surviving Corporation with full title
to all properties, assets, rights, approvals, immunities and franchises of any
of the parties to the merger, the proper officers and directors of each party to
this Agreement and their respective Subsidiaries shall take all such necessary
action as may be reasonably requested by Parent.
Section 5.11 Actions by Company. Except as otherwise required by
applicable law, any actions contemplated to be taken under this Agreement by the
Board of Directors of the Company or the Company may be taken by the Company
Special Committee on behalf of the Company or its Board of Directors.
Notwithstanding any other provisions contained herein, (i) any amendment or
modification of, or supplement to, this Agreement that is adverse to the holders
of the Company Common Stock shall require the consent of the Company Special
Committee and (ii) the waiver of any obligation, covenant, agreement or
condition herein, or the giving of any consent or the exercise of any material
right thereunder by the Company or its Board of Directors shall require the
consent of the Company Special Committee.
Section 5.12 Continuation of Certain Employee Benefits. Except as
otherwise required by applicable law, Parent covenants and agrees that it shall
cause the Company to continue in full force and effect all employee health and
welfare benefits of the Company (but not equity-based employee benefits), as the
same are currently in effect, until March 31, 2001.
A-21
<PAGE> 104
ARTICLE VI.
CONDITIONS
Section 6.01 Conditions to Each Party's Obligation To Effect the
Merger. The respective obligation of each party to effect the Merger shall be
subject to the satisfaction on or prior to the Closing Date of each of the
following conditions:
(a) Shareholder Approval. This Agreement shall have been approved and
adopted by the requisite vote of the holders of Company Common Stock and the
Series A Preferred Stock required by applicable law and the Articles of
Incorporation of the Company in order to consummate the Merger;
(b) Statutes; Consents. No statute, rule, order, decree or regulation
shall have been enacted or promulgated by any foreign or domestic Governmental
Entity or authority of competent jurisdiction which prohibits the consummation
of the Merger and all foreign or domestic governmental consents, orders and
approvals required for the consummation of the Merger and the transactions
contemplated hereby shall have been obtained and shall be in effect at the
Effective Time; and
(c) Injunctions. There shall be no order or injunction of a foreign or
United States federal or state court or other Governmental Entity of competent
jurisdiction in effect precluding, restraining, enjoining or prohibiting
consummation of the Merger.
Section 6.02 Additional Conditions to Parent's and Purchaser's Obligation
to Effect the Merger. In addition to the conditions set forth in Section 6.01,
Parent's and Purchaser's obligation to effect the Merger shall also be subject
to the satisfaction on the Closing Date of each of the following additional
conditions:
(a) Representations and Warranties of the Company. The representations and
warranties of the Company shall be true and correct in all material respects,
except for representations and warranties that are qualified by materiality or
Material Adverse Effect, which shall be true and correct in all respects.
(b) Compliance With Covenants. The Company and each Subsidiary of the
Company shall have complied with or performed all covenants to be complied with
or performed by the Company or such Subsidiary pursuant to the terms of this
Agreement, including without limitation, those set forth in Article V hereof.
(c) Dissenting Common Stock. The holders of not more than five percent (5%)
of the issued and outstanding shares of Company Common Stock immediately prior
to the Effective Time shall have purported to exercise, or delivered notice to
the Company of their intention to exercise, dissenters' rights with respect to
such Shares (which purported exercise shall include notice of intent to demand
payment of fair value of shares of Company Common Stock under Section 302A.473
of the MBCA).
(d) No Outstanding Options. All Options shall have been cancelled in
accordance with the provisions of Section 2.04 hereof.
(e) No Material Adverse Effect. There shall not have occurred any change,
event, development or circumstance that has had, or could reasonably be expected
to have, a Company Material Adverse Effect.
(f) Withdrawal of Recommendation. The Special Committee shall not have
withdrawn or rescinded its recommendation that the shareholders vote in favor of
this Agreement and the Merger.
(g) Agreements Regarding Stock Options. The Company shall have entered into
written agreements regarding stock options, in form and substance reasonably
satisfactory to Parent, with each employee of the Company who currently holds
options to purchase shares of Company Common Stock.
Section 6.03 Additional Conditions to Company's Obligation to Effect the
Merger. In addition to the conditions set forth in Section 6.01, the Company's
obligation to effect the Merger shall also be subject to the satisfaction on the
Closing Date of each of the following additional conditions:
(a) Representations and Warranties of Parent and Purchaser. The
representations and warranties of the Parent and Purchaser shall be true and
correct in all material respects, except for representations and
A-22
<PAGE> 105
warranties that are qualified by materiality or Material Adverse Effect, which
shall be true and correct in all respects.
(b) Compliance With Covenants. The Parent and Purchaser shall have complied
with or performed all covenants to be complied with or performed by them
pursuant to the terms of this Agreement, including without limitation, those set
forth in Article V hereof.
(c) Deposit of Funds. Parent shall have deposited sufficient funds with the
Paying Agent to permit the exchange of all eligible Certificates for Merger
Consideration pursuant to Section 2.02 hereof.
(d) No Withdrawal of Opinion of Financial Advisor. Houlihan, Lokey, Howard
& Zukin, financial advisor to the Company Special Committee, shall not have
withdrawn their opinion referred to in Section 3.12 prior to the Closing Date.
ARTICLE VII.
TERMINATION
Section 7.01 Termination. Anything herein or elsewhere to the contrary
notwithstanding, this Agreement may be terminated and the Merger contemplated
herein may be abandoned at any time prior to the Effective Time, whether before
or after shareholder approval thereof:
(a) by the mutual consent of the Parent Board and the Company Special
Committee;
(b) by either of the Company Special Committee or the Parent: (i) if any
Governmental Entity shall have issued an order, decree or ruling or taken any
other action (which order, decree, ruling or other action the parties hereto
shall use their respective reasonable best efforts to lift), in each case
permanently restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement and such order, decree, ruling or other action
shall have become final and non-appealable; provided that the party seeking to
terminate this Agreement shall have used all reasonable efforts to challenge
such order, decree or ruling; or (ii) if the Effective Time shall not have
occurred by January 31, 2001, unless the Effective Time shall not have occurred
because of a material breach of this Agreement by the party seeking to terminate
this Agreement;
(c) by the Parent Board if any of the conditions specified in Sections 6.01
or 6.02 shall not have been satisfied on or prior to the earlier to occur of (i)
the Closing Date, or (ii) November 30, 2000; or
(d) by the Company (but only after the Company has made such payments as
are provided for in Section 7.02 and only prior to the approval of this
Agreement and the Merger by the Company's shareholders), if (i) the Board of
Directors of the Company shall conclude in good faith, after considering
applicable state law and consulting with outside legal counsel, that failure to
enter into a definitive agreement with respect to a Company Superior Proposal
would result in the non-compliance by the Board of Directors of the Company with
its fiduciary duties to the shareholders of the Company under applicable law,
(ii) simultaneously with such termination, the Company shall enter into a
definitive and binding acquisition or similar agreement with respect to such
Company Superior Proposal and (iii) the Company shall have notified Parent and
the Purchaser in writing at least five (5) business days prior to the earlier of
such determination by the Board of Directors of the Company and the entering
into such definitive and binding agreement; provided, however, that such
termination under this Section 7.01(d) shall not be effective until the Company
shall have made payment of such amounts as are provided for in Section 7.02).
Section 7.02 Effect of Termination. In the event of the termination of
this Agreement as provided in Section 7.01, written notice thereof shall
forthwith be given to the other party or parties specifying the provision hereof
pursuant to which such termination is made in accordance with the terms thereof,
and this Agreement shall forthwith become null and void, and there shall be no
liability on the part of the Parent or the Company; provided, however, that
nothing in this Section 7.02 shall relieve any party of liability for fraud or
for breach of this Agreement (other than a breach of this Agreement arising
solely out of the inaccuracy of a representation or warranty of the Company that
was accurate when made on the date hereof and which inaccuracy was not caused by
any willful and intentional actions or omissions by the Company); provided,
A-23
<PAGE> 106
further, that in the event that the Company terminates this Agreement pursuant
to Section 7.01(d), then, simultaneously with, and as condition precedent to,
such termination, the Company shall pay to Parent, by wire transfer of
immediately available funds, cash in an amount equal to the sum of (a) all
reasonable out of pocket costs and expenses (including, without limitation, all
fees, expenses and disbursements of counsel, accountants, investment bankers,
experts and other consultants and advisors to Parent and/or the Purchaser)
incurred by or on behalf of Parent and/or the Purchaser in connection with or
related to this Agreement and the transactions contemplated hereby, including,
without limitation, the Merger, plus (b) $70,000 (which amount the parties agree
are reasonable liquidated damages and not a penalty).
ARTICLE VIII.
MISCELLANEOUS
Section 8.01 Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified and supplemented in any and all respects,
whether before or after any vote of the shareholders of the Company contemplated
hereby, by written agreement of the parties hereto (which, in the case of the
Company, shall require approval of its Board of Directors upon the
recommendation of the Company Special Committee), at any time prior to the
Closing Date with respect to any of the terms contained herein, provided that
after approval of the Agreement by the shareholders of the Company, the amount
of the Merger Consideration shall not be decreased and the form of the Merger
Consideration shall not be altered without the approval of the shareholders of
the Company.
Section 8.02 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement, the Company Disclosure
Schedule, the Parent Disclosure Schedule or in any other schedule, instrument or
other document delivered pursuant to this Agreement shall survive the Effective
Time.
Section 8.03 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, telecopied
(which is confirmed) or sent by an overnight courier service, such as Federal
Express, to the parties at the following addresses (or at such other address for
a party as shall be specified by like notice):
(a) if to Parent or the Purchaser, to:
c/o Manor Care, Inc.
333 North Summit Street
P.O. Box 10086
Toledo, Ohio 43699
Attention: Paul A. Ormond and R. Jeffrey Bixler
Telephone No.: (419) 252-5500
Telecopy No.: (419) 252-5599
with a copy to:
Latham & Watkins
Sears Tower, Suite 5800
Chicago, Illinois 60606
Attention: Michael D. Levin
Telephone No.: (312) 876-7700
Telecopy No.: (312) 993-9767
A-24
<PAGE> 107
(b) if to the Company, to:
In Home Health, Inc.
601 Carlson Parkway, Suite 500
Minnetonka, Minnesota 55305
Attention: Chairman
Telephone No.: (612) 449-7500
Telecopy No.: (612)-449-7599
with a copy to:
Leonard, Street and Deinard
150 South Fifth Street, Suite 2300
Minneapolis, Minnesota 55402
Attention: Morris M. Sherman
Telephone No.: (612) 335-1561
Telecopy No.: (612) 335-1657
with a copy to:
Lindquist & Vennum P.L.L.P.
4200 IDS Center
Minneapolis, Minnesota 55402
Attention: Richard D. McNeil
Telephone No.: (612) 371-3211
Telecopy No.: (612) 371-3207
Section 8.04 Entire Agreement; Third Party Beneficiaries. This Agreement
(including the Company Disclosure Schedule, the Parent Disclosure Schedule and
each other schedule, instrument and other document delivered pursuant hereto)
and that certain confidentiality agreement, dated as of July 10, 2000 between
the Company and the Parent (including the documents and the instruments referred
to herein and therein): (a) constitutes the entire agreement and supersedes all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof, and (b) except as provided in
Sections 1.02, Section 2.04 and Section 5.09, are not intended to confer upon
any person other than the parties hereto any rights or remedies hereunder.
Section 8.05 Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void, unenforceable or against its regulatory policy,
the remainder of the terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.
Section 8.06 Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Minnesota without giving effect to
the principles of conflicts of law thereof or of any other jurisdiction.
Section 8.07 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties, except that the Purchaser may assign, in its sole
discretion, any or all of its rights, interests and obligations hereunder to
Parent or to any direct or indirect wholly owned Subsidiary of Parent. Subject
to the preceding sentence, this Agreement shall be binding upon, inure to the
benefit of and be enforceable by the parties and their respective successors and
assigns.
Section 8.08 Headings; Construction. The descriptive headings used herein
are inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this
A-25
<PAGE> 108
Agreement. "Include," "includes," and "including" shall be deemed to be followed
by "without limitation" whether or not they are in fact followed by such words
or words of like import.
Section 8.09 Waiver. Any party hereto may waive any condition to its
obligations hereunder, or any breach, default or misrepresentation of any other
party hereunder (which, in the case of a waiver by the Company, shall require
the approval of its Board of Directors upon the recommendation of the Company
Special Committee); provided, however, that no waiver by any party of any
default, misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
Section 8.10 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
IN WITNESS WHEREOF, Parent, the Purchaser and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized as
of the date first written above.
MANORCARE HEALTH SERVICES, INC.
By: /s/ PAUL A. ORMOND
------------------------------------
Paul A. Ormond
Chairman, President and Chief
Executive Officer
IHHI ACQUISITION CORP.
By: /s/ PAUL A. ORMOND
------------------------------------
Paul A. Ormond
Chairman, Chief Executive Officer
and President
IN HOME HEALTH, INC.
By: /s/ C. MICHAEL FORD
------------------------------------
C. Michael Ford
Chairman, and Interim President and
Chief Executive Officer
A-26
<PAGE> 109
ANNEX B
HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS, INC. FAIRNESS OPINION
September 12, 2000
Special Committee of the
Board of Directors
In Home Health, Inc.
Carlson Center, Suite 600
601 Carlson Parkway
Minnetonka, MN 55305-5214
Attention: C. Michael Ford
We understand that Manor Care Health Services, Inc. ("Manor Care")
currently owns 3,396,735 common shares of In Home Health, Inc. (the "Company"),
which represent 61.3% of the Company's 5,540,224 common shares outstanding as of
September 12, 2000. In addition, Manor Care owns 100% of the Company's preferred
shares outstanding, which together with Manor Care's investment in the Company's
common shares comprises approximately 75.8% of the Company's shareholder votes.
Manor Care has proposed to the Company that it shall acquire the remaining
2,143,489 common shares which are currently being held by shareholders other
than Manor Care ("Public Stockholders") at a price of $3.70 per share in a cash
merger. Such transaction and all related transactions are referred to
collectively herein as the "Transaction." The Company has formed an independent
special committee of the Company's Board of Directors (the "Committee") to
consider certain matters relating to the Transaction.
You have requested our opinion (the "Opinion") as to the matters set forth
below. The Opinion does not address the Company's underlying business decision
to effect the Transaction. We have not been requested to, and did not, solicit
third party indications of interest in acquiring all or any part of the Company.
Furthermore, at your request, we have not negotiated the Transaction or advised
you with respect to alternatives to it.
In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
Among other things, we have:
1. reviewed copies of the Merger Agreement and draft copies of the
Proxy Statement;
2. met with certain members of the senior management of In Home
Health, Inc. to discuss the operations, financial condition, future
prospects and projected operations and performance of In Home Health, Inc.,
and counsel to discuss certain matters;
3. visited, on several occasions, In Home Health, Inc.'s headquarters
in Minnetonka, Minnesota;
4. reviewed forecasts and projections prepared by In Home Health,
Inc.'s management with respect to In Home Health, Inc. for the years ended
September, 2000 through 2003, which Houlihan Lokey received in final form
on September 12, 2000;
5. reviewed the historical market prices and trading volume for In
Home Health, Inc.'s publicly traded securities;
6. researched and analyzed the current environment and various trends
within the healthcare industry in general, and the home health care
industry, specifically. As a part of the research, Houlihan Lokey had
discussions with various industry sources regarding the current
reimbursement environment, as well as proposed reimbursement changes and
their impact on home health care providers;
7. reviewed Simione Central Consulting, Inc.'s report;
8. reviewed certain other publicly available financial data for
certain companies that we deem comparable to In Home Health, Inc., and
publicly available prices and premiums paid in other healthcare
transactions that we considered appropriate;
B-1
<PAGE> 110
9. reviewed drafts of certain documents to be delivered at the
closing of the Transaction; and
10. conducted such other studies, analyses and inquiries as we have
deemed appropriate.
We have relied upon and assumed, without independent verification, that the
financial forecasts and projections provided to us in final form on September
12, 2000 have been reasonably prepared and reflect the best currently available
estimates of the future financial results and condition of the Company, and that
there has been no material change in the assets, financial condition, business
or prospects of the Company since the date of the most recent financial
statements made available to us.
We have not independently verified the accuracy and completeness of the
information supplied to us with respect to the Company and do not assume any
responsibility with respect to it. We have not made any physical inspection or
independent appraisal of any of the properties or assets of the Company. Our
opinion is necessarily based on business, economic, market and other conditions
as they exist and can be evaluated by us at the date of this letter.
The Company, like other companies and any business entities analyzed by
Houlihan Lokey or which are otherwise involved in any manner in connection with
this Opinion, could be materially affected by complications that may occur, or
may be anticipated to occur, in computer-related applications as a result of the
year change from 1999 to 2000 (the "Y2K Issue"). In accordance with
long-standing practice and procedure, Houlihan Lokey's services are not designed
to detect the likelihood and extent of the effect of the Y2K Issue, directly or
indirectly, on the financial condition and/or operations of a business. Further,
Houlihan Lokey has no responsibility with regard to the Company's efforts to
make its systems, or any other systems (including its vendors and service
providers), Year 2000 compliant on a timely basis. Accordingly, Houlihan Lokey
shall not be responsible for any effect of the Y2K Issue on the matters set
forth in this Opinion.
Based upon the foregoing, and in reliance thereon, it is our opinion that
the consideration to be received by the Public Stockholders of the Company in
connection with the Transaction is fair to them from a financial point of view.
/s/ Houlihan Lokey Howard & Zukin
Houlihan Lokey Howard & Zukin Financial Advisors, Inc.
B-2
<PAGE> 111
ANNEX C
SECTIONS OF THE MINNESOTA BUSINESS CORPORATION ACT
RELATING TO DISSENTERS' RIGHTS
302A.471. RIGHTS OF DISSENTING SHAREHOLDERS.
Subdivision 1. Actions creating rights. A shareholder of a corporation may
dissent from, and obtain payment for the fair value of the shareholder's shares
in the event of, any of the following corporate actions:
(a) An amendment of the articles that materially and adversely affects the
rights or preferences of the shares of the dissenting shareholder in that it:
(1) alters or abolishes a preferential right of the shares;
(2) creates, alters, or abolishes a right in respect of the redemption
of the shares, including a provision respecting a sinking fund for the
redemption or repurchase of the shares;
(3) alters or abolishes a preemptive right of the holder of the shares
to acquire shares, securities other than shares, or rights to purchase
shares or securities other than shares;
(4) excludes or limits the right of a shareholder to vote on a matter,
or to cumulate votes, except as the right may be excluded or limited
through the authorization or issuance of securities of an existing or new
class or series with similar or different voting rights; except that an
amendment to the articles of an issuing public corporation that provides
that section 302A.671 does not apply to a control share acquisition does
not give rise to the right to obtain payment under this section;
(b) A sale, lease, transfer, or other disposition of all or substantially
all of the property and assets of the corporation, but not including a
transaction permitted without shareholder approval in section 302A.661,
subdivision 1, or a disposition in dissolution described in section 302A.725,
subdivision 2, or a disposition pursuant to an order of a court, or a
disposition for cash on terms requiring that all or substantially all of the net
proceeds of disposition be distributed to the shareholders in accordance with
their respective interests within one year after the date of disposition;
(c) A plan of merger, whether under this chapter or under chapter 322B, to
which the corporation is a constituent organization, except as provided in
subdivision 3;
(d) A plan of exchange, whether under this chapter or under chapter 322B,
to which the corporation is a party as the corporation whose shares will be
acquired by the acquiring corporation, except as provided in subdivision 3; or
(e) Any other corporate action taken pursuant to a shareholder vote with
respect to which the articles, the bylaws, or a resolution approved by the board
directs that dissenting shareholders may obtain payment for their shares.
Subdivision 2. Beneficial owners.
(a) A shareholder shall not assert dissenters' rights as to less than all
of the shares registered in the name of the shareholder, unless the shareholder
dissents with respect to all the shares that are beneficially owned by another
person but registered in the name of the shareholder and discloses the name and
address of each beneficial owner on whose behalf the shareholder dissents. In
that event, the rights of the dissenter shall be determined as if the shares as
to which the shareholder has dissented and the other shares were registered in
the names of different shareholders.
(b) The beneficial owner of shares who is not the shareholder may assert
dissenters' rights with respect to shares held on behalf of the beneficial
owner, and shall be treated as a dissenting shareholder under the
C-1
<PAGE> 112
terms of this section and section 302A.473, if the beneficial owner submits to
the corporation at the time of or before the assertion of the rights a written
consent of the shareholder.
Subdivision 3. Rights not to apply.
(a) Unless the articles, the bylaws, or a resolution approved by the board
otherwise provide, the right to obtain payment under this section does not apply
to a shareholder of (1) the surviving corporation in a merger, with respect to
shares of the shareholder that are not entitled to be voted on the merger and
are not canceled or exchanged in the merger or (2) the corporation whose shares
will be acquired by the acquiring corporation in a plan of exchange with respect
to shares of the shareholders that are not entitled to be voted on the plan of
exchange and are not exchanged in the plan of exchange.
(b) If a date is fixed according to section 302A.445, subdivision 1, for
the determination of shareholders entitled to receive notice of and to vote on
an action described in subdivision 1, only shareholders as of the date fixed,
and beneficial owners as of the date fixed who hold through shareholders, as
provided in subdivision 2, may exercise dissenters' rights.
Subdivision 4. Other rights. The shareholders of a corporation who have a
right under this section to obtain payment for their shares do not have a right
at law or in equity to have a corporate action described in subdivision 1 set
aside or rescinded, except when the corporate action is fraudulent with regard
to the complaining shareholder or the corporation.
302A.473. PROCEDURES FOR ASSERTING DISSENTERS' RIGHTS.
Subdivision 1. Definitions.
(a) For purposes of this section, the terms defined in this subdivision
have the meanings given them.
(b) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action referred to in section 302A.471, subdivision 1 or the
successor by merger of that issuer.
(c) "Fair value of the shares" means the value of the shares of a
corporation immediately before the effective date of the corporate action
referred to in section 302A.471, subdivision 1.
(d) "Interest" means interest commencing five days after the effective date
of the corporate action referred to in section 302A.471, subdivision 1, up to
and including the date of payment, calculated at the rate provided in section
549.09 for interest on verdicts and judgments.
Subdivision 2. Notice of action. If a corporation calls a shareholder
meeting at which any action described in section 302A.471, subdivision 1 is to
be voted upon, the notice of the meeting shall inform each shareholder of the
right to dissent and shall include a copy of section 302A.471 and this section
and a brief description of the procedure to be followed under these sections.
Subdivision 3. Notice of dissent. If the proposed action must be approved
by the shareholders, a shareholder who wishes to exercise dissenters' rights
must file with the corporation before the vote on the proposed action a written
notice of intent to demand the fair value of the shares owned by the shareholder
and must not vote the shares in favor of the proposed action.
Subdivision 4. Notice of procedure; deposit of shares.
(a) After the proposed action has been approved by the board and, if
necessary, the shareholders, the corporation shall send to all shareholders who
have complied with subdivision 3 and to all shareholders entitled to dissent if
no shareholder vote was required, a notice that contains:
(1) The address to which a demand for payment and certificates of
certificated shares must be sent in order to obtain payment and the date by
which they must be received;
(2) Any restrictions on transfer of uncertificated shares that will
apply after the demand for payment is received;
C-2
<PAGE> 113
(3) A form to be used to certify the date on which the shareholder, or
the beneficial owner on whose behalf the shareholder dissents, acquired the
shares or an interest in them and to demand payment; and
(4) A copy of section 302A.471 and this section and a brief
description of the procedures to be followed under these sections.
(b) In order to receive the fair value of the shares, a dissenting
shareholder must demand payment and deposit certificated shares or comply with
any restrictions on transfer of uncertificated shares within 30 days after the
notice required by paragraph (a) was given, but the dissenter retains all other
rights of a shareholder until the proposed action takes effect.
Subdivision 5. Payment; return of shares.
(a) After the corporate action takes effect, or after the corporation
receives a valid demand for payment, whichever is later, the corporation shall
remit to each dissenting shareholder who has complied with subdivisions 3 and 4
the amount the corporation estimates to be the fair value of the shares, plus
interest, accompanied by:
(1) The corporation's closing balance sheet and statement of income
for a fiscal year ending not more than 16 months before the effective date
of the corporate action, together with the latest available interim
financial statements;
(2) An estimate by the corporation of the fair value of the shares and
a brief description of the method used to reach the estimate; and
(3) A copy of section 302A.471 and this section, and a brief
description of the procedure to be followed in demanding supplemental
payment.
(b) The corporation may withhold the remittance described in paragraph (a)
from a person who was not a shareholder on the date the action dissented from
was first announced to the public or who is dissenting on behalf of a person who
was not a beneficial owner on that date. If the dissenter has complied with
subdivisions 3 and 4, the corporation shall forward to the dissenter the
materials described in paragraph (a), a statement of the reason for withholding
the remittance, and an offer to pay to the dissenter the amount listed in the
materials if the dissenter agrees to accept that amount in full satisfaction.
The dissenter may decline the offer and demand payment under subdivision 6.
Failure to do so entitles the dissenter only to the amount offered. If the
dissenter makes demand, subdivisions 7 and 8 apply.
(c) If the corporation fails to remit payment within 60 days of the deposit
of certificates or the imposition of transfer restrictions on uncertificated
shares, it shall return all deposited certificates and cancel all transfer
restrictions. However, the corporation may again give notice under subdivision 4
and require deposit or restrict transfer at a later time.
Subdivision 6. Supplemental payment; demand. If a dissenter believes that
the amount remitted under subdivision 5 is less than the fair value of the
shares plus interest, the dissenter may give written notice to the corporation
of the dissenter's own estimate of the fair value of the shares, plus interest,
within 30 days after the corporation mails the remittance under subdivision 5,
and demand payment of the difference. Otherwise, a dissenter is entitled only to
the amount remitted by the corporation.
Subdivision 7. Petition; determination. If the corporation receives a
demand under subdivision 6, it shall, within 60 days after receiving the demand,
either pay to the dissenter the amount demanded or agreed to by the dissenter
after discussion with the corporation or file in court a petition requesting
that the court determine the fair value of the shares, plus interest. The
petition shall be filed in the county in which the registered office of the
corporation is located, except that a surviving foreign corporation that
receives a demand relating to the shares of a constituent domestic corporation
shall file the petition in the county in this state in which the last registered
office of the constituent corporation was located. The petition shall name as
parties all dissenters who have demanded payment under subdivision 6 and who
have not reached agreement with the corporation. The corporation shall, after
filing the petition, serve all parties with a summons and copy of the petition
under the rules of civil procedure. Nonresidents of this state may be served by
registered or
C-3
<PAGE> 114
certified mail or by publication as provided by law. Except as otherwise
provided, the rules of civil procedure apply to this proceeding. The
jurisdiction of the court is plenary and exclusive. The court may appoint
appraisers, with powers and authorities the court deems proper, to receive
evidence on and recommend the amount of the fair value of the shares. The court
shall determine whether the shareholder or shareholders in question have fully
complied with the requirements of this section, and shall determine the fair
value of the shares, taking into account any and all factors the court finds
relevant, computed by any method or combination of methods that the court, in
its discretion, sees fit to use, whether or not used by the corporation or by a
dissenter. The fair value of the shares as determined by the court is binding on
all shareholders, wherever located. A dissenter is entitled to judgment in cash
for the amount by which the fair value of the shares as determined by the court,
plus interest, exceeds the amount, if any, remitted under subdivision 5, but
shall not be liable to the corporation for the amount, if any, by which the
amount, if any, remitted to the dissenter under subdivision 5 exceeds the fair
value of the shares as determined by the court, plus interest.
Subdivision 8. Costs; fees; expenses.
(a) The court shall determine the costs and expenses of a proceeding under
subdivision 7, including the reasonable expenses and compensation of any
appraisers appointed by the court, and shall assess those costs and expenses
against the corporation, except that the court may assess part or all of those
costs and expenses against a dissenter whose action in demanding payment under
subdivision 6 is found to be arbitrary, vexatious, or not in good faith.
(b) If the court finds that the corporation has failed to comply
substantially with this section, the court may assess all fees and expenses of
any experts or attorneys as the court deems equitable. These fees and expenses
may also be assessed against a person who has acted arbitrarily, vexatiously, or
not in good faith in bringing the proceeding, and may be awarded to a party
injured by those actions.
(c) The court may award, in its discretion, fees and expenses to an
attorney for the dissenters out of the amount awarded to the dissenters, if any.
C-4
<PAGE> 115
ANNEX D
DIRECTORS AND EXECUTIVE OFFICERS OF MANOR CARE, INC., MANOR CARE OF
AMERICA, INC., MANORCARE HEALTH SERVICES, INC. AND IHHI ACQUISITION CORP.
Set forth below are the name and business address of each director and
executive officer of Manor Care, Inc., Manor Care of America, Inc., ManorCare
Health Services, Inc. and IHHI Acquisition Corp., respectively, the present
principal occupation or employment of each such person and the name, principal
business and address of the corporation or other organization in which such
occupation or employment of each such person is conducted. Also set forth below
are the material occupations, positions, offices and employment of each such
person and the name, principal business and address of any corporation or other
organization in which any material occupation, position, office or employment of
each such person was held during the last five years. Except as otherwise
indicated, each person listed below is a citizen of the United States and each
person's business address is 333 North Summit Street, Toledo, Ohio 43604,
telephone number (419) 252-5500.
1. DIRECTORS AND EXECUTIVE OFFICERS OF MANOR CARE, INC.
DIRECTORS
NAME PRINCIPAL OCCUPATIONS
John T. Schwieters...............
Perseus, LLC
16271 I Street, Suite 610
Washington, DC 20006 Mr. Schwieters has served as Vice Chairman
of Perseus, LLC, a merchant banking firm,
located at 16271 I Street, Suite 610,
Washington, D.C., 20006, since March 2000.
From 1989 to March 2000, Mr. Schwieters
was Managing partner of Arthur Andersen's
Mid Atlantic Market Circle.
Stewart Bainum, Jr...............
Manor Care, Inc.
7361 Calhoun Place, Suite 300
Rockville, MD 20855 Mr. Bainum has been a director and
Chairman of the Board since September
1998. From March 1987 to September 1998,
Mr. Bainum was Chairman of the Board and
Chief Executive Officer of Manor Care of
America, Inc. and was President of Manor
Care of America, Inc. from June 1989 to
September 1998.
Joseph H. Lemieux................
Owens-Illinois, Inc.
One SeaGate, 27th Floor
Toledo, Ohio 43666 Mr. Lemieux has served as Chairman and
Chief Executive Officer of Owens-Illinois,
Inc., a manufacturer of glass containers
and plastics packaging, located at One
SeaGate, Toledo, Ohio 43666, since
September 1990. Mr. Lemieux has been a
member of the Owens-Illinois Board of
Directors since July 1984 and Chairman of
that Board since September 1991.
William H. Longfield.............
President, CEO and Director
C.R. BARD, Inc.
730 Central Avenue
Murray Hill, NJ 07974 Mr. Longfield has served as Chairman and
Chief Executive Officer of C.R. Bard,
Inc., a multinational developer,
manufacturer and marketer of health care
products, located at 730 Central Avenue,
Murray Hill, NJ, 07974, since September
1995 and was President and Chief Executive
Officer of C.R. Bard, Inc. from June 1994
to September 1995.
Frederic V. Malek................
Thayer Capital Partners
1455 Pennsylvania Avenue, N.W.,
#350
Washington, D.C. 20004 Mr. Malek has served as Chairman of Thayer
Capital Partners, a private equity
investment firm, located at 1455
Pennsylvania Avenue, N.W., Washington,
D.C. 20004, since January 1993.
D-1
<PAGE> 116
Paul A. Ormond...................
Manor Care, Inc.
One SeaGate, 23rd Floor
Toledo, Ohio 43604-2616 Mr. Ormond has been President and Chief
Executive Officer of Manor Care, Inc.
since August 1991. Mr. Ormond was Chairman
of the Board from August 1991 until
September 1998.
Robert G. Siefers................
National City Corporation
1900 East Ninth Street, 35th
Floor
Cleveland, Ohio 44114-3484 Mr. Siefers has been Vice Chairman and
Chief Financial Officer of National City
Corporation, a diversified financial
services company, located at 1900 East
Ninth Street, Cleveland, Ohio 44114, since
October 1997. Mr. Siefers served as Vice
President and Chief Financial Officer of
National City Corporation from February
1991 until October 1997.
M. Keith Weikel..................
Manor Care, Inc.
One SeaGate, 23rd Floor
Toledo, Ohio 43604-2616 Mr. Weikel has served as Senior Executive
Vice President and Chief Operating Officer
of Manor Care, Inc. since August 1991.
Gail R. Wilensky.................
Project Hope
7500 Old Georgetown Road, Suite
600
Bethesda, MD 20814 Ms. Wilensky has been a Senior Fellow at
Project HOPE, a not-for-profit
international health education foundation,
located at 7500 Old Georgetown Road,
Bethesda, MD 20814, since January 1993.
Thomas L. Young..................
Owens-Illinois, Inc.
One SeaGate, 27th Floor
Toledo, OH 43604 Mr. Young has served as Executive Vice
President-Administration and General Counsel of Owens-Illinois, Inc.
manufacturer of glass containers and
plastics packaging, located at One
SeaGate, Toledo, OH 43604, since April
1992. Mr. Young is also a director of
Owens-Illinois, Inc.
EXECUTIVE OFFICERS
NAME TITLE AND PRINCIPAL OCCUPATIONS
Paul A. Ormond................... President and Chief Executive Officer. See
above.
M. Keith Weikel.................. Senior Executive Vice President and Chief
Operating Officer. See above.
Geoffrey G. Meyers............... Mr. Meyers has served as Executive Vice
President and Chief Financial Officer of
Manor Care, Inc. since August 1991 and
Treasurer of Manor Care, Inc. from August
1991 to August 1998.
R. Jeffrey Bixler................ Mr. Bixler has served as Vice President
and General Counsel of Manor Care, Inc.
since November 1991 and Secretary of Manor
Care, Inc. since December 1991.
Nancy A. Edwards................. Ms. Edwards has served as Vice President
and General Manager of Central Division of
Manor Care, Inc. since December 1993.
Jeffrey A. Grillo................ Mr. Grillo has served as Vice President
and General Manager of Mid-Atlantic
Division of Manor Care, Inc. since
February 1999, Regional Director of
Operations in Mid-Atlantic District of
ManorCare Health Services, Inc. from 1996
to January 1999, and Regional Director of
Operations in Southeast District of
ManorCare Health Services, Inc. from 1994
to 1996.
D-2
<PAGE> 117
Larry C. Lester.................. Mr. Lester has served as Vice President
and General Manager of Midwest Division of
Manor Care, Inc. since January 2000,
Regional Director of Operations in Midwest
Region of Health Care and Retirement
Corporation of America from January 1998
to December 1999, and Vice President of
Oakwood Healthcare System from January
1993 to December 1997.
Spencer C. Moler................. Mr. Moler has served as Vice President and
Controller of Manor Care, Inc. since
August 1991.
O. William Morrison.............. Mr. Morrison has served as Vice President
and General Manager of Eastern Division of
Manor Care, Inc. since March 1999,
Assistant Vice President and General
Manager of Texas of Manor Care, Inc. from
October 1998 to February 1999, and
Regional Manager in the Central Division
of Health Care and Retirement Corporation
of America from September 1995 to
September 1998.
Richard W. Parades............... Mr. Parades has served as Vice President
and General Manager of Mid-States Division
of Manor Care, Inc. since January 1999,
District Vice President and General
Manager of Mid-States of ManorCare Health
Services, Inc. from February 1997 to
December 1998, and Regional Director of
Operations in Mid-States District of
ManorCare Health Services, Inc. from 1994
to January 1997.
F. Joseph Schmitt................ Mr. Schmitt has served as Vice President
and General Manager of Southern Division
of Manor Care, Inc. since December 1993.
2. DIRECTORS AND EXECUTIVE OFFICERS OF MANOR CARE OF AMERICA, INC.
DIRECTORS
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATIONS
---- ---------------------
<S> <C>
Paul A. Ormond.................................. See above.
M. Keith Weikel................................. See above.
Geoffrey G. Meyers.............................. See above.
</TABLE>
EXECUTIVE OFFICERS
The Executive Officers of Manor Care of America, Inc. are identical to the
Executive Officers of Manor Care, Inc. above with the exception of Larry C.
Lester who is not an Executive Officer of Manor Care of America, Inc.
3. DIRECTORS AND EXECUTIVE OFFICERS OF MANORCARE HEALTH SERVICES, INC.
DIRECTORS
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATIONS
---- ---------------------
<S> <C>
Paul A. Ormond.................................. See above.
M. Keith Weikel................................. See above.
Geoffrey G. Meyers.............................. See above.
</TABLE>
D-3
<PAGE> 118
EXECUTIVE OFFICERS
The Executive Officers of ManorCare Health Services, Inc. are identical to
the Executive Officers of Manor Care, Inc. above with the exception of Larry C.
Lester who is not an Executive Officer of ManorCare Health Services, Inc.
4. DIRECTORS AND EXECUTIVE OFFICERS OF IHHI ACQUISITION CORP.
DIRECTORS
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATIONS
---- ---------------------
<S> <C>
M. Keith Weikel................... See above.
Geoffrey G. Meyers................ See above.
Steven M. Cavanaugh............... Mr. Cavanaugh has served as Vice President of Manor Care,
Inc. since February 2000 and Assistant Vice President of
Health Care and Retirement Corporation of America from 1999
to 2000, and Manager of Corporate Development of Health Care
and Retirement Corporation from 1994 to 1998.
</TABLE>
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME TITLE AND PRINCIPAL OCCUPATIONS
---- -------------------------------
<S> <C>
Paul A. Ormond.................... Chairman, Chief Executive Officer and President. See above.
M. Keith Weikel................... Senior Executive Vice President. See above.
Geoffrey G. Meyers................ Executive Vice President, Chief Financial Officer and
Assistant Secretary. See above.
R. Jeffrey Bixler................. Vice President, General Counsel and Secretary. See above.
</TABLE>
D-4
<PAGE> 119
ANNEX E
SIMIONE CENTRAL CONSULTING, INC. REPORT
September 1, 2000
Mr. Michael Ford
Interim President
In Home Health, Inc.
Carlson Center, Suite 500
601 Lakeshore
Minnetonka, MN 55343
Dear Mr. Ford:
We have examined the underlining assumptions and methodologies used for the
accompanying revenue and expense projections prepared by management dated August
21, 2000, for the fiscal years ending September 30, 2001, 2002 and 2003 of In
Home Health, Inc. (IHHI). Our approach for this consulting engagement included
on-site review of the assumptions and methodologies for the projections and
discussions with key management staff. Our examination, except as explained in
the following section entitled "Unquantifiable Exceptions to the Projections"
included such procedures as we considered necessary to evaluate the assumptions
and methodologies used by management and the preparation and presentation of the
projections.
QUANTIFIABLE EXCEPTIONS TO PROJECTIONS
The following is a restatement of the "income from operations" based on
exceptions to the projections that we considered quantifiable:
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30
----------------------------------------
2000 2001 2002 2003
---- ---- ---- ----
<S> <C> <C> <C> <C>
IHHI -- Projected Income from Operations (August 21,
2000)................................................. $ 3,153 $ 8,333 $11,031 $11,582
(1) Rebased FY 2000 Revenue
Extended Care.................................... (115) (92) (98) (103)
Infusion......................................... 95 95 100 105
Hospice.......................................... (1,193) (1,394) (2,304) (2,420)
Visit............................................ 1,121 -- -- --
(2) Rebase of Year 2000 Expenses........................ (328) (1,178) (545) (668)
(3) Recalculation of Medicare Episodic Revenue for Final
Regulations...................................... (1,317) (1,390) (2,693)
(4) Elimination of Wickenburg Office Income from
Operations....................................... (901) (1,091) (1,294)
------- ------- ------- -------
IHHI Restated Projected Income from Operations.......... $ 2,733 $ 3,546 $ 5,703 $ 4,509
======= ======= ======= =======
</TABLE>
-------------------------
(1)(2) Certain revenues and expenses were projected using the base fiscal year
projections for year ending September 30, 2000. These base year
projections were subsequently revised, based on up to date information,
which resulted in changes to projected revenues and expenses for years
ending 2001, 2002 and 2003.
(3) Health Care Finance Administration (HCFA) published final regulations
for a Prospective Payment System (PPS) for home health agencies July 3,
2000. IHHI subsequently revised Medicare revenue for changes in case
mix classifications and revenue weights due to the change in the final
regulations.
E-1
<PAGE> 120
(4) A decision to close the Wickenburg, Arizona office was made after the
projections were prepared. These amounts represent the removal of
revenues and expenses related to Wickenburg for years ending 2001, 2002
and 2003.
UNQUANTIFIABLE EXCEPTIONS TO PROJECTIONS
The following are exceptions to the projections that we could not quantify
due to the limited scope of our engagement:
(1) Number of Medicare Episodes -- The new Medicare Prospective
Payment System that becomes effective October 1, 2000 reimburses home
health agencies based on a patient's 60 day episode of care. We were not
able to ascertain whether the number of episodes projected for Medicare
patients used in determining projected Medicare revenue were correct.
(2) Medicare Revenue Adjustments -- The Medicare revenue does not
reflect adjustments for certain intervening events that could occur during
a patient's episode of care that could increase or decrease the amount of
reimbursement for that episode. The events that were not quantified were
for a Significant Change In Condition (SCIC), transfer of patient (Partial
Episode Payment {PEP}) or high cost outliers.
(3) Factors for Census Shortfall and Reduced Expectations -- IHHI
projections reflect a $2.8 million reduction in Medicare revenue for an
anticipated temporary reduction in census for the year ending 2001 and a
decrease of $1.6 million per year due to reduced expectations for years
ending 2001, 2002 and 2003. We could not evaluate the bases for which these
amounts were calculated.
(4) Legislation and Regulations -- Legislation and regulations at all
levels of government have affected and may continue to affect revenues and
expenses of home health agencies. As previously stated, the financial
projection is based on legislation and regulations that become effective
October 1, 2000. If future legislation or regulations related to home
health agencies' operations are enacted, such legislation or regulations
could have a material effect on future operations.
Because, as described in the preceding paragraph, we are unable to evaluate
management's assumptions regarding the number of Medicare episodes; Medicare
revenue adjustments and factors used for census shortfall and reduced
expectation and other assumptions that depend thereon, we express no opinion
with respect to the assumptions underlying the accompanying projections. We have
no responsibility to update this report for events and circumstances occurring
after the date of this report.
SIMIONE CENTRAL CONSULTING, INC. LOGO
Simione Central Consulting, Inc.
E-2
<PAGE> 121
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Definitive Proxy
Statement of In Home Health, Inc. of our report dated November 19, 1999
(December 7, 1999 as to Note 5), appearing in the Annual Report on Form 10-K of
In Home Health, Inc. for the year ended September 30, 1999 and to the reference
to us under the heading "Independent Auditors" in the Definitive Proxy
Statement.
November 22, 2000
/s/ Deloitte & Touche LLP
<PAGE> 122
PROXY
IN HOME HEALTH, INC.
601 Carlson Parkway, Suite 500
Minnetonka, Minnesota 55305
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF IN HOME HEALTH, INC.
The undersigned shareholder of IN HOME HEALTH, INC., a
Minnesota corporation, hereby appoints M. Keith Weikel, Geoffrey G. Meyers,
Eugene Terry and C. Michael Ford, and each of them, as proxies, each with the
power to appoint his substitute, and hereby authorizes each of them to
represent, and to vote as designated on the reverse side, all the shares of
common stock of In Home Health, Inc. held of record by the undersigned on
November 24, 2000 at the special meeting of shareholders of In Home Health,
Inc., to be held at Radisson Hotel and Conference Center, 3131 Campus Drive,
Plymouth, Minnesota, on Thursday, December 28, 2000 at 9:00 a.m., Central Time,
and at all adjournments or postponements thereof upon the following matters, as
set forth in the notice of special meeting of shareholders and proxy statement,
each dated November 27, 2000, copies of which have been received by the
undersigned, hereby revoking any proxy heretofore given.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE
MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE,
THIS PROXY WILL BE VOTED FOR THE APPROVAL OF THE AGREEMENT AND PLAN OF MERGER
AND THE TRANSACTIONS CONTEMPLATED THEREBY.
(CONTINUED AND TO BE DATED AND SIGNED ON REVERSE SIDE)
<PAGE> 123
Please mark your votes as indicated in
this example:
[X]
The board of directors of In Home Health, Inc. recommends a vote FOR the
Agreement and Plan of Merger.
1. Proposal to approve and adopt the Agreement and Plan of Merger, dated
as of September 13, 2000, by and among ManorCare Health Services, Inc.,
IHHI Acquisition Corp. and In Home Health, Inc., as heretofore and
hereafter amended, and the transactions contemplated thereby:
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Please sign exactly as your name appears on this
proxy. If the shares represented by this proxy are
held by joint tenants, both must sign. When
signing as attorney, executor, administrator,
trustee or guardian, please give full title as
such. If shareholder is a corporation, please sign
in full corporate name by president or other
authorized officer. If shareholder is a
partnership, please sign in partnership name by
authorized person.
Signature: Date:
--------------------------------- -------------------
Signature: Date:
--------------------------------- -------------------
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED POSTAGE PREPAID ENVELOPE
