<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 4, 1994
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
REGENCY HEALTH SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 8051 33-0210226
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
3636 BIRCH STREET, SUITE 195
NEWPORT BEACH, CALIFORNIA 92660
(714) 851-9512
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
BRAD L. KERBY, ESQ.
GENERAL COUNSEL
3636 BIRCH STREET, SUITE 195
NEWPORT BEACH, CALIFORNIA 92660
(714) 851-9512
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPY TO:
BRIAN J. MCCARTHY, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM
300 SOUTH GRAND AVENUE
LOS ANGELES, CALIFORNIA 90071
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT IS DECLARED EFFECTIVE.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
CALCULATION OF REGISTRATION FEE
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<CAPTION>
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PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE FEE(1)
<S> <C> <C> <C> <C>
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Common Stock, par value $.01 per 9,401,140
share......................... shares(2) N.A. $162,169,665(3) $55,921(4)
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</TABLE>
(1) A filing fee of $27,248 was paid in connection with the filing of the
Registrant's preliminary proxy statement. The difference of $28,673 between
the amount referenced above and $27,248 has been wire transferred to the
Mellon Bank lockbox on March 2, 1994.
(2) The amount of common stock, par value $.01 per share, of the Registrant
("Common Stock") to be registered has been determined on the basis of the
conversion ratio for such shares in the merger (the "Merger") between the
Registrant and Care Enterprises, Inc. ("Care") (0.71 of a share of Common
Stock for each share of common stock, par value $.01 per share, of Care that
may be converted in the Merger).
(3) Estimated pursuant to Rule 457(f) of the Securities Act of 1933, as amended
(the "Securities Act"), based upon the market value of shares of Common
Stock to be converted in the Merger ($17.25 per share, which is the average
of the high and low sales prices of a share of Common Stock, as reported by
the American Stock Exchange, Inc. (the "AMEX") on March 3, 1994).
(4) The registration fee of $55,921 has been calculated pursuant to Rule 457(f)
under the Securities Act as follows: 1/29 of one percent of the average of
the reported high and low sales prices of a share of Common Stock on the
AMEX on March 3, 1994, multiplied by 9,401,140, the maximum number of shares
of Common Stock that may be converted in the Merger.
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<PAGE> 2
REGENCY HEALTH SERVICES, INC.
CROSS-REFERENCE SHEET FOR REGISTRATION STATEMENT ON FORM S-4
AND PROXY STATEMENT/PROSPECTUS
<TABLE>
<CAPTION>
FORM S-4 CAPTION IN PROXY
ITEM NUMBER AND CAPTION STATEMENT/PROSPECTUS
------------------------------------------------- -------------------------------------
<C> <S> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus................. Facing Page of Registration
Statement; Cross-Reference Sheet;
Cover Page of Proxy
Statement/Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus..................................... Available Information; Table of
Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges,
and Other Information.......................... Summary of Proxy
Statement/Prospectus; Selected
Financial and Operating Data;
Capitalization; Comparative Per
Share Data; Comparative Market
Prices; Risk Factors; Future
Operations; The Special Meetings;
The Merger; Regency Management's
Discussion and Analysis of
Financial Condition and Results of
Operations; Care Management's
Discussion and Analysis of
Financial Condition and Results of
Operations; Selected Information
Regarding the Long-Term Care
Services Industry; Selected
Information Regarding Regency;
Selected Information Regarding Care
4. Terms of the Transaction......................... Available Information; Summary of
Proxy Statement/Prospectus; The
Merger; Management of Regency
Following the Merger; The Agreement
and Plan of Merger; Certain Related
Agreements; Restated Regency
Certificate of Incorporation and
Restated Regency Bylaws; Comparison
of Rights of Stockholders of
Regency and Care; Description of
Regency Securities; Ownership of
Regency Securities at the Effective
Time; Ownership of Regency
Securities; Ownership of Care
Securities
5. Pro Forma Financial Information.................. Selected Financial and Operating
Data; Capitalization; Unaudited Pro
Forma Condensed Financial
Information
6. Material Contacts With the Company Being
Acquired....................................... The Merger
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to Be
Underwriters................................... Not Applicable
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
FORM S-4 CAPTION IN PROXY
ITEM NUMBER AND CAPTION STATEMENT/PROSPECTUS
------------------------------------------------- -------------------------------------
<C> <S> <C>
8. Interests of Named Experts and Counsel........... The Merger; Legal Matters; Experts
9. Disclosure of Commission Position on
Indemnification For Securities Act
Liabilities.................................... Not Applicable
B. INFORMATION ABOUT THE REGISTRANT
10. Information With Respect to S-3 Registrants...... Not Applicable
11. Incorporation of Certain Information by
Reference...................................... Not Applicable
12. Information With Respect to S-2 or S-3
Registrants.................................... Not Applicable
13. Incorporation of Certain Information by
Reference...................................... Not Applicable
14. Information With Respect to Registrants Other
Than
S-3 or S-2 Registrants......................... Selected Financial and Operating
Data; Capitalization; Comparative Per
Share Data; Comparative Market
Prices; Risk Factors; Future
Operations; The Merger; Management
of Regency Following the Merger;
Unaudited Pro Forma Condensed
Financial Information; Regency
Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Selected
Information Regarding the Long-Term
Care Services Industry; Selected
Information Regarding Regency;
Restated Regency Certificate of
Incorporation and Restated Regency
Bylaws; Description of Regency
Securities; Ownership of Regency
Securities
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information With Respect to S-3 Companies........ Not Applicable
16. Information With Respect to S-2 or S-3
Companies...................................... Not Applicable
17. Information With Respect to Companies Other Than
S-2 or S-3 Companies........................... Selected Financial and Operating
Data; Capitalization; Comparative Per
Share Data; Comparative Market
Prices; Risk Factors; Future
Operations; The Merger; Management
of Regency Following the Merger;
Unaudited Pro Forma Condensed
Financial Information; Care
Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Selected
Information Regarding the Long-Term
Care Services Industry; Selected
Information Regarding Care
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
FORM S-4 CAPTION IN PROXY
ITEM NUMBER AND CAPTION STATEMENT/PROSPECTUS
------------------------------------------------- -------------------------------------
<C> <S> <C>
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations Are to be Solicited............. Summary of Proxy
Statement/Prospectus; The Special
Meetings; The Merger
19. Information if Proxies, Consents or
Authorizations Are Not to be Solicited, or in
an Exchange Offer.............................. Not Applicable
</TABLE>
<PAGE> 5
[LOGO] REGENCY HEALTH SERVICES, INC.
3636 Birch Street, Suite 195
Newport Beach, California 92660
March 7, 1994
Dear Fellow Stockholder:
On Monday, April 4, 1994, Regency Health Services, Inc. will hold a Special
Meeting of Stockholders.
At the Special Meeting, you will be considering and voting upon a proposed
merger in which Regency and Care Enterprises, Inc. will be combined. If the
merger is approved and completed, each share of common stock of Care will be
converted into 0.71 of a share of common stock of Regency. The proposed merger
will result in Care becoming a wholly owned subsidiary of Regency. You will also
be considering and voting upon a proposal to amend the Regency Health Services,
Inc. Long-Term Incentive Plan to increase the number of shares of common stock
available for grant thereunder by 1,250,000 shares and to provide that the
aggregate number of shares of common stock underlying stock options or stock
appreciation rights granted to any eligible employee during any fiscal year
shall not exceed 50% of the common stock reserved for issuance under the
Long-Term Incentive Plan.
The attached Proxy Statement/Prospectus will provide you with detailed
information regarding the proposed merger and the proposed amendments to the
Long-Term Incentive Plan. Please read it carefully.
AFTER CAREFUL CONSIDERATION, THE BOARD OF DIRECTORS OF REGENCY HAS
UNANIMOUSLY APPROVED THE MERGER AND THE AMENDMENTS TO THE LONG-TERM INCENTIVE
PLAN AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE MATTERS TO BE
PRESENTED AT THE SPECIAL MEETING.
It is important that your shares be represented at the Special Meeting.
Therefore, please sign, date and return the enclosed proxy card as soon as
possible. This will not prevent you from voting your shares in person if you
wish to attend the Special Meeting and vote personally. Your time and attention
to this important matter is greatly appreciated by the Board of Directors and
management of your company. I look forward to meeting with those of you who
attend the Special Meeting.
Sincerely,
[sig]
Cecil Mays
Chairman of the Board of Directors,
Chief Executive Officer and President
<PAGE> 6
CARE ENTERPRISES, INC.
2742 DOW AVENUE
TUSTIN, CALIFORNIA 92680
March 7, 1994
Dear Fellow Stockholder:
On Monday, April 4, 1994, Care Enterprises, Inc. will hold a Special
Meeting of Stockholders.
At the Special Meeting, you will be considering and voting upon a proposed
merger in which Care and Regency Health Services, Inc. ("Regency") will be
combined. If the merger is approved and completed, each share of common stock of
Care will be converted into 0.71 of a share of common stock of Regency, and Care
will become a wholly-owned subsidiary of Regency.
The attached Proxy Statement/Prospectus will provide you with detailed
information regarding the proposed merger. Please read it carefully.
AFTER CAREFUL CONSIDERATION, THE BOARD OF DIRECTORS OF CARE HAS UNANIMOUSLY
APPROVED THE TRANSACTION AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF
THE MATTERS TO BE PRESENTED AT THE SPECIAL MEETING.
It is important that your shares be represented at the Special Meeting.
Therefore, please sign, date and return the enclosed proxy card as soon as
possible. This will not prevent you from voting your shares in person if you
wish to attend the Special Meeting and vote personally.
Sincerely,
[sig]
Richard K. Matros
President and Chief Executive Officer
<PAGE> 7
REGENCY HEALTH SERVICES, INC.
3636 BIRCH STREET, SUITE 195
NEWPORT BEACH, CALIFORNIA 92660
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 4, 1994
------------------------
To the Stockholders of Regency Health Services, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of the Stockholders of
Regency Health Services, Inc. ("Regency") will be held at the Sheraton Hotel,
4545 MacArthur Boulevard, Newport Beach, California, on Monday, April 4, 1994 at
9:00 a.m., local time, for the following purposes:
1. To consider and vote upon approval of the merger of Regency and
Care Enterprises, Inc. ("Care") described in the accompanying Proxy
Statement/Prospectus to be effected pursuant to an Agreement and Plan of
Merger dated as of December 20, 1993, as amended by an Amendment, dated as
of January 31, 1994 (the "Plan of Merger"), by and between Regency and
Care. The Plan of Merger provides, among other things, for Care Merger Sub,
Inc., a wholly owned subsidiary of Regency formed for the purpose of
effecting the transactions contemplated by the Plan of Merger, to be merged
with and into Care (the "Merger"). In the Merger, each share of common
stock of Care, par value $.01 per share, outstanding immediately prior to
the effective time of the Merger (other than shares owned by Regency or any
of its subsidiaries, held in the treasury of Care or owned by any
subsidiary of Care) will be converted into 0.71 of a share of common stock
of Regency, par value $.01 per share ("Regency Common Stock"), and Care
will become a wholly owned subsidiary of Regency. If the Plan of Merger is
approved by holders of Regency Common Stock at the Special Meeting, then a
vote in favor of approval of the Plan of Merger will be deemed to include a
vote in favor of amendment and restatement of the Restated Certificate of
Incorporation and Bylaws of Regency. If the Plan of Merger is not approved
or the Merger is not consummated for any other reason, the Restated
Certificate of Incorporation and Bylaws of Regency will not be amended and
restated.
2. To consider and vote upon a proposal to amend the Regency Health
Services, Inc. Long-Term Incentive Plan (the "Stock Option Plan") to
increase the number of shares of Regency Common Stock available for grant
thereunder by 1,250,000 shares and to provide that the aggregate number of
shares of Regency Common Stock underlying stock options or stock
appreciation rights granted to any eligible employee during any fiscal year
shall not exceed 50% of the shares of Regency Common Stock reserved for
issuance under the Stock Option Plan. If the Plan of Merger is not approved
or the Merger is not consummated for any other reason, the Stock Option
Plan will not be amended regardless of passage of this proposal.
3. To consider and transact such other business as may properly come
before the Special Meeting.
Only holders of record of shares of Regency Common Stock at the close of
business on March 3, 1994, the record date for the Special Meeting fixed by the
Regency Board of Directors, are entitled to notice of and to vote at the Special
Meeting and any adjournments or postponements thereof. A list of such
stockholders will be available for examination at the offices of Regency located
at 3636 Birch Street, Suite 195, Newport Beach, California 92660 at least ten
days prior to the Special Meeting.
The accompanying Proxy Statement/Prospectus describes the Merger and the
amendments to the Stock Option Plan in detail.
The Merger is of great importance to Regency and its stockholders. Please
read the Proxy Statement/Prospectus carefully and then complete, sign and date
the enclosed proxy card and return it in the enclosed self-addressed postage
paid envelope.
Your prompt response will be appreciated.
By Order of the Board of Directors
[sig]
Brad L. Kerby
Secretary
Newport Beach, California
March 7, 1994
YOUR VOTE IS IMPORTANT.
TO VOTE YOUR SHARES, PLEASE SIGN, DATE AND COMPLETE THE ENCLOSED PROXY CARD AND
PROMPTLY MAIL IT IN THE ENCLOSED SELF-ADDRESSED POSTAGE PAID ENVELOPE.
<PAGE> 8
The Merger is of great importance to Regency and its stockholders. Please
read the Proxy Statement/Prospectus carefully and then complete, sign and date
the enclosed proxy card and return it in the enclosed self-addressed postage
paid envelope.
Your prompt response will be appreciated.
By Order of the Board of Directors
[sig]
Brad L. Kerby
Secretary
Newport Beach, California
March 7, 1994
YOUR VOTE IS IMPORTANT.
TO VOTE YOUR SHARES, PLEASE SIGN, DATE AND COMPLETE THE ENCLOSED PROXY CARD AND
PROMPTLY MAIL IT IN THE ENCLOSED SELF-ADDRESSED POSTAGE PAID ENVELOPE.
<PAGE> 9
CARE ENTERPRISES, INC.
2742 DOW AVENUE
TUSTIN, CALIFORNIA 92680
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 4, 1994
------------------------
To the Stockholders of Care Enterprises, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of the Stockholders of Care
Enterprises, Inc. ("Care") will be held at the Sheraton Hotel, 4545 MacArthur
Boulevard, Newport Beach, California, on Monday, April 4, 1994 at 11:00 a.m.,
local time, for the following purposes:
1. To consider and vote upon approval of the merger of Care and
Regency Health Services, Inc. ("Regency") described in the accompanying
Proxy Statement/Prospectus to be effected pursuant to an Agreement and Plan
of Merger dated as of December 20, 1993, as amended by an Amendment, dated
as of January 31, 1994 (the "Plan of Merger"), by and between Care and
Regency. The Plan of Merger provides, among other things, for Care Merger
Sub, Inc., a wholly owned subsidiary of Regency formed for the purpose of
effecting the transactions contemplated by the Plan of Merger, to be merged
with and into Care (the "Merger"). In the Merger, each share of common
stock of Care, par value $.01 per share ("Care Common Stock"), outstanding
immediately prior to the effective time of the Merger (other than shares
owned by Regency or any of its subsidiaries, held in the treasury of Care
or owned by any subsidiary of Care) will be converted into 0.71 of a share
of common stock of Regency, par value $.01 per share, and Care will become
a wholly owned subsidiary of Regency.
2. To consider and transact such other business as may properly come
before the Special Meeting.
Only holders of record of shares of Care Common Stock at the close of
business on March 3, 1994, the record date for the Special Meeting fixed by the
Care Board of Directors, are entitled to notice of and to vote at the Special
Meeting and any adjournments or postponements thereof. A list of such
stockholders will be available for examination at the offices of Care located at
2742 Dow Avenue, Tustin, California 92680 at least ten days prior to the Special
Meeting.
The accompanying Proxy Statement/Prospectus describes the Merger in detail.
The Merger is of great importance to Care and its stockholders. Please read
the Proxy Statement/Prospectus carefully and then complete, sign and date the
enclosed proxy card and return it in the enclosed self-addressed postage paid
envelope.
Your prompt response will be appreciated.
By Order of the Board of Directors
[sig]
Marie L. Paquet
Secretary
Tustin, California
March 7, 1994
YOUR VOTE IS IMPORTANT.
TO VOTE YOUR SHARES, PLEASE SIGN, DATE AND COMPLETE THE ENCLOSED PROXY CARD AND
PROMPTLY MAIL IT IN THE ENCLOSED SELF-ADDRESSED POSTAGE PAID ENVELOPE.
<PAGE> 10
Your prompt response will be appreciated.
By Order of the Board of Directors
[sig]
Marie L. Paquet
Secretary
Tustin, California
March 7, 1994
YOUR VOTE IS IMPORTANT.
TO VOTE YOUR SHARES, PLEASE SIGN, DATE AND COMPLETE THE ENCLOSED PROXY CARD AND
PROMPTLY MAIL IT IN THE ENCLOSED SELF-ADDRESSED POSTAGE PAID ENVELOPE.
<PAGE> 11
REGENCY HEALTH SERVICES, INC.
PROSPECTUS
------------------------
REGENCY HEALTH SERVICES, INC.
AND
CARE ENTERPRISES, INC.
------------------------
JOINT PROXY STATEMENT
FOR
SPECIAL MEETINGS OF STOCKHOLDERS
TO BE HELD APRIL 4, 1994
------------------------
This Proxy Statement/Prospectus constitutes the Proxy Statement of each of
Regency Health Services, Inc. ("Regency") and Care Enterprises, Inc. ("Care")
relating to the solicitation of proxies for use at the Special Meetings of
Stockholders of each of Regency and Care scheduled to be held on April 4, 1994
(the "Special Meetings") and the Prospectus of Regency relating to shares of
common stock, par value $.01 per share ("Regency Common Stock"), of Regency to
be issued to holders of common stock, par value $.01 per share, of Care in
connection with the Merger (as hereinafter defined).
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN
CONNECTION WITH THE SOLICITATIONS OF PROXIES OR THE OFFERING OF SECURITIES MADE
BY THIS PROXY STATEMENT/PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY REGENCY OR
CARE. NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH
HEREIN SINCE THE DATE OF THIS PROXY STATEMENT/PROSPECTUS. ALL INFORMATION IN
THIS PROXY STATEMENT/PROSPECTUS REGARDING REGENCY AND ITS AFFILIATES HAS BEEN
SUPPLIED BY REGENCY WITHOUT INDEPENDENT VERIFICATION BY CARE, AND ALL
INFORMATION REGARDING CARE AND ITS AFFILIATES HAS BEEN SUPPLIED BY CARE WITHOUT
INDEPENDENT VERIFICATION BY REGENCY. NEITHER REGENCY NOR CARE NOR THEIR
RESPECTIVE AFFILIATES ACCEPTS ANY RESPONSIBILITY FOR THE ACCURACY OR
COMPLETENESS OF INFORMATION CONCERNING THE OTHER AND ITS AFFILIATES. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, ANY SECURITIES, OR THE SOLICITATION OF A PROXY, BY ANYONE IN
ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR
TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH SOLICITATION.
------------------------
NEITHER THE MERGER NOR THESE SECURITIES HAVE BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
------------------------
The date of this Proxy Statement/Prospectus is March 7, 1994
<PAGE> 12
AVAILABLE INFORMATION
Regency and Care are each subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Copies of such
reports, proxy statements and other information can be inspected and copied at
the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Regional Offices of the Commission at The Northwestern Atrium Center, 500 West
Madison Street, Chicago, Illinois 60661 and Room 1300, Seven World Trade Center,
New York, New York 10048. Copies of such material can also be obtained at
prescribed rates from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington D.C. 20549. In addition, material filed by Regency may
be inspected at the office of the American Stock Exchange, Inc., 86 Trinity
Place, New York, New York 10006-1881 and material filed by Care may be inspected
at the office of the National Association of Securities Dealers, Inc., Reports
Section, 1735 K Street, N.W., Washington, D.C. 20006.
Regency has filed a registration statement on Form S-4 with the Commission,
of which this Proxy Statement/Prospectus is a part (together with any amendments
thereto, the "Registration Statement"), pursuant to the Securities Act of 1933,
as amended, with respect to the shares of Regency Common Stock to be issued
pursuant to or as contemplated by this Proxy Statement/Prospectus. This Proxy
Statement/Prospectus does not contain all the information set forth or
incorporated by reference in the Registration Statement and the exhibits and
schedules relating thereto in the Registration Statement, certain portions of
which have been omitted pursuant to the rules and regulations of the Commission.
For further information, reference is made to the Registration Statement and the
exhibits filed or incorporated as a part thereof, which are on file at the
Commission's principal office in Washington, D.C. at the address set forth
above. Statements contained in this Proxy Statement/Prospectus, or in any
document incorporated into this Proxy Statement/Prospectus by reference, as to
the contents of any contract or other document incorporated herein by reference,
and as to the contents of any contract or other document referred to herein or
therein, are not necessarily complete, and in each instance reference is made to
the copy of such contract or other document filed as an exhibit to the
Registration Statement or such other document and each such statement is
qualified in all respects by such reference.
2
<PAGE> 13
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Summary of Proxy Statement/Prospectus................................................. 5
Selected Historical Financial Data.................................................... 10
Regency Health Services, Inc. Selected Historical Financial Data.................... 11
Care Enterprises, Inc. Selected Historical Financial Data........................... 12
Unaudited Pro Forma Condensed Selected Financial Data............................... 13
Capitalization........................................................................ 14
Comparative Per Share Data............................................................ 15
Comparative Market Prices............................................................. 16
Introduction.......................................................................... 17
Risk Factors; Future Operations....................................................... 17
The Special Meetings.................................................................. 21
Matters To Be Considered at the Special Meetings.................................... 21
Record Date; Proxies................................................................ 22
Votes Required...................................................................... 23
The Merger............................................................................ 24
Background of the Merger............................................................ 24
Reasons for the Merger; Recommendations of Boards of Directors...................... 27
Opinions of Financial Advisors...................................................... 30
Interests of Certain Persons in the Merger.......................................... 36
Anticipated Accounting Treatment.................................................... 37
Certain Federal Income Tax Consequences............................................. 37
Regulatory Approvals................................................................ 38
Note Holders Consent and Waiver..................................................... 38
Federal Securities Law Consequences................................................. 39
Kaufman Engagement.................................................................. 39
New York Stock Exchange Listing..................................................... 40
No Appraisal Rights................................................................. 40
Deregistration of Care Common Stock After the Merger................................ 40
</TABLE>
<TABLE>
<S> <C>
Management of Regency Following the Merger............................................ 41
Board of Directors of Regency....................................................... 41
Committees of the Board of Directors................................................ 42
Compensation of the Board of Directors.............................................. 43
Executive Officers.................................................................. 43
Executive Compensation.............................................................. 44
Certain Relationships and Related Transactions...................................... 48
The Agreement and Plan of Merger...................................................... 50
The Merger.......................................................................... 50
Governance of Regency............................................................... 51
Representations and Warranties...................................................... 51
Certain Covenants................................................................... 51
Certain Conditions.................................................................. 53
Termination......................................................................... 54
Expenses and Termination Fees....................................................... 56
Amendment and Waiver................................................................ 56
</TABLE>
3
<PAGE> 14
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Certain Related Agreements............................................................ 57
Voting Agreements................................................................... 57
Registration Rights Agreement....................................................... 57
Unaudited Pro Forma Condensed Financial Information................................... 59
Unaudited Pro Forma Condensed Balance Sheet......................................... 60
Unaudited Pro Forma Condensed Statement of Income................................... 61
Year Ended June 30, 1993......................................................... 61
Year Ended June 30, 1992......................................................... 62
Year Ended June 30, 1991......................................................... 63
Six Months Ended 1993............................................................ 64
Notes to Unaudited Pro Forma Condensed Financial Information.......................... 65
Regency Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 66
Care Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 73
Approval of Amendments to the Regency Health Services, Inc. Long-Term Incentive
Plan................................................................................ 78
Selected Information Regarding the Long-Term Care Services Industry................... 81
Selected Information Regarding Regency................................................ 84
Selected Information Regarding Care................................................... 88
Restated Regency Certificate of Incorporation and Restated Regency Bylaws............. 93
Comparison of Rights of Stockholders of Regency and Care.............................. 95
Description of Regency Securities..................................................... 97
Ownership of Regency Securities at the Effective Time................................. 98
Current Ownership of Regency Securities............................................... 100
Current Ownership of Care Securities.................................................. 101
Legal Matters......................................................................... 102
Experts............................................................................... 102
Stockholder Proposals and Nominations for 1994 Annual Meeting......................... 102
Index to Regency Financial Statements............................................Regency F-1
Index to Care Financial Statements..................................................Care F-1
Annex A - Agreement and Plan of Merger................................................ A-1
Annex B - Form of Regency Restated Certificate of Incorporation....................... B-1
Annex C - Form of Regency Restated Bylaws............................................. C-1
Annex D - Opinion of Smith Barney Shearson Inc. ...................................... D-1
Annex E - Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated............... E-1
</TABLE>
4
<PAGE> 15
SUMMARY OF PROXY STATEMENT/PROSPECTUS
The following is a summary of the information contained elsewhere in this
Proxy Statement/Prospectus. This summary does not purport to be complete and is
qualified in its entirety by reference to the more detailed information
appearing in this Proxy Statement/Prospectus and the Annexes. Unless otherwise
defined herein, capitalized terms used in this summary have the respective
meanings ascribed to them elsewhere in this Proxy Statement/Prospectus.
THE COMPANIES
<TABLE>
<S> <C>
Regency Health Services,
Inc. ................. Regency Health Services, Inc. ("Regency") operates 43 healthcare
3636 Birch Street, facilities throughout California that provide skilled care and
Suite 195 other health care services, primarily to elderly patients. See
Newport Beach, "SELECTED INFORMATION REGARDING REGENCY."
California 92660
Care Enterprises, Care Enterprises, Inc. ("Care") operates and manages 52 nursing
Inc. ................. and rehabilitation, developmentally disabled and retirement
2742 Dow Avenue centers in California, Ohio, West Virginia and New Mexico, and
Tustin, California home health agencies at 14 locations in California and Ohio. See
92680 "SELECTED INFORMATION REGARDING CARE."
Management and
Operations of Regency
After the Merger...... At the Effective Time, the authorized number of directors of
Regency will be eight, comprised of three persons designated by
Regency and five persons designated by Care. Cecil Mays, Chairman
of the Board of Directors, President and Chief Executive Officer
of Regency, will be Chairman of the Board of Directors and Chief
Executive Officer of Regency after the Effective Time and Richard
K. Matros, President, Chief Executive Officer and Chief Operating
Officer of Care will be President and Chief Operating Officer of
Regency after the Effective Time. As a condition to the
consummation of the Merger, the existing employment agreements
between Regency and certain of its executive officers and Care and
certain of its executive officers will be terminated at the
Effective Time. Each such executive officer has entered into a new
employment agreement with Regency to be effective as of the
Effective Time. See "MANAGEMENT OF REGENCY FOLLOWING THE MERGER."
Trading Markets......... Shares of common stock of Regency ("Regency Common Stock") are
currently traded on the American Stock Exchange, Inc. under the
symbol "RHS." Shares of common stock of Care ("Care Common Stock")
are currently quoted on the National Market System of the National
Association of Securities Dealers Automated Quotation System under
the symbol "CREI." After the Effective Time, shares of Regency
Common Stock are expected to be traded on the New York Stock
Exchange, Inc. On December 20, 1993, the last trading day before
announcement of the Plan of Merger, the last reported sales price
per share of Regency Common Stock and Care Common Stock was
$12.625 and $6.375, respectively. On March 1, 1994, the last
reported sales price per share of Regency Common Stock and Care
Common Stock was $17.75 and $12.00, respectively. See "COMPARATIVE
MARKET PRICES."
THE SPECIAL MEETINGS
The Regency Special
Meeting............... The Regency Special Meeting will be held on April 4, 1994 at 9:00
a.m., local time at the Sheraton Hotel, 4545 MacArthur Boulevard,
Newport Beach,
</TABLE>
5
<PAGE> 16
<TABLE>
<S> <C>
California. The holders of record of Regency Common Stock as of
the close of business on March 3, 1994 will be entitled to notice
of and to vote at the Regency Special Meeting. See "THE SPECIAL
MEETINGS."
The Care Special
Meeting............... The Care Special Meeting will be held on April 4, 1994 at 11:00
a.m., local time at the Sheraton Hotel, 4545 MacArthur Boulevard,
Newport Beach, California. The holders of record of Care Common
Stock as of the close of business on March 3, 1994 will be
entitled to notice of and to vote at the Care Special Meeting. See
"THE SPECIAL MEETINGS."
Matters to be Considered
at the Special
Meeting............... Regency. Holders of Regency Common Stock will consider and vote
upon a proposal to approve the transactions contemplated by an
Agreement and Plan of Merger, dated as of December 20, 1993, as
amended by an Amendment, dated as of January 31, 1994 (the "Plan
of Merger"), by and between Regency and Care, pursuant to which,
among other things, Care Merger Sub, Inc. ("Merger Sub"), a wholly
owned subsidiary of Regency formed for the purpose of effecting
the transactions contemplated by the Plan of Merger, will be
merged with and into Care and the Restated Certificate of
Incorporation and Bylaws of Regency will be amended and restated
as described in this Proxy Statement/Prospectus. Under the Plan of
Merger, Care will be the surviving corporation in the Merger and
will become a wholly owned subsidiary of Regency. If the Plan of
Merger is approved by holders of Regency Common Stock at the
Regency Special Meeting, then a vote in favor of approval of the
Plan of Merger will be deemed to include a vote in favor of
amendment and restatement of the Restated Certificate of
Incorporation and Bylaws of Regency. If the Plan of Merger is not
approved or the Merger is not consummated for any other reason,
the Restated Certificate of Incorporation and the Bylaws of
Regency will not be amended and restated. See "THE SPECIAL
MEETINGS" and "THE MERGER."
Holders of Regency Common Stock will also consider and vote upon a
proposal to amend the Regency Health Services, Inc. Long-Term
Incentive Plan (the "Stock Option Plan") to increase the number of
shares of Regency Common Stock available for grant thereunder by
1,250,000 shares and to provide that the aggregate number of
shares of Regency Common Stock underlying stock options or stock
appreciation rights granted to any eligible employee during any
such fiscal year shall not exceed 50% of the shares of Regency
Common Stock reserved for issuance under the Stock Option Plan. If
the Plan of Merger is not approved or the Merger is not
consummated for any other reason, the Stock Option Plan will not
be amended regardless of passage of the proposal to amend the
Stock Option Plan at the Regency Special Meeting.
Care. Holders of Care Common Stock will consider and vote upon a
proposal to approve and adopt the Plan of Merger pursuant to
which, among other things, Merger Sub will be merged with and into
Care. Under the Plan of Merger, Care will be the surviving
corporation in the Merger and will become a wholly owned
subsidiary of Regency. See "THE SPECIAL MEETINGS" and "THE
MERGER."
Votes Required.......... Regency. The affirmative vote of at least a majority of the
outstanding shares of Regency Common Stock entitled to vote is
required to approve the transactions contemplated by the Plan of
Merger. Approval of the amendments to the Stock Option Plan
requires the vote of a majority of the shares of
</TABLE>
6
<PAGE> 17
<TABLE>
<S> <C>
Regency Common Stock represented and entitled to vote at the
Regency Special Meeting. Certain stockholders of Regency have
signed agreements with Care to vote all shares of Regency Common
Stock owned by each of them, representing approximately 21.6% of
the outstanding shares of Regency Common Stock, in favor of the
transactions contemplated by the Plan of Merger. See "THE SPECIAL
MEETINGS -- Votes Required" and "CERTAIN RELATED
AGREEMENTS -- Voting Agreements."
Care. The affirmative vote of at least a majority of the
outstanding shares of Care Common Stock entitled to vote is
required to approve and adopt the Plan of Merger. Certain
stockholders of Care have signed agreements with Regency to vote
all shares of Care Common Stock owned by each of them,
representing a majority of the outstanding shares of Care Common
Stock, in favor of the transactions contemplated Plan of Merger if
such transactions are approved at the Regency Special Meeting. As
a result, approval of the Plan of Merger by holders of Care Common
Stock is assured if the transactions contemplated by the Plan of
Merger are approved at the Regency Special Meeting. See "SPECIAL
MEETINGS -- Votes Required" and "CERTAIN RELATED
AGREEMENTS -- Voting Agreements."
THE MERGER
Exchange Ratio.......... At the Effective Time, as a result of the Merger, each share of
Care Common Stock (other than shares of Care Common Stock that are
owned by Regency or any of its subsidiaries, held in the treasury
of Care or owned by any subsidiary of Care) will be automatically
converted into 0.71 of a share of Regency Common Stock. See "THE
AGREEMENT AND PLAN OF MERGER -- The Merger."
Background and Reasons
for the Merger........ Regency and Care managements have independently concluded that the
Merger is expected to enable the combined company to be a leading
provider of subacute, rehabilitative, home health and long-term
care services. Following the Merger, Regency and Care will
continue to implement the strategy of providing a continuum of
healthcare services, from intensive subacute care at one end of
the spectrum to home healthcare and outpatient services at the
other end. The combined company intends to be at the forefront of
new and emerging healthcare delivery systems and thereby be
capable of responding to any of the various health care reform
proposals being considered by Congress. See "RISK FACTORS; FUTURE
OPERATIONS," "THE MERGER -- Background of the Merger" and
"-- Reasons for the Merger; Recommendations of the Boards of
Directors."
Opinions of Financial
Advisors.............. Regency. Smith Barney Shearson Inc. ("Smith Barney Shearson") has
delivered to the Board of Directors of Regency a written opinion
to the effect that, as of the date of such opinion and based upon
and subject to certain matters stated therein, the Exchange Ratio
was fair, from a financial point of view, to Regency. The full
text of the written opinion of Smith Barney Shearson, which sets
forth the assumptions made, matters considered and limitations on
the review undertaken, is attached as Annex D to this Proxy
Statement/Prospectus and should be read carefully in its entirety.
See "The MERGER -- Opinions of Financial Advisors."
Care. Merrill Lynch & Co. ("Merrill Lynch") has delivered to the
Board of Directors of Care a written opinion to the effect that,
as of the date of such opinion and based upon and subject to
certain matters stated therein, the
</TABLE>
7
<PAGE> 18
<TABLE>
<S> <C>
Exchange Ratio was fair, from a financial point of view, to the
holders of shares of Care Common Stock. The full text of the
written opinion of Merrill Lynch, which sets forth the assumptions
made, matters considered and limitations of the review undertaken,
is attached as Annex E to this Proxy Statement/Prospectus, and
should be read carefully in its entirety. See "THE
MERGER -- Opinions of Financial Advisors."
Effective Time of the
Merger................ It is anticipated that the Merger will become effective as
promptly as practicable after the requisite stockholder approvals
have been obtained and all other conditions to the Merger have
been satisfied or waived. See "THE PLAN OF MERGER -- Certain
Conditions."
Conditions to the
Merger; Termination of
the Plan of Merger.... The obligations of Regency and Care to consummate the Merger are
subject to the satisfaction of certain conditions, including
obtaining requisite stockholder and regulatory approvals. See "THE
PLAN OF MERGER -- Certain Conditions."
The Plan of Merger is subject to termination if the Merger is not
consummated on or before May 31, 1994. In addition, the Plan of
Merger may be terminated under certain circumstances by either
Regency or Care, including certain instances where a termination
fee of $6 million and payment of fees and expenses of one party
relating to the Merger would be paid by the other party. See "THE
PLAN OF MERGER -- Termination" and "-- Expenses and Termination
Fees."
Appraisal Rights........ Stockholders of Care are not entitled to appraisal rights in
connection with the Merger. See "THE MERGER -- No Appraisal
Rights."
Certain Federal Income
Tax Consequences...... The Merger has been structured with the intent that it be tax-free
to Care and its stockholders. See "THE MERGER -- Certain Federal
Income Tax Consequences." Stockholders are urged to consult their
tax advisors.
CERTAIN RELATED
AGREEMENTS
Voting Agreements....... Regency Voting Agreements. Care has entered into voting agreements
with certain stockholders of Regency pursuant to which each such
stockholder has agreed, among other things, to vote all shares of
Regency Common Stock owned by such stockholder in favor of the
transactions contemplated by the Plan of Merger. Such shares, in
the aggregate, represent approximately 21.6% of the outstanding
shares of Regency Common Stock. See "CERTAIN RELATED
AGREEMENTS -- Voting Agreements."
Care Voting Agreements. Regency has entered into voting agreements
with certain stockholders of Care pursuant to which each such
stockholder has agreed, among other things, to vote all shares of
Care Common Stock owned by such stockholder in favor of the
transactions contemplated by the Plan of Merger if such
transactions are approved at the Regency Special Meeting. Such
shares, in the aggregate, represent a majority of the outstanding
shares of Care Common Stock. See "CERTAIN RELATED AGREEMENTS --
Voting Agreements."
</TABLE>
8
<PAGE> 19
<TABLE>
<S> <C>
Registration Rights
Agreement............. Regency and Care have offered to enter into a Registration Rights
Agreement with certain stockholders of Regency and Care with
respect to certain shares of Regency Common Stock to be held by
such persons after the Effective Time. See "CERTAIN RELATED
AGREEMENTS -- Registration Rights Agreement."
THE STOCK OPTION PLAN... The proposed amendments to the Stock Option Plan will increase the
number of shares of Regency Common Stock available for grant
thereunder by 1,250,000 shares and will provide that the aggregate
number of shares of Regency Common Stock underlying stock options
or stock appreciation rights granted to any eligible employee
during any fiscal year shall not exceed 50% of the shares of
Regency Common Stock reserved for issuance under the Stock Option
Plan.
</TABLE>
9
<PAGE> 20
SELECTED HISTORICAL FINANCIAL DATA
The following tables set forth (i) selected historical financial data for
the five fiscal years in the period ended June 30, 1993 and the six-month
periods ended December 31, 1992 and December 31, 1993 for Regency and for the
five fiscal years in the period ended December 31, 1992 and the nine-month
periods ended September 30, 1992 and September 30, 1993 for Care and (ii)
unaudited pro forma condensed selected financial information giving effect to
the Merger using the pooling of interests method of accounting for the three
fiscal years in the period ended June 30, 1993 and for the six-month periods
ended December 31, 1992 and December 31, 1993 for Regency and six-month periods
ended September 30, 1992 and September 30, 1993 for Care. The selected financial
data for Regency for the five fiscal years in the period ended June 30, 1993
have been obtained from Regency's consolidated financial statements, which
statements have been audited by Arthur Andersen & Co., independent public
accountants, whose reports on certain of such financial statements are set forth
elsewhere herein. The selected financial data for Care for each of the two
fiscal years in the period ended December 31, 1992 have been obtained from
Care's consolidated financial statements, which statements have been audited by
Ernst & Young, independent auditors, whose reports on such financial statements
are set forth elsewhere herein. The selected financial data for Care
(pre-reorganization) for each of the three fiscal years in the period ended
December 31, 1990 have been obtained from audited financial statements of Care
(pre-reorganization), which statements for 1990 have been audited by Ernst &
Young, independent auditors, whose report on such financial statements is set
forth elsewhere herein, and for 1988 and 1989 by other independent auditors
whose report is neither set forth nor incorporated by reference herein. The
selected financial data for Regency for the six-month periods ended December 31,
1992 and December 31, 1993 and Care for the nine-month periods ended September
30, 1992 and September 30, 1993 have been obtained from unaudited financial
statements of each of Regency and Care, and include, in the opinion of
management of each company, respectively, all adjustments (consisting of normal
recurring adjustments) necessary to present fairly the results for such periods.
The data presented below may not be indicative of the results that would have
been obtained had the transactions described above actually occurred on the
dates assumed. This selected financial data should be read in conjunction with
management's discussion and analysis of financial condition and results of
operations and the separate consolidated financial statements and notes thereto
of Regency and Care, which are set forth elsewhere in this Proxy
Statement/Prospectus. Certain pro forma adjustments as discussed in "Notes To
Unaudited Pro Forma Condensed Financial Information" have been made to conform
the two companies' accounting practices. This historical and pro forma selected
financial data is not necessarily indicative of the results to be expected if
the Merger is consummated.
10
<PAGE> 21
REGENCY HEALTH SERVICES, INC.
SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data for the fiscal years ended
June 30, 1989, 1990, 1991, 1992 and 1993 have been derived from Regency's
audited Consolidated Financial Statements. The financial data for the six months
ended December 31, 1992 and 1993 have been derived from the unaudited
Consolidated Financial Statements of Regency, and, in the opinion of Regency,
reflect and include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the financial position and
results of operations of Regency for such periods. The selected historical
financial data set forth below should be read in conjunction with management's
discussion and analysis of financial condition and results of operations and the
consolidated financial statements and the notes thereto, which are set forth
elsewhere in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
DECEMBER 31,
YEAR ENDED JUNE 30, (UNAUDITED)
------------------------------------------------ -----------------
1989 1990 1991 1992(1) 1993 1992 1993(5)
------- ------- ------- ------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net operating revenue.................... $40,030 $52,040 $56,788 $81,447 $115,378 $54,550 $79,519
------- ------- ------- ------- -------- ------- -------
Costs and expenses:
Operating and administrative........... 35,527 44,447 47,162 68,276 95,398 45,141 65,292
Rent expense and property taxes........ 2,946 3,088 3,583 5,495 7,256 3,629 4,584
Depreciation and amortization.......... 1,038 1,320 1,387 1,536 1,985 979 1,307
Interest expense....................... 3,388 3,525 3,114 2,462 1,635 503 2,015
------- ------- ------- ------- -------- ------- -------
Total costs and expenses............. 42,899 52,380 55,246 77,769 106,274 50,252 73,198
------- ------- ------- ------- -------- ------- -------
Income (loss) from operations............ (2,869) (340) 1,542 3,678 9,104 4,298 6,321
Gain on sale of facility................. -- -- 312 -- -- -- --
------- ------- ------- ------- -------- ------- -------
Income (loss) before provision for income
taxes and extraordinary items.......... (2,869) (340) 1,854 3,678 9,104 4,298 6,321
Provision for income taxes............... -- -- 792 1,454 3,621 1,719 2,482
------- ------- ------- ------- -------- ------- -------
Income (loss) before extraordinary
items.................................. (2,869) (340) 1,062 2,224 5,483 2,579 3,839
Extraordinary items(2)................... -- -- 762 1,022 (38) 10 --
------- ------- ------- ------- -------- ------- -------
Net income (loss)........................ $(2,869) $ (340) $ 1,824 $ 3,246 $ 5,445 $ 2,589 $ 3,839
------- ------- ------- ------- -------- ------- -------
------- ------- ------- ------- -------- ------- -------
Income (loss) per share primary:
Income (loss) from operations.......... $ (3.51) $ (0.42) $ 0.30 $ 0.62 $ 0.81 $ 0.38 $ 0.56
Gain on sale of facility............... -- -- 0.09 -- -- -- --
Extraordinary items(2)................. -- -- 0.24 0.28 (0.01) -- --
------- ------- ------- ------- -------- ------- -------
Net income (loss) per share............ $ (3.51) $ (0.42) $ 0.63 $ 0.90 $ 0.80 $ 0.38 $ 0.56
------- ------- ------- ------- -------- ------- -------
------- ------- ------- ------- -------- ------- -------
Weighted average shares of common stock
and equivalents........................ 817 817 3,142 3,683 6,778 6,737 6,913
------- ------- ------- ------- -------- ------- -------
------- ------- ------- ------- -------- ------- -------
Income (loss) per share fully diluted:
Income (loss) from operations.......... $ (3.51) $ (0.42) $ 0.30 $ 0.62 $ 0.78 $ 0.38 $ 0.45
Gain on sale of facility............... -- -- 0.09 -- -- -- --
Extraordinary items(2)................. -- -- 0.24 0.28 (0.01) -- --
------- ------- ------- ------- -------- ------- -------
Net income (loss) per share............ $ (3.51) $ (0.42) $ 0.63 $ 0.90 $ 0.77 $ 0.38 $ 0.45
------- ------- ------- ------- -------- ------- -------
------- ------- ------- ------- -------- ------- -------
Weighted average shares of common stock
and equivalents........................ 817 817 3,142 3,683 7,788 6,737 10,954
------- ------- ------- ------- -------- ------- -------
------- ------- ------- ------- -------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, (UNAUDITED)
------------------------------------------------ ------------------
1989 1990 1991 1992(1) 1993 1992 1993(5)
------- ------- ------- ------- -------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital....................... $(1,574) $ 702 $ 350 $ 6,362 $ 49,973 $10,164 $ 37,738
Total assets.......................... 42,777 43,462 42,793 68,805 104,689 59,701 121,940
Long-term debt, including current
portion and redeemable preferred
stock(3)(4)......................... 37,152 39,198 35,989 25,405 55,672 13,212 62,593
Stockholders' equity(4)............... (1,650) (1,990) (166) 30,612 37,681 34,755 41,542
</TABLE>
- ---------------
(1) Effective December 31, 1991, Regency acquired 10 additional facilities.
(2) Extraordinary items for the years ended June 30, 1991 and 1992 represent the
utilization of net operating loss carryforwards. Extraordinary items for the
six months ended December 31, 1992 represent a net operating loss
carryforward of $99,000 and a loss on extinguishment of debt of $89,000, net
of applicable income tax of $55,000, resulting in a net gain of $10,000.
Extraordinary items for the year ended June 30, 1993 represent a net
operating loss carryforward of $99,000 and a loss on extinguishment of debt
of $137,000, net of applicable income tax of $87,000, resulting in a net
loss of $38,000.
(3) On March 23, 1993, Regency issued $50,000,000 aggregate principal amount of
its 6 1/2% Convertible Subordinated Debentures due 2003. Regency used
$6,375,000 of the net offering proceeds along with cash on hand to retire
$8,300,000 of existing bank indebtedness.
(4) All then outstanding shares of redeemable preferred stock and certain
convertible notes were converted into shares of Regency Common Stock
effective December 31, 1991.
(5) Effective July 1, 1993, Regency acquired seven additional facilities.
11
<PAGE> 22
CARE ENTERPRISES, INC.
SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data for the fiscal years ended
December 31, 1988, 1989, 1990, 1991 and 1992 have been derived from Care's
audited Consolidated Financial Statements. The financial data for the nine
months ended September 30, 1992 and 1993 have been derived from the unaudited
Consolidated Financial Statements of Care, and, in the opinion of Care, reflect
and include all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the financial position and results of
operations of Care for such periods. The selected historical financial data set
forth below should be read in conjunction with management's discussion and
analysis of financial condition and results of operations and the separate
consolidated financial statements and the notes thereto, which are set forth
elsewhere in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------- NINE MONTHS ENDED
SEPTEMBER 30,
PRE-REORGANIZATION(1) (UNAUDITED)
------------------------------ -------------------
1988 1989 1990 1991 1992 1992 1993
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net operating revenue.......... $247,590 $252,949 $215,043 $185,676 $192,048 $142,857 $148,195
-------- -------- -------- -------- -------- -------- --------
Costs and expenses:
Operating and
administrative............. 234,333 241,371 193,617 165,432 168,329 125,971 130,162
Share appreciation rights.... 293 323 139 463
Lease and rent............... 11,853 11,012 7,896 7,854 7,745 6,004 5,201
Depreciation and
amortization............... 10,140 9,352 7,046 5,878 5,336 4,029 3,896
Interest, net................ 12,194 10,060 7,692 4,983 3,266 2,544 1,907
-------- -------- -------- -------- -------- -------- --------
Total costs and
expenses............ 268,520 271,795 216,251 184,440 184,999 138,687 141,629
Income (loss) before
reorganization and other
items, income taxes and
extraordinary item........... (20,930) (18,846) (1,208) 1,236 7,049 4,170 6,566
Reorganization and other
items........................ (8,079) (27,838) 35,673 1,720 1,543 -- --
Provision for income taxes..... -- -- -- (721) (2,928) (1,668) (2,626)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary item........... (29,009) (46,684) 34,465 2,235 5,664 2,502 3,940
Extraordinary item............. -- -- 73,149(2) -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss).............. $(29,009) $(46,684) $107,614 $ 2,235 $ 5,664 $ 2,502 $ 3,940
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Income per share primary:
Net income..................... NM(3) NM(3) NM(3) $ 0.24 $ 0.49 $ 0.22 $ 0.30
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Weighted average number of
shares used in calculation... 9,294 11,667 11,635 13,300
-------- -------- -------- --------
-------- -------- -------- --------
Income per share fully diluted:
Net income..................... NM(3) NM(3) NM(3) $ 0.21 $ 0.49 $ 0.22 $ 0.30
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Weighted average number of
shares used in calculation... 11,635 11,667 11,635 13,317
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
DECEMBER 31, (UNAUDITED)
-------------------------------------------------------- -------------------
1988 1989 1990 1991 1992 1992 1993
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.............. $ (8,613) $(35,765) $(18,269)(4) $(18,192) $(12,217) $(18,912) $(11,059)
Total assets................. 196,683 152,250 120,453(4) 108,166 110,548 103,862 108,976
Long-term debt, net of
current portion............ 29,000 24,999 54,175(4) 40,463 32,743 34,696 26,301
Stockholders' equity
(deficiency)............... (60,505) (107,189) 4,275(4) 10,085 20,397 13,935 24,355
</TABLE>
- ---------------
(1) The pre-reorganization periods are not comparable with 1991 and 1992 due to
the effects of the implementation of "Fresh-Start Reporting" resulting from
Care's emergence from Chapter 11 reorganization.
(2) Represents an extraordinary gain from discharge of debt in connection with
the reorganization proceedings (see Note 15 to Care's Consolidated Financial
Statements set forth elsewhere herein).
(3) Per share amounts are not meaningful due to Chapter 11 reorganization.
(4) The December 31, 1990 balance sheet was restated to record the Plan of
Reorganization and reflect "Fresh-Start Reporting." Accordingly, the Care's
financial position at December 31, 1990 and subsequent thereto is not
comparable to prior periods (see Note 3 to Care's Consolidated Financial
Statements set forth elsewhere herein).
12
<PAGE> 23
REGENCY HEALTH SERVICES, INC./CARE ENTERPRISES, INC.
UNAUDITED PRO FORMA CONDENSED SELECTED FINANCIAL DATA
The following unaudited pro forma condensed selected financial data is
taken from the "Unaudited Pro Forma Condensed Financial Information" included
elsewhere in this Proxy Statement/Prospectus. Such data gives effect to the
Merger involving Regency and Care using the pooling-of-interests method of
accounting as if it had occurred at the beginning of the earliest period
presented. The data presented below may not be indicative of the results that
would have been obtained had the transactions described above actually occurred
on the dates assumed.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,(1) SIX MONTHS ENDED
------------------------------ -------------------
1991(2) 1992(3) 1993 1992(4) 1993(5)
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net operating revenue.............................. $148,126 $271,772 $311,450 $152,644 $180,337
-------- -------- -------- -------- --------
Costs and expenses:
Operating and administrative..................... 127,613 235,497 265,112 129,415 152,818
Share appreciation rights........................ -- 438 672 177 309
Rent expense and property taxes.................. 7,805 14,550 15,245 7,768 8,469
Depreciation and amortization.................... 4,408 7,127 7,191 3,580 3,897
Interest expense................................. 6,432 7,526 5,215 2,403 3,618
-------- -------- -------- -------- --------
Total costs and expenses........................... 146,258 265,138 293,435 143,343 169,111
-------- -------- -------- -------- --------
Income before reorganization items, provision for
income taxes and extraordinary items............. 1,868 6,634 18,015 9,301 11,226
-------- -------- -------- -------- --------
Reorganization and other items:
Gain on sale of facilities....................... 312 -- 1,007 1,007 --
Other reorganization items....................... -- 1,720 536 536 --
-------- -------- -------- -------- --------
Total reorganization and other items............... 312 1,720 1,543 1,543 --
-------- -------- -------- -------- --------
Income before provision for income taxes and
extraordinary items.............................. 2,180 8,354 19,558 10,844 11,226
Provision for income taxes......................... 30 1,971 7,195 3,829 4,443
-------- -------- -------- -------- --------
Income before extraordinary items.................. $ 2,150 $ 6,383 $ 12,363 $ 7,015 $ 6,783
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Pro forma income per share before extraordinary
items:
Primary.......................................... $ 0.37 $ 0.57 $ 0.79 $ 0.46 $ 0.41
Fully diluted.................................... 0.33 0.54 0.77 0.46 0.38
Number of shares used in calculation:
Primary.......................................... 6,295 11,225 15,654 15,062 16,372
Fully diluted.................................... 7,238 11,944 16,673 15,062 20,413
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
AS ADJUSTED(6)
--------------
<S> <C>
BALANCE SHEET DATA:
Working capital....................................................................... $ 21,280
Total assets.......................................................................... 230,916
Long-term debt, net of current portion(7)............................................. 88,685
Stockholders' equity.................................................................. 60,497
</TABLE>
- ---------------
(1) Regency reports its financial position and results of operations using a
June 30 fiscal year end. Care reports its financial position and results of
operations using a December 31 fiscal year end. The accompanying unaudited
pro forma condensed selected financial data conforms Care to a June 30
fiscal year end.
(2) On December 31, 1990 Care emerged from bankruptcy after its Joint Plan of
Reorganization became effective. Care implemented the recommended accounting
for entities in ("Pre-Reorganization Reporting") and emerging from
("Fresh-Start Reporting") Chapter 11 reorganization as set forth in SOP 90-7
during the year ended December 31, 1990. Accordingly, the unaudited pro
forma condensed statement of income for the year ended June 30, 1991
includes the operations for Care for only six months (January 1, 1991
through June 30, 1991).
(3) Effective December 31, 1991, Regency acquired 10 additional facilities.
(4) The unaudited pro forma condensed statement of income for the six months
ended 1992 includes the operations of Regency and Care for the six months
ended December 31, 1992 (July 1, 1992 through December 31, 1992).
(5) The unaudited pro forma condensed statement of income for the six months
ended 1993 includes the operations of Regency for the six months ended
December 31, 1993 (July 1, 1993 through December 31, 1993) and the
operations of Care for the six months ended September 30, 1993 (April 1,
1993 through September 30, 1993).
(6) Financial data for Regency is obtained from its unaudited December 31, 1993
balance sheet and the financial data for Care is obtained from its unaudited
September 30, 1993 balance sheet.
(7) On March 23, 1993, Regency issued $50,000,000 aggregate principal amount of
its 6 1/2% Convertible Subordinated Debentures due 2003. Regency used
$6,375,000 of the net offering proceeds along with cash on hand to retire
$8,300,000 of existing bank indebtedness.
13
<PAGE> 24
CAPITALIZATION
The following table sets forth the capitalization of Regency as of December
31, 1993 and Care as of September 30, 1993 and on a pro forma basis to give
effect to (i) the Merger of Regency and Care accounted for as a
pooling-of-interests and (ii) fees and expenses related to the Merger. This
table should be read in conjunction with the Unaudited Pro Forma Condensed
Financial Information appearing elsewhere in this Proxy Statement/Prospectus and
the separate historical consolidated financial statements of Regency and Care
and the notes thereto set forth elsewhere herein.
<TABLE>
<CAPTION>
REGENCY CARE
DECEMBER 31, SEPTEMBER 30, PRO FORMA PRO FORMA
1993 1993 ADJUSTMENTS AS ADJUSTED
------------ ------------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE)
<S> <C> <C> <C> <C>
Current portion of long-term debt...... $ 209 $ 7,203 $ $ 7,412
------------ ------------- ----------- -----------
------------ ------------- ----------- -----------
Long-term debt, net of current
portion.............................. 62,384 26,301 88,685
Stockholders' equity:
Regency common stock, $0.01 par
value, 35,000,000 shares
authorized, 6,824,557 shares
issued and outstanding, 16,217,147
shares issued and outstanding as
adjusted.......................... 68 11,065 (10,971)(1) 162
Additional paid-in-capital........... 32,922 1,451 10,971(1) 45,344
Retained earnings.................... 8,552 11,839 (5,400)(2) 14,991
------------ ------------- ----------- -----------
Total stockholders' equity............. 41,542 24,355 (5,400) 60,497
------------ ------------- ----------- -----------
Total capitalization................... $104,135 $57,859 $ (5,400) $ 156,594
------------ ------------- ----------- -----------
------------ ------------- ----------- -----------
</TABLE>
- ---------------
(1) Pro Forma adjustment to give effect to the issuance of 9,392,590 shares of
Regency Common Stock, $0.01 par value, and the cancellation of Care Common
Stock in connection with the Merger based upon the number of shares of Care
Common Stock outstanding as of September 30, 1993.
(2) Pro Forma adjustment to give effect to Merger expenses of approximately
$5,400,000. See Notes to Unaudited Pro Forma Condensed Financial Information
set forth elsewhere herein.
14
<PAGE> 25
COMPARATIVE PER SHARE DATA
The following table sets forth (i) the historical income per share before
extraordinary items (fully diluted) of Regency for the three fiscal years ended
June 30, 1993 and the six-month periods ended December 31, 1992 and 1993; (ii)
the historical income per share before extraordinary items (fully diluted) of
Care for the two fiscal years ended December 31, 1992, for the nine month
periods ended September 30, 1992 and 1993; (iii) the unaudited pro forma income
per share before extraordinary items (fully diluted) and the unaudited pro forma
book value per outstanding share of Regency Common Stock for the respective
periods and dates; and (iv) the historical book value per outstanding share of
Regency Common Stock and Care Common Stock as of the respective dates. The
information presented in the table should be read in conjunction with "Unaudited
Pro Forma Condensed Financial Information" and the separate historical
consolidated financial statements of Regency and Care and the notes thereto
appearing elsewhere herein.
INCOME PER SHARE BEFORE EXTRAORDINARY ITEMS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
DECEMBER 31,
YEAR ENDED JUNE 30, (UNAUDITED)
-------------------------- ----------------
1991 1992 1993 1992 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Historical Regency............................... $ 0.39 $ 0.62 $ 0.78 $ 0.38 $ 0.45
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
YEAR ENDED DECEMBER 31, (UNAUDITED)
-------------------------- ----------------
1990 1991 1992 1992 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Historical Care.................................. NM(1) $ 0.21 $ 0.49 $ 0.22 $ 0.30
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, SIX MONTHS
(UNAUDITED) (UNAUDITED)
-------------------------- ----------------
1991 1992 1993 1992(3) 1993(4)
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Pro forma combined per Regency share(2).......... $ 0.33 $ 0.54 $ 0.77 $ 0.46 $ 0.38
Pro forma equivalent per Care share.............. $ 0.23 $ 0.38 $ 0.55 $ 0.33 $ 0.27
</TABLE>
BOOK VALUE PER SHARE
<TABLE>
<CAPTION>
JUNE 30,
1993
(UNAUDITED) (UNAUDITED)
----------- -------------
<S> <C> <C>
Historical Regency.................................................. $4.72(5) $5.05(6)
Historical Care..................................................... 1.64 1.75(7)
Pro forma combined per Regency share(2)............................. 3.32 3.22(8)(9)
Pro forma equivalent per Care share................................. 2.36 2.29(9)
</TABLE>
- ---------------
(1) Per share amounts are not meaningful due to Chapter 11 reorganization.
(2) Regency reports its financial position and results of operations using a
June 30 fiscal year end. Care reports its financial position and results of
operations using a December 31 fiscal year end. The pro forma presentation
conforms Care to a June 30 fiscal year end.
(3) The unaudited pro forma condensed statement of income for the six months
ended 1992 includes the operations of Regency and Care for the six months
ended December 31, 1992 (July 1, 1992 through December 31, 1992).
(4) The unaudited pro forma condensed statement of income for the six months
ended 1993 includes the operations of Regency for the six months ended
December 31, 1993 (July 1, 1993 through December 31, 1993) and the
operations of Care for the six months ended September 30, 1993 (April 1,
1993 through September 30, 1993).
(5) Audited.
(6) The financial data for Regency is obtained from Regency's unaudited December
31, 1993 balance sheet.
(7) The financial data for Care is obtained from Care's unaudited September 31,
1993 balance sheet.
(8) Pro forma book value per share giving effect to Merger costs of
approximately $5,400,000, or $0.33 per share. See Notes to Unaudited Pro
Forma Condensed Financial Information set forth elsewhere herein.
(9) The financial data is obtained from Regency's unaudited December 31, 1993
balance sheet and from Care's unaudited September 30, 1993 balance sheet.
15
<PAGE> 26
COMPARATIVE MARKET PRICES
Regency Common Stock has been listed and traded on the American Stock
Exchange, Inc. (the "AMEX") under the symbol "RHS" since Regency's initial
public offering on June 26, 1992. Care Common Stock (post Chapter 11
reorganization)commenced trading over-the-counter on January 7, 1991, and is
quoted on the National Market System of the National Association of Securities
Dealers Automated Quotation System ("NASDAQ NMS") under the symbol "CREI." The
following table sets forth the high and low sales prices of Regency Common Stock
and Care Common Stock as reported in published financial sources.
<TABLE>
<CAPTION>
REGENCY CARE
----------- -------------
HIGH LOW HIGH LOW
--- --- --- -----
<S> <C> <C> <C> <C>
Calendar Quarters - 1991
First Quarter..................................... -- -- 1 1/2(1) 1/4(1)
Second Quarter.................................... -- -- 1 1/2 7/8
Third Quarter..................................... -- -- 2 3/4 1 1/4
Fourth Quarter.................................... -- -- 4 2 1/2
Calendar Quarters - 1992
First Quarter..................................... -- -- 3 1/2 2 1/4
Second Quarter.................................... 6 5/8(2) 6 1/2(2) 3 2 1/4
Third Quarter..................................... 8 1/4 6 1/2 2 5/8 2
Fourth Quarter.................................... 10 1/2 6 1/2 3 3/8 2
Calendar Quarters - 1993
First Quarter..................................... 14 8 3/8 4 1/4 2 11/16
Second Quarter.................................... 11 7 3/4 5 1/8 3 7/8
Third Quarter..................................... 11 7/8 8 7/8 5 1/8 3 3/4
Fourth Quarter.................................... 14 1/8 10 1/4 9 5/8 4 1/8
Calendar Quarters - 1994
First Quarter (through March 1, 1994)............. 19 13 5/8 12 3/4 9
</TABLE>
- ---------------
(1) From January 7, 1991
(2) From June 26, 1992
Regency has applied for the listing of Regency Common Stock on the New York
Stock Exchange, Inc. (the "NYSE"). It is anticipated that Regency Common Stock,
including the shares of Regency Common Stock to be issued in connection with the
Merger and any shares required to be reserved for issuance in connection with
the Merger (subject to notice of official issuance of such shares), will be
listed on the NYSE.
On December 20, 1993, the last trading day prior to the joint public
announcement by Regency and Care of a definitive agreement with respect to the
Merger, the last reported sales price for each share of Regency Common Stock and
Care Common Stock was $12.625 and $6.375, respectively. On March 1, 1994, the
last reported sales price per share of Regency Common Stock and Care Common
Stock was $17.75 and $12.00, respectively.
Neither Regency nor Care have declared or paid any dividends nor anticipate
the declaration of cash dividends prior to the Effective Time (as hereinafter
defined). Covenants in Care's Note agreement with its secured lenders limit the
payment of cash dividends on Care Common Stock. Prior to the Effective Time,
Regency and Care anticipate entering into an amendment to the Note Agreement (as
hereinafter defined) with the holders of the Notes (as hereinafter defined)
issued pursuant thereto, whereby Regency will assume the Notes and agree to be
bound by the restrictions contained in the Note Agreement as of the Effective
Time. See "THE MERGER -- Note Holder Consent and Waiver." Among such
restrictions is a provision limiting the payment of dividends and other
restricted payments to no more than 25% of consolidated net income from and
after January 1, 1994, on a cumulative basis.
On March 3, 1994, Regency had approximately 55 stockholders of record and
Care had approximately 1,100 stockholders of record.
16
<PAGE> 27
INTRODUCTION
This Proxy Statement/Prospectus is being furnished to holders of record of
common stock, par value $.01 per share ("Regency Common Stock"), of Regency
Health Services, Inc., a Delaware corporation ("Regency"), in connection with
the solicitation of proxies by the Board of Directors of Regency for use at the
Special Meeting of Regency stockholders (the "Regency Special Meeting") to be
held on Monday, April 4, 1994, at the Sheraton Hotel, 4545 MacArthur Boulevard,
Newport Beach, California, commencing at 9:00 a.m., local time, and at any
adjournment or postponement thereof.
This Proxy Statement/Prospectus is also being furnished to holders of
record of common stock, par value $.01 per share ("Care Common Stock"), of Care
Enterprises, Inc., a Delaware corporation ("Care"), in connection with the
solicitation of proxies by the Board of Directors of Care for use at the Special
Meeting of Care stockholders (the "Care Special Meeting" and, together with the
Regency Special Meeting, the "Special Meetings") to be held on Monday, April 4,
1994, at the Sheraton Hotel, 4545 MacArthur Boulevard, Newport Beach,
California, commencing at 11:00 a.m., local time, and at any adjournment or
postponement thereof.
In addition, this Proxy Statement/Prospectus constitutes the prospectus of
Regency under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the shares of Regency Common Stock to be issued pursuant to or
as contemplated by this Proxy Statement/Prospectus. Regency has filed a
Registration Statement on Form S-4 with the Securities and Exchange Commission
(the "Commission") of which this Proxy Statement/Prospectus is a part (together
with any amendments thereto, the "Registration Statement"), pursuant to the
Securities Act, with respect to such shares.
This Proxy Statement/Prospectus and accompanying proxy is first being
mailed on or about March 7, 1994.
RISK FACTORS; FUTURE OPERATIONS
Regency and Care intend to use the opportunities created by the Merger (as
hereinafter defined) to become a leading provider of subacute, rehabilitative,
home health and long-term care services. Following the Merger, Regency and Care
will continue to implement the strategy of providing a continuum of healthcare
services, from intensive subacute care at one end of the spectrum to home
healthcare and outpatient services at the other end. The combined company
intends to be at the forefront of new and emerging healthcare delivery systems
and thereby be capable of responding to any of the various health care reform
proposals being considered by Congress. See "THE MERGER -- Reasons for the
Merger; Recommendations of the Boards of Directors." There can, however, be no
assurance that Regency and Care will be successful in the continued
implemenation of this strategy. In addition, significant uncertainties accompany
any business combination and its implementation with respect to the ability of
the combining companies to integrate administrative functions and managerial
resources to achieve operating efficiencies.
DEPENDENCE UPON REIMBURSEMENT FROM MEDICARE AND MEDICAID
The combined company's business will be dependent upon its ability to
obtain and maintain reimbursement from Medicare and Medicaid. For the fiscal
years ended June 30, 1992 and 1993 and the six months ended December 31, 1993,
Regency derived approximately 43.0%, 40.9% and 42.9%, respectively, of its net
operating revenue from Medicaid (known as Medi-Cal in California); and
approximately 23.2%, 27.5% and 25.6%, respectively, from Medicare. For its
fiscal years ending December 31, 1991 and 1992 and the nine months ended
September 30, 1993, Care derived approximately 57%, 56% and 53%, respectively,
of its net operating revenue from Medicaid, and approximately 23%, 24% and 29%,
respectively, from Medicare. These government sponsored healthcare programs are
highly regulated and are subject to budgetary and other constraints. In
addition, these government programs have instituted cost containment measures
designed to limit payments made to healthcare providers. Furthermore, government
reimbursement programs are subject to statutory and regulatory changes,
administrative rulings and interpretations, determinations of intermediaries,
government funding restrictions and retroactive reimbursement adjustments, all
of which could
17
<PAGE> 28
materially increase or decrease the services covered or the rates paid to
healthcare providers for their services. There have been, there currently are,
and Regency and Care expect that there will continue to be, a number of
proposals to limit Medicare and Medicaid reimbursement for healthcare services.
Regency and Care cannot predict at this time whether any of these proposals will
be adopted or, if adopted and implemented, what effect such proposals would have
on the combined company. There can be no assurance that payments under
governmental programs will remain at levels comparable to present levels or will
be sufficient to cover the cost allocable to patients eligible for reimbursement
pursuant to such programs. In addition, there can be no assurance that Regency's
and Care's facilities and the provision of services by Regency and Care in the
future will continue to meet the requirements for participation in Medicare or
Medicaid programs. See "SELECTED INFORMATION REGARDING THE LONG-TERM CARE
SERVICES INDUSTRY -- Healthcare Reimbursement Programs."
In addition, the combined company's cash flow could be adversely affected
by periodic government program funding delays, shortfalls or other difficulties,
such as those that occurred in 1990 and 1991 when Medi-Cal delayed payments and
rate increases for several months, or in 1992 when Medi-Cal reimbursed providers
with registered warrants, which banks refused to redeem from August 3, 1992
through September 4, 1992. Each of Regency and Care has been able to mitigate
the effects of such payment delays by monitoring the related activities of the
California legislature and expediting billings to Medi-Cal through its direct
access electronic billing arrangement and obtaining the agreement of creditors
to extend the due dates for payables. There can be no assurance, however, that
the combined company will be able to mitigate the effects of any future funding
delays. See "SELECTED INFORMATION REGARDING THE LONG-TERM CARE SERVICES
INDUSTRY -- Healthcare Reimbursement Programs," "SELECTED INFORMATION REGARDING
REGENCY -- Sources of Payment" and "SELECTED INFORMATION REGARDING
CARE -- Healthcare Reimbursement Programs."
REGULATION
The long-term care industry is subject to extensive federal, state and
local licensure and certification laws. Generally, these licenses must be
renewed annually. Long-term care facilities and home health agencies are subject
to annual and routine interim inspections to monitor compliance with government
regulations. Changes in applicable laws and regulations or new interpretations
of existing laws and regulations could have a material adverse effect on
licensure, eligibility for participation, permissible activities, costs of doing
business or the levels of reimbursement from governmental, private and other
sources. To date, such changes have not had a material adverse effect on
Regency's and Care's businesses. However, there can be no assurance that
regulatory authorities will not adopt changes or interpretations that adversely
affect the combined company. The failure to maintain or renew any required
regulatory approvals or licenses could prevent the combined company from
offering existing services or from obtaining reimbursement. In certain
circumstances, failure of compliance at one facility may affect the ability of
the combined company to obtain or maintain licenses or approvals under Medicare
and Medicaid programs at other facilities. Regency and Care believe that their
facilities are in substantial compliance with the various regulatory and
licensing requirements of state and local authorities and of the Medicare and
Medicaid programs. There can be no assurance that the combined company will be
able to remain in compliance. See "SELECTED INFORMATION REGARDING
REGENCY -- Regulation" and "SELECTED INFORMATION REGARDING CARE -- Regulation."
On October 27, 1993, President Clinton submitted to the United States
Congress his proposed Health Security Act (the "Health Security Act"). As
proposed by the Clinton Administration, the Health Security Act would guarantee
comprehensive healthcare coverage for all Americans regardless of health or
employment status. The Health Security Act would reduce certain Medicare and
Medicaid programs, and permit greater flexibility in the administration of
Medicaid. Changes in reimbursement levels under Medicare or Medicaid and changes
in applicable government regulations could significantly affect the combined
company's results of operations. Several U.S. Senators and Representatives have
submitted bills that could approach the reform of the United States healthcare
system in different ways. In addition to federal initiatives, California, where
the combined company expects to conduct a substantial portion of its business,
has already enacted various healthcare reform measures that are expected to have
an effect on the business of the combined
18
<PAGE> 29
company after consummation of the Merger. Neither Regency nor Care is able to
predict whether the Health Security Act or any of such other healthcare
legislation will be enacted and implemented or the precise effects of any such
legislation. Both Regency and Care believe that health services organizations
with specialized and diverse services, such as the combined company, are likely
to be well positioned under any of the proposed legislative reforms.
Since November 1990, Regency has conducted all of its business and,
historically, Care has conducted a substantial portion of its business in
California. Any limitations on Medi-Cal reimbursement, increases in California
minimum wages without a corresponding increase in Medi-Cal reimbursement rates
or other changes in state programs may have a material adverse effect on the
combined company.
DEPENDENCE UPON KEY PERSONNEL
The success and growth of Regency to date has been dependent upon the
active involvement of Cecil Mays, the loss of services of whom could have an
adverse effect on the combined company. Regency currently has an employment
agreement with Mr. Mays that expires in March 1996, subject to automatic annual
one-year extensions unless Mr. Mays or Regency gives notice to the contrary.
Regency will have a three-year employment agreement with Mr. Mays, subject to
automatic annual one-year extensions unless Mr. Mays or Regency gives notice to
the contrary at least two years prior to the scheduled expiration date,
commencing at the Effective Time (as hereinafter defined). Regency is also the
beneficiary of a key-man life insurance policy in the amount of $2,000,000 for
Mr. Mays. The recent success and growth of Care has been dependent to a
significant degree upon the active involvement of Richard K. Matros, the loss of
services of whom could have an adverse effect on the combined company. Care
currently has an employment agreement with Mr. Matros that expires in December
1995. Regency will have a three-year employment agreement with Mr. Matros,
subject to automatic annual one-year extensions unless Mr. Matros or Regency
gives notice to the contrary at least two years prior to the scheduled
expiration date, commencing at the Effective Time. See "MANAGEMENT OF REGENCY
FOLLOWING THE MERGER -- Executive Compensation." In addition, the continued
success and growth of the combined company will depend in part on its ability to
attract and retain other qualified personnel.
LIMITED OPERATING HISTORY
Regency began operations with the acquisition of one healthcare facility in
1986 and much of Regency's subsequent growth has come in the form of
acquisitions. Following the Effective Time, the combined company intends to
continue this strategy to allow the combined company to expand its market share.
See "THE MERGER -- Reasons for the Merger; Recommendations of Boards of
Directors." However, as the health services industry has consolidated in recent
years, the competition for acquisitions among long-term care providers has
intensified. Some of the competing companies have greater financial resources
than will the combined company, and there can be no assurance that the combined
company will be able to compete successfully at favorable prices for available
acquisition candidates. In addition, the acquisition of long-term care
facilities is subject to regulatory approval. The failure to obtain any required
regulatory approvals could adversely impact the expansion of the combined
company's facilities or services.
In December 1990, Care emerged from bankruptcy and thereafter commenced the
development of a comprehensive strategic plan to expand and develop specialized
services. Since emerging from bankruptcy, Care has reported net income for each
of its fiscal years. Regency has a limited operating history and has experienced
rapid growth. Although Regency has reported net income for its three most recent
fiscal years, Regency experienced losses during each of the four fiscal years
prior thereto. The combined company will thus be subject to the uncertainties
and risks associated with any new and expanding business. The combined company's
operating strategy will continue to emphasize the expansion of subacute,
rehabilitative, home health and long-term care services and pharmacy operations.
There can be no assurance that such operations will be successful or can be
expanded profitably. See "SELECTED INFORMATION REGARDING REGENCY" and "SELECTED
INFORMATION REGARDING CARE."
19
<PAGE> 30
LIABILITY AND INSURANCE
Each of Regency and Care maintains professional and general liability
insurance coverage it believes to be adequate in amount and coverage, although
Care's coverage has a substantial per claim deductible. Regency maintains no
earthquake insurance. Although the cost of insurance has not significantly
increased in recent years, there can be no assurance that such insurance will
continue to be available at acceptable costs. Furthermore, there can be no
assurance that claims in excess of Regency's existing insurance coverage or not
covered by Regency's existing insurance will not be asserted against Regency, or
that the number of claims on which Care must pay some or all of its per claim
deductible will not increase. Regency also maintains workers' compensation
insurance, the cost of which can fluctuate depending on the amount and number of
Regency's claims. Care self-insures workers' compensation in California and Ohio
and purchases insurance for this risk in West Virginia and New Mexico. Care also
self-insures one of its health insurance programs. The cost of insurance is
based on market conditions, claims history and number and type of company
operations. As these factors vary, the cost of insurance can vary. To secure its
obligations to pay benefits under its self-insured workers' compensation
programs, Care has caused various surety bonds and letters of credit to be
issued, which are secured by various assets of Care.
CONTROL BY STOCKHOLDER GROUPS AND OFFICERS AND DIRECTORS
Two stockholder groups of Care are expected to have beneficial ownership of
20.6% and 7.0%, on a primary basis, respectively, of Regency Common Stock at the
Effective Time (assuming no transactions in shares of Regency Common Stock and
Care Common Stock between March 3, 1994 and the Effective Time). As a result,
these stockholders will have significant influence over the outcome of all
matters submitted to Regency's stockholders for approval, including the election
of directors. See "CURRENT OWNERSHIP OF CARE SECURITIES." Regency's officers and
directors as a group at the Effective Time are expected to have beneficial
ownership of 11.2% of the shares of Regency Common Stock. See "OWNERSHIP OF
REGENCY SECURITIES AT THE EFFECTIVE TIME." As a result, Regency's officers and
directors will have significant influence over the outcome of all matters
submitted to Regency's stockholders for approval, including the election of
directors. This ownership by two stockholder groups and Regency's directors and
officers and the fact that the directors of Regency will be elected for
staggered terms may delay, defer or prevent a potential change of control and,
consequently, the market price for Regency Common Stock may be less likely to
reflect a so-called "premium for control." See "RESTATED REGENCY CERTIFICATE OF
INCORPORATION AND RESTATED REGENCY BYLAWS -- Classified Board."
COMPETITION
Organizations such as Regency and Care operate in a highly competitive
industry. The combined company's facilities and home health agencies generally
will operate in communities that are also served by similar facilities and
agencies operated by others. Some competing facilities and agencies provide
services that will not be offered by the combined company and some are operated
by entities having greater financial and other resources and longer operating
histories than Regency or Care. In addition, some are operated by nonprofit
organizations or government agencies supported by endowments, charitable
contributions, tax revenues and other sources that will not be available to the
combined company. There can be no assurance that the combined company will not
encounter increased competition in the future that would adversely affect the
combined company's results of operations. See "SELECTED INFORMATION REGARDING
THE LONG-TERM CARE SERVICES INDUSTRY -- Competition."
MERGER COSTS
The costs of the Merger are expected to be significant and, as required
under the pooling of interests accounting method, are expected to be reflected
in the financial statements of the combined company in the period that the
Merger is consummated. The total Merger costs are expected to approximate
$5,400,000. The direct transactional expenses are estimated to be approximately
$2,500,000 for investment banking, legal, accounting, printing, mailing and
similar expenses. Although there can be no precise determination of such
20
<PAGE> 31
expenses until the consolidation of operations is actually completed, it is
expected that up to an additional $2,900,000 (net of tax) will be required for
integrating management information and accounting systems and consolidating
various operating, management and other functions of the two companies to
efficiently operate the new enterprise as a result of the Merger. No assurance
can be given at present that such expenses will not be greater or less than the
amount budgeted for them or that such operating efficiencies will be fully
realized.
For additional information on the proposed operations of the combined
company following the Effective Time, see "THE MERGER -- Reasons for the Merger;
Recommendations of Boards of Directors."
THE SPECIAL MEETINGS
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETINGS
At the Regency Special Meeting, stockholders of record as of the close of
business on March 3, 1994, will consider and vote upon a proposal to approve the
transactions contemplated by an Agreement and Plan of Merger, dated as of
December 20, 1993, as amended by an Amendment, dated as of January 31, 1994 (the
"Plan of Merger"), by and between Regency and Care pursuant to which, among
other things, Care Merger Sub, Inc. ("Merger Sub"), a wholly owned subsidiary of
Regency formed for the purpose of effecting the transactions contemplated by the
Plan of Merger, will be merged with and into Care (the "Merger") and the
Restated Certificate of Incorporation of Regency (the "Regency Certificate") and
the Bylaws of Regency (the "Regency Bylaws") will be restated and amended as
described in this Proxy Statement/Prospectus. Under the Plan of Merger, Care
will be the surviving corporation in the Merger and will become a wholly owned
subsidiary of Regency. If the Plan of Merger is approved by holders of Regency
Common Stock at the Regency Special Meeting, then a vote in favor of approval of
the Plan of Merger will be deemed to include a vote in favor of amendment and
restatement of the Regency Certificate and Regency Bylaws. If the Plan of Merger
is not approved or the Merger is not consummated for any other reason, the
Regency Certificate and the Regency Bylaws will not be amended and restated.
Stockholders at the Regency Special Meeting will also consider and vote
upon a proposal to amend the Regency Health Services, Inc. Long-Term Incentive
Plan (the "Stock Option Plan") to increase the number of shares of Regency
Common Stock available for grant thereunder by 1,250,000 shares and to provide
that the aggregate number of shares of Regency Common Stock underlying stock
options or stock appreciation rights granted to any eligible employee during any
fiscal year shall not exceed 50% of the shares of Regency Common Stock reserved
for issuance under the Stock Option Plan. If the Plan of Merger is not approved
or the Merger is not consummated for any other reason, the Stock Option Plan
will not be amended regardless of passage of the proposal to amend the Stock
Option Plan at the Regency Special Meeting.
At the Care Special Meeting, stockholders of record as of the close of
business on March 3, 1994, will consider and vote upon a proposal to approve and
adopt the Plan of Merger. Under the Plan of Merger, Merger Sub will be merged
with and into Care. Care will be the surviving corporation in the Merger and
will become a wholly owned subsidiary of Regency. Upon consummation of the
Merger, each outstanding share of Care Common Stock (other than shares owned by
Regency or any of its subsidiaries, held in Care's treasury or owned by any
subsidiary of Care) will be converted into 0.71 of a share of Regency Common
Stock. Fractional shares of Regency Common Stock will not be issued in
connection with the Merger. Care stockholders otherwise entitled to a fractional
share will be paid the value of such fraction in cash, determined as described
under "THE AGREEMENT AND PLAN OF MERGER -- The Merger."
In addition, at the Effective Time, (i) Regency will assume all options and
stock appreciation rights then outstanding to acquire shares of Care Common
Stock and will substitute therefor options to acquire, and stock appreciation
rights with respect to, shares of Regency Common Stock, (ii) the authorized
number of directors of Regency will be eight, comprised of three persons
designated by Regency and five persons designated by Care, as contemplated by
the Plan of Merger, (iii) the Regency Certificate will be amended and restated
to read in its entirety as set forth in Annex B hereto (as amended and restated,
the "Restated Regency Certificate"), (iv) the Regency Bylaws will be amended and
restated to read in their entirety as set forth in Annex C hereto (as amended
and restated, the "Restated Regency Bylaws"), (v) employment agreements
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between certain persons who will be officers of Regency and Regency will become
effective and (vi) certain other transactions contemplated by the Plan of Merger
will be effected, all as more fully described in this Proxy
Statement/Prospectus.
As a result of the Merger, immediately after the Effective Time the current
holders of securities of Regency will hold approximately 42.1% of Regency Common
Stock then outstanding (54.0% of the Regency Common Stock on a fully diluted
basis) and the current holders of securities of Care will hold approximately
57.9% of Regency Common Stock then outstanding (46.0% of the Regency Common
Stock on a fully diluted basis). Accordingly, the equity interest that each
holder of securities of Regency or securities of Care holds in Regency or Care,
as the case may be, immediately prior to the Effective Time will be converted
into a smaller percentage ownership in a larger company. See "OWNERSHIP OF
REGENCY SECURITIES AFTER THE EFFECTIVE TIME."
Immediately after all conditions to the Plan of Merger have been satisfied
or waived, the certificate of merger, or such other documents necessary to
effect the Merger, will be filed in accordance with Delaware General Corporation
Law (the "DGCL") and the Merger will be effective in accordance with the terms
of the Plan of Merger (such time and date are referred to herein as the
"Effective Time").
Consummation of the Merger requires, among other things, (i) the approval
of the transactions contemplated by the Plan of Merger by at least a majority of
the shares of Regency Common Stock entitled to vote at the Regency Special
Meeting and (ii) the approval and adoption of the Plan of Merger by at least a
majority of the shares of Care Common Stock entitled to vote at the Care Special
Meeting. Certain stockholders of Regency have signed agreements with Care to
vote the shares of Regency Common Stock owned by them, representing
approximately 21.6% of the outstanding shares of Regency Common Stock, in favor
of the transactions contemplated by the Plan of Merger. Certain stockholders of
Care have signed agreements with Regency to vote the shares of Care Common Stock
owned by them, representing a majority of the outstanding shares of Care Common
Stock, in favor of the transactions contemplated by the Plan of Merger if such
transactions are approved at the Regency Special Meeting. See "Record Date;
Proxies," "Votes Required," "THE AGREEMENT AND PLAN OF MERGER -- Certain
Conditions" and "CERTAIN RELATED AGREEMENTS -- Voting Agreements."
Approval of the amendments to the Stock Option Plan requires the vote of a
majority of the shares of Regency Common Stock represented and entitled to vote
at the Regency Special Meeting, a quorum being present.
Neither the Board of Directors of Regency nor the Board of Directors of
Care knows of any business that will be presented for consideration at the
Regency Special Meeting or the Care Special Meeting, as the case may be, other
than the matters described in this Proxy Statement/Prospectus.
The principal executive offices of Regency are located at 3636 Birch
Street, Suite 195, Newport Beach, California 92660. The telephone number at
those offices is (714) 851-9512.
The principal executive offices of Care are located at 2742 Dow Avenue,
Tustin, California 92680. The telephone number at those offices is (714)
544-4443.
After the Effective Time, the principal executive offices of Regency will
be located at 2742 Dow Avenue, Tustin, California 92680. The telephone number at
those offices is (714) 544-4443.
RECORD DATE; PROXIES
Regency. Holders of record of shares of Regency Common Stock at the close
of business on March 3, 1994 will be entitled to notice of and to vote at the
Regency Special Meeting. At the close of business on March 3, 1994, there were
6,828,606 shares of Regency Common Stock outstanding. Shares of Regency Common
Stock, the holders of which are entitled to vote at the Regency Special Meeting
(including any adjournments or postponements thereof) and which are represented
by properly executed proxies in the form enclosed with this Proxy
Statement/Prospectus, will, unless such proxies have previously been revoked, be
voted in accordance with the instructions indicated in such proxies. To the
extent instructions are not
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indicated, such shares will be voted in favor of approval of the transactions
contemplated by the Plan of Merger, in favor of approval of the amendments to
the Stock Option Plan and in the discretion of the proxy holder as to any other
matter that may properly come before the Regency Special Meeting, except for an
adjournment of the Regency Special Meeting to solicit additional proxies. If the
Plan of Merger is approved by holders of Regency Common Stock at the Regency
Special Meeting, then a vote in favor of approval of the Plan of Merger will be
deemed to include a vote in favor of amendment and restatement of the Regency
Certificate and Regency Bylaws. If the Plan of Merger is not approved or the
Merger is not consummated for any other reason, the Regency Certificate and the
Regency Bylaws will not be amended and restated and the Stock Option Plan will
not be amended regardless of passage of the proposal to amend the Stock Option
Plan at the Regency Special Meeting. A Regency stockholder who has given a proxy
may revoke it any time before it is voted by (i) notifying in writing the
Secretary of Regency, (ii) completing and returning a proxy bearing a later date
or (iii) appearing at the Regency Special Meeting and voting in person.
In addition to mailing this material to Regency stockholders, Regency has
asked banks and brokers to forward copies to persons for whom they hold stock of
Regency and to request authority for execution of the proxies. Regency will
reimburse banks and brokers for their reasonable out-of-pocket expenses in doing
so. Officers and regular employees of Regency may, without being additionally
compensated, solicit proxies by mail, telephone, telegram or personal contact.
All proxy soliciting expenses will be paid by Regency in connection with the
solicitation of votes for the Regency Special Meeting. Regency does not
currently intend to employ any other party to assist in the solicitation
process.
Care. Holders of record of shares of Care Common Stock at the close of
business on March 3, 1994 will be entitled to notice of and to vote at the Care
Special Meeting. At the close of business on March 3, 1994, there were
13,241,043 shares of Care Common Stock outstanding. Shares of Care Common Stock,
the holders of which are entitled to vote at the Care Special Meeting (including
any adjournments or postponements thereof) and which are represented by properly
executed proxies in the form enclosed with this Proxy Statement/Prospectus,
will, unless such proxies have previously been revoked, be voted in accordance
with the instructions indicated in such proxies. To the extent instructions are
not indicated, such shares will be voted in favor of approval and adoption of
the Plan of Merger and in the discretion of the proxy holder as to any other
matter which may properly come before the Care Special Meeting, except for an
adjournment of the Care Special Meeting to solicit additional proxies. A Care
stockholder who has given a proxy may revoke it at any time before it is voted
by (i) notifying in writing the Secretary of Care, (ii) completing and returning
a proxy bearing a later date or (ii) appearing at the Care Special Meeting and
voting in person.
In addition to mailing this material to Care stockholders, Care has asked
banks and brokers to forward copies to persons for whom they hold stock of Care
and to request authority for execution of the proxies. Care will reimburse banks
and brokers for their reasonable out-of-pocket expenses in doing so. Officers
and regular employees of Care may, without being additionally compensated,
solicit proxies by mail, telephone, telegram or personal contact. All proxy
soliciting expenses will be paid by Care in connection with the solicitation of
votes for the Care Special Meeting. Care does not currently intend to employ any
other party to assist in the solicitation process.
VOTES REQUIRED
Regency. The affirmative vote of at least a majority of the outstanding
shares of Regency Common Stock entitled to vote is required to approve the
transactions contemplated by the Plan of Merger. A majority of the shares
entitled to vote, represented in person or by proxy, constitutes a quorum. Under
applicable Delaware law, in determining whether the Merger has received the
requisite number of affirmative votes, abstentions and broker non-votes will be
counted and will have the same effect as a vote against the Merger. Regency
stockholders are entitled to one vote at the Regency Special Meeting for each
share of Regency Common Stock held of record at the close of business on March
3, 1994.
The approval of the amendments to the Stock Option Plan requires the vote
of a majority of the shares of Regency Common Stock represented and entitled to
vote at the Regency Special Meeting, a quorum being present. In determining
whether the proposal to amend the Stock Option Plan has received the requisite
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number of affirmative votes, an abstention has the same legal effect as a vote
against such proposal. Broker non-votes are not counted as shares represented
and entitled to vote and therefore do not affect the outcome of the vote on such
proposal.
As of March 3, 1994, directors and executive officers of Regency and their
affiliates, in the aggregate, were entitled to vote approximately 21.6% of the
total shares of Regency Common Stock entitled to vote at the Regency Special
Meeting. CERTAIN STOCKHOLDERS OF REGENCY COMMON STOCK HAVE SIGNED VOTING
AGREEMENTS (AS HEREINAFTER DEFINED) WITH CARE TO VOTE ALL SHARES OF REGENCY
COMMON STOCK OWNED BY EACH OF THEM, REPRESENTING APPROXIMATELY 21.6% OF THE
OUTSTANDING SHARES OF REGENCY COMMON STOCK, IN FAVOR OF THE TRANSACTIONS
CONTEMPLATED BY THE PLAN OF MERGER. See "CERTAIN RELATED AGREEMENTS -- Voting
Agreements."
THE BOARD OF DIRECTORS OF REGENCY UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS
OF REGENCY VOTE FOR APPROVAL OF THE TRANSACTIONS CONTEMPLATED BY THE PLAN OF
MERGER, AND FOR APPROVAL OF THE AMENDMENTS TO THE STOCK OPTION PLAN.
Care. The affirmative vote of at least a majority of the outstanding shares
of Care Common Stock entitled to vote is required to approve and adopt the Plan
of Merger. A majority of the shares entitled to vote, represented in person or
by proxy, constitutes a quorum. Under applicable Delaware law, in determining
whether the Merger has received the requisite number of affirmative votes,
abstentions and broker non-votes will be counted and will have the same effect
as a vote against the Merger. Care stockholders are entitled to one vote at the
Care Special Meeting for each share of Care Common Stock held of record at the
close of business on March 3, 1994.
As of March 3, 1994, directors and executive officers of Care and their
affiliates, in the aggregate, were entitled to vote approximately 48% of the
total shares entitled to vote at the Care Special Meeting. CERTAIN STOCKHOLDERS
OF CARE HAVE SIGNED VOTING AGREEMENTS WITH REGENCY TO VOTE SHARES OF CARE COMMON
STOCK OWNED BY EACH OF THEM, REPRESENTING A MAJORITY OF THE OUTSTANDING SHARES
OF CARE COMMON STOCK, IN FAVOR OF THE TRANSACTIONS CONTEMPLATED BY THE PLAN OF
MERGER IF SUCH TRANSACTIONS ARE APPROVED AT THE REGENCY SPECIAL MEETING. AS A
RESULT, APPROVAL OF THE PLAN OF MERGER BY HOLDERS OF CARE COMMON STOCK IS
ASSURED IF THE TRANSACTIONS CONTEMPLATED BY THE PLAN OF MERGER ARE APPROVED AT
THE REGENCY SPECIAL MEETING. See "CERTAIN RELATED AGREEMENTS -- Voting
Agreements."
THE BOARD OF DIRECTORS OF CARE UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS OF
CARE VOTE FOR APPROVAL AND ADOPTION OF THE PLAN OF MERGER.
THE MERGER
Pursuant to the Plan of Merger, Care will become a wholly owned subsidiary
of Regency. At the Effective Time, as a result of the Merger, stockholders of
Care will receive 0.71 of a share (the "Exchange Ratio") of Regency Common Stock
for each share of Care Common Stock outstanding immediately prior to the Merger
(other than shares owned by Regency or any of its subsidiaries, held in the
treasury of Care or owned by any subsidiary of Care). Fractional shares of
Regency Common Stock will not be issued in connection with the Merger. Care
stockholders otherwise entitled to a fractional share will be paid the value of
such fraction in cash, determined as described under "THE AGREEMENT AND PLAN OF
MERGER -- The Merger."
BACKGROUND OF THE MERGER
Both Regency, since its inception in 1986, and Care, since 1991, have
realized continued growth. In recent years, however, competition from a variety
of healthcare providers has intensified. In face of such competition and
proposed healthcare reforms, it has been widely viewed as likely that there
would be some degree of consolidation in the healthcare industry.
In response to these factors, each of Regency and Care approached, or was
approached by, a number of other entities regarding the possibility of a sale,
acquisition or some form of combination or joint venture.
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Neither Regency nor Care engaged in discussions with such third parties that
advanced beyond preliminary discussions.
Because key personnel from Regency and Care were familiar with each other
and the two companies had similar operating strategies, periodic discussions
occurred between officers of Regency and Care from time to time. However, these
discussions did not advance to any significant stage.
In early September 1993, members of Regency's and Care's senior management
met to discuss various business opportunities, including joint venturing of
their respective home health and pharmacy operations and a possible business
combination involving both entities. On September 20, 1993, members of Care's
senior management and the representatives of its largest stockholder met with
Regency's chief executive officer and chief financial officer to discuss in
principle a business combination between the two companies. During the meeting,
various forms of a possible transaction were discussed, and Care's
representatives agreed to further discussions regarding business terms for a
possible business combination.
On October 6, 1993, representatives of Regency and Care met again to
discuss a possible business combination. Care's representatives proposed a
purchase of Regency for a package of cash, notes and shares of Care Common
Stock, which proposal was rejected by Regency's representatives. Other
alternative structures for a transaction involving the two companies were also
discussed.
Subsequent to this meeting and over the course of the next two weeks, the
parties had numerous discussions and tentatively agreed that if a business
combination were to occur, it would be a share for share merger qualifying as a
tax-free exchange for federal income tax purposes and as a pooling-of-interests
transaction for accounting purposes. The parties also discussed various possible
exchange ratios and certain other business issues, including composition of the
merged companies' board, possible floors and share price guarantees, the roles
of various key executives in the merged company, and the effect of the
transaction on Care's net operating loss carryforward. The parties also
discussed integration strategies for the two companies' business and other
operational consolidation issues and post-merger operating policies and
objectives.
On October 22, 1993, Regency held a regularly scheduled meeting of its
Board of Directors at which members of senior management briefed the Board on
the various meetings and discussions between Regency and Care. Regency's
management presented their reasons for proposing a merger and Regency's chief
executive officer and chief financial officer outlined the principal advantages
and disadvantages thereof. The Board instructed management to retain a financial
advisor to assist in evaluating any proposal and gave overall approval and
authorization for management to continue discussions with and provide
confidential information to Care.
In late October, the parties agreed in principle to exchange certain
confidential information to better facilitate discussions regarding an exchange
ratio, and on November 5, 1993 a confidentiality agreement was executed.
On November 1, 1993, Care held a special Board of Directors meeting and
management briefed the Board on the various meetings and discussions between
Care and Regency. The Care Board of Directors then appointed a special committee
of its Board, consisting of John Adams, John Nickoll and Richard Matros (the
"Care Special Committee"), to review any proposal made by Regency and to provide
the Board with a recommendation. The Board further authorized the Care Special
Committee to retain a financial advisor to assist in evaluating any proposal,
and gave overall approval and authorization to management to continue
discussions with and provide confidential information to Regency.
The Care Special Committee and members of Regency senior management agreed
to suspend further negotiations until after completion by each party of its
review of the confidential information being exchanged and completion of the
review and analysis by each of Care's financial advisor and Regency's financial
advisor. Members of the Care Special Committee talked or met with a number of
investment banking firms and in early November selected Merrill Lynch & Co.
("Merrill Lynch") to serve as its financial advisor. Regency's senior management
retained Smith Barney Shearson Inc. ("Smith Barney Shearson") to render certain
financial advisory services and L. J. Kaufman & Co., Inc. ("Kaufman"), a
financial advisory firm that specializes in the healthcare industry, to serve as
financial consultant.
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On November 19, 1993, the Care Board of Directors met at length to discuss
in principle a business combination with Regency. Care's management presented
their reasons for proposing a merger and Care's chairman outlined the principal
advantages and disadvantages. Merrill Lynch also reviewed with the Board their
preliminary analysis based on publicly available information.
On December 10, 1993, the Regency Board of Directors held its annual
meeting at which members of senior management briefed the Board on the status of
discussions with Care and outlined the principal advantages and disadvantages of
a proposed business combination.
On December 14, 1993, representatives of Care and Regency met at length and
discussed and resolved a number of key issues, including the final structure of
the transaction as a share for share exchange, with Regency as the surviving
entity, which was intended to qualify as a tax-free exchange for federal income
tax purposes and as a pooling-of-interests transaction for accounting purposes.
Also discussed was the proposed location of the combined company's corporate
offices, execution of new employment agreements with each of the principal
Regency and Care executives, each to have identical duration and terms (other
than salary and duties), composition of key board committees, the exchange ratio
and the selection of post-merger directors.
On December 16, 1993, a draft of the Plan of Merger was prepared and
discussed by representatives of both Care and Regency.
On December 17, 1993, Care's Board of Directors met at length and heard
Merrill Lynch's presentation and financial analysis, including an analysis of
various exchange ratios. The Care Special Committee recommended the Merger and
Care's Board approved in principle a business combination, subject to
negotiation of a satisfactory exchange ratio. At this Board meeting, senior
management of Care and its financial and legal advisors made detailed
presentations concerning all material aspects of the proposed transaction. On
December 17, 1993, Regency's Board of Directors met at length and heard Smith
Barney Shearson's presentation and financial analyses and presentations by
senior management and legal advisors of Regency. Regency's Board also approved
in principle a business combination subject to favorable resolution of certain
points. Following these Board meetings, Messrs. Adams and Matros and Care's
chief financial officer spoke at length with Regency's chief executive officer
and chief financial officer, and reached agreement on an Exchange Ratio of .71
of a share of Regency Common Stock for each share of Care Common Stock, and on
other key open issues.
On December 20, 1993, the Care Board of Directors held another meeting and
considered the final Exchange Ratio, the December 19, 1993 draft of the Plan of
Merger and heard Merrill Lynch's report on fairness, and then unanimously
approved the Merger and the Plan of Merger.
On December 20, 1993, Regency's Board of Directors met to consider the
final Exchange Ratio and other material open issues, received Smith Barney
Shearson's opinion as to the fairness, from a financial point of view, to
Regency of the Exchange Ratio and unanimously approved the Plan of Merger and
the transactions contemplated thereby.
Following the Board approvals, Regency and Care executed the Plan of
Merger. In addition, (i) Care and holders of approximately 21.6% of the
outstanding shares of Regency Common Stock entered into a Voting Agreement
pursuant to which each of such stockholders agreed to vote all shares of Regency
Common Stock beneficially owned by him or it in favor of the transactions
contemplated by the Plan of Merger (see "CERTAIN RELATED AGREEMENTS -- Voting
Agreements") and (ii) Regency and holders of a majority of the outstanding
shares of Care Common Stock entered into a Voting Agreement pursuant to which
each such holder agreed to vote all shares of Care Common Stock owned by him or
it in favor of the transactions contemplated by the Plan of Merger if such
transactions are approved at the Regency Special Meeting (see "CERTAIN RELATED
AGREEMENTS -- Voting Agreements").
Regency and Care executed an Amendment to the Agreement and Plan of Merger
dated as of January 31, 1994. A copy of the Plan of Merger, which has been
restated to include the Amendment thereto, is attached to this Proxy
Statement/Prospectus as Annex A.
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REASONS FOR THE MERGER; RECOMMENDATIONS OF BOARDS OF DIRECTORS
Common Reasons for the Merger. The management of each of Regency and Care
independently concluded that a consolidation is expected to enable the combined
company to be a leading provider of subacute, rehabilitative, home health and
long-term care services.
Regency currently operates 43 specialty healthcare facilities in California
with 4,215 licensed beds. Care currently operates 52 long-term care facilities
with 5,104 licensed beds (including one 248-bed managed facility), of which 39
facilities and 3,725 beds are in California, and operates home health agencies
in California and Ohio. At the Effective Time, the combined company will operate
82 facilities with 7,940 beds in California, and the balance of the beds will be
in New Mexico, Ohio and West Virginia. Following the Merger, Regency and Care
will continue to implement the strategy of providing a continuum of healthcare
services, from intensive subacute care at one end of the spectrum to home
healthcare and outpatient services at the other end. The combined company
intends to be at the forefront of new and emerging healthcare delivery systems
and thereby be capable of responding to any of the various health care reform
proposals being considered by Congress.
In approving the Plan of Merger, each Board of Directors considered the
following additional factors:
- Regency and Care each have certain unique management skills and operating
capabilities. The combined management team will have a depth of talent to
develop a company that could respond to the emerging format of a high
quality, low cost, "seamless" healthcare delivery system.
- Independently, each of Regency and Care has developed and implemented
subacute care and rehabilitative programs, which are housed in dedicated
units in its long-term care facilities. The combination of the two
companies should enhance strategic advancement in this area.
- The market capitalization of the combined company will be larger than
either company's current capitalization, which is expected to provide
stockholders of the combined company with increased liquidity and to
permit the combined company to have greater access to capital markets.
- The Merger will not change the nature of the business in which Regency
and Care stockholders are invested, but will provide for that investment
to be in a larger enterprise. A combination of providers with
complementary management styles, geographic orientation and general
operating philosophies will best serve the combined company's
stockholders, employees and the communities the combined company will
serve.
- The combination of Regency and Care is expected to provide administrative
efficiencies and eliminate duplicate functions, such as separate audits,
annual stockholder meetings and certain regulatory filings, thereby
enabling the combined company to reduce administrative costs, capitalize
on existing strengths and compete more effectively with other healthcare
providers. In addition, larger purchasing volumes should result from the
Merger resulting in decreased costs for medical and routine supplies,
food, nutritional supplies and equipment.
- Providers of long-term care, such as the combined company, are likely to
have a role under federal healthcare reform legislation that has been
proposed by President Clinton and certain members of Congress, as well as
legislation that already has been enacted in California. The economies of
scale and increased bed capacity of the combined company are likely to be
advantageous under any such legislation.
- The combined financial resources of the two companies is expected to
permit an acceleration of the development and expansion of new products
and services.
- The Merger is intended to be treated as a pooling-of-interests
transaction for accounting purposes.
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Regency's Reasons for the Merger. IN ADDITION TO THE ANTICIPATED COMMON
BENEFITS DESCRIBED ABOVE, THE BOARD OF DIRECTORS OF REGENCY BELIEVES THAT THE
FOLLOWING ARE ADDITIONAL REASONS FOR STOCKHOLDERS OF REGENCY TO VOTE FOR
APPROVAL OF THE TRANSACTIONS CONTEMPLATED BY THE PLAN OF MERGER.
The Board of Directors of Regency believes that the terms of the Plan of
Merger are in the best interests of Regency and its stockholders. Accordingly,
Regency's Board has unanimously approved the transactions contemplated by the
Plan of Merger and recommends approval thereof by the stockholders of Regency.
In arriving at its recommendation to stockholders, the Board of Directors of
Regency considered a number of factors, including:
- The Merger is expected to result in expansion of Regency's operations
into Northern California and San Diego, with very little overlap in
existing Regency markets, as well as expansion of operations into states
other than California. This expansion will better enable the combined
company to attract favorable contracts with health maintenance
organizations and other regional healthcare purchasing plans.
- The Merger may expand Regency's recently implemented home health
services program.
- The Merger is expected to expand Regency's pharmacy operations through
provision of pharmaceutical products and services to facilities not
previously owned or operated by Regency.
- The Merger may make available to Regency the utilization of Care's net
operating loss carryforward.
- The market capitalization of the combined company will make it more
likely that institutional investors and stock analysts will follow the
combined company's affairs and securities.
In reaching its conclusions, the Regency Board also considered, among other
things, (i) information concerning the financial performance, condition and
business operations of each of Regency and Care, (ii) information with respect
to the prospects of Regency and Care as a combined company, (iii) the proposed
structure of the Merger and the provisions relating to corporate governance of
the combined company, (iv) the terms of the Plan of Merger, including the
Exchange Ratio, (v) that the terms of such agreements (including, without
limitation, the Exchange Ratio) were negotiated at arm's length between senior
management of each of Regency and Care with the assistance of their respective
advisors and (vi) the opinion of Smith Barney Shearson described below under
"Opinions of Financial Advisors."
The Regency Board of Directors also considered a number of potentially
negative factors in its deliberations concerning the Merger, including (i) the
risk that the anticipated benefits of the Merger may not be fully realized,
(ii) the designation of five existing Care Directors to the Regency Board of
Directors, (iii) the potential post-Merger dilution of earnings per share for
the combined company, (iv) the effect of Care's negative working capital and
(v) the negative public perception of Care resulting from its recent bankruptcy.
In the view of the Regency Board, these considerations were not sufficient,
either individually or in the aggregate, to outweigh the advantages of the
proposed combination in the manner it was presented.
The material factors considered by the Regency Board are described above.
In view of the wide variety of factors considered by the Board of Directors of
Regency, the Regency Board did not find it practicable to quantify or otherwise
assign relative weights to the specific factors considered.
Care's Reasons for the Merger. IN ADDITION TO THE ANTICIPATED COMMON
BENEFITS DESCRIBED ABOVE, THE BOARD OF DIRECTORS OF CARE BELIEVES THAT THE
FOLLOWING ARE ADDITIONAL REASONS FOR STOCKHOLDERS OF CARE TO VOTE FOR APPROVAL
OF THE PLAN OF MERGER.
The Board of Directors of Care believes that the terms of the Merger are
fair to and in the best interest of Care and its stockholders. Accordingly,
Care's Board of Directors has unanimously approved the Plan of Merger and
recommends approval thereof by the stockholders of Care. In arriving at its
recommendation to stockholders, the Board of Directors of Care considered a
number of factors including:
- The combination of Care and Regency will result in increased size and
geographic coverage, particularly in Los Angeles and Orange Counties
where Regency has a large concentration of facilities,
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which is expected to better enable the combined company to attract
favorable contracts with health maintenance organizations and other
regional healthcare purchasing plans.
- The rapid increase in size as a result of the Merger is expected to
enable Care to best preserve and capitalize on its key strategic asset,
the skills and reputation of its management.
- The combination of Care and Regency is expected to result in more
efficient operations within the State of California due to the larger
number of facilities and enable an overall reduction in the percentage of
general and administrative overhead to revenues.
- The combination of Care and Regency is expected to provide additional
opportunities to expand Care's home health services through referrals
from Regency's long-term care facilities.
- The combination of Care and Regency will be a combination of near equals
and, thus, Care's stockholders will continue to have a meaningful voice
in the election of directors and on other matters put to stockholders for
a vote.
- The market capitalization and greater public stock distribution of the
combined company will enhance public visibility and will make it more
likely that institutional investors and stock analysts will follow the
combined company's affairs and securities.
In reaching its conclusions, the Care Board of Directors also considered,
among other things, (i) information concerning the financial performance,
condition and business operations of each of Care and Regency; (ii)
presentations by Merrill Lynch, Care's financial advisor, with respect to Care
and Regency; (iii) information with respect to the prospects of Care and Regency
as a combined company; (iv) the tax free nature of the Merger; (v) the proposed
structure of the Merger and the provisions relating to corporate governance of
the combined company; (vi) the terms of the Plan of Merger, including the
Exchange Ratio, (vii) that the terms of the Plan of Merger (including, without
limitation, the Exchange Ratio) were negotiated at arm's length between senior
management of each of Care and Regency with the assistance of certain of their
respective advisors; and (viii) the opinion of Merrill Lynch described below
under "Opinions of Financial Advisors -- Care." The Care Board of Directors'
recommendation was also favorably influenced by the continuation of five
existing Care directors on the Regency Board of Directors.
The Care Board of Directors considered a number of potentially negative
factors in its deliberations concerning the Merger, including (i) the
irreversible nature of the decision and the consequent loss of independence;
(ii) the possibility of less favorable relationships with regulators; (iii) the
possible change in certain existing Care corporate policies following the
Merger; and (iv) the potential post-Merger dilution of earnings per share for
the combined company. In the Care Board of Directors' view, these considerations
were not sufficient, either individually or collectively, to outweigh the
advantages of the Merger in the manner in which it was proposed.
Care did not receive any other proposals, although it did receive inquiries
from two publicly traded NYSE-listed skilled nursing chains. Each of these
companies expressed interest in a friendly purchase of Care for cash and/or
other consideration. One of these companies approached Care's chairman and chief
executive officer in June and again in July 1993, but did not pursue these
discussions after initial meetings did not result in any proposal. The other
company has not presented any specific proposal to the Care Board of Directors,
although Care's president met with the chief executive officer of this company
after the Plan of Merger was signed.
The material factors considered by the Care Board of Directors are
described above. In view of the wide variety of factors, both positive and
negative, considered by the Board of Directors of Care, the Care Board did not
find it practicable to quantify or otherwise assign relative weights to the
specific factors considered. In addition, individual members of the Care Board
of Directors may have given different weights to different factors.
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OPINIONS OF FINANCIAL ADVISORS
REGENCY
Smith Barney Shearson was retained by Regency to render certain financial
advisory services to Regency in connection with the Merger. In connection with
such engagement, Regency requested that Smith Barney Shearson evaluate the
fairness, from a financial point of view, to Regency of the consideration to be
paid by Regency in the Merger. On December 20, 1993, Smith Barney Shearson
delivered to the Board of Directors of Regency a written opinion to the effect
that, as of the date of such opinion and based upon and subject to certain
matters stated therein, the Exchange Ratio was fair, from a financial point of
view, to Regency.
In arriving at its opinion, Smith Barney Shearson reviewed the Plan of
Merger and held discussions with certain senior officers, directors and other
representatives and advisors of Regency and certain senior officers and other
representatives and advisors of Care concerning the business, operations and
prospects of Regency and Care. Smith Barney Shearson examined certain publicly
available business and financial information relating to Regency and Care as
well as certain financial forecasts and other data for Regency and Care which
were provided to Smith Barney Shearson by the respective managements of Regency
and Care. Smith Barney Shearson reviewed the financial terms of the Merger as
set forth in the Plan of Merger in relation to, among other things, current and
historical market prices and trading volumes of Regency Common Stock and Care
Common Stock, the respective companies' historical and projected earnings, and
the capitalization and financial condition of Regency and Care. Smith Barney
Shearson considered, to the extent publicly available, the financial terms of
certain other similar transactions recently effected which Smith Barney Shearson
considered comparable to the Merger and analyzed certain financial, stock market
and other publicly available information relating to the businesses of other
companies whose operations Smith Barney Shearson considered comparable to the
operations of Regency and Care. Smith Barney Shearson also evaluated the pro
forma financial impact of the Merger on Regency. In addition to the foregoing,
Smith Barney Shearson conducted such other analyses and examinations and
considered such other financial, economic and market criteria as Smith Barney
Shearson deemed necessary to arrive at its opinion. Smith Barney Shearson noted
that its opinion was necessarily based upon financial, stock market and other
conditions and circumstances existing and disclosed to Smith Barney Shearson as
of the date of its opinion.
In rendering its opinion, Smith Barney Shearson assumed and relied, without
independent verification, upon the accuracy and completeness of the financial
and other information publicly available or furnished to or otherwise discussed
with Smith Barney Shearson. With respect to financial forecasts and other
information provided to or otherwise discussed with Smith Barney Shearson, Smith
Barney Shearson assumed that such forecasts and other information were
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the respective managements of Regency and Care as to the
expected future financial performance of Regency and Care. Smith Barney Shearson
also assumed that the Merger will be treated as a pooling-of-interests in
accordance with generally accepted accounting principles and as a tax-free
reorganization for federal income tax purposes. Smith Barney Shearson's opinion
relates to the relative values of Regency and Care. Smith Barney Shearson did
not express any opinion as to what the value of the Regency Common Stock
actually will be when issued to Care stockholders pursuant to the Merger or the
price at which the Regency Common Stock will trade subsequent to the Merger. In
addition, Smith Barney Shearson did not make or obtain an independent evaluation
or appraisal of the assets or liabilities (contingent or otherwise) of Regency
or Care nor did Smith Barney Shearson make any physical inspection of the
properties or assets of Regency or Care. Smith Barney Shearson was not asked to
consider and its opinion does not address the relative merits of the Merger as
compared to any alternative business strategies that might exist for Regency or
the effect of any other transaction in which Regency might engage. In addition,
although Smith Barney Shearson evaluated the financial terms of the Merger,
Smith Barney Shearson was not requested to, and did not, participate in the
negotiation or structuring of the Merger and was not asked to and did not
recommend the specific consideration to be paid by Regency in the Merger. No
other limitations were imposed by Regency on Smith Barney Shearson with respect
to the investigations made or procedures followed by Smith Barney Shearson in
rendering its opinion.
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THE FULL TEXT OF THE WRITTEN OPINION OF SMITH BARNEY SHEARSON, DATED
DECEMBER 20, 1993, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS APPENDIX D TO THIS PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. REGENCY
STOCKHOLDERS ARE URGED TO READ THIS OPINION CAREFULLY IN ITS ENTIRETY. SMITH
BARNEY SHEARSON'S OPINION IS DIRECTED ONLY TO THE FAIRNESS OF THE EXCHANGE RATIO
FROM A FINANCIAL POINT OF VIEW AND HAS BEEN PROVIDED SOLELY FOR THE USE OF THE
REGENCY BOARD OF DIRECTORS IN ITS EVALUATION OF THE MERGER, DOES NOT ADDRESS ANY
OTHER ASPECT OF THE MERGER OR RELATED TRANSACTIONS AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY REGENCY STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE
AT THE REGENCY SPECIAL MEETING. THE SUMMARY OF THE OPINION OF SMITH BARNEY
SHEARSON SET FORTH IN THIS PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In preparing its opinion to the Board of Directors of Regency, Smith Barney
Shearson performed a variety of financial and comparative analyses, including
those described below. The summary of such analyses does not purport to be a
complete description of the analyses underlying Smith Barney Shearson's opinion.
The preparation of a fairness opinion is a complex analytic process involving
various determinations as to the most appropriate and relevant methods of
financial analyses and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. In arriving at its opinion, Smith Barney Shearson did not
attribute any particular weight to any analysis or factor considered by it, but
rather made qualitative judgments as to the significance and relevance of each
analysis and factor. Accordingly, Smith Barney Shearson believes that its
analyses must be considered as a whole and that selecting portions of its
analyses and factors, without considering all analyses and factors, could create
a misleading or incomplete view of the processes underlying such analyses and
its opinion. In its analyses, Smith Barney Shearson made numerous assumptions
with respect to Regency and Care, industry performance, general business,
economic, market and financial conditions and other matters, many of which are
beyond the control of Regency and Care. The estimates contained in such analyses
are not necessarily indicative of actual values or predictive of future results
or values, which may be significantly more or less favorable than those
suggested by such analyses. In addition, analyses relating to the value of
businesses or securities do not purport to be appraisals or to reflect the
prices at which businesses or securities actually may be sold. Accordingly, such
analyses and estimates are inherently subject to substantial uncertainty.
Comparable Company Analysis. Using publicly available information, Smith
Barney Shearson analyzed, among other things, the market values and trading
multiples of selected long-term healthcare companies, including: Arbor Health
Care Company; Evergreen Healthcare, Inc.; Genesis Health Ventures, Inc.;
GranCare, Inc.; Health Care & Retirement Corp.; Horizon Healthcare Corp.;
Integrated Health Services, Inc.; Living Centers of America, Inc.; The Mediplex
Group, Inc.; Multicare Companies, Inc.; National Healthcorp L.P.; Summit Care
Corporation; and Sun Healthcare Group, Inc. (collectively, the "Comparable
Companies"). Smith Barney Shearson compared market values as, among other
things, multiples of historical net income and projected calendar 1993 and 1994
net income of the Comparable Companies. The multiples of net income and
projected net income were between the following ranges: (i) latest 12 months net
income: 13.2x to 31.7x (with a mean of 21.4x and a median of 20.1x); and
(ii) projected calendar 1993 and 1994 net income: 13.6x to 24.5x (with a mean of
18.3x and a median of 17.9x) and 11.0x to 18.1x (with a mean of 14.4x and a
median of 14.1x), respectively. The Exchange Ratio, based on a closing sale
price for Regency Common Stock on December 17, 1993 of $13.13, equated to
multiples of Care net income for the latest 12 months and projected calendar
1993 and 1994 net income of 22.6x, 22.0x and 15.7x, respectively.
Smith Barney Shearson also compared the adjusted market values (equity
market value, plus the book value of debt and preferred stock, plus capitalized
rents assuming a discount rate of 12.5%, less cash and cash equivalents) to,
among other things, historical net revenues and earnings before interest, taxes,
depreciation, amortization and rents ("EBITDAR"). The multiples of net revenues
and EBITDAR of the Comparable Companies were between the following ranges:
(i) latest 12 months net revenues: 0.9x to 2.4x (with a mean of 1.6x and a
median of 1.7x); and (ii) latest 12 months EBITDAR: 7.3x to 10.9x (with a mean
of 9.2x and a median of 9.5x). The Exchange Ratio, based on a closing sale price
for Regency Common Stock of $13.13,
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equated to multiples of Care net revenues and EBITDAR for the latest 12 months
of 1.1x and 8.9x, respectively.
Smith Barney Shearson also compared the profit margins, debt to
capitalization ratios, historic revenue growth and projected earnings per share
("EPS") growth of the Comparable Companies with those of Regency and Care. All
projected net income estimates of the Comparable Companies were based on the
consensus estimates of selected investment banking firms. All multiples were
based on closing stock prices as of December 17, 1993.
Selected Merger and Acquisition Transactions Analysis. Using publicly
available information, Smith Barney Shearson analyzed the purchase prices and
implied transaction multiples in the following selected mergers and acquisition
transactions in the long-term healthcare industry: Integrated Health Services,
Inc./Central Park Lodges, Inc.; Genesis Health Ventures, Inc./Meridian
Healthcare Growth & Income L.P.; Horizon Healthcare Corp./Greenery
Rehabilitation Group, Inc.; Living Centers of America, Inc./Vari-Care, Inc.;
National Heritage, Inc./Evergreen Healthcare, Inc.; and Health Care & Retirement
Corp./Owens-Illinois, Inc. (collectively, the "Selected Acquisitions"). Smith
Barney Shearson compared purchase prices as multiples of, among other things,
latest 12 months net income of the Selected Acquisitions and transaction values
as multiples of, among other things, latest 12 months EBITDAR and net revenues
and compared these multiples to the multiples of Care's performance implied by
the Exchange Ratio as set forth above under "Comparable Company Analysis." The
multiples of latest 12 months net income, EBITDAR and revenues of the Selected
Acquisitions for which public information was available were between the
following ranges: (i) latest 12 months net income: 13.3x to 29.0x (with a mean
of 22.2x and a median of 24.3x); (ii) latest 12 months EBITDAR: 7.5x to 9.9x
(with a mean of 8.9x and a median of 9.2x); and (iii) latest 12 months revenues:
1.0x to 2.3x (with a mean of 1.5x and a median of 1.3x).
No company, transaction or business used in the comparable company and
selected merger and acquisition transactions analyses as a comparison is
identical to Regency, Care or the Merger. Accordingly, an analysis of the
results of the foregoing is not entirely mathematical; rather, it involves
complex considerations and judgments concerning differences in financial and
operating characteristics and other factors that could affect the acquisition or
public trading value of the comparable companies or the business segment or
company to which they are being compared.
Discounted Cash Flow Analysis. Smith Barney Shearson performed discounted
cash flow analyses of the projected free cash flow of Care and Regency for the
latest 12 months ended June 30, 1994 through the latest 12 months ended June 30,
1998, assuming, among other things, discount rates of 10.0%, 12.5% and 15.0%,
and terminal multiples of EBITDAR of 7.0x to 10.0x. Utilizing these assumptions,
Smith Barney Shearson arrived at estimated ranges of values per share of Care
Common Stock and Regency Common Stock of between approximately $7.27 to $16.76
and $9.56 to $22.43, respectively. These ranges resulted in an implied exchange
ratio of between approximately 0.76 and 0.75, as compared to the Exchange Ratio
in the Merger of 0.71.
Pro Forma Merger Analysis. Smith Barney Shearson analyzed certain pro forma
effects resulting from the Merger, including, among other things, the impact of
the Merger on the projected EPS of Regency for the fiscal years ended June 30,
1994 through 1998. Based upon the consensus EPS estimates of selected investment
banking firms, the results of the pro forma merger analysis suggest that the
Merger will be dilutive to Regency's EPS in fiscal years 1994 and 1995, and
accretive to Regency's EPS in fiscal years 1996 through 1998. The actual results
achieved by the combined company may vary from projected results and the
variations may be material.
Other Factors and Comparative Analyses. In rendering its opinion, Smith
Barney Shearson considered certain other factors and conducted certain other
comparative analyses, including, among other things, a review of (i) Regency and
Care historical and projected financial results; (ii) the history of trading
prices for Regency Common Stock and Care Common Stock and the relationship
between movements of such common stock and movements of the common stock of
comparable companies; (iii) the implied value of the consideration to be paid by
Regency in the Merger; (iv) the net operating loss carryforwards of Care;
(v) the relative contributions of Regency and Care to selected pro forma
financial data of the combined company; and (vi) the pro forma ownership of the
combined company.
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Pursuant to the terms of Smith Barney Shearson's engagement, Regency has
agreed to pay Smith Barney Shearson for its services in connection with the
Merger an aggregate financial advisory fee of $400,000, payable upon the
consummation of the Merger. Regency also has agreed to reimburse Smith Barney
Shearson for travel and other out-of-pocket expenses incurred by Smith Barney
Shearson in performing its services, including the reasonable fees and expenses
of its legal counsel, and to indemnify Smith Barney Shearson and related persons
against certain liabilities, including liabilities under the federal securities
laws, arising out of Smith Barney Shearson's engagement.
Smith Barney Shearson has advised Regency that, in the ordinary course of
business, it may actively trade the equity and debt securities of Regency and
Care for its own account or for the account of its customers and, accordingly,
may at any time hold a long or short position in such securities.
Smith Barney Shearson is a nationally recognized investment banking firm
and was selected by Regency based on Smith Barney Shearson's experience and
expertise. Smith Barney Shearson regularly engages in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive bids, secondary distributions of listed
and unlisted securities, private placements and valuations for estate, corporate
and other purposes.
CARE
Care, in November 1993, retained Merrill Lynch to render certain financial
advisory services in connection with the Merger. Care selected Merrill Lynch
because of Merrill Lynch's qualifications, expertise and reputation,
particularly with regard to business combinations in the health care field.
Merrill Lynch had provided investment banking and financial advisory services to
Care prior to and during a portion of the time it was in Chapter 11, although
such prior services played no part in Merrill Lynch's selection as Care's
financial advisor with regard to the Merger.
Merrill Lynch has rendered to the Board of Directors its written opinion
dated March 3, 1994, that, based upon and subject to the various considerations
set forth in the opinion, as of March 3, 1994, the Exchange Ratio was fair to
Care's stockholders from a financial point of view. Merrill Lynch has also
rendered to the Board of Directors its written opinion dated as of the date of
this Proxy Statement/Prospectus, that, based upon and subject to the various
considerations set forth in that opinion, as of the date of this Proxy
Statement/Prospectus, the Exchange Ratio was fair to Care's stockholders from a
financial point of view. No limitations were imposed by the Care Board of
Directors upon Merrill Lynch with respect to the investigations made or
procedures followed by Merrill Lynch in rendering its opinion, although Merrill
Lynch's engagement as financial advisor was limited to its analysis and advice
concerning the Exchange Ratio.
THE FULL TEXT OF THE WRITTEN OPINION OF MERRILL LYNCH DATED MARCH 3, 1994,
WHICH INCLUDES THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND CERTAIN LIMITATIONS
ON SCOPE OF ACTIVITIES, IS ATTACHED AS ANNEX E TO THIS PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. CARE STOCKHOLDERS
ARE URGED TO READ THIS OPINION CAREFULLY IN ITS ENTIRETY. MERRILL LYNCH'S
OPINION IS DIRECTED ONLY TO THE FAIRNESS OF THE EXCHANGE RATIO FROM A FINANCIAL
POINT OF VIEW AND HAS BEEN PROVIDED SOLELY FOR THE USE OF THE CARE BOARD OF
DIRECTORS IN ITS EVALUATION OF THE MERGER, DOES NOT ADDRESS ANY OTHER ASPECT OF
THE MERGER OR RELATED TRANSACTIONS, AND DOES NOT CONSTITUTE A RECOMMENDATION TO
ANY CARE STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE CARE SPECIAL
MEETING. THE SUMMARY OF THE OPINION OF MERRILL LYNCH SET FORTH IN THIS PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF SUCH OPINION.
In arriving at its opinion, Merrill Lynch, among other things: (1) reviewed
Care's Annual Reports, Forms 10-K and related financial information for the two
fiscal years ended December 31, 1991 and December 31, 1992, respectively, and
Care's Forms 10-Q and the related unaudited financial information for the
quarterly periods ending September 30, 1992 and September 30, 1993;
(ii) reviewed Regency's Annual Report, Form 10-K and related financial
information for the fiscal year ended June 30, 1993 and Regency's Forms 10-Q and
the related unaudited financial information for the quarterly periods ending
December 31, 1992 and December 31, 1993; (iii) reviewed certain information,
including financial forecasts relating to the business, earnings, cash flow,
assets and prospects of Care and Regency, furnished by Care and Regency;
(iv) conducted discussions with members of senior management of Care and Regency
concerning their
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respective businesses and prospects; (v) reviewed the historical market prices
and trading activity for the Care Common Stock and the Regency Common Stock and
compared them with that of certain publicly traded companies which were deemed
to be reasonably similar to Care and Regency, respectively; (vi) compared the
results of operations of Care and Regency with those of certain companies which
were deemed to be reasonably similar to Care and Regency, respectively;
(vii) compared the proposed financial terms of the transactions contemplated by
the Plan of Merger with the financial terms of certain other mergers and
acquisitions which were deemed to be relevant; (viii) reviewed a draft of the
Plan of Merger dated December 19, 1993; and (ix) reviewed such other financial
studies and analyses and performed such other investigations and took into
account such other matters as were deemed necessary, including an assessment of
general economic, market and monetary conditions.
In preparing its opinion, Merrill Lynch relied on the accuracy and
completeness of all information supplied or otherwise made available from public
sources or by Care or Regency, including the financial information concerning
Care and Regency, and the adjustments and outcomes thereto prepared by Care and
Regency. Merrill Lynch has not independently verified such information or
undertaken an independent appraisal or physical inspection of the assets of Care
or Regency. With respect to the confidential financial forecasts furnished by
Care and Regency, Merrill Lynch has assumed that they have been reasonably
prepared and reflect the best currently available estimates and judgment of
Care's or Regency's management as to the expected future financial performance
including the outcomes projected by Care and Regency of legal, regulatory, tax,
operating and other contingencies and synergies of Care or Regency, as the case
may be.
Merrill Lynch also assumed that the Merger will be treated as a
pooling-of-interests in accordance with generally accepted accounting principles
and as a tax-free reorganization for federal income tax purposes. Merrill
Lynch's opinion relates to the relative values of Care and Regency. Merrill
Lynch did not express any opinion as to what the value of the Regency Common
Stock actually will be when issued to Care stockholders pursuant to the Merger
or the price at which the Regency Common Stock will trade subsequent to the
Merger.
Care did not ask Merrill Lynch to analyze, and Merrill Lynch's opinion does
not present a discussion of, the relative merits of the Merger as compared to
any other business plan or opportunity that might be presented to Care or the
effect of any other arrangement in which Care might engage, and Merrill Lynch
was not authorized to solicit, and did not solicit, any third-party indications
of interest for the acquisition of all or any part of Care. In addition,
although Merrill Lynch evaluated the financial terms of the Merger, Merrill
Lynch did not participate in any respect in the negotiation or structuring of
the Merger and was not asked to and did not recommend the specific consideration
to be paid by Regency in the Merger.
The following is a brief summary of the report presented by Merrill Lynch
to the Care Board of Directors on December 17, 1993 and on December 20, 1993
(collectively the "Merrill Report").
Comparative Stock Price Analysis. As part of its analysis, Merrill Lynch
reviewed the recent stock market performance of Care and compared it to the
stock market performance of 16 other companies, including Regency, which operate
long-term care facilities. These other companies consist of Arbor Health Care
Company, Beverly Enterprises, Inc., Genesis Health Ventures, Inc., GranCare,
Inc., Health Care & Retirement Corporation, The Hillhaven Corporation, Horizon
Healthcare Corporation, Integrated Health Services, Inc., Living Centers of
America, Inc., Manor Care, Inc., Mariner Health Group, Inc., Regency, Summit
Care Corporation, Sun Healthcare Group, Inc., The Mediplex Group Inc., and The
Multicare Companies, Inc. (collectively the "Industry Comparables"). Merrill
Lynch compared market values as, among other things, multiples of publicly
reported last 12 months ("LTM") net income, current year estimated earnings per
share, fiscal 1994 estimated earnings per share, publicly reported LTM cash
flow, latest fiscal quarter's common equity per share, and compared market
capitalization as multiples, among other things, of publicly reported LTM
earnings before interest and taxes ("EBIT"), publicly reported LTM earnings
before interest, taxes, depreciation and amortization ("EBITDA"), publicly
reported LTM EBITDAR and publicly reported LTM sales. Merrill Lynch also
analyzed the estimated five year earnings per share growth rate of the Industry
Comparables. In connection with the issuance of their opinion in December, 1993,
Merrill Lynch determined that these multiples of market value (i) LTM net income
ranged from 10.7x
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to 22.9x (with a mean of 17.5x and a median of 18.4x); (ii) current year's
estimated earnings per share ranged from 14.0x to 20.5x (with a mean of 17.3x
and a median of 18.2x); (iii) estimated fiscal year 1994 estimated earnings per
share ranged from 11.3x to 19.5x (with a mean of 14.9x and a median of 15.0x);
(iv) LTM cash flow ranged from 8.7x to 18.5x (with a mean of 11.7x and a median
of 11.4x); (v) latest fiscal quarter's common equity ranged from 1.66x to 2.85x
(with a mean of 2.25x and a median of 2.19x); and market capitalization to (vi)
LTM EBIT ranged from 8.9x to 15.6x (with a mean of 12.5x and a median of 12.3x);
(vii) LTM EBITDA ranged from 7.2x to 13.7x (with a mean of 9.6x and a median of
9.5x); (viii) LTM EBITDAR ranged from 4.9x to 9.2x (with a mean of 7.0x and a
median of 7.1x); (ix) LTM sales ranged from 0.64x to 1.64x (with a mean of 1.15x
and a median of 1.19x); and (x) estimated five-year earnings per share growth
rate ranged from 15% to 30% (with a mean and median of 20%).
Merrill Lynch then calculated aggregate and per share equity values for
Care by applying Care's actual and certain forecasted financial results to the
multiples derived from its analysis of the Industry Comparables described above.
Merrill Lynch calculated per share imputed equity values of Care ranging from
$2.68 (based on market capitalization as a multiple of LTM EBITDAR) to $16.13
(based on market value as a multiple of LTM cash flow). The mean imputed equity
value of Care ranged from $4.14 (based on market value to latest fiscal
quarter's common equity) to $15.09 (based on market capitalization to LTM
sales).
Selected Comparable Acquisitions. Merrill Lynch, utilizing publicly
available information, analyzed the purchase price and imputed transaction
multiples and values on the following selected merger and acquisition
transactions (the "Acquisition Comparables") each of which was completed or
reported within the last seven months of 1993: Integrated Health Services,
Inc./Central Park Lodges; Genesis Health Ventures, Inc./Meridian Healthcare
Group; Horizon Healthcare Corporation/Greenery Rehabilitation Group, Inc.; Sun
Healthcare Group, Inc./Honorcare Companies; and Living Centers of America,
Inc./Vari-Care, Inc. Merrill Lynch compared the offer value as a multiple of
publicly available LTM net income per share, publicly available LTM cash flow
per share and latest fiscal quarter's common equity per share, and compared the
transaction value as multiples of LTM EBITDAR, LTM EBITDA, LTM EBIT and LTM
sales. The multiples of LTM net income, LTM cash flow and latest fiscal
quarter's common equity were between the following ranges: (i) LTM net income
ranged from 13.0x to 16.8x (with a mean of 15.4x and a median of 16.2x); (ii)
LTM cash flow ranged from 8.6x to 11.4x (with a mean of 9.6x and a median of
8.7x); and (iii) latest fiscal quarter's common equity ranged from 1.23x to
3.34x (with a mean and a median of 2.28x). The range of transaction values as
multiples of EBITDAR, EBITDA, EBIT and sales respectively were: (a) EBITDAR:
4.4x to 9.6x (with a mean of 6.6x and a median of 6.3x); (b) EBITDA: 8.2x to
11.7x (with a mean and a median of 9.9x); EBIT: 10.8x to 15.8x (with a mean of
13.1x and a median of 13.0x); and (d) sales: 0.48x to 1.57x (with a mean of
1.04x and a median of 1.07x).
Merrill Lynch calculated aggregate and per share equity values for Care by
applying Care's actual and certain forecasted financial results to the multiples
derived from its analysis of the Acquisition Comparables described above.
Merrill Lynch calculated per share imputed equity values of Care ranging from
$2.26 (based on offer value as a multiple of latest fiscal quarter's common
equity) to $21.31 (based on transaction value as a multiple of LTM sales). The
mean imputed equity value of Care ranged from $4.20 (based on offer value to
latest fiscal quarter's common equity) to $13.43 (based on transaction value as
a multiple of LTM sales).
No company, transaction or business used by Merrill Lynch in the comparable
company and selected merger and acquisition transactions analyses as a
comparison should be viewed as nearly identical to Regency or Care. Accordingly,
an analysis of the results of the foregoing is not entirely mathematical;
rather, it involves complex considerations and judgments concerning differences
in financial and operating characteristics and other factors that could affect
the acquisition or public trading value of the comparable companies or the
business segment or company to which they are being compared.
Discounted Cash Flow Analysis. Merrill Lynch performed discounted cash flow
analyses of the projected free cash flow of Care and Regency for the fiscal year
ending December 31, 1993 and for the next five fiscal years, assuming, among
other things, discount rates of 14.0%, 15.0%, 16.0%, 17.0% and 18.0%, and
terminal values equal to multiples of 1998 EBITDAR of 5.0x, 6.0x and 7.0x.
Utilizing these assumptions,
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<PAGE> 46
Merrill Lynch arrived at estimated ranges of values per share of Care Common
Stock of between approximately $5.43 to $12.36 and of Regency Common Stock of
$7.96 to $15.69, respectively.
Imputed Values Based on Contribution. Merrill Lynch also calculated certain
imputed values for Care Common Stock based on certain relative contributions of
each of Care and Regency to the combined company for the 12 months ending
December 1993 and for the next five calendar years, in the areas of net sales,
net sales growth, EBITDA, EBITDA margin, EBIT, EBIT margin, pretax income, net
income and capital expenditures. The imputed values per share of Care Common
Stock assuming various percentages of the combined company being allocated to
Care's stockholders of 50%, 55%, 60%, 65% and 70%, taking into account various
of these contribution measurements ranged from $6.40 per share to $9.79 per
share.
Pro Forma Analysis. In addition, Merrill Lynch analyzed certain pro forma
effects resulting from the Merger based on the Exchange Ratio, including the
effect of the consummation of the Merger on EPS of the acquisition of Care
following the Merger. In conducting its analysis, Merrill Lynch relied upon
certain assumptions and financial projections provided by the managements of
Regency and Care described above.
Pursuant to the terms of the engagement letter with Merrill Lynch, Care
paid to Merrill Lynch for its services in connection with the Merger an
aggregate fee of $500,000. Care has also agreed to reimburse Merrill Lynch for
travel and other out-of-pocket expenses incurred by Merrill Lynch in performing
its services, including the reasonable fees and expenses of its legal counsel,
and to indemnify Merrill Lynch and related persons against certain liabilities,
including liabilities under the federal securities laws arising out of Merrill
Lynch's engagement.
Merrill Lynch is an internationally-recognized investment banking firm
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions and for other purposes. Merrill Lynch has advised Care
that, in the ordinary course of business, it may actively trade the equity and
debt services of Regency and Care for its own account or for the account of its
customers and, accordingly, may at any time hold a long or short position in
such securities.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the Boards of Directors of Regency
and Care with respect to the Merger, stockholders should be aware that certain
members of each of Regency's and Care's Board of Directors and management have
certain interests in the Merger that are in addition to the interests of
stockholders of Regency and Care generally. The Board of Directors of each of
Regency and Care was aware of the interests described below and considered them,
among other factors, in approving the Merger.
Board of Directors and Officers. At the Effective Time the authorized
number of directors of the combined company will be eight, comprised of three
persons designated by Regency and five persons designated by Care. See
"MANAGEMENT OF REGENCY FOLLOWING THE MERGER -- Board of Directors of Regency."
The Plan of Merger also provides for certain officers of each of Regency and
Care to become officers of the combined company. See "MANAGEMENT OF REGENCY
FOLLOWING THE MERGER -- Executive Officers." At March 3, 1994, all of the
directors and executive officers of Regency as a group beneficially owned
1,735,558 shares of Regency Common Stock, or approximately 24.5% of the
outstanding shares of Regency Common Stock. All of the directors and executive
officers of Care as a group beneficially owned 217,390 shares of Care Common
Stock, or approximately 1.6% of the outstanding shares of Care Common Stock. All
such shares will be treated in the Merger in the same manner as the shares held
by other stockholders. See "CURRENT OWNERSHIP OF REGENCY COMMON STOCK" and
"CURRENT OWNERSHIP OF CARE COMMON STOCK"
Employment Agreements. Pursuant to the Plan of Merger, and as a condition
to the consummation of the Merger, the existing employment agreements (i)
between Regency and each of Cecil Mays, Tim J. Paulsen, T. Craig Nordstrom,
James R. Wodach and Brad L. Kerby and (ii) between Care and Richard K. Matros
and Gary L. Massimino will be terminated at the Effective Time and each of
Messrs. Mays, Paulsen, Nordstrom, Wodach, Kerby, Matros and Massimino have
entered into a new employment agreement with Regency (collectively, the "New
Employment Agreements") to be effective as of the Effective Time. The
36
<PAGE> 47
New Employment Agreements are filed as exhibits to the Registration Statement. A
summary of the material terms of each of the New Employment Agreements is set
forth in "MANAGEMENT OF REGENCY FOLLOWING THE MERGER -- Executive Compensation."
At a meeting on February 25, 1994, the Regency Board determined to pay,
subject to consummation of the Merger, to each of Messrs. Paulsen, Nordstrom and
Wodach a bonus of $100,000, $100,000 and $200,000, respectively, in recognition
of their efforts in connection with the Merger and in consideration of other
factors.
Registration Rights Agreement. Regency and Care have offered to enter into
a Registration Rights Agreement (as hereinafter defined) with certain
Stockholders of Regency and Care with respect to certain shares of Regency
Common Stock to be held by such persons after the Effective Time. See "CERTAIN
RELATED AGREEMENTS -- Registration Rights Agreement."
ANTICIPATED ACCOUNTING TREATMENT
It is a condition to the obligation of each of Regency and Care to effect
the Merger that each of them shall have received a letter, dated the Effective
Time, from Arthur Andersen & Co., in form and substance reasonably satisfactory
to Regency and Care, stating that the Merger will qualify as a
pooling-of-interests transaction under generally accepted accounting principles.
See "THE AGREEMENT AND PLAN OF MERGER -- Certain Conditions." Arthur Andersen &
Co. has advised the companies that, subject to the satisfaction of certain
requirements described below, the Merger is expected to qualify as a
pooling-of-interests transaction under generally accepted accounting principles.
The pooling-of-interests method of accounting is intended to present as a single
interest two or more common stockholder interests that were previously
independent. The pooling-of-interests method of accounting assumes that the
combining companies have been merged from inception. Consequently, the
historical financial statements for periods prior to the consummation of the
combination are restated as though the companies had been combined. The restated
financial statements are adjusted to conform the accounting policies of the
separate companies.
Each of Regency and Care has agreed to use its best efforts to cause each
of its principal executive officers, directors and each other person who may be
deemed to be its "affiliate" for purposes of Rule 145 ("Rule 145") under the
Securities Act, to deliver a written agreement providing, among other things,
that such person will not transfer any shares of Regency Common Stock issued in
the Merger prior to the date that Regency publishes financial statements that
reflect 30 days of operations of the combined company. In addition, it is a
condition to the obligations of each of Regency and Care to effect the Merger
that any other person who becomes its affiliate prior to the Effective Time
execute such an agreement. Compliance with such an agreement is an element
required for the combined company to account for the Merger as a pooling-of-
interests transaction. See "THE AGREEMENT AND PLAN OF MERGER -- Certain
Covenants" and "-- Termination."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger has been structured with the intent that it be tax-free to Care
and its stockholders for federal income tax purposes. Consummation of the Merger
and related transactions is conditioned upon, among other things, the receipt by
Care of an opinion of its counsel, Sidley & Austin, substantially to the effect
that, on the basis of certain facts and representations (including an agreement
of certain of Care's stockholders not to sell shares of Regency Common Stock
issued in the Merger for a certain period of time), the Merger constitutes a
tax-free transaction for federal income tax purposes. As a tax-free transaction,
the Merger will result in the following general federal income tax consequences:
1. No gain or loss will be recognized by holders of Care Common Stock
who exchange their Care Common Stock for Regency Common Stock pursuant to
the Merger, except for any cash received by Care stockholders in lieu of
fractional shares of Regency Common Stock.
2. The aggregate tax basis of Regency Common Stock received in the
Merger will equal the aggregate tax basis of Care Common Stock exchanged
therefor, decreased by the amount of any tax basis allocable to the
fractional share interest for which cash is received.
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<PAGE> 48
3. A holder of Care Common Stock who receives cash in lieu of
fractional shares of Regency Common Stock pursuant to the Merger will
recognize taxable gain or loss in an amount equal to the difference between
the amount of cash received and the portion of the adjusted tax basis of
the shares of Care Common Stock allocable to such fractional interest. Such
gain or loss will be capital gain or loss, provided that the Care Common
Stock was held as a capital asset at the time of the Merger, and will be
long-term capital gain or loss if the Care Common Stock was held for more
than one year at the time of the Merger.
4. No gain or loss will be recognized by Care as a result of the
Merger.
5. Provided that the Care Common Stock is held as a capital asset at
the Effective Time, the holding period of Regency Common Stock will include
the holding period of such Care Common Stock.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT APPLY TO PARTICULAR CATEGORIES OF HOLDERS OF CARE
COMMON STOCK OR OPTIONS SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME
TAX LAWS, SUCH AS FOREIGN HOLDERS AND HOLDERS WHOSE STOCK OR OPTIONS WERE
ACQUIRED PURSUANT TO THE EXERCISE OF STOCK OPTIONS, PURSUANT TO PARTICIPATION IN
AN EMPLOYEE STOCK PURCHASE PLAN OR OTHERWISE AS COMPENSATION. IN ADDITION, THERE
MAY BE RELEVANT FOREIGN, STATE, LOCAL OR OTHER TAX CONSEQUENCES, NONE OF WHICH
ARE DESCRIBED ABOVE. CARE STOCKHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS
TO DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE MERGER AND RELATED
TRANSACTIONS, INCLUDING THE APPLICABILITY AND EFFECT OF FOREIGN, STATE, LOCAL
AND OTHER TAX LAWS.
REGULATORY APPROVALS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), and the rules promulgated thereunder by the Federal Trade
Commission (the "FTC"), the Merger may not be consummated until notifications
have been given and certain information has been furnished to the FTC or the
Antitrust Division of the Department of Justice (the "Antitrust Division") and
specified waiting period requirements have been satisfied. Regency and Care each
filed its respective notification and report forms under the HSR Act on February
8, 1994. The initial waiting period under the HSR Act with respect to the
filings by Regency and Care will expire on March 10, 1994 unless terminated
earlier by the FTC. Randall A. Smith, the ultimate parent of the owner of Smith
Management Company and its subsidiary, Energy Management Corporation, which
together will acquire more than 10% of the voting stock of Regency having a
market value in excess of $15 million, filed a notification and report form
under the HSR Act on March 1, 1994. The initial waiting period under the HSR Act
with respect to the filing by Mr. Smith will expire March 31, 1994, unless
terminated earlier by the FTC.
Federal and state antitrust enforcement authorities frequently scrutinize
the legality under the antitrust laws of mergers such as the Merger. At any time
before or after the Effective Time, and notwithstanding that the HSR Act waiting
period has expired, any such agency could take any action under antitrust laws
that it deems necessary or desirable in the public interest. Such action could
include seeking to enjoin the consummation of the Merger or seeking divestiture
of businesses of Regency and Care acquired as a result of the Merger. Private
parties may also bring legal actions under the antitrust laws under certain
circumstances.
Based on information available to them, Regency and Care believe that the
Merger can be effected in compliance with federal and state antitrust laws.
However, there can be no assurance that a challenge to the consummation of the
Merger on antitrust grounds will not be made or that, if such a challenge were
made, Regency and Care would prevail or would not be required to accept certain
conditions in order to consummate the Merger.
NOTE HOLDERS CONSENT AND WAIVER
Care's Note Agreement dated as of December 15, 1993 (the "Note Agreement"),
pursuant to which $30,000,000 of Care's 8.10% Senior Secured Notes (the "Notes")
due December 15, 2000 were issued, provides that without consent of the holders
of the Notes, Care may not merge with or into any other corporation unless (i)
Care would be entitled to incur additional Debt for Borrowed Money (as defined
in the Note Agreement), (ii) there then exists no Default or Event of Default
(as defined in the Note Agreement) and (iii) the Notes would
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<PAGE> 49
have a credit rating determined by the National Association of Insurance
Commissioners and Standard & Poor's Corporation equivalent to, or better than,
the ratings assigned to the Notes in December 1993. While it is not presently
anticipated that consent to the Merger of the holders of the Notes will in fact
be required, there can be no assurance that Care will be able to satisfy each of
the foregoing conditions at the Effective Time. The Indenture of Trust dated as
of December 15, 1993 required by the Note Agreement provides in part that upon
the occurrence of a change in control of Care as a result of certain
transactions, including the transactions contemplated by the Plan of Merger,
each holder of a Note may declare all Notes held by such holder immediately due
and payable in full together with the applicable premium. Care has entered into
an agreement with the holders of the Notes whereby such holders have agreed to
(a) give consent if in fact required, (b) waive various rights to require Care
to prepay the Notes because of a change of control and (c) provide for
modifications to certain of the restrictions included in the Note Agreement, if
Regency (I) assumes all of Care's obligations under the Note Agreement, (II)
agrees that the various restrictions contained in the Note Agreement will apply
to Regency and its subsidiaries and (III) certain of the financial ratios
contained in the Note Agreement are tightened. If Regency undertakes to be bound
by the Note Agreement as so modified, its ability to pay dividends or make other
restricted payments, incur additional indebtedness, make investments, grant
liens to third parties and sell assets otherwise than in the ordinary course of
business will be further limited. For a further description of the Notes, see
"SELECTED INFORMATION REGARDING CARE -- Recent Financing."
FEDERAL SECURITIES LAW CONSEQUENCES
All shares of Regency Common Stock received by holders of Care Common Stock
in the Merger will be freely transferable, except that shares of Regency Common
Stock received by persons who are deemed to be "affiliates" (as such term is
defined under the Securities Act) of Regency and Care prior to the date of the
Special Meetings may be resold by them only in transactions permitted by the
resale provisions of Rule 145 (permitting limited sales under certain
circumstances) or as otherwise permitted under the Securities Act. Persons who
may be deemed to be "affiliates" of Regency or Care generally include
individuals or entities that control, are controlled by, or are under common
control with, such party and may include certain officers and directors of such
party as well as principal stockholders of such party. Upon consummation of the
Merger, based on the number of shares of Regency Common Stock and Care Common
Stock outstanding on March 3, 1994, the persons who may have been deemed to be
affiliates of Regency are expected to own an aggregate of 1,474,314 shares, or
approximately 9.1%, of the outstanding shares of Regency Common Stock and the
persons who may have been deemed to be affiliates of Care are expected to own an
aggregate of 4,513,936 shares, or approximately 27.8%, of the outstanding shares
of Regency Common Stock. Each of Regency and Care has agreed to use its best
efforts to cause each of its principal executive officers, directors and each
other person who may be deemed to be an "affiliate" of it for purposes of Rule
145, to deliver a written agreement to the effect that such person will not
offer or sell or otherwise dispose of any of the shares of Regency Common Stock
issued to such person in or pursuant to the Merger in violation of the
Securities Act or the rules and regulations promulgated by the Commission
thereunder. In addition, it is a condition to the obligations of each of Regency
and Care to effect the Merger that any other person who becomes its affiliate
prior to the Effective Time execute such an agreement. See "THE AGREEMENT AND
PLAN OF MERGER -- Certain Conditions" and "-- Termination."
KAUFMAN ENGAGEMENT
Pursuant to the terms of Kaufman's engagement, Regency has agreed to pay
Kaufman for its services in connection with the Merger an aggregate fee of
$400,000, payable upon the consummation of the Merger. Regency also has agreed
to reimburse Kaufman for travel and other out-of-pocket expenses incurred by
Kaufman in performing its services, including the reasonable fees and expenses
of its legal counsel, and to indemnify Kaufman and related persons against
certain liabilities, including liabilities under the federal securities laws,
arising out of Kaufman's engagement.
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<PAGE> 50
NEW YORK STOCK EXCHANGE LISTING
Regency has commenced the process for listing the Regency Common Stock on
the NYSE. After the Effective Time, it is anticipated that the Regency Common
Stock will be traded on the NYSE.
NO APPRAISAL RIGHTS
Pursuant to the DGCL, holders of Care Common Stock will not be entitled to
appraisal rights in connection with the Merger. The DGCL does not provide for
appraisal rights with respect to shares of any class or series of stock which
(i) at the record date fixed to determine the stockholders entitled to receive
notice of and vote at the meeting of stockholders to act upon as agreement of
merger, are listed on a national securities exchange or designated as a national
market system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. (such as shares of Care Common Stock)
and (ii) the holders thereof are required to accept for such stock in a merger
only (x) shares of stock of a corporation that are listed on a national
securities exchange and (y) cash in lieu of fractional shares. Regency Common
Stock was at the Record Date listed on the AMEX, and it is anticipated that at
the Effective Time Regency Common Stock will be listed on the NYSE. Application
has been made to list the shares of Regency Common Stock to be issued in the
Merger on the NYSE, and it is a condition to the obligation of Care to effect
the Merger that such shares be listed on the AMEX, or such other exchange as the
shares of Regency Common Stock may then be listed, subject to official notice of
issuance. See "-- New York Stock Exchange Listing."
DEREGISTRATION OF CARE COMMON STOCK AFTER THE MERGER
If the Merger is consummated, shares of Care Common Stock will cease to be
quoted on NASDAQ NMS, public trading of such shares shall cease, and such shares
will be deregistered under the Securities and Exchange Act of 1934, as amended
(the "Exchange Act").
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<PAGE> 51
MANAGEMENT OF REGENCY FOLLOWING THE MERGER
BOARD OF DIRECTORS OF REGENCY
At the Effective Time, the authorized number of directors of Regency will
be eight, comprised of three persons designated by Regency and five persons
designated by Care. Gregory S. Anderson, Tony Astorga and Cecil Mays were so
designated by Regency (the "Regency Designees") and John W. Adams, Robert G.
Coo, Richard K. Matros, John F. Nickoll and Arthur J. Pasmas were so designated
by Care (the "Care Designees"). If, prior to the Effective Time, any of such
persons shall decline or be unable to serve as a Regency director, Regency (if
such person was a Regency Designee) or Care (if such person was a Care Designee)
shall designate another person to serve in such person's stead, which person
shall be reasonably acceptable to the party not making such designation. Until
at least the close of the annual meeting of stockholders of Regency occurring in
1997, in the event of a vacancy, a majority of the Regency Designees (if such
person was a Regency Designee) or a majority of the Care Designees (if such
person was a Care Designee) shall designate another person to serve in such
person's stead, which person shall be reasonably acceptable to the party not
making such designation.
The Plan of Merger provides that the Board of Directors of Regency will be
divided into three classes, as provided in the Restated Regency Certificate. The
Restated Regency Certificate provides that initially each of Class I and Class
II will consist of three directors and Class III will consist of two directors.
Thereafter, upon a change in the number of directors, each class shall consist,
as nearly as possible, of one-third of the total number of directors
constituting the entire Board of Directors. Initially, Class I directors
(Messrs. Astorga, Coo and Pasmas) have been elected for a one-year term, Class
II directors (Messrs. Anderson, Matros and Nickoll) have been elected for a
two-year term and Class III directors (Messrs. Adams and Mays) have been elected
for a three-year term. Thereafter, successors to directors whose terms expire
will be elected for three-year terms.
Certain information with respect to each designee to Regency's Board of
Directors is set forth below:
<TABLE>
<CAPTION>
NAME CURRENT POSITION WITH REGENCY OR CARE AGE
- ------------------ --------------------------------------------- ---
<S> <C> <C>
Cecil Mays Chairman of the Board of Directors, Chief 61
Executive Officer and President of Regency
Richard K. Matros President, Chief Executive Officer and Chief 40
Operating Officer and a Director of Care
John W. Adams Chairman of the Board of Directors of Care 50
Gregory S. Anderson Director of Regency 37
Tony Astorga Director of Regency 47
Robert G. Coo Director of Care 52
John F. Nickoll Director of Care 59
Arthur J. Pasmas Director of Care 59
</TABLE>
Mr. Mays is Chairman of the Board of Directors, Chief Executive Officer and
President of Regency. Mr. Mays was a co-founder of Regency and has served in
each of these capacities since December 1986. Mr. Mays is married to Ms. Carol
Mays, Senior Vice President of Regency.
Mr. Matros has been a director of Care since November 1991, President and
Chief Operating Officer of Care since September 1991 and Chief Executive Officer
of Care since January 1994. Prior to September 1991, Mr. Matros was Executive
Vice President, Operations of Care from March 1988. Before joining Care, Mr.
Matros served as Vice President of Operations, from 1985 to 1987, and Regional
Administrator, from 1983 to 1985, for Beverly Enterprises, the nation's largest
long-term care company. He has over 17 years of experience in the long-term care
industry and is President-elect of the California Association of Health
Facilities.
Mr. Adams has been Chairman of the Board of Directors of Care since May
1990 and was Chief Executive Officer of Care from September 1991 through
December 1993. He has been President of Smith Management Company, a New
York-based investment firm since January 1984. Mr. Adams served as Co-Chairman
of the Official Creditors' Committee during Care's reorganization proceedings
from March 1988 to
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<PAGE> 52
December 1990. From 1975 to 1983, Mr. Adams was a partner with the law firm of
Dillon, Bitar and Luther in New Jersey.
Mr. Anderson is a member of the Board of Directors of Regency and has
served as a director since December 1986. Mr. Anderson is a Vice President of
Sundance Capital Corporation, and since February 1985 has been Vice President
and General Manager of El Dorado Investment Company. Both entities are venture
capital corporations and stockholders of Regency.
Mr. Astorga is a member of the Board of Directors of Regency and has served
as a director since February 1992. Since January 1988, Mr. Astorga has served as
Senior Vice President, Chief Financial Officer, and Treasurer of Blue Cross &
Blue Shield of Arizona, Inc. From October 1975 to December 1987, Mr. Astorga was
a partner in Astorga Maurseth Company, an auditing and management consulting
firm.
Mr. Coo has been a director of Care since January 1991. Also, since January
1991, Mr. Coo has been Vice President, Chief Financial Officer and Secretary of
Pengo Industries, Inc., the parent company of two manufacturing
companies -- Pengo Corporation and GOEX, Inc. From 1987 to 1990, Mr. Coo was
Vice President, Finance and Secretary of Renewable Resource Systems, Inc., a
privately owned, diversified venture capital company. Mr. Coo has been a
director of First National Bank, whose headquarters are located in San Diego,
California, since October 1993. Mr. Coo is the brother-in-law of Mr. Adams.
Mr. Nickoll has been a director of Care since November 1991. Since 1970, he
has been Vice Chairman, Co-Chief Executive Officer, Chief Operating Officer and
President of The Foothill Group, Inc. and Chairman and Chief Executive Officer
of Foothill Capital Corporation, a subsidiary of The Foothill Group. Mr. Nickoll
is also a director of Carson Pirie Scott & Co., Inc.; a director of CIM-High
Yield Securities, Inc., a closed-end investment company; and a director of
American Health Care Management, Inc., an owner and manager of acute care
hospitals.
Mr. Pasmas has been a director of Care since December 1993, when he was
elected to fill the vacancy created by the death of a Board member. Since 1987,
Mr. Pasmas has served as a Vice President of Smith Management Company. Prior
thereto, he was founder, president and chief executive officer of Energy
Management Corporation (acquired by Smith Management Company in 1987). He
presently serves as chairman of the board of Pengo Industries, Inc. and of GOEX
International, Inc., and is a director of Liberty National Bank, Austin, Texas.
At the Effective Time, the Board of Directors of Care shall be comprised of
those persons designated as directors of Regency at such time.
COMMITTEES OF THE BOARD OF DIRECTORS
As provided in the Plan of Merger, from the Effective Time until at least
the close of the annual meeting of stockholders of Regency in 1997, there will
be an Executive Committee of the Board of Directors of Regency, which will
consist of two directors designated by Regency (or, after the Effective Time, by
a majority of the Regency Designees or their successors) and one director
designated by Care (or, after the Effective Time, by a majority of the Care
Designees or their successors). The initial members of the Executive Committee
will be Messrs. Mays, Adams and Anderson, provided that they continue to serve
as members of Regency's Board of Directors. Mr. Mays will serve as Chair of the
Executive Committee for as long as he serves on such committee.
The Plan of Merger also provides that, from the Effective Time until at
least the close of the annual meeting of stockholders of Regency in 1997, there
will be a Human Resources Committee of the Board of Directors of Regency, which
will consist of one director designated by Regency prior to the Effective Time
(or, after the Effective Time, by a majority of the Regency Designees on the
Board of Directors of Regency or their successors), one director designated by
Care prior to the Effective Time (or, after the Effective Time, by a majority of
the Care Designees or their successors) and one director designated by a
majority of the Regency Designees and approved by the Board of Directors after
the Effective Time.
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<PAGE> 53
The Plan of Merger further provides that, from the Effective Time until at
least the close of the annual meeting of stockholders of Regency in 1997, there
will be an Audit Committee of the Board of Directors of Regency, which will
consist of one director designated by Regency prior to the Effective Time (or,
after the Effective Time, by a majority of the Regency Designees or their
successors), one director designated by Care prior to the Effective Time (or,
after the Effective Time, by a majority of the Care Designees or their
successors) and one director designated by a majority of the Care Designees on
the Board of Directors of Regency and approved by the Board of Directors after
the Effective Time.
COMPENSATION OF THE BOARD OF DIRECTORS
Each non-employee director of Regency will receive $10,000 per year for
serving on Regency's Board and $1,250 for each Board and $1,000 for each
committee meeting attended. In addition, pursuant to the Regency Health
Services, Inc. Director Stock Plan, each non-employee director of Regency will
receive 2,000 shares of restricted stock of Regency and options to purchase
6,000 shares of Regency Common Stock per year.
EXECUTIVE OFFICERS
Certain information with respect to each person set forth in the Plan of
Merger as executive officers of Regency:
<TABLE>
<CAPTION>
POSITION WITH REGENCY AS OF
NAME THE EFFECTIVE TIME AGE
- -------------------- --------------------------------------------- ------
<S> <C> <C>
Cecil Mays Chairman of the Board of Directors and Chief 61
Executive Officer
Richard K. Matros President and Chief Operating Officer 40
Gary L. Massimino Executive Vice President and Chief Financial 57
Officer
Tim J. Paulsen Senior Vice President and Director of 44
Operations
T. Craig Nordstrom Senior Vice President and Director of 44
Corporate Development
James R. Wodach Senior Vice President Finance 32
Brad L. Kerby Senior Vice President, General Counsel and 33
Secretary
</TABLE>
Each of the officers identified above will hold office from the Effective
Time in accordance with the Restated Regency Certificate and the Restated
Regency Bylaws and subject to the terms of his respective New Employment
Agreement.
After the Effective Time, the officers of Care will be the persons
designated above, each to hold the same office that he will hold in Regency.
Mr. Mays will be Chairman of the Board of Directors and Chief Executive
Officer of Regency after the Effective Time. He is currently the Chairman of the
Board of Directors, Chief Executive Officer and President of Regency. Mr. Mays
was a co-founder of Regency and has served in each of these capacities since
December 1986. Mr. Mays is married to Ms. Carol Mays, Senior Vice President of
Regency.
Mr. Matros will be the President and Chief Executive Officer of Regency
after the Effective Time. He has been a director of Care since November 1991,
President and Chief Operating Officer of Care since September 1991 and Chief
Executive Officer of Care since January 1994. Prior to September 1991, Mr.
Matros was Executive Vice President, Operations of Care from March 1988. Before
joining Care, Mr. Matros served as Vice President of Operations, from 1985 to
1987, and Regional Administrator, from 1983 to 1985, for Beverly Enterprises,
the nation's largest long-term care company. He has over 17 years of experience
in the long-term care industry and is President-elect of the California
Association of Health Facilities.
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<PAGE> 54
Mr. Massimino will be Executive Vice President and Chief Financial Officer
of Regency after the Effective Time. He was appointed Chief Financial Officer of
Care in March 1990 and Executive Vice President in September 1991. For the
previous eight years, Mr. Massimino was a financial consultant to companies in
the health care, real estate and entertainment industries in various specialized
financial projects. He has also served as Chief Financial Officer, Treasurer and
a Director of Flagg Industries, Inc., a major California-based operator of
nursing homes and real estate ventures.
Mr. Paulsen will be Senior Vice President and Director of Operations of
Regency after the Effective Time. Mr. Paulsen has served as Chief Operating
Officer of Regency since December 1986. From December 1986 to January 1991, Mr.
Paulsen served as Vice President of Regency and has served as Senior Vice
President since January 1991.
Mr. Nordstrom will be Executive Vice President and Director of Corporate
Development of Regency after the Effective Time. Mr. Nordstrom has served as
Senior Vice President of Regency since January 1991. From December 1986 to
January 1991, Mr. Nordstrom served as Vice President of Regency.
Mr. Wodach will be Senior Vice President Finance of Regency after the
Effective Time. Mr. Wodach has served as Senior Vice President and Chief
Financial Officer of Regency since April 1993. Mr. Wodach served as a Vice
President Finance of Regency from July 1992 to April 1993 and as Controller from
November 1989 to June 1992. He has served as a Vice President since November
1990. From January 1985 to November 1989, Mr. Wodach, a certified public
accountant, served in various capacities, most recently as a healthcare audit
manager, for Laventhol & Horwath, a national CPA auditing and consulting firm.
Mr. Kerby will be Senior Vice President, General Counsel and Secretary of
Regency after the Effective Time. Mr. Kerby has served in this capacity since
January 1994. From 1988 to 1994, Mr. Kerby was an associate at the law firm of
Snell & Wilmer.
EXECUTIVE COMPENSATION
SUMMARY OF COMPENSATION
The following Summary Compensation Table sets forth information concerning
compensation earned in fiscal years 1992 and 1993 by Cecil Mays, who presently
is and will continue to be Regency's Chief Executive Officer as of the Effective
Time, and by the four other most highly compensated persons who will serve as
executive officers of Regency as of the Effective Time (the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
NAME AND PRINCIPAL POSITION ----------------------------------- AWARDS
WITH REGENCY AS OF EFFECTIVE TIME YEAR SALARY($) BONUS($) OPTIONS(#)
- ---------------------------------------- ---- -------- --------- ------------
<S> <C> <C> <C> <C>
Cecil Mays 1993(1) $210,417(2) $ 75,000(2) 6,754
Chairman of the Board of Directors 1992(1) $164,233(2) $ 37,461(2) 30,431
and Chief Executive Officer
Richard K. Matros 1993(3) $250,000(2) $ 125,000(2) 17,750(6)
President and Chief 1992(3) $225,000 $ 112,500 35,550(6)
Operating Officer
Gary L. Massimino 1993(3) $210,000(2) $ 84,000(2) 12,780(6)
Executive Vice President 1992(3) $190,000 $ 65,000 24,850(6)
and Chief Financial Officer
Tim J. Paulsen 1993(1) $123,333(2) $ 43,500(2) 7,840
Senior Vice President and Director 1992(1) $104,120 $ 22,983(4)(5) 0
of Operations
T. Craig Nordstrom 1993(1) $105,208(2) $ 36,000(2) 7,840
Senior Vice President and Director of 1992(1) $ 90,416 $ 21,275(4)(5) 0
Corporate Development
</TABLE>
- ---------------
(1) Reflects Regency's fiscal year ending June 30.
(2) Payment made pursuant to employment agreement.
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<PAGE> 55
(3) Reflects Care's fiscal year ending December 31.
(4) The amount disclosed includes bonus payments made pursuant to Regency's
incentive plan.
(5) Officer was given an additional $10,000 discretionary bonus.
(6) As regards Messrs. Matros and Massimino, the figures in this column
represent the number of options to purchase Care Common Stock, converted to
shares of Regency Common Stock based on the Exchange Ratio of 0.71.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table provides information on option grants in fiscal 1993 to
the Named Executive Officers. No stock appreciation rights ("SARs") were awarded
in fiscal 1993.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
----------------------------
% OF TOTAL
OPTIONS
GRANTED TO
EMPLOYEES IN GRANT DATE
OPTIONS FISCAL EXERCISE PRICE EXPIRATION PRESENT
NAME GRANTED(#)(2) YEAR(3) ($/SHARE)(4) DATE VALUE($)(5)
- ----------------------------- ------------- ------------ -------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Cecil Mays 6,754 7.6% $9.375 December 2002 $43,912
Richard K. Matros 17,750 28.4% $ 4.05 February 1998 31,666
Gary L. Massimino 12,780 20.4% $ 4.05 February 1998 22,800
Tim J. Paulsen 7,840 8.9% $9.375 December 2002 50,973
T. Craig Nordstrom 7,840 8.9% $9.375 December 2002 50,973
</TABLE>
- ---------------
(1) Under the Regency Health Services, Inc. Long-Term Incentive Plan, Messrs.
Mays, Paulsen and Nordstrom were granted options to purchase shares of
Regency Common Stock on December 7, 1992, which vest annually on a pro rata
basis on each of December 7, 1993, 1994, 1995 and 1996. Under the Care Stock
Option Plan, Messrs. Matros and Massimino were granted options to purchase
shares of Care Common Stock on February 26, 1993, which vest annually on a
pro rata basis on each of February 26, 1994, 1995, 1996 and 1997.
(2) As regards Messrs. Matros and Massimino, the figures in this column
represent the number of shares of Care Common Stock, converted to shares of
Regency Common Stock based on the Exchange Ratio of 0.71.
(3) As regards Messrs. Matros and Massimino, the figures in this column
represent the percentage of total options to purchase shares of Care Common
Stock granted by Care to its employees in the fiscal year ended December 31,
1993.
(4) As regards Messrs. Matros and Massimino, the figures in this column
represent the exercise price per share of the options to purchase Care
Common Stock on an as converted basis described in footnote (2) above,
divided by the Exchange Ratio of 0.71.
(5) As suggested by the Commission's rules on executive compensation disclosure,
Regency used the Black-Scholes model of option valuation to determine grant
date present value. Regency does not advocate or necessarily agree that the
Black-Scholes model can properly determine the value of an option. As
regards Messrs. Mays, Paulsen and Nordstrom, the present value calculation
is based on a ten year option term and assumes an interest rate of 6.8%, no
dividend yield and volatility of 47.9%. As to Messrs. Matros and Massimino,
the present value calculation is based on a five year option term and
assumes an interest rate of 5.2%, no dividend yield and volatility of 41.2%.
OPTION/SAR EXERCISES AND FISCAL YEAR END OPTION/SAR VALUES
With regard to Messrs. Mays, Paulsen and Nordstrom, the following table
provides certain information concerning the exercise of stock options in
Regency's fiscal year 1993 and shows the number of shares covered by both
exercisable and non-exercisable stock options held as of the end of Regency's
fiscal year 1993. Also
45
<PAGE> 56
shown are the values for "in-the-money" options, which represent the positive
difference between the exercise price of such options and the fiscal year-end
price of Regency Common Stock. With regard to Messrs. Matros and Massimino, the
figures below are based on the number and value of options to purchase Care
Common Stock and SARs that were exercised or held by them as of the end of
Care's fiscal year 1993. Care stock options and SARs have been converted to
options to purchase and SARs with respect to Regency Common Stock based on the
Exchange Ratio.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS/SARS AT
OPTIONS/SARS AT FISCAL YEAR
SHARES ACQUIRED END(#)(2) FISCAL YEAR END($)(3)(4)
ON EXERCISE VALUE ---------------------------- ----------------------------
NAME (#)(1) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------- ---------------- ------------ ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Cecil Mays................... -- -- 66,232 6,754 $ 256,042 $ 7,598
Richard K. Matros............ -- -- 8,875/ 44,375/ 90,781/ 444,531/
54,315 54,315 670,331 670,331
Gary L. Massimino............ -- -- 6,213/ 31,417/ 63,547/ 314,616/
31,950 31,950 394,313 394,313
Tim J. Paulsen............... 22,660 $130,306 13,140 7,840 105,909 8,820
T. Craig Nordstrom........... 10,160 40,493 25,640 7,840 206,659 8,820
</TABLE>
- ---------------
(1) Options and awards granted under the Regency Health Services, Inc. Long-Term
Incentive Plan are not transferable by the grantee, other than by will or
the laws of descent and distribution, and the rights are exercisable during
the life of the grantee only by the grantee. The Care Enterprises Share
Appreciation Rights Plan (the "SAR Plan") provides that, upon award, 25% of
the units vest on each of the first four anniversaries of the award date
and vested units must be exercised before the fifth anniversary of the
award. Upon exercise, the awardee is entitled to receive in cash or stock,
at the option of the committee administering the SAR Plan, the difference
between the base value awarded and the market value on the date units are
exercised.
(2) As regards Messrs. Matros and Massimino, the figures in this column
represent the number of shares of Care Common Stock, converted to shares of
Regency Common Stock based on the Exchange Ratio of 0.71.
(3) As regards Messrs. Mays, Paulsen and Nordstrom, Regency's fiscal year ended
June 30, 1993. The average of the high and low price of Regency Common
Stock on that day on the AMEX was $10.50. As regards Messrs. Matros and
Massimino, Care's fiscal year ended December 31, 1993. The average of the
high and low price of Regency Common Stock on that day on the AMEX was
$13.75.
(4) As regards Messrs. Matros and Massimino, the value of each option and SAR is
the difference between the exercise price of each such option granted and
the base price of each such SAR awarded (in each case divided by the
Exchange Ratio of 0.71) and $13.75, the December 31, 1993 closing price of
Regency Common Stock. The number of options and SARs have been adjusted by
multiplying such number by the Exchange Ratio of 0.71.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee (also known as the "Human Resources Committee")
of Regency's Board of Directors during the fiscal year ended June 30, 1993 was
composed of Gregory S. Anderson and Dr. Andrew E. Senyei, who are not employees
of Regency.
Mr. Anderson and Dr. Senyei are principals in certain of Regency's
stockholders and in certain holders of Regency's outstanding convertible debt
securities. Mr. Anderson is Vice President and Managing Director of El Dorado
Investment Company and Vice President of Sundance Capital Corporation. Dr.
Senyei is a general partner of Enterprise Partners.
As of the Effective Time, the Human Resources Committee will be constituted
as provided in "-- Committees of the Board of Directors."
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<PAGE> 57
EMPLOYMENT AGREEMENTS
Pursuant to the Plan of Merger, each of Messrs. Mays, Paulsen, Nordstrom,
Wodach and Kerby has agreed to terminate his existing employment agreement with
Regency and enter into a New Employment Agreement. Regency will also enter into
New Employment Agreements with Messrs. Matros and Massimino. The material terms
of the New Employment Agreements are summarized below.
Mr. Mays. Pursuant to his New Employment Agreement, Mr. Mays will be
Chairman of the Board and Chief Executive Officer of Regency and Care effective
as of the Effective Time. See "MANAGEMENT OF REGENCY FOLLOWING THE EFFECTIVE
TIME." Mr. Mays New Employment Agreement will terminate on the third anniversary
of the Effective Time, subject to annual one-year extensions unless Mr. Mays or
Regency gives notice to the contrary at least two years prior to the scheduled
expiration date so that as a result of such extension the then remaining term of
employment will be three years.
During the term of his employment, Mr. Mays will receive an annual base
salary of $400,000, which amount will be reviewed at least annually by Regency
and may be increased as determined by the Board of Directors of Regency. Mr.
Mays is also eligible to receive an annual performance bonus in an amount, in
the manner and at the time determined by the Board of Directors, which amount
will be equal to or in excess of 50% of Mr. Mays annual base salary in any year
of the term that Regency's actual aggregate pre-tax net income exceeds projected
pre-tax net income as established by the Board of Directors in its budget for
such fiscal year. During the term of his employment and consistent with the
terms of his New Employment Agreement, Mr. Mays will also (i) be eligible to
participate in all benefit plans relating to stock options, stock purchases,
pension, thrift, education or other retirement or employee benefits available to
other executive employees of Regency, (ii) receive a car allowance and (iii) be
the beneficiary of a disability insurance policy.
If Mr. Mays employment is terminated by Regency other than for Cause (as
defined in his New Employment Agreement) or by Mr. Mays for Good Reason (as
defined in his New Employment Agreement), Mr. Mays will receive (i) any portion
of his annual base salary not paid prior to the date of termination, (ii) a lump
sum equal to all base salary payable under the New Employment Agreement had Mr.
Mays continued to be employed for the remaining term plus certain bonus
payments, (iii) immediate vesting of benefits previously granted to Mr. Mays
under stock option, stock appreciation rights and other benefit plans or
agreements, (iv) certain payments pursuant to an agreement under which Mr. Mays
will provide consulting services to Regency for two years following the date of
termination and (v) continuation of all fringe benefits throughout the remaining
unexpired term of the New Employment Agreement.
Other Officers. Pursuant to the New Employment Agreement, Messrs. Matros,
Massimino, Paulsen, Nordstrom, Wodach and Kerby will be President and Chief
Operating Officer; Executive Vice President and Chief Financial Officer; Senior
Vice President and Director of Operations; Senior Vice President and Director of
Corporate Development, Senior Vice President Finance; and Senior Vice President,
General Counsel and Secretary, respectively, of Regency and Care effective as of
the Effective Time. See "MANAGEMENT OF REGENCY FOLLOWING THE EFFECTIVE TIME."
Each of the New Employment Agreements will terminate on the third anniversary of
the Effective Time subject to automatic annual one-year extensions unless such
executive or Regency gives notice to the contrary at least two years prior to
the scheduled expiration date so that as a result of such extension the then
remaining term of employment will be three years.
During the term of his employment, each of Messrs. Matros, Massimino,
Paulsen, Nordstrom, Wodach and Kerby will receive an annual base salary of
$300,000, $230,000, $175,000, $140,000, $175,000 and $150,000, respectively,
which amount will be reviewed at least annually by Regency and may be increased
as determined by the Board of Directors of Regency. Each executive is also
eligible to receive an annual performance bonus in an amount, in the manner and
at the time determined by the Board of Directors. During the term of his
employment and consistent with the terms of his New Employment Agreement, each
executive will also (i) be eligible to participate in all benefit plans relating
to stock options, stock purchases, pension, thrift, education or other
retirement or employee benefits available to other executive employees of
Regency, (ii) receive a car allowance and (iii) be the beneficiary of a
disability insurance policy.
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<PAGE> 58
If any such executive's employment is terminated by Regency other than for
Cause (as defined in his New Employment Agreement) or by such executive for Good
Reason (as defined in his New Employment Agreement), such executive will receive
(i) any portion of his annual base salary not paid prior to the date of
termination, (ii) a lump sum equal to all base salary payable under the New
Employment Agreement had such executive continued to be employed for the
remaining term plus certain bonus payments, (iii) under certain circumstances,
immediate vesting of benefits previously granted to such executive under stock
option, stock appreciation rights and other benefit plans or agreements and (iv)
continuation of all fringe benefits throughout the remaining unexpired term of
the New Employment Agreement.
At a meeting on February 25, 1994, the Regency Board determined to pay,
subject to consummation of the Merger, to each of Messrs. Paulsen, Nordstrom and
Wodach a bonus of $100,000, $100,000 and $200,000, respectively, in recognition
of their efforts in connection with the Merger and in consideration of other
factors.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Anderson, a designee of Regency to Regency's Board of Directors, is a
principal in certain of Regency's stockholders and in certain holders of
Regency's previously outstanding convertible debt securities. See "CURRENT
OWNERSHIP OF REGENCY COMMON STOCK." Mr. Anderson is Vice President and General
Manager of El Dorado Investment Company ("El Dorado") and Vice President of
Sundance Capital Corporation ("Sundance").
In February 1988, Regency entered into a 20-year lease with three five-year
option periods for its Torrance, California facility, Heritage Rehabilitation
Center (formerly Heritage Convalescent Center), which is owned by Cecil and
Carol Mays. Mr. Mays will serve as Chairman of the Board of Directors and Chief
Executive Officer of Regency and is a designee of Regency to Regency's Board of
Directors. Ms. Mays currently is a Senior Vice President of Regency. The lease
for the Torrance facility provides for monthly payments, currently $34,525,
which are adjusted annually based upon certain increases in the Revised Consumer
Price Index for Urban Wage Earners published by the U.S. Department of Labor,
Bureau of Labor Statistics ("Consumer Price Index"). Lease expense paid by
Regency for each of the years ended June 30, 1991, 1992 and 1993 for the
Torrance facility was approximately $365,000, $382,000 and $414,000,
respectively. Regency believes that the terms of this lease are as favorable to
Regency as those that could have been obtained from unaffiliated parties.
In June 1990, Regency entered into a ten year lease with four five-year
option periods for its Glendora, California facility, Glendora Rehabilitation
Center (former Adventist Convalescent Hospital), which is owned by Glendora
Hospital Partners, a California general partnership. Cecil Mays and T. Craig
Nordstrom, who will serve as Senior Vice President and Director of Corporate
Development of Regency, are partners in Glendora Hospital Partners; Jonie
Nordstrom, the wife of Mr. Nordstrom and a daughter of Mr. and Ms. Mays,
Sundance, and Greg Anderson Company, a corporation controlled by Gregory S.
Anderson, are also partners in Glendora Hospital Partners. The lease for the
Glendora facility provides for equal monthly payments for three years, after
which the monthly payment is adjusted annually based upon certain increases in
the Consumer Price Index. Lease expense paid by Regency for each of the years
ended June 30, 1991, 1992 and 1993 for the Glendora facility was $420,000.
Regency believes that the terms of this lease are as favorable to Regency as
those that could have been obtained from unaffiliated parties.
Regency's wholly owned subsidiary, RHS Management, Inc., entered into an
aircraft lease agreement with Newport Harbor Investments, Ltd., Inc. ("Newport
Harbor") for the one-year period commencing December 31, 1991, pursuant to which
Regency leased an airplane for business purposes at the rate of $125 per hour,
plus expenses for fuel, oil, and hangar fees. Newport Harbor is a corporation
wholly owned by Cecil and Carol Mays. During the fiscal year ended June 30,
1992, Regency paid approximately $56,000 to Newport Harbor for the aircraft
lease. For the period from July 1, 1992 through November 7, 1992, Regency paid
approximately $23,075 to Newport Harbor for the aircraft lease. Regency believes
that the terms of this agreement were as favorable to Regency as those that
could have been obtained from unaffiliated parties. On November 7, 1992, Regency
purchased the airplane previously leased from Newport Harbor for cash in the
amount of $159,700. Regency believes, based upon three independent appraisals of
the airplane prior to
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<PAGE> 59
Regency's purchase, that the terms of the purchase were as favorable to Regency
as those that could have been obtained from unaffiliated parties.
As of December 31, 1991, Regency issued 3,697,614 shares of its Series D
Preferred Stock in exchange for the conversion and cancellation of an aggregate
amount of $1,109,284 of its Series D Convertible Secured Subordinated Promissory
Notes ("Series D Notes"), and issued 2,036,194 shares of Regency Common Stock in
exchange for the conversion of 1,025,000 shares of its Series A Preferred Stock,
6,533,332 shares of its Series B Preferred Stock, and 3,697,614 shares of its
Series D Preferred Stock on an approximately one for 6.98 basis, and 2,222,224
shares of its Series C Preferred Stock on an approximately one for 5.24 basis.
The Series D Notes were held by, among others, El Dorado ($204,642
principal amount) and Sundance ($500,000 principal amount). The Series D Notes
were converted to Series D Preferred Stock on the basis of one share for each
$0.30 principal amount of the Series D Notes.
El Dorado, Sundance and Cecil Mays were holders of the following number of
shares of preferred stock of Regency, prior to the conversion thereof:
<TABLE>
<CAPTION>
SERIES SERIES
A SERIES B C SERIES D
------- -------- ------- --------
<S> <C> <C> <C> <C>
El Dorado........................ 300,000 3,000,000 694,445 682,140
Sundance......................... -- -- -- 1,666,667
Cecil Mays....................... 125,000 2,000,000 -- --
</TABLE>
Care leases from Newport Harbor two nursing facilities located in Beaumont
and Riverside, California. The leases provide for monthly rent payments of
$6,500 and $4,607, respectively, subject to periodic adjustments based on
certain increases in the Consumer Price Index or Medi-Cal reimbursement rates.
The Riverside facility lease contains an option to purchase the facility for
$675,000, subject to adjustment based on increases in the Consumer Price Index
from March 1992. In 1992, Care paid Newport Harbor $120,000 as consideration for
the extension of the purchase option on the Riverside facility for a five-year
period through March 1997, which amount will be applied to the purchase price if
the option is exercised. Lease expense paid by Care under the leases totalled
$133,000 for each of the three years ended December 31, 1991, 1992 and 1993.
Smith Management Company and its affiliated companies ("Smith") and
Foothill Capital Corporation ("Foothill Capital"), Foothill Group, Inc. and its
affiliates ("Foothill") are significant stockholders of Care. John W. Adams, a
designee of Care to Regency's Board of Directors, is President of Smith
Management Company and Arthur J. Pasmas, a designee of Care to Regency's Board
of Directors, is also employed by Smith. Mr. Adams received a fee for services
as chief executive officer of Care at the rate of $50,000 per annum until
December 31, 1992 and at the rate of $100,000 per annum for fiscal year 1993.
John F. Nickoll, a designee of Care to Regency's Board of Directors, is
President and Co-Chief Executive Officer and a director of The Foothill Group,
Inc.
In December 1990 and January 1991, Care issued to Smith and Foothill an
aggregate of $3,000,000 of Convertible Exchangeable Notes. These notes were
converted by their terms into 2,679,000 shares of Care Common Stock in November
1991.
In April 1991, Care engaged Smith to assist in the development and
implementation of a program that would improve Care's liquidity. Under this
agreement, Care paid Smith an aggregate of $218,000 for 1992 and $100,000 for
1991. This agreement expired on December 31, 1992.
In December 1992, Care sold 1,633,000 shares of Care Common Stock to Smith
and Foothill Capital for $4,000,000. In connection with this transaction, Smith
and Foothill Capital have registration rights whereby they can join Care in a
registration if Care chooses to register other shares of Care Common Stock with
the Commission.
In January 1992, Foothill Capital purchased from Wells Fargo Bank, N.A. a
term loan obligation of Care, which had a principal amount of $13,212,722 and
which was scheduled to mature on April 20, 1995, and accrued interest at the
rate of Prime plus 2%. As part of the term loan purchase, Foothill Capital also
acquired a standby letter of credit obligation of Care with a principal amount
of $4,316,000. These obligations were repaid in full by Care on December 30,
1993.
In March 1993, Care obtained a commitment for a $3,500,000 increase in its
working capital facility provided by Foothill Capital. This facility was secured
by certain of Care's nursing and rehabilitation centers
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<PAGE> 60
and certain accounts receivable, and was to bear interest at a rate of Prime
plus 3%. The facility was terminated and the collateral released on December 30,
1993.
Until December 30, 1993, Care had a $1,000,000 working capital facility
made available by Foothill Capital. This facility bore interest at a rate
approximating Citibank N.A.'s prime rate plus 3%, payable quarterly, and was
secured by one of Care's properties. This facility was terminated, all
outstanding indebtedness was retired and the collateral was released on December
30, 1993.
THE AGREEMENT AND PLAN OF MERGER
The following is a summary of certain provisions of the Plan of Merger, a
copy of which is attached as Annex A hereto and incorporated herein by
reference. Such summary is qualified in its entirety by reference to the full
text of the Plan of Merger, which is included as Annex A to this Proxy
Statement/Prospectus.
THE MERGER
Pursuant to the Plan of Merger, at the Effective Time, by virtue of the
Merger and without any action on the part of any holder of any capital stock of
Regency, Care or Merger Sub, each share of Care Common Stock issued and
outstanding immediately prior to the Effective Time (other than shares of Care
Common Stock that are owned by Regency or any of its subsidiaries, held in the
treasury of Care or owned by any subsidiary of Care, all of which will be
cancelled) will be automatically converted into 0.71 of a share of Regency
Common Stock. Care will be the surviving corporation of the Merger and, at the
Effective Time, the separate identity and corporate existence of Merger Sub will
cease. As a result of the Merger, Care will become a wholly owned subsidiary of
Regency.
The Effective Time. Promptly after all conditions to the Plan of Merger
have been satisfied or waived, the certificate of merger will be filed in
accordance with the DGCL, and the Merger will become effective at the Effective
Time.
Fractional Shares. No fractional shares of Regency Common Stock will be
issued in the Merger. In lieu of a fraction of a share that any person would
otherwise be entitled to receive, Regency will pay a cash payment (without
interest) equal to such fraction multiplied by the average closing price per
share of Regency Common Stock on the AMEX or on such exchange as the Regency
Common Stock shall be listed, during the five trading days immediately following
the Effective Time.
Exchange of Certificates. As soon as reasonably practicable after the
Effective Time, an exchange agent to be selected by Regency and Care (the
"Exchange Agent") will mail to each person who was, immediately prior to the
Effective Time, a holder of record of shares of Care Common Stock whose shares
were converted into shares of Regency Common Stock, a letter of transmittal to
be used to surrender certificates representing shares of Care Common Stock in
exchange for certificates representing shares of Regency Common Stock to which
such holder has become entitled as a result of the Merger, and cash in lieu of
fractional shares of Regency Common Stock. After receipt of such letter of
transmittal, each holder of certificates representing Care Common Stock should
surrender such certificates to the Exchange Agent, and each such holder will
receive in exchange therefor certificates evidencing the whole number of shares
of Regency Common Stock to which such holder is entitled and any cash that may
be payable in lieu of a fractional share of Regency Common Stock. Such letter of
transmittal will be accompanied by instructions specifying other details of the
exchange.
STOCKHOLDERS SHOULD NOT SEND IN THEIR
CERTIFICATES UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL.
From and after the Effective Time, Regency will be entitled to treat each
certificate formerly representing Care Common Stock that has not yet been
surrendered for exchange as evidencing the ownership of the number of full
shares of Regency Common Stock into which such shares will have been converted
pursuant to the Plan of Merger, notwithstanding the failure to surrender such
certificates. However, the holder of such unexchanged certificates will not be
entitled to receive any dividends or other distributions declared or made after
the Effective Time with respect to Regency Common Stock with a record date after
the Effective Time until such certificates are surrendered, at which time such
dividends and distributions will be paid without interest.
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GOVERNANCE OF REGENCY
Pursuant to the Plan of Merger, the headquarters of Regency will be in
Tustin, California.
The Plan of Merger also sets forth matters related to the Regency and Care
Boards of Directors, certain committees of the Regency Board of Directors and
the executive officers of Regency and Care from and after the Effective Time.
For a description of such matters, see "MANAGEMENT OF REGENCY FOLLOWING THE
MERGER."
REPRESENTATIONS AND WARRANTIES
The Plan of Merger contains various customary representations and
warranties of Regency and Care relating to, among other things: (a) each party's
and their respective subsidiaries' organization and similar corporate matters;
(b) each party's capital structure; (c) authorization, execution, delivery,
performance and enforceability of the Plan of Merger; (d) certain consents and
approvals; (e) documents filed by Regency and Care with the Commission and the
accuracy of information contained therein; (f) the absence of material changes
or events; (g) compliance with law; (h) tax matters; (i) the absence of material
litigation; (j) the accuracy of representations and warranties contained in the
Plan of Merger; (k) the accuracy of information supplied by Care and Regency in
connection with the Registration Statement and this Proxy Statement/Prospectus;
(l) matters relating to retirement and other employee plans and the Employee
Retirement Income Security Act of 1974, as amended; (m) transactions with
affiliates; (n) opinions of financial advisors; (o) the absence of any action
that would preclude Regency or Care from accounting for the business combination
to be effected by the Plan of Merger as a pooling of interests; and (p) the
absence of brokers or finders entitled to a commission as a result of the
transaction other than the financial advisors of each of Regency and Care.
CERTAIN COVENANTS
Pursuant to the Plan of Merger, each of Regency and Care has made various
customary covenants, including that, until the Effective Time, it and each of
its subsidiaries will carry on its business only in the ordinary and usual
course of business consistent with past practice and use its best efforts to
preserve intact their respective business organizations' goodwill, keep
available the services of their respective present officers and key employees,
and preserve the goodwill and business relationships with suppliers,
distributors, customers and others having business relationships with them
except as expressly permitted or contemplated by the Plan of Merger or as
consented to by the other party (which consent shall not be unreasonably
withheld).
Additionally, without limiting the generality of the foregoing, and except
as otherwise permitted by the Plan of Merger, each of Regency, Care and each of
its respective subsidiaries agreed not to: (a) amend or propose to amend its
charter or bylaws (other than as contemplated by the Plan of Merger); or split,
combine or reclassify its outstanding capital stock or declare, set aside or pay
any dividend or distribution in respect of any capital stock or issue or
authorize or propose the issuance of any other securities in respect of, in lieu
of or in substitution for shares of its capital stock; (b) enter into or amend
any employment, severance, special pay arrangement with respect to termination
of employment or other arrangements or agreements with any directors, officers
or key employees; (c) except as required to comply with changes in applicable
law occurring after the date of the Plan of Merger and except, with respect to
all plans other than bonus plans, in the ordinary course of business and
consistent with past practice take certain actions regarding employee benefit
plans and the adoption of new plans or arrangements; or (d) take any action that
would, or is reasonably likely to, result in any of its representations and
warranties becoming untrue, or in any of the conditions to the Merger not being
satisfied in any material respect.
In addition, each of Regency and Care agreed that, except as expressly
contemplated by or set forth in the Plan of Merger or as consented to by the
other party (which consent shall not be unreasonably withheld), it and each of
its subsidiaries will not: (a) issue or authorize or propose the issuance of, or
sell, pledge or dispose of, or agree to issue or authorize or propose the
issuance of, or sell, pledge or dispose of, any additional shares of, or any
options, warrants or rights of any kind to acquire any shares of, its capital
stock of any class or any debt or equity securities convertible into or
exchangeable for such capital stock, other than any such issuance pursuant to
options, warrants, rights or convertible securities outstanding as of the date
of the Plan of Merger in accordance with their terms; (b) acquire or agree to
acquire by merging or consolidating with, or by
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purchasing substantially all of the equity interest or assets of, or by any
other manner, any business or otherwise acquire or agree to acquire any material
assets; (c) subject to certain exceptions, sell, lease, pledge, dispose of or
encumber any material assets other than in the ordinary course of business and
consistent with past practice; (d) subject to certain exceptions, incur or
become contingently liable for material indebtedness for borrowed money or
guarantee any such indebtedness or issue any debt securities or otherwise incur
any material obligation or liability (absolute or contingent) other than
short-term indebtedness in the ordinary course of business and consistent with
past practice; (e) redeem, purchase, acquire or offer to purchase or acquire any
shares of its capital stock or long-term debt, other than as required by the
governing instruments relating thereto; (f) take any voluntary action that would
jeopardize the treatment of the transactions contemplated by the Plan of Merger
as a pooling for accounting purposes; or (g) enter into any contract, agreement,
commitment or arrangement with respect to any of the foregoing.
Regency and Care also agreed that, subject to compliance with applicable
law, from December 20, 1993 until the Effective Time, each of Regency and Care
will confer on a regular basis with one or more representatives of the other
party to report operational matters of materiality and the general status of
ongoing operations.
No Solicitation. The Plan of Merger provides that none of Regency, Care or
their respective subsidiaries will not, and each of them will use their best
efforts to cause their respective officers, directors, employees and agents not
to, initiate or solicit, directly or indirectly, any inquiries or the making of
any proposal with respect to or (except to the extent required by their
fiduciary duties) engage in negotiations concerning, provide any confidential
information or data to or have any discussions with, any third party relating to
any acquisition, business combination or purchase of all or any significant
portion of the assets of, or any equity interest in, Regency or Care or any of
their respective subsidiaries, as the case may be. The Plan of Merger also
provides that each of Regency and Care will (i) immediately cease and cause to
be terminated any existing activities, discussions or negotiations with any
parties conducted prior to the date of the Plan of Merger with respect to any of
the foregoing and (ii) immediately notify the other party of any such proposals
or inquiries.
Notwithstanding the foregoing, (i) each of Regency and Care may engage in
discussions with third parties who seek without inducement to initiate
discussions relating to proposed takeover proposals and may furnish such third
parties information regarding its business, properties or assets, (ii) the Board
of Directors of each of Regency and Care may take and disclose to its
stockholders a position contemplated by Rule 14e-2(a) promulgated under the
Exchange Act and (iii) following the receipt of a takeover proposal, each of the
Board of Directors of Regency and the Board of Directors of Care may modify or
withdraw its recommendation to its stockholders, but in each case referred to in
the foregoing clauses (i) through (iii) only to the extent that such Board of
Directors concludes in good faith on the basis of written advice of its outside
counsel that such action is necessary in order for such Board of Directors to
act in a manner consistent with its fiduciary obligations under applicable law.
See "-- Expenses and Termination Fees."
Access to Information and Confidentiality. The Plan of Merger provides
that, subject to compliance with applicable law, upon reasonable notice, Regency
and Care will each (and will cause each of their respective subsidiaries to)
afford to the other and the representatives of the other, access during normal
business hours throughout the period prior to the Effective Time to its
properties, books, contracts, commitments and records and will furnish promptly
such other information as the other party may reasonably request. The Plan of
Merger also provides that, unless required by law, Regency and Care will each
(and will cause each of their respective subsidiaries to) hold any such
information that is nonpublic in confidence until such time as such information
otherwise becomes publicly available through no wrongful act of the other party
(the "Confidentiality Provision"). In the event of termination of the Plan of
Merger, each party is required to promptly return all nonpublic documents, and
any copies made of such documents, to such other party. In addition, in the
event of such termination, all documents, memoranda, notes and other writings
based on the information in such material must be destroyed (and each party must
use its best efforts to cause its advisors and their representatives to
similarly destroy their respective documents, memoranda and notes) and such
destruction (and best efforts) must be certified in writing to the other party.
Agreement to Cooperate. The Plan of Merger provides that each of Regency
and Care 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,
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proper or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by the Plan of Merger, subject to the
appropriate vote of stockholders of Regency and Care to approve the Merger.
Stock Options. The Plan of Merger provides that to the extent that
acceleration of the exercisability of any outstanding option to purchase shares
of Regency Common Stock (a "Regency Stock Option"), any outstanding unit based
on the value of Regency Common Stock or the stock of a Regency subsidiary is
permitted but not mandated by the applicable governing instrument, then Regency
is required to take all necessary action to cause such acceleration not to
occur. The Plan of Merger also provides that to the extent that acceleration of
the exercisability of any outstanding option to purchase shares of Care Common
Stock or any SAR with regard to Care Common Stock (a "Care Stock Option"), any
outstanding unit based on the value of Care Common Stock or the stock of a Care
subsidiary is permitted but not mandated by the applicable governing instrument,
then Care shall take all necessary action to cause such acceleration not to
occur. At the Effective Time, each Care Stock Option, whether vested or
unvested, will be assumed by Regency. Unless Regency and Care shall otherwise
agree, each Care Stock Option will be deemed to constitute an option or right to
acquire, on the same terms and conditions as were applicable under such Care
Stock Option, the same number of shares of Regency Common Stock as the holder of
such Care Stock Option would have been entitled to receive pursuant to the
Merger had such holder exercised such option or right in full immediately prior
to the Effective Time (rounded up to the nearest whole share in the case of Care
Stock Options that are non-qualified stock options or SARs and rounded down to
the nearest whole share in the case of incentive stock options), at a price per
share of Regency Common Stock equal to (i) the exercise price (or base price in
the case of SARs) per share for the shares of Care Common Stock purchasable
pursuant to such Care Stock Option divided by (ii) the Exchange Ratio of 0.71;
provided, that in the case of incentive stock options, the terms and conditions
shall comply with the Internal Revenue Code of 1986, as amended (the "Code"),
and the relevant governing instruments.
The Plan of Merger provides that as soon as practicable after the Effective
Time, Regency will file a registration statement on Form S-8 with respect to the
shares of Regency Common Stock subject to Care Stock Options and will use its
best efforts to maintain the effectiveness of such registration statement or
registration statements for so long as such options remain outstanding. Regency
will administer the option plans in a manner that complies with Rule 16b-3
promulgated under the Exchange Act to the extent such option plans complied with
such rule prior to the Merger.
Registration Rights. Regency, Care and certain holders of Care Common
Stock or Regency Common Stock have entered into a Registration Rights Agreement
pursuant to the Plan of Merger. See "CERTAIN RELATED AGREEMENTS -- Registration
Rights Agreement."
Indemnification. Pursuant to the Plan of Merger, for six years from and
after the Effective Time, Regency will indemnify and hold harmless all past and
present officers and directors of Care and its subsidiaries to the same extent
such persons are currently indemnified by Care for acts or omissions occurring
at or prior to the Effective Time. In addition, as provided in the Plan of
Merger, Regency will provide, for an aggregate period of not less than six years
from the Effective Time, Care's current directors and officers an insurance and
indemnification policy that provides coverage for events occurring prior to the
Effective Time.
Employee Matters. Pursuant to the Plan of Merger, Regency and certain
officers of Regency have entered into the New Employment Agreements. See
"MANAGEMENT OF REGENCY FOLLOWING THE MERGER -- Executive Compensation."
NYSE Listing. Pursuant to the Plan of Merger, Regency has applied for the
listing of the Regency Common Stock on the NYSE. See "THE MERGER -- New York
Stock Exchange Listing."
CERTAIN CONDITIONS
The respective obligations of Regency and Care to effect the Merger are
subject to the following conditions, among others: (a) the Plan of Merger and
the transactions contemplated thereby shall have been approved and adopted by
the affirmative vote of a majority of the outstanding shares of Care Common
Stock and a majority of the Regency Common Stock entitled to vote; (b) the
applicable waiting period under the HSR Act shall have expired or been
terminated; (c) the Registration Statement shall have become effective and no
stop order
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suspending such effectiveness shall have been issued and remain in effect; (d)
no temporary restraining order, injunction or other order or decree that
prevents the consummation of the Merger or imposes material conditions with
respect to the Merger shall have been issued and remain in effect; (e) no action
shall have been taken and no statute, rule or regulation shall have been enacted
that would prevent the consummation of the Merger or impose material conditions
with respect to the Merger; (f) all material governmental consents and approvals
legally required for the consummation of the transactions contemplated by the
Plan of Merger shall have been obtained and be in effect at the Effective Time;
(g) each of Regency and Care shall have received from each of their affiliates
the written agreements regarding the offer, sale or transfer of shares of
Regency Common Stock held by such persons or issued to such person in the
Merger, as described in "THE MERGER -- Federal Securities Law Consequences"; (h)
each of Regency and Care shall have received a letter from Arthur Andersen &
Co., dated the Effective Time, addressed to Regency and Care, in form and
substance reasonably satisfactory to Regency and Care, stating that the Merger
qualifies as a pooling-of-interests transaction under generally accepted
accounting principles and each of Care and Arthur Andersen & Co. shall have
received a letter from Ernst & Young, dated the Effective Time, addressed to
Care and Arthur Andersen & Co., stating that the Merger qualifies as a
pooling-of-interests transaction under generally accepted accounting principles;
and (i) Regency shall have entered into the New Employment Agreements.
The obligation of Regency to effect the Merger is further subject to the
following conditions, among others: (a) Care shall have performed in all
material respects its agreements contained in the Plan of Merger required to be
performed on or prior to the Effective Time and the representations and
warranties of Care contained in the Plan of Merger shall be true and correct in
all material respects on and as of the date of the Plan of Merger and on and as
of the Effective Time as if made on and as of such date, except as contemplated
or permitted by the Plan of Merger and Regency shall have received a certificate
of the President or of an Executive Vice President of Care to that effect; (b)
Care shall have obtained the consent or approval of each person whose consent or
approval shall be required in connection with the transactions contemplated by
the Plan of Merger except those for which failure to obtain such consents and
approvals would not have a material adverse effect on Care, or upon the
consummation of the transactions contemplated by the Plan of Merger; (c) Regency
shall have received an opinion of outside counsel to Care as to certain matters
set forth in the Plan of Merger; and (d) Regency shall have received a letter of
Ernst & Young customary in scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the Registration Statement.
The obligation of Care to effect the Merger is further subject to the
following conditions, among others: (a) Regency shall have performed in all
material respects its agreements contained in the Plan of Merger required to be
performed on or prior to the Effective Time and the representations and
warranties of Regency contained in the Plan of Merger shall be true and correct
in all material respects on and as of the date of the Plan of Merger and on and
as of the Effective Time as if made on and as of such date, except as
contemplated or permitted by the Plan of Merger and Care shall have received a
Certificate of the President or of an Executive Vice President of Regency to
that effect; (b) Regency shall have obtained the consent or approval of each
person whose consent or approval shall be required in connection with the
transactions contemplated by the Plan of Merger, except those for which failure
to obtain such consents and approvals would not have a material adverse effect
on Regency, or upon the consummation of the transactions contemplated by the
Plan of Merger; (c) Care shall have received an opinion of outside counsel to
Regency as to certain matters set forth in the Plan of Merger; (d) Care shall
have received a letter of Arthur Andersen & Co. customary in scope and substance
for letters delivered by independent public accountants in connection with
registration statements similar to the Registration Statement; (e) Care shall
have received an opinion of Sidley & Austin substantially to the effect that the
Merger will be a tax-free transaction for Care and the stockholders of Care who
receive Regency Common Stock in the Merger; and (f) all shares of Regency Common
Stock to be issued in the Merger shall have been approved for listing on the
AMEX, or such other exchange as the Regency Common Stock may then be listed.
TERMINATION
The Plan of Merger may be terminated at any time prior to the Effective
Time, whether before or after approval by the stockholders of Regency and Care:
(a) by the mutual written consent of Regency and Care;
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(b) by either Regency or Care if (i) the Merger shall not have been consummated
on or before May 31, 1994, (ii) any governmental entity, the consent of which is
a condition to the obligations of Care and Regency to consummate the
transactions contemplated by the Plan of Merger, shall have determined not to
grant its consent and all appeals of such determination shall have been taken
and have been unsuccessful or (iii) any court of competent jurisdiction in the
United States or any State shall have issued an order, judgment or decree (other
than a temporary restraining order) restraining, enjoining or otherwise
prohibiting the Merger and such order, judgment or decree shall have become
final and nonappealable; (c) by Regency if (i) the Merger shall have been voted
on by holders of Care Common Stock, and the votes shall not have been sufficient
to approve and adopt the Plan of Merger and the transactions contemplated
thereby, (ii) there has been a material breach by Care of any representation,
warranty, covenant or agreement set forth in the Plan of Merger that has not
been cured within ten business days following receipt by the breaching party of
notice of such breach, (iii) the Board of Directors of Care should fail to
recommend to its stockholders approval of the transactions contemplated by the
Plan of Merger or such recommendation shall have been made and subsequently
withdrawn, (iv) following the execution of the Plan of Merger, any third party
other than Care or any of its affiliates shall have communicated to Regency a
proposal (x) relating to any acquisition, business combination or purchase of
all or any significant portion of the assets of, or any equity interest in,
Regency or any of its subsidiaries (a "Regency Third Party Proposal"), and
Regency shall have entered into a written agreement with respect to a Regency
Third Party Proposal, or (y) that is subject to Section 14(d) of the Exchange
Act, and Regency's Board of Directors shall have made a recommendation to its
stockholders other than to reject such proposal or shall have made no
recommendation with respect thereto, or (v) any affiliate of Care shall have
failed to deliver the written agreement regarding the offer, sale or transfer of
shares of Regency Common Stock issued to such affiliate in the Merger described
in "THE MERGER -- Federal Securities Law Consequences"; or (d) by Care, if (i)
the Merger shall have been voted on by holders of Regency Common Stock, and the
votes shall not have been sufficient to approve and adopt the Plan of Merger and
the transactions contemplated thereby, (ii) there has been a material breach by
Regency of any representation, warranty, covenant or agreement that has not been
cured within ten business days following receipt by the breaching party of
notice of such breach, (iii) the Board of Directors of Regency should fail to
recommend to its stockholders approval of the transactions contemplated by the
Plan of Merger or such recommendation shall have been made and subsequently
withdrawn, (iv) following the execution of the Plan of Merger, any third party
other than Regency or any of its affiliates shall have communicated to Care a
proposal (x) relating to any acquisition, business combination or purchase of
all or any significant portion of the assets of, or any equity interest in, Care
or any of its subsidiaries (a "Care Third Party Proposal"), and Care shall have
entered into a written agreement with respect to a Care Third Party Proposal, or
(y) that is subject to Section 14(d) of the Exchange Act, and Care's Board of
Directors shall have made a recommendation to its stockholders other than to
reject such proposal or shall have made no recommendation with respect thereto,
or (v) any affiliate of Regency shall have failed to deliver the written
agreement regarding the offer, sale or transfer of shares of Regency Common
Stock issued to such affiliate in the Merger described in "THE MERGER -- Federal
Securities Law Consequences."
Notwithstanding the foregoing, the Plan of Merger provides that the right
to terminate the Plan of Merger shall not be available to any party whose
failure to fulfill any obligation under Plan of Merger has been the cause of, or
resulted in, the failure of the Effective Time to occur on or before such date.
In addition, the right to terminate the Plan of Merger under clauses (c) and (d)
of the immediately preceding paragraph is not available to any party who at such
time is in material breach of any representation, warranty, covenant or
agreement set forth in the Plan of Merger.
In the event of any termination of the Plan of Merger as provided above,
the Plan of Merger will become void and provisions of the Plan of Merger
relating to (i) the Confidentiality Provision (see "Certain Covenants -- Access
to Information and Confidentiality"), (ii) press releases and public
announcements by either party relating to the Plan of Merger and the
transactions contemplated thereby, and (iii) payment of costs and expenses (see
"Expenses and Termination Fees") shall survive any termination of the Plan of
Merger, and there shall be no liability on the part of Regency or Care or their
respective officers or directors except for breach of any of its obligations
under such provisions. Notwithstanding the foregoing, no party will be relieved
from liability for any willful, material breach of the Plan of Merger.
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EXPENSES AND TERMINATION FEES
The Plan of Merger provides that, except as set forth below, all costs and
expenses incurred in connection with the Plan of Merger and the transactions
contemplated thereby shall be paid by the party incurring such expenses, except
that those financial printer and mailing expenses incurred in connection with
printing and mailing this Proxy Statement/Prospectus and the Registration
Statement, as well as the filing fee relating thereto, will be shared equally by
Regency and Care.
Notwithstanding the foregoing, the Plan of Merger provides that if (I) the
Plan of Merger is terminated (A) by Regency (x) pursuant to provision (i), (ii),
or (v) of clause (c) under "Termination" described above or (y) pursuant to
provision (iii) of clause (c) under "Termination" prior to the time that a Care
Third Party Proposal or a proposal subject to Section 14(d) of the Exchange Act
shall have been communicated to Care, and (B) within 12 months after the
termination of the Plan of Merger by Regency, (x) a business combination between
or among Care and a third party is effectuated, or (y) an offer by a third party
subject to Section 14(d) of the Exchange Act for not less than a majority of the
shares of Care Common Stock is successfully completed, or (II) the Plan of
Merger is terminated (x) pursuant to provision (iv) of clause (d) under
"Termination" described above, or (y) pursuant to provision (iii) of clause (c)
under "Termination" described above at or after the time a Care Third Party
Proposal or a proposal subject to Section 14(d) of the Exchange Act shall have
been communicated to Care, and Care is not also entitled to terminate the Plan
of Merger by reason of provision (ii) of clause (d) under "Termination," then,
in addition to any other rights or remedies that may be available, Care shall
promptly (and in any event within two days of receipt by Care of written notice
from Regency) pay to Regency a termination fee of $6 million and shall reimburse
Regency for all out-of-pocket expenses (including all fees and expenses of its
counsel, advisors, accountants and consultants) incurred by Regency or on its
behalf in connection with the transactions contemplated by the Plan of Merger.
Conversely, if (I) the Plan of Merger is terminated (A) by Care (x)
pursuant to provision (i), (ii) or (v) of clause (d) under "Termination"
described above, or (y) pursuant to provision (iii) of clause (d) under
"Termination" described above prior to the time that a Regency Third Party
Proposal or a proposal subject to Section 14(d) of the Exchange Act shall have
been communicated to Regency, and (B) within 12 months after the termination of
the Plan of Merger by Care, (x) a business combination between or among Regency
and a third party is effectuated, or (y) an offer by a third party subject to
Section 14(d) of the Exchange Act for not less than a majority of the shares of
Regency Common Stock is successfully completed, or (II) the Plan of Merger is
terminated (x) pursuant to provision (iv) of clause (c) under "Termination"
described above, or (y) pursuant to provision (iii) of clause (d) under
"Termination" at or after the time a Regency Third Party Proposal or a proposal
subject to Section 14(d) of the Exchange Act shall have been communicated to
Regency, and Regency is not also entitled to terminate the Plan of Merger by
reason of provision (ii) of clause (c) under "Termination" described above,
then, in addition to any other rights or remedies that may be available, Regency
shall promptly (and in any event within two days of receipt by Regency of
written notice from Care) pay to Care a termination fee of $6 million and shall
reimburse Care for all out-of-pocket expenses (including all fees and expenses
of its counsel, advisors, accountants and consultants) incurred by Care or on
its behalf in connection with the transactions contemplated by the Plan of
Merger.
AMENDMENT AND WAIVER
The Plan of Merger may be amended by Regency and Care at any time before or
after approval thereof by the stockholders of Regency or Care, provided that
after any such approval, no amendment shall be made that (a) changes the ratio
at which the shares of Care Common Stock are to be converted into shares of
Regency Common Stock, (b) in any way materially adversely affects the rights of
holders of shares of Regency Common Stock or Care Common Stock or (c) changes
any of the principal terms of the Plan of Merger, in each case without the
approval or further approval of such stockholders. At any time prior to the
Effective Time, Regency and Care may extend the time for the performance of any
of the obligations or other acts of the other parties to the Plan of Merger,
waive any inaccuracies in the representations and warranties and waive
compliance with any of the agreements or conditions contained in the Plan of
Merger.
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CERTAIN RELATED AGREEMENTS
VOTING AGREEMENTS
Regency and each of The Foothill Group, Inc., The Foothill Fund, Foothill
Capital Corporation, Foothill Partners, L.P., John F. Nickoll, Solvation d/b/a
Smith Management Company, Randall D. Smith, John W. Adams, Jeffrey A. Smith,
Energy Management Corporation, Sega Associates, L.P., the Durian Trust and
Woodstead Associates, L.P. have entered into a Voting Agreement, dated as of
December 28, 1993 (the "Care Voting Agreement"), pursuant to which each of such
stockholders agreed, among other things, to vote all shares of Care Common Stock
of which each owns in favor of the transactions contemplated by the Plan of
Merger if such transactions are approved at the Regency Special Meeting. At the
time the Care Voting Agreement was entered into, such stockholders owned a
majority of the shares of Care Common Stock then outstanding. Pursuant to the
Care Voting Agreement, each of such stockholders agreed not to sell, transfer,
assign or otherwise dispose of any of the shares of Care Common Stock subject to
the Care Voting Agreement prior to the Effective Time to any Affiliate or
Associate (as such terms are defined in Rule 12b-2 promulgated under the
Exchange Act) unless such Affiliate or Associate becomes a party to the Care
Voting Agreement. Each of such stockholders represented to Regency that it has
good and marketable title to all the shares of Care Common Stock subject to the
Care Voting Agreements and that there are no restrictions on the voting rights
or rights of disposition pertaining to such shares of Care Common Stock.
Care has entered into a Voting Agreement, dated as of December 28, 1993
(the "Regency Voting Agreement" and, together with the Care Voting Agreement,
the "Voting Agreements"), with Cecil Mays, Carol Mays, El Dorado and Sundance
pursuant to which each of such stockholders agreed, among other things, to vote
all shares of Regency Common Stock that each owns in favor of the transactions
contemplated by the Plan of Merger. At the time the Regency Voting Agreement was
entered into, such stockholders owned approximately 21.6% of the shares of
Regency Common Stock then outstanding. Pursuant to the Regency Voting Agreement,
each of such stockholders agreed not to sell, transfer, assign or otherwise
dispose of any of the shares of Regency Common Stock subject to the Regency
Voting Agreement prior to the Effective Time to any Affiliate or Associate
unless such Affiliate or Associate becomes a party to the Regency Voting
Agreement. Each such stockholder represented to Care that it has good and
marketable title to all the shares of Regency Common Stock subject to the
Regency Voting Agreement and that there are no restrictions on the voting rights
or rights of disposition pertaining to such shares of Regency Common Stock.
REGISTRATION RIGHTS AGREEMENT
Pursuant to the Plan of Merger, Regency and Care have offered to enter into
a Second Amended and Restated Registration Rights Agreement (the "Registration
Rights Agreement") with certain Regency stockholders who presently have
registration rights with respect to shares of Regency Common Stock (the "Regency
Holders") pursuant to an Amended and Restated Registration Rights Agreement,
dated as of January 21, 1992, by and among Regency and the Regency Holders (the
"Regency Registration Rights Agreement"), certain Care stockholders who
presently have registration rights with respect to shares of Care Common Stock
pursuant to (i) a Stock Purchase Agreement, dated as of December 15, 1992 (the
"Stock Purchase Agreement"), by and among Care and Energy Management
Corporation, Foothill Partners and Foothill Group, Inc. (collectively, the
"Stock Purchase Holders"), and (ii) a Note Purchase, Loan and Guaranty
Agreement, first closing date December 31, 1990 and second closing date January
18, 1991 (the "Note Purchase Agreement"), by and among Care and Care Enterprises
West and SOLVation Inc. d/b/a Smith Management Company and Foothill Capital
Corporation (collectively, the "Note Purchase Holders"), and certain affiliates
of the Note Purchase Holders and the Stock Purchase Holders (the Note Purchase
Holders, the Stock Purchase Holders and such affiliates are collectively
referred to herein as the "Care Holders" and, together with the Regency Holders,
are collectively referred to herein as the "Holders"). The Registration Rights
Agreement will amend and restate the Regency Registration Rights Agreement in
its entirety. The Registration Rights Agreement will also amend the provisions
relating to registration rights in the Stock Purchase Agreement and the Note
Purchase Agreement and expand such registration rights to all shares of Regency
Common Stock to be issued to the Care Holders in exchange for shares of Care
Common Stock in the Merger, effective as of the Effective Time. The following is
a summary of the Registration Rights
57
<PAGE> 68
Agreement and is qualified in its entirety by reference to the Registration
Rights Agreement, the form of which is filed as an exhibit to the Registration
Statement.
Pursuant to the Registration Rights Agreement, with certain exceptions, the
Regency Holders may have certain of their shares of Regency Common Stock that
they currently hold and the Care Holders may have all of the shares of Regency
Common Stock that will be issued to them in the Merger (collectively, the
"Shares") included in a registration under the Securities Act by Regency of any
of Regency's securities, either for Regency's account or the account of others
(a "Piggyback Registration"). If (i) such registration is part of a registered
public offering involving an underwriting, (ii) the underwriter determines that
marketing factors require a limitation of the number of shares of Regency Common
Stock to be underwritten and (iii) the underwriter has eliminated the securities
being sold by other selling stockholders, then the underwriter may limit the
number of Shares to be included in the registration and underwriting, or may
exclude Shares entirely from such registration and underwriting.
The Registration Rights Agreement will also provide that the Care Holders
holding not less than 66 2/3% of the aggregate outstanding Shares held by the
Care Holders may demand that Regency file a registration statement under the
Securities Act (a "Demand Registration"). Regency will not, however, be
obligated to effect a Demand Registration if Regency has registered Regency
Common Stock pursuant to a Demand Registration within six months preceding the
receipt of the demand (or, if Regency is not then entitled to use Form S-2 or
S-3, within 11 months preceding the receipt of the demand). If (i) such Holders
intend to distribute the Shares covered by their demand by means of an
underwriting and (ii) the underwriter determines that marketing factors require
a limitation of the number of shares of Regency Common Stock to be underwritten,
then Regency is required to advise the Holders of Shares that would otherwise be
registered and underwritten, and the number of Shares that may be included in
the registration and underwriting will be allocated among the Holders thereof
pro rata in proportion to the respective amounts of Shares held by such Holders
at the time of filing the registration statement.
In connection with the registration of Shares, Regency will pay certain
expenses, including, without limitation, all registration, filing and
qualification fees, printing expenses, escrow fees, fees and disbursements of
counsel for Regency and of one counsel for the participating Holders and
expenses of any special audits incidental to or required by such registration.
The Holders will pay for (i) stock transfer taxes or underwriters' fees,
discounts, commissions or expenses relating to the Shares or the distribution of
the Shares, (ii) any expenses relating to more than one Demand Registration and
(iii) any expenses of any registration proceeding if the registration request is
subsequently withdrawn at any time at the request of the Holders of a majority
of the Shares to be registered.
Regency will also agree to indemnify each Holder and underwriter and
certain other persons for certain liabilities arising under federal and state
securities law.
The registration rights granted pursuant to the Registration Rights
Agreement will terminate (i) in the case of a Piggyback Registration, on the
fifth anniversary of the Effective Time and (ii) in the case of a Demand
Registration, on the third anniversary of the Effective Time.
58
<PAGE> 69
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma condensed balance sheet as of December
31, 1993 for Regency and as of September 30, 1993 for Care and the unaudited pro
forma condensed statements of income for each of the three years in the period
ended June 30, 1993 and the six months ended December 31, 1993 for Regency and
the six months ended September 30, 1993 for Care give effect to the Merger
involving Regency and Care using the pooling-of-interests method of accounting
as if it had occurred at the beginning of the earliest period presented. For a
description of pooling-of-interests accounting with respect to the Merger, see
"THE MERGER -- Anticipated Accounting Treatment." The data presented below may
not be indicative of the results that would have been obtained had the
transactions described above actually occurred on the dates assumed. The
operating results for the six months ended December 31, 1993 for Regency and the
six months ended September 30, 1993 for Care are not necessarily indicative of
the results that may be expected for the fiscal year ending June 30, 1994, or in
the case of Care, for the six months or fiscal year ended December 31, 1993. In
the opinion of management of each of Regency and Care, this data includes all
adjustments, consisting of normal recurring adjustments, that each of Care and
Regency considered necessary for a fair presentation of the data set forth
therein. The pro forma condensed financial statements should be read in
conjunction with management's discussion and analysis of financial condition and
results of operations and the historical financial statements and the related
notes thereto of Regency and Care set forth elsewhere herein.
59
<PAGE> 70
REGENCY HEALTH SERVICES, INC./CARE ENTERPRISES, INC.
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
REGENCY CARE
DECEMBER 31, SEPTEMBER 30, PRO FORMA PRO FORMA
1993 1993 ADJUSTMENTS AS ADJUSTED
------------ ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents................. $ 21,325 $ 6,227 $ $ 27,552
Accounts and notes receivable, net........ 30,092 17,590 47,682
Other current assets...................... 2,958 4,630 7,588
------------ ------------- ----------- ------------
Total current assets.............. 54,375 28,447 82,822
Property and equipment, net................. 59,462 67,917 127,379
Mortgage notes receivable................... 2,211 2,211
Other assets................................ 8,103 10,401 18,504
------------ ------------- ----------- ------------
$121,940 $ 108,976 $ $230,916
------------ ------------- ----------- ------------
------------ ------------- ----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......... $ 209 $ 7,203 $ $ 7,412
Accounts payable.......................... 6,128 9,460 15,588
Accrued expenses and compensation......... 6,672 18,135 5,400(4) 30,207
Other current liabilities................. 3,627 4,708 8,335
------------ ------------- ----------- ------------
Total current liabilities......... 16,636 39,506 5,400 61,542
Long-term debt, net of current portion...... 62,384 26,301 88,685
Other noncurrent liabilities and deferred
items..................................... 1,378 18,814 20,192
------------ ------------- ----------- ------------
80,398 84,621 5,400 170,419
------------ ------------- ----------- ------------
Stockholders' equity:
Common stock.............................. 68 11,065 (10,971)(6) 162
Additional paid-in-capital................ 32,922 1,451 10,971(6) 45,344
Retained earnings......................... 8,552 11,839 (5,400)(4) 14,991
------------ ------------- ----------- ------------
41,542 24,355 (5,400) 60,497
------------ ------------- ----------- ------------
Total liabilities and stockholders'
equity.................................... $121,940 $ 108,976 $ $230,916
------------ ------------- ----------- ------------
------------ ------------- ----------- ------------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Financial Information.
60
<PAGE> 71
REGENCY HEALTH SERVICES, INC./CARE ENTERPRISES, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED JUNE 30, 1993(1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
REGENCY CARE ADJUSTMENTS AS ADJUSTED
-------- -------- ----------- ------------
<S> <C> <C> <C> <C>
Net operating revenue............................. $115,378 $196,072 $ $311,450
-------- -------- ----------- ------------
Costs and expenses:
Operating and administrative.................... 95,398 169,714 265,112
Share appreciation rights....................... 672 672
Rent expense and property taxes................. 7,256 7,989 15,245
Depreciation and amortization................... 1,985 5,206 7,191
Interest expense................................ 1,635 3,580 5,215
-------- -------- ----------- ------------
Total costs and expenses.......................... 106,274 187,161 293,435
-------- -------- ----------- ------------
Income before reorganization items, provision for
income taxes, and extraordinary items........... 9,104 8,911 18,015
-------- -------- ----------- ------------
Reorganization and other items:
Gain on sale of facilities...................... 1,007 1,007
Other reorganization items...................... 536 536
-------- -------- ----------- ------------
Total reorganization and other items.............. 1,543 1,543
-------- -------- ----------- ------------
Income before provision for income taxes and
extraordinary items............................. 9,104 10,454 19,558
Provision for income taxes........................ 3,621 3,673 (99)(3) 7,195
-------- -------- ----------- ------------
Income before extraordinary items................. $ 5,483 $ 6,781 $ 99 $ 12,363
-------- -------- ----------- ------------
-------- -------- ----------- ------------
Pro forma income per share before extraordinary
items:(5)
Primary......................................... $ 0.79
Fully diluted................................... $ 0.77
Number of shares used in calculation:
Primary......................................... 15,654
Fully diluted................................... 16,673
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Financial Information.
61
<PAGE> 72
REGENCY HEALTH SERVICES, INC./CARE ENTERPRISES, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED JUNE 30, 1992(1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
REGENCY CARE ADJUSTMENTS AS ADJUSTED
------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Net operating revenue............................... $81,447 $190,325 $ $ 271,772
------- -------- ----------- -----------
Costs and expenses:
Operating and administrative...................... 68,276 167,221 235,497
Share appreciation rights......................... 438 438
Rent expense and property taxes................... 5,496 9,054 14,550
Depreciation and amortization..................... 1,535 5,592 7,127
Interest expense.................................. 2,462 5,064 7,526
------- -------- ----------- -----------
Total costs and expenses............................ 77,769 187,369 265,138
------- -------- ----------- -----------
Income before reorganization items, provision for
income taxes, and extraordinary items............. 3,678 2,956 6,634
------- -------- ----------- -----------
Reorganization items................................ 1,720 1,720
------- -------- ----------- -----------
Income before provision for income taxes and
extraordinary items............................... 3,678 4,676 8,354
Provision for income taxes.......................... 1,454 1,539 (1,022)(3) 1,971
------- -------- ----------- -----------
Income before extraordinary items................... $ 2,224 $ 3,137 $ 1,022 $ 6,383
------- -------- ----------- -----------
------- -------- ----------- -----------
Pro forma income per share before extraordinary
items:(5)
Primary........................................... $ 0.57
Fully diluted..................................... $ 0.54
Number of shares used in calculation:
Primary........................................... 11,225
Fully diluted..................................... 11,944
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Financial Information.
62
<PAGE> 73
REGENCY HEALTH SERVICES, INC./CARE ENTERPRISES, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED JUNE 30, 1991(1)(2)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
REGENCY CARE ADJUSTMENTS AS ADJUSTED
------- ------- ----------- ------------
<S> <C> <C> <C> <C>
Net operating revenue............................... $56,788 $91,338 $ $148,126
------- ------- ----------- ------------
Costs and expenses:
Operating and administrative...................... 47,161 80,452 127,613
Share appreciation rights.........................
Rent expense and property taxes................... 3,584 4,221 7,805
Depreciation and amortization..................... 1,387 3,021 4,408
Interest expense.................................. 3,114 3,318 6,432
------- ------- ----------- ------------
Total costs and expenses............................ 55,246 91,012 146,258
------- ------- ----------- ------------
Income before reorganization items, provision for
income taxes, and extraordinary items............. 1,542 326 1,868
------- ------- ----------- ------------
Reorganization and other items:
Gain on sale of facilities........................ 312 312
------- ------- ----------- ------------
Total reorganization items.......................... 312 312
------- ------- ----------- ------------
Income before provision for income taxes and
extraordinary items............................... 1,854 326 2,180
Provision for income taxes.......................... 792 (762)(3) 30
------- ------- ----------- ------------
Income before extraordinary items................... $ 1,062 $ 326 $ 762 $ 2,150
------- ------- ----------- ------------
------- ------- ----------- ------------
Pro forma income per share before extraordinary
items:(5)
Primary........................................... $ 0.37
Fully diluted..................................... $ 0.33
Number of shares used in calculation:
Primary........................................... 6,295
Fully diluted..................................... 7,238
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Financial Information.
63
<PAGE> 74
REGENCY HEALTH SERVICES, INC./CARE ENTERPRISES, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>
REGENCY CARE
------------ -------------
SIX MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31, SEPTEMBER 30, PRO
1993 1993(7)(8) FORMA
------------ ------------- --------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net operating revenue.......................................... $ 79,519 $ 100,818 $180,337
------------ ------------- --------
Costs and expenses:
Operating and administrative................................. 65,292 87,526 152,818
Share appreciation rights.................................... 309 309
Rent expense and property taxes.............................. 4,584 3,885 8,469
Depreciation and amortization................................ 1,307 2,590 3,897
Interest expense............................................. 2,015 1,603 3,618
------------ ------------- --------
Total costs and expenses....................................... 73,198 95,913 169,111
------------ ------------- --------
Income before provision for income taxes and extraordinary
items........................................................ 6,321 4,905 11,226
Provision for income taxes..................................... 2,482 1,961 4,443
------------ ------------- --------
Income before extraordinary items.............................. $ 3,839 $ 2,944 $ 6,783
------------ ------------- --------
------------ ------------- --------
Pro forma income per share before extraordinary items:(5)
Primary...................................................... $ 0.41
Fully diluted................................................ $ 0.38
Number of shares used in calculation:
Primary...................................................... 16,372
Fully diluted................................................ 20,413
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Financial Information.
64
<PAGE> 75
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
Under the pooling-of-interests accounting method, the accounting policies
followed by the two entities are conformed. The following describes certain
accounting policy differences between Regency and Care which were adjusted in
the unaudited pro forma condensed balance sheet, unaudited pro forma condensed
statements of income and other items relevant to the pro forma information.
(1) Regency reports its financial position and results of operations using a
June 30 fiscal year end. Care reports its financial position and results of
operations using a December 31 fiscal year end. The accompanying unaudited
pro forma condensed statements of income for each of the three fiscal years
in the period ended June 30, 1993 conform Care to a June 30 fiscal year end.
(2) On December 31, 1990 Care emerged from bankruptcy after its Joint Plan of
Reorganization became effective. Care implemented the recommended accounting
for entities in ("Pre-Reorganization Reporting") and emerging from
("Fresh-Start Reporting") Chapter 11 reorganization as set forth in SOP 90-7
during the year ended December 31, 1990. Accordingly, the unaudited pro
forma condensed statement of income for the year ended June 30, 1991
includes the operations for Care for only six months (January 1, 1991
through June 30, 1991).
(3) Regency's consolidated financial statements as of and for each of the three
fiscal years in the period ended June 30, 1993 reflect income taxes
following the requirements of Accounting Principles Board (APB) Opinion No.
11, "Accounting for Income Taxes." Care's consolidated financial statements
reflect income taxes following the requirements of Statement of Financial
Accounting Standard (SFAS) No. 109, "Accounting for Income Taxes." To
conform Regency's accounting practice to SFAS No. 109, an adjustment is
required to reclassify the utilization of Regency's net operating loss
carryforward from an extraordinary item to a reduction in the provision for
income taxes. The effect on the unaudited pro forma condensed balance sheet
is not material.
(4) All fees and expenses related to the Merger and to the consolidation and
restructuring of the combining companies will be expensed as required under
the pooling-of-interests accounting method. These expenses have not been
reflected in the unaudited pro forma condensed statements of income, but
will be reflected in the statement of income of Regency Health Services,
Inc. in the period the Merger is consummated. The total Merger costs are
expected to approximate $5,400,000. The direct transactional expenses are
estimated to be approximately $2,500,000 for investment banking, legal,
accounting, printing, mailing and similar expenses. Although there can be no
precise determination of such expenses until the consolidation of operations
is actually completed, it is expected that up to an additional $2,900,000
(net of tax) will be required for integrating management information and
accounting systems and consolidating various operating, management and other
functions of the two companies to efficiently open the new enterprise as a
result of the Merger. No assurance can be given at present that such
expenses will not be greater or less than the amount budgeted for them or
that such operating efficiencies will be fully realized.
(5) The calculation of unaudited pro forma income per share before extraordinary
items for each period presented reflects the issuance of .71 of a share of
Regency Common Stock for each share of common and common equivalent share of
Care Common Stock used in such calculation without consideration for
fractional shares.
(6) Pro forma adjustment to give effect to the issuance of 9,392,590 shares of
Regency Common Stock, $0.01 par value, in connection with the Merger based
upon the number of shares of Care Common Stock outstanding as of September
30, 1993.
(7) The unaudited pro forma statement of income for the six months ended
September 30, 1993 for Care includes the operations for Care for the six
months ended September 30, 1993 (April 1, 1993 through September 30, 1993).
The following table summarizes net operating revenue, total costs and
expenses, and income before extraordinary items for the three months ended
June 30, 1993 (April 1, 1993 through June 30, 1993) and for the three months
ended September 30, 1993 (July 1, 1993 through September 30, 1993):
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 1993 SEPTEMBER 30, 1993
------------------ ------------------
<S> <C> <C>
Net operating revenue........................................... $ 50,050 $ 50,768
Total cost and expenses......................................... 47,803 48,110
Income before extraordinary item................................ 1,349 1,595
</TABLE>
(8) During the nine months ended September 30, 1993, Care incurred a charge to
operating income of $463,000 relating to the SARs previously granted, as
compared to $139,000 for the nine months ended September 30, 1992. It is
anticipated that the charge to operating income for the quarter ended
December 31, 1993 will be approximately $1,700,000, primarily as a result of
the increase in the market price of shares of Care Common Stock to $9.625
per share on December 31, 1993 as compared to $4.00 per share on September
30, 1993. Depending upon the future performance of Care Common Stock, and,
after the Effective Time, of Regency Common Stock, Care and, after the
Effective Time, Regency, may incur substantial additional charges in future
periods, through December 31, 1995, which will aggregate approximately
$330,000 for each one dollar increase in the market price of Care Common
Stock (or $235,000 for each one dollar increase in the market price of
Regency Common Stock). See "MANAGEMENT OF REGENCY FOLLOWING THE
MERGER -- Executive Compensation -- Option/SAR Exercises and Fiscal Year End
Option/SAR Values."
65
<PAGE> 76
REGENCY MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Regency derives its net operating revenue at its skilled nursing facilities
from the performance of routine and ancillary services. Routine services revenue
comprises charges for room and board and basic nursing services for the care of
patients, including those in its subacute specialty units. Ancillary services
revenue comprises charges for rehabilitative services, subacute specialty
services and pharmaceutical products and services. Regency derives most of its
ancillary service revenue from Medicare and, because of the cost reimbursement
methodology used by the Medicare program, has historically realized a higher
profit margin on revenue generated from its ancillary services than from its
routine services. Regency therefore plans to continue to focus on increasing the
utilization of its existing ancillary services and providing additional
ancillary services.
Regency receives payment for the health care services it provides from (i)
the federally-assisted Medi-Cal program, (ii) the federal Medicare program,
(iii) private sources, including health maintenance organizations and commercial
insurance and (iv) other sources, including special programs sponsored by county
governments and the Veterans Administration. The following table presents the
percentages of net operating revenue by payor source for Regency for the periods
indicated:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
----------------------- --------------
1991 1992 1993 1992 1993
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Medi-Cal.................................... 45.5% 43.0% 40.9% 42.3% 42.9%
Medicare.................................... 18.1 23.2 27.5 25.2 25.6
Private..................................... 24.9 25.2 25.4 26.2 24.6
Other....................................... 11.5 8.6 6.2 6.3 6.9
----- ----- ----- ----- -----
Total.................................. 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
RECENT ACQUISITIONS
Effective December 31, 1991, Regency, through the merger of a wholly-owned
subsidiary, acquired Hallmark Health Services, Inc. ("Hallmark"), which operated
10 skilled nursing facilities in California with 944 licensed beds (the
"Hallmark Facilities"). The transaction was the result of arms-length
negotiations between the principals of Hallmark and Regency. As a result of the
merger and the conversion of a note payable, the former Hallmark stockholders
received 1,092,378 shares of Regency Common Stock.
Effective December 1, 1992, Regency entered into an agreement with Newport
Federal to operate three skilled nursing facilities with 286 licensed beds (the
"Newport Facilities"). Regency will recognize all revenues and expenses of the
facility during the term of the agreements, which expired May 31, 1993. Regency
did not assume any assets or liabilities of the former operator in this
transaction. Effective June l, 1993, Regency started operating the Newport
Facilities under three long-term lease agreements. The initial term of each
lease is 20 years and each lease contains four five-year option periods.
Effective June 16, 1993, Regency entered into an agreement to operate a
skilled nursing facility with 119 beds. Effective July 16, 1993, Regency
purchased the skilled nursing facility for $3,300,000 in cash.
Effective July 1, 1993, Regency acquired Braswell Enterprises, Inc.
("Braswell") through the purchase of all of its outstanding stock. Braswell
operated seven skilled nursing facilities in California with 777 licensed beds
(the "Braswell Facilities"). As a result of this merger, the former Braswell
shareholders received $6,575,000 in cash and notes and the payment of certain
indebtedness.
Effective December 1, 1993, Regency entered into an agreement to operate a
skilled nursing facility with 199 beds. Regency will recognize all revenues and
expenses of the facility during the term of the agreement, which expires May 31,
1994.
66
<PAGE> 77
RESULTS OF OPERATIONS
The following table presents the percentage of net operating revenue
represented by certain items reflected in Regency's Consolidated Statements of
Operations for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
----------------------- --------------
1991 1992 1993 1992 1993
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net operating revenue............................... 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Nursing services.................................. 31.1 28.5 26.8 26.8 27.3
Other patient services............................ 23.9 22.2 20.6 20.8 21.1
Ancillary services................................ 11.7 16.0 17.9 17.6 17.8
Administrative and general........................ 16.4 17.1 17.4 17.6 15.9
----- ----- ----- ----- -----
83.1 83.8 82.7 82.8 82.1
----- ----- ----- ----- -----
Rent expense and property taxes................... 6.3 6.7 6.3 6.7 5.8
Depreciation and amortization..................... 2.4 1.9 1.7 1.8 1.6
Interest expense.................................. 5.5 3.0 1.4 .9 2.5
----- ----- ----- ----- -----
Income from operations.............................. 2.7% 4.6% 7.9% 7.8% 8.0%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
SIX MONTHS ENDED DECEMBER 31, 1993 COMPARED TO SIX MONTHS ENDED DECEMBER 31,
1992
Net operating revenue for the six months ended December 31, 1993 increased
$24,969,000, or 45.8%, to $79,519,000 from $54,550,000 for the six months ended
December 31, 1992. Of the increase, $8,864,000 was attributable to Regency's
facilities other than the Newport Facilities and the Braswell Facilities (the
"Regency Facilities"), $4,730,000 was attributable to the Newport Facilities,
and $11,375,000 was attributable to the recently acquired Braswell Facilities.
Medi-Cal revenue increased $11,318,000, or 49.6%, primarily as a result of a
44.2% increase in Medi-Cal patient days and a 4.6% increase in reimbursement
rates. The increase in Medi-Cal patient days was a combination of a 12,354
patient day increase in the Regency Facilities, a 17,625 patient day increase in
the Newport Facilities and a 104,063 patient day increase in the Braswell
Facilities. Medicare revenue increased $6,626,000, or 48.2%, primarily as a
result of a 46.3% increase in patient days and higher utilization of ancillary
services including subacute specialty services. Additional Medicare patient days
of 6,124 in the Regency Facilities, 3,302 in the Newport Facilities and 3,317 in
the Braswell Facilities resulted in the increase of Medicare patient days.
Revenue from private sources increased $5,294,000, or 37.1%, primarily as a
result of an increase of 34,068 private patient days and an increase of 8.3% in
reimbursement rates from private sources. Of the increase in total private
patient days, 1,110 was attributable to the Regency Facilities, 18,761 was
attributable to the Newport Facilities and 14,197 was attributable to the
Braswell Facilities. Other revenue increased $1,731,000, or 46.5%, primarily as
a result of an increase in other patient days of 6,232 attributable to the
Braswell Facilities along with increased revenue at Regency's facility for
emotionally disturbed adolescents.
Costs and expenses before rent expense, property taxes, depreciation and
amortization and interest expense for 1993 increased $20,151,000, or 44.6%, to
$65,292,000 from $45,141,000 for 1992. Of the increase, $7,239,000 was
attributable to the Regency Facilities, $3,694,000 was attributable to the
Newport Facilities and $9,218,000 was attributable to the Braswell Facilities.
Nursing services expense as a percentage of net operating revenue increased to
27.3% for 1993 from 26.8% for 1992. The increase in nursing services expense as
a percentage of net operating revenue resulted primarily from higher nursing
costs as a percentage of revenue in the recently acquired Braswell Facilities.
Ancillary services expense as a percentage of net operating revenue
increased to 17.8% in 1993 from 17.6% in 1992, primarily as a result of the
additional costs associated with the increased utilization of ancillary
services, including subacute specialty services. Of the increase in ancillary
services expense, $2,730,000 was attributable to the Regency Facilities,
$801,000 was attributable to the Newport Facilities and $1,066,000 was
67
<PAGE> 78
attributable to the Braswell Facilities. Other patient services as a percentage
of net operating revenue increased slightly to 21.1% in 1993, from 20.8% in
1992. Administrative and general expenses as a percentage of net operating
revenue decreased to 15.9% in 1993 from 17.6% in 1992, primarily due to lower
administrative and general costs in the Braswell Facilities.
Rent expense and property taxes as a percentage of net operating revenue
decreased to 5.8% in 1993 from 6.7% in 1992, primarily as a result of the
acquisition of the Braswell Facilities. Depreciation and amortization expense as
a percentage of net operating revenue decreased to 1.6% for 1993 from 1.8% in
1992.
Interest expense as a percentage of net operating revenue increased to 2.5%
in 1993 from 0.9% in 1992, primarily as a result of the issuance of Regency's
6 1/2% Convertible Subordinated Debentures due 2003 (the "Debentures").
As a result of the foregoing factors, net income for the six months ended
December 31, 1993, increased $1,250,000, or 48.3%, to $3,839,000 from $2,589,000
for the six months ended December 31, 1992.
YEAR ENDED JUNE 30, 1993 COMPARED TO YEAR ENDED JUNE 30, 1992
Net operating revenue for the year ended June 30, 1993 increased
$33,931,000, or 41.7%, to $115,378,000 from $81,447,000 for the year ended June
30, 1992. Of the increase, $14,267,000 was attributable to the Hallmark
Facilities, $9,883,000 was attributable to the Regency Facilities (excluding the
Hallmark Facilities), $3,466,000 was attributable to the pharmacy operation and
$6,315,000 was attributable to the Newport Facilities. Medi-Cal revenue
increased $12,198,000, or 34.9%, primarily as a result of a 27.4% increase in
Medi-Cal patient days and a 2.9% increase in reimbursement rates. The increase
in Medi-Cal patient days was a combination of an 8,462 patient day increase in
the Regency Facilities (excluding the Hallmark Facilities), a 100,126 patient
day increase in the Hallmark Facilities and a 22,813 patient day increase in the
Newport Facilities. Medicare revenue increased $12,813,000, or 67.9%, primarily
as a result of an 18.3% increase in patient days and higher utilization of
ancillary services including subacute specialty services. Additional Medicare
patient days of 6,211 in the Hallmark Facilities, 4,839 in the Newport
Facilities and a 1,529 patient day decrease in the Regency Facilities (excluding
the Hallmark Facilities) resulted in the net increase in patient days. Revenue
from private sources increased $8,868,000, or 43.2%, primarily as a result of an
increase of 58,770 private patient days and an increase of 9.7% in reimbursement
rates from private sources. Of the increase in total private patient days,
28,614 was attributable to the Hallmark Facilities, 27,112 was attributable to
the Newport Facilities and 3,044 was attributable to the Regency Facilities
(excluding the Hallmark Facilities). Most of the remaining $52,000 increase in
net operating revenue was attributable to increased revenue at Regency's
facility for emotionally disturbed adolescents.
Costs and expenses before rent expense, property taxes, depreciation and
amortization, and interest expense for 1993, increased $27,122,000, or 39.7%, to
$95,398,000 from $68,276,000 in 1992, and decreased as a percentage of net
operating revenue to 82.7% in 1993 from 83.8% in 1992. Of the increase,
$12,179,000 was attributable to Hallmark Facilities, $9,972,000 was attributable
to the Regency Facilities (excluding the Hallmark Facilities) and pharmacy
operation and $4,971,000 was attributable to the Newport Facilities. Nursing
services expense as a percentage of net operating revenue decreased to 26.8% in
1993 from 28.5% in 1992. The decrease in nursing services expense, as a
percentage of net operating revenue, resulted from an increase in ancillary
revenue along with Regency's efforts to staff each health care facility
efficiently. Ancillary services expense as a percentage of net operating revenue
increased to 17.9% in 1993 from 16.0% in 1992, primarily as a result of the
additional costs associated with the increased utilization of ancillary
services, including subacute specialty services, pharmacy services and the
addition of the Hallmark and Newport Facilities. Of the increase in ancillary
services expense, $2,233,000 was attributable to the Hallmark Facilities,
$4,470,000 was attributable to the Regency Facilities (excluding the Hallmark
Facilities) and pharmacy operation and $931,000 was attributable to the Newport
Facilities. Other patient services as a percentage of net operating revenue
decreased primarily as a result of the commencement of the pharmacy operation in
November 1991, which does not incur other patient services expense, and other
additional ancillary services revenue. Administrative and general expenses as a
percentage of net operating revenue increased primarily due
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to additional corporate office overhead and administrative expenses attributable
to the Hallmark and Newport acquisitions and the pharmacy operation.
Rent expense and property taxes as a percentage of net operating revenue
decreased slightly to 6.3% in 1993, from 6.7% in 1992. Depreciation and
amortization expense as a percentage of net operating revenue decreased to 1.7%
in 1993 from 1.9% in 1992.
Interest expense as a percentage of net operating revenue decreased to 1.4%
in 1993 from 3.0% in 1992, primarily as a result of lower bank rates, nominal
debt assumed in the Hallmark and Newport acquisitions, and the reduction of bank
debt that was paid with the net proceeds from Regency's initial public offering
completed in June 1992. Interest expense is expected to increase significantly
due to the recent issuance of $50,000,000 aggregate principal amount of
Regency's Convertible Subordinated Debentures. See "Liquidity and Capital
Resources."
As a result of the foregoing factors, net income for the year ended June
30, 1993 increased $2,199,000, or 67.7%, to $5,445,000 from $3,246,000 for the
year ended June 30, 1992.
YEAR ENDED JUNE 30, 1992 COMPARED TO YEAR ENDED JUNE 30, 1991
Net operating revenue for the year ended June 30, 1992 increased
$24,659,000, or 43.4%, to $81,447,000 from $56,788,000 for the year ended June
30, 1991. Of the increase, $15,599,000 was attributable to the acquisition of
the Hallmark Facilities, $7,319,000 was attributable to the Regency Facilities
(excluding the Hallmark Facilities) and $1,741,000 was attributable to the
recently-established pharmacy operation. Medi-Cal revenue increased $9,172,000,
or 35.5%, primarily as a result of a 6.8% increase in Medi-Cal reimbursement
rates and a 26.0% increase in Medi-Cal patient days. The increase in Medi-Cal
patient days was a combination of a 5,748 patient day decrease in the Regency
Facilities (excluding the Hallmark Facilities) and a 104,555 patient day
increase related to the Hallmark Facilities. Medicare revenue increased
$8,569,000, or 83.2%, primarily as a result of a 41.7% increase in patient days
and higher utilization of ancillary services including subacute specialty
services. Additional Medicare patient days of 10,115 in the Hallmark Facilities
and an increase of 5,204 Medicare patient days in the Regency Facilities
(excluding the Hallmark Facilities) accounted for the total increase. Revenue
from private sources increased $6,380,000, or 45.2%, primarily as a result of an
increase of 35,319 private patient days and an increase of 19.6% in
reimbursement rates from private sources. Of the increase in total private
patient days, 31,261 was attributable to the acquisition of the Hallmark
Facilities and 4,058 was attributable to the Regency Facilities (excluding the
Hallmark Facilities). Most of the remaining $538,000 increase in net operating
revenue was attributable to increased Veterans Administration patient days in
the Regency Facilities (excluding the Hallmark Facilities) and to increased
revenue at Regency's facility for emotionally disturbed adolescents. Costs and
expenses before rent expense and property taxes, depreciation and amortization,
and interest expense for 1992 increased $21,114,000, or 44.8%, to $68,276,000
from $47,162,000 in 1991, and increased as a percentage of net operating revenue
to 83.8% in 1992 from 83.1% in 1991. Of the increase, $13,115,000 was
attributable to the acquisition of the Hallmark Facilities and $7,999,000 was
attributable to the Regency Facilities (excluding the Hallmark Facilities).
Nursing services expense as a percentage of net operating revenue decreased to
28.5% in 1992 from 31.1% in 1991. The decrease in nursing services expense, as a
percentage of net operating revenue, resulted from an increase in ancillary
revenue along with Regency's efforts to staff each health care facility
efficiently. Ancillary services expense as a percentage of net operating revenue
increased to 16.0% in 1992 from 11.7% in 1991, as a result of the additional
cost associated with the increased utilization of ancillary services, including
subacute specialty services, pharmacy services, and the acquisition of the
Hallmark Facilities. Of the increase in ancillary service expense, $3,508,000
was attributable to the Hallmark Facilities and $2,871,000 was attributable to
the Regency Facilities (excluding the Hallmark Facilities). Administrative and
general expenses as a percentage of net operating revenue increased primarily
due to additional corporate office overhead, the commencement of the pharmacy
operation in November 1991, and the acquisition of a facility in August 1991,
which had recently begun operations.
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Rent expense and property taxes as a percentage of net operating revenue
increased to 6.7% in 1992 from 6.3% in 1991, primarily as a result of the
acquisition of the Hallmark Facilities. Depreciation and amortization expense as
a percentage of net operating revenue decreased to 1.9% for 1992 from 2.4% in
1991.
Interest expense as a percentage of net operating revenue decreased to 3.0%
in 1992 from 5.5% in 1991, primarily as a result of lower bank interest rates
and nominal debt assumed in the Hallmark acquisition.
As a result of the foregoing factors, net income for the year ended June
30, 1992 increased $1,422,000, or 78.0%, to $3,246,000 from $1,824,000 for the
year ended June 30, 1991. During 1991, Regency realized an after tax gain on the
sale of a facility of $306,000.
LIQUIDITY AND CAPITAL RESOURCES
On June 26, 1992, Regency sold 2,358,334 shares of Regency Common Stock at
$6.50 per share in its initial public offering. From the sale Regency received
net proceeds of $13,125,000. On July 21, 1992, Regency sold an additional
170,300 shares of Regency Common Stock pursuant to the partial exercise of an
underwriters' overallotment option granted in conjunction with the initial
public offering. Regency received net proceeds of $1,029,000 from the sale of
stock in connection with the exercise of the overallotment option. Regency used
$14,125,000 of the proceeds to reduce debt.
On March 23, 1993, Regency issued $50,000,000 aggregate principal amount of
its Debentures. The Debentures are convertible into 4,040,404 shares of Regency
Common Stock at a conversion price of $12.375 per share. Such conversion, if
any, will have a dilutive effect on the shares of Regency Common Stock
outstanding immediately prior thereto. The net proceeds to Regency from the
Debentures were approximately $47,800,000. Regency used $6,375,000 of the net
offering proceeds along with cash on hand to retire $8,300,000 of existing bank
indebtedness. Regency intends to use the remaining proceeds of the offering for
general corporate purposes, including working capital, financing the
establishment of additional subacute specialty units in Regency's existing
facilities, expansion of Regency's pharmacy operation and for potential future
acquisitions. Pending such uses, the net proceeds will be invested in short-term
investment grade, interest bearing securities.
Working capital at December 31, 1993 decreased to $37,739,000 from
$49,972,000 at June 30, 1993. The decrease was primarily attributable to capital
expenditures for improvements and renovations, the purchase of a 119-bed
healthcare facility, and payments of debt assumed in the Braswell acquisition.
Accounts receivable at December 31, 1993 increased to $27,792,000 from
$17,446,000 at June 30, 1993, primarily due to the acquisition of the Braswell
Facilities. The accounts receivable collection period at December 31, 1993 was
63 days compared to 49 days at June 30, 1993.
Seven of Regency's facilities receive advance payments, accounted for as
deferred revenue, under contracts with certain governmental agencies. These
advance payments have typically been received in the first fiscal quarter and
are reconciled annually in June. At December 31, 1993, such advanced payments
totaled approximately $407,000. Additionally, deferred revenue includes
$1,531,000 attributable to patient payments received in advance of services
rendered.
In recent years, due to budgetary constraints, the State of California
delayed payment of significant amounts owed to healthcare providers under the
Medi-Cal program and in 1992 reimbursed providers with registered warrants,
which banks temporarily refused to redeem. Regency has been able to mitigate the
effects of such payment delays by monitoring the related activities of the state
legislature and expediting billings to the state through its direct access
billing arrangement and obtaining the agreement of creditors to extend the due
date for payables. Regency has not experienced any other material adverse
effects on its liquidity as a result of such delays. There can be no assurance,
however, that Regency will be able to mitigate the effects of any future funding
delays.
Regency's healthcare facilities require capital improvements for
renovations and improvements in physical appearance. In addition, capital
improvements may be required in the future as a result of routine regulatory
inspections. Regency capital expenditures, excluding purchases of healthcare
facilities, for the six
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months ended December 31, 1993, were approximately $5,098,000. Included in
capital expenditures is $3,300,000 for the purchase of a 119-bed healthcare
facility. These capital expenditures have been financed through a combination of
internally generated funds and capital infusion.
In November 1992, Regency completed a $4,994,000 financing secured by a
deed of trust on the Carmichael facility and by a security agreement covering
equipment and other personal property at such facility. The debt accrues
interest at a rate of 8.75% and the principal will be paid over 40 years. As of
December 31, 1993, $3,700,000 of the proceeds from the financing has been used
to reduce other bank indebtedness, $280,000 has been used for miscellaneous loan
fees, $293,000 has been incurred for interest and $215,000 has been incurred for
improvements. The remaining proceeds, when drawn, will be used for capital
improvements.
As of December 31, 1993, Regency had outstanding long-term indebtedness
(including current portion) of approximately $62,593,000. During the six months
ended December 31, 1993, Regency paid approximately $7,682,000 of indebtedness
assumed in the Braswell acquisition.
In July 1993, Regency entered into an agreement with a bank for a secured
revolving credit loan enabling Regency to borrow funds up to $15,000,000 until
November 1, 1994. The revolving credit loan bears interest at the prime rate
with interest installments due monthly and the principal balance due November 1,
1994. The agreement contains covenants, which include maintenance of certain
minimum or maximum financial ratios, as defined in the agreement, and certain
limitations on the incurrence of liens or encumbrances on Regency's assets. As
of December 31, 1993, no amounts were borrowed under this agreement.
Regency's income from operations before fixed charges generally fluctuates
from quarter to quarter. The fluctuation is related to several factors: the
timing of Medi-Cal rate increases, seasonal census cycles and the number of
calendar days in a given quarter. As a result, Regency's income from operations
before fixed charges tends to be higher in its first and second quarters as
compared to the third and fourth quarters.
As of December 31, 1993, Regency had federal net operating loss
carryforwards of $366,000 and state net operating loss carryforwards of
$330,000. The Hallmark acquisition will limit the utilization of such
carryforwards to $300,000 per year.
In December 1990, the FASB issued Statement No. 106, "Employers' Accounting
for Post Retirement Benefits Other Than Pensions," which is to be effective for
fiscal years beginning after December 15, 1992. Regency does not currently
provide any of these benefits; therefore, adoption has no impact.
IMPACT OF INFLATION
The health care industry is labor intensive. Wages and other labor costs
are especially sensitive to inflation. Increases in wages and other labor costs
as a result of inflation, or increases in federal or state minimum wages without
a corresponding increase in Medicare and Medi-Cal reimbursement rates, could
adversely impact Regency.
RECENT REIMBURSEMENT POLICY CHANGES
In the recently-enacted federal budget deficit reduction bill, various
reimbursement rules and regulations were adopted by the federal government that
pertain to Regency. Regency has analyzed these and other reimbursement rules and
regulations and does not believe they will have a material adverse impact on
future operating results.
PROPOSED HEALTH REFORM PLAN
On October 27, 1993, President Clinton submitted to the United States
Congress his proposed Health Security Act. As proposed by the Clinton
Administration, the Health Security Act would guarantee comprehensive health
care coverage for all Americans regardless of health or employment status. The
Health Security Act would reduce certain Medicare and Medicaid programs, and
permit greater flexibility in the administration of Medicaid. Changes in
reimbursement levels under Medicare or Medicaid and changes in
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applicable government regulations could significantly affect the combined
company's results of operations. Several U.S. Senators and Representatives have
submitted bills that could approach the reform of the United States healthcare
system in different ways. In addition to federal initiatives, California, where
the combined company expects to conduct a substantial portion of its business,
has already enacted various healthcare reform measures that are expected to have
an effect on the business of the combined company after consummation of the
Merger. Regency is unable to predict whether the Health Security Act or any of
such other healthcare legislation will be enacted and implemented or the precise
effects of any such legislation. Regency believes that health services
organizations with specialized and diverse services, such as the combined
company, are likely to be well positioned under any of the proposed legislative
reforms.
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CARE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
During the nine months ended September 30, 1993, Care relied primarily on
operations to meet its liquidity needs. Cash provided by operations was
approximately $9,539,000. Cash used in investing activities totalled $2,397,000,
including capital expenditures of $2,680,000 partially offset by collections on
notes receivable. Cash used in financing activities for principal payments on
long-term debt totalled $8,198,000, including payments of $5,582,000 on the term
notes which reduced their principal balances to $13,167,000 at September 30,
1993.
During 1992, Care generated $12,428,000 in cash from operations, sold Care
Common Stock for net proceeds of $3,918,000, and borrowed $1,000,000 under its
working capital line. Care's stockholders' equity increased by $10,312,000. Care
made principal payments on notes and mortgages of $9,471,000 including payments
of $7,654,000 on the term notes which reduced their principal balances from
$26,403,000 to $18,749,000 during the year. Capital expenditures amounted to
$3,501,000. The working capital deficit has been reduced from $18,192,000 at
December 31, 1991 to $12,217,000 at December 31, 1992. In addition, subsequent
to December 31, 1992, Care has negotiated a $3,500,000 increase in its working
capital loan facility.
Care's working capital deficit was reduced by $1,158,000 to $11,059,000 at
September 30, 1993, primarily due to the determination that certain liabilities
related to medical reimbursement programs, previously classified as current
liabilities, are more appropriately classified as noncurrent. In March 1993,
Care obtained a $3,500,000 increase in its working capital loan facility from a
major stockholder. At September 30, 1993, no amounts had been borrowed under the
additional $3,500,000 loan facility.
Care's detailed projections indicate that cash flows from operations and
other sources are sufficient to meet its immediate obligations and to fund
estimated annual capital expenditures of $3,500,000. The working capital deficit
is expected to be eliminated as a result of the refinancing of certain of Care's
term notes and other indebtedness.
IMPACT OF SARS
During the nine months ended September 30, 1993, Care incurred a charge to
operating income of $463,000 relating to the SARs previously granted, as
compared to $139,000 for the nine months ended September 30, 1992. It is
anticipated that the charge to operating income for the quarter ended December
31, 1993 will be approximately $1,700,000, primarily as a result of the increase
in the market price of shares of Care Common Stock to $9.625 per share on
December 31, 1993 as compared to $4.00 per share on September 30, 1993.
Depending upon the future performance of Care Common Stock, and, after the
Effective Time, of Regency Common Stock, Care and, after the Effective Time,
Regency, may incur substantial additional charges in future periods, through
December 31, 1995, which will aggregate approximately $330,000 for each one
dollar increase in the market price of Care Common Stock (or $235,000 for each
one dollar increase in the market price of Regency Common Stock). See
"MANAGEMENT OF REGENCY FOLLOWING THE MERGER -- Executive
Compensation -- Option/SAR Exercises and Fiscal Year End Option/SAR Values."
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RESULTS OF OPERATIONS
SUMMARY OF CERTAIN KEY OPERATING STATISTICS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1993 1992
----- -----
<S> <C> <C>
Nursing Centers:
Centers owned or leased and operated at end of period.............. 50 51
Number of licensed beds............................................ 4,792 5,097
Average occupancy.................................................. 93.0% 93.1%
Centers managed for others (248 beds).............................. 1 1
Patient mix (revenues)
Medicare......................................................... 29% 24%
Medicaid......................................................... 53 57
Private.......................................................... 15 16
Other............................................................ 3 3
----- -----
100% 100%
----- -----
----- -----
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1993 COMPARED TO 1992
Revenues for the nine months ended September 30, 1993 increased by
$5,338,000 compared to the same period of 1992. The change consisted of
increases of $11,136,000 for nursing and rehabilitation centers and $4,640,000
for home health, offset by a decrease of $10,438,000 for operations discontinued
in 1992. The increase in nursing and rehabilitation center revenues is
attributable to several factors. Medicare revenues increased by $9,056,000 due
to the continued growth of therapy, subacute, other specialized clinical
services and a 16% increase in Medicare utilization. Medicaid revenues increased
by $2,390,000 primarily due to rate increases, offset slightly by lower Medicaid
utilization. Home health revenues increased due to the development of new
clinical services.
The increase in salaries and employee benefits is the result of wage rate
increases, increased labor hours and the resulting increase in payroll-related
costs for nursing and rehabilitation centers and home health, partially offset
by a decrease of $6,090,000 related to operations discontinued in 1992. The
increase in labor hours is primarily the result of growth of the home health
business.
Supplies and other expenses consist of food, routine supplies, costs
related to therapy services, utilities, maintenance and other general and
administrative expenses. The decrease in supplies and other expenses is
primarily related to operations discontinued in 1992, offset by higher
therapy-related costs in the nursing and rehabilitation centers and home health
due to Care's increased provision of those services. The increased emphasis on
the provision of therapy services also resulted in an increase in the cost for
contract therapists, which accounts for most of the increase in purchased
services. Other costs and expenses increased due to the imposition of a health
care provider tax in West Virginia.
Interest expense decreased due to the lower interest rates charged on
variable rate debt and lower outstanding debt balances. Lease and rent expense
and depreciation decreased due to the discontinuance of certain operations in
1992.
COMPARISON OF OPERATING RESULTS 1992 TO 1991
During 1992, revenues increased by $6,372,000, consisting of increases of
$11,976,000 for nursing and rehabilitation centers and $3,010,000 for home
health partially offset by a $8,614,000 decrease for pharmacies. The decrease in
pharmacy revenues resulted from the contribution of the pharmacies to an
unconsolidated partnership on April 1, 1992. The increase in nursing and
rehabilitation center revenues is attributable to several factors. The fastest
growing revenue source was occupational, speech and physical therapies which
increased by approximately $4,300,000. Medicare and Medicaid revenues increased
by $2,553,000 and $6,212,000, respectively, due primarily to rate increases.
Medicaid revenues for 1992 include approximately
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$865,000 of favorable rate increases related to 1990 and favorable cost report
settlements of $381,000. Medicare revenues for 1992 and 1991 include favorable
settlements on prior years' cost reports of $670,000 and $743,000, respectively.
The increase in salaries and employee benefits of $2,990,000 is primarily
the result of wage rate increases, increased labor hours, and increases in the
cost of vacation and other employee benefits provided by Care totalling
$6,724,000. This was offset by a reduction of $3,069,000 for pharmacies and a
$665,000 decrease in the provision for workers' compensation insurance resulting
from favorable loss experience on prior years' claims. The increase in wage
rates was primarily due to nursing salaries which, unlike other staff salaries,
are being driven upwards by increased market competition. The increase in labor
hours is the result of enforcement of OBRA regulations, increased acuity levels
of patients in the nursing and rehabilitation centers and increases in home
health due to growth in that business.
Supplies and other costs and expenses consist of food, routine supplies,
costs relating to therapy services, utilities, maintenance and other general and
administrative expenses. The decrease in supplies and other expenses was the
result of decreased pharmacy cost of sales, offset by higher therapy-related
costs in the nursing and rehabilitation centers due to Care's increased
provision of therapy services and inflation.
Care's increased emphasis on the provision of therapy services, as
discussed above, resulted in an increase in the cost for contract therapists,
which accounts for most of the increase in purchased services. The professional
fee reduction was the result of the discontinuance of the services of certain
management consultants.
The decrease in the provision for doubtful accounts and losses is the
result of an increased provision in 1991 for losses on mortgage notes receivable
offset by a reduced provision in 1992 resulting from substantial recoveries of
accounts previously written off as uncollectible. Lease and rent expense
decreased due to the contribution of the pharmacies to a partnership, offset by
an increase in rent under a short-term lease of a formerly owned facility.
Depreciation expense decreased due to the disposal of two nursing and
rehabilitation centers in 1991, combined with the elimination of the expense
related to assets contributed to the pharmacy partnership. Interest expense
declined due to lower interest rates on variable rate debt and a decrease in
outstanding debt balances of approximately $7,700,000 during 1992.
ADDITIONAL FINANCIAL DATA FOR FISCAL 1992
In 1992, Care recognized a gain of $1,007,000 on a nursing facility
disposal which occurred in 1991. The gain represents the difference between the
book value of the nursing facility assets which were acquired in 1991 by a bank
in a non-judicial foreclosure and management's estimate of the value of the
assets surrendered.
Care reduced its reserve for losses on discontinuance of certain operations
by $461,000 and reduced its reserve for fees and expenses in connection with
Chapter 11 proceedings by $75,000.
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COMPARISON OF OPERATING RESULTS 1991 TO 1990
Because Care disposed of so many of its nursing facilities and a pharmacy
during 1990 and 1991, for ease in comparison the table below has been prepared
to present the results of operations of the nursing facilities, pharmacies,
distribution centers and home health facilities which Care owned as of December
31, 1991 and exclude the results of businesses sold.
CONTINUING OPERATIONS (UNAUDITED)
(IN MILLIONS, EXCEPT PERCENTAGES)
<TABLE>
<CAPTION>
YEARS ENDED INCREASE PERCENTAGE OF
DECEMBER 31, (DECREASE) REVENUE
--------------- ---------------- -------------
1991 1990 AMOUNT PERCENT 1991 1990
------ ------ ------ ------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
TOTAL REVENUES................................ $184.2 $168.9 $15.3 9% 100% 100%
DIRECT EXPENSES
Salaries and employee benefits.............. 111.6 102.5 9.1 9 60 61
Supplies and other costs and expenses....... 36.1 32.4 3.7 11 20 19
Purchased services and professional fees.... 15.3 14.4 .9 6 8 8
Provision for doubtful accounts and
losses................................... 1.5 1.1 .4 36 1 1
------ ------ ------ ------- ----- -----
TOTAL DIRECT EXPENSES............... 164.5 150.4 14.1 9 89 89
PROPERTY EXPENSES
Lease/rent and depreciation/amortization.... 13.7 11.4 2.3 20 7 7
Interest.................................... 4.9 6.7 (1.8 ) (27) 3 4
------ ------ ------ ------- ----- -----
TOTAL PROPERTY EXPENSES............. 18.6 18.1 .5 3 10 11
------ ------ ------ ------- ----- -----
INCOME FROM OPERATIONS........................ $ 1.1 $ .4 $ .7 175% 1% 0%
------ ------ ------ ------- ----- -----
------ ------ ------ ------- ----- -----
</TABLE>
Excluded from 1991 are the operating results of facilities disposed of in
1991 which consists of revenues of $1,397,000, direct expenses of $1,200,000 and
property expenses of $196,000. Also excluded from the table above are operating
results of facilities disposed of in 1990 which consists of revenues of
$46,165,000, direct expenses of $43,200,000, property expenses of $4,600,000 and
losses from operations of $(1,635,000).
During 1991 revenues increased by approximately $15,300,000. This increase
was due to increases of approximately $16,250,000 for nursing facilities and
$2,250,000 for home health operations, which were partially offset by a decrease
of $3,200,000 for pharmacy operations. The decrease in pharmacy revenues was due
primarily to Care's sale of a substantial number of nursing facilities in 1990.
The increase in revenue from 1990 to 1991 was attributable to several factors.
The fastest growing revenue source was occupational, speech, and physical
therapies which increased by $6,190,000. Medicare and Medicaid revenues
increased by $3,722,000 and $9,091,000, respectively, due primarily to rate
increases. Medicaid revenues, which generally are less per patient than from
other sources, decreased from 58% of total revenues in 1990 to 57% in 1991.
The increases in salaries and employee benefits were due largely to wage
rate increases and to lesser extents the increase in labor hours and in
self-insured workers' compensation costs and other benefit programs provided by
Care. The increase in wage rates was primarily due to nursing salaries, which
unlike other staff salaries, are being driven upwards by a shortage in trained
personnel. The increase in labor hours was the result of Care's reduced reliance
on contract nursing services.
Supplies and other costs and expenses consist of food, routine supplies,
pharmacy cost of sales, costs related to therapy services, utilities, repairs
and maintenance and other general and administrative expenses. The increase in
supplies and other costs is primarily the result of increased therapy related
costs due to Care's increased provision of therapy services and higher pharmacy
costs of sales.
Care's additional emphasis on the provision of therapy services, as
discussed above, resulted in an increase in the cost for contract therapists,
which accounts for most of the increase in purchased services and professional
fees. These increases were partially offset by Care's reduced reliance on
registries for nurses.
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An additional provision for losses on mortgage notes receivable was the
primary reason for the increase in provision for doubtful accounts and losses.
The increase in lease and depreciation expenses is due predominantly to
additional depreciation resulting from the revaluation of assets in connection
with the adoption of Fresh-Start Reporting upon Care's emergence from
bankruptcy. Interest expense decreased in part due to the lower interest rates
charged on variable rate debt and also to lower outstanding debt balances.
ADDITIONAL FINANCIAL DATA FOR FISCAL 1991
During 1991, Care disposed of two nursing facilities. The first disposal
resulted in a loss of $653,000 which was charged against reserves for losses on
discontinuance of certain operations. The second disposal resulted from an
agreement with a bank whereby the real and personal property related to the
facility was acquired by the bank in a non-judicial foreclosure. While the net
book value of the facility assets given up were $1,007,000 less than the
obligations discharged in the foreclosure proceedings, the gain resulting from
this transaction was not recognized in 1991 pending the outcome of certain
disputed matters. Care continued to operate this facility on behalf of the bank
under a short-term lease through November 1992.
During the third and the fourth quarters of 1991, Care decided that all but
one of the nursing homes previously scheduled for disposal would no longer be
actively marketed. As a result of this decision, Care reduced its reserve for
losses on the discontinuance of certain operations by $1,256,000 as compared to
an increase in this reserve of $269,000 in 1990.
During 1991, Care continued to effectively settle its bankruptcy claims
resulting in a reduction of its reserve for expenses and fees related to Chapter
11 proceedings of $464,000 in 1991 as compared to a reduction in this reserve of
$1,223,000 in 1990.
IMPACT OF INFLATION
Care's principal costs are salaries and wages (and related employee benefit
costs) and payments to third parties for services rendered, all of which are
generally sensitive to inflation. A principal source of Care's revenues is
derived from the Medi-Cal program which is not a cost reimbursement type
program. Adjustments to Medi-Cal reimbursement rates are typically made only on
an annual basis and such adjustments may not be sufficient to fully cover all
inflationary cost increases.
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APPROVAL OF AMENDMENTS TO THE REGENCY HEALTH SERVICES, INC.
LONG-TERM INCENTIVE PLAN
The Stock Option Plan was approved by the stockholders of Regency on
December 10, 1993. As of February 28, 1994, there were outstanding under the
Stock Option Plan options to purchase 398,839 shares held by 27 participants at
a weighted average per share exercise price of $6.87.
The stockholders are requested to approve an amendment to the Stock Option
Plan to increase the number of shares of Regency Common Stock available for
grant thereunder by 1,250,000 shares and to comply with the requirements of a
new federal tax law limiting the deductibility of certain employee compensation.
If the Plan of Merger is not approved or the Merger is not consummated for any
other reason, the Stock Option Plan will not be amended regardless of passage of
the proposal to amend the Stock Option Plan at the Regency Special Meeting.
Regency relies upon the Stock Option Plan to attract and retain highly
skilled employees and quality management. The Board of Directors of Regency
believes that it is in Regency's best interest to increase the shares reserved
for issuance under the Stock Option Plan so that Regency may attract and retain
highly qualified management and technical personnel and may increase incentives
to its employees in the form of equity ownership.
On August 10, 1993, a new federal tax law limiting the deductibility of
certain employee compensation was enacted. In general, compensation of a covered
employee in excess of $1,000,000 in a fiscal year is not deductible by a company
whose stock is publicly traded, except to the extent that such compensation is
performance-based and meets certain other requirements. "Covered employees"
generally are those executives named in a company's Summary Compensation Table
for a fiscal year. Compensation realized by a covered employee upon exercise of
a stock option or payment of an SAR will be disregarded in calculating
compensation to determine the maximum deductible amount if the stock option or
SAR has been granted under a plan, the terms of which, including the class of
executives to which the plan applies, the exercise price of the option or the
formula under which the exercise price is determined and the aggregate maximum
number of shares subject to options or useable as a basis for SARs that may be
awarded under the plan to any individual executive, have been approved by the
company's stockholders. In addition, the plan under which the option or SAR was
granted must have been administered by outside directors, each of whom was not
an employee of the company or its subsidiaries, a present or former officer
thereof, or otherwise receiving compensation therefrom for personal services
(other than as a director) at the time of grant. Grants of options or SARs made
on or prior to February 17, 1993 are expressly grandfathered under the new tax
law and compensation realized from their exercise or payment will be disregarded
in calculating the maximum deductible amount.
While it is not clear that the Stock Option Plan, as approved by the
stockholders in 1993, will not meet the requirements of the new tax law, as
clarified by regulations and other interpretive guidelines issued by the IRS,
the Board of Directors of Regency believes that it is advisable to amend the
Stock Option Plan, subject to and effective upon stockholder approval, to limit
specifically the aggregate number of shares subject to options or which may be
used as a basis for SARs that may be awarded to any individual under the Stock
Option Plan to an amount not in excess of 50% of the shares of stock reserved
for issuance under the Stock Option Plan during any fiscal year after the
amendment takes effect. This limit would be proportionally adjusted in the event
of a stock split, stock dividend, combination or reclassification of shares,
recapitalization, merger, consolidation or similar event.
The Board of Directors of Regency is now submitting these amendments for
the stockholders' approval.
Set forth below is a brief description of the principal features of the
Stock Option Plan.
The purpose of the Stock Option Plan is to promote the success and
enhancement of Regency by linking the personal interests of its key employees to
those of Regency's stockholders, and to provide its key employees with an
incentive for outstanding performance. The Stock Option Plan is further intended
to provide flexibility to Regency in its ability to motivate, attract, and
retain the services of employees upon whose judgment,
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interest, and special effort the successful conduct of Regency's operations is
largely dependent. Accordingly, the Plan permits the grant of incentive awards
from time to time to selected officers and key employees.
The Stock Option Plan will be administered by a committee appointed by the
Board. The committee will consist of at least two individuals who are members of
the Board who are "disinterested persons," as such term is defined in Rule
16b(3) promulgated under Section 16 of the Exchange Act. The committee will have
the exclusive power, authority, and discretion to designate participants,
determine the type or types of awards to be granted to each participant, to
determine the number of awards to be granted, to determine the number of shares
of stock to which an award will relate, to determine the terms and conditions of
any award granted under the Stock Option Plan, and to decide all other matters
that must be determined in connection with an award.
The aggregate number of shares of stock reserved and available for awards
or that may be used to provide a basis for measurement for or to determine the
value of an award will be 2,000,000 shares. Awards may be granted only to
individuals who are officers or other key employees of Regency or a subsidiary
of Regency. Approximately 50 officers and key employees will be eligible to
participate in the Stock Option Plan. The committee will be authorized to grant
options to participants and to determine the exercise price per share of stock
under an option, to determine the time or time at which an option may be
exercised in whole or in part, provided that no option may be exercisable prior
to six months following the grant date, to determine the methods by which the
exercise price of an option may be paid, and to determine the form of payment.
The exercise price per share of stock will be set by the committee, provided
that the exercise price for any incentive stock options may not be less than the
fair market value of the stock on the date of grant. Also, incentive stock
options will not be exercisable more than ten years from the date of grant. The
aggregate fair market value of all shares of stock, with respect to incentive
stock options exercised by a participant in a calendar year, will not exceed
$100,000. An incentive stock option will not be granted to any individual who
owns stock possessing more than 10% of the total combined voting power of all
classes of stock of Regency. No award of an incentive stock option will be made
pursuant to this Stock Option Plan after December 10, 2003.
The committee will be authorized to grant SARs to participants pursuant to
an award agreement. The committee will determine the terms, methods of exercise,
methods of settlement, form of consideration, payment and settlement and any
other terms and conditions of any SAR.
The committee will also be authorized under the Stock Option Plan to grant
performance shares pursuant to an award agreement, restricted stock pursuant to
a restricted stock award agreement, dividend equivalents and other stock-based
awards.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Set forth below is a discussion of certain federal income tax consequences
with respect to incentive stock options ("ISOs") and nonqualified stock options
("NQSOs"). This discussion is based on an analysis of the Code as currently in
effect, administrative rulings and regulations, and proposed regulations, all of
which are subject to change, possibly retroactively.
Incentive Stock Options. No taxable income will be realized by an option
holder upon the grant or exercise of an ISO. If shares are issued to an option
holder pursuant to the exercise of an ISO granted under the Stock Option Plan,
then (i) upon sale of such shares, any amount realized in excess of the exercise
price of the ISO will be subject to tax as a long-term capital gain and any loss
sustained will be a long-term capital loss and (ii) no deduction will be allowed
to Regency. If, however, a disqualifying disposition of such shares is made by
such option holder (i.e., a disposition is made within two years after the date
of grant or within one year after the receipt of such shares by such option
holder), then generally the option holder will recognize ordinary income in the
year of disposition in an amount equal to the excess (if any) of the fair market
value of the shares at the time of exercise (or, if less, the amount realized on
the disposition of the shares), over the exercise price thereof, and (y) Regency
will be entitled to deduct an amount equal to such income. Any additional gain
recognized by the option holder upon a disposition of such shares prior to the
expiration of the holding period described above will be subject to tax as a
short-term or long-term capital gain, as the case may be, and will not result in
any deduction by Regency.
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If an ISO is exercised at a time when it no longer qualifies as an ISO,
such option will be treated as a NQSO. Subject to certain exceptions, an ISO
will generally not be eligible for the federal income tax treatment described
above if it is exercised more than three months following termination of
employment.
Nonqualified Stock Options. In general, an optionee will not be subject to
tax at the time a NQSO is granted. Upon exercise of a NQSO by payment of the
exercise price in cash, the optionee must generally include in ordinary income
at the time of exercise an amount equal to the excess, if any, of the fair
market value of the stock at the time of exercise over the exercise price, and
will have a tax basis in such shares equal to the sum of cash paid upon exercise
and the amount taxable as ordinary income. If the holder receiving the shares is
subject to reporting under Section 16(a) of the Exchange Act (generally an
officer or director of Regency), special rules may apply. Regency will generally
be entitled to a deduction in the amount of an optionee's ordinary income at the
time such income is recognized by the optionee upon the exercise of a NQSO.
The following table sets forth the number of stock options received through
June 30, 1993 under the Stock Option Plan by the Named Executive Officers in the
Summary Compensation Table set forth in "MANAGEMENT OF REGENCY FOLLOWING THE
MERGER -- Executive Compensation", all current executive officers of Regency as
a group and all employees of Regency as a group. No non-employee directors or
other non-employees have received any grant under the Plan.
<TABLE>
<CAPTION>
TOTAL OPTIONS
NAME GRANTED UNDER PLAN (#)
-------------------------------------------------------- ----------------------
<S> <C>
Cecil Mays.............................................. 72,986
Richard K. Matros....................................... 0(1)
Gary L. Massimino....................................... 0(2)
Tim J. Paulsen.......................................... 43,641
T. Craig Nordstrom...................................... 43,641
All executive officers of Regency as a group as of June
30, 1993.............................................. 304,511(1)(2)
All employees of Regency as a group as of June 30,
1993.................................................. 430,584(1)(2)
</TABLE>
- ---------------
(1) Does not include options to purchase 53,250 shares of Regency Common Stock
as of the Effective Time (based upon the conversion, at the Exchange Ratio
of 0.71, of options to purchase 75,000 shares of Care Common Stock granted
pursuant to the Care Stock Option Plan) and SARs associated with 108,630
shares of Regency Common Stock as of the Effective Time (based upon the
conversion, at the Exchange Ratio of 0.71, of SARs associated with 153,000
shares of Care Common Stock awarded pursuant to the Care Share Appreciation
Rights Plan) currently held by Mr. Matros.
(2) Does not include options to purchase 37,630 shares of Regency Common Stock
as of the Effective Time (based upon the conversion, at the Exchange Ratio
of 0.71, of options to purchase 53,000 shares of Care Common Stock granted
pursuant to the Care Stock Opton Plan) and SARs associated with 63,900
shares of Regency Common Stock as of the Effective Time (based upon the
conversion, at the Exchange Ratio of 0.71, of SARs associated with 90,000
shares of Care Common Stock awarded pursuant to the Care Share Appreciation
Rights Plan) currently held by Mr. Massimino.
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SELECTED INFORMATION REGARDING THE
LONG-TERM CARE SERVICES INDUSTRY
The long-term care industry encompasses a broad range of health care
services, including basic skilled nursing, subacute, rehabilitative, home health
and pharmacy services. Regency and Care believe that the combined company will
be well positioned to capitalize on favorable industry trends, including
increasing demand for such services.
INDUSTRY TRENDS
The elderly population is growing at a significantly faster rate than the
overall population as a result of demographic changes and advances in medical
technology. According to the Census Bureau, the number of individuals in the
United States over age 65 has grown from approximately 25.7 million in 1980, or
approximately 11.4% of the population, to approximately 31.2 million in 1990, or
approximately 12.6% of the population. Census Bureau projections indicate that
the number of individuals in this age group is expected to increase to
approximately 34.9 million, or approximately 13.0% of the population, by the
year 2000. Additionally, individuals over the age of 85 are one of the fastest
growing segments of the population. The Census Bureau projects that the number
of individuals in that age group will increase from approximately 3.1 million in
1990 to approximately 4.6 million by the year 2000.
The federal government and some private pay sources have implemented cost
containment procedures that have encouraged reduced lengths of stay in acute
care hospitals. In 1983, the federal government changed the reimbursement for
acute care hospitals from a retrospective cost plus based system (i.e., a
hospital's actual cost of care plus a specified rate of return for proprietary
providers) to a prospective reimbursement system based upon rates established
for diagnosis related groups ("DRGs"). Additionally, many private insurers have
begun to limit acute care reimbursement to predetermined "reasonable charges"
and many health maintenance and preferred provider organizations are attempting
to contain costs by negotiating reduced rates for acute care hospital services.
These factors have resulted in reduced lengths of stay in acute care hospitals
with many patients being discharged despite a continuing need for nursing care.
Regency and Care believe these trends will increase the demand for services
provided by their healthcare facilities, particularly for their rehabilitative
services and subacute specialty units.
COMPETITION
Competition has become more intense as alternatives for nursing and
rehabilitation patients have increased. Acute hospitals have entered the
long-term care arena. Residential care facilities and home health agencies also
provide care for patients outside the institutional setting. Many of these
patients had previously received care in long-term care facilities.
In each of the communities in which Regency and Care operate facilities and
home health agencies, there are similar facilities and agencies operated by
others. Some competing facilities and agencies provide services that will not be
offered by the combined company and some are operated by entities having greater
financial and other resources and longer operating histories than the combined
company. In addition, some are operated by nonprofit organizations or government
agencies supported by endowments, charitable contributions, tax revenues and
other sources not available to Regency or Care. There can be no assurance that
the combined company will not encounter increased competition in the future that
would adversely affect the combined company.
In competing for patients, the combined company will rely upon referrals
from acute care hospitals, physicians, residential care facilities, home health
agencies, managed care organizations, church groups and other community service
organizations in the local community. The reputation in the community and the
physical appearance of Regency's and Care's nursing and rehabilitation centers
are important in attracting patients, because members of the patient's family
generally participate to a greater extent in selecting nursing facilities as
compared with acute care facilities. Regency and Care believe that by providing
and emphasizing rehabilitative care as well as more intensive levels of nursing
care services they will be able to broaden the
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patient base and differentiate the services of the combined company from
competing nursing care facilities and home health agencies.
Many states require a certificate of need or impose similar restrictions
before a new long-term care facility can be constructed or additional beds can
be added to existing facilities. California has eliminated certificate of need
requirements, which may potentially increase competition among long-term care
operators.
HEALTHCARE REIMBURSEMENT PROGRAMS
Medicare is a health insurance program operated by the federal government
for the aged and certain chronically disabled individuals. Reimbursement is
subject to retrospective adjustment to payments made to a facility on an interim
basis that are subsequently determined to be in excess of allowable costs.
Overpayments may be recovered from the provider or by reducing future payments
to the facility or other facilities operated by the same owner.
Items eligible for payment under the Medicare program consist of nursing
care, room and board, social services, physical, speech and occupational
therapies, drugs and supplies, and other covered services of the type provided
by nursing facilities. A patient must be certified for entitlement under the
Medicare program before the nursing facility is entitled to receive
reimbursement for services provided under the program. Under the Medicare
program, the federal government pays directly to the nursing facility an amount
equal to the reasonable direct and indirect costs of the services furnished
(including, subject to certain limitations, depreciation, interest and
administrative expenses).
Individual states have programs for medical assistance to the indigent,
generally known as Medicaid and known as Medi-Cal in California. Medi-Cal is
operated by the State of California with financial assistance from the federal
government under a matching program. Medi-Cal is subject to federally imposed
requirements. Under Medi-Cal, the State of California currently provides for
reimbursement at an established daily rate, as determined by the California
Department of Health Services, based on median costs of nursing facilities,
classified by bed size and geographic location.
Medicaid programs provide funds for payment for medical services provided
to medically indigent persons. These programs are operated by state agencies and
are funded by state legislatures. Supplemental funding is provided by the
federal government for state programs that comply with certain federal
government restrictions. Medicaid reimbursement formulas are established by each
state with the approval of the federal government and vary somewhat from state
to state. However, typically they provide for payment of specified expenses up
to defined limits based on historical costs with an adjustment for inflation.
Under federal regulation, Medicaid reimbursement formulas are not permitted to
result in payments that would exceed the amount payable under the Medicare
program.
Funds received under certain Medicaid programs outside of California and
the Medicare program are subject to audit with respect to proper application of
the various payment formulas. Such audits can result in retroactive adjustments
of payments received from the programs. If, as a result of such audit, it is
determined that overpayments of reimbursements were made, the excess amount must
be repaid to the government. If, on the other hand, it is determined that an
underpayment was made, the government agency makes an additional payment to the
operator.
The Omnibus Budget Reconciliation Act of 1987 ("OBRA") was implemented
effective October 1, 1990. Among other things, OBRA eliminated the different
certification standards for "skilled" and "intermediate care" nursing facilities
under the Medicaid program in favor of a single "nursing facility" standard.
OBRA also mandated an increase in the level of services nursing facilities must
provide to participate in Medicare and Medicaid. This change, the cost of which
was partially offset by reimbursement rate increases for Medicaid and an
increase in the routine cost limits under Medicare, thus far has not had a
significant impact on either Regency or Care. While both Regency and Care
believe that they are in substantial compliance with the current requirements of
OBRA, they are unable to predict how future interpretations of current
regulations or future regulations promulgated under OBRA may affect the combined
company.
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Governmental reimbursement programs are subject to statutory and regulatory
changes, administrative rulings and interpretations, government funding
restrictions and retroactive reimbursement adjustments, all of which could
materially increase or decrease the services covered or the rates paid to the
combined company for its services. There have been, there currently are, and
Regency and Care expect that there will continue to be, a number of proposals to
limit Medicare and Medicaid reimbursement for healthcare services. Neither
Regency nor Care can predict at this time whether any of these proposals will be
adopted or, if adopted and implemented, what effect such proposals would have on
the combined company. There can be no assurance that payments under governmental
programs will remain at levels comparable to present levels or will be
sufficient to cover the cost allocable to patients eligible for reimbursement
pursuant to such programs. In addition, there can be no assurance that the
combined company's facilities and the provision of services and supplies by the
combined company will initially meet or continue to meet the requirements for
participation in Medicare or Medicaid programs.
In addition, the combined company's cash flow could be adversely affected
by periodic government program funding delays or shortfalls, such as those that
occurred in 1990 and 1991 when Medi-Cal delayed payments and rate increases for
several months, or in 1992 when Medi-Cal reimbursed providers with registered
warrants, which banks refused to redeem from August 3, 1992 through September 4,
1992. Each of Regency and Care has been able to mitigate the effects of such
payment delays by monitoring the related activities of the state legislature and
expediting billings to the state through its direct access electronic billing
arrangement with the State of California and by reaching agreements with
creditors to extend the due date for payables. There can be no assurance,
however, that the combined company will be able to mitigate the effects of any
future funding delays.
Medical reimbursement has not kept pace with the increased costs related to
the higher acuity levels, tougher regulatory standards and higher nursing costs.
All payors of medical reimbursements are constantly attempting to stem the rise
in medical costs. This has introduced various means of control, such as cost
caps, third party reviews, more fixed rate reimbursement and the emergence of
managed care.
Greater public expectations and awareness regarding these issues has
resulted in increased political pressures and regulatory scrutiny. A significant
change has taken place in Federal regulations as a result of provisions of OBRA
taking effect. This has created a uniform standard for nursing facilities
nationwide. The cost impact of these reforms has not been fully determined.
Legal action by the industry may be necessary to ensure adequate reimbursement
so providers can fully comply with the new standards. Litigation has occurred in
certain states with successful results. These lawsuits are based on the Boren
Amendment, which guarantees adequate reimbursement for federally mandated
services.
On October 27, 1993, President Clinton submitted to the United States
Congress his proposed Health Security Act. As proposed by the Clinton
Administration, the Health Security Act would guarantee comprehensive health
care coverage for all Americans regardless of health or employment status. The
Health Security Act would reduce certain Medicare and Medicaid programs, and
permit greater flexibility in the administration of Medicaid. Changes in
reimbursement levels under Medicare or Medicaid and changes in applicable
government regulations could significantly affect the combined company's results
of operations. Several U.S. Senators and Representatives have submitted bills
that could approach the reform of the United States healthcare system in
different ways. In addition to federal initiatives, California, where the
combined company expects to conduct a substantial portion of its business, has
already enacted various healthcare reform measures that are expected to have an
effect on the business of the combined company after consummation of the Merger.
Neither Regency nor Care is able to predict whether the Health Security Act or
any of such other healthcare legislation will be enacted and implemented or the
precise effects of any such legislation. Both Regency and Care believe that
health services organizations with specialized and diverse services, such as the
combined company, are likely to be well positioned under any of the proposed
legislative reforms.
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SELECTED INFORMATION REGARDING REGENCY
GENERAL
Regency operates 43 healthcare facilities throughout California that
provide skilled care and other healthcare services, primarily to elderly
patients. Regency was incorporated in 1986, at which time it operated one
skilled nursing facility. Since 1986 Regency has acquired additional facilities,
one of which was subsequently sold, and introduced new services. See
"-- Development of Business" and "-- Services Provided." Regency's objective is
to provide quality patient care while enhancing operating performance and
profitability. Regency currently operates subacute specialty units within 14 of
its facilities. These subacute specialty units serve the needs of patients with
medically complex conditions who require ongoing nursing and medical supervision
and access to specialized equipment and services, but who do not require many of
the other services provided by acute care hospitals. In November 1991, Regency
commenced operation of a pharmacy. The pharmacy currently provides
pharmaceutical products and services to many of Regency's facilities. Regency
also provides pharmaceutical products and services to facilities not owned by
Regency.
DEVELOPMENT OF BUSINESS
Regency was incorporated in Delaware in 1986 and commenced operations with
the acquisition of a long-term care facility located in Huntington Beach,
California. Effective February 1988, Regency acquired 20 facilities, 19 in
California and one in Washington. Effective January 1990, an additional facility
located in Glendora, California was acquired and, in November 1990, the
Washington facility was sold. A facility located in Carmichael, California was
acquired effective August 1991. Effective December 31, 1991, Regency, through
the merger of a wholly owned subsidiary, acquired Hallmark, which then operated
10 long-term care facilities in California with 944 licensed beds. As a result
of the merger with Hallmark, the former Hallmark stockholders received 1,092,378
shares of Regency Common Stock. Effective December 1, 1992, Regency entered into
agreements to operate three long-term care facilities with 286 licensed beds.
Effective as of July l, 1993, Regency acquired Braswell, which then operated
seven healthcare facilities. Effective as of July 16, 1993, Regency acquired an
additional healthcare facility. Effective December 1, 1993, Regency acquired an
additional healthcare facility.
ACQUISITIONS
Regency regularly evaluates opportunities to acquire healthcare facilities.
In evaluating opportunities, management considers, among other factors,
location, demographics, price, the availability of financing on acceptable
terms, competitive environment and the opportunity to improve operating
performance through the implementation of Regency's operating strategy.
SERVICES PROVIDED
Basic Long-term Care Services. Forty of Regency's healthcare facilities are
licensed as skilled nursing facilities and provide long-term care for patients
not requiring more extensive treatment at an acute care hospital. Each of these
facilities provides 24 hour a day nursing care, room and board, social services
and activity programs, as well as special diets and other services that may be
specified by a patient's physician.
Rehabilitative Services. Thirty-two of Regency's long-term care facilities
provide special rehabilitative services, including physical, speech,
occupational and respiratory therapy. These ancillary services are provided by
licensed therapists and restorative nurses' aides.
Subacute Specialty Units. Regency currently operates subacute specialty
units within 14 of its facilities. These subacute specialty units serve the
needs of patients with medically complex conditions who require ongoing nursing
and medical supervision and access to specialized equipment and services, but
who do not require many of the other services provided by acute care hospitals.
Regency's subacute specialty units provide such ancillary services as pulmonary
therapy, ventilator care, oncology services, infusion therapy and post-surgical
wound management. Services at Regency's subacute specialty units are not limited
to elderly patients. Based upon its experience within the industry and its
knowledge of acute care hospital rates, as disclosed by
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such institutions, Regency believes that it will be able to provide such care at
rates substantially below the rates typically charged by acute care hospitals
for comparable services.
Pharmacy Services. In November 1991, Regency began operating its own
pharmacy. The pharmacy currently provides pharmaceutical products and services
to many of Regency's facilities. Regency also provides pharmaceutical products
and services to facilities not owned by Regency.
Other Treatment Services. Regency operates special treatment programs for
the mentally disordered in two of its skilled nursing facilities and programs
for the developmentally disabled at three other facilities. In addition, Regency
operates a special program for emotionally disturbed adolescents at one of its
skilled nursing facilities. Regency also operates one retirement center as part
of one of its healthcare facilities.
OPERATIONS
General. Each healthcare facility operated by Regency is supervised by a
licensed administrator who is responsible for all aspects of the facility's
operations. Each facility administrator typically oversees a director of
nursing, who supervises a staff of registered nurses, licensed practical nurses,
nurses' aids, a director of admissions who is responsible for developing local
marketing strategies and programs and other department supervisors. To supervise
the medical management of patients, Regency also contracts with licensed
physicians to act as medical directors at each facility. Regency's corporate
staff provides support services such as quality assurance assistance, management
information reporting, marketing assistance, management training, reimbursement
expertise, data processing, cash management assistance, accounting and other
management support services to assist the administrator at each facility.
Managerial and Financial Controls. To improve operating performance,
Regency has developed its own management reporting system to provide concise and
timely trend reports of specific operating data. The major component of the
system is a twice monthly, payroll analysis trend report, by facility, which
focuses on per patient day data with comparisons of actual results to budget.
The management reporting system also provides periodic trend reports of
operating expenses, usage of temporary nurses, food costs, total occupancy and
payor mix. Each of these reports is prepared on a historical basis and includes
actual financial information for preceding months compared to budget.
Additionally, each facility administrator receives a monthly financial report
that compares actual performance with budget.
Regency closely monitors the information reflected in these reports. Twice
monthly, Regency management, including the Vice President of Quality Assurance,
meets to discuss the results of the payroll analysis reports and other trend
reports. Any facility that appears to have difficulty in meeting expected
results receives extra attention from management. Also, on a monthly basis,
facility administrators meet as a group with management to review actual
financial performance compared to the facility's budget.
Marketing. Regency's marketing program is directed toward promoting high
overall occupancy levels and increasing occupancy by patients for whom Regency
receives higher reimbursement. Regency employs a full-time admissions director
at most of its skilled nursing facilities. The admissions director works closely
with the administrator, director of nursing and other key facility staff to
design a marketing strategy for the facility that focuses on increasing
awareness of Regency's facilities and available services within the community it
serves. The corporate office also employs a full-time director of marketing who
assists each individual facility with its marketing efforts.
Regency's marketing strategy de-emphasizes the corporate name and promotes
each facility's own identity within the community it serves. Through this
strategy Regency believes it can better tailor its marketing plan to the
economic and demographic characteristics of each community. There are no
customers, related groups of customers or referral sources that accounted for 5%
or more of Regency's revenue for the six months ended December 31, 1993. Regency
believes that the loss of a single customer, group of related customers or
referral source would not have a material adverse effect on the operations of
Regency.
Sources of Payment. Regency receives payment for healthcare services from
(i) the federally-assisted Medi-Cal program, (ii) the federal Medicare program,
(iii) private sources, including health maintenance organizations and commercial
insurance and (iv) other sources, including special programs sponsored by
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county governments and the Veterans Administration. Because private and Medicare
reimbursement rates are generally higher than Medi-Cal reimbursement rates,
Regency has targeted the private pay market and has worked to make available
Medicare eligible services in its skilled nursing facilities. Changes in the mix
of Regency's patient population between Medi-Cal and a combination of Medicare,
private, and other sources can significantly affect profitability.
Medi-Cal currently provides for reimbursement at established daily rates,
as determined by the California Department of Health Services based on median
costs of nursing facilities classified by bed size and location. Medi-Cal pays
primarily for long-term custodial care for patients who qualify for welfare
benefits. Medi-Cal has historically provided the least favorable reimbursement
rates. Medicare reimbursement rates for skilled nursing facilities are regulated
by the federal government and generally utilize a cost-based reimbursement
system, subject to geographic limits. Medicare pays both the allowed direct cost
of covered services and allowed overhead costs allocated to those services
provided to patients covered by the Medicare program plus a return on equity.
The specific rates are dependent upon the cost and volume of the services
provided and are calculated on the cost reports submitted by each facility.
Reimbursement rates for health maintenance organizations are negotiated by
Regency and the organization. Charges for other private pay patients are
established by Regency from time to time and are determined by market conditions
and costs. Reimbursement under county and Veterans Administration contracts is
generally at negotiated daily rates. Governmental reimbursement programs are
subject to change. See "-- Regulation."
Facilities. As of February 28, 1994, Regency operated 43 healthcare
facilities with a total of 4,215 beds. Twenty of such facilities, with a total
of 1,450 beds, were owned by Regency. Five of the facilities owned by Regency
were encumbered by deeds of trust.
Twenty-three of Regency's healthcare facilities, with a total of 2,657
beds, are leased, subleased or managed. Regency's rights as lessee or sublessee
could be subject to termination if the lessor or sublessor of a facility fails
to pay its rent, taxes, loan obligations that are secured by the facility, if
any, or other similar obligations. Regency has not experienced any such lease
terminations, although there can be no assurance that Regency's rights to
operate its leased or subleased facilities will not be so affected in the
future.
Regency's facilities are subject to various governmental zoning and use
restrictions. Regency's Meadowbrook Manor facility is currently operating
pursuant to a "deemed to be approved" conditional use permit. The facility's
permit was reviewed during 1992 by the City of Los Angeles Board of Zoning
Appeals and it was determined that the use of the facility is consistent with
its previous use and with the conditions imposed on the facility's conditional
use permit. Although there can be no assurance, Regency believes the facility's
conditional use permit will continue to be renewed.
In addition to Regency's facilities listed above, on January 17, 1994,
Regency closed its Simi Valley healthcare facility as a result of damage
sustained in the Southern California (Northridge) earthquakes, which occured on
January 17, 1994. No patients or employees were injured. The patients were
transferred to non-Regency facilities. The Simi Valley facility has 99 licensed
beds, is leased by Regency and represents approximately $4 million in annualized
revenues. Regency is currently evaluating alternatives available pursuant to its
lease agreement and is discussing such alternatives with the landlord. These
alternatives range from repair to abandonment of the facility. In the event of
abandonment, Regency would record an approximate $1,500,000 loss ($900,000 net
of tax) related to the abandonment of leasehold interests and building
improvements.
Regency leases an 11,000 square foot facility for its corporate offices in
Newport Beach, California. The lease expires in January 2001. At the Effective
Time, the corporate offices of Regency will be located at the current
headquarters of Care in Tustin, California. It is anticipated that, at the
Effective Time, Regency's current corporate office facility will be used by Care
Home Health Services, Inc.
REGULATION
Licensing. Regency's healthcare facilities and pharmacy are subject to
various regulatory and licensing requirements. Each of Regency's healthcare
facilities is licensed by the California Department of Health
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Services and certain of the facilities are also licensed by the California
Department of Social Services. Generally, the licenses must be renewed annually.
In granting and renewing licenses, the agency considers, among other things, the
physical condition of the facility, the qualifications of the administrative and
nursing staffs, the quality of care, and the facility's compliance with
applicable laws and regulations. Changes in applicable laws and regulations or
new interpretations of existing laws and regulations could have a material
adverse effect on licensure, eligibility for participation, permissible
activities, costs of doing business, or the levels of reimbursement from
governmental, private, and other sources. To date such changes have not had a
material adverse effect on Regency's business. However, there can be no
assurance that regulatory authorities will not adopt changes or interpretations
that adversely affect Regency's business. The failure to maintain or renew any
required regulatory approvals or licenses could prevent Regency from offering
its existing services or from obtaining reimbursement. The acquisition of
healthcare facilities is subject to regulatory approval. The failure to obtain
any required regulatory approvals or licenses could adversely impact the
expansion of Regency's facilities or services.
Reimbursement. Thirty-three of Regency's 40 skilled nursing facilities are
certified for participation in Medicare. Forty of Regency's facilities are
certified for participation in Medi-Cal. Regency currently receives
approximately $5,500,000 per month in revenues from Medi-Cal. Regency also
receives reimbursement pursuant to contracts with county governments at its two
facilities providing services to the mentally disordered. These contracts are
subject to periodic renewal and may be terminated by either party with 30 days
notice. Regency's facility providing services to emotionally disturbed
adolescents derives substantially all its revenues from services provided
pursuant to a contract with Los Angeles County. This contract may be terminated
by either party, generally with 30 days notice, and expires in June 1996. This
facility also provides educational services to its residents under local school
district contracts that generally may be terminated by either party without
cause.
Compliance. Regency believes that its healthcare facilities are in
substantial compliance with the various applicable regulatory and licensing
requirements of state and local authorities in California and of the Medicare
and Medi-Cal programs, including the requirements of OBRA. One facility is
currently in the process of recertification for participation in both Medicare
and Medi-Cal. There can be no assurance that Regency's facilities and the
provision of services and supplies by Regency meet or will continue to meet the
requirements for participation in Medicare or Medi-Cal programs. Regency and its
healthcare facilities are subject to routine inspections, at any time, to
monitor compliance with government regulations. Based on such inspections,
Regency receives from time to time in the ordinary course of its business
notices of failure to comply with various requirements. Regency endeavors to
take prompt corrective action and, in most cases, Regency and the reviewing
agency agree on remedial steps. The reviewing agency may take action against a
facility, which can include the imposition of fines, temporary suspension of
admission of new patients to the facility, decertification from participation in
the Medicare or Medi-Cal programs and, in extreme circumstances, revocation of
the facility's license. OBRA increased fines and intermediate sanctions for
failure to comply with regulatory requirements effective October 1, 1990. In
certain circumstances, failure of compliance at one facility may affect the
ability of Regency to obtain or maintain licenses or approvals under Medicare
and Medi-Cal programs at other Regency facilities.
EMPLOYEES
At February 28, 1994, Regency had approximately 4,300 employees. Regency is
subject to both federal and state minimum wage and wage and hour laws and
maintains various employee benefit plans.
INSURANCE
Regency maintains professional and general liability insurance coverage it
believes to be adequate in amount and coverage. Regency has no earthquake
insurance. Although the cost to Regency of its insurance has not significantly
increased in recent years, there can be no assurance that such insurance will
continue to be available at acceptable costs or that claims in excess of
Regency's insurance coverage or not covered by Regency's insurance will not be
asserted against Regency. Regency also maintains workers' compensation
insurance, the cost of which can fluctuate depending on the amount and number of
Regency's claims.
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LEGAL PROCEEDINGS
Regency is subject to claims and legal actions by patients and others in
the ordinary course of business. In the opinion of Regency management, the
ultimate resolution of all pending legal proceedings will not have a material
adverse effect on Regency.
SELECTED INFORMATION REGARDING CARE
GENERAL
As of February 28, 1994, Care operated and managed 52 nursing and
rehabilitation, developmentally disabled and retirement centers in California,
Ohio, West Virginia and New Mexico, and home health agencies at 14 locations in
California and Ohio. The nursing and rehabilitation centers provide skilled
nursing, custodial care and rehabilitative services to patients that do not
require acute care hospitalization and the home health operations provide
skilled nursing care, rehabilitative and homemaker services to patients outside
the institutional setting. Care also has a 26% interest in a pharmacy
partnership which provides products and services to California nursing and other
institutional facilities, including nursing facilities operated by Care.
In December 1990, Care emerged from bankruptcy when its Joint Plan of
Reorganization became effective. Care had been in bankruptcy since March 1988
when it, together with nine of its subsidiaries, filed voluntary petitions with
the United States Bankruptcy Court ("Bankruptcy Court") for relief under Chapter
11 of Title 11 of the United States Code. In December 1989, Care and the
creditors' committee in the bankruptcy case filed a Joint Plan of Reorganization
(the "Reorganization Plan") which was confirmed by the Bankruptcy Court in April
1990. The Reorganization Plan provided, among other things, for the issuance of
Care Common Stock to holders of Care's 9% Convertible Subordinated Debentures,
16% Subordinated Notes (the "Old Notes") and shares of Class A and Class B
Common Stock (the "Old Common Stock") in satisfaction of their respective
claims. Under the Reorganization Plan, the holders of Debentures and Old Notes
and certain other unsecured creditors received one share of Common Stock for
each $10.00 of their outstanding claims which aggregated 90% of the Common Stock
to be issued and the holders of Old Common Stock received, upon cancellation of
their existing shares, the number of shares of the Common Stock which would give
them, in the aggregate, 10% of all shares of Common Stock issued and outstanding
after the Plan became effective. A total of 8,956,000 shares were issued
pursuant to the Plan, of which 8,061,000 were issued to holders of Debentures
and Old Notes and other creditors and 895,000 were issued to holders of Old
Common Stock.
In 1992 Care initiated a long range strategic business plan under which
Care undertakes to provide a continuum of quality care through delivery of
specialized medical services from inpatient to in home settings. Care believes
there is an inherent synergy that exists between its home health agencies and
nursing and rehabilitation centers. By taking advantage of that unique continuum
within one company, Care offers an attractive product to the market,
particularly in the managed care arena. It currently has ten specialized
clinical units in various stages of development at its nursing and
rehabilitation centers. These units include ventilator and other complex medical
care such as IV therapies, complex infections, pulmonary care, diabetic
management, chemotherapy, treatment of AIDS patients and wound care. Care has
increased its focus on physical, speech and occupational rehabilitative
therapies, which continue to be a strong source of revenue, growing
approximately from $25,200,000 in 1990 to $26,600,000 in 1991, $30,900,000 in
1992 and $26,400,000 for the nine months ended September 30, 1993. Care now has
16 outpatient therapy units licensed. Revenue from Care's high acuity
specialized clinical programs was approximately 27% of total revenue in 1992 and
approximately 31% for the nine months ended September 30, 1993.
Care's home health operations have been extensively involved in program
development. New services such as neonatal care, prenatal care and
gero-psychiatric care and expanded infusion therapy services, ventilator care
and care to AIDS patients were highlights in 1993.
Continued development of a wide base of high acuity services and an
integrated approach to the market with its nursing and rehabilitation and home
care services make clear Care's direction for the future.
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LONG-TERM CARE OPERATIONS
General. Care's nursing and rehabilitation centers provide nursing care and
rehabilitative services to persons who do not require the services of an acute
care hospital. Each facility is operated by a licensed administrator and a
director of nursing services, who are assisted on a part-time contract basis by
a physician who acts as a medical director. The services provided at Care's
nursing and rehabilitation centers include 24-hour nursing care by registered
nurses and licensed practical nurses, room, board, housekeeping and laundry
services, dietary planning, the provision of medical supplies and prescription
drugs, and the provision for rehabilitative and other ancillary services
including speech, occupational, physical and respiratory therapies and contract
laboratory and x-ray services.
In support of the health care operations, Care maintains executive and
regional administrative centers which provide supervisory, administrative and
consulting services. Each regional office is staffed by a regional administrator
and support personnel specializing in nursing care, rehabilitation and dietary
programs, medical bookkeeping and maintenance. Care's executive offices provide
centralized management and support services including operations support,
marketing, planning and development, human resources, accounting, reimbursement
and financial services, cash management, data processing, legal support, risk
management, quality control, centralized purchasing, education, training and
consulting support services in the area of rehabilitative care.
Care's profitability and cash flows are affected by many factors, including
(i) the licensed bed capacity of its nursing facilities; (ii) the extent to
which that bed capacity is occupied; (iii) the extent of rehabilitative and
other ancillary services provided by Care at its skilled nursing facilities;
(iv) the mix of private, Medicare and Medicaid patients; (v) the mix and volume
of services provided by Care's home health agencies; (vi) the cost reimbursement
rates paid by Medicare and Medicaid (see "SELECTED INFORMATION REGARDING THE
LONG-TERM CARE SERVICES INDUSTRY -- Health Care Reimbursement Programs"); and
(vii) labor and employee benefits and facility maintenance expense.
Care, as well as many of its competitors, is affected by many factors that
are indigenous to the long-term care industry, including (i) medical
reimbursement levels, (ii) increased regulatory control and scrutiny as a result
of the implementation of OBRA, and (iii) alternatives to the institutional
long-term care setting (i.e, home health agencies, residential care facilities
and acute hospital based nursing facility distinct parts). These alternatives
have increased competition for employees resulting in an escalation in wages,
and have also impacted competition for patient census. Facilities are now
accepting patients with greater medical needs to maximize census and revenue.
Care's specialized clinical units are designed to meet the needs of these high
acuity patients and further enhance ancillary and routine revenues.
Sources of Payment. The table below shows the number of Care's nursing and
rehabilitation centers and licensed beds at year end, average occupancy rates
and annual revenues by source during each of the last five years.
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED DECEMBER 31
ENDED -----------------------------------------
9/30/93 1992(1) 1991(1) 1990 1989 1988
----------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Number of facilities....................... 50 50 51 52 86 94
Number of licensed beds.................... 4,792 4,792 5,097 5,252 8,622 9,707
Average annual occupancy rate.............. 93% 93.3% 92.6% 92.3% 91.8% 89.0%
Nursing facility revenue by payor source:
Medicaid................................. 53% 56% 57% 58% 49% 54%
Medicare................................. 29 24 23 20 26 16
Private.................................. 15 16 17 20 20 25
Managed Care and Other..................... 3 4 3 2 5 5
----------- ----- ----- ----- ----- -----
100% 100% 100% 100% 100% 100%
----------- ----- ----- ----- ----- -----
----------- ----- ----- ----- ----- -----
</TABLE>
- ---------------
(1) Data excludes a 248 bed facility which is being managed by Care under a
management agreement.
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HOME HEALTH OPERATIONS
Care Home Health Services, Inc., a wholly owned subsidiary of Care, has
provided home care services throughout California and Southern Ohio since 1983
and has grown steadily in revenue and visits in every year since its founding.
Through two divisions, Care Home Health and Care At Home, patients at home
receive technical medical support such as infusion and ventilator care and
respite services such as assistance with personal hygiene, cooking and cleaning.
Home Health management resides in free-standing offices from where clinical
staff is dispatched. One additional office was opened in 1993 for a total of 14
locations as of December 31, 1993. The 1992 revenue mix was approximately 62%
Medicare, 22% private, 13% Medicaid and 3% managed care. For the nine months
ended September 30, 1993, revenue mix was approximately 69% Medicare, 17%
private, 11% Medicaid and 3% managed care. Home health revenues increased
approximately 26% from $11,700,000 in 1991 to $14,700,000 in 1992. For the nine
months ended September 30, 1993, home health revenues were approximately
$15,000,000.
The home care industry has experienced growth in the last decade due to the
benefits to patients, physicians, hospitals and payors. Patients enjoy the
increased comfort of home and the control of the schedule of nursing visits and
therapies. They welcome earlier discharge from hospitals and significantly lower
costs than hospitalization. Physicians use home care because it helps minimize
distress calls to the doctor and provides ongoing communication regarding the
patients' progress. Hospitals refer patients to home care to decrease lengths of
stay, thereby reducing costs for services that are reimbursed to them by
diagnosis versus time in the hospital. Payors support home care for cost savings
and for the reduction in re-hospitalizations achieved by home care nurses
recognizing clinical problems earlier and preventing misunderstandings on
therapies.
Internal factors supporting continued growth of Care Home Health Services,
Inc. include the steady referral base from Care facilities and the market appeal
of a company that provides a continuum of care from inpatient to outpatient
rehabilitation to home care. Care Home Health Services, Inc. is well positioned
due to its established longevity in this relatively adolescent industry.
Care Home Health Services, Inc. is state licensed in California (not
required in Ohio), Medicare and Medicaid certified in California and Ohio and
accredited in California and Ohio by the independent Joint Commission on the
Accreditation of Healthcare Organizations ("JCAHO").
CARE COMBINED OPERATIONS
The table below sets forth the approximate percentage of Care's revenues
from each of the following sources:
<TABLE>
<CAPTION>
NINE
MONTHS YEAR ENDED DECEMBER 31
ENDED ----------------------------------------
9/30/93 1992 1991 1990 1989 1988
-------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Nursing and Rehabilitation.............. 90% 91 % 88 % 89 % 92 % 94 %
Home Health............................. 10 8 6 4 3 2
Pharmacy (through 3/31/92).............. -- 1 6 7 5 4
--- ---- ---- ---- ---- ----
Total Care revenue...................... 100% 100 % 100 % 100 % 100 % 100 %
--- ---- ---- ---- ---- ----
--- ---- ---- ---- ---- ----
</TABLE>
HEALTHCARE REIMBURSEMENT PROGRAMS
All but one of the nursing facilities and all of the home health agencies
operated by Care are certified for participation in Medicare and all of the
facilities and home health agencies operated by Care are Medicaid certified.
Payments under the Medicare program received by Care are currently
sufficient to cover all of the operating and fixed costs allocable to Medicare
patients. Payments received by Care under Medicaid programs
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currently cover a substantial portion, but not all, of the operating and fixed
costs of furnishing services to Medicaid patients. There is no assurance that
payments under these programs will remain at levels comparable to present levels
or will, in the future, be sufficient to cover the operating and fixed costs
allocable to patients participating in such programs.
Care has made a strategic commitment and has pledged resources to provide
managed care organization members with services ranging from subacute care to
home health care. The scope of care which Care offers along with the talents of
new staff sets Care apart from its competitors in the market. Contracts have
been negotiated with managed care organizations, such as health maintenance
organizations ("HMO's"), preferred provider organizations ("PPO's") and
independent provider associations ("IPA's") for care to their members. Numerous
contracts have also been entered into with hospice providers and with the
Veterans Administration for care to eligible veterans.
The last audit of Care with respect to Medicare and Medicaid payments was
for the year ended December 31, 1991. Care believes that its reserves for
potential adjustments related to fiscal years 1992 and 1993 are adequate and
that any future adjustments proposed by these agencies will not have a material
effect on the consolidated financial position or liquidity of Care.
Managed care is playing a larger role in the industry, with HMO's, PPO's,
IPA's and insurance companies creating relationships with long-term care
companies and home health agencies. Managed care reimbursement is predicated on
different levels of services. Care has made a strategic commitment to develop
new payor sources in this growing area.
REGULATIONS
Care's nursing and rehabilitation and home health operations are subject to
extensive federal and state regulatory, licensing and inspection requirements.
These requirements relate to, among other things, the adequacy of physical
buildings and equipment, the qualifications of administrative personnel and
nursing staff, the quality of nursing care provided and continuing compliance
with the laws and regulations applicable to the operations of the facilities.
OBRA contains provisions related to nursing care that are more stringent than
those effective prior to its enactment. Care is implementing the provisions of
OBRA, applicable to its business, through the support of its Corporate
Professional Services Department, which includes quality improvement programs.
In addition, before the acquisition of any existing nursing facility can be
consummated, approval of the local state health care licensing authority must be
obtained, together with certification for participation in its respective
Medicaid and Medicare programs. The nursing and rehabilitation facilities and
home health agencies operated by Care are licensed and certified by various
governmental agencies.
Care's Corporate Professional Services Department sets standards for
patient care, provides training and education, assists in development of
specialized clinical units, investigates patient complaints, reviews citations
or deficiency notices issued by regulatory agencies, consults with facility
management and conducts periodic site inspections to ensure that quality care is
provided and deficiencies are corrected. Peer reviews are also conducted by
teams, whose members are employees of Care's nursing and rehabilitation
facilities, to ensure that Care standards of quality are upheld.
In the ordinary course of business, Care, like others in the long-term care
industry, receives statements of deficiency for failure to comply with various
federal and state regulatory requirements. Fines may be assessed and regulatory
authorities have the ability to de-license or decertify facilities operated by
any nursing care operator at which there has been failure to comply with the
various regulatory requirements. Care believes that its present reserves for
potential fines and decertification actions are adequate and that any future
actions will not have a material effect on the consolidated financial position
of Care.
COMPETITION
Care's approach to revenue enhancement is based on the philosophy that its
facilities must strategically identify the needs of the local market and develop
programs to meet those needs through a diversification of medical services in
order to meet the challenge of a more competitive market. Care is developing
specialized
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clinical units in its facilities to enhance its reputation as a high-end
provider. Care has historically emphasized rehabilitation programs (physical,
speech and occupational therapies) and has recently expanded its inpatient
programs and is developing new outpatient therapy units. Currently, 31% of
Care's facilities have outpatient therapy units. Care's specialized clinical
units address hospice care, AIDS, wound care, pulmonary and respiratory,
ventilator units, Alzheimers units and others currently in development. Care's
infusion therapy programs have shown substantial growth in 1993. Increased
revenue from these programs comes primarily through the Medicare program and
managed care providers.
Competition from home health agencies has been partially offset by the
continued development of Care's home health operations and the recognition that
Care's facilities can operate in conjunction with the home health agencies in
their local communities.
PROPERTIES
As of February 28, 1994, Care operated and managed 52 nursing and
rehabilitation, developmentally disabled and retirement centers in California,
Ohio, West Virginia and New Mexico, and home health agencies in 14 locations in
California and Ohio through its subsidiary, Care Home Health Services, Inc.
Long-Term Care. The following table sets forth information regarding the
facilities centers owned or leased by Care as of February 28, 1994:
<TABLE>
<CAPTION>
FACILITIES(1) BEDS(1)
---------------------------- -------------------------
OWNED(2) LEASED TOTAL OWNED LEASED TOTAL
--------- ------- ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
California.................... 7 31 38 539 2,938 3,477
Ohio.......................... 4 -- 4 400 -- 400
New Mexico.................... -- 3 3 -- 360 360
West Virginia................. 5 1 6 554 65 619
-- -- --
------ ------- ------
16 35 51 1,493 3,363 4,856
-- -- --
-- -- --
------ ------- ------
------ ------- ------
</TABLE>
- ---------------
(1) Data excludes a 248 bed facility which is being managed by Care under a
management agreement.
(2) All of the facilities owned by Care are encumbered by deeds of trust or
mortgages.
Home Health. Care's subsidiary, Care Home Health Services, Inc., leases
facilities aggregating 22,000 square feet for its 14 home health locations.
Corporate Offices and General Lease Information. At December 31, 1992, Care
leased a 34,000 square foot facility for its corporate offices in Tustin,
California and 7,400 square feet at two regional offices in Suisun, California
and Worthington, Ohio. Substantially all of the leases for its operating units
require Care to pay all taxes, insurance and maintenance costs. The leases
expire at various dates (inclusive of renewal periods) to October 2011. Care has
options to purchase five of the leased facilities. As of January 1, 1994, the
lease for Care's corporate offices was amended to cover a total of 52,000 square
feet.
EMPLOYEES
At February 28, 1994, Care had approximately 5,900 full-time and part-time
employees, of whom approximately 4,800 were employed at Care's nursing and
rehabilitation facilities, approximately 900 at its home health agencies,
approximately 150 at its administrative, regional executive offices.
Approximately 1,100 of the employees were covered by collective bargaining
agreements. Care believes that its relations with its employees in general and
the eight collective bargaining units remain very good.
TAX AUDITS
An Internal Revenue Service audit of the Care federal income tax returns
for the years 1987 through 1990 and the Care federal payroll tax returns for the
year 1990 is presently pending, which raises issues concerning the amount of the
net operating loss claimed by Care and certain other issues. Although it is not
possible to predict with certainty the outcome of the audit, in the opinion of
Care management, adequate
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provision for the audit has been made and the audit is not expected to have a
material adverse effect on Care's financial position.
INSURANCE
Care maintains general and professional liability insurance for its
operations, subject to a self-insured retention, in amounts which it believes to
be adequate. Property insurance is maintained to protect against all perils,
including earthquake and flood, subject to deductibles. For workers'
compensation, Care is self-insured in California and Ohio and purchases
insurance for this risk in West Virginia and New Mexico. The cost of insurance
is based on market conditions, claims history and number and type of company
operations. As these factors vary, the cost of insurance can vary. To secure its
obligations to pay benefits under its self-insured workers' compensation
programs, Care has caused various surety bonds and letters of credit to be
issued.
LEGAL PROCEEDINGS
Care is subject to various claims and lawsuits which arise in the normal
course of business. In the opinion of management, adequate provision has been
made and such claims or actions are not expected to have a material affect on
Care's financial position.
RECENT FINANCING
On December 30, 1993, Care entered into a note agreement with a number of
institutional purchasers pursuant to which it issued $30,000,000 of its 8.10%
Senior Secured Notes due December 15, 2000. The Notes have an average maturity
of five years and provide for semi-annual interest payments commencing January
15, 1994. Principal payments of $6,000,000 are due annually commencing January
15, 1997. The Notes are secured by mortgages on 11 of Care's facilities. Six of
the facilities are located in California, two in West Virginia and three in
Ohio. Proceeds from the financing were used to retire approximately $18,900,000
of existing indebtedness and to pay $2,400,000 of certain other costs and
expenses. Net proceeds from the financing totaled approximately $8,700,000,
which, in conjunction with the repayment terms on the Notes, substantially
reduce Care's working capital deficit.
On or about March 3, 1994, Care entered into an $8,000,000 letter of credit
facility with the Bank of America secured by Care's accounts and notes
receivable and the shares of its subsidiary that is a partner in the pharmacy
partnership. These letters of credit are used by Care in connection with its
self-insured workers' compensation programs in California and Ohio.
RESTATED REGENCY CERTIFICATE OF INCORPORATION
AND RESTATED REGENCY BYLAWS
The following is a summary of the Restated Regency Certificate and the
Restated Regency Bylaws as each such document will read at the Effective Time.
Pursuant to the Plan of Merger, at the Effective Time, the Restated Certificate
of Incorporation of Care (the "Care Certificate") and the Bylaws of Care (the
"Care Bylaws") will be amended and restated to read substantially as the
Restated Regency Certificate and the Restated Regency Bylaws. The following
summary is qualified in its entirety by reference to the complete text of the
form of Restated Regency Certificate, which is included as Annex B to this Proxy
Statement/Prospectus, and the form of Restated Regency Bylaws, which is included
as Exhibit C to this Proxy Statement/Prospectus.
Authorized Stock. The Restated Regency Certificate provides that Regency is
authorized to issue 35,000,000 shares of Regency Common Stock. See "DESCRIPTION
OF REGENCY SECURITIES."
Classified Board. The Restated Regency Certificate provides for the Board
of Directors of Regency to be divided into three classes, each class to serve
(after an interim period) for staggered three-year terms (the "Classified Board
Provision"). Each class will consist, as nearly as may be possible, of one-third
of the total number of directors constituting the entire Board of Directors.
Members of all three classes will be elected by the current directors of Regency
immediately prior to the Effective Time. See "MANAGEMENT OF
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REGENCY FOLLOWING THE MERGER -- Board of Directors of Regency." After the first
annual meeting of stockholders following the Effective Time, successors to the
class of directors whose term expires at that annual meeting will be elected for
a three-year term.
The Board of Directors of Regency believes that a classified board of
directors, which increases the likelihood of continuity and stability in the
composition of Regency's Board of Directors, will in turn help to assure the
continuity and stability of the business strategies and policies of Regency as
determined by the Board of Directors and thus enhance the policies formulated by
the Board.
The Classified Board Provision could have the effect of discouraging a
third party from making a tender offer or otherwise attempting to obtain control
of Regency, even though such an attempt might be beneficial to Regency and its
stockholders. In addition, the Classified Board Provision could delay
stockholders who do not like the policies of the Board of Directors from
removing a majority of the Board for two years unless such stockholders can show
cause and obtain the requisite vote. See "-- Number of Directors; Removal;
Filling Vacancies."
Special Meetings of Stockholders. The Restated Regency Certificate
prohibits the taking of stockholder action by written consent without a meeting.
The Restated Regency Certificate provides that special meetings of stockholders
of Regency may be called only by the Chairman of the Board, the President or by
a majority of the then-authorized number of directors of Regency. This provision
will make it more difficult for stockholders to take action that is opposed by
the Board of Directors.
Committees. The Restated Regency Bylaws provide that until at least the
close of the annual meeting of stockholders in 1997 the standing committees of
the Board of Directors of Regency will include an Executive Committee, a Human
Resources Committee and an Audit Committee. The standing committees will consist
of the persons designated to serve on each such committee in the Plan of Merger,
and no person shall be appointed to replace a member of any such committee
without, in each case, the concurrence of, in the case of replacing a Regency
Designee, a majority of the remaining Regency Designees or their successors and,
in the case of replacing a Care Designee, a majority of the remaining Care
Designees or their successors. See "MANAGEMENT OF REGENCY FOLLOWING THE
MERGER -- Committees of the Board of Directors."
Officers. The Restated Regency Bylaws provide that the officers of Regency
shall be a Chairman of the Board, a President, a Secretary, a Chief Financial
Officer and any other officers appointed in accordance with the Restated Regency
Bylaws. Until at least the annual meeting of stockholders in 1997, the Chairman
of the Board, subject to his rights under his New Employment Agreement, may be
removed, with or without cause, and a vacancy in the office of Chairman of the
Board may be filled, only by the vote of 75% of the then-authorized number of
directors or, if the existing number of directors is less than 75% of the
then-authorized number of directors, by a unanimous vote of the Board of
Directors. See "MANAGEMENT OF REGENCY FOLLOWING THE MERGER -- Executive
Officers" and "THE MERGER -- Interests of Certain Persons in the Merger."
Indemnification of Directors and Officers. The Restated Regency Certificate
provides that a director will not be personally liable to Regency or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except (i) for any breach of the duty of loyalty to Regency or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for liability under Section 174
of the DGCL (relating to certain unlawful dividends, stock repurchases or stock
redemptions) or (iv) for any transaction from which the director derived any
improper personal benefit. The effect of this provision in the Restated Regency
Certificate is to eliminate the rights of Regency and its stockholders (through
stockholders' derivative suits on behalf of Regency) to recover monetary damages
against a director for breach of fiduciary duty of care as a director (including
breaches resulting from negligent or grossly negligent behavior) except in
certain limited situations. This provision does not limit or eliminate the
rights of Regency or any stockholder to seek non-monetary relief such as an
injunction or rescission in the event of a breach of a director's duty of care.
These provisions will not alter the liability of directors under federal
securities laws.
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<PAGE> 105
The Restated Regency Certificate and the Restated Regency Bylaws provide
that Regency shall indemnify each existing and former director and officer,
employee and agent to the fullest extent provided by the laws of the State of
Delaware.
Number of Directors; Removal; Filling Vacancies. The Restated Regency
Certificate provides that the Board of Directors will consist of eight members.
Further, the Restated Regency Certificate authorizes only the Board of Directors
then in office to fill newly created directorships. Accordingly, this provision
could prevent a stockholder from obtaining majority representation on the Board
of Directors by enlarging the Board of Directors and filling the new
directorships with its own nominees. The Restated Regency Certificate contains
no provision with respect to removal of directors, and, thus, removal of
directors is governed by Section 141 of the DGCL. Under Delaware law, a director
of a corporation with a classified board, such as Regency, may be removed only
for cause. This provision, when coupled with the provision authorizing only the
Board of Directors to fill vacant directorships, will preclude a stockholder
from removing incumbent directors without cause and simultaneously gaining
control of the Board of Directors by filling the vacancies created by such
removal with its own nominees.
Amendment to Restated Regency Bylaw Provisions. The Restated Regency
Bylaws may be adopted, amended or repealed either by (a) stockholders by the
vote of two-thirds of the outstanding shares of Regency Common Stock entitled to
vote or (b) the Board of Directors, provided that, the approval of 75% of the
then-authorized number of directors is required to amend provisions of the
Restated Regency Bylaws relating to (i) the number of directors, (ii) the
Classified Board Provision, (iii) the filling of vacancies on the Board of
Directors, (iv) the Executive, Human Resources and Audit Committees of the Board
of Directors and (v) the removal and resignation of officers and filling of
vacancies in office.
COMPARISON OF RIGHTS OF STOCKHOLDERS
OF REGENCY AND CARE
Upon consummation of the Merger, the stockholders of Care will become
stockholders of Regency and their rights will cease to be defined and governed
by the Care Certificate and the Care Bylaws and will be defined and governed by
the Restated Regency Certificate and the Restated Regency Bylaws. In addition,
upon consummation of the Merger, the Regency Certificate and the Regency Bylaws
will be amended and restated as described herein. See "RESTATED REGENCY
CERTIFICATE OF INCORPORATION AND RESTATED REGENCY BYLAWS." Certain provisions of
the Restated Regency Certificate and the Restated Regency Bylaws alter the
rights of stockholders from those that Regency or Care stockholders presently
have and also alter certain powers of management. Certain of these provisions
are summarized below. This summary is qualified in its entirety by reference to
the form of Restated Regency Certificate (which is included as Annex B to this
Proxy Statement/Prospectus), the form of Restated Regency Bylaws (which are
included as Annex C to this Proxy Statement/Prospectus), the Care Certificate
and Certificate of Amendment thereto (which were filed with the Commission as
Exhibits 3.2 and 3.4, respectively to Care's Annual Report on Form 10-K for the
year ended December 31, 1990), the Care Bylaws (which were filed with the
Commission as Exhibit 3.3 to Care's Annual Report on Form 10-K for the year
ended December 31, 1990), the Regency Certificate (which was filed as Exhibit
3.1 to Regency's Registration Statement on Form S-1 (No. 33-45591)) and the
Regency Bylaws (which were filed as Exhibit 3.2 to Regency's Registration
Statement on Form S-1 (No. 33-45591)).
CAPITAL STOCK
The authorized capital stock of Care currently consists of 25,000,000
shares of Care Common Stock and 1,000,000 shares of preferred stock. The
Restated Regency Certificate will authorize Regency to issue 35,000,000 shares
of Regency Common Stock and no shares of preferred stock. Whereas the Care
Certificate granted the authority to the Care Board to provide for issuances of
preferred stock and to establish the rights, preferences and limitations with
respect thereto, as no such authorization has been granted by the Restated
Regency Certificate, no such authorization has been granted to the Regency
Board, nor can such authorization be so granted without an amendment to the
Restated Regency Certificate.
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<PAGE> 106
BOARD OF DIRECTORS
The Regency Certificate provides for the number of directors of Regency to
be specified in the Regency Bylaws. The Regency Bylaws set the current size of
the Board of Directors of Regency at not less than five nor more than nine, the
exact number of which has been fixed at six. The Regency Certificate also
provides for the directors of Regency to be classified into three classes, as
nearly equal in number as possible. Each Regency director is elected for a
three-year term.
The Care Certificate is silent with respect to the number of directors. The
Care By-Laws provide for an authorized number of directors of seven.
The Restated Regency Bylaws provide that Regency's Board of Directors will
consist of eight directors. This number may be changed only by (i) the vote of
holders of not less than two-thirds of the outstanding shares of Regency Common
Stock entitled to vote or (ii) approval of 75% of the then-authorized number of
directors. The Regency Board will be divided into three classes, with each of
Class I and Class II consisting of three directors and Class III consisting of
two directors. Each director of Regency will be elected for a three-year term.
See "MANAGEMENT OF REGENCY FOLLOWING THE MERGER -- Board of Directors of
Regency." A classified board makes changes in the composition of the board of
directors more difficult, and thus a potential change in control of a company a
lengthier and more difficult process.
VOTING POWER
Upon consummation of the Merger, based upon the capitalization of Regency
and Care on March 3, 1994, the current holders of securities of Regency and Care
will hold approximately 42.1% and 57.9%, respectively, of Regency's voting power
(or 54.0% and 46.0%, respectively, on a fully diluted basis). Following the
Merger neither holders of Regency Common Stock nor Care Common Stock will
possess the same relative voting power in matters put to a vote of holders of
voting stock of Regency as they possessed prior to the Merger. See "OWNERSHIP OF
REGENCY SECURITIES AFTER THE EFFECTIVE TIME."
STOCKHOLDER CONSENT
The Care Certificate is silent with respect to actions that may be taken by
stockholders without a meeting. The DGCL provides that stockholders may take any
action without a meeting by written consent signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted. Prompt notice of the taking of any action
by less than unanimous consent must be given to stockholders who did not consent
to such action.
Both the Regency Certificate and the Restated Regency Certificate provide
that no action to be taken or that may be taken at any annual or special meeting
of stockholders of Regency may be taken without a meeting, and deny the power of
stockholders to consent in writing, without a meeting, to the taking of any
action.
STOCKHOLDER APPROVAL OF CERTAIN BUSINESS COMBINATIONS
Section 203 of the DGCL ("Section 203") prohibits a Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for
three years following the date that such person becomes an interested
stockholder. With certain exceptions, an interested stockholder is a person or
entity who or which owns 15% or more of the corporation's outstanding voting
stock (including any rights to acquire stock pursuant to an option, warrant,
agreement, arrangement or understanding, or upon the exercise of conversion or
exchange rights, and stock with respect to which the person has voting rights
only), or is an affiliate or associate of the corporation and was the owner of
15% or more of such voting stock at any time within the previous three years.
For purposes of Section 203, the term "business combination" is defined
broadly to include mergers of the corporation or a subsidiary with or caused by
the interested stockholder; sales or other dispositions to the interested
shareholder (except proportionately with the corporation's other shareholders)
of assets of the
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<PAGE> 107
corporation or a subsidiary equal to ten percent or more of the aggregate market
value of the corporation's consolidated assets or its outstanding stock; the
issuance or transfer by the corporation or a subsidiary of stock of the
corporation or such subsidiary to the interested stockholder (except for certain
transfers in a conversion or exchange or a pro rata distribution or certain
other transactions, none of which increase the interested stockholder's
proportionate ownership of any class or series of the corporation's or such
subsidiary's stock); or receipt by the interested stockholder (except
proportionately as a stockholder), directly or indirectly, of any loans,
advances, guarantees, pledges or other financial benefits provided by or through
the corporation or a subsidiary.
A Delaware corporation may elect not to be governed by Section 203 by a
provision of its original certificate of incorporation or an amendment thereto
or to the bylaws, which amendment must be approved by a majority of the shares
entitled to vote and may not be further amended by the board of directors. The
Care Certificate provides that Care is not subject to Section 203.
Neither the Regency Certificate nor the Restated Regency Certificate
contains a provision with respect to of Section 203. Therefore, Regency will be
governed by the provisions of Section 203. Regency believes Section 203 will
encourage any potential acquiror to negotiate with Regency's Board of Directors.
Section 203 may have the effect of limiting the ability of a potential acquiror
to make a two-tiered bid for Regency in which all stockholders would not be
treated equally. Section 203 may also discourage certain potential acquirors
unwilling to comply with its provisions.
AMENDMENT OF BYLAWS
The Regency Bylaws may be adopted, amended or repealed either by (a)
stockholders by the vote of two-thirds of the outstanding shares of Regency
Common Stock entitled to vote or (b) the Board of Directors.
The Care By-Laws may be adopted, amended or repealed either by (i)
stockholders by the vote of a majority of the outstanding shares of Care Common
Stock entitled to vote, or (ii) the vote of a majority of the Board of
Directors.
The Restated Regency Bylaws may be adopted, amended or repealed either by
(a) stockholders by the vote of two-thirds of the outstanding shares of Regency
Common Stock entitled to vote or (b) the Board of Directors, provided that the
approval of 75% of the then-authorized number of directors is required to amend
provisions of the Restated Regency Bylaws relating to (i) the number of
directors, (ii) the Classified Board Provision, (iii) the filling of vacancies
on the Board of Directors, (iv) the Executive, Human Resources and Audit
Committees of the Board of Directors and (v) the removal and resignation of
officers and filling of vacancies in office. These provisions will make it more
difficult for Regency's Board of Directors to make changes in the Restated
Regency Bylaws. See "RESTATED REGENCY CERTIFICATE OF INCORPORATION AND RESTATED
REGENCY BYLAWS."
DESCRIPTION OF REGENCY SECURITIES
COMMON STOCK
General. The authorized capital stock of Regency will consist of
35,000,000 shares of Regency Common Stock, par value of $.01 each. The
description of Regency's common stock set forth herein does not purport to be
complete and is qualified in its entirety by reference to the form of Restated
Regency Certificate and the form of Restated Regency Bylaws attached hereto as
Annexes B and C, respectively.
Voting Rights. The holders of Regency Common Stock will be entitled to one
vote per share on all matters to be voted upon by stockholders, including
elections of directors. The holders of Regency Common Stock will not be entitled
to cumulate votes for the election of directors. Following the Merger, the Board
of Directors of Regency will consist of eight members divided into three
classes. The directors of a class will hold office for a term of three years.
See "MANAGEMENT OF REGENCY FOLLOWING THE MERGER -- Board of Directors of
Regency."
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<PAGE> 108
Dividend and Liquidation Rights. The holders of Regency Common Stock will
be entitled to receive dividends as and when declared by the Board of Directors
of Regency out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the affairs of Regency, the holders of
Regency Common Stock will be entitled to share ratably in any assets remaining
after payment in full of all liabilities of Regency. Prior to the Effective
Time, Regency and Care anticipate entering into an amendment to the Note
Agreement with the holders of the Notes issued pursuant thereto, whereby Regency
will assume the Notes and agree to be bound by the restrictions contained in the
Note Agreement, as modified. See "THE MERGER -- Note Holder Consent." Among such
restrictions is a provision limiting the payment of dividends and other
restricted payments to no more than 25% of consolidated net income from and
after January 1, 1994, on a cumulative basis.
No Other Rights. The holders of Regency Common Stock will not have
preemptive rights with respect to the issuance of additional shares of capital
stock by Regency. The Regency Common Stock does not contain any redemption
provisions or conversion rights.
CERTAIN ANTI-TAKEOVER PROVISIONS
The Restated Regency Certificate and the Restated Regency Bylaws will
contain certain provisions that may delay or deter a change in control of
Regency. Such provisions will, among other things, (i) require a classified
Board of Directors, with each class containing as nearly as possible one-third
of the whole number of members of the Board and the members of each class
serving for three-year terms, (ii) deny the power of stockholders to consent in
writing, without a meeting, to the taking of any action and (iii) require
stockholder approval of certain business combinations. See "COMPARISON OF RIGHTS
OF STOCKHOLDERS OF REGENCY AND CARE."
OWNERSHIP OF REGENCY SECURITIES AT THE EFFECTIVE TIME
At and after the Effective Time, by reason of conversion of Care Common
Stock into Regency Common Stock, the equity ownership of Regency will be shared
by the persons who were holders of Regency Common Stock and Care Common Stock
immediately prior to the Effective Time. Accordingly, the equity interest that
each holder of Regency Common Stock or Care Common Stock holds in Regency or
Care, as the case may be, immediately prior to the Effective Time, will be
converted into a smaller percentage ownership interest in a larger company.
Stock Ownership of Regency at the Effective Time. Following consummation of
the Merger, the holders of Regency Common Stock and Care Common Stock will hold
the following percentages of Regency Common Stock at the Effective Time:
<TABLE>
<CAPTION>
PERCENT OF REGENCY COMMON
STOCK AT THE EFFECTIVE
TIME
-------------------------
AS AS
ISSUED(1) ADJUSTED(2)
--------- -----------
<S> <C> <C>
Holders of Regency Common Stock........................ 42.1% 54.0%
Holders of Care Common Stock........................... 57.9% 46.0%
</TABLE>
- ---------------
(1) Assumes no conversion of convertible securities of Regency and no exercise
of any options for Regency Common Stock or Care Common Stock.
(2) Assumes the conversion of all convertible securities of Regency and the
exercise of all options for Regency Common Stock which may be purchased upon
exercise of options vested as of March 3, 1994 or vesting within 60 days
after March 3, 1994.
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<PAGE> 109
Management of Regency at the Effective Time. The following table sets forth
the number of shares of Regency Common Stock expected to be beneficially owned
by the directors and executive officers of Regency as a group at the Effective
Time (assuming no transactions in shares of Regency Common Stock or Care Common
Stock between March 3, 1994 and the Effective Time).
<TABLE>
<CAPTION>
REGENCY COMMON STOCK
AT THE EFFECTIVE TIME
------------------------
SHARES
BENEFICIALLY
OWNED(1) PERCENT
------------ -------
<S> <C> <C>
Directors and Executive Officers as a Group
(14 persons)........................................ 1,844,286 11.2%(2)
</TABLE>
- ---------------
(1) Includes 279,347 shares of Regency Common Stock that could be purchased
after the Effective Time upon exercise of currently exercisable stock
options of each company or options of each company exercisable within 60
days of March 3, 1994. Does not include SARs.
(2) Based on 16,229,746 shares of Regency Common Stock that will be outstanding
after the Effective Time and 279,347 shares of Regency Common Stock that
could be purchased after the Effective Time upon exercise of currently
exercisable stock options of each company or options of each company
exercisable within 60 days of March 3, 1994.
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<PAGE> 110
CURRENT OWNERSHIP OF REGENCY SECURITIES
The following table sets forth certain information, as of March 3, 1994,
with respect to beneficial ownership of shares of Regency Common Stock by any
person who is known by Regency to be the beneficial owner of more than 5% of
Regency Common Stock, by directors individually and by directors and executive
officers of Regency as a group, including the shares of Regency Common Stock
expected to be beneficially owned by each such person at the Effective Time. The
information presented is based upon information furnished to Regency by such
beneficial owners. Except as otherwise indicated, to the knowledge of Regency,
all persons listed below have sole voting and investment power with respect to
their shares of Regency Common Stock, except to the extent that authority is
shared by spouses under applicable law.
<TABLE>
<CAPTION>
REGENCY COMMON STOCK REGENCY COMMON STOCK
------------------------------ AT THE EFFECTIVE
AMOUNT AND NATURE TIME
NAME AND ADDRESS OF OF BENEFICIAL PERCENT --------------------
BENEFICIAL OWNER OWNERSHIP(1) OF CLASS PERCENT(2)
----------------------------------------------- ----------------- -------- --------------------
<S> <C> <C> <C>
Gregory S. Anderson(3)......................... 903,659 shares 13.2% 5.6%
400 East Van Buren St., Suite 650
Phoenix, AZ 85004
El Dorado Investment Company(4)................ 877,611 shares 12.9% 5.4%
400 East Van Buren St., Suite 650
Phoenix, AZ 85004
</TABLE>
<TABLE>
<S> <C> <C> <C>
Carol Mays(5).................................. 732,545 shares 10.5% 4.5%
3636 Birch Street, Suite 195
Newport Beach, CA 92660
Cecil Mays(6).................................. 732,545 shares 10.5% 4.5%
3636 Birch Street, Suite 195
Newport Beach, CA 92660
Brinson Partners............................... 577,600 shares 8.5% 3.6%
209 South LaSalle
Chicago, IL 60604
Kenneth B. Plumlee............................. 6,000 shares * *
11020 White Rock Road
Rancho Cordova, CA 95670
Tony Astorga................................... 6,000 shares * *
2444 West Las Palmaritas
Phoenix, AZ 85021
All executive officers and directors as a 1,735,558 shares 24.5% 10.5%
group........................................
(11 persons)(7)
</TABLE>
- ---------------
* Less than 1%.
(1) Regency Common Stock consists of 6,828,606 shares issued and outstanding as
of March 3, 1994. Includes the beneficial ownership of shares that the
person has a right to acquire within 60 days of March 3, 1994. The
information includes shares subject to options granted under the Stock
Option Plan.
(2) Regency Common Stock will consist of 16,229,746 shares as of the Effective
Date. Assumes no transactions in shares of Regency Common Stock or Care
Common Stock between March 3, 1994 and the Effective Time. The number of
shares of Regency Common Stock beneficially owned at the Effective Time will
equal the number of shares of Regency Common Stock indicated above.
(3) Includes options for the purchase of 26,048 shares of Regency Common Stock.
Also includes 747,095 shares of Regency Common Stock owned of record by El
Dorado Investment Company and 130,516 shares of Regency Common Stock owned
of record by Sundance Capital Corporation, which shares Mr. Anderson may be
deemed to beneficially own by virtue of his being the Managing Director of
El Dorado Investment Company and Vice President of Sundance Capital
Corporation. Sundance Capital Corporation is a subsidiary of El Dorado
Investment Company, which is wholly owned by Pinnacle West Capital
Corporation.
(4) Includes 130,516 shares of Regency Common Stock owned of record by Sundance
Capital Corporation, a subsidiary of El Dorado Investment Company. El Dorado
Investment Company is wholly owned by Pinnacle West Capital Corporation.
(5) Includes options for the purchase of 67,921 shares of Regency Common Stock
owned of record by Carol Mays and options to purchase 67,921 shares of
Regency Common Stock owned by Cecil Mays.
(6) Includes options for the purchase of 67,921 shares of Regency Common Stock
owned of record by Cecil Mays and options for the purchase of 67,921 shares
of Regency Common Stock owned by Carol Mays. Also includes 596,703 shares of
Regency Common Stock owned of record by Cecil Mays.
(7) Includes beneficial ownership of Regency Common Stock as follows: Cecil and
Carol Mays, 596,703 shares and Gregory S. Anderson, 877,611 shares by virtue
of his being the General Manager of El Dorado and Vice President of Sundance
Capital Corporation. Also includes stock options held by the following
directors and executive officers of Regency for the purchase of the
following number of shares of Regency Common Stock: Cecil Mays, 67,921
shares; Carol Mays, 67,921 shares; Gregory S. Anderson, 26,048 shares; Tim
J. Paulsen, 15,100 shares; T. Craig Nordstrom, 27,600 shares; James R.
Wodach, 30,948 shares; Eileen J. Erickson, 11,524 shares; Michael E.
Lesnick, 2,182 shares; Tony Astorga, 6,000 shares; and Kenneth B. Plumlee,
6,000 shares.
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<PAGE> 111
CURRENT OWNERSHIP OF CARE SECURITIES
The following table sets forth certain information, as of March 3, 1994,
with respect to all those known by Care to be the beneficial owners of more than
5% of the outstanding Care Common Stock, each director who owns shares of Care
Common Stock, and all directors and executive officers of Care as a group,
including the shares of Regency Common Stock expected to be beneficially owned
by each such person at the Effective Time. Except as otherwise indicated, the
address of each individual director is in care of Care at 2742 Dow Avenue,
Tustin, California 92680.
<TABLE>
<CAPTION>
REGENCY COMMON STOCK
CARE COMMON STOCK AT THE EFFECTIVE TIME
--------------------------------------- ------------------------------------
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF SHARES BENEFICIALLY
BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS(1) OWNED(2) PERCENT(3)
- ---------------------------------- ---------------------- ------------ ------------------- ------------
<S> <C> <C> <C> <C>
The Smith Group(4)................ 4,700,554 shares 35.5% 3,337,394 20.6%
767 Third Avenue
New York, NY 10017
The Foothill Group(5)............. 1,607,952 shares 12.1% 1,141,652 7.0%
11111 Santa Monica Blvd.
Suite 1500 Los Angeles, CA 90025
General Electric Capital
Corporation..................... 691,364 shares 5.2% 490,868 3.0%
260 Long Ridge Road
Stamford, CT 06927
Directors:
John W. Adams(6).................. 64,175 shares * 45,564 *
Corley R. Barnes.................. 15,317 shares * 10,875 *
Laraine K. Beck................... 100 shares * 71 *
Robert G. Coo(7).................. 25,633 shares * 18,199 *
Richard K. Matros(8).............. 31,356 shares * 22,262 *
John F. Nickoll(9)................ 37,731 shares * 26,789 *
Arthur J. Pasmas.................. 0 shares * 0 *
All executive officers and
directors as a group (11
persons)(6)(9)(10).............. 217,390 shares 1.6% 154,346 *
</TABLE>
- ---------------
* less than 1%.
(1) Care Common Stock consists of 13,241,043 shares issued and outstanding as
of March 3, 1994.
(2) Assumes no transactions in shares of Regency Common Stock or Care Common
Stock between March 3, 1994 and the Effective Time. Reflects the Exchange
Ratio of 0.71 of a share of Regency Common Stock for each share of Care
Common Stock.
(3) Regency Common Stock will consist of 16,229,746 shares as of the Effective
Time.
(4) According to reports filed with the Commission and Care records, the
aggregate number of shares reported for The Smith Group is beneficially
owned by a group comprised of SOLVation Inc., d/b/a/ Smith Management
Company, Randall D. Smith, Gary M. Smith, Energy Management Corporation,
Woodstead Associates, L.P., The Durian Trust and SEGA Associates, L.P.
(5) According to the most recent reports filed with the Commission and Care
records, the aggregate number of shares reported for The Foothill Group was
3,161,729 and includes shares beneficially owned by The Foothill Group,
Inc., a Delaware corporation, The Foothill Fund, a California limited
partnership, Foothill Capital Corporation, a California corporation,
Foothill Partners L.P., a Delaware Limited Partnership, as well as 35,803
shares owned directly by John F. Nickoll. On March 3, 1994, The Foothill
Fund distributed 1,663,857 shares of Care Common Stock in connection with
the liquidation of the partnership following the expiration of the
partnership term. Of such amount, 1,928 shares were distributed to John F.
Nickoll and 108,161 shares were distributed to The Foothill Group.
(6) Mr. Adams is the sole general partner of SEGA Associates, L.P. and
accordingly has voting control and beneficial ownership of 64,175 shares of
Care Common Stock held by SEGA Associates, L.P. Mr. Adams is also the
President of Smith Management Company and indirectly owns 4.2% of Smith
Management Company.
(7) Mr. Coo is the brother-in-law of John W. Adams.
(8) Includes 31,250 shares that could be purchased within 60 days of March 3,
1994 upon exercise of stock options. Does not included SARs.
(9) John F. Nickoll is the President, Co-Chief Executive Officer and a director
of The Foothill Group, Inc.
(10) Includes 64,500 shares that could be purchased within 60 days of March 3,
1994 upon exercise of stock options, including 31, 250 shares that could be
purchased by Mr. Matros, and 22,000 shares that could be purchased by Mr.
Massimino. Does not include SARs.
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<PAGE> 112
LEGAL MATTERS
The validity of the Regency Common Stock to be issued in connection with
the Merger will be passed upon by Skadden, Arps, Slate, Meagher & Flom.
EXPERTS
The consolidated financial statements as of June 30, 1993 and 1992 and for
each of the three years in the period ended June 30, 1993 and the related
financial statement schedules included in this Proxy Statement/Prospectus and
the Registration Statement from Regency's Annual Report on Form 10-K for the
year ended June 30, 1993 have been audited by Arthur Andersen & Co., independent
public accountants, as indicated in their report which is included herein in
reliance upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements as of December 31, 1992 and 1991 and
for each of the two years in the period ended December 31, 1992
(post-reorganization) and for the year ended December 31, 1990 (pre-
reorganization) and the related financial statement schedules included in this
Proxy Statement/Prospectus and the Registration Statement from Care's Annual
Report on Form 10-K for the year ended December 31, 1992 have been audited by
Ernst & Young, independent auditors, as stated in their report which is included
herein. Such financial statements are included herein in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
It is expected that representatives of Arthur Andersen & Co. will be
present at the Regency Special Meeting to respond to appropriate questions of
stockholders and to make a statement if they desire. It is expected that
representatives of Ernst & Young will be present at the Care Special Meeting to
respond to appropriate questions of stockholders and to make a statement if they
desire.
STOCKHOLDER PROPOSALS AND NOMINATIONS FOR 1994 ANNUAL MEETING
A stockholder desiring to submit a proposal for inclusion in Regency's
Proxy Statement for the 1994 Annual Meeting must deliver the proposal so that it
is received by Regency no later than June 27, 1994. Regency requests that all
such proposals be addressed to Brad L. Kerby, Senior Vice President, General
Counsel and Secretary, Regency Health Services, Inc., 3636 Birch Street, Suite
195, Newport Beach, California 92660, and mailed by certified mail, return
receipt requested. In addition, Regency's Bylaws require that notice of
stockholder nominations for directors and related information be received by the
Secretary of the Company not less than 60 days nor more than 90 days prior to
the date of the 1994 Annual Meeting.
<TABLE>
<S> <C>
By Order of the Board of Directors of By Order of the Board of Directors of
Regency Health Services, Inc. Care Enterprises, Inc.
(SIG) (SIG)
Cecil Mays John W. Adams
Chairman of the Board of Directors, Chairman of the Board of Directors
Chief Executive Officer and President
</TABLE>
102
<PAGE> 113
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
REFERENCE
------------
<S> <C>
Financial Statements and Supplementary Data.................................... Regency F-1
Report of Independent Public Accountants....................................... Regency F-2
Consolidated Balance Sheets.................................................... Regency F-3
Consolidated Statements of Income.............................................. Regency F-5
Consolidated Statements of Stockholders' Equity................................ Regency F-6
Consolidated Statements of Cash Flows.......................................... Regency F-7
Notes to Consolidated Financial Statements..................................... Regency F-9
</TABLE>
Regency F-1
<PAGE> 114
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Regency Health Services, Inc.:
We have audited the accompanying consolidated balance sheets of REGENCY
HEALTH SERVICES, INC. (a Delaware corporation) as of June 30, 1993 and 1992, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended June 30, 1993. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Regency
Health Services, Inc. as of June 30, 1993 and 1992, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended June 30, 1993, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN & CO.
Orange County, California
September 1, 1993
Regency F-2
<PAGE> 115
REGENCY HEALTH SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, DECEMBER 31,
1992 1993 1993
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents......................... $ 3,801,997 $ 40,429,246 $ 21,325,144
Accounts receivable, net of allowances of $370,000
at June 30, 1992, $520,000 at June 30, 1993 and
$1,337,000 at December 31, 1993................ 10,635,980 17,446,204 27,791,632
Note receivable................................... -- -- 2,300,000
Stock subscriptions receivable.................... 14,256,129 -- --
Other current assets.............................. 1,503,326 2,281,782 2,957,952
----------- ------------ ------------
Total current assets...................... 30,197,432 60,157,232 54,374,728
----------- ------------ ------------
PROPERTY AND EQUIPMENT:
Land.............................................. 11,243,924 11,243,924 15,403,658
Buildings and improvements........................ 17,296,846 20,133,478 36,660,880
Leasehold interests -- other...................... 6,481,973 7,131,958 7,423,333
Leasehold interests -- related party.............. 2,075,000 2,075,000 2,075,000
Equipment......................................... 3,609,804 4,658,932 6,254,888
----------- ------------ ------------
40,707,547 45,243,292 67,817,759
Less -- accumulated depreciation and
amortization................................... (5,578,787) (7,335,155) (8,355,113)
----------- ------------ ------------
35,128,760 37,908,137 59,462,646
----------- ------------ ------------
OTHER ASSETS:
Goodwill, net of accumulated amortization of
$20,000 at June 30, 1992, $80,000 at June 30,
1993 and $108,000 at December 31, 1993......... 866,409 1,113,081 1,089,958
Insurance refundable.............................. 646,000 646,000 546,000
Other assets, net of accumulated amortization of
$814,000 at June 30, 1992, $938,000 at June 30,
1993 and $274,000 at December 31, 1993......... 1,428,474 4,385,151 5,964,323
Deferred income taxes............................. 316,500 172,500 172,500
Patient trust accounts............................ 221,624 306,697 330,285
----------- ------------ ------------
3,479,007 6,623,429 8,103,066
----------- ------------ ------------
$68,805,199 $104,688,798 $121,940,440
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Regency F-3
<PAGE> 116
REGENCY HEALTH SERVICES, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, DECEMBER 31,
1992 1993 1993
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt................. $12,313,000 $ 222,000 $ 209,000
Accounts payable.................................. 5,307,358 3,696,295 6,128,086
Accrued expenses.................................. 1,306,430 511,192 624,819
Accrued compensation.............................. 2,966,172 3,271,207 5,030,037
Accrued income taxes.............................. -- -- 1,016,970
Deferred revenue.................................. 1,801,117 1,546,129 1,937,925
Accrued interest.................................. 141,249 937,819 1,689,583
----------- ------------ ------------
Total current liabilities................. 23,835,326 10,184,642 16,636,420
----------- ------------ ------------
Long-term debt, net of current portion............ 13,091,932 55,449,614 62,383,681
Deferred rent..................................... 1,044,454 1,066,415 1,047,974
Patient trust liability........................... 221,624 306,697 330,285
----------- ------------ ------------
38,193,336 67,007,368 80,398,360
----------- ------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY: Common stock,
$.01 par value; authorized -- 35,000,000 shares;
6,445,976 shares issued, 4,087,642 shares
outstanding and 2,358,334 shares subscribed
at June 30, 1992;
6,820,870 shares issued and
outstanding at June 30, 1993; 6,824,557 shares
issued and outstanding at December 31,
1993.............................................. 64,460 68,209 68,246
Additional paid-in capital..................... 31,279,552 32,900,687 32,921,836
Retained earnings (deficit).................... (732,149) 4,712,534 8,551,998
----------- ------------ ------------
Total stockholders' equity................ 30,611,863 37,681,430 41,542,080
----------- ------------ ------------
$68,805,199 $104,688,798 $121,940,440
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Regency F-4
<PAGE> 117
REGENCY HEALTH SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
---------------------------------------- ------------------------
1991 1992 1993 1992 1993
----------- ----------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET OPERATING REVENUE...................... $56,787,816 $81,447,195 $115,377,612 $54,550,314 $79,518,545
----------- ----------- ------------ ----------- -----------
COSTS AND EXPENSES:
Nursing services......................... 17,657,086 23,241,068 30,959,264 14,616,235 21,730,602
Dietary services......................... 4,852,153 6,266,726 8,303,133 3,954,036 5,708,565
Other patient services................... 8,722,722 11,810,902 15,410,390 7,399,796 11,049,734
Ancillary services....................... 6,639,138 13,017,980 20,652,242 9,584,733 14,182,533
Administrative and general............... 9,288,843 13,939,140 20,073,382 9,586,646 12,620,934
Rent expense and property taxes.......... 2,800,821 4,696,813 6,401,630 3,203,278 4,167,753
Rent expense -- related party............ 783,225 798,552 854,388 425,760 415,656
Depreciation and amortization............ 1,386,814 1,535,546 1,984,665 978,886 1,306,899
Interest expense......................... 3,114,461 2,462,154 1,634,835 502,524 2,014,405
----------- ----------- ------------ ----------- -----------
Total costs and expenses.......... 55,245,263 77,768,881 106,273,929 50,251,894 73,197,081
----------- ----------- ------------ ----------- -----------
INCOME FROM OPERATIONS..................... 1,542,553 3,678,314 9,103,683 4,298,420 6,321,464
GAIN ON SALE OF FACILITY................... 311,623 -- -- -- --
----------- ----------- ------------ ----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES
AND EXTRAORDINARY ITEMS.................. 1,854,176 3,678,314 9,103,683 4,298,420 6,321,464
PROVISION FOR INCOME TAXES................. 792,000 1,454,000 3,621,000 1,719,000 2,482,000
----------- ----------- ------------ ----------- -----------
INCOME BEFORE EXTRAORDINARY ITEMS.......... 1,062,176 2,224,314 5,482,683 2,579,420 3,839,464
EXTRAORDINARY ITEMS:
Utilization of net operating loss
carryforward........................... 762,000 1,022,000 99,000 99,000 --
Loss on extinguishment of debt, net of
applicable income tax of $87,000 and
$55,000, respectively.................. -- -- (137,000) (89,000) --
----------- ----------- ------------ ----------- -----------
NET INCOME................................. $ 1,824,176 $ 3,246,314 $ 5,444,683 $ 2,589,420 $ 3,839,464
----------- ----------- ------------ ----------- -----------
----------- ----------- ------------ ----------- -----------
INCOME PER COMMON SHARE --
PRIMARY:
Income before extraordinary items........ $ 0.39 $ 0.62 $ 0.81 $ 0.38 $ 0.56
Extraordinary items:
Net operating loss carryforward........ 0.24 0.28 0.01 0.01 --
Loss on extinguishment of debt......... -- -- (0.02) (0.01) --
----------- ----------- ------------ ----------- -----------
Net income per share..................... $ 0.63 $ 0.90 $ 0.80 $ 0.38 $ 0.56
----------- ----------- ------------ ----------- -----------
----------- ----------- ------------ ----------- -----------
Weighted average shares of common stock and
equivalents.............................. 3,141,516 3,682,722 6,777,530 6,736,915 6,913,320
----------- ----------- ------------ ----------- -----------
----------- ----------- ------------ ----------- -----------
INCOME PER COMMON SHARE -- FULLY DILUTED:
Income before extraordinary items........ $ 0.39 $ 0.62 $ 0.78 $ 0.38 $ 0.45
Extraordinary items:
Net operating loss carryforward........ 0.24 0.28 0.01 0.01 --
Loss on extinguishment of debt......... -- -- (0.02) (0.01) --
----------- ----------- ------------ ----------- -----------
Net income per share..................... $ 0.63 $ 0.90 $ 0.77 $ 0.38 $ 0.45
----------- ----------- ------------ ----------- -----------
----------- ----------- ------------ ----------- -----------
Weighted average shares of common stock and
equivalents.............................. 3,141,516 3,682,722 7,787,631 6,736,915 10,953,724
----------- ----------- ------------ ----------- -----------
----------- ----------- ------------ ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Regency F-5
<PAGE> 118
REGENCY HEALTH SERVICES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(INFORMATION WITH RESPECT TO THE SIX MONTHS
ENDED DECEMBER 31, 1993, IS UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
------------------- PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
--------- ------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, June 30, 1990............. 817,404 $ 8,174 $ 3,804,224 $(5,802,639) $(1,990,241)
Net income....................... -- -- -- 1,824,176 1,824,176
--------- ------- ----------- ----------- -----------
BALANCE, June 30, 1991............. 817,404 8,174 3,804,224 (3,978,463) (166,065)
Net income....................... -- -- -- 3,246,314 3,246,314
Conversion of preferred stock.... 1,506,684 15,067 8,545,377 -- 8,560,444
Conversion of note payable, net
of fees....................... 529,510 5,295 1,065,910 -- 1,071,205
Shares issued in connection with
Hallmark acquisition.......... 1,092,378 10,924 4,339,076 -- 4,350,000
Conversion of note payable....... 141,666 1,417 423,583 -- 425,000
Issuance of common stock in
initial public offering, net
of fees....................... 2,358,334 23,583 13,101,382 -- 13,124,965
--------- ------- ----------- ----------- -----------
BALANCE, June 30, 1992............. 6,445,976 64,460 31,279,552 (732,149) 30,611,863
Net income....................... -- -- -- 5,444,683 5,444,683
Common stock sold pursuant to
overallotment option, net of
fees.......................... 170,300 1,703 1,027,761 -- 1,029,464
Exercise of warrants, net of
fees.......................... 154,022 1,540 324,878 -- 326,418
Exercise of stock options........ 50,572 506 268,496 -- 269,002
--------- ------- ----------- ----------- -----------
BALANCE, June 30, 1993............. 6,820,870 68,209 32,900,687 4,712,534 37,681,430
Net income....................... -- -- -- 3,839,464 3,839,464
Exercise of stock options........ 3,687 37 21,149 -- 21,186
--------- ------- ----------- ----------- -----------
BALANCE, December 31, 1993......... 6,824,557 $68,246 $32,921,836 $ 8,551,998 $41,542,080
--------- ------- ----------- ----------- -----------
--------- ------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Regency F-6
<PAGE> 119
REGENCY HEALTH SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
--------------------------------------- ---------------------------
1991 1992 1993 1992 1993
----------- ----------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................. $ 1,824,176 $ 3,246,314 $ 5,444,683 $ 2,589,420 $ 3,839,464
----------- ----------- ------------ ------------ ------------
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization............. 1,386,814 1,535,546 1,984,665 978,886 1,336,899
Deferred income taxes..................... -- (316,500) 144,000 -- --
Gain on sale of facility.................. (311,623) -- -- -- --
Loss on debt extinguishment............... -- -- 137,000 89,000 --
(Increase) decrease in assets:
Accounts receivable..................... (131,572) (235,123) (6,810,224) (4,734,594) (7,220,120)
Other current assets.................... (423,776) (3,941) (778,456) (638,307) (511,586)
Insurance refundable.................... (750,000) 104,000 -- -- 100,000
Increase (decrease) in liabilities:
Accounts payable........................ (78,028) 644,029 (1,611,063) (1,030,148) 58,565
Accrued expenses and compensation....... (267,751) (128,262) (405,130) (713,525) 1,583,454
Accrued interest........................ (73,779) (76,986) 796,570 (98,970) 751,764
Deferred revenue........................ 71,145 309,195 (254,988) 432,100 391,796
Deferred rent........................... 123,609 161,316 21,961 8,269 (18,441)
----------- ----------- ------------ ------------ ------------
Total adjustments.................... (454,961) 1,993,274 (6,775,665) (5,707,289) (3,527,669)
----------- ----------- ------------ ------------ ------------
Net cash provided by (used in)
operating activities............... 1,369,215 5,239,588 (1,330,982) (3,117,869) 311,795
----------- ----------- ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.......... (384,576) (2,735,858) (4,535,745) (1,341,859) (8,728,226)
Proceeds from sale of facility.............. 1,654,682 -- -- -- --
Additions (deletions) to other assets....... (85,816) (330,654) (1,453,719) 252,255 (2,107,969)
Issuance of note receivable................. -- -- -- -- (2,300,000)
----------- ----------- ------------ ------------ ------------
Net cash provided by (used in)
investing activities............... 1,184,290 (3,066,512) (5,989,464) (1,089,604) (13,136,195)
----------- ----------- ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt.................. (2,227,005) (1,697,577) (24,438,104) (15,996,369) (7,987,791)
Proceeds from issuance of long-term debt.... -- -- 4,704,786 3,803,474 1,273,882
Proceeds from issuance of debentures........ -- -- 47,800,000 -- --
Proceeds from issuance of common stock...... -- -- 14,256,129 14,256,129 --
Proceeds from overallotment options......... -- -- 1,029,464 -- --
Proceeds from exercise of options and
warrants.................................. -- -- 595,420 1,408,238 21,186
----------- ----------- ------------ ------------ ------------
Net cash provided by (used in)
financing activities............... (2,227,005) (1,697,577) 43,947,695 3,471,472 (6,692,723)
----------- ----------- ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................. 326,500 475,499 36,627,249 (736,001) (19,517,123)
CASH AND CASH EQUIVALENTS, acquired in
acquisition................................. -- 1,271,705 -- -- 413,021
CASH AND CASH EQUIVALENTS, beginning of
period...................................... 1,728,293 2,054,793 3,801,997 3,801,997 40,429,246
----------- ----------- ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of period...... $ 2,054,793 $3,801,997 $ 40,429,246 $ 3,065,996 $ 21,325,144
----------- ----------- ------------ ------------ ------------
----------- ----------- ------------ ------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for
interest................................ $ 3,188,000 $2,545,000 $ 841,000 $ 602,000 $ 1,263,000
----------- ----------- ------------ ------------ ------------
----------- ----------- ------------ ------------ ------------
Cash paid during the period for income
taxes................................... $ 18,400 $ 360,300 $ 3,858,000 $ 1,757,000 $ 1,450,000
----------- ----------- ------------ ------------ ------------
----------- ----------- ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Regency F-7
<PAGE> 120
<TABLE>
<S> <C>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During fiscal 1992:
(a) Notes payable in the amount of $1,109,294 were converted into 529,510 shares
of common stock.
(b) All of the issued and outstanding preferred stock was converted into 1,506,684
shares of common stock.
(c) The Company acquired all of the issued and outstanding common stock of
Hallmark Health Services, Inc. for $4,350,000.
In conjunction with the acquisition, liabilities were assumed as follows:
Assets acquired........................................................... $ 9,687,000
Common stock issued as consideration...................................... 4,350,000
------------
Liabilities assumed....................................................... $ 5,337,000
------------
------------
(d) A note payable in the amount of $425,000 was converted into 141,666 shares of
common stock.
(e) In June the Company sold 2,358,334 shares of its Common Stock resulting in
stock subscriptions receivable of $14,256,129 and a net increase in
stockholders' equity of $13,124,965.
During fiscal 1993:
(a) Commissions and fees of $2,200,000 related to the Convertible Subordinated
Debentures were capitalized and included in other assets.
During fiscal 1994:
(a) The Company acquired all of the issued and outstanding stock of Braswell
Enterprises, Inc. for $6,575,000.
In connection with the acquisition, liabilities were assumed as follows:
Assets acquired........................................................... $ 17,338,000
Debt issued as consideration.............................................. 6,575,000
------------
Liabilities assumed....................................................... $ 10,763,000
------------
------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Regency F-8
<PAGE> 121
REGENCY HEALTH SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AT DECEMBER 31, 1993, AND FOR THE SIX MONTHS ENDED
DECEMBER 31, 1992 AND 1993 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Regency Health Services, Inc., a Delaware corporation (the Company),
operates 36 healthcare facilities throughout California that provide skilled
nursing care and other healthcare services primarily to elderly patients.
Revenues of the Company are derived from the operations of these facilities.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and all of its wholly-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated.
Accounts Receivable
Accounts receivable are recorded at the net realizable value expected to be
received from federal and state assistance programs or from individual patients.
Receivables from government agencies represent the only concentrated group of
credit risk for the Company. Management does not believe that there are any
credit risks associated with these governmental agencies. Contracted and other
receivables consist of receivables from various payors, including individuals
involved in diverse activities, subject to differing economic conditions and do
not represent any concentrated credit risks to the Company. Furthermore,
management continually monitors and adjusts its reserves and allowances
associated with these receivables.
Property and Equipment
Property and equipment are recorded at cost. The assets are depreciated
over their estimated useful lives using the straight-line method as follows:
<TABLE>
<S> <C>
Buildings and improvements........................... 30 years
Leasehold interests and improvements................. Life of leases
Equipment............................................ 3-15 years
</TABLE>
Other Assets
Organization costs and costs to initiate and implement subacute specialty
units are amortized on a straight line basis over 60 months. Costs incurred to
obtain long-term financing are amortized over the term of the related
obligation. Lease and utility deposits represent advance payments made to
lessors and utility companies.
Net Operating Revenue
Revenues are derived from the operation of healthcare facilities, which are
subject to state regulation. Approximately 64, 66, and 68 percent of revenues
were derived from services provided under federal (Medicare) and state medical
assistance programs (Medi-Cal) in 1991, 1992, and 1993, respectively. Revenues
from these programs are recorded at the prescribed contract rate. Limitations on
Medicare and Medi-Cal reimbursement for healthcare services are continually
proposed. Changes in applicable laws and regulations could have an adverse
effect on the levels of reimbursement from governmental, private, and other
sources. These revenues are based, in part, on cost reimbursement principles and
are subject to audit. Management believes that no significant adjustments will
result from these audits. Cost reports have been filed and audited through June
30, 1991.
Regency F-9
<PAGE> 122
REGENCY HEALTH SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AT DECEMBER 31, 1993, AND FOR THE SIX MONTHS ENDED
DECEMBER 31, 1992 AND 1993 IS UNAUDITED)
In the recently enacted federal budget deficit reduction bill, various
reimbursement rules and regulations were adopted by the federal government which
pertain to the Company. The Company has analyzed these and other reimbursement
rules and regulations and does not believe they will have a material adverse
impact on future operating results.
Income Taxes
The Company currently accounts for income taxes under Accounting Principles
Board Opinion No. 11. In February 1992, the Financial Accounting Standards Board
(FASB) issued a pronouncement that requires the Company to change its method of
accounting for income taxes beginning no later than fiscal 1994. At the date the
Company adopts the new accounting rules, it may record the entire catch-up
effect in that year or it may retroactively restate prior financial statements.
The Company will implement the new pronouncement during the first quarter of
1994. Implementation is not expected to have a material effect on the Company's
reported financial position or results of operations.
In December 1990, the FASB issued statement No. 106, "Employers' Accounting
for Post Retirement Benefits Other Than Pensions," which is to be effective for
fiscal years beginning after December 15, 1992. The Company does not currently
provide any of these benefits; therefore adoption would have no impact.
Deferred Revenues
Deferred revenue consists of patient payments received in advance of
services rendered.
Patient Trust Accounts and Patient Trust Liability
Patient trust accounts are comprised of cash held by the facilities for the
benefit of the patients. A patient may deposit money with a facility in a manner
similar to that of a savings account. The money may be withdrawn at any time by
the patient. The accounts are interest bearing. The financial statements include
a patient trust account asset and the corresponding patient trust account
liability.
Statements of Cash Flows
For financial reporting purposes, the Company considers all highly liquid
instruments purchased with a maturity of three months or less to be cash
equivalents.
Goodwill
Goodwill recorded in connection with the purchase of Hallmark Health
Services, Inc. ("Hallmark"), effective December 31, 1991, will be amortized over
22 years. See Note 2 regarding the Hallmark acquisition.
Reclassifications
Certain reclassifications were made to prior year amounts enabling them to
conform to the current year presentation.
2. ACQUISITIONS
In August 1991, the Company entered into an agreement to operate a 99-bed
skilled nursing facility. The Company recognized all revenues and expenses of
the facility during the term of the agreement, which expired on January 31,
1992. The Company did not assume any liabilities of the former operator in this
transaction. From February 1, 1992 the Company has paid $35,000 per month under
a facility lease agreement that
Regency F-10
<PAGE> 123
REGENCY HEALTH SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AT DECEMBER 31, 1993, AND FOR THE SIX MONTHS ENDED
DECEMBER 31, 1992 AND 1993 IS UNAUDITED)
continues through January 2002. The lease agreement also calls for additional
payments based on a percentage of monthly net income beginning in July 1992.
Monthly payments are to be adjusted based on increases in the Consumer Price
Index (C.P.I.) beginning in August 1994. The Company has an option to extend the
lease for 15 years.
In November 1991, the Company began operating its own pharmacy. The
pharmacy currently provides pharmaceutical products and services to many of the
Company's facilities. The Company also provides pharmaceutical products and
services to facilities not owned by the Company.
Effective December 31, 1991, the Company acquired Hallmark. The purchase price
consisted of 1,092,378 shares of the Company's common stock, which included
20,000 shares issued in connection with the conversion to common stock of a
certain note payable. See Note 6. The acquisition was accounted for under the
purchase method of accounting and $1,193,000 in excess of acquisition cost over
the fair value of Hallmark's net assets (which included severance agreements,
lease change of ownership fee, legal, accounting and other direct costs of
acquisition) has been assigned to goodwill. The following unaudited pro forma
condensed consolidated statements of income give effect to the Hallmark
acquisition as if that transaction had occurred at July 1, 1990.
The unaudited pro forma condensed statements of income are based upon
certain assumptions and are not necessarily indicative of the future financial
results of the Company or of the historical financial results of the Company had
the acquisition occurred at the beginning of each period presented.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------
1991 1992
------- -------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
(UNAUDITED)
Net operating revenue................................ $85,540 $96,818
Income before extraordinary item..................... 1,671 2,619
Net income........................................... 2,673 3,853
Income per share before extraordinary item:
Primary and fully diluted.......................... $ 0.40 $ 0.62
Net income per share:
Primary and fully diluted.......................... $ 0.64 $ 0.91
</TABLE>
Effective December 1, 1992, the Company entered into an agreement with
Newport Federal to operate three skilled nursing facilities with 286 licensed
beds (the "Newport Facilities"). The Company recognized all revenues and
expenses of the facilities during the term of the agreements, which expired May
31, 1993. The Company did not assume any assets or liabilities of the former
operator in this transaction. Effective June 1, 1993, the Newport Facilities
were operated under three long-term lease agreements. The initial term of each
lease is 20 years and each lease contains four five-year option periods.
Effective June 16, 1993, the Company entered into an agreement to operate a
skilled nursing facility with 119 beds. Effective July 16, 1993, the Company
purchased the skilled nursing facility for $3,300,000 in cash.
In June 1993, the Company executed a letter of intent to acquire Braswell
Enterprises, Inc. (the "Braswell Facilities"), through the merger of a
wholly-owned subsidiary. Braswell Enterprises, Inc. operates seven skilled
nursing facilities in California with 777 licensed beds. The purchase price will
consist of a combination of cash and notes.
Regency F-11
<PAGE> 124
REGENCY HEALTH SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AT DECEMBER 31, 1993, AND FOR THE SIX MONTHS ENDED
DECEMBER 31, 1992 AND 1993 IS UNAUDITED)
3. SALE OF FACILITY
In November 1990, the Company sold the land, building and equipment of its
Washington facility for approximately $1,728,000. The proceeds were used to
reduce the Company's long-term debt. The sale resulted in a gain of
approximately $312,000, which was recognized in the consolidated financial
statements for the year ended June 30, 1991. The net book value of assets sold
was approximately $1,362,000 and costs incurred on the sale were approximately
$54,000.
4. RELATED PARTY TRANSACTIONS
In February 1988, the Company entered into a 20-year lease with three
five-year option periods for the Heritage facility at a below market lease with
the president, a 36 percent stockholder of the Company at February 1, 1988, and
a senior vice president. The Company issued $2,075,000 in value of stock
(254,902 common shares valued at $1,575,000 and 1,000,000 Series B preferred
shares valued at $500,000) as an inducement to enter into this lease. The board
of directors obtained an independent appraisal of the lease, which supported a
valuation of $2,075,000. This amount is identified as leasehold
interests-related party in the accompanying consolidated balance sheets. The
amount is being amortized over the initial lease term. The lease, which is
accounted for as an operating lease, requires approximately $32,000 in monthly
payments which are adjusted annually based on a C.P.I. formula. Lease expense
for the years ended June 30, 1991, 1992, and 1993 was approximately $365,000,
$382,000, and $411,000, respectively. In June 1990, the Company entered into a
10-year lease with four five-year option periods for the Glendora facility which
is owned by certain related parties. The lease, which is accounted for as an
operating lease, requires approximately $35,000 in monthly payments for three
years, after which it is adjusted annually based on a C.P.I. formula. Lease
expense for the years ended June 30, 1991, 1992, and 1993 was $420,000. Both
related party leases are included in the lease disclosures in Note 13.
During 1991, 1992, and part of 1993, the Company leased an airplane for
business purposes, that was owned by a corporation wholly-owned by the Company's
president. During the years ended June 30, 1991, 1992, and 1993, the Company
paid $39,000, $56,000, and $23,000 respectively, for the use of the plane. In
November 1992, the Company purchased the airplane for $159,700, the estimated
fair market value.
5. INSURANCE REFUNDABLE
The workers' compensation policy year is based on a fiscal year ending
January 31. During the policy year ended January 31, 1991, the Company's premium
increased approximately 88 percent from the previous policy year. Claims
activity during these periods, however, remained constant. The insurance policy
states that the Company is to receive, in the form of dividends, the amount by
which the premiums paid exceed the fixed administrative expenses and claims paid
under the policy. The Company has recorded its estimate of the amount by which
the premiums exceed the administrative expenses, claims paid, and reserves
required for anticipated claims. At June 30, 1991, this amount was $1,100,000.
In October 1991, $350,000 was received from the insurance company, $72,000 was
received in December 1991, $32,000 was received in April 1992 and $100,000 was
received in August 1993.
6. CONVERTIBLE DEBT
The Company issued a $425,000 note in connection with the business
combination in 1988, convertible at the option of the holder into common stock
of the Company. The conversion price was $3.00 per share. In March 1992 the note
was converted into 141,666 shares of common stock.
Regency F-12
<PAGE> 125
REGENCY HEALTH SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AT DECEMBER 31, 1993, AND FOR THE SIX MONTHS ENDED
DECEMBER 31, 1992 AND 1993 IS UNAUDITED)
In 1990, the Company issued notes payable to stockholders, which were
convertible at the option of the holders, and detachable warrants to purchase
Series D preferred stock. Interest accrued at a rate of 13 percent. The notes,
along with any accrued and unpaid interest, were convertible to Series D
preferred stock at a conversion price of $.30 per share. Additionally, the
detachable warrants were exercisable to purchase Series D preferred stock at a
price of $.30 per share. The Company has, accordingly, reduced notes payable and
recorded $88,176 as the value of the warrants at June 30, 1991. At June 30, 1992
this amount, net of its amortization, has been reclassified to other assets. The
warrants were being amortized over 60 months at approximately $18,000 per year.
The related increase in notes payable was recognized as interest expense. All
warrants were exercised in July 1992.
Effective December 31, 1991, the note payable was converted into 3,697,614
shares of Series D preferred stock, which was then converted into 529,510 shares
of common stock. See Note 11.
On March 23, 1993, the Company issued $50,000,000 aggregate principal
amount of its 6 1/2% Convertible Subordinated Debentures Due 2003
("Debentures"). The securities are convertible into 4,040,404 shares of the
Company's Common Stock at a conversion price of $12.375 per share. Such
conversion, if any, will have a dilutive effect on the shares of Common Stock
outstanding immediately prior thereto. The net proceeds to the Company from the
Debentures were $47,800,000. The Company used $6,375,000 of the net proceeds
along with cash on hand to retire $8,300,000 of existing bank indebtedness.
7. LONG TERM DEBT
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
----------------------- ------------
1992 1993 1993
---------- ---------- ------------
<S> <C> <C> <C>
Convertible Subordinated Debentures, interest at
6.5 percent, due March 2003. Interest is
payable semi-annually on July 15 and January
15, commencing July 15, 1993. See Note 6. .... $ -- $50,000,000 $50,000,000
Note payable to bank, collateralized, interest
at prime rate plus 1.5 percent beginning June
1, 1990; payable in monthly principal payments
of $30,000, plus interest through August 1991,
with a $200,000 additional payment due May
1991. Beginning September 1991, monthly
interest payments are due. Principal payments
are due quarterly, beginning December 1991.
The prime rate in effect at June 30, 1992 and
1993, was 6.0 percent. The Company reduced the
principal by $12,200,000 in July 1992, by
$3,700,000 in November 1992, and by $8,300,000
in March 1993................................. 24,201,027 -- --
</TABLE>
<TABLE>
<S> <C> <C> <C>
Note payable to bank, collateralized by a deed
of trust, interest at 8.75 percent; interest
and principal payments of $38,000 commencing
October 1993, to be made monthly through
September 2033. Total borrowings available
under the note agreement are $4,994,000. See
below......................................... -- 4,139,109 4,545,032
</TABLE>
(Table continued on following page)
Regency F-13
<PAGE> 126
REGENCY HEALTH SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AT DECEMBER 31, 1993, AND FOR THE SIX MONTHS ENDED
DECEMBER 31, 1992 AND 1993 IS UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
------------------------ ------------
1992 1993 1993
----------- ----------- ------------
<S> <C> <C> <C>
Note payable, secured, interest at prime rate
minus 2.0 percent, but not less than 10.0
percent, $7,500 interest installments payable
monthly; due May 1, 2004. The prime rate in
effect at June 30, 1992, and 1993, was 6.0
percent....................................... 675,000 675,000 675,000
Note payable, unsecured, interest at prime rate
plus 2.0 percent, payable in monthly principal
and interest payments of $1,500, due from
April 1994 to March 2000. The prime rate in
effect at June 30, 1992, and 1993, was 6.0
percent....................................... 39,794 6,247 1,871
Note payable, unsecured, non-interest bearing,
due in two installments in July and August of
1993.......................................... -- 13,000 --
Debt issued related to Braswell acquisition;
note payable of $4,375,000, secured, interest
at 9.0 percent, payable in monthly principal
and interest payments of $35,200 with a
balloon payment of approximately $2,794,000
due November 2013, and cash of $2,200,000 due
upon close of sale............................ 5,918,830
Capital lease obligations, collateralized by
related equipment, bearing interest at an
effective rate of 15.1 percent................ 489,111 838,258 1,451,948
----------- ----------- ------------
25,404,932 55,671,614 62,592,681
Less current portion............................ 12,313,000 222,000 209,000
----------- ----------- ------------
$13,091,932 $55,449,614 $62,383,681
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
In November 1992, the Company completed a $4,994,000 financing secured by a
deed of trust on the Carmichael facility and by a security agreement covering
equipment and other personal property at such facility. The debt accrues
interest at a rate of 8.75% and the principal will be paid over 40 years. As of
June 30, 1993, $3,700,000 of the proceeds from the financing has been used to
reduce other bank indebtedness, $280,000 has been used for miscellaneous loan
fees, and $159,000 has been incurred for interest. The remaining proceeds, when
drawn, will be used for capital improvements and facility construction interest
payments through September 1993.
In July 1993, the Company entered into an agreement with a bank for a
secured revolving credit loan enabling the Company to borrow funds up to
$15,000,000 until November 1, 1994. The revolving credit loan bears interest at
the prime rate with interest installments due monthly and the principal balance
due November 1, 1994. The agreement contains covenants which include maintenance
of certain minimum or maximum financial ratios, as defined in the agreement, and
certain limitations on the incurrence of liens or encumbrances on the Company's
assets.
Regency F-14
<PAGE> 127
REGENCY HEALTH SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AT DECEMBER 31, 1993, AND FOR THE SIX MONTHS ENDED
DECEMBER 31, 1992 AND 1993 IS UNAUDITED)
Principal maturities on long-term debt and the present value of future
minimum lease payments for capitalized leases at June 30, 1993 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING LONG-TERM CAPITALIZED
JUNE 30, DEBT LEASES
----------- ----------- -----------
<S> <C> <C>
1994............................................ $ 30,000 $ 192,000
1995............................................ 15,000 262,000
1996............................................ 16,000 241,000
1997............................................ 18,000 175,000
1998............................................ 19,000 78,000
Thereafter...................................... 54,735,356 244,384
----------- ----------
Total long-term debt and future minimum
lease payments............................... 54,833,356 1,192,384
Less -- amount representing interest............ -- 354,126
----------- ----------
Long-term debt and present value of future
minimum lease payments....................... $54,833,356 $ 838,258
----------- ----------
----------- ----------
</TABLE>
Fixed assets under capital leases at June 30, 1993, are as follows:
<TABLE>
<CAPTION>
1993
----------
<S> <C>
Equipment............................................... $1,186,000
Less -- accumulated depreciation........................ 414,000
----------
$ 772,000
----------
----------
</TABLE>
8. INCOME TAXES
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------
1991 1992 1993
-------- ---------- ----------
<S> <C> <C> <C>
Current provision:
Federal............................. $368,000 $ 444,000 $2,652,000
State............................... 106,000 367,000 797,000
-------- ---------- ----------
474,000 811,000 3,449,000
-------- ---------- ----------
-------- ---------- ----------
Deferred provision:
Federal............................. 244,000 547,000 146,000
State............................... 74,000 96,000 26,000
-------- ---------- ----------
318,000 643,000 172,000
-------- ---------- ----------
$792,000 $1,454,000 $3,621,000
-------- ---------- ----------
-------- ---------- ----------
</TABLE>
Regency F-15
<PAGE> 128
REGENCY HEALTH SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AT DECEMBER 31, 1993, AND FOR THE SIX MONTHS ENDED
DECEMBER 31, 1992 AND 1993 IS UNAUDITED)
Deferred income taxes result from timing differences in the recognition of
certain expenses for financial and tax reporting purposes. The following is a
summary of these differences and the tax effect for each:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
1991 1992 1993
-------- --------- ---------
<S> <C> <C> <C>
Allowance for doubtful accounts.............. $(17,000) $ 17,000 $ 18,000
Accrued vacation............................. (50,000) 7,000 (11,000)
Deferred rent................................ (55,000) (57,000) 82,000
Insurance refundable......................... 440,000 (41,000) 108,000
Depreciation................................. -- 20,000 20,000
Cash to accrual.............................. -- (34,000) (34,000)
State taxes paid............................. -- 24,000 109,000
Federal net operating loss carryforward...... -- 707,000 (182,000)
Other........................................ -- -- 62,000
-------- --------- ---------
$318,000 $ 643,000 $ 172,000
-------- --------- ---------
-------- --------- ---------
</TABLE>
The differences between the effective tax rate and the statutory federal
income tax rate of 34 percent are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------
1991 1992 1993
----------------- ------------------- -------------------
PERCENT PERCENT PERCENT
OF OF OF
PRETAX PRETAX PRETAX
AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
-------- ------ ---------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Federal statutory rate................ $630,000 34.0% $1,251,000 34.0% $3,095,000 34.0%
State income taxes, net of federal
benefit............................. 112,000 6.0 192,000 5.2 586,000 6.4
Nontaxable items...................... 50,000 2.7 11,000 0.3 (60,000) (0.7)
-------- ------ ---------- ------ ---------- ------
$792,000 42.7% $1,454,000 39.5% $3,621,000 39.7%
-------- ------ ---------- ------ ---------- ------
-------- ------ ---------- ------ ---------- ------
</TABLE>
The Company and its subsidiaries file consolidated federal and state income
tax returns. The Company has federal net operating loss carryforwards of
approximately $1,146,000 and $366,000 as of June 30, 1992 and 1993,
respectively. However, the Hallmark acquisition will limit the utilization of
such carryforwards to $300,000 per year. Carryforwards are available to reduce
future taxable income and expire in years 2003 through 2005 for federal income
tax purposes. In fiscal 1992 and 1993, the Company utilized regular operating
loss carryforwards for federal purposes of approximately $2,490,000 and
$300,000, respectively, to offset taxable income. In fiscal 1992 and 1993, the
Company utilized approximately $3,357,000 and $293,000, respectively, of
financial reporting loss carryforwards which resulted in an extraordinary item
of $1,022,000 and $99,000 in the accompanying statements of income.
9. DEFERRED RENT
Several of the Company's facilities and the Company's corporate office are
leased under long-term operating leases which specify scheduled rent increases
over the lease terms. Deferred rent of approximately $1,044,000 and $1,066,000
in 1992 and 1993, respectively, has been established to recognize the difference
between the rent expense paid and the straight-line recognition of minimum
rental expense.
Regency F-16
<PAGE> 129
REGENCY HEALTH SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AT DECEMBER 31, 1993, AND FOR THE SIX MONTHS ENDED
DECEMBER 31, 1992 AND 1993 IS UNAUDITED)
10. INCOME PER SHARE
For the years ended June 30, 1991 and 1992, income per common share
(primary and fully diluted) was computed by dividing net income, adjusted for
certain interest expense net of its tax effect, by the weighted average number
of shares of common stock and common stock equivalents outstanding during the
year. The number of common shares was increased by the number of shares issuable
on the exercise of warrants and options. This increase in the number of shares
was reduced by the number of common shares that are assumed to have been
purchased with the proceeds from the exercise of the warrants and options; those
purchases were assumed to have been made at $6.50 per share. The number of
common shares was also increased by the number of shares issuable on conversion
of the $425,000 note payable. See Note 6. Income per common share (primary and
fully diluted) was determined on the assumption that the Series A, B and C
preferred stock and the $1,109,284 note payable were converted on July 1, 1990.
As to the notes payable, net earnings were adjusted for the interest expense,
net of its tax effect.
For the year ended June 30, 1993, primary earnings per share is calculated
based on the weighted average number of common and common equivalent shares
outstanding during the periods. Fully diluted earnings per share is computed as
described above and includes the issuance of common shares upon the assumed
conversion of the Convertible Subordinated Debentures. Additionally, interest
and amortization of underwriting costs related to such debentures are added, net
of tax, to income for the purpose of calculating fully diluted earnings per
share. Such amounts aggregated $557,000 for the year ended June 30, 1993.
11. PREFERRED STOCK
At June 30, 1991, preferred stock had a $.04 par value, with 15,646,820
shares authorized. The Company had four series of preferred stock with voting
rights equal to shares of common stock. Series A, B, C, and D had annual
dividend rates of $.32, $.04, $.056, and $.024, respectively. Such dividends
were payable only in the event and on the date the preferred stock was redeemed
or liquidated. To the extent not paid, and without regard to whether there were
funds available from time to time for the payment of dividends, all dividends,
whether or not declared, were to accrue, cumulate and compound at the rate of
eight percent per year. As of June 30, 1990, $936,000 of Series A dividends,
$613,000 of Series B dividends and $199,000 of Series C dividends had accrued
and were not declared or paid. As of June 30, 1991, $1,365,000 of Series A
dividends, $944,000 of Series B dividends and $350,000 of Series C dividends had
accrued and were not declared or paid.
The changes in each issue are as follows:
<TABLE>
<CAPTION>
SERIES A SERIES B
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT TOTAL
---------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, June 30, 1989, 1990,
and 1991......................... 1,025,000 $ 3,850,000 6,533,000 $ 3,066,666 $ 6,916,666
Conversion into common stock....... (1,025,000) (3,850,000) (6,533,000) (3,066,666) (6,916,666)
---------- ----------- ---------- ----------- -----------
BALANCE, June 30, 1992............. -- $ -- -- $ -- $ --
---------- ----------- ---------- ----------- -----------
---------- ----------- ---------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
SERIES C SERIES D
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT TOTAL
---------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, June 30, 1989............ 2,222,224 $ 1,555,602 -- $ -- $ 1,555,602
Issuance of Series D warrants..... -- -- -- 88,176 88,176
---------- ----------- ---------- ----------- -----------
BALANCE, June 30, 1990
and 1991........................ 2,222,224 1,555,602 -- 88,176 1,643,778
Conversion into common stock...... (2,222,224) (1,555,602) -- (88,176) (1,643,778)
---------- ----------- ---------- ----------- -----------
BALANCE, June 30, 1992............ -- $ -- -- $ -- $ --
---------- ----------- ---------- ----------- -----------
---------- ----------- ---------- ----------- -----------
</TABLE>
Regency F-17
<PAGE> 130
REGENCY HEALTH SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AT DECEMBER 31, 1993, AND FOR THE SIX MONTHS ENDED
DECEMBER 31, 1992 AND 1993 IS UNAUDITED)
In December 1991, the stockholders of the Company adopted a plan of
recapitalization. Under the plan of recapitalization, each outstanding share of
Series A, B, and D preferred stock was converted into one share of common stock.
Each outstanding share of Series C preferred stock was converted at
approximately one for 1.32 shares of common stock. Effective December 31, 1991,
all of the outstanding shares of preferred stock were converted into common
stock. In connection with the plan of recapitalization, the preferred
stockholders waived their right to the cumulative, but undeclared and unpaid
dividends. See Note 15.
12. STOCK OPTIONS AND WARRANTS
The Company has adopted a non-qualified employee stock option plan which
provides for the Company to grant to certain key employees the option to
purchase shares of the Company's common stock. At June 30, 1991, 1992, and 1993,
272,086, 429,610, and 529,610 shares of common stock, respectively, were
reserved for issuance under the Company's stock option plan.
The following is a summary of the stock options under the Plan:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------
1991 1992 1993
----------- ----------- -----------
<S> <C> <C> <C>
Options outstanding at beginning of year...... 130,242 130,242 342,184
Granted....................................... -- 211,942 88,400
Exercised..................................... -- -- (50,572)
Cancelled..................................... -- -- (10,024)
----------- ----------- -----------
Options outstanding at end of year............ 130,242 342,184 369,988
----------- ----------- -----------
----------- ----------- -----------
Options exercisable at end of year............ 108,763 263,422 235,763
----------- ----------- -----------
----------- ----------- -----------
Option price range............................ $2.44-$6.98 $2.44-$6.98 $2.44-$9.38
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
At June 30, 1992, the president of the Company had a warrant outstanding
for the purchase of 57,281 common shares at a purchase price of $.70 per share.
At June 30, 1992, the Series C preferred stock investors had warrants
outstanding for the purchase of 64,971 common shares at $4.19 per share,
expiring January 1994. As of June 30, 1992, Series D preferred stock investors
had warrants outstanding for the purchase of 31,770 shares of common stock at
$2.09 per share, expiring June 1995. At June 30, 1992, the Company reserved
154,022 shares of common stock for issuance pursuant to outstanding warrants; in
July 1992 all warrants were exercised.
Regency F-18
<PAGE> 131
REGENCY HEALTH SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AT DECEMBER 31, 1993, AND FOR THE SIX MONTHS ENDED
DECEMBER 31, 1992 AND 1993 IS UNAUDITED)
13. COMMITMENTS
Leases
The Company leases several facilities and equipment under operating leases
expiring through 2013. Rent expense for these leases was approximately
$2,742,000, $4,336,000, and $6,069,000 for the years ended June 30, 1991, 1992,
and 1993, respectively. At June 30, 1993, future minimum lease payments under
noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
--------------------
<S> <C>
1994............................................ $ 7,154,000
1995............................................ 7,010,000
1996............................................ 6,739,000
1997............................................ 6,621,000
1998............................................ 6,143,000
Thereafter...................................... 42,810,000
-----------
$76,477,000
-----------
-----------
</TABLE>
The Company as sublessor, leases office space under a sublease agreement
accounted for as an operating lease. As of June 30, 1991, 1992, and 1993,
minimum sublease rental income was approximately $28,000, $70,000, and $68,000,
respectively. The sublease agreement expired in June of 1993.
Key-Man Life Insurance
The Company maintains a $2,000,000 key-man term life insurance policy on
its president. The policy names the Company as the beneficiary and expires in
September 2010.
Employment Agreements
The Company entered into three-year Employment Agreements with its
president and three senior vice presidents commencing April 1, 1993. The
agreements provide for the base salaries in the aggregate of $640,000. The
employment agreements provide for automatic one-year extensions beginning May 1,
1994, unless either party gives notice of a desire to terminate or modify the
agreement.
14. CONTINGENCIES
The Company maintains a $6,000,000 per occurrence general and professional
liability insurance policy for 30 of its skilled nursing facilities. Occurrence
basis insurance covers claims that occur during the policy term regardless of
when the claim was reported.
The Company also maintains a $3,000,000 per occurrence general and
professional liability insurance policy for its six facilities for the
developmentally disabled, mentally disordered and emotionally disabled
adolescents. Additionally, these facilities are covered by a claims-made
tail-coverage policy through August 1994. Claims-made insurance covers only
those claims covered by the policy and reported to the insurance carrier during
the policy term. As of June 30, 1992 and 1993, the Company had no estimated
liability and, to the best of management's knowledge and belief, there are no
uninsured or unasserted claims under these policies. The Company maintains a
$6,000,000 per occurrence general and professional liability insurance policy
for its pharmacy.
Regency F-19
<PAGE> 132
REGENCY HEALTH SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AT DECEMBER 31, 1993, AND FOR THE SIX MONTHS ENDED
DECEMBER 31, 1992 AND 1993 IS UNAUDITED)
15. STOCK SPLIT
In January 1992, the Company's stockholders approved an approximately
one-for-seven reverse stock split of the common stock. The number of shares of
common stock and per share amounts throughout these financial statements have
been adjusted to reflect this one-for-seven split for all periods presented.
16. PUBLIC OFFERING
On June 26, 1992, the Company sold 2,358,334 shares of its Common Stock at
$6.50 per share in its initial public offering. From the sale the Company
received net proceeds of $13,125,000. On July 21, 1992, the Company sold an
additional 170,300 shares of its Common Stock pursuant to the partial exercise
of an underwriters' overallotment option granted in conjunction with the initial
public offering. The Company received net proceeds of $1,029,000 from the sale
of stock in connection with the overallotment option. The Company used
$14,125,000 of the proceeds to reduce debt. See Note 7.
17. INTERIM RESULTS (UNAUDITED)
The accompanying consolidated balance sheet as of December 31, 1993 and the
consolidated statements of income, cash flows and stockholders' equity for the
six months ended December 31, 1992 and 1993 are unaudited. In the opinion of
management, these statements have been prepared on the same basis as the audited
consolidated financial statements and include all adjustments, consisting only
of normal recurring adjustments, necessary for the fair statement of the results
of the interim periods. The results of operations for the interim periods are
not necessarily indicative of the results which may be expected for an entire
year.
The following disclosures relate to the aforementioned unaudited interim
financial statements:
1. The significant accounting policies described in Note 1 have been
applied to the unaudited interim financial statements.
2. The provisions for income taxes for the six months ended December 31,
1992 and 1993 have been computed using the effective tax rate expected
to be applicable for each respective year.
Regency F-20
<PAGE> 133
CARE CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
----------
<S> <C>
Report of Independent Auditors................................................... Care F-2
Consolidated Balance Sheets at December 31, 1991 and 1992 and September 30, 1993
(unaudited).................................................................... Care F-3
Consolidated Statements of Operations, Years Ended December 31, 1990, 1991 and
1992 and the Nine Months Ended September 30, 1992 and 1993 (unaudited)......... Care F-4
Consolidated Statements of Shareholders' Equity (Deficiency), Years Ended
December 31, 1990, 1991 and 1992 and the Nine Months Ended September 30, 1993
(unaudited).................................................................... Care F-5
Consolidated Statements of Cash Flows, Years Ended December 31, 1990, 1991 and
1992 and the Nine Months Ended September 30, 1992 and 1993 (unaudited)......... Care F-6
Notes to Consolidated Financial Statements....................................... Care F-8
</TABLE>
Care F-1
<PAGE> 134
REPORT OF INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF DIRECTORS
CARE ENTERPRISES, INC.
We have audited the accompanying consolidated balance sheets of Care
Enterprises, Inc. and subsidiaries as of December 31, 1991 and 1992, and the
related consolidated statements of operations, shareholders' equity
(deficiency), and cash flows for each of the two years in the period ended
December 31, 1992 (post-reorganization). We have also audited the consolidated
statements of operations, shareholders' equity (deficiency) and cash flows for
Care Enterprises, Inc. and subsidiaries (pre-reorganization) for the year ended
December 31, 1990. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
On December 31, 1990, the Company emerged from bankruptcy having met all of the
conditions set forth in the Company's Plan of Reorganization, which had been
confirmed by the Bankruptcy Court on April 20, 1990. As described in the notes
to the financial statements, the Company accounted for the reorganization using
"Fresh-Start Reporting" as recommended in a Statement of Position issued in
November 1990 by the American Institute of Certified Public Accountants. As a
result, the December 31, 1991 and 1992 consolidated statements of operations,
shareholders' equity (deficiency) and cash flows are not comparable with the
Company's pre-reorganization consolidated statements of operations,
shareholders' equity (deficiency) and cash flows since such statements present
the consolidated financial position, results of operations and cash flows of the
reorganized entity.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Care
Enterprises, Inc. and subsidiaries at December 31, 1991 and 1992, and the
consolidated results of their operations and their cash flows for each of the
two years in the period ended December 31, 1992 (post-reorganization) and for
the year ended December 31, 1990 (pre-reorganization), in conformity with
generally accepted accounting principles.
As discussed in notes to the consolidated financial statements, in 1992 the
Company changed its method of accounting for income taxes.
ERNST & YOUNG
Orange County, California
March 12, 1993
Care F-2
<PAGE> 135
CARE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PAR VALUES)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1991 1992 1993
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS
Cash (Note 2)................................... $ 3,400 $ 7,283 $ 6,227
Receivables:
Due from patients, less allowance for
doubtful accounts of $3,404, $2,595, and
$1,931 for 1991, 1992, and 1993,
respectively............................... 15,679 15,449 16,392
Notes, contracts, and other.................. 3,132 1,944 1,198
Supplies inventory.............................. 2,365 1,395 1,394
Prepaid expenses................................ 1,015 1,090 617
Deferred income taxes (Note 6).................. -- 2,619 2,619
------------- ------------- -------------
TOTAL CURRENT ASSETS.................... 25,591 29,780 28,447
PROPERTY AND EQUIPMENT, net (Note 5).............. 71,982 69,166 67,917
MORTGAGE NOTES RECEIVABLE, less allowance
for losses of $1,074, $937, and $1,673 for 1991,
1992 and 1993, respectively..................... 2,756 2,257 2,211
OTHER ASSETS...................................... 7,837 9,345 10,401
------------- ------------- -------------
$ 108,166 $ 110,548 $ 108,976
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long term debt (Note 7)...... $ 7,646 $ 7,683 $ 7,203
Accounts payable................................ 10,526 9,679 9,460
Accrued liabilities (Note 10)................... 17,785 15,791 18,135
Other current liabilities....................... 7,826 8,844 4,708
------------- ------------- -------------
TOTAL CURRENT LIABILITIES............... 43,783 41,997 39,506
LONG TERM DEBT (Note 7)........................... 40,463 32,743 26,301
DEFERRED INCOME TAXES (Note 6).................... 989 4,624 5,214
OTHER NONCURRENT LIABILITIES AND DEFERRED ITEMS
(Note 10)....................................... 12,846 10,787 13,600
------------- ------------- -------------
TOTAL LIABILITIES....................... 98,081 90,151 84,621
COMMITMENTS AND CONTINGENCIES
(Notes 8 & 11)
SHAREHOLDERS' EQUITY (Note 9)
Preferred stock, $1.00 par value;
Authorized 1,000,000 shares; issued and
outstanding -- none.......................... -- -- --
Common stock, $.01 par value;
Authorized 25,000,000; issued and
outstanding -- 11,635,000 shares for 1991,
13,222,000 for 1992, and 13,229,000 for
1993......................................... 7,129 11,047 11,065
Additional capital (Note 6)..................... 721 1,451 1,451
Retained earnings............................... 2,235 7,899 11,839
------------- ------------- -------------
TOTAL SHAREHOLDERS' EQUITY.............. 10,085 20,397 24,355
------------- ------------- -------------
$ 108,166 $ 110,548 $ 108,976
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See Independent Auditors' Report and Notes to Consolidated Financial Statements
Care F-3
<PAGE> 136
CARE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1990 1991 1992 1992 1993
-------- -------- -------- -------- --------
(A) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
TOTAL REVENUE................................... $215,043 $185,676 $192,048 $142,857 $148,195
DIRECT EXPENSES
Salaries and wages............................ 104,575 89,091 91,753 68,276 70,085
Employee benefits............................. 27,355 23,890 24,218 18,487 19,064
Supplies and other expenses................... 37,415 31,440 31,208 23,520 23,409
Purchased services............................ 15,578 13,842 15,735 11,597 13,332
Professional fees............................. 3,095 2,805 2,387 1,707 1,509
Provision for doubtful accounts and losses.... 1,530 1,547 147 110 194
Other costs and expenses...................... 4,069 3,110 3,204 2,413 3,032
-------- -------- -------- -------- --------
TOTAL DIRECT EXPENSES.................. 193,617 165,725 168,652 126,110 130,625
-------- -------- -------- -------- --------
PROPERTY EXPENSES
Lease and rent................................ 7,896 7,854 7,745 6,004 5,201
Depreciation and amortization................. 7,046 5,878 5,336 4,029 3,896
Interest, net................................. 7,692 4,983 3,266 2,544 1,907
-------- -------- -------- -------- --------
TOTAL PROPERTY EXPENSES................ 22,634 18,715 16,347 12,577 11,004
-------- -------- -------- -------- --------
INCOME (LOSS) BEFORE REORGANIZATION AND OTHER
ITEMS, INCOME TAXES AND EXTRAORDINARY ITEM.... (1,208) 1,236 7,049 4,170 6,566
REORGANIZATION AND OTHER ITEMS
Gain on sale of facilities (Note 13).......... 2,706 -- 1,007 -- --
Restatement of assets to fair value (Note
3).......................................... 23,835 -- -- -- --
Other reorganization items (Note 14).......... 9,132 1,720 536 -- --
-------- -------- -------- -------- --------
TOTAL REORGANIZATION AND OTHER ITEMS... 35,673 1,720 1,543 -- --
-------- -------- -------- -------- --------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY
ITEM.......................................... 34,465 2,956 8,592 4,170 6,566
-------- -------- -------- -------- --------
PROVISION FOR INCOME TAXES (Note 6)............. -- 721 2,928 1,668 2,626
-------- -------- -------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM................ 34,465 2,235 5,664 2,502 3,940
EXTRAORDINARY ITEM
Extraordinary gain from discharge of debt
(Note 15)................................... 73,149 -- -- -- --
-------- -------- -------- -------- --------
NET INCOME...................................... $107,614 $ 2,235 $ 5,664 $ 2,502 $ 3,940
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
INCOME PER SHARE -- PRIMARY (Note 2)
Net income.................................... $ (b) $ 0.24 $ 0.49 $ 0.22 $ 0.30
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Weighted average shares outstanding........... -- 9,294 11,667 11,635 13,300
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
INCOME PER SHARE -- FULLY DILUTED
Net income.................................... $ (b) $ 0.21 $ 0.49 $ 0.22 $ 0.30
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Weighted average shares outstanding........... -- 11,635 11,667 11,635 13,317
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
- ---------------
(a) Pre-reorganization
(b) Per share amounts are not meaningful due to Chapter 11 reorganization
See Independent Auditors' Report and Notes to Consolidated Financial Statements
Care F-4
<PAGE> 137
CARE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------------------
OLD SHARES RETAINED
NEW ---------------------------- ADDITIONAL EARNINGS
SHARES CLASS A CLASS B AMOUNT CAPITAL (DEFICIT) TOTAL
-------- ------- ------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
PRE-ORGANIZATION
BALANCE at December 31, 1989............... 5,636 5,636 $ 35,668 $ -- $(142,857) $(107,189)
Issued employee stock bonuses.............. 58 54 3 -- 3
Net income................................. 107,614 107,614
------- ------- -------- ---------- --------- ---------
BALANCE at December 31, 1990, prior to
reorganization........................... 5,694 5,690 $ 35,671 $ -- $ (35,243) $ 428
------- ------- -------- ---------- --------- ---------
------- ------- -------- ---------- --------- ---------
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE at December 31, 1990, prior to
reorganization........................... 5,694 5,690 $ 35,671 $ -- $ (35,243) $ 428
Recapitalization and fresh start
adjustments (Note 3)
Exchange of stock:
Retirement of old stock................ (5,694) (5,690) (35,671) 35,243 (428)
Issuance of new common stock........... 895(a) 428 428
Issuance of stock in connection with
discharge of debt and other claims..... 8,061(a) 3,847 3,847
-------- ------- ------- -------- ---------- --------- ---------
BALANCE at December 31, 1990 reflecting
"Fresh Start Reporting".................. 8,956 -- -- 4,275 -- -- 4,275
Conversion of convertible exchangeable
notes.................................... 2,679 2,854 2,854
Charge in lieu of income taxes (Note 6).... 721 721
Net income................................. 2,235 2,235
-------- ------- ------- -------- ---------- --------- ---------
BALANCE at December 31, 1991............... 11,635 -- -- 7,129 721 2,235 10,085
-------- ------- ------- -------- ---------- --------- ---------
Sale of common stock (Note 9).............. 1,633 3,918 3,918
Retirement of shares acquired by the
company (Note 9)......................... (46) --
Charge in lieu of income taxes (Note 6).... 730 730
Net income................................. 5,664 5,664
-------- ------- ------- -------- ---------- --------- ---------
BALANCE at December 31, 1992............... 13,222 -- -- 11,047 1,451 7,899 20,397
-------- ------- ------- -------- ---------- --------- ---------
Net income (unaudited)..................... 3,940 3,940
Exercise of stock options.................. 7 18 18
-------- ------- ------- -------- ---------- --------- ---------
BALANCE at September 30, 1993 (unaudited).. 13,229 -- -- $ 11,065 $1,451 $ 11,839 $ 24,355
-------- ------- ------- -------- ---------- --------- ---------
-------- ------- ------- -------- ---------- --------- ---------
</TABLE>
- ---------------
(a) All shares issued pursuant to the Plan of Reorganization have been treated
as issued and outstanding as of December 31, 1990.
See Independent Auditors' Report and Notes to Consolidated Financial Statements.
Care F-5
<PAGE> 138
CARE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- -----------------
1990 1991 1992 1992 1993
-------- -------- ------- ------- -------
(A) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................. $107,614 $ 2,235 $ 5,664 $ 2,502 $ 3,940
Adjustments to reconcile net income to net cash
provided by operating activities
Extraordinary gain from discharge of debt........... (73,149) -- -- -- --
Depreciation and amortization....................... 7,046 5,878 5,336 4,029 3,896
Provision for doubtful accounts..................... 1,530 1,036 30 404 194
Provision for losses on mortgage notes receivable... -- 511 117 -- --
Deferred income taxes and charge in lieu of taxes... -- 721 1,746 1,348 590
Other, net.......................................... (390) (262) (480) (188) (538)
Reorganization and other items
Gain on sale of facilities........................ (2,706) -- (1,007) -- --
Restatement of assets to fair value............... (23,835) -- -- -- --
Other reorganization items........................ (9,132) (1,720) (536) -- --
Change in assets and liabilities net of effects from
sales or disposals of facilities
Decrease (increase) in accounts receivable........ 6,299 (218) 200 453 (1,137)
Decrease (increase) in other current assets....... (714) 2,446 695 500 825
Decrease (increase) in notes and contracts
receivable..................................... (43) 225 1,023 1,228 687
Decrease (increase) in other assets............... (1,811) 1,308 (186) (273) (896)
Increase (decrease) in accounts payable and
accrued liabilities............................ (15,972) (2,991) (1,224) (1,893) 3,131
Increase (decrease) in other current
liabilities.................................... 2,430 793 1,018 1,470 (1,160)
Increase in liabilities subject to reorganization
proceedings.................................... 8,201 -- -- -- --
Increase in other noncurrent liabilities and
deferred items................................. 3,051 309 32 16 7
-------- -------- ------- ------- -------
Total adjustments.............................. (99,195) 8,036 6,764 7,094 5,599
-------- -------- ------- ------- -------
Net cash provided by operating activities.... 8,419 10,271 12,428 9,596 9,539
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of assets.......................... 18,979 86 274 274 41
Proceeds from payoff of notes receivable............... 3,517 255 700 700 --
Payments received on mortgage notes receivable......... 345 566 294 230 242
Investment in pharmacy joint venture................... -- -- (238) (238) --
Payments for property additions........................ (3,480) (3,579) (3,501) (2,265) (2,680)
-------- -------- ------- ------- -------
Net cash provided (used) by investing
activities..................................... 19,361 (2,672) (2,471) (1,299) (2,397)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on term notes, mortgage debt and
capitalized leases.................................. (2,033) (7,549) (9,471) (7,269) (7,137)
Debt service on industrial development bonds........... (2,776) (1,414) (1,474) (1,143) (1,079)
Payments on liabilities subject to reorganization
proceedings......................................... (17,096) (4,111) (47) (30) --
Proceeds of borrowing.................................. 250 2,750 1,000 1,000 --
Proceeds from exercise of stock options................ -- -- -- -- 18
Proceeds from sale of common stock, net of expenses.... -- -- 3,918 -- --
-------- -------- ------- ------- -------
Net cash used by financing activities............... (21,655) (10,324) (6,074) (7,442) (8,198)
-------- -------- ------- ------- -------
NET INCREASE (DECREASE) IN CASH.......................... 6,125 (2,725) 3,883 855 (1,056)
CASH AT BEGINNING OF YEAR................................ -- 6,125 3,400 3,400 7,283
-------- -------- ------- ------- -------
CASH AT END OF YEAR...................................... $ 6,125 $ 3,400 $ 7,283 $ 4,255 $ 6,227
-------- -------- ------- ------- -------
-------- -------- ------- ------- -------
</TABLE>
Care F-6
<PAGE> 139
CARE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS, EXCEPT FACILITY DATA)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- -----------------
1990 1991 1992 1992 1993
-------- -------- ------- ------- -------
(A) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid................................ $ 9,926 $ 5,449 $ 4,014 $ 3,334 $ 2,557
-------- -------- ------- ------- -------
-------- -------- ------- ------- -------
Income taxes paid............................ $ -- $ -- $ 542 $ 130 $ 205
-------- -------- ------- ------- -------
-------- -------- ------- ------- -------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
NUMBER OF FACILITIES DISPOSED:
Long term care facilities.................... 34 2 -- -- --
Pharmacies and distribution centers.......... 1 -- 9 -- --
FINANCIAL IMPACT OF DISPOSALS:
Net assets................................... $ 41,692 $ 5,488 $ 2,026 $ -- $ --
Net liabilities.............................. (17,426) (4,781) (626) -- --
-------- -------- ------- ------- -------
Net assets sold or disposed.................. 24,266 707 1,400 -- --
Cash proceeds................................ (18,979) (54) -- -- --
Additional notes on sale..................... (901) -- -- -- --
Equity in pharmacy joint venture............. -- -- (1,400) -- --
Charged against reserves for disposal of
facilities................................ (7,092) (653) -- -- --
-------- -------- ------- ------- -------
Net (gain) on sales and disposals............ $ (2,706) $ 0 $ 0 $ -- $ --
-------- -------- ------- ------- -------
-------- -------- ------- ------- -------
</TABLE>
- ---------------
(a) Pre-reorganization
In 1992 Care contributed the net assets of five pharmacies and four
distribution centers having a net book value of $1,400,000 to a partnership
formed with another long-term care provider (Note 12). During 1991 Care disposed
of two facilities, one of which Care continued to operate under a short term
lease agreement through November 1992.
See Independent Auditors' Report and Notes to Consolidated Financial Statements.
Care F-7
<PAGE> 140
CARE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AT SEPTEMBER 30, 1993, AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1992 AND 1993 IS UNAUDITED)
NOTE 1 -- EMERGENCE FROM BANKRUPTCY
Operations Liquidity
Care Enterprises, Inc. ("Care" or "the Company") emerged from bankruptcy on
December 31, 1990 with a significant debt burden (including term notes of
$31,776,000) and a working capital deficit of $18,269,000. As of December 31,
1992 the Company has reduced the term notes to $18,749,000 and the working
capital deficit at December 31, 1992 has been reduced to approximately
$12,217,000. This has principally been accomplished with cash provided by
operations, $3,750,000 of new borrowings and the sale of $4,000,000 of the
Company's Common Stock. Subsequent to December 31, 1992, the Company obtained a
$3,500,000 increase in its working capital line. See Notes 7 and 17.
The Company's detailed projections indicate that 1993 cash flows from
operations and other sources are sufficient to meet its immediate obligations
and to fund estimated capital expenditures of $3,500,000. The working capital
deficit is not expected to shrink unless the Company's term notes are refinanced
or modified. Longer term cash forecasts indicate possible liquidity problems in
1995 when the balloon payment for the term notes becomes due. The Company does
not currently plan to sell any more of its assets to improve its liquidity and
is currently negotiating with several lenders to obtain refinancing and
additional liquidity should it be required. Although several lenders have
indicated preliminary interest in extending credit to the Company, there is no
assurance that the Company will be successful in its refinancing efforts should
they be considered necessary.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Care provides skilled and intermediate nursing, rehabilitative services and
specialized clinical unit care to patients that do not require acute care
hospitalization. Services are provided in the Company's owned, leased or managed
nursing and rehabilitation facilities located in California, Ohio, West Virginia
and New Mexico. Care, through its wholly-owned subsidiary Care Home Health
Services, Inc., provides patients at home with technical medical support such as
infusion therapy and ventilator care and respite services such as assistance
with personal hygiene, cooking and cleaning.
Basis of Accounting
The accompanying consolidated financial statements are presented in
comparative format with a bar separating the accounts of the Company as
reorganized, as of December 31, 1990, and of the pre-reorganization entity for
the period prior thereto. For financial reporting purposes the reorganization of
the Company upon emergence from bankruptcy proceedings, as discussed in Note 3,
resulted in a new accounting entity which is not directly comparable with the
pre-reorganization entity. Additionally, as further discussed in Notes 3 and 4,
the financial statements of the pre-reorganization entity reflect the accounting
principles applicable to companies in bankruptcy.
Principles of Consolidation
The consolidated financial statements include the accounts of Care and its
wholly-owned subsidiaries. All material intercompany balances have been
eliminated.
Care F-8
<PAGE> 141
CARE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT SEPTEMBER 30, 1993, AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1992 AND 1993 IS UNAUDITED)
Reclassifications
The Company has reclassified the presentation of certain prior year
information to conform with the current year presentation.
Cash
Cash consists of cash balances held in banks and petty cash funds. At
December 31, 1991 and 1992 the Company held personal funds in trust for patients
approximating $365,000 and $400,000, respectively, which are not reflected on
the accompanying balance sheets.
Supplies Inventory
Supplies inventory is stated at the lower of cost or market using the FIFO
method.
Property and Equipment
In accordance with Fresh-Start Reporting (See Note 3), property and
equipment was restated to fair value at December 31, 1990. Depreciation and
amortization is provided primarily on the straight-line method over the
following estimated useful lives or, if applicable, over the terms of the
leases.
<TABLE>
<S> <C>
Buildings............................................ 20 to 40 years
Leasehold Interests and Improvements................. 7 to 30 years
Equipment............................................ 5 to 10 years
Capitalized Leases................................... 10 to 25 years
</TABLE>
Betterments, renewals and extraordinary repairs that extend the life of the
asset are capitalized; other repairs and maintenance are expensed. The cost and
accumulated depreciation applicable to assets retired are removed from the
accounts and any gain or loss on disposition is recognized in income.
Health Care Revenues and Reimbursement Programs
Long-term care facilities receive payments for services to certain patients
under Medicare and state Medicaid programs and from the Veterans Administration.
Revenues are recorded at the estimated net realizable amounts from patients and
third party payors in the period in which the service is provided. Approximately
76% (1990), 83% (1991) and 82% (1992) of total revenue was derived from federal
and state medical assistance programs. Revenues under these programs are based
in part on cost reimbursement principles which govern reimbursement of current
year costs. These revenues and costs are subject to audit and, in the opinion of
management, adequate provision has been made for any adjustments that may result
from such audits. Differences between estimated provisions and final settlements
are reflected in operations in the year finalized. Approximately 71% (1991) and
78% (1992) of the Company's accounts receivable were related to federal and
state medical assistance programs including approximately 33% for each year
related to the California Medicaid program.
Interest Expense
Interest expense is reflected net of $1,451,000, $1,280,000 and $752,000 of
interest income for the years ending December 31, 1990, 1991 and 1992,
respectively. See Note 7 for an additional discussion of interest expense.
Care F-9
<PAGE> 142
CARE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT SEPTEMBER 30, 1993, AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1992 AND 1993 IS UNAUDITED)
Income Taxes
During 1990 and 1991, the Company accounted for income taxes under the
provisions of Statement of Financial Accounting Standards No. 96 ("SFAS 96").
Effective December 31, 1992, the Company adopted (on a cumulative basis from
January 1, 1992) the provisions of Statement of Financial Accounting Standards
No. 109 ("SFAS 109"), "Accounting for Income Taxes" (Note 6).
In accordance with AICPA Statement of Position 90-7, "Financial Reporting
by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"), SFAS 96
and SFAS 109 tax benefits recognized in periods subsequent to bankruptcy
reorganization, resulting from utilization of pre-reorganization financial
reporting Net Operating Losses ("financial reporting NOL"), are recorded by the
Company as direct additions to additional capital with a corresponding charge in
lieu of taxes included in the provision for income taxes in the Statement of
Operations.
Income Per Share
Income per share for 1991 was computed based on 9,294,000 shares which
represented the weighted average number of Common Stock shares outstanding
during the year ended December 31, 1991. All Common Stock shares issued pursuant
to the Plan of Reorganization have been treated as outstanding as of December
31, 1990. Per share data for the period prior to January 1, 1991 is not
meaningful and is not presented herein since the Statement of Operations for the
period prior to 1991 reflects a different basis of accounting
(Pre-Reorganization) and therefore is not comparable with the Company's
Statement of Operations for the year ended December 31, 1991.
Income per share for 1992 has been computed based on 11,667,000 shares
which represents the weighted average number of Common Stock shares outstanding
during the year ended December 31, 1992. Outstanding stock options granted under
the 1992 stock option plan are common stock equivalents but are excluded from
net income per share calculations due to immateriality.
The income per share calculation does not include the shares reserved for
issuance in connection with the Company's Share Appreciation Rights (Note 9)
which provides for settlement of the rights in cash or stock. The Company's
Board of Directors does not presently plan to issue any shares in settlement of
the rights.
Workers' Compensation Accrual
The Company's accrual for its self-insured workers' compensation claims has
been discounted at a rate of 10% which management believes to be its appropriate
market rate of interest based on its current financial circumstances.
Professional Liability Insurance
The Company maintains approximately $20,000,000 of professional liability
insurance covering substantially all of its operations on a claims made basis
with a $250,000 self-insurance retention.
NOTE 3 -- REORGANIZATION REPORTING
Plan of Reorganization
In March and April of 1988, Care and nine subsidiaries filed a voluntary
petition with the United States Bankruptcy Court in the Central District of
California for relief under Chapter 11 of Title 11 of the United States
Bankruptcy Code and continued to conduct their normal business operations as
Debtors-in-Possession during the bankruptcy proceedings.
Care F-10
<PAGE> 143
CARE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT SEPTEMBER 30, 1993, AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1992 AND 1993 IS UNAUDITED)
On December 29, 1989, Care and the Creditors' Committee filed a proposed
Joint Plan of Reorganization ("the Plan") which was approved by the Bankruptcy
Court on March 29, 1990 and confirmed through a formal court order on April 20,
1990. On December 31, 1990, Care emerged from bankruptcy after its Plan became
effective.
The Company implemented the recommended accounting for entities in
("Pre-reorganization Reporting") and emerging from ("Fresh-Start Reporting")
Chapter 11 reorganization as set forth in SOP 90-7 during the year ended
December 31, 1990.
As recommended by SOP 90-7, the Company adopted Fresh-Start Reporting
because holders of its pre-reorganization common stock received less than 50
percent of the Common Stock and total post petition liabilities and claims of
the Company prior to reorganization exceeded the reorganization value of the
assets of the emerging Company.
Fresh-Start Reporting
The Company's reorganization value was determined by Company management,
based upon discounted projected cash flows of the reorganized company over a
five year period. The projected cash flows gave consideration to anticipated
property and equipment expenditures, reductions in the number of operating
facilities, and projected price increases and inflation. A discount rate of 15%
was used to reflect the uncertainty of the projections and the terminal value of
the Company was assumed to approximate seven times cash flows at the end of year
five of the Company's projection.
Management estimated the reorganization value of the Company as of December
31, 1990 at $68,000,000, which approximated the fair value of the Company before
considering liabilities, allocated approximately $25,223,000 of that value to
restate the carrying value of the Company's property and equipment and eliminate
$1,388,000 of excess costs over net assets acquired, net of amortization,
attributable to the pre-reorganization entity. The resulting net Fresh-Start
adjustment ($23,835,000) has been recognized as a reorganization item in the
1990 Statement of Operations. With the exception of these items, and the
extinguishment of debt pursuant to the reorganization, no significant
adjustments were made to the Company's other assets and liabilities as their
fair values approximated recorded amounts at that date.
The reorganization value of the Company was also used to determine the
value of the Company's stock and the resulting gain on the discharge of debt of
the pre-reorganized entity. The shareholders of the pre-reorganized Company were
required to tender all of their shares of stock in exchange for 10% of the new
stock issued by the reorganized company. The pre-reorganized entity's
accumulated deficit, after the impact of the discharge of debt, was eliminated.
NOTE 4 -- PRE-REORGANIZATION REPORTING
The Company emerged from bankruptcy proceedings effective December 31,
1990. As prescribed by SOP 90-7, the Statements of Operations, Shareholders'
Equity and Cash Flows for the year ended December 31, 1990 are prepared on the
following basis:
- Transactions and events directly associated with the reorganization
proceedings are reported separately.
- Interest expense is reported only to the extent it was paid.
Care F-11
<PAGE> 144
CARE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT SEPTEMBER 30, 1993, AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1992 AND 1993 IS UNAUDITED)
- The effect of the discharge of debt and restatement of values of assets
resulting from Fresh-Start Reporting are reflected in the 1990 Statement
of Operations as an extraordinary item and a reorganization item
respectively.
- The exchange of stock and elimination of the pre-reorganization
accumulated deficit as of December 31, 1990, are not reflected in the
Statements of Operations and Cash Flows.
NOTE 5 -- PROPERTY AND EQUIPMENT
A summary of property and equipment follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------- SEPTEMBER 30,
1991 1992 1993
------- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Land and improvements.............................. $ 8,659 $ 8,711 $ 8,683
Buildings.......................................... 37,008 37,469 37,723
Leasehold interest and improvements................ 18,635 19,409 20,289
Equipment.......................................... 10,081 10,901 12,388
Capitalized leases (Note 7)........................ 3,087 3,181 3,181
------- ------- -------------
Total property and equipment.................. 77,470 79,671 82,264
Less accumulated depreciation and amortization..... 5,488 10,505 14,347
------- ------- -------------
Total property and equipment, net............. $71,982 $69,166 $67,917
------- ------- -------------
------- ------- -------------
</TABLE>
NOTE 6 -- INCOME TAXES
During 1990 and 1991, the Company accounted for income taxes under the
provisions of SFAS 96. Effective December 31, 1992, the Company adopted (on a
cumulative basis from January 1, 1992) the provisions of SFAS 109, which
mandates the liability method of accounting for deferred income taxes and
permits the recognition of net deferred tax assets subject to an ongoing
assessment of realizability. The change in accounting for income taxes did not
have a material effect on the Company's financial statements.
SFAS 109 reaffirms the conclusions reached by SFAS 96 requiring deferred
income taxes to be recorded as assets and liabilities. The measurement of
deferred assets and liabilities under SFAS 109 is predominately determined by
reference to the tax laws and changes to such laws as well as the expected
future tax consequences of net operating loss carryforwards. However, unlike
SFAS 96, SFAS 109 requires consideration of future events to assess the
likelihood that tax benefits will be realized in future tax returns.
For federal tax return purposes, Care Enterprises, Inc. files a
consolidated tax return with its subsidiaries. As of December 31, 1992, the
Company had a federal net operating loss carryforward for tax purposes ("Tax
NOL") of approximately $94,800,000 and credit carryforwards of approximately
$4,021,000. The $16,800,000 increase in Tax NOL over the prior year is primarily
due to an amendment to the 1988 tax return.
When the Company's Plan of Reorganization was confirmed, an ownership
change as defined in Internal Revenue Code ("IRC") Section 382 occurred. As a
result, use of Tax NOL and credit carryforwards accumulated on or before April
20, 1990 may be subject to an annual limitation of approximately $300,000,
calculated based on the net equity of the Company, as of the effective date of
the reorganization, of $4,275,000 multiplied by the long-term tax-exempt rate.
Tax losses and credits generated after April 20, 1990 are not subject to the
above limitation.
Care F-12
<PAGE> 145
CARE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT SEPTEMBER 30, 1993, AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1992 AND 1993 IS UNAUDITED)
Because a portion of the Company's Tax NOL was generated as early as 1985,
it will begin to expire in the year 2000. Considering the annual limitation, it
is currently estimated that as of December 31, 1992, a maximum of $5,600,000 of
Tax NOL will be available for use prior to expiration.
Management is pursuing the possibility that a special IRC provision may
apply which could reduce the aggregate Tax NOL and credit carryforwards
available but would not limit their annual use. Should circumstances permit the
Company to qualify for this special IRC provision, a significant portion of the
pre-confirmation Tax NOL (approximately $58,000,000) and credit carryforwards
could become available for use.
The Internal Revenue Service is examining the Company's income tax returns
for the years 1987 through 1990. Management believes that the outcome of this
examination will not have a material impact on the financial position or
liquidity of the Company.
Deferred income tax assets and liabilities originate from differences
between accounting principles and procedures used for book and tax purposes,
principally related to depreciation, contingencies and legal settlements,
workers' compensation, bankruptcy costs and fees, doubtful accounts and reserves
for losses on discontinuance of certain operations.
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------
1990 1991 1992
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current
Federal........................................ $ -- $ -- $ 844
State.......................................... -- -- 338
Deferred
Federal........................................ -- -- 981
State.......................................... -- -- 35
Charge in lieu of income taxes................... -- 721 730
------ ------ ------
Total provision for income taxes............ $ -- $ 721 $2,928
------ ------ ------
------ ------ ------
</TABLE>
A reconciliation of the federal statutory income tax rate with the
Company's effective tax rate follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
1990 1991 1992
----- ----- -----
<S> <C> <C> <C>
Federal rate........................................ 34.0% 34.0% 34.0%
Reversal of pre-reorganization reserves............. -- (15.6) (8.0)
State taxes net of federal benefit.................. -- 6.0 7.5
Permanent differences............................... -- -- 0.5
Losses providing no current tax benefit............. (34.0) -- --
----- ----- -----
Effective rate................................. 0% 24.4% 34.0%
----- ----- -----
----- ----- -----
</TABLE>
Care F-13
<PAGE> 146
CARE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT SEPTEMBER 30, 1993, AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1992 AND 1993 IS UNAUDITED)
The tax effect of the temporary differences giving rise to the Company's
deferred tax assets and liabilities as of December 31, 1992 are shown on the
following table.
<TABLE>
<CAPTION>
ASSETS
(LIABILITY)
-----------
<S> <C>
Net operating loss carryforward................................... $ 2,489
Depreciation...................................................... (12,260)
Allowance for doubtful accounts................................... 1,066
Accrual for contingencies and legal settlements................... 1,145
Accrued workers' compensation claims.............................. 4,364
Other............................................................. 1,191
-----------
Total net deferred income taxes.............................. (2,005)
Less: Current deferred income tax asset........................... 2,619
-----------
Noncurrent deferred income tax liability..................... $ (4,624)
-----------
-----------
</TABLE>
The aggregate amounts of deferred tax assets and liabilities at December
31, 1992 are $11,258,000 and $13,263,000, respectively. In accordance with SFAS
109 all current deferred tax liabilities and assets are presented as a single
amount, as are all noncurrent deferred tax liabilities and assets.
NOTE 7 -- LONG-TERM DEBT AND CREDIT FACILITIES
Long-term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
------------------- SEPTEMBER 30,
1991 1992 1993
------- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Term Notes due through April 1995 with interest at a rate
which approximates the Citibank N.A. prime rate plus 2%
(effectively 8% at December 31, 1992)(Note 12)........... $26,403 $ 9,374 $ 6,583
Term Notes payable to a shareholder (Note 12), due through
April 1995 with interest at a rate which approximates the
Citibank N.A. prime rate plus 2% (effectively 8% at
December 31, 1992)....................................... -- 9,375 6,584
Mortgage notes payable due through May 2014 in varying
amounts with interest at rates from 6.7% to 13.0%........ 5,460 5,212 5,102
Industrial development bonds due through August 2012 in
varying amounts with interest at rates from 6.1% to
13.75%................................................... 12,734 12,595 12,440
Working capital loan from a shareholder due January 1996
with interest at the Citibank N.A. prime rate plus 3%
(effectively 9% at December 31, 1992)(Note 12)........... -- 1,000 1,000
Other unsecured indebtedness payable in varying amounts
through August 2017 with interest at rates from 0% to
16.5%.................................................... 1,758 1,436 702
Capitalized lease obligations payable through May 1998 in
monthly payments of $38,000 in aggregate and with
interest at rates from 8.0% to 13.2%..................... 1,754 1,434 1,093
------- ------- -------------
Total long-term debt.................................. 48,109 40,426 33,504
Less: Current portion...................................... 7,646 7,683 7,203
------- ------- -------------
Long-term portion..................................... $40,463 $32,743 $26,301
------- ------- -------------
------- ------- -------------
</TABLE>
Care F-14
<PAGE> 147
CARE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT SEPTEMBER 30, 1993, AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1992 AND 1993 IS UNAUDITED)
The aggregate maturities of long-term debt and capitalized lease
obligations for the ensuing five years and thereafter are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31
-----------
<S> <C>
1993..................................... $ 7,683
1994..................................... 8,827
1995..................................... 7,618
1996..................................... 1,263
1997..................................... 513
Thereafter............................... 14,522
-------
$40,426
-------
-------
</TABLE>
As contemplated by the Plan of Reorganization, Care's secured bank line of
credit with an outstanding balance of $31,776,000 was restructured on December
31, 1990 into term notes when the Plan became effective. The restated credit
agreement provides for quarterly principal and interest payments of $2,250,000
commencing January 1991, decreasing to $2,000,000 commencing July 1992 and
continuing until April 1995 when the remaining principal balance is due.
Interest accrues at a rate which approximates Citibank N.A.'s prime rate plus
2%. The term notes are secured by substantially all of the Company's assets,
except certain nursing facilities and their related assets. Approximately 85% of
any net cash proceeds resulting from sales of the assets securing the term notes
are required to be used to prepay the debt. The agreement contains affirmative
and negative covenants, including the maintenance of certain operating ratios,
the maintenance of minimum levels of retained earnings, the prohibition of
payment of dividends, a limitation on the amount of capital expenditures, and
restrictions on the creation of new debt and lease obligations.
The Company has a $1,000,000 working capital facility made available by a
major shareholder (Notes 12 and 17). This loan bears interest at a rate
approximating Citibank, N.A.'s prime rate plus 3%, payable quarterly, and is
secured by one of the Company's nursing facilities. This working capital
facility matures in January 1996 or upon payment in full of all amounts owing
under the term notes. In 1991 and 1992 the Company paid a commitment fee of 1%
per annum on the average unused portion of this facility.
Each of the mortgage notes and industrial development bonds ("IDB's") is
secured by a first deed of trust on the related facility. Two of the IDB's
require the maintenance of debt service reserve funds and all of the IDB's
contain affirmative and negative covenants and reporting requirements.
NOTE 8 -- COMMITMENTS AND CONTINGENCIES
Bankruptcy Claims
All disputed bankruptcy claims have been resolved and have been provided
for as of December 31, 1992.
Letters of Credit
The Company is contingently liable under letters of credit principally
related to deposit requirements on its self-insured workers' compensation plans.
State regulations require the maintenance of deposits at specified percentages
of estimated future claim payments which can be satisfied through a combination
of cash deposits, surety bonds and letters of credit. The total amount of
letters of credit outstanding at December 31, 1991 and 1992 were $5,640,000 and
$6,250,000, respectively.
Care F-15
<PAGE> 148
CARE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT SEPTEMBER 30, 1993, AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1992 AND 1993 IS UNAUDITED)
Leases
The Company leases certain facilities and offices under cancelable and
noncancelable agreements expiring at various dates through October 2011. The
leases are generally triple-net leases and provide for the Company's payment of
property taxes, insurance and repairs. Certain leases contain renewal options
and rent escalation clauses. Rent escalation clauses require either fixed
increases or increases tied to the Consumer Price Index. Eight leases provide
fixed purchase price options and one lease provides a put option in the year
2000 at 100% of fair market value.
Leases
Rent and lease expenses aggregated $7,249,000 for 1990, $7,785,000 for 1991
and $7,682,000 for 1992.
Future minimum lease payments (in thousands) for operating leases at
December 31, 1992 are as follows:
<TABLE>
<S> <C>
1993....................................... $ 6,563
1994....................................... 6,571
1995....................................... 6,674
1996....................................... 6,597
1997....................................... 5,200
Thereafter................................. 27,258
-------
Total minimum lease payments............... $58,863
-------
-------
</TABLE>
GUARANTEES OF LEASES
The Company is contingently liable for many of the operating leases assumed
by the purchasers of the Company's leasehold interests in facilities. The
Company is not aware of any failure on the part of these purchasers to meet the
terms of their obligations, and does not anticipate any expenditures to be
incurred in connection with its guarantees. If a default were to occur, the
Company generally would be able to assume operations of the facility and use the
net revenues thereof to defray the Company's expenditures on these guarantees.
The following is a schedule of future minimum lease payments (in thousands)
for the operating leases for which the Company is contingently liable:
<TABLE>
<S> <C>
1993....................................... $ 1,394
1994....................................... 1,356
1995....................................... 1,356
1996....................................... 1,185
1997....................................... 1,151
Thereafter................................. 5,442
-------
$11,884
-------
-------
</TABLE>
NOTE 9 -- CAPITAL STRUCTURE
The Company has authorized capital stock of 26,000,000 shares consisting of
1,000,000 shares of Series A Preferred Stock, $1.00 par value per share, and
25,000,000 shares of Common Stock, $.01 par value per share.
Care F-16
<PAGE> 149
CARE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT SEPTEMBER 30, 1993, AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1992 AND 1993 IS UNAUDITED)
Preferred Stock
The Preferred Stock, none of which has been issued, has certain preferences
upon liquidation or redemption and has voting rights similar to the Common
Stock.
COMMON STOCK
As part of the Plan of Reorganization, in January 1991 the Company canceled
its old Common Stock and debt securities and discharged certain other
liabilities by issuing shares of its new Common Stock. The accompanying
consolidated financial statements reflect the issuance of the 8,956,000 shares
of Common Stock and the retirement of all old Common Stock and certain debt as
of December 31, 1990, the effective date of the Plan of Reorganization.
On December 21, 1992, the Company sold 1,633,000 shares of new Common Stock
to affiliates of Smith Management Company and Foothill Group, Inc., its two
largest shareholders for $4,000,000 (Note 12). In 1992, Care retired 46,000
shares of new Common Stock which had been acquired by the Company through
settlement of certain claims.
STOCK OPTION PLAN
During February 1992, the Board of Directors of the Company approved a
stock option plan providing for the grant of options to employees and certain
consultants to purchase an aggregate of 550,000 shares of the Company's Common
Stock. Under this plan, full-time employees are eligible to receive grants of
either incentive stock options structured to qualify under Section 422 of the
IRC of 1986, or nonqualified stock options which are not intended to meet the
requirements of the IRC. Consultants and certain eligible directors may be
granted only nonqualified stock options. The plan was approved by the
shareholders of the Company in May 1992 and nonqualified stock options to
purchase 339,000 shares have been granted and are outstanding as of December 31,
1992. The options vest over a four year period and have an exercise price equal
to the market price of the Company's common stock on the date of grant.
Outstanding options expire on various dates through November 20, 1997.
Stock option activity (in shares):
<TABLE>
<CAPTION>
1992
-------
<S> <C>
Outstanding, beginning of year............................. 0
Granted ($2.125 to $2.875)................................. 378,000
Exercised.................................................. (0)
Canceled ($2.125 to $2.50)................................. (39,000)
-------
Outstanding, end of year ($2.125 to $2.875)................ 339,000
-------
-------
Exercisable at end of year................................. 0
-------
-------
Available for grant at end of year......................... 111,000
-------
-------
</TABLE>
Share Appreciation Rights Plan
In January 1991, Care's Board of Directors adopted a Share Appreciation
Rights Plan (the "SAR Plan") which provided for the award of 1,000,000 units to
certain key executives. The SAR Plan was amended by the Board of Directors and
shareholders in May 1992.
The SAR Plan provides that upon award, 25% of the units vest on each of the
first four anniversaries of the award date and vested units must be exercised
before the fifth anniversary of the award. Upon exercise, the
Care F-17
<PAGE> 150
CARE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT SEPTEMBER 30, 1993, AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1992 AND 1993 IS UNAUDITED)
awardee is entitled to receive in cash or stock, at the Company's option, the
difference between the base value awarded and the market value on the date units
are exercised.
As indicated below, of the 900,000 units which were awarded in 1991, 23,000
were exercised, 517,000 were forfeited and 360,000 remain outstanding, of which,
180,000 are vested as of December 31, 1992. The Board of Directors has decided
not to award additional rights under the SAR Plan. During 1991 and 1992, the
Company accrued $293,000 and $291,000, respectively, in benefits associated with
this plan and 450,000 shares of Common Stock have been reserved for possible
issuance in settlement of the appreciation due awardees.
Stock appreciation rights activity (in units):
<TABLE>
<CAPTION>
1991 1992
-------- -------
<S> <C> <C>
Outstanding, beginning of year.......................... 0 450,000
Granted................................................. 900,000 0
Exercised............................................... 0 (23,000)
Canceled................................................ (450,000) (67,000)
-------- -------
Outstanding, end of year................................ 450,000 360,000
-------- -------
-------- -------
</TABLE>
NOTE 10 -- DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
Other assets consist of deposits (primarily related to the Company's
self-insured workers' compensation plans and facility leases), debt service
reserves related to the IDB's and other debt, a 26% interest in a pharmacy
partnership (Note 12), deferred charges and other.
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
------------------- SEPTEMBER 30,
1991 1992 1993
------- ------- -------------
<S> <C> <C> <C>
Accrued payroll and related taxes.......... $ 4,178 $ 4,476 $ 6,609
Accrual for contingencies and legal
settlements.............................. 3,828 3,244 2,711
Accrued workers' compensation claims (Net
of discounting of $4,269, $3,085 and
$3,056 for 1991, 1992 and 1993,
respectively)............................ 11,640 10,627 10,389
Accrued employee benefits.................. 3,801 3,875 3,494
Reserve for losses on discontinuance of
certain operations....................... 4,101 1,513 1,277
Reserve for expenses and fees in connection
with Chapter 11 proceedings.............. 765 556 269
Other accrued liabilities.................. 2,318 1,647 4,581
Income taxes payable....................... -- 640 2,405
------- ------- -------------
Total accrued liabilities........ 30,631 26,578 31,735
Less current portion of accrued
liabilities.............................. 17,785 15,791 18,135
------- ------- -------------
Noncurrent portion............... $12,846 $10,787 $13,600
------- ------- -------------
------- ------- -------------
</TABLE>
NOTE 11 -- LITIGATION
During 1992 the Company settled several lawsuits. A lawsuit with a
California hospital in which the Company was a defendant and where the plaintiff
had been awarded a $548,000 writ of attachment was settled with a cash payment
of $350,000 and a contingent payment based on the outcome of a certain
Company-filed
Care F-18
<PAGE> 151
CARE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT SEPTEMBER 30, 1993, AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1992 AND 1993 IS UNAUDITED)
Medicare appeal. The Company also settled, for a cash payment of $139,000,
litigation with another nursing facility provider related to a nursing facility
sublease. These losses had previously been provided for in the Company's
consolidated financial statements.
The Company is also subject to various claims and lawsuits which arise in
the normal course of business. In the opinion of management, adequate provision
has been made and such claims or actions are not expected to have a material
adverse effect on the Company's financial position.
NOTE 12 -- RELATED PARTY TRANSACTIONS
Smith Management Company and its affiliated companies ("Smith") and
Foothill Capital Corporation, Foothill Group, Inc. and affiliates ("Foothill")
are significant shareholders of the Company.
In 1990 and 1991 the Company sold $3,000,000 in secured convertible
exchangeable notes to Smith and Foothill. The notes, which had a maturity date
of December 31, 1993, bore interest at a rate approximating the Citibank, N.A.
prime rate plus 1% payable quarterly, were secured by two of the Company's
nursing facilities. The notes were convertible at any time, at the option of the
holder, into shares of Preferred Stock or Common Stock and would automatically
convert into shares of Common Stock upon the occurrence of certain events. On
November 14, 1991, the requirements for automatic conversion were met and the
notes were converted into 2,679,000 shares of Common Stock. The holders of these
shares have registration rights whereby they can request, at the Company's
expense, that the Common Stock issued be registered with the Securities and
Exchange Commission. Foothill has also provided the Company with a $1,000,000
revolving credit working capital facility and has extended the initial due date
from December, 1993 to January, 1996.
In April 1991, the Company engaged Smith to assist in the development and
implementation of a program which would improve the Company's liquidity. Under
this agreement, the Company paid Smith an aggregate of $218,000 for 1992 and
$100,000 for 1991. This agreement expired on December 31, 1992.
In January 1992, Foothill acquired from Wells Fargo Bank, N.A. a 50%
interest in the Company's term note obligation. Their portion of the term notes
amounts to $9,375,000 at December 31, 1992. As part of the transaction, Foothill
also acquired a contingent letter of credit obligation with a principal amount
of $4,316,000.
In December, 1992, the Company sold 1,633,000 shares of new Common Stock to
Smith and Foothill for $4,000,000. In connection with this transaction, Smith
and Foothill have registration rights whereby they can join the Company in a
registration if the Company chooses to register other shares of its Common Stock
with the Securities and Exchange Commission.
The pharmacy partnership formed in April 1992, in which the Company has a
26% interest, continues to provide products and services to the nursing and
rehabilitation centers operated by the Company. For 1992 these purchases
totalled approximately $4,200,000.
NOTE 13 -- DISPOSAL OF FACILITY
In 1992, Care recognized a gain of $1,007,000 on a nursing facility
disposal which occurred in 1991. The gain represents the difference between the
book value of the nursing facility assets which were acquired in 1991 by a bank
in a nonjudicial foreclosure and management's estimate of the value of the
assets surrendered.
Care F-19
<PAGE> 152
CARE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT SEPTEMBER 30, 1993, AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1992 AND 1993 IS UNAUDITED)
NOTE 14 -- QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1990 (UNAUDITED) QUARTER QUARTER QUARTER QUARTER TOTAL
- --------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues............................... $ 60,005 $ 55,950 $ 50,845 $ 48,243 $215,043
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Income (loss) before reorganization
items
and income taxes..................... (686) (1,053) (964) 1,495 (1,208)
Reorganization items................... -- 1,031 710 33,932 35,673
-------- -------- -------- -------- --------
Income (loss) before extraordinary
gain................................. (686) (22) (254) 35,427 34,465
Extraordinary gain..................... -- -- -- 73,149 73,149
-------- -------- -------- -------- --------
Net income (loss)...................... (686) (22) (254) 108,576 107,614
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Income (loss) per share:............... * * * * *
</TABLE>
- ---------------
* Per share amounts are not meaningful due to the Reorganization.
During the second, third and fourth quarters of 1990, the Company realized
gains on disposals of facilities of $1,031,000, $710,000, and $965,000,
respectively. These gains were classified as reorganization items in the
Consolidated Statement of Operations.
Additionally, during the fourth quarter of 1990, following resolution of
certain litigation and other contingencies, the Company reversed reserves for
litigation costs of $8,178,000 and reserves for Chapter 11 expenses of
$1,223,000.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1991 (UNAUDITED) QUARTER QUARTER QUARTER QUARTER TOTAL
- --------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues............................... $ 44,455 $ 46,057 $ 46,429 $ 48,735 $185,676
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Income (loss) before reorganization
items
and income taxes..................... (166) 492 22 888 1,236
Reorganization and other items......... -- -- 882 838 1,720
-------- -------- -------- -------- --------
Income (loss) before income taxes...... (166) 492 904 1,726 2,956
Provision for income taxes............. -- -- 425 296 721
-------- -------- -------- -------- --------
Net income (loss)...................... $ (166) $ 492 $ 479 $ 1,430 $ 2,235
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Income (loss) per share:
Net income (loss)...................... $ (.02) $ .05 $ .05 $ .14 $ .24
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Weighted average shares outstanding.... 8,956 8,956 8,956 10,296 9,294
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
During the second quarter of 1991 Care disposed of one facility and
recognized a loss of $653,000 that was charged against reserves for losses on
discontinuance of certain operations.
During the third quarter of 1991 the Company recognized gains resulting
from the reversal of reserves for losses on the discontinuance of certain
operations of $882,000.
Care F-20
<PAGE> 153
CARE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT SEPTEMBER 30, 1993, AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1992 AND 1993 IS UNAUDITED)
During the fourth quarter of 1991 the Company recognized gains resulting
from the reversal of reserves for losses on the discontinuance of certain
operations of $374,000 and reversal of reserves for expenses and fees resulting
from Chapter 11 proceedings of $464,000.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1992 (UNAUDITED) QUARTER QUARTER QUARTER QUARTER TOTAL
- ---------------------------------------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Revenues................................ $47,858 $46,401 $48,589 $49,200 $192,048
------- ------- ------- ------- --------
------- ------- ------- ------- --------
Income before reorganization items
and income taxes...................... 690 1,356 2,124 2,879 7,049
Reorganization and other items.......... -- -- -- 1,543 1,543
------- ------- ------- ------- --------
Income before income taxes.............. 690 1,356 2,124 4,422 8,592
Provision for income taxes.............. 276 542 850 1,260 2,928
------- ------- ------- ------- --------
Net income.............................. $ 414 $ 814 $ 1,274 $ 3,162 $ 5,664
------- ------- ------- ------- --------
------- ------- ------- ------- --------
Income per share:
Net income.............................. $ .04 $ .07 $ .11 $ .27 $ .49
------- ------- ------- ------- --------
------- ------- ------- ------- --------
Weighted average shares outstanding..... 11,635 11,635 11,635 11,809 11,667
------- ------- ------- ------- --------
------- ------- ------- ------- --------
</TABLE>
During the fourth quarter of 1992, the Company recognized gains resulting
from the reversal of reserves for losses on the discontinuance of certain
operations of $461,000, the reversal of reserves for expenses and fees resulting
from Chapter 11 proceedings of $75,000 and recognized a gain on the sale of a
facility disposed of in 1991 of $1,007,000.
NOTE 15 -- EXTRAORDINARY GAIN FROM DISCHARGE OF DEBT
In accordance with the Company's Plan of Reorganization, certain
prepetition liabilities were satisfied through the issuance of shares of Common
Stock while others were satisfied by full or partial cash payment. The
extraordinary gain from discharge of debt was calculated immediately prior to
emerging from bankruptcy on December 31, 1990, as follows:
Liabilities Subject to Settlement Under Reorganization Proceedings
<TABLE>
<S> <C>
Subordinated debt.......................................... $70,911
Other long-term debt....................................... 3,691
Trade and other payables................................... 3,229
-------
77,831
Less:
Reorganization value of 8,061,000 shares of
common stock issued (Note 3).......................... 3,847
Cash payments............................................ 835
-------
4,682
-------
Extraordinary gain from discharge of debt.................. $73,149
-------
-------
</TABLE>
NOTE 16 -- RETIREMENT SAVINGS PLAN
Effective January 1, 1992, the Company began accepting the entry of new
participants and began accepting participant contributions to the Care
Enterprises, Inc. Retirement Savings Plan, which is a qualified
Care F-21
<PAGE> 154
CARE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT SEPTEMBER 30, 1993, AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1992 AND 1993 IS UNAUDITED)
cash or deferred arrangement under Section 401(k) of the Internal Revenue Code.
All employees with at least one year of employment who have attained the age of
21 are eligible to participate. Participants may contribute, on a pretax basis,
up to 10% of their earnings to the plan (subject to certain limitations), for
which the Company matches 15% of the first 3% of contributions for persons with
less than three years of service and 25% of the first 5% for all others. The
Company's contributions are subject to a four-year vesting period. Matching
contributions made by the Company for 1992 were $155,000.
NOTE 17 -- SUBSEQUENT EVENT
In March 1993 the Company obtained a $3,500,000 increase to its working
capital loan provided by Foothill, a major shareholder. The loan is secured by
certain of the Company's nursing and rehabilitation centers and certain accounts
receivable. The loan bears interest at a rate which approximates the Citibank,
N.A. prime rate plus 3% and expires in January 1996.
NOTE 18 -- INTERIM RESULTS (UNAUDITED)
The accompanying consolidated balance sheet as of September 30, 1993, the
consolidated statements of operations and cash flows for the nine months ended
September 30, 1992 and 1993, and the consolidated statement of shareholders'
equity (deficiency) for the nine months ended September 30, 1993 are unaudited.
In the opinion of management, these statements have been prepared on the same
basis as the audited consolidated financial statements and include all
adjustments, consisting only of normal recurring accruals, necessary for the
fair statement of the results of the interim periods. The results of operations
for the interim periods are not necessarily indicative of the results which may
be expected for an entire year.
The following disclosures relate to the aforementioned unaudited interim
financial statements:
1. The significant accounting policies described in Note 2 have been
applied to the unaudited interim financial statements.
2. The provisions for income taxes for the nine months ended September 30,
1992 and 1993 have been computed using the effective tax rate expected
to be applicable for each respective year.
<TABLE>
<CAPTION>
NINE MONTHS
FIRST SECOND THIRD ENDED
1993 (UNAUDITED) QUARTER QUARTER QUARTER SEPTEMBER 30, 1993
- ------------------------------------------------- ------- ------- ------- ------------------
<S> <C> <C> <C> <C>
Revenues......................................... $47,748 $49,865 $50,582 $148,195
------- ------- ------- ------------------
------- ------- ------- ------------------
Income before reorganization items and income
taxes.......................................... 1,661 2,247 2,658 6,566
Reorganization and other items................... -- -- -- --
------- ------- ------- ------------------
Income before income taxes....................... 1,661 2,247 2,658 6,566
Provision for income taxes....................... 665 898 1,063 2,626
------- ------- ------- ------------------
Net income....................................... $ 996 $ 1,349 $ 1,595 $ 3,940
------- ------- ------- ------------------
------- ------- ------- ------------------
Income per share -- primary:
Net income....................................... $ 0.08 $ 0.10 $ 0.12 $ 0.30
------- ------- ------- ------------------
------- ------- ------- ------------------
Weighted average shares outstanding.............. 13,262 13,323 13,321 13,300
------- ------- ------- ------------------
------- ------- ------- ------------------
</TABLE>
On December 20, 1993, Care and Regency Health Services, Inc., a Delaware
corporation ("Regency"), entered into an Agreement and Plan of Merger dated as
of December 20, 1993 (the "Merger Agreement"). Pursuant to the Merger Agreement,
Care will be merged with and into Regency with Regency as the surviving
corporation (the "Merger") and each share of Care's Common Stock issued and
outstanding immediately
Care F-22
<PAGE> 155
CARE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT SEPTEMBER 30, 1993, AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1992 AND 1993 IS UNAUDITED)
prior to the time of the consummation of the Merger shall automatically be
converted into the right to receive 0.71 shares of Regency's Common Stock, par
value $0.01 per share ("Regency Common Stock"). The transactions contemplated by
the Merger are subject to certain conditions, including, without limitation, the
approval by regulatory agencies and the stockholders of each of Care and
Regency. Care anticipates that the Merger will be consummated in the second
calendar quarter of 1994.
On December 30, 1993, Care entered into a Note Agreement with a number of
institutional purchasers pursuant to which it issued $30,000,000 of its 8.10%
Senior Secured Notes due December 15, 2000 ("Notes"). The Notes have an average
maturity of five years and provide for interest payments on each of January 15
and July 15, commencing January 15, 1994. Principal payments of $6,000,000 are
due annually commencing on January 15, 1997, with the final payment due on
maturity.
Care applied approximately $18,900,000 of the proceeds from the Notes to
repay indebtedness, including approximately $11,600,000 of Term Notes payable to
Citibank, N.A. as agent under the 1990 Amended and Restated Credit Agreement and
$7,300,000 in other debt. In addition approximately $1,100,000 was used to pay
costs and expenses of the issuance of the Notes, approximately $800,000 was used
to establish cash escrows with a title company pending the resolution of certain
title and debt pay off related issues, and approximately $500,000 was used to
exercise a purchase option from the lessor of one of the mortgaged facilities.
Care F-23
<PAGE> 156
ANNEX A
AGREEMENT AND PLAN
OF
MERGER
(RESTATED TO INCLUDE AMENDMENT THERETO)
DATED AS OF DECEMBER 20, 1993
BY AND BETWEEN
REGENCY HEALTH SERVICES, INC.
AND
CARE ENTERPRISES, INC.
<PAGE> 157
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
ARTICLE I -- CERTAIN DEFINITIONS....................................................... A- 1
ARTICLE II -- THE MERGER............................................................... A- 1
2.1 The Merger.................................................................. A- 3
2.2 Effective Time.............................................................. A- 3
2.3 Effects of the Merger....................................................... A- 3
2.4 Restated Certificate of Incorporation and Bylaws............................ A- 3
2.5 Stockholder Meetings........................................................ A- 3
2.6 Conversion of Care Common Stock in the Merger............................... A- 3
2.7 Dissenting Shares........................................................... A- 4
2.8 Exchange of Shares.......................................................... A- 4
2.9 Time and Place of Closing................................................... A- 5
ARTICLE III -- CORPORATE GOVERNANCE.................................................... A- 5
3.1 Actions to be Taken by Regency at the Effective Time with Respect to
Corporate Governance...................................................... A- 5
3.2 Certain Committees of Regency Board of Directors............................ A- 6
3.3 Corporate Headquarters...................................................... A- 6
ARTICLE IV -- REPRESENTATIONS AND WARRANTIES OF REGENCY................................ A- 6
4.1 Organization and Qualification.............................................. A- 6
4.2 Capitalization.............................................................. A- 6
4.3 Authority................................................................... A- 7
4.4 Consents and Approvals; No Violation........................................ A- 7
4.5 SEC Reports and Financial Statements........................................ A- 7
4.6 Absence of Certain Changes or Events........................................ A- 8
4.7 Litigation.................................................................. A- 8
4.8 Compliance with Law......................................................... A- 8
4.9 Taxes....................................................................... A- 8
4.10 Disclosure.................................................................. A- 9
4.11 Information Supplied........................................................ A- 9
4.12 Employee Matters............................................................ A- 9
4.13 Affiliate Agreements........................................................ A- 9
4.14 Opinion of Financial Advisor................................................ A- 9
4.15 Accounting Matters.......................................................... A-10
4.16 Brokers and Finders......................................................... A-10
ARTICLE V -- REPRESENTATIONS AND WARRANTIES OF CARE.................................... A-10
5.1 Organization and Qualification.............................................. A-10
5.2 Capitalization.............................................................. A-10
5.3 Authority................................................................... A-10
5.4 Consents and Approvals; No Violation........................................ A-11
5.5 SEC Reports and Financial Statements........................................ A-11
5.6 Absence of Certain Changes or Events........................................ A-12
5.7 Litigation.................................................................. A-12
5.8 Compliance with Law......................................................... A-12
5.9 Taxes....................................................................... A-12
5.10 Disclosure.................................................................. A-12
5.11 Information Supplied........................................................ A-12
5.12 Employee Matters............................................................ A-13
</TABLE>
A-i
<PAGE> 158
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
5.13 Affiliate Agreements........................................................ A-13
5.14 Opinion of Financial Advisor................................................ A-13
5.15 Accounting Matters.......................................................... A-13
5.16 Brokers and Finders......................................................... A-13
ARTICLE VI -- COVENANTS RELATING TO CONDUCT OF BUSINESS................................ A-13
6.1 Conduct of Business of Regency Pending the Effective Time................... A-13
6.2 Conduct of Business of Care Pending the Effective Time...................... A-14
6.3 Cooperation................................................................. A-15
6.4 Recommendation to Stockholders.............................................. A-15
6.5 State Takeover Laws......................................................... A-16
ARTICLE VII -- ADDITIONAL COVENANTS AND AGREEMENTS..................................... A-16
7.1 No Solicitation............................................................. A-16
7.2 Access to Information....................................................... A-17
7.3 Registration Statement and Proxy Statement.................................. A-17
7.4 Affiliates.................................................................. A-17
7.5 Agreement to Cooperate; Further Assurances.................................. A-17
7.6 Stock Options............................................................... A-18
7.7 Public Statements........................................................... A-18
7.8 Letter of Regency's Accountants............................................. A-18
7.9 Letter of Care's Accountants................................................ A-18
7.10 Expenses.................................................................... A-18
7.11 Opinions of Financial Advisors.............................................. A-19
7.12 Registration Rights......................................................... A-19
7.13 Indemnification; Directors and Officers Insurance........................... A-19
7.14 Merger Provisions........................................................... A-19
7.15 Employment Agreements....................................................... A-19
7.16 Undertaking................................................................. A-19
7.17 New York Stock Exchange Listing............................................. A-19
7.18 Merger Sub Activities....................................................... A-19
ARTICLE VIII -- CONDITIONS............................................................. A-20
8.1 Conditions to Each Party's Obligation to Effect the Merger.................. A-20
8.2 Conditions to Obligation of Regency to Effect the Merger.................... A-20
8.3 Conditions to Obligation of Care to Effect the Merger....................... A-21
ARTICLE IX -- TERMINATION, AMENDMENT AND WAIVER........................................ A-22
9.1 Termination................................................................. A-22
9.2 Effect of Termination....................................................... A-23
9.3 Amendment................................................................... A-23
9.4 Waiver...................................................................... A-23
9.5 Termination Fee............................................................. A-23
ARTICLE X -- GENERAL PROVISIONS........................................................ A-24
10.1 Non-Survival of Representations, Warranties and Agreements.................. A-24
10.2 Notices..................................................................... A-24
10.3 Interpretation.............................................................. A-25
10.4 Miscellaneous............................................................... A-25
10.5 Counterparts................................................................ A-25
</TABLE>
A-ii
<PAGE> 159
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
10.6 Parties in Interest......................................................... A-25
10.7 Severability................................................................ A-25
10.8 Attorneys' Fees............................................................. A-25
Exhibit A Form of Restated Certificate of Incorporation of Regency
Exhibit B Form of Bylaws of Regency
Exhibit C Corporate Governance
Exhibit D Form of Sidley & Austin legal opinion
Exhibit E Form of Skadden, Arps legal opinion
</TABLE>
A-iii
<PAGE> 160
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of December 20, 1993 (the
"Agreement"), by and between Regency Health Services, Inc., a Delaware
corporation ("Regency"), and Care Enterprises, Inc., a Delaware corporation
("Care").
WHEREAS, the Board of Directors of each of Regency and Care deems it
advisable and in the best interests of their respective stockholders that Care
be merged with and into Regency (the "Merger") in accordance with the General
Corporation Law of the State of Delaware (the "GCL"), upon the terms and subject
to the conditions of this Agreement; and
WHEREAS, for Federal income tax purposes, it is intended that the
transactions contemplated by this Agreement constitute a tax-free reorganization
under the Internal Revenue Code of 1986, as amended (the "Code"), and the
regulations thereunder.
NOW, THEREFORE, in consideration of the foregoing, the representations,
warranties, covenants and agreements set forth herein and such other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto, intending to be legally bound hereby, agree as
follows:
ARTICLE I
CERTAIN DEFINITIONS
For purposes of this Agreement, the following terms shall have the
following meanings:
SECTION 1.1 "Affiliate" shall mean, as to any person, any other person
that directly or indirectly controls, or is under common control with or is
controlled by such person.
SECTION 1.2 "Arthur Andersen" shall mean Arthur Andersen & Co., Regency's
independent auditors.
SECTION 1.3 "Care" shall mean Care Enterprises, Inc., a Delaware
corporation.
SECTION 1.4 "Care Common Stock" shall mean the common stock, par value
$.01 per share, of Care.
SECTION 1.5 "Care Permits" shall have the meaning set forth in Section
5.8.
SECTION 1.6 "Care Plans" shall have the meaning set forth in Section 5.10.
SECTION 1.7 "Care SEC Reports" shall have the meaning set forth in Section
5.5.
SECTION 1.8 "Care Stock Option" shall have the meaning set forth in
Section 7.6.
SECTION 1.9 "Care Third Party Proposal" shall have the meaning set forth
in Section 9.1.
SECTION 1.10 "Certificate" shall have the meaning set forth in Section
2.8.
SECTION 1.11 "Certificate of Merger" shall have the meaning set forth in
Section 2.2.
SECTION 1.12 "Code" shall have the meaning set forth in the introductory
clauses hereto.
SECTION 1.13 "Dissenting Shares" shall have the meaning set forth in
Section 2.7.
SECTION 1.14 "Effective Time" shall have the meaning set forth in Section
2.2.
SECTION 1.15 "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended.
SECTION 1.16 "ERISA Affiliate," with respect to any party, shall mean any
trade or business, whether or not incorporated, that together with such party
would be deemed a "single employer" within the meaning of section 4001(a)(15) of
ERISA.
SECTION 1.17 "Ernst & Young" shall mean Ernst & Young, Care's independent
auditors.
SECTION 1.18 "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
<PAGE> 161
SECTION 1.19 "Exchange Agent" shall have the meaning set forth in Section
2.8.
SECTION 1.20 "Exchange Ratio" shall have the meaning set forth in Section
2.6.
SECTION 1.21 "Form S-4" shall mean the Registration Statement on Form S-4
to be filed with the SEC under the Securities Act in connection with the Merger
for the purpose of registering the shares of Regency Common Stock to be issued
in the Merger.
SECTION 1.22 "GCL" shall have the meaning set forth in the introductory
clauses hereto.
SECTION 1.23 "Governmental Entity" shall mean any court, administrative
agency or commission or other governmental authority or instrumentality,
domestic or foreign.
SECTION 1.24 "HSR Act" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
SECTION 1.25 "Material Adverse Effect," with respect to any party, shall
mean a material adverse effect (or any development which, insofar as reasonably
can be foreseen, in the future is reasonably likely to have a material adverse
effect) on the business, assets, financial or other condition, results of
operations or prospects of such party and its Subsidiaries taken as a whole.
SECTION 1.26 "Merger" shall have the meaning set forth in the introductory
clauses hereto.
SECTION 1.27 "Merrill Lynch" shall mean Merrill Lynch, Pierce, Fenner &
Smith Incorporated, financial advisor to Care.
SECTION 1.28 "Proxy Statement" shall mean the joint proxy
statement/prospectus to be distributed to holders of shares of Regency Common
Stock and holders of shares of Care Common Stock in connection with the meetings
of such holders to be held in connection with the transactions contemplated by
this Agreement.
SECTION 1.29 "Regency" shall mean Regency Health Services, Inc., a
Delaware corporation.
SECTION 1.30 "Regency Bylaws" shall have the meaning set forth in Section
3.1.
SECTION 1.31 "Regency Certificate of Incorporation" shall have the meaning
set forth in Section 3.1.
SECTION 1.32 "Regency Common Stock" shall mean the common stock, par value
$.01 per share, of Regency.
SECTION 1.33 "Regency Permits" shall have the meaning set forth in Section
4.8.
SECTION 1.34 "Regency Plans" shall have the meaning set forth in Section
4.12.
SECTION 1.35 "Regency SEC Reports" shall have the meaning set forth in
Section 4.5.
SECTION 1.36 "Regency Stock Option" shall have the meaning set forth in
Section 7.6.
SECTION 1.37 "Regency Third Party Proposal" shall have the meaning set
forth in Section 9.1.
SECTION 1.38 "SEC" shall mean the Securities and Exchange Commission.
SECTION 1.39 "Securities Act" shall mean the Securities Act of 1933, as
amended.
SECTION 1.40 "Smith Barney Shearson" shall mean Smith Barney Shearson
Inc., financial advisor to Regency.
SECTION 1.41 "Subsidiary" shall have the meaning set forth in Rule 1-02 of
Regulation S-X of the SEC.
SECTION 1.42 "Surviving Corporation" shall have the meaning set forth in
Section 2.1.
SECTION 1.43 "Termination Date" shall have the meaning set forth in
Section 9.1.
SECTION 1.44 "Third Party" shall mean any person or group that is deemed
to be a "person" within the meaning of Section 13(d) of the Exchange Act.
A-2
<PAGE> 162
ARTICLE II
THE MERGER
SECTION 2.1 The Merger. Upon the terms and subject to the satisfaction or
waiver of the conditions set forth in Article VIII, and in accordance with the
GCL, at the Effective Time, Care Merger Sub, Inc., a Delaware corporation and
wholly owned subsidiary of Regency to be formed prior to the Effective Time
("Merger Sub"), shall be merged with and into Care. As a result of the Merger,
the separate corporate existence of Merger Sub shall cease and Care shall
continue as the surviving corporation of the Merger (the "Surviving Subsidiary")
and shall succeed to and assume all the rights and obligations of Merger Sub.
SECTION 2.2 Effective Time. At the time of Closing, upon the terms and
subject to the satisfaction or waiver of the conditions set forth in Article
VIII, the parties hereto shall cause the Merger to be consummated by filing a
certificate of merger (the "Certificate of Merger") with the Secretary of State
of the State of Delaware, in such form as required by and executed in accordance
with the relevant provisions of the GCL (the date and time of such filing being
referred to herein as the "Effective Time").
SECTION 2.3 Effects of the Merger. The Merger shall have the effects set
forth in the GCL.
SECTION 2.4 Certificate of Incorporation and Bylaws.
(a) The Restated Certificate of Incorporation of Regency (the "Regency
Certificate"), attached hereto as Exhibit A, shall be the Certificate of
Incorporation of Regency following the Merger.
(b) The Bylaws of Regency as in effect immediately prior to the Effective
Time shall be the Bylaws of Regency following the Merger (until duly amended in
accordance with applicable law).
(c) The officers and directors of Regency following the Merger shall be as
set forth on Exhibit C.
(d) The Certificate of Incorporation of Merger Sub as in effect immediately
prior to the Effective Time shall be substantially in the form of Exhibit A and
shall be the Certificate of Incorporation of the Surviving Subsidiary (the
"Surviving Subsidiary Certificate"), except that the name of the corporation
specified therein shall be Care Enterprises, Inc.
(e) The Bylaws of Merger Sub as in effect immediately prior to the
Effective Time shall be substantially in the form of Exhibit B and shall be the
Bylaws of the Surviving Subsidiary (until duly amended in accordance with
applicable law).
(f) The directors of the Surviving Subsidiary following the Merger shall be
those persons set forth on Exhibit C as directors of Regency. The officers of
the Surviving Subsidiary following the Merger shall be those persons set forth
on Exhibit C as officers of Regency, each to hold the same office that he will
hold in Regency.
SECTION 2.5 Stockholder Meetings. Each of Regency and Care shall call a
meeting of its stockholders to be held as promptly as practicable for the
purpose of voting upon this Agreement and related matters. Subject to the
exercise of their respective fiduciary obligations, the respective boards of
directors of Regency and Care shall recommend to their respective stockholders
approval of such matters.
SECTION 2.6 Conversion of Care Common Stock in the Merger. At the
Effective Time, by virtue of the Merger and without any action on the part of
any holder of any capital stock of Regency, Care or Merger Sub: (i) each share
of Care Common Stock issued and outstanding immediately prior to the Effective
Time (other than any such shares owned by Regency or any of its Subsidiaries,
held in Care's treasury or owned by any Subsidiary of Care, and other than
Dissenting Shares) shall automatically be converted into 0.71 of a share of
Regency Common Stock (the "Exchange Ratio"); (ii) each share of Care Common
Stock issued and outstanding immediately prior to the Effective Time and owned
by Regency or any of its Subsidiaries, held in Care's treasury or owned by any
Subsidiary of Care, shall be cancelled and cease to exist at and after the
Effective Time and no consideration shall be delivered with respect thereto;
(iii) each share of common stock of Merger Sub shall be converted into and
become one share of common stock of the Surviving Subsidiary; and (iv) each
share of common stock of the Surviving Subsidiary issued and outstanding and
owned by
A-3
<PAGE> 163
Regency immediately prior to the Effective Time shall be cancelled and cease to
exist at and after the Effective Time and no consideration shall be delivered
with respect thereto.
SECTION 2.7 Dissenting Shares. Notwithstanding anything in this Agreement
to the contrary, shares of Care Common Stock that are issued and outstanding
immediately prior to the Effective Time and that are held by a stockholder who
has not voted such shares of Care Common Stock in favor of the Merger and who is
entitled by applicable Delaware law to appraisal rights, and who shall have
properly demanded in writing appraisal for such shares of Care Common Stock in
accordance with Section 262 of the GCL (collectively, the "Dissenting Shares"),
shall not be converted into or represent the right to receive shares of Regency
Common Stock as set forth herein, unless and until such holder shall have failed
to perfect or shall have effectively withdrawn or lost such holder's rights to
appraisal and payment under the GCL. If any such holder shall have so failed to
perfect or shall have effectively withdrawn or lost such right, such holder's
shares of Care Common Stock shall thereupon be deemed to have been converted
into and to have become exchangeable for, at the Effective Time, shares of
Regency Common Stock as set forth herein. Prior to the Effective Time, Care
shall not, except with the prior written consent of Regency, make any payment
with respect to, or settle or offer to settle, any such demands. Any payments
relating to Dissenting Shares shall be made solely by the Surviving Subsidiary
and no funds or other property have been or will be provided by Regency or any
of its other direct or indirect Subsidiaries for such payment.
SECTION 2.8 Exchange of Shares.
(a) As of the Effective Time, Regency shall deposit with a bank or trust
company designated by Regency and Care (the "Exchange Agent"), for the benefit
of holders of shares of Care Common Stock, for exchange in accordance with this
Article II, through the Exchange Agent, certificates representing shares of
Regency Common Stock issuable pursuant to this Article II in exchange for
outstanding shares of Care Common Stock.
(b) As soon as reasonably practicable after the Effective Time, the
Exchange Agent shall mail to each person who was, immediately prior to the
Effective Time, a holder of record of shares of Care Common Stock whose shares
of Care Common Stock were converted into shares of Regency Common Stock, (i) a
letter of transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to a certificate that, immediately prior to the Effective
Time, represented any shares of Care Common Stock (a "Certificate") shall pass,
only upon proper delivery of the Certificate to the Exchange Agent and shall be
in such form and have such other provisions as Regency and Care may reasonably
specify) and (ii) instructions for use in effecting the surrender of the
Certificate in exchange for certificates representing shares of Regency Common
Stock. Upon surrender to the Exchange Agent of a Certificate, together with such
letter of transmittal, duly executed and completed in accordance with the
instructions thereto, and any other documents as may be required pursuant to
such instructions, the holder of such Certificate shall be entitled to receive
in exchange therefor a certificate representing that whole number of shares of
Regency Common Stock that such holder has the right to receive pursuant to the
provisions of this Article II, and the Certificate so surrendered shall be
cancelled. In the event of a transfer of ownership of shares of Care Common
Stock that is not registered in the transfer records of Care, a certificate
representing the proper number of shares of Regency Common Stock may be issued
to a transferee if the Certificate representing such shares of Care Common Stock
is presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and by evidence that any applicable stock
transfer taxes have been paid. Until surrendered in accordance with the
provisions of this Section 2.8, each Certificate shall be deemed at any time
after the Effective Time to represent only the right to receive upon such
surrender the certificate representing shares of Regency Common Stock.
(c) Notwithstanding any other provision of this Agreement, no certificates
or scrip for fractional shares of Regency Common Stock shall be issued upon the
surrender for exchange of any Certificates pursuant to this Article II and no
dividend or other distribution, stock split or interest with respect to shares
of Regency Common Stock shall relate to any fractional security, and such
fractional interests shall not entitle the owner thereof to vote or to any other
rights of a stockholder. In lieu of any such fractional shares, each holder of
shares of Care Common Stock who would otherwise have been entitled to a fraction
of a share of Regency
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Common Stock upon surrender of Certificates for exchange pursuant to this
Article II shall be entitled to receive from the Exchange Agent a cash payment
(without interest) in lieu of such fractional share equal to such fraction
multiplied by the average closing price per share of Regency Common Stock on the
American Stock Exchange or on such exchange as the Regency Common Stock shall be
listed, during the five trading days immediately following the Effective Time.
(d) No dividends or other distributions declared or made after the
Effective Time with respect to shares of Care Common Stock with a record date
after the Effective Time shall be paid to the holder of any unsurrendered
Certificate with respect to the shares of Care Common Stock represented thereby
until the holder of such Certificate shall surrender such Certificate. Subject
to the effect of applicable laws, following surrender of any such Certificate,
there shall be paid to the record holder of the certificates representing whole
shares of Regency Common Stock issued in exchange therefor, without interest,
(i) at the time of such surrender, the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to such shares of Care Common Stock, and (ii) at the appropriate payment
date, the amount of dividends or other distributions with a record date after
the Effective Time but prior to surrender and a payment date subsequent to
surrender payable with respect to such shares of Care Common Stock.
(e) All shares of Regency Common Stock issued upon the surrender for
exchange of shares of Care Common Stock in accordance with the terms hereof
(including any cash paid pursuant to Section 2.8(d)) shall be deemed to have
been issued in full satisfaction of all rights pertaining to such shares of Care
Common Stock, subject, however, to the Surviving Subsidiary's obligation to pay
any dividends or make any other distributions with a record date prior to the
Effective Time which may have been declared or made by Care on such shares of
Care Common Stock in accordance with the terms of this Agreement or prior to the
date hereof and which remain unpaid at the Effective Time, and there shall be no
further registration of transfers on the stock transfer books of the Surviving
Subsidiary of shares of Care Common Stock that were outstanding immediately
prior to the Effective Time. If, after the Effective Time, Certificates are
presented to the Surviving Subsidiary for any reason, they shall be cancelled
and exchanged as provided in this Article II.
(f) In the event of any reclassification, stock split or stock dividend
with respect to Regency Common Stock or Care Common Stock (or if a record date
with respect to any of the foregoing should occur) prior to the Effective Time,
appropriate and proportionate adjustments, if any, shall be made to the Exchange
Ratio, and all references to the Exchange Ratio in this Agreement shall be
deemed to be to the Exchange Ratio as so adjusted.
SECTION 2.9 Time and Place of Closing. The closing of the transactions
contemplated by this Agreement shall take place at the offices of Skadden, Arps,
Slate, Meagher & Flom, 300 South Grand Avenue, Suite 3400, Los Angeles,
California, at 10:00 a.m. (local time) on or before the fifth business day
following the date on which all of the conditions to each party's obligations
hereunder have been satisfied or waived or at such other place or time as
Regency and Care may agree.
ARTICLE III
CORPORATE GOVERNANCE
SECTION 3.1 Actions to be Taken by Regency and Merger Sub at the Effective
Time with Respect to Corporate Governance. Regency and Merger Sub shall take all
actions necessary to cause each of the following to occur at the Effective Time:
(a) The Bylaws of Regency (the "Regency Bylaws") shall be amended and
restated in their entirety as set forth in Exhibit B hereto.
(b) The Bylaws of Surviving Subsidiary (the "Surviving Subsidiary
Bylaws") shall be amended and restated in their entirety substantially as
set forth in Exhibit B hereto.
(c) The number of directors constituting the entire Board of Directors
of Regency shall be eight. Initially, such Board of Directors shall be
comprised of the persons listed as such on Exhibit C hereto,
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and they shall serve as members of the classes therein indicated. If, prior
to the Effective Time, one or more of such persons are unwilling, or are
unable, to serve as a director, their replacement(s) shall be selected by
the Regency Board of Directors if the word "Regency" appears opposite such
person's name on Exhibit C, or by the Care Board of Directors if the word
"Care" appears opposite such person's name on Exhibit C.
(d) The Board of Directors of the Surviving Subsidiary shall be
comprised of those persons listed on Exhibit C as directors of Regency.
(e) The officers of Regency shall be the persons designated on Exhibit
C hereto, holding the positions and having the responsibilities therein
indicated; provided, that if any such persons are unwilling or unable to
serve in such capacities, their replacements shall be selected by the
Regency Board of Directors as constituted immediately after the Effective
Time.
(f) The officers of Surviving Subsidiary shall be the persons
designated on Exhibit C hereto as officers of Regency, each to hold the
same office that he will hold in Regency.
(g) The foregoing directors and officers of Regency and Surviving
Subsidiary shall hold their positions until their death, resignation or
removal or the election or appointment of their successors in the manner
provided in the Regency Certificate and the Regency Bylaws or the Surviving
Subsidiary Certificate and the Surviving Subsidiary Bylaws, as the case may
be, and applicable law.
SECTION 3.2 Certain Committees of Regency Board of Directors. The initial
members of each of the Committees of the Regency Board of Directors following
the Effective Time, and for the period indicated in Exhibit C, shall be as set
forth on Exhibit C hereto.
SECTION 3.3 Corporate Headquarters. The corporate headquarters of Regency
will be in Tustin, California at the existing offices of Care.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF REGENCY
Regency represents and warrants to Care as follows:
SECTION 4.1 Organization and Qualification. Each of Regency and its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has the
requisite power and authority to own, lease and operate its properties and to
carry on its business as it is now being conducted, and is duly qualified to do
business and in good standing in each jurisdiction in which the properties
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification necessary, except where the failure to so qualify or be
in good standing would not have a Material Adverse Effect on Regency. True and
complete copies of the certificate of incorporation and bylaws of Regency as in
effect on the date hereof, including all amendments thereto, have heretofore
been made available or delivered to Care.
Section 4.2 Capitalization.
(a) The authorized capital stock of Regency consists of 35,000,000 shares
of Regency Common Stock. As of December 20, 1993, there were (i) 6,824,557
shares of Regency Common Stock issued and outstanding, all of which are validly
issued, fully paid and nonassessable and are not subject to and were not issued
in violation of any preemptive rights, (ii) 750,000 shares of Regency Common
Stock reserved for issuance in connection with Regency's Stock Option Plan and
4,040,404 shares of Regency Common Stock reserved for issuance upon conversion
of convertible securities. No Subsidiary of Regency holds any shares of Regency
Common Stock.
(b) Except for this Agreement, the Regency Stock Options and the
convertible securities specified in Section 4.2(a) hereof, there are not now,
and at the Effective Time there will not be, any options, warrants, calls,
rights, subscriptions, convertible securities or other rights or agreements,
arrangements or commitments
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of any kind obligating Regency or any of its Subsidiaries to issue, transfer or
sell any securities of Regency. All shares of Regency Common Stock subject to
issuance as aforesaid, upon issuance on the terms and conditions specified in
the instruments pursuant to which they are issuable, will be duly authorized,
validly issued, fully paid and nonassessable. There are no outstanding
contractual or other obligations of Regency or any of its Subsidiaries to
purchase, redeem or otherwise acquire any shares of Regency Common Stock. There
is not now, and at the Effective Time there will not be, any stockholder
agreement, voting trust or other agreement or understanding to which Regency or
any of its Subsidiaries is a party or bound relating to the voting of any shares
of the capital stock of Regency or any of its Subsidiaries.
SECTION 4.3 Authority. Regency has all requisite corporate power and
authority to execute and deliver this Agreement and, subject to approval of this
Agreement by the stockholders of Regency, to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation by Regency of the transactions contemplated hereby, have been duly
authorized by Regency's board of directors, Regency's board of directors has
deemed the Merger advisable and no other corporate proceedings on the part of
Regency are necessary to authorize the execution and delivery of this Agreement
and the consummation by Regency of the transactions contemplated hereby, except
for the approval of this Agreement by the stockholders of Regency. This
Agreement has been duly and validly executed and delivered by Regency and,
assuming the due authorization, execution and delivery hereof by Care,
constitutes or will constitute, as the case may be, a valid and binding
agreement of Regency, enforceable against Regency in accordance with its terms,
except that such enforceability may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to or affecting creditors' rights generally and (ii) by general
principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law).
SECTION 4.4 Consents and Approvals; No Violation. None of the execution
and delivery by Regency of this Agreement, the consummation by Regency of the
transactions contemplated hereby or compliance by Regency with any of the
provisions hereof will (i) conflict with or result in a breach of any provision
of the respective charters or bylaws (or similar governing documents) of Regency
or any of its Subsidiaries, (ii) require any consent, approval, authorization or
permit of, or filing with or notification to, any Governmental Entity, except
(A) pursuant to the Exchange Act, the Securities Act, certain state takeover,
securities and antitrust statutes and the HSR Act and (B) for filing the
Certificate of Merger pursuant to the GCL, (iii) result in a default (or an
event which with notice or lapse of time or both would become a default) or give
to any third party any right of termination, cancellation, amendment or
acceleration under, or result in the creation of a lien or encumbrance on any of
the assets of Regency or any of its Subsidiaries pursuant to any note, license,
agreement or other instrument or obligation to which Regency or any of its
Subsidiaries is a party or by which Regency or any of its Subsidiaries or any of
their respective assets may be bound or affected, or (iv) violate or conflict
with any order, writ, injunction, decree, statute, rule or regulation applicable
to Regency or any of its Subsidiaries or any of their respective properties or
assets; other than (A) such defaults, rights of termination, cancellation,
amendment or acceleration, liens and encumbrances, violations and conflicts set
forth pursuant to (iii) and (iv) above, and (B) such consents, approvals,
authorizations, permits or filings, as set forth pursuant to (ii) above that are
not obtained, which, in the aggregate, would not have a Material Adverse Effect
on Regency and would not materially impair Regency's ability to consummate the
transactions contemplated by this Agreement.
SECTION 4.5 SEC Reports and Financial Statements. Each form, report,
schedule, registration statement and definitive proxy statement filed by Regency
with the SEC since January 1, 1991 (as such documents have since the time of
their filing been amended, the "Regency SEC Reports"), which include all the
documents (other than preliminary material) that Regency was required to file
with the SEC since such date, as of their respective dates, complied in all
material respects with the requirements of the Securities Act or the Exchange
Act, as the case may be, and the rules and regulations of the SEC thereunder
applicable to such Regency SEC Reports. None of the Regency SEC Reports
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, except
for such statements, if any, as have been modified by subsequent filings prior
to the date hereof. The financial statements of
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Regency included in such reports comply as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto or, in the case of the
unaudited statements, as permitted by Form 10-Q of the SEC) and fairly present
(subject in the case of the unaudited statements, to normal, recurring audit
adjustments) the consolidated financial position of Regency and its Subsidiaries
as at the dates thereof and the consolidated results of their operations and
cash flows (or changes in financial position prior to the approval of FASB 95)
for the periods then ended. Since June 30, 1993, neither Regency nor any of its
Subsidiaries has incurred any liabilities or obligations, whether absolute,
accrued, fixed, contingent, liquidated, unliquidated or otherwise and whether
due or to become due, except (i) as and to the extent set forth on the audited
balance sheet of Regency and its Subsidiaries as at June 30, 1993 (including the
notes thereto), (ii) as incurred in connection with the transactions
contemplated, or as provided, by this Agreement, (iii) as incurred after June
30, 1993 in the ordinary course of business and consistent with past practices,
(iv) as described in the Regency SEC Reports or (v) as would not, individually
or in the aggregate, have a Material Adverse Effect on Regency.
SECTION 4.6 Absence of Certain Changes or Events. Except as disclosed in
the Regency SEC Reports filed prior to the date hereof or otherwise disclosed
pursuant to this Agreement, since September 30, 1993, (i) Regency and its
Subsidiaries have conducted their respective businesses only in the ordinary
course, consistent with past practice, (ii) there has not occurred or arisen any
event, individually or in the aggregate, having or which, insofar as reasonably
can be foreseen, in the future is likely to have, a Material Adverse Effect on
Regency, and (iii) Regency has not declared paid, set aside or reserved for
payment of any dividend or other distribution on shares of Regency Common Stock.
SECTION 4.7 Litigation. As of the date of this Agreement, except as
disclosed in the Regency SEC Reports filed prior to the date of this Agreement
or otherwise disclosed to Care prior to the date hereof, there is no claim,
suit, action or proceeding pending, or, to the best knowledge of Regency,
threatened against or affecting Regency or any of its Subsidiaries, which is
reasonably likely to have a Material Adverse Effect on Regency, nor is there any
judgment, decree, order, injunction, writ or rule of any court, governmental
department, commission, agency, instrumentality or authority or any arbitrator
outstanding against Regency or any of its Subsidiaries having, or which, insofar
as reasonably can be foreseen, in the future is likely to have, any such effect.
SECTION 4.8 Compliance with Law. To the best knowledge of Regency,
Regency and its Subsidiaries hold all permits, licenses, variances, exemptions,
orders and approvals of all Governmental Entities that are material to the
operation of the business of Regency and its Subsidiaries, taken as a whole (the
"Regency Permits"). To the best knowledge of Regency, Regency and its
Subsidiaries are in compliance with the terms of the Regency Permits, except
where the failure to so comply would not have a Material Adverse Effect on
Regency. To the best knowledge of Regency, except as disclosed in the Regency
SEC Reports, Regency is not in violation of any Federal, state, local or foreign
law, ordinance or regulation or judgment, order or decree (including, but not
limited to, those relating to the environment), the violation of which,
individually or in the aggregate, would have a Material Adverse Effect on
Regency.
SECTION 4.9 Taxes. Regency and each of its Subsidiaries have accurately
prepared and filed all income tax returns required to be filed, and have paid
all taxes and other charges due or claimed to be due by Federal, state, local or
foreign taxing authorities, and there are no tax liens upon any property or
assets of Regency or any of its Subsidiaries. To the extent that tax liabilities
have accrued but not become payable, they have been adequately reflected on the
financial statements included in the Regency SEC Reports. The statute of
limitations for examining the returns of Regency has expired for all periods to,
and including, June 30, 1990. There are no outstanding agreements or waivers
extending the statutory period of limitations applicable to any Federal income
tax return for any period. There does not exist any issue that, if raised by any
taxing authority with respect to any fiscal period, would, singly or in the
aggregate, be expected to result in an assessment against Regency that would
have, or is reasonably likely to have, a Material Adverse Effect on Regency.
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SECTION 4.10 Disclosure. No representation or warranty of Regency
contained in this Agreement and no statement contained in any certificate or
schedule furnished or to be furnished by or on behalf of Regency to Care or any
of its representatives pursuant thereto contains or will contain any untrue
statement of a material fact, or omits or will omit to state any material fact
necessary, in light of the circumstances under which it was or will be made, in
order to make the statements herein or therein not misleading or necessary in
order to fully and fairly provide the information required to be provided in any
such document, certificate or schedule.
SECTION 4.11 Information Supplied. The information supplied or to be
supplied by Regency or its Subsidiaries for inclusion in (i) the Form S-4 will
not, either at the time the Form S-4 is filed with the SEC or at the time it
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading or (ii) the Proxy
Statement, including any amendments and supplements thereto, will not, either at
the date mailed to stockholders or at the time of the meeting of stockholders of
Regency to be held in connection with the transactions contemplated by this
Agreement, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The Proxy Statement and the Form S-4 will each comply as to form
in all material respects with all applicable laws, including the provisions of
the Securities Act and the Exchange Act and the rules and regulations
promulgated thereunder, except that no representation is made by Regency with
respect to information supplied by Care for inclusion therein.
SECTION 4.12 Employee Matters. Regency has delivered or made available to
Care full and complete copies or descriptions of each material employment,
bonus, profit sharing, compensation, termination, stock option, stock
appreciation right, restricted stock, phantom stock, performance unit, pension,
retirement, deferred compensation, welfare or other employee benefit agreement,
trust fund or other arrangement and any union, guild or collective bargaining
agreement maintained or contributed to or required to be contributed to by
Regency or any of its ERISA Affiliates, for the benefit or welfare of any
director, officer, employee or former employee of Regency or any of its ERISA
Affiliates (such plans and arrangements being referred to herein as the "Regency
Plans"). Each of the Regency Plans is in material compliance with all applicable
laws including ERISA and the Code. The Internal Revenue Service has determined
that each Regency Plan that is intended to be a qualified plan under section
401(a) of the Code is so qualified and Regency is aware of no event occurring
after the date of such determination that would adversely affect such
determination. The unfunded liabilities accrued by participants and
beneficiaries under each such plan are accurately reflected on the latest
balance sheet of Regency and its Subsidiaries included in the Regency SEC
Reports. No condition exists that is reasonably likely to subject Regency or any
of its Subsidiaries to any direct or indirect liability under Title IV of ERISA
or to a civil penalty under section 502(i) of ERISA or liability under section
4069 of ERISA or 4975, 4976 or 4980B of the Code or the loss of a Federal tax
deduction under section 280G of the Code or other liability with respect to the
Regency Plans that would have a Material Adverse Effect on Regency and that is
not reflected on the latest balance sheet included in the Regency SEC Reports.
No Regency Plan (other than any Regency Plan that is a "multiemployer plan" as
such term is defined in section 4001(a)(3) of ERISA) is subject to Title IV of
ERISA. There are no pending, threatened, or anticipated claims (other than
routine claims for benefits or immaterial claims) by, on behalf of or against
any of the Regency Plans or any trusts related thereto.
SECTION 4.13 Affiliate Agreements. Except as disclosed in the Regency SEC
Reports filed prior to the date of this Agreement, except for this Agreement, as
of the date of this Agreement neither Regency nor any of its Subsidiaries is a
party to any oral or written agreement with any of its Affiliates, other than
with any of its Subsidiaries.
SECTION 4.14 Opinion of Financial Advisor. Regency has received the
opinion of Smith Barney Shearson to the effect that, as of December 20, 1993,
the consideration to be paid by Regency in the Merger is fair to Regency from a
financial point of view.
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SECTION 4.15 Accounting Matters. To the best knowledge of Regency,
neither Regency nor any of its Affiliates has taken or agreed to take any action
that (without giving effect to any action taken or agreed to be taken by Care or
any of its Affiliates) would prevent Regency from accounting for the business
combination to be effected in accordance herewith as a pooling of interests.
SECTION 4.16 Brokers and Finders. Other than Smith Barney Shearson and
L.J. Kaufman & Co., Inc., none of Regency or any of its Subsidiaries nor any of
their respective directors, officers or employees has employed any broker or
finder or incurred any liability for any financial advisory fees, brokerage
fees, commissions or similar payments in connection with the transactions
contemplated by this Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF CARE
Care represents and warrants to Regency as follows:
SECTION 5.1 Organization and Qualification. Each of Care and its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has the
requisite power and authority to own, lease and operate its properties and to
carry on its business as it is now being conducted, and is duly qualified to do
business and in good standing in each jurisdiction in which the properties
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification necessary, except where the failure to so qualify or be
in good standing would not have a Material Adverse Effect on Care. True and
complete copies of the restated certificate of incorporation and bylaws of Care
as in effect on the date hereof, including all amendments thereto, have
heretofore been delivered to Regency.
SECTION 5.2 Capitalization.
(a) The authorized capital stock of Care consists of 25,000,000 shares of
Care Common Stock and 1,000,000 shares of preferred stock, par value $.01 per
share (the "Care Preferred Stock"). As of December 17, 1993, (i) 13,229,418
shares of Care Common Stock and no shares of Care Preferred Stock were issued
and outstanding, all of which are validly issued, fully paid and nonassessable
and are not subject to and were not issued in violation of any preemptive
rights, and (ii) an aggregate of 1,000,000 shares of Care Common Stock were
reserved for issuance in connection with Care's Stock Option Plan and Care's
Share Appreciation Rights Plan. No Subsidiary of Care holds any shares of Care
Common Stock.
(b) Except for this Agreement, the Care Stock Option Plan and the Care
Share Appreciation Rights Plan referred to in Section 5.2(a) hereof, there are
not now, and at the Effective Time there will not be, any options, warrants,
calls, rights, subscriptions, convertible securities or other rights or
agreements, arrangements or commitments of any kind obligating Care or any of
its Subsidiaries to issue, transfer or sell any securities of Care. All shares
of Care Common Stock subject to issuance as aforesaid, upon issuance on the
terms and conditions specified in the instruments pursuant to which they are
issuable, will be duly authorized, validly issued, fully paid and nonassessable.
There are no outstanding contractual or other obligations of Care or any of its
Subsidiaries to purchase, redeem or otherwise acquire any shares of Care Common
Stock. There is not now, and at the Effective Time there will not be, any
stockholder agreement, voting trust or other agreement or understanding to which
Care or any of its Subsidiaries is a party or bound relating to the voting of
any shares of the capital stock of Care or any of its Subsidiaries.
SECTION 5.3 Authority. Care has all requisite corporate power and
authority to execute and deliver this Agreement and, subject to approval of this
Agreement by the stockholders of Care, to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation by Care of the transactions contemplated hereby, have been duly
authorized by Care's board of directors, Care's board of directors has declared
the Merger advisable and no other corporate proceedings on the part of Care are
necessary to authorize the execution and delivery of this Agreement and the
consummation by Care of the transactions contemplated hereby, except for the
approval of this Agreement by the stockholders of Care. This Agreement has been
duly and validly executed and delivered by Care and, assuming the due
authorization,
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execution and delivery hereof by Regency, constitutes or will constitute, as the
case may be, a valid and binding agreement of Care, enforceable against Care in
accordance with its terms, except that such enforceability may be subject to (i)
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to or affecting creditors' rights generally and
(ii) by general principles of equity (regardless of whether enforcement is
sought in a proceeding in equity or at law).
SECTION 5.4 Consents and Approvals; No Violation. Except as set forth in
the Disclosure Letter delivered by Care to Regency, none of the execution and
delivery by Care of this Agreement, the consummation by Care of the transactions
contemplated hereby or compliance by Care with any of the provisions hereof will
(i) conflict with or result in a breach of any provision of the respective
charters or bylaws (or similar governing documents) of Care or any of its
Subsidiaries, (ii) require any consent, approval, authorization or permit of, or
filing with or notification to, any Governmental Entity, except (A) pursuant to
the Exchange Act, the Securities Act, certain state takeover, securities and
antitrust statutes and the HSR Act and (B) for filing the Certificate of Merger
pursuant to the GCL, (iii) result in a default (or an event which with notice or
lapse of time or both would become a default) or give to any third party any
right of termination, cancellation, amendment or acceleration under, or result
in the creation of a lien or encumbrance on any of the assets of Care or any of
its Subsidiaries pursuant to any note, license, agreement or other instrument or
obligation to which Care or any of its Subsidiaries is a party or by which Care
or any of its Subsidiaries or any of their respective assets may be bound or
affected, or (iv) violate or conflict with any order, writ, injunction, decree,
statute, rule or regulation applicable to Care or any of its Subsidiaries or any
of their respective properties or assets; other than (A) such defaults, rights
of termination, cancellation, amendment or acceleration, liens and encumbrances,
violations and conflicts set forth pursuant to (iii) and (iv) above, and (B)
such consents, approvals, authorizations, permits or filings, as set forth
pursuant to (ii) above that are not obtained, which, in the aggregate, would not
have a Material Adverse Effect on Care and would not materially impair Care's
ability to consummate the transactions contemplated by this Agreement.
SECTION 5.5 SEC Reports and Financial Statements. Each form, report,
schedule, registration statement and definitive proxy statement filed by Care
with the SEC since January 1, 1991 (as such documents have since the time of
their filing been amended, the "Care SEC Reports"), which include all the
documents (other than preliminary material) that Care was required to file with
the SEC since such date, as of their respective dates, complied in all material
respects with the requirements of the Securities Act or the Exchange Act, as the
case may be, and the rules and regulations of the SEC thereunder applicable to
such Care SEC Reports. None of the Care SEC Reports contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except for such
statements, if any, as have been modified by subsequent filings prior to the
date hereof. The financial statements of Care included in such reports comply as
to form in all material respects with applicable accounting requirements and
with the published rules and regulations of the SEC with respect thereto, have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto or, in the case of the unaudited statements, as
permitted by Form 10-Q of the SEC) and fairly present (subject in the case of
the unaudited statements, to normal, recurring audit adjustments) the
consolidated financial position of Care and its Subsidiaries as at the dates
thereof and the consolidated results of their operations and cash flows (or
changes in financial position prior to the approval of FASB 95) for the periods
then ended. Since December 31, 1992, neither Care nor any of its Subsidiaries
has incurred any liabilities or obligations, whether absolute, accrued, fixed,
contingent, liquidated, unliquidated or otherwise and whether due or to become
due, except (i) as and to the extent set forth on the audited balance sheet of
Care and its Subsidiaries as at December 31, 1992 (including the notes thereto),
(ii) as incurred in connection with the transactions contemplated, or as
provided, by this Agreement, (iii) as incurred after December 31, 1992 in the
ordinary course of business and consistent with past practices, (iv) as
described in the Care SEC Reports, (v) described in the Disclosure Letter or
(vi) as would not, individually or in the aggregate, have a Material Adverse
Effect on Care.
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SECTION 5.6 Absence of Certain Changes or Events. Except as disclosed in
the Care SEC Reports filed prior to the date hereof or otherwise disclosed
pursuant to this Agreement, since September 30, 1993, Care and its Subsidiaries
have conducted their respective businesses only in the ordinary course,
consistent with past practice, and there has not occurred or arisen any event,
individually or in the aggregate, having or which, insofar as reasonably can be
foreseen, in the future is likely to have, a Material Adverse Effect on Care.
SECTION 5.7 Litigation. As of the date of this Agreement, except as
disclosed in the Care SEC Reports filed prior to the date of this Agreement or
otherwise disclosed to Regency prior to the date hereof, there is no claim,
suit, action or proceeding pending, or, to the best knowledge of Care,
threatened against or affecting Care or any of its Subsidiaries, which is
reasonably likely to have a Material Adverse Effect on Care, nor is there any
judgment, decree, order, injunction, writ or rule of any court, governmental
department, commission, agency, instrumentality or authority or any arbitrator
outstanding against Care or any of its Subsidiaries having, or which, insofar as
reasonably can be foreseen, in the future is likely to have, any such effect.
SECTION 5.8 Compliance with Law. To the best knowledge of Care, Care and
its Subsidiaries hold all permits, licenses, variances, exemptions, orders and
approvals of all Governmental Entities that are material to the operation of the
business of Care and its Subsidiaries, taken as a whole (the "Care Permits"). To
the best knowledge of Care, Care and its Subsidiaries are in compliance with the
terms of the Care Permits, except where the failure to so comply would not have
a Material Adverse Effect on Care. To the best knowledge of Care, except as
disclosed in the Care SEC Reports, Care is not in violation of any Federal,
state, local or foreign law, ordinance or regulation or judgment, order or
decree (including, but not limited to, those relating to the environment), the
violation of which, individually or in the aggregate, would have a Material
Adverse Effect on Care.
SECTION 5.9 Taxes. Care and each of its Subsidiaries have accurately
prepared and filed all income tax returns required to be filed, and have paid
all taxes and other charges due or claimed to be due by Federal, state, local or
foreign taxing authorities, and there are no tax liens upon any property or
assets of Care or any of its Subsidiaries. To the extent that tax liabilities
have accrued but not become payable, they have been adequately reflected in the
financial statements included in the Care SEC Reports. The statute of
limitations for examining the returns of Care has expired for all periods to,
and including, December 31, 1984. Except as set forth in the Disclosure Letter
(i) there are no outstanding agreements or waivers extending the statutory
period of limitations applicable to any Federal income tax return for any
period, and (ii) there does not exist any issue that, if raised by any taxing
authority with respect to any fiscal period, would, singly or in the aggregate,
be expected to result in an assessment against Care that would have, or is
reasonably likely to have, a Material Adverse Effect on Care.
SECTION 5.10 Disclosure. No representation or warranty of Care contained
in this Agreement and no statement contained in any certificate or schedule
furnished or to be furnished by or on behalf of Care to Regency or any of its
representatives pursuant thereto contains or will contain any untrue statement
of a material fact, or omits or will omit to state any material fact necessary,
in light of the circumstances under which it was or will be made, in order to
make the statements herein or therein not misleading or necessary in order to
fully and fairly provide the information required to be provided in any such
document, certificate or schedule.
SECTION 5.11 Information Supplied. The information supplied or to be
supplied by Care or its Subsidiaries for inclusion in (i) the Form S-4 will not,
either at the time the Form S-4 is filed with the SEC or at the time it becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading or (ii) the Proxy
Statement, including any amendments and supplements thereto, will not, either at
the date mailed to stockholders or at the time of the meeting of stockholders of
Care to be held in connection with the transactions contemplated by this
Agreement, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The Proxy Statement and the Form S-4 will each comply as to form
in all material respects with all applicable laws,
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including the provisions of the Securities Act and the Exchange Act and the
rules and regulations promulgated thereunder, except that no representation is
made by Care with respect to information supplied by Regency for inclusion
therein.
SECTION 5.12 Employee Matters. Care has delivered or made available to
Regency full and complete copies or descriptions of each material employment,
bonus, profit sharing, compensation, termination, stock option, stock
appreciation right, restricted stock, phantom stock, performance unit, pension,
retirement, deferred compensation, welfare or other employee benefit agreement,
trust fund or other arrangement and any union, guild or collective bargaining
agreement maintained or contributed to or required to be contributed to by Care
or any of its ERISA Affiliates, for the benefit or welfare of any director,
officer, employee or former employee of Care or any of its ERISA Affiliates
(such plans and arrangements being referred to herein as the "Care Plans"). Each
of the Care Plans is in material compliance with all applicable laws including
ERISA and the Code. The Internal Revenue Service has determined that each Care
Plan that is intended to be a qualified plan under section 401(a) of the Code is
so qualified and Care is aware of no event occurring after the date of such
determination that would adversely affect such determination. The unfunded
liabilities accrued by participants and beneficiaries under each such plan are
accurately reflected on the latest balance sheet of Care and its Subsidiaries
included in the Care SEC Reports. No condition exists that is reasonably likely
to subject Care or any of its Subsidiaries to any direct or indirect material
liability under Title IV of ERISA or to a civil penalty under section 502(i) of
ERISA or liability under section 4069 of ERISA or 4975, 4976 or 4980B of the
Code or the loss of a Federal tax deduction under section 280G of the Code or
other liability with respect to the Care Plans that would have a Material
Adverse Effect on Care and that is not reflected on the latest balance sheet
included in the Care SEC Reports. No Care Plan is subject to Title IV of ERISA.
There are no pending, threatened, or anticipated claims (other than routine
claims for benefits) by, on behalf of or against any of the Care Plans or any
trusts related thereto.
SECTION 5.13 Affiliate Agreements. Except as disclosed in the Care SEC
Reports filed prior to the date of this Agreement and except for this Agreement,
as of the date of this Agreement neither Care nor any of its Subsidiaries is a
party to any oral or written agreement with any of its Affiliates, other than
with any of its Subsidiaries.
SECTION 5.14 Opinion of Financial Advisor. Care has received the opinion
of Merrill Lynch to the effect that, as of December 20, 1993, the Exchange Ratio
is fair to the holders of shares of Care Common Stock from a financial point of
view.
SECTION 5.15 Accounting Matters. To the best knowledge of Care, neither
Care nor any of its Affiliates has taken or agreed to take any action that
(without giving effect to any action taken or agreed to be taken by Regency or
any of its Affiliates) would prevent Regency from accounting for the business
combination to be effected in accordance herewith as a pooling of interests.
SECTION 5.16 Brokers and Finders. Other than Merrill Lynch, none of Care
or any of its Subsidiaries nor any of their respective directors, officers or
employees has employed any broker or finder or incurred any liability for any
financial advisory fees, brokerage fees, commissions or similar payments in
connection with the transactions contemplated by this Agreement.
ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 6.1 Conduct of Business of Regency Pending the Effective
Time. Except as expressly permitted or contemplated by this Agreement or as
shall be consented to by Care (which consent shall not be unreasonably
withheld), until the Effective Time, Regency shall, and shall cause each of its
Subsidiaries to, conduct its operations in the ordinary and usual course of
business consistent with past practice and use its best efforts (in the ordinary
course of business consistent with past practice) to preserve intact their
respective business organizations' goodwill, keep available the services of
their respective present officers and key employees, and preserve the goodwill
and business relationships with suppliers, distributors, customers and others
having business relationships with them. Without limiting the generality of the
foregoing, and except as
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otherwise permitted by this Agreement, prior to the Effective Time, without the
consent of Care, which consent shall not be unreasonably withheld, Regency will
not, and will cause each of its Subsidiaries not to:
(a) amend or propose to amend their respective charters or bylaws
(other than as contemplated by this Agreement); or split, combine or
reclassify their outstanding capital stock or declare, set aside or pay any
dividend or distribution in respect of any capital stock (other than the
payment to Regency or any of its Subsidiaries of any such dividend or
distribution) or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock;
(b) (i) issue or authorize or propose the issuance of, sell, pledge or
dispose of, or agree to issue or authorize or propose the issuance of,
sell, pledge or dispose of, any additional shares of, or any options,
warrants or rights of any kind to acquire any shares of, their capital
stock of any class or any debt or equity securities convertible into or
exchangeable for such capital stock, other than any such issuance pursuant
to options, warrants, rights or convertible securities outstanding as of
the date hereof in accordance with their terms; (ii) acquire or agree to
acquire by merging or consolidating with, or by purchasing a substantial
equity interest in or a substantial portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or
other business organization division thereof or otherwise acquire or agree
to acquire any assets in each case which are material, individually or in
the aggregate, to Regency and its Subsidiaries taken as a whole; (iii) sell
(including by sale-leaseback), lease, pledge, dispose of or encumber any
assets or interests therein, which are material, individually or in the
aggregate, to Regency and its Subsidiaries taken as a whole, other than in
the ordinary course of business and consistent with past practice; (iv)
incur or become contingently liable with respect to any material
indebtedness for borrowed money or guarantee any such indebtedness or issue
any debt securities or otherwise incur any material obligation or liability
(absolute or contingent) other than short-term indebtedness in the ordinary
course of business and consistent with past practice; (v) redeem, purchase,
acquire or offer to purchase or acquire any (x) shares of its capital stock
or (y) long-term debt, other than as required by the governing instruments
relating thereto; (vi) take any voluntary action which would jeopardize the
treatment of the transactions contemplated hereby as a "pooling" for
accounting purposes; or (vii) enter into any contract, agreement,
commitment or arrangement with respect to any of the foregoing;
(c) enter into or amend any employment, severance, special pay
arrangement with respect to termination of employment or other arrangements
or agreements with any directors, officers or key employees;
(d) adopt, enter into or amend any, or become obligated under any new,
bonus, profit sharing, compensation, stock option, pension, retirement,
deferred compensation, health care, employment or other employee benefit
plan, agreement, trust, fund or arrangement for the benefit or welfare of
any employee or retiree, except as required to comply with changes in
applicable law occurring after the date hereof and except, with respect to
all plans other than bonus plans, in the ordinary course of business and
consistent with past practice; or
(e) take any action that would, or is reasonably likely to, result in
any of its representations and warranties set forth in this Agreement
becoming untrue, or in any of the conditions to the Merger set forth herein
not being satisfied in any material respect.
SECTION 6.2 Conduct of Business of Care Pending the Effective Time. Except
as expressly permitted or contemplated by this Agreement, until the Effective
Time, Care shall, and shall cause each of its Subsidiaries to, conduct its
operations in the ordinary and usual course of business consistent with past
practice and use their best efforts to preserve intact their respective business
organizations' goodwill, keep available the services of their respective present
officers and key employees, and preserve the goodwill and business relationships
with suppliers, distributors, customers and others having business relationships
with them. Without limiting the generality of the foregoing, and except as
otherwise permitted by this Agreement,
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prior to the Effective Time, without the consent of Regency, which consent shall
not be unreasonably withheld, Care will not, and will cause each of its
Subsidiaries not to:
(a) amend or propose to amend their respective charters or bylaws
(other than as contemplated by this Agreement); or split, combine or
reclassify their outstanding capital stock or declare, set aside or pay any
dividend or distribution in respect of any capital stock (other than the
payment to Care or any of its Subsidiaries of any such dividend or
distribution) or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock;
(b) except as set forth in the Disclosure Letter, (i) issue or
authorize or propose the issuance of, sell, pledge or dispose of, or agree
to issue or authorize or propose the issuance of, sell, pledge or dispose
of, any additional shares of, or any options, warrants or rights of any
kind to acquire any shares of, their capital stock of any class or any debt
or equity securities convertible into or exchangeable for such capital
stock, other than any such issuance pursuant to options, warrants, rights
or convertible securities outstanding as of the date hereof in accordance
with their terms; (ii) acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial equity interest in or a
substantial portion of the assets of, or by any other manner, any business
or any corporation, partnership, association or other business organization
or division thereof or otherwise acquire or agree to acquire any assets in
each case which are material, individually or in the aggregate, to Care and
its Subsidiaries taken as a whole; (iii) sell (including by
sale-leaseback), lease, pledge, dispose of or encumber any assets or
interests therein, which are material, individually or in the aggregate, to
such party and its Subsidiaries taken as a whole, other than in the
ordinary course of business and consistent with past practice; (iv) incur
or become contingently liable with respect to any material indebtedness for
borrowed money or guarantee any such indebtedness or issue any debt
securities or otherwise incur any material obligation or liability
(absolute or contingent) other than short-term indebtedness in the ordinary
course of business and consistent with past practice; (v) redeem, purchase,
acquire or offer to purchase or acquire any (x) shares of its capital stock
or (y) long-term debt, other than as required by the governing instruments
relating thereto; (vi) take any voluntary action which would jeopardize the
treatment of the transactions contemplated hereby as a "pooling" for
accounting purposes; or (vii) enter into any contract, agreement,
commitment or arrangement with respect to any of the foregoing;
(c) enter into or amend any employment, severance, special pay
arrangement with respect to termination of employment or other arrangements
or agreements with any directors, officers or key employees;
(d) adopt, enter into or amend any, or become obligated under any new,
bonus, profit sharing, compensation, stock option, pension, retirement,
deferred compensation, health care, employment or other employee benefit
plan, agreement, trust, fund or arrangement for the benefit or welfare of
any employee or retiree, except as required to comply with changes in
applicable law occurring after the date hereof and except, with respect to
all plans other than bonus plans, in the ordinary course of business and
consistent with past practice; or
(e) take any action that would, or is reasonably likely to, result in
any of its representations and warranties set forth in this Agreement
becoming untrue in any material respect, or in any of the conditions to the
Merger set forth herein not being satisfied.
SECTION 6.3 Cooperation. Subject to compliance with applicable law, from
the date hereof until the Effective Time, each of Regency and Care shall confer
on a regular and frequent basis with one or more representatives of the other
party to report operational matters of materiality and the general status of
ongoing operations and shall promptly provide the other party or its counsel
with copies of all filings made by such party with any Governmental Entity in
connection with this Agreement and the transactions contemplated hereby.
SECTION 6.4 Recommendation to Stockholders. Each of Care and Regency will,
through its Board of Directors but subject to the fiduciary duties of its Board
of Directors under applicable law as advised in writing
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by outside counsel, recommend to its stockholders the approval of the Merger and
not rescind its declaration that the Merger is advisable.
SECTION 6.5 State Takeover Laws. If any "fair price" or "control share
acquisition" statute or other similar statute or regulation shall become
applicable to the transactions contemplated hereby, Care and Regency and their
respective Boards of Directors shall use their best efforts to grant such
approvals and take such actions as are necessary so that the transactions
contemplated hereby may be consummated as promptly as practicable on the terms
contemplated hereby and otherwise act to minimize the effects of such statute or
regulation on the transactions contemplated hereby.
ARTICLE VII
ADDITIONAL COVENANTS AND AGREEMENTS
SECTION 7.1 No Solicitation. (a) Without the prior written consent of
Care, Regency and its Subsidiaries will not, and will use their best efforts to
cause their respective officers, directors, employees and agents not to,
initiate or solicit, directly or indirectly, any inquiries or the making of any
proposal with respect to or, except to the extent required by their fiduciary
duties, engage in negotiations concerning, provide any confidential information
or data to or have any discussions with, any Third Party, other than Care or any
Affiliate of Care, relating to, any acquisition, business combination or
purchase of all or any significant portion of the assets of, or any equity
interest in, Regency or any of its Subsidiaries. Regency will immediately cease
and cause to be terminated any existing activities, discussions or negotiations
with any parties conducted heretofore with respect to any of the foregoing.
Regency shall immediately notify Care if any such negotiations, or providing of
confidential information or data or discussions are entered into or made or any
such inquiries are received in respect thereof, and shall provide details with
respect thereto.
Notwithstanding the foregoing (i) Regency may engage in discussions or
negotiations with a Third Party who seeks without inducement to initiate
discussions or negotiations relative to a proposed takeover proposal and may
furnish such Third Party information concerning Regency and its business,
properties or assets, (ii) the Board of Directors of Regency may take and
disclose to their respective stockholders a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act and (iii) following receipt of a
takeover proposal, the Board of Directors of Regency may withdraw or modify
their respective recommendations referred to in Section 6.4 hereof, but in each
case referred to in the foregoing clauses (i) through (iii) only to the extent
that the Board of Directors of Regency shall conclude in good faith on the basis
of the written advice of its outside counsel that such action is necessary in
order for such Board of Directors to act in a manner which is consistent with
its fiduciary obligations under applicable law.
(b) Without the prior written consent of Regency, Care and its Subsidiaries
will not, and will use their best efforts to cause their respective officers,
directors, employees and agents not to, initiate or solicit, directly or
indirectly, any inquiries or the making of any proposal with respect to or,
except to the extent required by their fiduciary duties, engage in negotiations
concerning, provide any confidential information or data to, or have any
discussions with, any Third Party, other than Regency or any Affiliate of
Regency relating to, any acquisition, business combination or purchase of all or
any significant portion of the assets of, or any equity interest in, Care or any
of its Subsidiaries. Care will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing. Care shall immediately notify
Regency if any such negotiations, or providing of confidential information or
data or discussions are entered into or made or any such inquiries are received
in respect thereof, and shall provide details with respect thereto.
Notwithstanding the foregoing (i) Care may engage in discussions or
negotiations with a Third Party who seeks without inducement to initiate
discussions or negotiations relative to a proposed takeover proposal and may
furnish such Third Party information concerning Care and its business,
properties or assets, (ii) the Board of Directors of Care may take and disclose
to their respective stockholders a position contemplated by Rule 14e-2(a)
promulgated under the Exchange Act and (iii) following receipt of a takeover
proposal, the Board of Directors of Care may withdraw or modify their respective
recommendations referred to in
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Section 6.4 hereof, but in each case referred to in the foregoing clauses (i)
through (iii) only to the extent that the Board of Directors of Care shall
conclude in good faith on the basis of the written advice of its outside counsel
that such action is necessary in order for such Board of Directors to act in a
manner which is consistent with its fiduciary obligations under applicable law.
SECTION 7.2 Access to Information. Subject to compliance with applicable
law, upon reasonable notice Regency and Care shall each (and shall cause each of
their respective Subsidiaries to) afford to the other and the officers,
employees, accountants, counsel, financial advisors and other representatives of
the other, access during normal business hours throughout the period prior to
the Effective Time to all of its properties, books, contracts, commitments and
records and, during such period, each of Regency and Care shall (and shall cause
each of their respective Subsidiaries to) furnish promptly to the other (a) a
copy of each report, schedule, registration statement and other document filed
or received by it during such period pursuant to the requirements of Federal
securities laws, and (b) all other information concerning its businesses,
properties and personnel as such other party may reasonably request. Unless
otherwise required by law, the parties will hold any such information which is
nonpublic in confidence until such time as such information otherwise becomes
publicly available through no wrongful act of either party and in the event of
termination of this Agreement for any reason, each party shall promptly return
all nonpublic documents obtained from any other party, and any copies made of
such documents, to such other party. In addition, in the event of such
termination, all documents, memoranda, notes and other writing whatsoever
prepared by each party based on the information in such material shall be
destroyed (and each party shall use its best efforts to cause its advisors and
their representatives to similarly destroy their respective documents, memoranda
and notes), and such destruction (and best efforts) shall be certified in
writing to the other party by an authorized officer supervising such
destruction.
SECTION 7.3 Registration Statement and Proxy Statement. As soon as is
reasonably practicable after the date hereof, Regency and Care shall prepare and
file the Proxy Statement with the SEC and Regency and Care shall promptly
prepare and Regency shall file with the SEC the Form S-4 in which the Proxy
Statement will be included. Each of Regency and Care shall use its best efforts
to have the Registration Statement declared effective under the Securities Act
as promptly as practicable after such filing. Regency and Care shall take any
action required to be taken under applicable state securities and blue sky laws
in connection with the issuance of shares of Regency Common Stock in the Merger
and as contemplated by this Agreement. Regency and Care shall promptly furnish
to each other all information, and take such other actions, as may reasonably be
requested in connection with either action by either of them in connection with
this Section 7.3.
SECTION 7.4 Affiliates. Regency and Care shall each use its best efforts
to cause each principal executive officer, each director and each other person
who may be deemed to be an "affiliate," for purposes of Rule 145 under the
Securities Act, of Regency or Care, as the case may be, to deliver to Regency
and Care on or prior to the Effective Time a written agreement to the effect
that such person will not offer to sell, sell or otherwise dispose of any shares
of Regency Common Stock issued in the Merger, except, in each case, pursuant to
an effective registration statement or in compliance with Rule 145, as amended
from time to time, or in a transaction which, in the opinion of legal counsel
satisfactory to Regency and Care, is exempt from the registration requirements
of the Securities Act and, in any case, until after the results covering 30 days
of post-Merger combined operations of Regency and Care have been filed with the
SEC, sent to stockholders of Regency or otherwise publicly issued.
SECTION 7.5 Agreement to Cooperate; Further Assurances. Subject to the
terms and conditions of this Agreement, each of the parties hereto shall use all
reasonable efforts to take, or cause to be taken, all action and to do, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, subject to the appropriate vote of stockholders of Regency and
Care described in Section 8.1(a) hereof, including providing information and
using reasonable efforts to obtain all necessary or appropriate waivers,
consents and approvals, and effecting all necessary registrations and filings
(including filings under the HSR Act). In case at any time after the Effective
Time any further action is necessary or desirable to carry out the purposes of
this Agreement, the proper officers and directors of each party to this
Agreement shall take all necessary actions to the extent not inconsistent with
their other duties and obligations or applicable law.
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SECTION 7.6 Stock Options. (a) To the extent that acceleration of the
exercisability of any outstanding option to purchase shares of Regency Common
Stock (a "Regency Stock Option"), any outstanding unit based on the value of
Regency Common Stock or the stock of a Regency Subsidiary is permitted by action
of Regency or a committee of Regency's Board of Directors but not mandated by
the applicable governing instrument, then Regency shall take all necessary
action to cause such acceleration not to occur.
(b) To the extent that acceleration of the exercisability of any
outstanding option to purchase shares of Care Common Stock or any stock
appreciation right with regard to Care Common Stock (a "Care Stock Option"), any
outstanding unit based on the value of Care Common Stock or the stock of a Care
Subsidiary is permitted by action of Care or a committee of Care's Board of
Directors but not mandated by the applicable governing instrument, then Care
shall take all necessary action to cause such acceleration not to occur. In
connection therewith, at the Effective Time, each Care Stock Option, whether
vested or unvested, shall be assumed by Regency, and each of Regency and Care
shall cause an amendment to their applicable plans to be adopted (and, if
necessary, approved by their respective stockholders) to accomplish the
foregoing. Unless Regency and Care shall otherwise agree, each such Care Stock
Option shall be deemed to constitute an option or right to acquire, on the same
terms and conditions as were applicable under such Care Stock Option, the same
number of shares of Regency Common Stock as the holder of such Care Stock Option
would have been entitled to receive pursuant to the Merger had such holder
exercised such option or right in full immediately prior to the Effective Time
(rounded up to the nearest whole share in the case of Care Stock Options that
are non-qualified stock options or stock appreciation rights and rounded down to
the nearest whole share in the case of incentive stock options (as defined
below)), at a price per share of Regency Common Stock equal to (i) the exercise
price per share for the shares of Care Common Stock purchasable pursuant to such
Care Stock Option divided by (ii) 0.71 shares of Regency Common Stock; provided,
however, that in the case of any option to which section 421 of the Code applies
by reason of its qualification under any of sections 422-424 of the Code
("incentive stock options"), the option price, the number of shares purchasable
pursuant to such option and the terms and conditions of exercise of such option
shall be determined in order to comply with section 424(a) of the Code, subject
to the terms and conditions of the relevant governing instruments.
(c) As soon as practicable after the Effective Time, Regency shall file a
registration statement on Form S-3 or Form S-8, as the case may be (or any
successor or other appropriate forms) with respect to the shares of Regency
Common Stock subject to such options including Care Stock Options and shall use
its best efforts to maintain the effectiveness of such registration statement or
registration statements (and maintain the current status of the prospectus or
prospectuses contained therein) for so long as such options remain outstanding.
Regency shall administer the Option Plans assumed pursuant to this Section 7.6
in a manner that complies with Rule 16b-3 promulgated under the Exchange Act to
the extent the Option Plans complied with such rule prior to the Merger.
SECTION 7.7 Public Statements. The parties shall consult with each other
prior to issuing any public announcement or statement with respect to this
Agreement or the transactions contemplated hereby and shall not issue any such
public announcement or statement prior to such consultation, except as may be
required by law or by the rules of the American Stock Exchange or the National
Association of Securities Dealers, Inc.
SECTION 7.8 Letter of Regency's Accountants. Regency shall use its best
efforts to cause to be delivered to Care a letter of Arthur Andersen, dated a
date within two business days before the date on which the Form S-4 shall become
effective and addressed to Care, in form and substance reasonably satisfactory
to Care and customary in scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the Form S-4.
SECTION 7.9 Letter of Care's Accountants. Care shall use its best efforts
to cause to be delivered to Regency a letter of Ernst & Young, dated a date
within two business days before the date on which the Form S-4 shall become
effective and addressed to Regency, in form and substance reasonably
satisfactory to Regency and customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the Form S-4.
SECTION 7.10 Expenses. Subject to Section 9.5 hereof, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby irrespective of whether the Merger is
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consummated shall be paid by the party incurring such expenses, except that
those financial printer and mailing expenses incurred in connection with
printing and mailing the Proxy Statement and the Form S-4, as well as the filing
fee relating thereto, shall be shared equally by Regency, on the one hand, and
Care, on the other hand.
SECTION 7.11 Opinions of Financial Advisors. Each of Regency and Care
shall use its best efforts to cause Smith Barney Shearson and Merrill Lynch,
respectively, to provide opinions, in the forms described in Sections 4.14 and
5.14, respectively, and shall include such opinions in the Proxy Statement.
SECTION 7.12 Registration Rights. Regency shall use its best efforts to
enter into and in any event will offer relatively concurrently with the
Effective Time a Registration Rights Agreement with each person who will be an
Affiliate of Regency after the Effective Time and each person who presently has
registration rights with respect to shares of Regency Common Stock, which will
include demand and incidental or piggy-back rights of registration and shall
otherwise be in form and substance reasonably satisfactory to Regency and such
persons respecting shares of Regency Common Stock which are issued to such
persons in the Merger. Regency shall use its best efforts to provide that such
Registration Rights Agreement will supersede all registration rights agreements
presently in effect respecting shares of Regency Common Stock and Care Common
Stock.
SECTION 7.13 Indemnification; Directors and Officers Insurance. For six
years from and after the Effective Time, Regency agrees to indemnify and hold
harmless all past and present officers and directors of Care and of its
Subsidiaries to the same extent such persons are currently indemnified by Care
pursuant to Care's Restated Certificate of Incorporation and Bylaws for acts or
omissions occurring at or prior to the Effective Time. Regency will provide, for
an aggregate period of not less than six years from the Effective Time, Care's
current directors and officers an insurance and indemnification policy that
provides coverage for events occurring prior to the Effective Time (the "D&O
Insurance") that is no less favorable than Care's existing policy or, if
substantially equivalent insurance coverage is unavailable, the best available
coverage; provided, however, that Regency shall not be required to pay an annual
premium for the D&O Insurance in excess of $750,000, but in such case shall
purchase as much coverage as possible for such amount.
SECTION 7.14 Merger Provisions. Care agrees to amend this Agreement if,
prior to the time the Proxy Statement is mailed to holders of Regency Common
Stock, Regency notifies Care in writing that, in the reasonable opinion of
Regency, the Merger as described in Section 2.1 hereof would result in
recognition of gain for Federal tax purposes to either Care or Regency. Such
amendment shall provide that the Merger shall occur by merging a newly formed
wholly owned subsidiary of Regency with and into Care in a tax-free
reorganization under section 368(a)(2)(E) of the Code.
SECTION 7.15 Employment Agreements. Regency shall use its best efforts to
enter into an employment agreement effective as of the Effective Time with each
of the persons listed on Exhibit C under the heading "Officers" in form and
substance reasonably satisfactory to Regency and Care.
SECTION 7.16 Undertaking. Regency and Care shall use their best efforts to
enter into or obtain the agreements contemplated by Sections 7.4, 7.12 and 7.15
prior to the date that the Proxy Statement is mailed to stockholders of Regency
and Care.
SECTION 7.17 New York Stock Exchange Listing. Regency shall use its best
efforts to qualify the Regency Common Stock for listing on the New York Stock
Exchange.
SECTION 7.18 Merger Sub Activities. Until the Effective Time (i) except in
connection with or furtherance of the transactions contemplated by this
Agreement, Merger Sub will incur no obligations or liabilities nor engage in any
business or activities of any type or kind whatsoever or enter into any
agreements or arrangements with any person or entity and (ii) Merger Sub will
take no action that would jeopardize the treatment of the transactions
contemplated hereby as a "pooling of interests" for accounting purposes.
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ARTICLE VIII
CONDITIONS
SECTION 8.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the following
conditions:
(a) This Agreement and the transactions contemplated hereby shall have
been approved and adopted by the affirmative vote of a majority of the
outstanding shares of Regency Common Stock and Care Common Stock entitled
to vote;
(b) The waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated;
(c) The Form S-4 shall have become effective in accordance with the
provisions of the Securities Act, and no stop order suspending such
effectiveness shall have been issued and remain in effect;
(d) No temporary restraining order, preliminary or permanent
injunction or other order or decree by any court of competent jurisdiction
which prevents the consummation of the Merger or imposes material
conditions with respect thereto shall have been issued and remain in effect
(each party agreeing to use its reasonable efforts to have any such
injunction, order or decree lifted);
(e) No action shall have been taken, and no statute, rule or
regulation shall have been enacted, by any state or Federal government or
governmental agency which would prevent the consummation of the Merger or
imposes material conditions with respect thereto;
(f) All governmental consents and approvals legally required for the
consummation of the Merger and the transactions contemplated hereby shall
have been obtained and be in effect at the Effective Time, including all
state securities or blue sky permits and other authorizations necessary to
issue the shares of Regency Common Stock pursuant to this Agreement and as
contemplated by Section 7.3 hereof, except those for which failure to
obtain such consents and approvals would not, individually or in the
aggregate, have a Material Adverse Effect on the Surviving Subsidiary, or
upon the consummation of the transactions contemplated hereby;
(g) Regency and Care shall each have received from each person
specified in Section 7.4 hereof the written agreement referred to in such
Section 7.4;
(h) Each of Regency and Care shall have received a letter from Arthur
Andersen, dated the Effective Time, addressed to Regency and Care, in form
and substance reasonably satisfactory to Regency and Care, stating that the
Merger will qualify as a "pooling of interests" transaction under generally
accepted accounting principles and each of Care and Arthur Andersen shall
have received a letter from Ernst & Young, dated the Effective Time,
addressed to Care and Arthur Andersen, stating that the Merger will qualify
as a "pooling of interests" under generally accepted accounting principles;
and
(i) Regency shall have entered into the employment agreements
contemplated by Section 7.15 hereof.
SECTION 8.2 Conditions to Obligation of Regency to Effect the Merger. The
obligation of Regency to effect the Merger shall be subject to the fulfillment
at or prior to the Effective Time of the following additional conditions:
(a) Care shall have performed in all material respects its agreements
contained in this Agreement required to be performed on or prior to the
Effective Time and the representations and warranties of Care contained in
this Agreement shall be true and correct in all material respects on and as
of the date of this Agreement and on and as of the Effective Time as if
made on and as of such date, except as contemplated or permitted by this
Agreement and Regency shall have received a certificate of the President or
of an Executive Vice President of Care to that effect;
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(b) Care shall have obtained the consent or approval of each person
whose consent or approval shall be required in connection with the
transactions contemplated hereby under any loan or credit agreement, note,
mortgage, indenture, lease, license or other agreement or instrument,
except those for which failure to obtain such consents and approvals would
not, individually or in the aggregate, have a Material Adverse Effect on
Care, or upon the consummation of the transactions contemplated hereby;
(c) Regency shall have received an opinion of Sidley & Austin or other
outside counsel to Care acceptable to Regency, in substantially the form
set forth as Exhibit D hereto;
(d) Regency shall have received the letter of Ernst & Young referred
to in Section 7.9 hereof.
SECTION 8.3 Conditions to Obligation of Care to Effect the Merger. The
obligations of Care to effect the Merger shall be subject to the fulfillment at
or prior to the Effective Time of the additional following conditions:
(a) Regency shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior
to the Effective Time and the representations and warranties of Regency
contained in this Agreement shall be true and correct in all material
respects on and as of the date of this Agreement and on and as of the
Effective Time as if made on and as of such date, except as contemplated by
this Agreement and Care shall have received a Certificate of the President
or of an Executive Vice President of Regency to that effect;
(b) Regency shall have obtained the consent or approval of each person
whose consent or approval shall be required in connection with the
transaction contemplated hereby under any loan or credit agreement, note,
mortgage, indenture, lease, license or other agreement or instrument,
except those for which failure to obtain such consents and approvals would
not, individually or in the aggregate, have a Material Adverse Effect on
Regency, or upon the consummation of the transactions contemplated hereby;
(c) Care shall have received an opinion of Skadden, Arps, Slate,
Meagher & Flom or other outside counsel to Regency acceptable to Care, in
substantially the form set forth as Exhibit E hereto; and
(d) Care shall have received the letter of Arthur Andersen referred to
in Section 7.8 hereof;
(e) Care shall have received an opinion of Sidley & Austin, in form
and substance satisfactory to Care, dated the Effective Time, substantially
to the effect that on the basis of facts, representations and assumptions
set forth in such opinion which are consistent with the state of facts
existing as of the Effective Time:
(i) The Merger will constitute a reorganization for Federal income
tax purposes within the meaning of section 368(a) of the Code, and Care,
Merger Sub and Regency will each be a party to that reorganization
within the meaning of section 368(b) of the Code;
(ii) No gain or loss will be recognized by Care as a result of the
Merger;
(iii) No gain or loss will be recognized by the stockholders of
Care upon the conversion of their Care Common Stock into shares of
Regency Common Stock pursuant to the Merger except with respect to cash,
if any, received in lieu of fractional shares of Regency Common Stock;
(iv) The aggregate tax basis of the shares of Regency Common Stock
received in exchange for shares of Care Common Stock pursuant to the
Merger will be the same as the aggregate tax basis of such shares of
Care Common Stock, decreased by the amount of any tax basis allocable to
the fractional share interest for which cash is received; and
(v) The holding period for shares of Regency Common Stock received
in exchange for shares of Care Common Stock pursuant to the Merger will
include the period that such shares of Common Stock were held by the
holder, provided such shares of Care Common Stock were held as capital
assets by the holder on the Effective Time.
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(f) All shares of Regency Common Stock to be issued in the Merger
shall have been approved for listing on the American Stock Exchange, or
such other exchange as its shares may then be listed, subject to official
notice of issuance.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval by the
stockholders of Regency or Care:
(a) by the mutual written consent of Regency and Care;
(b) by either Regency or Care if (i) the Merger shall not have been
consummated on or before May 31, 1994 (the "Termination Date"); (ii) any
Govermental Entity, the consent of which is a condition to the obligations
of Regency and Care to consummate the transactions contemplated hereby
shall have determined not to grant its consent and all appeals of such
determination shall have been taken and have been unsuccessful or (iii) any
court of competent jurisdiction in the United States or any State shall
have issued an order, judgment or decree (other than a temporary
restraining order) restraining, enjoining or otherwise prohibiting the
Merger and such order, judgment or decree shall have become final and
nonappealable;
(c) by Regency if (i) the Merger shall have been voted on by holders
of Care Common Stock at a meeting duly convened therefor, and the votes
shall not have been sufficient to satisfy the condition set forth in
Section 8.1(a) hereof, (ii) there has been a material breach by Care of any
representation, warranty, covenant or agreement set forth in this
Agreement, which breach has not been cured within ten business days
following receipt by the breaching party of notice of such breach, (iii)
the Board of Directors of Care should fail to recommend to its stockholders
approval of the transactions contemplated by this Agreement or such
recommendation shall have been made and subsequently withdrawn, (iv)
following the execution of this Agreement, any Third Party other than Care
or any of its Affiliates shall have communicated to Regency a proposal (x)
relating to any acquisition, business combination or purchase of all or any
significant portion of the assets of, or any equity interest in, Regency or
any of its Subsidiaries (a "Regency Third Party Proposal"), and Regency
shall have entered into a written agreement with respect to a Regency Third
Party Proposal, or (y) that is subject to Section 14(d) of the Exchange
Act, and Regency's Board of Directors shall have made a recommendation to
its stockholders other than to reject such proposal or shall have made no
recommendation with respect thereto, or (v) the condition contained in
Section 8.1(g) is not satisfied prior to the Termination Date because of
the failure of any affiliate (as defined in Section 7.4) of Care to deliver
the written agreement specified in such Section;
(d) by Care if (i) the Merger shall have been voted on by holders of
Regency Common Stock at a meeting duly convened therefor and the votes
shall not have been sufficient to satisfy the condition set forth in
Section 8.1(a) hereof, (ii) there has been a material breach by Regency of
any representation, warranty, covenant or agreement set forth in this
Agreement, which breach has not been cured within ten business days
following receipt by the breaching party of notice of such breach, (iii)
the Board of Directors of Regency should fail to recommend to its
stockholders approval of the transactions contemplated by this Agreement or
such recommendation shall have been made and subsequently withdrawn, (iv)
following the execution of this Agreement, any Third Party other than
Regency or any of its Affiliates shall have communicated to Care a proposal
(x) relating to any acquisition, business combination or purchase of all or
any significant portion of the assets of, or any equity interest in, Care
or any of its Subsidiaries (a "Care Third Party Proposal"), and Care shall
have entered into a written agreement with respect to a Care Third Party
Proposal, or (y) that is subject to Section 14(d) of the Exchange Act, and
Care's Board of Directors shall have made a recommendation to its
stockholders other than to reject such proposal or shall have made no
recommendation with respect thereto, or (v) the condition contained in
Section 8.1(g) hereof is not satisfied prior to the Termination Date
because of the
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failure of any affiliate (as defined in Section 7.4 hereof) of Regency to
deliver the written agreement specified in such Section;
provided, that the right to terminate this Agreement (i) under Section 9.1(b)(i)
hereof shall not be available to any party whose failure to fulfill any
obligation under this Agreement has been the cause of, or resulted in, the
failure of the Effective Time to occur on or before such date and (ii) under
Sections 9.1(c) and (d) hereof shall not be available to any party who at such
time is in material breach of any representation, warranty, covenant or
agreement set forth in this Agreement.
SECTION 9.2 Effect of Termination. In the event of termination of this
Agreement by either Regency or Care as provided in Section 9.1 hereof, this
Agreement shall forthwith become void (except as set forth in this Section 9.2
and in Sections 7.2, 7.7, 7.10 and 9.5 hereof, which shall survive the
termination) and there shall be no liability on the part of Regency or Care or
their respective officers or directors except for any breach of any of its
obligations under this Section 9.2 and Sections 7.2, 7.7, 7.10 and 9.5 hereof.
Notwithstanding the foregoing, no party hereto shall be relieved from liability
for any willful, material breach of this Agreement.
SECTION 9.3 Amendment. This Agreement may be amended by the parties
hereto at any time before or after approval hereof by the stockholders of
Regency or Care, provided that after any such approval, no amendment shall be
made which (a) changes the ratio at which the shares of Care Common Stock are to
be converted into shares of Regency Common Stock pursuant to this Agreement, (b)
in any way materially adversely affects the rights of holders of shares of
Regency Common Stock or Care Common Stock or (c) changes any of the principal
terms of this Agreement, in each case without the approval or further approval
of such stockholders. This Agreement may not be amended except by an instrument
in writing signed on behalf of each of the parties hereto.
SECTION 9.4 Waiver. At any time prior to the Effective Time, the parties
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid if set forth in an instrument in writing
signed on behalf of such party.
SECTION 9.5 Termination Fee. (a) If
(i)(A) this Agreement is terminated (x) pursuant to Sections
9.1(c)(i), (ii), or (v) hereof, or (y) pursuant to Section 9.1(c)(iii)
hereof prior to the time that a Care Third Party Proposal or a proposal
subject to Section 14(d) of the Exchange Act shall have been communicated
to Care, and
(B) within twelve (12) months after the termination of this Agreement
by Regency, (x) a business combination between or among Care and a Third
Party is effectuated, or (y) an offer by a Third Party subject to Section
14(d) of the Exchange Act for not less than a majority of the shares of
Care Common Stock is successfully completed, or
(ii) this Agreement is terminated (x) pursuant to Section 9.1(d)(iv)
hereof, or (y) pursuant to Section 9.1(c)(iii) hereof at or after the time
a Care Third Party Proposal or a proposal subject to Section 14(d) of the
Exchange Act shall have been communicated to Care,
and Care is not also entitled to terminate this Agreement by reason of Section
9.1(d)(ii) hereof, then, in addition to any other rights or remedies that may be
available, Care shall promptly (and in any event within two days of receipt by
Care of written notice from Regency) pay to Regency (by wire transfer of
immediately available funds to an account designated by Regency) a termination
fee of $6,000,000, and shall reimburse Regency for all out-of-pocket expenses
(including all fees and expenses of its counsel, advisors, accountants and
consultants) incurred by Regency or on its behalf in connection with the
transactions contemplated by this Agreement.
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(b) If
(i) (A) this Agreement is terminated (x) pursuant to Sections
9.1(d)(i), (ii), or (v) hereof, or (y) pursuant to Section 9.1(d)(iii)
hereof prior to the time that a Regency Third Party Proposal or a proposal
subject to Section 14(d) of the Exchange Act shall have been communicated
to Regency, and
(B) within twelve (12) months after the termination of this Agreement
by Care, (x) a business combination between or among Regency and a Third
Party is effectuated, or (y) an offer by a Third Party subject to Section
14(d) of the Exchange Act for not less than a majority of the shares of
Regency Common Stock is successfully completed, or
(ii) this Agreement is terminated (x) pursuant to Section 9.1(c)(iv)
hereof, or (y) pursuant to Section 9.1(d)(iii) hereof at or after the time
a Regency Third Party Proposal or a proposal subject to Section 14(d) of
the Exchange Act shall have been communicated to Regency,
and Regency is not also entitled to terminate this Agreement by reason of
Section 9.1(c)(ii) hereof, then, in addition to any other rights or remedies
that may be available, Regency shall promptly (and in any event within two days
of receipt by Regency of written notice from Care) pay to Care (by wire transfer
of immediately available funds to an account designated by Care) a termination
fee of $6,000,000, and shall reimburse Care for all out-of-pocket expenses
(including all fees and expenses of its counsel, advisors, accountants and
consultants) incurred by Care or on its behalf in connection with the
transactions contemplated by this Agreement.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1 Non-Survival of Representations, Warranties and
Agreements. None of the representations, warranties and agreements in this
Agreement shall survive the Effective Time.
SECTION 10.2 Notices. Any notices or other communications required or
permitted hereunder shall be in writing and shall be deemed duly given upon (a)
transmitter's confirmation of a receipt of a facsimile transmission, (b)
confirmed delivery by a standard overnight carrier or when delivered by hand or
(c) the expiration of five business days after the day when mailed by certified
or registered mail, postage prepaid, addressed at the following addresses (or at
such other address as the parties hereto shall specify by like notice):
If to Regency, to:
Regency Health Services, Inc.
3636 Birch Street
Suite 195
Newport Beach, California 92660
Telecopy No. (714) 851-2927
Attention: Cecil Mays
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
300 South Grand Avenue
Los Angeles, California 90071
Telecopy No. (213) 687-5600
Attention: Brian J. McCarthy, Esq.
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If to Care, to:
Care Enterprises, Inc.
2742 Dow Avenue
Tustin, California 92680-7245
Telecopy No. (714) 544-4443 x2401
Attention: John W. Adams
with a copy to:
Sidley & Austin
2049 Century Park East
Los Angeles, California 90067
Telecopy No. (310) 556-6502
Attention: Moshe J. Kupietzky, Esq.
SECTION 10.3 Interpretation. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation."
SECTION 10.4 Miscellaneous. This Agreement (including the documents and
instruments referred to herein) together with the Confidentiality Agreement
dated November 5, 1993, (a) constitutes the entire agreement and supersedes all
other prior agreements and understandings, both written and oral, among the
parties, or any of them, with respect to the subject matter hereof; (b) is not
intended to confer upon any other person any rights or remedies hereunder; (c)
shall not be assigned by operation of law or otherwise without the prior written
consent of the other parties hereto; and (d) shall be governed in all respects,
including validity, interpretation and effect, by and construed in accordance
with the laws of the State of Delaware (without giving effect to the provisions
thereof relating to conflicts of law). The parties hereby acknowledge that,
except as hereinafter agreed to in writing, no party shall have the right to
acquire or shall be deemed to have acquired shares of common stock of the other
party pursuant to the Merger until consummation thereof.
SECTION 10.5 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
SECTION 10.6 Parties in Interest. Subject to the provisions of Section
10.4(c) hereof, this Agreement shall be binding upon and inure to the benefit of
and be enforceable by the parties hereto and their respective successors and
assigns and, except as set forth in Section 10.4 hereof, nothing in this
Agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement.
SECTION 10.7 Severability. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
SECTION 10.8 Attorneys' Fees. If any action at law or in equity,
including an action for declaratory relief, is brought to enforce or interpret
any provision of this Agreement, the prevailing party shall be entitled to
recover reasonable attorneys' fees and expenses from the other party, which fees
and expenses shall be in addition to any other relief which may be awarded.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the date
first written above.
REGENCY HEALTH SERVICES, INC.
By: /s/ CECIL MAYS
------------------------------
Name: Cecil Mays
Title: President
CARE ENTERPRISES, INC.
By: /s/ JOHN W. ADAMS
------------------------------
Name: John W. Adams
Title: Chairman and Chief
Executive Officer
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ANNEX B
RESTATED
CERTIFICATE OF INCORPORATION
OF
REGENCY HEALTH SERVICES, INC.
ARTICLE I
NAME
The name of the Corporation is:
REGENCY HEALTH SERVICES, INC.
ARTICLE II
REGISTERED OFFICE
The address of the registered office of the Corporation in the State of
Delaware is Three Christina Centre, Suite 1414, 201 N. Walnut Street in the City
of Wilmington, County of New Castle and the name of its registered agent at such
address is The Incorporators Ltd.
ARTICLE III
BUSINESS
The nature of the business and the purposes to be conducted or promoted by
the Corporation are to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law.
ARTICLE IV
AUTHORIZED CAPITAL STOCK
The Corporation shall have the authority to issue one class of stock to be
designated Common Stock. The total number of shares of Common Stock this
Corporation will have the authority to issue is thirty-five million (35,000,000)
shares, $0.01 par value.
ARTICLE V
BYLAWS
The Board of Directors is expressly authorized to adopt, amend, or
repeal the Bylaws of the Corporation.
ARTICLE VI
MEETINGS
The stockholders and directors may hold their meetings and keep the books
and documents of the Corporation outside the State of Delaware, at such places
as may be from time to time designated by the Bylaws, except as otherwise
required by the laws of Delaware.
<PAGE> 187
ARTICLE VII
EXISTENCE
The Corporation is to have perpetual existence.
ARTICLE VIII
ELECTION OF DIRECTORS
A. The business and affairs of the Corporation shall be conducted and
managed by, or under the direction of, the Board. The total number of directors
constituting the entire Board shall be such number as may be fixed from time to
time by or in the manner provided in the Bylaws of the Corporation.
B. The Board shall be divided into three classes, as nearly equal in
number as the then-authorized number of directors constituting the Board
permits, with the term of office of one class expiring each year and with each
director serving for a term ending at the third annual meeting of stockholders
of the Corporation following the annual meeting at which such director was
elected.
C. Newly created directorships resulting from any increase in the
authorized number of directors, and any vacancies on the Board resulting from
death, resignation, disqualification, removal, or other cause, may be filled
only by the affirmative vote of a majority of the remaining directors then in
office, even though less than a quorum of the Board. Any director elected in
accordance with the preceding sentences shall hold office for the remainder of
the full term of the class of directors in which the new directorship was
created or in which the vacancy occurred, and until such director's successor
shall have been duly elected and qualified, subject to his or her earlier death,
disqualification, resignation, or removal. No decrease in the number of
directors constituting the Board shall shorten the term of any incumbent
director.
ARTICLE IX
AUTHORITY OF BOARD
The Board of Directors is expressly authorized and shall have such
authority as set forth in the Bylaws to the extent such authority would be valid
under Delaware law; provided, however, that no Bylaws hereafter adopted by the
stockholders shall invalidate any prior act of the directors that would have
been valid if such Bylaws had not been adopted.
ARTICLE X
LIMITATION OF LIABILITY
To the fullest extent permitted by Delaware General Corporation Law as the
same exists or may hereinafter be amended: (i) a Director shall not be liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability (a) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (b) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (c) pursuant to Section 174 of the General Corporation Law or
(d) for any transaction from which the director derived an improper personal
benefit; (ii) the Corporation shall indemnify, defend and hold harmless any and
all of its existing and former directors, advisory directors, officers, and
agents from and against any and all losses, claims, damages, expenses, fees, or
liabilities, whether joint or several, incurred by each of them including but
not limited to all legal fees, judgments, penalties or amounts paid in defense,
settlement, or compromise, all of which may arise or be incurred, rendered, or
levied in any legal action or administrative proceeding brought or threatened
against any of them for or on account of any action or omission while acting as
a director, advisory director, officer, or agent of the Corporation. Any repeal
or modification of this Article X by the stockholders of the Corporation shall
not adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification with respect to acts or
omissions occurring prior to such repeal or modification.
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ARTICLE XI
AMENDMENTS
The Corporation reserves the right to amend, alter, change, or repeal any
provision contained in this Restated Certificate of Incorporation, in the manner
now or hereafter prescribed by the Delaware General Corporation Law.
ARTICLE XII
STOCKHOLDER CONSENT
No action required to be taken or that may be taken at any annual or
special meeting of stockholders of the Corporation may be taken without a
meeting, and the power of the stockholders of the Corporation to consent in
writing, without a meeting, to the taking of any action is specifically denied.
ARTICLE XIII
MEETINGS OF STOCKHOLDERS
Special meetings of stockholders of the Corporation may be called only by
the Chairman of the Board, the President, or the Board pursuant to a resolution
adopted by a majority of the then-authorized number of directors of the
Corporation. Special meetings of stockholders may not be called by any other
person or persons or in any other manner.
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ANNEX C
RESTATED BYLAWS OF
REGENCY HEALTH SERVICES, INC.
A DELAWARE CORPORATION
ARTICLE I
OFFICES
SECTION 1. Registered Office and Principal Office. The registered office of
the corporation in the State of Delaware is The Incorporators Ltd., Three
Christina Centre, Suite 1414, 201 N. Walnut Street, Wilmington, Delaware or such
other place as the board of directors may designate from time to time. The board
of directors shall fix the location of the principal executive office of the
corporation at any place within or outside the State of Delaware.
SECTION 2. Other Offices. The board of directors may at any time establish
branch or subordinate offices at any place or places in this state or otherwise.
SECTION 3. Registered Agent. The registered agent of the corporation in the
State of Delaware is The Incorporators Ltd.
ARTICLE II
MEETING OF STOCKHOLDERS
SECTION 1. Place of Meetings. Meetings of Stockholders shall be held at any
place within or outside the State of Delaware designated by the board of
directors. In the absence of any such designation, Stockholders' meetings shall
be held at the principal executive office of the corporation.
SECTION 2. Annual Meeting. The annual meeting of Stockholders shall be held
each year on a date and at a time designated by the board of directors which
shall be not more than thirteen months after its last annual meeting. At each
annual meeting, directors shall be elected, and any other proper business which
is within the powers of the Stockholders may be transacted.
SECTION 3. Special Meeting.
A. A special meeting of the Stockholders may be called at any time by the
board of directors, or by the chairman of the board, or by the president, or by
one or more Stockholders holding shares in the aggregate entitled to cast not
less than ten percent (10%) of the votes at that meeting.
B. If a special meeting is called by any person or persons other than the
board of directors, the request shall be in writing, specifying the time of such
meeting and the general purpose or purposes for which the meeting is called, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the chairman of the board, the president, any
vice president, or the secretary of the corporation. The officer receiving the
request shall cause notice to be promptly given to the Stockholders entitled to
vote, in accordance with the provisions of Sections 4 and 5 of this Article II,
that a meeting will be held at the time requested by the person or persons
calling the meeting, not less than thirty-five (35) nor more than sixty (60)
days after the receipt of the request. If the notice is not given within twenty
(20) days after receipt of the request, the person or persons requesting the
meeting may give the notice. Nothing contained in this subparagraph B of this
Section 3 shall be construed as limiting, fixing or affecting the time when a
meeting of Stockholders called by action of the board of directors may be held.
SECTION 4. Notice of Stockholders' Meetings. All notices of meetings of
Stockholders shall be sent or otherwise given in accordance with Section 5 of
this Article II and, except as set forth in subparagraph B of Section 3 of this
Article II, shall be sent or otherwise given not less than ten (10) nor more
than sixty (60) days before the date of the meeting. The notice shall specify
the place, date and hour of the meeting and (i) in the case of a special
meeting, the purpose or purposes for which the meeting is called, or (ii) in the
case of the annual meeting, those matters which the board of directors, at the
time of giving the notice, intends to present
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for action by the Stockholders. The notice of any meetings at which directors
are to be elected shall include the name of any nominee or nominees whom, at the
time of the notice, management intends to present for election.
SECTION 5. Manner of Giving Notice; Affidavit of Notice. Notice of any
meeting of Stockholders shall be given either personally or by first-class mail
or telegraphic or other written communication, charges prepaid, addressed to the
Stockholder at the address of that Stockholder appearing on the books of the
corporation or given by the Stockholder to the corporation for the purpose of
notice. If no such address appears on the corporation's books or is given,
notice shall be deemed to have been given if sent to that Stockholder by
first-class mail or telegraphic or other written communication to the
corporation's principal executive office, or if published at least once in a
newspaper of general circulation in the county where that office is located.
Notice shall be deemed to have been given at the time when delivered personally
or deposited in the mail or sent by telegram or other means of written
communication. An affidavit of the secretary or an assistant secretary or the
transfer agent of the corporation that the notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated therein.
SECTION 6. Quorum. The presence in person or by proxy of the holders of a
majority of the shares entitled to vote at any meeting of Stockholders shall
constitute a quorum for the transaction of business. The Stockholders present at
a duly called or held meeting at which a quorum is present may continue to do
business until adjournment, notwithstanding the withdrawal of enough
Stockholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by holders of at least a majority of the shares
required to constitute a quorum.
SECTION 7. Adjourned Meeting; Notice. Any Stockholders' meeting, annual or
special, whether or not a quorum is present, may be adjourned from time to time
by the vote of the majority of the shares represented at that meeting, either in
person or by proxy, but in the absence of a quorum, no other business may be
transacted at that meeting, except as provided in Section 6 of this Article II.
When any meeting of Stockholders, either annual or special, is adjourned to
another time and place, notice need not be given of the adjourned meeting if the
time and place are announced at a meeting at which the adjournment is taken,
unless a new record date for the adjourned meeting is fixed, or unless the
adjournment is for more than thirty (30) days from the date set for the original
meeting, in which case the board of directors shall set a new record date. If
the adjournment is for more than thirty (30) days, or if a new record date is
fixed for the adjourned meeting, a notice of any such adjourned meeting shall be
given to each Stockholder of record entitled to vote at the adjourned meeting in
accordance with the provisions of Sections 4 and 5 of this Article II. At any
adjourned meeting the corporation may transact any business which might have
been transacted at the original meeting.
SECTION 8. Voting. The Stockholders entitled to vote at any meeting of
Stockholders shall be determined in accordance with the provisions of Section 11
of this Article II, subject to the provisions of Sections 217 and 218 of the
General Corporation Law of Delaware (relating to voting shares held by a
fiduciary, by pledgors, in joint ownership or bound by voting trusts or voting
agreements). The Stockholders' vote may be by voice or by ballot; provided,
however, that any election for directors must be by ballot. On any matter other
than elections of directors, any Stockholder may vote part of the shares in
favor of the proposal and refrain from voting the remaining shares or vote them
against the proposal, but, if the Stockholder fails to specify the number of
shares which the Stockholder is voting affirmatively, it will be conclusively
presumed that the Stockholder's approving vote is with respect to all shares
that the Stockholder is entitled to vote. If a quorum is present, the
affirmative vote of the majority of the shares represented at the meeting and
entitled to vote on any matter (other than the election of directors) shall be
the act of the Stockholders, unless the vote of a greater number or voting by
classes is required by the General Corporation Law of Delaware, or by the
Certificate of Incorporation or by these bylaws.
SECTION 9. Waiver of Notice or Consent by Absent Stockholders. The
transactions of any meeting of Stockholders, either annual or special, however
called and noticed, and wherever held, shall be as valid as though had at a
meeting duly held after regular call and notice, if a quorum be present either
in person or by proxy, and if, either before or after the meeting, each person
entitled to vote, who was not present in person or by proxy, signs a written
waiver of notice. The waiver of notice need not specify either the business to
be
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transacted or the purpose of any annual or special meeting of Stockholders,
except that if action is taken or proposed to be taken for approval of any of
those matters specified in subparagraph B of Section 4 of this Article II, the
waiver of notice or consent shall state the general nature of the proposal. All
such waivers shall be filed with the corporate records or made a part of the
minutes of the meeting. Attendance by a person at a meeting shall also
constitute a waiver of notice of that meeting, except when the person objects,
at the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened, and except that attendance at a
meeting is not a waiver of any right to object to the consideration of matters
not included in the notice of the meeting if that objection is expressly made at
the meeting.
SECTION 10. Stockholder Action by Written Consent Without a Meeting. No
action required to be taken or that may be taken at any annual or special
meeting of Stockholders may be taken without a meeting.
SECTION 11. Record Date for Stockholder Notice, Voting, and Giving
Consents. For purposes of determining the Stockholders entitled to notice of
any meeting or to vote or entitled to give consent to corporate action without a
meeting, the board of directors may fix, in advance, a record date, which shall
not be more than sixty (60) days nor less than ten (10) days before the date of
any such meeting nor more than sixty (60) days before any such action without a
meeting, and in this event only Stockholders of record on the date so fixed are
entitled to notice and to vote or to give consents, as the case may be,
notwithstanding any transfer of any shares on the books of the corporation after
the record date, except as otherwise provided in the General Corporation Law of
Delaware. If the board of directors does not so fix a record date:
(a) The record date for determining Stockholders entitled to notice of
or to vote at a meeting of Stockholders shall be at the close of business
on the business day next preceding the day on which notice is given or, if
notice is waived, at the close of business on the business day next
preceding the day on which the meeting is held.
(b) The record date for determining Stockholders entitled to give
consent to corporate action in writing without a meeting when no prior
action by the board is necessary shall be the day on which the first
written consent is given.
(c) A determination of Stockholders of record entitled to notice of or
to vote at a meeting of Stockholders shall apply to any adjournment of the
meeting; provided, however, that the board of directors may fix a new
record date for the adjourned meeting.
Provisions governing record dates for other purposes are located in Section 1 of
Article VIII.
SECTION 12. Proxies. Every person entitled to vote for directors or on
any other matter shall have the right to do so either in person or by one or
more agents authorized by a written proxy signed by the person and filed with
the secretary of the corporation. A proxy shall be deemed signed if the
Stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission, or otherwise) by the Stockholder or the
Stockholder's attorney in fact. A validly executed proxy which does not state
that it is irrevocable shall continue in full force and effect unless (i)
revoked by the person executing it, before the vote pursuant to that proxy, by a
writing delivered to the corporation stating that the proxy is revoked, or by a
subsequent proxy executed by, or attendance at the meeting and voting in person
by, the person executing the proxy; or (ii) written notice of the death or
incapacity of the maker of that proxy is received by the corporation before the
vote pursuant to that proxy is counted; provided, however, that no proxy shall
be valid after the expiration of eleven (11) months from the date of the proxy,
unless otherwise provided in the proxy. The revocability of a proxy that states
on its face that it is irrevocable shall be governed by the provisions of
Section 212 of the General Corporation Law of Delaware.
SECTION 13. Inspectors of Election. Before any meeting of Stockholders,
the board of directors may appoint any persons other than nominees for office to
act as inspectors of election at the meeting or its adjournment. If no
inspectors of election are so appointed or if any person so appointed should
fail or refuse to appear, the chairman of the meeting may, and on the request of
any Stockholder or a Stockholder's proxy shall, appoint inspectors of election
at the meeting. The number of inspectors shall be either one or three. If
holders or proxies, the majority of shares represented in person or by proxy
shall determine whether one or three inspectors are appointed.
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ARTICLE III
DIRECTORS
SECTION 1. Powers. Subject to the provisions of the General Corporation
Law of Delaware and any limitations in the Certificate of Incorporation and
these bylaws relating to action required to be approved by the Stockholders or
by the outstanding shares, the business and affairs of the corporation shall be
managed and all corporate powers shall be exercised by or under the direction of
the board of directors.
SECTION 2. Number and Qualification of Directors. The number of directors
of the corporation shall be eight (8) until this Section 2 is amended.
SECTION 3. Election and Term of Office of Directors. The board of
directors shall be divided into three classes, each as nearly equal in numbers
as the then total number of directors constituting the entire board of directors
permits and with the term of office of one class expiring each year, designated
Class I, Class II and Class III. Initially, Class I directors shall be elected
for a one-year term, Class II directors for a two-year term and Class III
directors for a three-year term. Until the annual meeting of Stockholders
occurring in 1997 and thereafter until this Section 3 is amended, in the event
that any of the persons designated as a director by the corporation prior to the
effective time (the "Effective Time") of the merger of the corporation and Care
Enterprises, Inc. (each, a "Regency Designee"), or a direct or indirect
replacement of a Regency Designee, shall cease to serve as a director for any
reason, he shall be replaced as a director by a person who is designated by the
concurrence of a majority of the remaining Regency Designees, which person shall
be reasonably acceptable to the persons designated as directors by Care
Enterprises, Inc. prior to the Effective Time (each, a "Care Designee"), and, in
the event that a Care Designee, or a direct or indirect replacement of a Care
Designee, shall cease to serve as a director for any reason, he shall be
replaced as a director by a person who is designated by the concurrence of a
majority of the remaining Care Designees, which person shall be reasonably
acceptable to the Regency Designees. Directors so chosen shall be identified by
class to which they are named and shall hold office until the next election of
the class for which such directors shall have been chosen and until their
successors have been elected and qualified. Any created directorships resulting
from any increase in the directors may be filled by the board of directors
acting by a majority of the directors then in office, although less than a
quorum, and any directors so chosen shall hold office until the next election of
the class for which such directors have been chosen and until their successors
have been elected and qualified. No decrease in the number of directors shall
shorten the term of any incumbent director. Subject to the foregoing, at each
annual meeting of Stockholders held during or after 1994, the successors to the
class of directors whose term shall then expire shall be elected to hold office
for a term expiring at the third succeeding annual meeting of Stockholders.
SECTION 4. Vacancies; Resignation.
A. A vacancy or vacancies in the board of directors shall be deemed to
exist in the event of the death, resignation, or removal of any director, or if
the board of directors by resolution declares vacant the office of a director
who has been declared of unsound mind by an order of court or convicted of a
felony, or if the authorized number of directors is increased, or if the
Stockholders fail at any meeting of Stockholders at which any director or
directors are elected to elect the number of directors to be voted for at that
meeting, or if any director duly elected shall refuse in writing to accept the
position.
B. Subject to the provisions of Section 3 of this Article III, vacancies
in the board of directors may be filled by a majority of the remaining
directors, though less than a quorum, or by a sole remaining director, except
that a vacancy created by the removal of a director may be filled in accordance
with Section 141(k) of the General Corporation Law of Delaware. Each director
elected to fill a vacancy shall hold office until his term of office shall
expire and until a successor has been elected and qualified. Any director may
resign effective on giving written notice to the chairman of the board, the
president, the secretary, or the board of directors, unless the notice specifies
a later time for that resignation to become effective. If the resignation of a
director is effective at a future time, the board of directors may elect a
successor to take office when the resignation becomes effective. No reduction of
the authorized number of directors shall have the effect of removing any
director before that director's term of office expires.
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SECTION 5. Place of Meetings and Meetings by Telephone. Regular meetings of
the board of directors may be held at any place within or outside the State of
Delaware that has been designated from time to time by resolution of the board.
In the absence of such a designation, regular meetings shall be held at the
principal executive office of the corporation. Special meetings of the board
shall be held at any place within or outside the State of Delaware that has been
designated in the notice of the meeting or, if not stated in the notice or there
is no notice, at the principal executive office of the corporation. Any meeting,
regular or special, may be held by conference telephone or similar communication
equipment, so long as all directors participating in the meeting can hear one
another, and all such directors shall be deemed to be present in person at the
meeting.
SECTION 6. Annual Meeting. Immediately following each annual meeting of
Stockholders, the board of directors shall hold a regular meeting for the
purpose of organization, any desired election of officers, and the transaction
of other business. Notice of this meeting shall not be required.
SECTION 7. Other Regular Meetings. Other regular meetings of the board of
directors shall be held without call at such time as shall from time to time be
fixed by the board of directors. Such regular meetings may be held without
notice.
SECTION 8. Special Meetings. Special meetings of the board of directors for
any purpose or purposes may be called at any time by the chairman of the board
or the president or any vice president or the secretary or any two (2)
directors. Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. In case the notice is mailed,
it shall be deposited in the United States mail at least four (4) days before
the time of the holding of the meeting. In case the notice is delivered
personally, or by telephone or telegram, it shall be delivered personally or by
telephone or to the telegraph company at least forty-eight (48) hours before the
time of the holding of the meeting. Any oral notice given personally or by
telephone may be communicated either to the director or to a person at the
office of the director who the person giving the notice has reason to believe
will promptly communicate it to the director. The notice need not specify the
purpose of the meeting.
SECTION 9. Quorum. A majority of the authorized number of directors shall
constitute a quorum for the transaction of business, except to adjourn as
provided in Section 11 of this Article III. Every act or decision done or made
by the majority of the directors present at a meeting duly held at which a
quorum is present shall be regarded as the act of the board of directors,
subject to the provisions of the General Corporation Law of Delaware and these
bylaws which require Stockholder approval. A meeting at which a quorum is
initially present may continue to transact business notwithstanding the
withdrawal of directors, if any action taken is approved by at least a majority
of the required quorum for that meeting.
SECTION 10. Waiver of Notice. The transactions of any meeting of the board
of directors, however called and noticed or wherever held, shall be as valid as
though had at a meeting duly held after regular call and notice if a quorum is
present and if, either before or after the meeting, each of the directors not
present signs a written waiver of notice. The waiver of notice need not specify
the purpose of the meeting. All such waivers shall be filed with the corporate
records or made a part of the minutes of the meeting. Notice of a meeting shall
also be deemed given to any director who attends the meeting except when the
director attends such meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened.
SECTION 11. Adjournment. A majority of the directors present at a meeting
of the board of directors, whether or not constituting a quorum, may adjourn any
meeting to another time and place.
SECTION 12. Notice of Adjournment. Notice of the time and place of holding
an adjourned meeting need not be given, unless the meeting is adjourned for more
than twenty-four (24) hours, in which case notice of the time and place shall be
given before the time of the adjourned meeting, in the manner specified in
Section 8 of this Article III, to the directors who were not present at the time
of the adjournment.
SECTION 13. Action Without Meeting. Any action required or permitted to be
taken by the board of directors may be taken without a meeting, if all members
of the board shall individually or collectively consent in writing to the
action. Such action by written consent shall have the same force and effect as a
unanimous
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vote of the board of directors, and any resolution so adopted may be certified
as having been adopted at a meeting of the board of directors held on the date
of the last signature to consent at the principal executive office of the
corporation. Such written consent or consents shall be filed with the minutes of
the proceedings of the board.
SECTION 14. Fees and Compensation of Directors. Directors and members of
committees may receive such compensation, if any, for their services, and such
reimbursement of expenses, as may be fixed or determined by resolution of the
board of directors. This Section 14 shall not be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise, and receiving compensation for those services.
SECTION 15. Loans to Officers. Notwithstanding anything to the contrary
contained herein, the board of directors may, without additional approval,
approve (by a vote sufficient without counting the vote of any interested
director or directors) a loan or guarantee to an officer, whether or not a
director, of the corporation or its parent or any subsidiary, or an employee
benefit plan authorizing such loan or guarantee to an officer, if the board of
directors determines that the loan or guarantee or plan may reasonably be
expected to benefit the corporation.
ARTICLE IV
COMMITTEES
SECTION 1. Committees of Directors. The board of directors may, by
resolution adopted by a majority of the authorized number of directors,
designate one or more committees, each consisting of one or more directors, to
serve at the pleasure of the board. The board may designate one or more
directors as alternate members of any committee, who may replace any absent
member at any meeting of the committee. The appointment of members or alternate
members of any committee requires the vote of a majority of the authorized
number of directors. Any committee, to the extent provided in the resolution of
the board, shall have all the authority of the board, except with respect to:
(a) the approval of any action which, under these bylaws or the
General Corporation Law of Delaware, also requires Stockholders' approval
or approval of the outstanding shares;
(b) the filling of vacancies on the board of directors or in any
committee;
(c) the fixing of compensation of the directors for serving on the
board or on any committee;
(d) the amendment or repeal of bylaws or the adoption of new bylaws;
(e) the amendment or repeal of any resolution of the board of
directors which by its express terms is not so amendable or repealable;
(f) a distribution to the Stockholders of the corporation, except at a
rate or in a periodic amount or within a price range determined by the
board of directors; or
(g) the appointment of any other committees of the board of directors
or the members of these committees.
SECTION 2. Meetings and Action of Committees. Meetings and action of
committees shall be governed by, and held and taken in accordance with, the
provisions of Article III of these bylaws, including Sections 5 (place of
meetings), 7 (regular meetings), 8 (special meetings and notice), 9 (quorum), 10
(waiver of notice), 11 (adjournment), 12 (notice of adjournment), and 13 (action
without meeting), with such changes in the context of those bylaws as are
necessary to substitute the committee and its members for the board of directors
and its members, except that the time of regular meetings of committees may be
determined either by resolution of the board of directors or by resolution of
the committee; special meetings of committees may also be called by committee.
The board of directors may adopt rules for the government of any committee not
inconsistent with the provisions of these bylaws.
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SECTION 3. Executive Committee. There shall be an Executive Committee of
the board of directors, which shall consist of three (3) members, two (2) of
which shall be designated by the board of directors prior to the Effective Time
(or, after the Effective Time, by a majority of the Regency Designees or their
successors) and one (1) of which shall be designated by Care Enterprises, Inc.
prior to the Effective Time (or, after the Effective Time, by a majority of the
Care Designees or their successors), who shall be the only members of the
Executive Committee (unless and until replaced as provided in this Section 3).
The Executive Committee shall continue in existence, with the power and
authority specified in this Section 3, until the close of the annual meeting of
Stockholders in 1997 and thereafter until this Section 3 is amended. In the
event that any member of the Executive Committee, or a direct or indirect
replacement of any of them, shall cease to serve as a member of the Executive
Committee for any reason, he shall be replaced as a member of the Executive
Committee by a person who is designated with the concurrence of the Regency
Designees or their successors, if a Regency Designee or a direct or indirect
replacement of a Regency Designee shall so cease to serve, or by a person who is
designated with the concurrence of the Care Designees or their successors, if a
Care Designee shall so cease to serve. The Executive Committee, during intervals
between meetings of the board of directors, shall have and may exercise all the
powers and authority of the board of directors in the management of the business
and affairs of the corporation except as provided by the General Corporation Law
of Delaware.
SECTION 4. Human Resources Committee. There shall be a Human Resources
Committee of the board of directors, which shall consist of three members, one
(1) of which shall be designated by the board of directors prior to the
Effective Time (or, after the Effective Time, by a majority of the Regency
Designees or their successors), one (1) of which shall be designated by Care
Enterprises, Inc. prior to the Effective Time (or, after the Effective Time, by
a majority of the Care Designees or their successors) and one (1) of which shall
be designated by the Regency Designees or their successors and approved by the
board of directors after the Effective Time. In the event that any member of the
Human Resources Committee who was designated prior to the Effective Time, or a
direct or indirect replacement of any of them, shall cease to serve as a member
of the Human Resources Committee for any reason, he shall be replaced as a
member of the Human Resources Committee by a person who is designated with the
concurrence of the Regency Designees or their successors, if a Regency Designee
or a direct or indirect replacement of a Regency Designee shall so cease to
serve, or by a person who is designated with the concurrence of the Care
Designees or their successors, if a Care Designee shall so cease to serve. The
Human Resources Committee shall review the corporation's general human resource
and compensation programs for officers and employees.
SECTION 5. Audit Committee. There shall be an Audit Committee of the board
of directors, which shall consist of three (3) members, one (1) of which shall
be designated by the board of directors prior to the Effective Time (or, after
the Effective Time, by a majority of the Regency Designees or their successors),
one (1) of which shall be designated by Care Enterprises, Inc. prior to the
Effective Time (or, after the Effective Time, by a majority of the Care
Designees or their successors) and one (1) of which shall be designated by the
Care Designees or their successors and approved by the board of directors after
the Effective Time. In the event that any member of the Audit Committee who was
designated prior to the Effective Time, or a direct or indirect replacement of
any of them, shall cease to serve as a member of the Audit Committee for any
reason, he shall be replaced as a member of the Audit Committee by a person who
is designated with the concurrence of the Regency Designees or their successors,
if a Regency Designee or a direct or indirect replacement of a Regency Designee
shall so cease to serve, or by a person who is designated with the concurrence
of the Care Designees or their successors, if a Care Designee shall so cease to
serve. The Audit Committee shall review the financial affairs and procedures of
the corporation from time to time with management and meet with the auditors of
the corporation to review the financial statements and procedures.
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ARTICLE V
OFFICERS
SECTION 1. Officers. The officers of the corporation shall be a chairman
of the board, a president, a secretary, and a chief financial officer. The
corporation may also have, at the discretion of the board of directors, one or
more vice presidents, one or more assistant secretaries, a treasurer, one or
more assistant treasurers, and such other offices as may be appointed in
accordance with the provisions of Section 3 of this Article V. Any number of
offices may be held by the same person.
SECTION 2. Election of Officers. The officers of the corporation, except
such officers as may be appointed in accordance with the provisions of Section 3
or Section 5 of this Article V, shall be chosen by the board of directors, and
each shall serve at the pleasure of the board, subject to the rights, if any, of
an officer under any contract of employment.
SECTION 3. Subordinate Officers. The board of directors may appoint, and
may empower the president to appoint, such other officers as the business of the
corporation may require, each of whom shall hold office for such period, have
such authority and perform such duties as are provided in the bylaws or as the
board of directors may from time to time determine.
SECTION 4. Removal and Resignation of Officers.
A. Until the annual meeting of Stockholders in 1997 and thereafter until
this Section 4(A) is amended, the chairman of the board, subject to the rights
of such person under his contract of employment, may be removed, with or without
cause, only by a vote of 75% of the then-authorized number of directors or, if
the existing number of directors is less than 75% of the then-authorized number
of directors, by a unanimous vote of the board. Subject to the rights, if any,
of any other officer under any contract of employment, such officer may be
removed, either with or without cause, by the board of directors, at any regular
or special meeting of the board, or, except in case of an officer chosen by the
board of directors, by an officer upon whom such power of removal may be
conferred by the board of directors.
B. Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
SECTION 5. Vacancies in Offices. Until the annual meeting of Stockholders
in 1997 and thereafter until this Section 5 is amended, a vacancy in the office
of chairman of the board because of death, resignation, removal,
disqualification or any other cause shall be chosen only by the vote of 75% of
the then-authorized number of directors or, if the existing number of directors
is less than 75% of the then-authorized number of directors, by a unanimous vote
of the board. A vacancy in any other office because of death, resignation,
removal, disqualification or any other cause shall be filled in the manner
prescribed in these bylaws for regular appointments to that office.
SECTION 6. Chairman of the Board. The chairman of the board shall, if
present, preside at meetings of the Stockholders and the board of directors and
exercise and perform such other powers and duties as may be from time to time
assigned to him by the board of directors or prescribed by the bylaws. The
chairman of the board shall in addition be the chief executive officer of the
corporation and shall, subject to the control of the board of directors, have
general supervision, direction, and control of the business and the officers of
the corporation.
SECTION 7. President. The president shall be the chief operating officer
of the corporation and shall have the general powers and duties of management
usually vested in the office of chief operating officer of a corporation, and
shall have such other powers and duties as may be prescribed by the board of
directors, the bylaws and the chairman of the board.
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SECTION 8. Vice Presidents. In the absence or disability of the president,
the vice presidents, if any, in order of their rank as fixed by the board of
directors or, if not ranked, a vice president designated by the board of
directors, shall perform all the powers of, and be subject to all the
restrictions upon, the president. The vice presidents shall have such other
powers and perform such other duties as from time to time may be prescribed for
them respectively by the board of directors, the bylaws, the president, or the
chairman of the board.
SECTION 9. Secretary. The secretary shall keep or cause to be kept, at the
principal executive office or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors, and stockholders, with the time and place of holding, whether
regular or special, and, if special, how authorized, the notice given, the names
of those present at directors' meetings or committee meetings, the number of
shares present or represented at Stockholders' meetings, and the proceedings.
The secretary shall also keep, or cause to be kept, at the principal executive
office or at the office of the corporation's transfer agent or registrar, as
determined by resolution of the board of directors, a record of Stockholders, or
a duplicate record of Stockholders, showing the names of all Stockholders and
their addresses, the number and classes of shares held by each, the number and
date of certificates issued for the same, and the number and date of
cancellation of every certificate surrendered for cancellation. The secretary
shall also give, or cause to be given, notice of all meetings of the
Stockholders and of the board of directors required by the bylaws or by law to
be given, and he shall keep the seal of the corporation if one be adopted, in
safe custody, and shall have such other powers and perform such other duties as
may be prescribed by the board of directors, the chairman of the board or the
bylaws.
SECTION 10. Chief Financial Officer. The chief financial officer shall
keep and maintain, or cause to be kept and maintained, adequate and correct
books and records of accounts of the properties and business transactions of the
corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, retained earnings, and shares. The chief
financial officer shall deposit all moneys and other valuables in the name and
to the credit of the corporation with such depositaries as may be designated by
the board of directors. He shall disburse the funds of the corporation as may be
ordered by the board of directors, shall render to the chairman of the board,
president and directors, whenever they request it, an account of all of his
transactions as chief financial officer and of the financial condition of the
corporation, and shall have other powers and perform such other duties as may be
prescribed by the board of directors, the president, the chairman of the board
or the bylaws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS,
OFFICERS, EMPLOYEES AND OTHER AGENTS
SECTION 1. Limited Personal Liability. To the fullest extent permitted by
the General Corporation Law of Delaware, as the same may be amended from time to
time, a director of the corporation shall not be personally liable to the
corporation or its Stockholders for monetary damages for breach of fiduciary
duty as a director.
SECTION 2. Indemnification.
A. Each person who was or is made a party or is threatened to be made a
party to or is involved in any Proceeding (which for purposes of this Article VI
shall mean any action, suit or proceeding, whether civil, criminal,
administrative or investigative) by reason of the fact that he, or a person of
whom he is the legal representative, is or was a director or officer of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee or agent or in any
other capacity as a director, officer, employee or agent or in any other
capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the corporation to the fullest extent
authorized by the General Corporation Law of Delaware, as the same may be
amended from time to time (but, in the case of any such amendment, only to the
extent that such amendment permits the corporation to provide
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broader indemnification rights that said law permitted the corporation to
provide prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid or to be paid in settlement) reasonably incurred or suffered by
such person in connection therewith, and such indemnification shall continue as
to a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of his heirs, executors and administrators; provided,
however, that, except as provided in Section 2.B of this Article VI, the
corporation shall indemnify any such person seeking indemnification in
connection with a Proceeding (or part thereof) initiated by such person only if
such Proceeding (or part thereof) was authorized by the board of directors of
the corporation. The right to indemnification conferred in this Article VI shall
be a contract right and shall include the right to be paid by the corporation
the expenses incurred in defending any such Proceeding in advance of its final
disposition; provided, however, that, if the General Corporation Law of Delaware
so requires, the payment of such expenses incurred by a director or officer in
his capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a Proceeding, shall be made only upon delivery to
the corporation of an undertaking, by or on behalf of such director or officer,
to repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this Article VI or
otherwise. The corporation may, by action of its board of directors, provide
indemnification to employees and agents of the corporation with the same scope
and effect as the foregoing indemnification of directors and officers.
B. If a claim under Section 2.A of this Article VI is not paid in full by
the corporation within thirty (30) days after a written claim has been received
by the corporation, the claimant may at any time thereafter bring suit against
the corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the corporation) that the claimant has
not met the standards of conduct which make it permissible under the General
Corporation Law of Delaware for the corporation to indemnify the claimant for
the amount claimed, but the burden of providing such defense shall be on the
corporation. Neither the failure of the corporation (including its board of
directors, independent legal counsel, or its Stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in the General Corporation Law of Delaware, nor an
actual determination by the corporation (including its board of directors,
independent legal counsel, or its Stockholders) that the claimant has not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that the claimant has not met the applicable standard of conduct.
C. The right to indemnification and the payment of expenses incurred in
defending a Proceeding in advance of its final disposition conferred in this
Article VI shall not be exclusive of any other right which any person may have
or hereafter acquire under any statute, provision of this certificate, bylaw,
agreement, vote of Stockholders or disinterested directors or otherwise.
D. The corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the corporation
would have the power to indemnify such person against such expense, liability or
loss under the General Corporation Law of Delaware.
ARTICLE VII
RECORDS AND REPORTS
SECTION 1. Maintenance and Inspection of Record of Stockholders. The
corporation shall keep at its principal executive office, or at the office of
its transfer agent or registrar, if either be appointed and as determined by
resolution of the board of directors, a record of its Stockholders, giving the
names and addresses of all Stockholders and the number and class of shares held
by each Stockholder. Any Stockholder shall, upon
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written demand under oath stating the purpose thereof, have the right during the
usual business hours to inspect for any purpose the corporation's stock ledger,
a list of Stockholders, and its other books and records.
SECTION 2. Maintenance and Inspection of Bylaws. The corporation shall
keep at its principal executive office, or if its principal executive office is
not in the State of Delaware, at its principal business office in this state, if
any, the original copy of the bylaws as amended to date, which shall be open to
inspection by the Stockholders at all reasonable times during office hours. If
the principal executive office of the corporation is outside the State of
Delaware and the corporation has no principal business office in this state, the
Secretary shall, upon the written request of any Stockholder, furnish to that
Stockholder a copy of the bylaws as amended to date.
SECTION 3. Maintenance and Inspection of Other Corporate Records. The
accounting books and records and minutes of proceedings of the Stockholders and
the board of directors and any committee or committees of the board of directors
shall be kept at such place or places designated by the board of directors, or,
in the absence of such designation, at the principal executive office of the
corporation. The minutes shall be kept in written form and the accounting books
and records shall be kept either in written form or in any other form capable of
being converted into written form. The minutes and accounting books and records
shall be open to inspection upon the written demand of any Stockholder or holder
of a voting trust certificate, at any reasonable time during usual business
hours, for a purpose reasonably related to the holder's interests as a
Stockholder or as the holder of a voting trust certificate. The inspection may
be made in person or by an agent or attorney, and shall include the right to
copy and make extracts. These rights of inspection shall extend to the records
of each subsidiary corporation of the corporation.
SECTION 4. Inspection by Directors. Every director shall have the
absolute right for a purpose reasonably related to his position as director to
inspect all books, records, and documents of every kind and the physical
properties of the corporation and each of its subsidiary corporations at any
reasonable time. This inspection by a director may be made in person or by an
agent or attorney and the right of inspection includes the right to copy and
make extracts of documents.
SECTION 5. Annual Report to Stockholders. The board of directors may
cause an annual report to be sent postage pre-paid, to the Stockholders not
later than 120 days after the close of the fiscal year and at least 15 days
prior to the annual meeting of Stockholders to be held during the next fiscal
year.
SECTION 6. Financial Statements. A copy of any annual financial statement
and any income statement of the corporation for each quarterly period of each
fiscal year, and any accompanying balance sheet of the corporation as of the end
of each such period, that has been prepared by the corporation shall be kept on
file in the principal executive office of the corporation for twelve (12) months
and each such statement shall be exhibited at all reasonable times to any
Stockholder demanding an examination of any such statement or a copy shall be
mailed to any such Stockholder.
SECTION 7. Annual Statement of General Information. The corporation shall
timely file with the Secretary of State of the State of Delaware, on the
prescribed forms, periodic reports, filings and statements as required by the
General Corporation Law of Delaware.
ARTICLE VIII
GENERAL CORPORATE MATTERS
SECTION 1. Record Date for Purposes Other than Notice and Voting. For
purposes of determining the Stockholders entitled to receive payment of any
dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any other lawful action (other than action by
Stockholders by written consent without a meeting), the board of directors may
fix, in advance, a record date, which shall not be more than sixty (60) days
before any such action, and in that case only Stockholders of record on the date
so fixed are entitled to receive the dividend, distribution, or allotment of
rights or to exercise the rights, as the case may be, notwithstanding any
transfer of any shares on the books of the corporation after the record date so
fixed, except as otherwise provided in the General Corporation Law of Delaware.
If the board of directors
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does not so fix a record date, the record date for determining Stockholders for
any such purpose shall be at the close of business on the date on which the
board adopts the resolution relating thereto.
SECTION 2. Checks, Drafts, Evidences of Indebtedness. All checks, drafts,
or other orders for payment of money, notes or other evidences of indebtedness,
issued in the name of or payable to the corporation, shall be signed or endorsed
by such person or persons and in such manner as, from time to time, shall be
determined by resolution of the board of directors.
SECTION 3. Corporate Contracts and Instruments; How Executed. The board of
directors, except as otherwise provided in these bylaws, may authorize any
officer or officers, agent or agents, to enter into any contract or execute any
instrument in the name of and on behalf of the corporation, and this authority
may be general or confined to specific instances; and, unless so authorized or
ratified by the board of directors or within the agency power of an officer, no
officer, agent, or employee shall have any power or authority to bind the
corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or for any amount.
SECTION 4. Certificates for Shares. A certificate or certificates for
shares of the capital stock of the corporation shall be issued to each
Stockholder when any of these shares are fully paid, and the board of directors
may authorize the issuance of certificates for shares as partly paid provided
that these certificates shall state the amount of the consideration to be paid
for them and the amount paid. All certificates shall be signed in the name of
the corporation by the chairman or vice-chairman of the board or the president
or vice president and by the treasurer or an assistant treasurer or the
secretary or any assistant secretary, certifying the number of shares and the
class or series of shares owned by the Stockholder. Any or all of the signatures
on the certificate may be facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed on a
certificate shall have ceased to be that officer, transfer agent, or registrar
before that certificate is issued, it may be issued by the corporation with the
same effect as if that person were an officer, transfer agent, or registrar at
the date of issue.
SECTION 5. Lost Certificates. Except as provided in this Section 5, no new
certificates for shares shall be issued to replace an old certificate unless the
latter is surrendered to the corporation and cancelled at the same time. The
board of directors may, in case any share certificate or certificate for any
other security is lost, stolen, or destroyed, authorize the issuance of a
replacement certificate on such terms and conditions as the board may require,
including provision for indemnification of the corporation secured by a bond or
other adequate security sufficient to protect the corporation against any claim
that may be made against it, including any expense or liability, on account of
the alleged loss, theft, or destruction of the certificate of the issuance of
the replacement certificate.
SECTION 6. Representation of Shares of Other Corporations. The chairman of
the board, the president, or any vice president, or any other person authorized
by resolution of the board of directors or by any of the foregoing designated
officers, is authorized to vote on behalf of the corporation any and all shares
of any other corporation or corporations, foreign or domestic, standing in the
name of the corporation. The authority granted to these officers to vote or
represent on behalf of the corporation any and all shares held by the
corporation in any other corporation or corporations may be exercised by any of
these officers in person or by any person authorized to do so by a proxy duly
executed by these officers.
SECTION 7. Construction and Definitions. Unless the context requires
otherwise, the general provisions, rules of construction, and definitions in the
General Corporation Law of Delaware shall govern the construction of these
bylaws. Without limiting the generality of this provision, the singular number
includes the plural, the plural number includes the singular, the term "person"
includes both a corporation and a natural person and pronouns of the masculine
gender include pronouns of the feminine gender.
SECTION 8. Emergency Provisions. During any emergency resulting from an
attack on the United States or on a locality in which the corporation conducts
its business or customarily holds meetings of its board of directors or its
Stockholders, or during any nuclear or atomic disaster, or during the existence
of any catastrophe, or other similar emergency condition, as a result of which a
quorum of the board of directors or a standing committee, if any, cannot readily
be convened for action, a meeting of the board of directors or a
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standing committee may be called by an officer or director. Such notice may be
given only to such of the directors or members of the committee, as the case may
be, as it may be feasible at the time including, without limitation, publication
or radio. The director or directors in attendance at the meeting of the board of
directors and the member or members of the executive committee, if any, in
attendance at the meeting of the committee, shall constitute a quorum. If none
are in attendance at the meeting, the officers or other persons designated on a
list approved by the board of directors before the emergency, all in such order
of priority and subject to such conditions and for such period of time (not
longer than reasonably necessary after the termination of the emergency) as may
be provided in the resolution approving the list, shall, to the extent required
to provide a quorum at any meeting of the board of directors or the executive
committee, be deemed directors or members of the committee, as the case may be,
for such meeting. In the absence of a designation by the board of directors, the
order of priority of such officers shall be as follows: president, vice
president, chief financial officer, secretary, assistant treasurer, controller
and assistant secretary. The board of directors, either before or during any
such emergency, may provide, and from time to time modify, lines of succession
in the event that during such emergency any or all officers or agents of the
corporation shall for any reason be rendered incapable of discharging their
duties. The board of directors, either before or during any such emergency, may,
effective in the emergency, change the principal executive office or designate
several alternative offices or authorize the officers so to do.
ARTICLE IX
AMENDMENTS
SECTION 1. Amendment by Stockholders. New bylaws may be adopted or these
bylaws may be amended or repealed by the vote or written consent of holders of
not less than two-thirds of the outstanding shares entitled to vote.
SECTION 2. Amendment by Directors. The approval of 75% of the
then-authorized number of directors is required to approve amendment of Article
III, Sections 2, 3 and 4; Article IV, Sections 3, 4 and 5 and Article V,
Sections 4 and 5. In all other instances, new bylaws may be adopted or these
bylaws may be amended or repealed by a vote or written consent of the board of
directors without Stockholder approval unless otherwise required by the General
Corporation Law of Delaware.
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ANNEX D
SMITH BARNEY SHEARSON INC.
1345 AVENUE OF THE AMERICAS
NEW YORK, NY 10105
December 20, 1993
The Board of Directors
Regency Health Services, Inc.
3636 Birch Street, Suite 195
Newport Beach, California 92660-2621
Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to Regency Health Services, Inc. ("Regency") of the consideration to be
paid by Regency pursuant to the terms and subject to the conditions set forth in
the Agreement and Plan of Merger, dated as of December 20, 1993 (the "Merger
Agreement"), by and between Regency and Care Enterprises, Inc. ("Care"). As more
fully described in the Merger Agreement, (i) Care will be merged with and into
Regency (the "Merger") and (ii) each outstanding share of the common stock, par
value $0.01 per share, of Care (the "Care Common Stock") will be converted into
the right to receive 0.71 of a share of the common stock, par value $0.01 per
share, of Regency (the "Regency Common Stock" and the ratio of the number of
shares of Regency Common Stock for which each outstanding share of Care Common
Stock is to be exchanged, the "Exchange Ratio").
In arriving at our opinion, we reviewed the Merger Agreement and held
discussions with certain senior officers, directors and other representatives
and advisors of Regency and certain senior officers and other representatives
and advisors of Care concerning the business, operations and prospects of
Regency and Care. We examined certain publicly available business and financial
information relating to Regency and Care as well as certain financial forecasts
and other data for Regency and Care which were provided to us by the respective
managements of Regency and Care. We reviewed the financial terms of the Merger
as set forth in the Merger Agreement in relation to, among other things: current
and historical market prices and trading volumes of the Regency Common Stock and
Care Common Stock; the respective companies' historical and projected earnings;
and the capitalization and financial condition of Regency and Care. We
considered, to the extent publicly available, the financial terms of certain
other similar transactions recently effected which we considered comparable to
the Merger and analyzed certain financial, stock market and other publicly
available information relating to the businesses of other companies whose
operations we considered comparable to those of Regency and Care. We also
evaluated the potential pro forma financial impact of the Merger on Regency. In
addition to the foregoing, we conducted such other analyses and examinations and
considered such other financial, economic and market criteria as we deemed
necessary to arrive at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information publicly available or furnished to or otherwise discussed with us.
With respect to financial forecasts and other information provided to or
otherwise discussed with us, we assumed that such forecasts and other
information were reasonably prepared on bases reflecting the best currently
available estimates and judgments of the respective managements of Regency and
Care as to the expected future financial performance of Regency and Care. We
also assumed that the Merger will be treated as a pooling-of-interests in
accordance with generally accepted accounting principles and as a tax-free
reorganization for federal income tax purposes. Our opinion, as set forth
herein, relates to the relative values of Regency and Care. We are not
expressing any opinion as to what the value of the Regency Common Stock actually
will be when issued to Care stockholders pursuant to the Merger or the price at
which the Regency Common Stock will trade subsequent to the Merger. We have not
made or been provided with an independent evaluation or appraisal of the assets
or liabilities (contingent or otherwise) of Regency or Care nor have we made any
physical inspection of the properties or assets of Regency or Care. We have not
been asked to consider, and our opinion does not address, the relative merits of
the Merger as compared to any
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alternative business strategies that might exist for Regency or the effect of
any other transaction in which Regency might engage. Our opinion is necessarily
based upon financial, stock market and other conditions and circumstances
existing and disclosed to us as of the date hereof.
Smith Barney Shearson has been engaged to render financial advisory
services to Regency in connection with the Merger and will receive a fee for our
services, a significant portion of which is contingent upon the consummation of
the Merger. We also will receive a fee upon the delivery of this opinion. In the
ordinary course of our business, we may actively trade the equity and debt
securities of Regency and Care for our own account or for the account of our
customers and, accordingly, may at any time hold a long or short position in
such securities.
Our advisory services and the opinion expressed herein are provided solely
for the use of the Board of Directors of Regency in its evaluation of the
proposed Merger and are not on behalf of, and are not intended to confer rights
or remedies upon, Care, any stockholder of Regency or Care, or any person other
than Regency's Board of Directors. Our opinion may not be published or otherwise
used or referred to, nor shall any public reference to Smith Barney Shearson be
made, without our prior written consent.
Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and other factors we deemed relevant, we
are of the opinion that, as of the date hereof, the Exchange Ratio is fair, from
a financial point of view, to Regency.
Very truly yours,
SMITH BARNEY SHEARSON INC.
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ANNEX E
Investment Banking Group
World Financial Center
North Tower
New York, New York 10281-1324
212 449 1000
March 3, 1994
Board of Directors
Care Enterprises, Inc.
2742 Dow Avenue
Tustin, CA 92680
Gentlemen:
Care Enterprises, Inc. (the "Company") and Regency Health Services, Inc.
(the "Acquiror") propose to enter into an agreement dated December 20, 1993, as
amended as of January 31, 1994, (the "Agreement") pursuant to which the Company
will be merged with the Acquiror in a transaction (the "Merger") in which each
outstanding share of the Company's common stock, par value $.01 per share (the
"Shares"), will be converted into the right to receive .71 (the "Exchange
Ratio") shares of the common stock of the Acquiror (the "Acquiror Shares").
Consummation of the Merger is subject to the terms and conditions set forth in
the Agreement.
You have asked us whether, in our opinion, the proposed Exchange Ratio is
fair to such shareholders from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Company's Annual Reports, Forms 10-K and related financial
information for the fiscal year ended December 31, 1992 and the
Company's Forms 10-Q and the related unaudited financial information
for the quarterly periods ending September 30, 1992 and September 30,
1993;
(2) Reviewed the Acquiror's Annual Report, Form 10-K and related financial
information for the fiscal year ended June 30, 1993 and the Acquiror's
Forms 10-Q and the related unaudited financial information for the
quarterly periods ending September 30, 1992 and September 30, 1993;
(3) Reviewed certain information, including confidential financial
forecasts, relating to the business, earnings, cash flow, assets and
prospects of the Company and the Acquiror, furnished to us by the
Company and the Acquiror;
(4) Conducted discussions with members of senior management of the Company
and the Acquiror concerning their respective businesses and prospects;
(5) Reviewed the historical market prices and trading activity for the
Shares and the Acquiror Shares and compared them with that of certain
publicly traded companies which we deemed to be reasonably similar to
the Company and the Acquiror, respectively;
(6) Compared the results of operations of the Company and the Acquiror with
that of certain companies which we deemed to be reasonably similar to
the Company and the Acquiror, respectively;
(7) Compared the proposed financial terms of the transactions contemplated
by the Agreement with the financial terms of certain other mergers and
acquisitions which we deemed to be relevant;
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(8) Reviewed the Agreement; and
(9) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary including our assessment of general economic, market
and monetary conditions.
In preparing our opinion, we have relied on the accuracy and completeness
of all information supplied or otherwise made available to us from public
sources or by the Company or the Acquiror, including the financial information
concerning the Company and the Acquiror, and the adjustments and outcomes
thereto prepared by the Company and the Acquiror, and we have not independently
verified such information or undertaken an independent appraisal or physical
inspection of the assets of the Company or the Acquiror. With respect to the
confidential financial forecasts furnished by the Company and the Acquiror, we
have assumed that they have been reasonably prepared and reflect the best
currently available estimates and judgment of the Company's or the Acquiror's
management as to the expected future financial performance including the
outcomes projected by the Company and the Acquiror of legal, regulatory, tax,
operating and other contingencies and synergies of the Company or the Acquiror,
as the case may be.
In connection with the preparation of this opinion, we have not been
authorized by the Company or the Board of Directors to solicit, nor have we
solicited, third-party indications of interest for the acquisition of all or any
part of the Company.
We have, in the past, provided financial advisory services to the Company
and have received fees for the rendering of such services.
On the basis of, and subject to the foregoing, we are of the opinion that
the proposed Exchange Ratio is fair to such shareholders from a financial point
of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
By KATHLEEN L. WHITE
-----------------------------------
Title: Director
Investment Banking Group
E-2
<PAGE> 206
REGENCY HEALTH SERVICES, INC.
3636 BIRCH STREET, SUITE 195, NEWPORT BEACH, CALIFORNIA 92660
PROXY FOR THE APRIL 4, 1994 SPECIAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF
REGENCY HEALTH SERVICES, INC.
The undersigned stockholder of Regency Health Services, Inc. ("Regency")
hereby appoints James R. Wodach and Brad L. Kerby, and each of them, the lawful
attorneys and proxies of the undersigned, each with several powers of
substitution, to vote all the shares of common stock of Regency ("Regency
Common Stock") held of record by the undersigned on March 3, 1994 at the
Special Meeting of Stockholders to be held at the Sheraton Hotel, 4545
MacArthur Boulevard, Newport Beach, California, on April 4, 1994 at 9:00 a.m.,
local time, and at any and all adjournments thereof, with all the powers the
undersigned would possess if personally present, upon all matters set forth in
the Notice of Special Meeting of Stockholders and Proxy Statement/Prospectus
dated March 7, 1994.
(Continued and to be signed on the other side)
<PAGE> 207
Please mark
[X] your votes
as this.
------
COMMON
1. Approval of the merger of Regency and Care Enterprises, Inc.
("Care") to be effected pursuant to an Agreement and Plan of Merger, dated as
of December 20, 1993, as amended by an Amendment, dated as of January 31, 1994
(the "Plan of Merger"), by and between Regency and Care, which provides, among
other things, for the merger of Care Merger Sub, Inc., a wholly owned
subsidiary of Regency, with and into Care (the "Merger").
[] FOR [] AGAINST [] ABSTAIN
2. Approval of the amendment to the Regency Health Services, Inc.
Long-Term Incentive Plan (the "Stock Option Plan") to increase the number of
shares of Regency Common Stock available for Issuance thereunder by 1,250,000
shares and to provide that the aggregate number of shares of Regency Common
Stock underlying stock options or stock appreciation rights granted to any
eligible employee during any such fiscal year shall not exceed 50% of the
shares of Regency Common Stock reserved for issuance under the Stock Option
Plan. If the Plan of Merger is not approved or the Merger is not consummated
for any other reason, the Plan will not be amended regardless of passage of the
proposal to amend the Stock Option Plan at the Special Meeting.
[] FOR [] AGAINST [] ABSTAIN
Shares represented by all properly executed proxies will be voted in
accordance with instructions appearing on the proxy and in the discretion of
the proxy holders as to any other matter that may properly come before the
Special Meeting of Stockholders. IN THE ABSENCE OF SPECIFIC INSTRUCTIONS,
PROXIES WILL BE VOTED FOR ITEM 1 AND FOR ITEM 2 AND IN THE DISCRETION OF THE
PROXY HOLDERS AS TO ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE SPECIAL
MEETING OF STOCKHOLDERS.
Signature(s) _________________________________________ Dated: __________, 1994
Please sign as name(s) appear on this proxy, and date this proxy. If a joint
account, each joint owner must sign. If signing for a corporation or
partnership or as agent, attorney or fiduciary, indicate the capacity in which
you are signing.
<PAGE> 208
CARE ENTERPRISES, INC.
2742 DOW AVENUE o TUSTIN, CALIFORNIA 92680
PROXY FOR THE APRIL 4, 1994 SPECIAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF CARE ENTERPRISES, INC.
The undersigned stockholder of Care Enterprises, Inc. ("Care") hereby
appoints John W. Adams and Richard K. Matros, and each of them, the lawful
attorneys and proxies of the undersigned, each with several powers of
substitution, to vote all the shares of Common Stock of Care held of record by
the undersigned on March 3, 1994 at the Special Meeting of Stockholders to be
held at Newport Beach, California, on April 4, 1994 at 11:00 a.m., local time,
and at any and all adjournments thereof, with all the powers the undersigned
would possess if personally present, upon all matters set forth in the Notice
of Special Meeting of Stockholders and Proxy Statement/Prospectus dated March
7, 1994.
Shares represented by all properly executed proxies will be voted in
accordance with the instructions appearing on the proxy and in the discretion
of the proxy holders as to any other matter that may properly come before the
Special Meeting of Stockholders. IN THE ABSENCE OF SPECIFIC INSTRUCTIONS,
PROXIES WILL BE VOTED FOR ITEM 1, AND IN THE DISCRETION OF THE PROXY HOLDERS AS
TO ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE SPECIAL MEETING OF
STOCKHOLDERS.
(Continued and to be signed and dated on the reverse side and returned promptly
in the enclosed envelope)
<PAGE> 209
[X] Please mark your votes as in the example.
1. Approval of the merger of Care and Regency Health Services,
Inc. ("Regency") to be effected pursuant to an Agreement and Plan of Merger,
dated as of December 20, 1993, as amended by an Amendment, dated as of January
31, 1994 (the "Plan of Merger"), by and between Care and Regency, which
provides, among other things, for the merger of Care Merger Sub, Inc., a wholly
owned subsidiary of Regency, with and into Care.
[] FOR [] AGAINST [] ABSTAIN
Signature(s) _________________________________________ Date _________________
Please sign as name(s) appear on this proxy, and date this proxy. If a joint
account, each joint owner must sign. If signing for a corporation or
partnership or as agent, attorney or fiduciary, indicate the capacity in which
you are signing.
<PAGE> 210
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Regency Health Services, Inc. ("Regency") is incorporated in Delaware.
Under Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL"), a Delaware corporation generally has the power to indemnify its present
and former directors and officers against expenses and liabilities incurred by
them in connection with any suit to which they are, or are threatened to be
made, a party by reason of their serving in those positions so long as they
acted in good faith and in a manner they reasonably believed to be in, or not
opposed to, the best interests of the company, and with respect to any criminal
action, they had no reasonable cause to believe their conduct was unlawful. The
statute expressly provides that the power to indemnify authorized thereby is not
exclusive of any rights granted under any by-law, agreement, vote of
stockholders or disinterested directors, or otherwise. The Restated Certificate
of Incorporation of Regency (the "Restated Regency Certificate") and the
Restated Bylaws of Regency (the "Restated Regency Bylaws") provide that Regency
shall indemnify, defend and hold harmless any and all of its existing and former
directors, advisory directors, officers and agents from and against any and all
losses, claims, damages, expenses, fees or liabilities, whether joint or
several, incurred by each of them including but not limited to all legal fees,
judgments, penalties or amounts paid in defense, settlement or compromise, all
of which may arise or be incurred, rendered or levied in any legal action or
administrative proceeding brought or threatened against any of them for or on
account of any action or omission while acting as a director, advisory director,
officer or agent of Regency.
Section 102(b)(7) of the DGCL provides that a certificate of incorporation
may contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director provided that such provision shall not eliminate
or limit the liability of a director (i) for such breach of the director's duty
of loyalty to the corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 (relating to liability for unauthorized
acquisitions or redemptions of, or dividends on, capital stock) of the DGCL, or
(iv) for any transactions from which the director derived an improper personal
benefit. The Restated Regency Certificate contains such a provision.
The preceding discussion of the Restated Regency Certificate, the Restated
Regency Bylaws and Section 145 of the DGCL is not intended to be exhaustive and
is qualified in its entirety by the Restated Regency Certificate and Section 145
of the DGCL.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
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2.1 Agreement and Plan of Merger, dated as of December 20, 1993, by and
between Regency Health Services, Inc. and Care Enterprises, Inc. (included
as Annex A to the Proxy Statement/Prospectus).
2.1.1 Amendment to Agreement and Plan of Merger, dated as of January 31, 1994,
by and between Regency Health Services, Inc. and Care Enterprises, Inc.
(included as Annex A to the Proxy Statement/Prospectus).
3.1 Restated Certificate of Incorporation of Regency Health Services, Inc.(1)
3.2 Form of Second Restated Certificate of Incorporation of Regency Health
Services, Inc. (included as Annex B to the Proxy Statement/Prospectus).
3.3 Bylaws of Regency Health Services, Inc.(1)
3.4 Form of Restated Bylaws of Regency Health Services, Inc. (included as
Annex C to the Proxy Statement/Prospectus).
4.1 Specimen of common stock certificate of Regency Health Services, Inc.(1)
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4.3 Voting Agreement, dated as of December 27, 1993, by and among Regency
Health Services, Inc. and the stockholders named therein.
4.4 Voting Agreement, dated as of December 27, 1993, by and between Care
Enterprises, Inc. and the stockholders named therein.
5 Opinion of Skadden, Arps, Slate, Meagher & Flom.
10.1 Lease, dated December 2, 1990, by and between Nexus Corporate Place
Associates, a California limited partnership, as lessor, and Regency
Health Services, Inc., as lessee, concerning the real property located at
3636 Birch Street, Suite 195, Newport Beach, California, as amended by a
First Amendment to Office Building Lease dated December 10, 1991, by and
between the same parties.(1)
10.3 Lease, dated June l, 1990, by and between Glendora Hospital Partners, as
lessor, and Regency Health Services, Inc., as lessee, concerning the real
property located at 435 E. Gladstone Avenue, Glendora, California
(Glendora Rehabilitation Center -- formerly Adventist Rehabilitation
Center).(1)
10.4 Sublease Agreement, dated September 1, 1988, by and between San Dimas
Golden Age Convalescent Home, Inc., an Oregon corporation, as sublessor,
and Hallmark Health Services, Inc., a Delaware corporation, as sublessee,
concerning the real property located at 1033 East Arrow Highway, Glendora,
California (Arbor Glen Care Center), as amended by an Amendment of
Sublease Agreement dated August 23, 1990, by and between the same
parties.(1)
10.5 Sublease Agreement, dated September 1, 1988, by and between Pico Downey
Golden Age Convalescent Home, Inc., an Oregon corporation, as sublessor,
and Hallmark Health Services, Inc., a Delaware corporation, as sublessee,
concerning the real property located at 9300 Telescope Road, Downey,
California (Brookwood Care Center), as amended by an Amendment of Sublease
Agreement dated August 23, 1990, by and between the same parties.(1)
10.6 Lease Modification Agreement, dated March 5, 1975, by and between Aaron
Sage, et al., dba Covina Venture, as lessor, and Covina Rehabilitation
Center, dba Glenhaven of Covina, as lessee, concerning the real property
located at 261 West Badillo, Covina, California (Covina Rehabilitation
Center -- formerly Covina Convalescent Hospital), as amended by an
Agreement dated June 28, 1976, by and between the same parties.(1)
10.7 Assignment of Lease and Assumption, dated January 4, 1988, between Regency
Health Services, Inc. and Rose Convalescent Hospital of Fairfield, and
Lease dated February 6, 1985, by and between Fairfield Development Co., a
limited partnership, as lessor, and Rose Convalescent Hospital of
Fairfield, a California corporation, as lessee, concerning the real
property located at 1255 Travis Boulevard, Fairfield, California
(Fairfield Healthcare Center, formerly Fairfield Convalescent Hospital),
as amended by an amendment dated March 10, 1987, by and between the same
parties.(1)
10.8 Sublease Agreement, dated November 1, 1987, by and among Saint Elizabeth
Convalescent Hospital, Inc., as sublessor, Hallmark Health Services, Inc.,
as sublessee, and Lee A. Johnson and Carol Johnson, as owner, concerning
the real property located at 3435 West Ball Road, Anaheim, California
(Park Anaheim Healthcare Center, formerly Hallmark Nursing
Center -- Anaheim), as amended by a letter dated November 1, 1987 from
Saint Elizabeth Convalescent Hospital, Lee A. Johnson and Carol Johnson to
Hallmark Health Services, Inc.(1)
10.9 Lease, dated March 15, 1990, by and between K.H.I.K. Company, a
partnership, as lessor, and Hallmark Health Services, Inc., as lessee,
concerning the real property located at 12681 Haster Street, Garden Grove,
California (Garden Park Care Center, formerly Hallmark Nursing
Center -- Garden Grove).(1)
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10.10 Lease, dated March 10, 1989, by and between Sam Menlo, Trustee of the
Menlo Trust U/T/I of February 22, 1983, as lessor, and Hallmark Health
Services, Inc., as lessee, concerning the real property located at 3665
East Imperial Highway, Lynwood, California (Royal Oaks Care Center,
formerly Hallmark Nursing Center -- Lynwood).(1)
10.11 Lease Agreement, dated August 1, 1990, by and between H&P Investment
Properties, a general partnership, as lessor, and Hallmark Health
Services, Inc., as lessee, concerning the real property located at 7716
Manchester Avenue, Playa del Rey, California (Playa del Rey Rehabilitation
and Care Center, formerly Hallmark Nursing Center -- Playa del Rey).(1)
10.12 Sublease Agreement, dated August 1, 1989, by and between Pomona Golden Age
Convalescent Home, Inc., an Oregon corporation, as sublessor, and Hallmark
Health Services, Inc., as sublessee, concerning the real property located
at 315 West Pearl, Pomona, California (Country Oaks Care
Center -- formerly Hallmark Nursing Center -- Pomona).(1)
10.13 Sublease Agreement, dated August 7, 1987, by and between Golden Oaks
Management Corporation, a California corporation, as sublessor, and
Hallmark Health Services, Inc., as sublessee, concerning the real property
located at 5270 Los Angeles Street, Simi Valley, California (Simi Valley
Rehabilitation and Nursing Center, formerly Hallmark Nursing
Center -- Simi Valley), as amended by an Agreement dated August 1, 1988,
by and between Philip Chase and Hallmark Health Services, Inc.(1)
10.14 Lease Agreement, dated April 4, 1989, by and between Arthur Strich, M.D.,
as lessor, and Hallmark Health Services, Inc., as lessee, concerning the
real property located at 2210 East First Street, Santa Ana, California
(Park Tustin Rehabilitation and Healthcare Center, formerly Hallmark
Nursing Center -- Tustin).(1)
10.15 Amendment and Restatement of Lease, dated September 1, 1976, by and
between James A. Pine and Dorothy K. McDonald, as lessor, and Seaside
Extended Care Center, a California corporation, as lessee, concerning the
real property located at 490 W. 14th Street, Long Beach, California
(Harbor View, formerly Harbor View Center), as amended by an Amendment and
Assignment of Lease dated February 3, 1988, by and between James A. Pine
and Dorothy K. Pine, H&L 1200 Company and Regency Health Services, Inc.(1)
10.16 Lease, dated January 1, 1988, by and between Cecil Mays and Carol Mays, as
lessor, and Regency Health Services, Inc., as lessee, concerning the real
property located at 21414 South Vermont Avenue, Torrance, California
(Heritage Rehabilitation Center -- formerly Heritage Convalescent
Hospital).(1)
10.17 Lease, dated August 1, 1986, by and between Robert J. Zinngrabe, Trustee
of the Zinngrabe Family Trust, dated November 23, 1981, as lessor, and
Huntington Beach Convalescent Hospital, a California corporation, as
lessee, concerning the real property located at 18811 and 18851 Florida
Street, Huntington Beach, California (Huntington Beach Convalescent
Hospital and The Huntington), as amended by (i) an Amendment and
Modification Agreement dated August 4, 1986, by and between Zinngrabe
Family Trust and Huntington Beach Convalescent Hospital, (ii) an Agreement
Granting Right of First Refusal dated August 18, 1986, by and between
Zinngrabe Family Trust and Huntington Beach Convalescent Hospital, and
(iii) letter dated December 27, 1986 from Zinngrabe Family Trust to
Huntington Beach Convalescent Hospital.(1)
10.18 License Agreement, dated August 4, 1986, by and among Delma Construction
Corporation, a California corporation, Zinngrabe Family Trust, and
Huntington Beach Convalescent Hospital.(1)
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10.19 Assignment of Lease and Assumption, dated January 4, 1988, between Regency
Health Services, Inc. and Rose Convalescent Hospital of Fairfield, and
Lease dated February 6, 1985, by and between Fairfield Pacifica Co., a
limited partnership, as lessor, and Rose Convalescent Hospital of
Pacifica, a California corporation, as lessee, concerning the real
property located at 751 San Pedro Road, Pacifica, California (Linda-Mar
Healthcare and Rehabilitation Center, formerly Linda-Mar Convalescent
Hospital), as amended by an amendment dated March 10, 1987, by and between
the same parties.(1)
10.20 Lease, dated December l, 1976, by and among Raymond W. Conn, Ida Conn,
Harold Shrier and Dorothy F. Shrier, as lessor, and Meadow View Park, a
California corporation, as lessee, concerning the real property located at
13392 Taft Avenue, Garden Grove, California (Meadowview Park), as amended
by (i) Supplement to Lease, dated February 1, 1977, by and between the
same parties and (ii) Amendment to Lease, dated February l, 1988, by and
between Raymond W. Conn, Ida Conn, Harold Shrier and Dorothy F. Shrier, as
lessor, and Regency Health Services, Inc., as lessee.(1)
10.21 Sublease Agreement, dated September 1, 1988, by and between Bellflower
Golden Age Convalescent Home, Inc., an Oregon corporation, as sublessor,
and Hallmark Health Services, Inc., as sublessee, concerning the real
property located at 9028 Rose Street, Bellflower, California (Rose Villa
Care Center), as amended by an Amendment of Sublease Agreement, dated
August 23, 1990, by and between the same parties.(1)
10.22 Lease, dated August 1, 1991, by and between Brittany Healthcare Center,
Inc., a California corporation, as lessor, and Brittany Rehabilitation
Center, Inc., a California corporation, as lessee, concerning the real
property located at 3900 Garfield Avenue, Carmichael, California (Brittany
Healthcare Center).(1)
10.23 Leasehold Purchase and Sales Agreement, dated August 1, 1991, by and
between Regency Health Services, Inc. and Brittany Healthcare Center,
Inc.(1)
10.24 Standard Industrial Lease -- Multi-Tenant, dated July 24, 1991, by and
between Red Gum Business Park, a California limited partnership, as
lessor, and Regency Health Services, Inc. dba First Class Pharmacy, a
California corporation, as lessee.(1)
10.25 Form of Lease Agreement.(1)
10.26 Form of Sublease Agreement.(1)
10.27 Consent Agreement, dated as of December 16, 1991, among Regency Health
Services, Inc., Inco Securities Corporation, North American Partners
Limited Partnership II, El Dorado Investment Company, SunVen Partners
Limited Partnership, Sundance Venture Partners Limited Partnership, Wescot
Partners III Limited Partnership, Cecil Mays, and Carol Mays.(1)
10.28 Agreement Among Stockholders, dated as of December 31, 1991, among Regency
Health Services, Inc., Peter J. Madigan, Inco Securities Corporation,
North American Partners Limited Partnership II, El Dorado Investment
Company, SunVen Partners Limited Partnership, Sundance Venture Partners
Limited Partnership, Wescot Partners III Limited Partnership, Cecil Mays,
and Carol Mays.(1)
10.29 Stock Indemnity Agreements, dated as of December 31, 1991, among Regency
Health Services, Inc., Inco Securities Corporation, North American
Partners Limited Partnership II, El Dorado Investment Company, SunVen
Partners Limited Partnership, Sundance Venture Partners Limited
Partnership, Wescot Partners III Limited Partnership, Cecil Mays, and
Carol Mays.(1)
10.30 Amended and Restated Registration Rights Agreement, dated as of January
21, 1992, among Regency Health Services, Inc. and the stockholders named
therein.(1)
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10.31 Escrow Agreement, dated January 21, 1992, among Regency Health Services,
Inc., Snell & Wilmer, Peter J. Madigan, Inco Securities Corporation, North
American Partners Limited Partnership II, El Dorado Investment Company,
SunVen Partners Limited Partnership, Sundance Venture Partners Limited
Partnership, Wescot Partners III Limited Partnership, Cecil Mays, and
Carol Mays.(1)
10.32 Allocation and Escrow Agreement, dated January 21, 1992, among the former
stockholders of Hallmark Health Services, Inc.(1)
10.33 Warrant Amendment Agreement, dated as of January 21, 1992, among Regency
Health Services, Inc., Inco Securities Corporation, North American
Partners Limited Partnership II, El Dorado Investment Company, SunVen
Partners Limited Partnership, Sundance Venture Partners Limited
Partnership, Wescot Partners III Limited Partnership, and Cecil Mays.(1)
10.34 Letter Warrant Amendment Agreement, dated as of January 15, 1992, between
Regency Health Services, Inc. and Cecil Mays.(1)
10.35 Series B Common Stock Purchase Warrant, dated May 31, 1988, between
Regency Health Services, Inc. and Cecil Mays.(1)
10.36 Series C Common Stock Purchase Warrant, dated January 11, 1989, between
Regency Health Services, Inc. and Inco Securities Corporation.(1)
10.37 Series C Common Stock Purchase Warrant, dated January 11, 1989 between
Regency Health Services, Inc. and North American Partners Limited
Partnership II.(1)
10.38 Series C Common Stock Purchase Warrant, dated January 11, 1989 between
Regency Health Services, Inc. and SunVen Partners Limited Partnership.(1)
10.39 Series C Common Stock Purchase Warrant, dated January 11, 1989 between
Regency Health Services, Inc. and El Dorado Investment Company.(1)
10.40 Series D Stock Purchase Warrant, dated June 12, 1990, between Regency
Health Services, Inc. and Inco Securities Corporation.(1)
10.41 Series D Stock Purchase Warrant, dated June 12, 1990, between Regency
Health Services, Inc. and North American Partners Limited Partnership
II.(1)
10.42 Series D Stock Purchase Warrant, dated June 12, 1990, between Regency
Health Services, Inc. and Sundance Venture Partners, L.P.(1)
10.43 Series D Stock Purchase Warrant, dated June 12, 1990, between Regency
Health Services, Inc. and SunVen Partners Limited Partnership.(1)
10.44 Series D Stock Purchase Warrant, dated June 12, 1990, between Regency
Health Services, Inc. and El Dorado Investment Company.(1)
10.45 Regency Health Services, Inc. Long-Term Incentive Plan.(4)
10.46 Regency Health Services, Inc.'s 401(K) Employee Retirement Savings
Plan.(1)
10.48 Key Man Life Insurance Policy for Cecil R. Mays.(1)
10.50 Settlement and Contract, dated June 4, 1991, among Regency Health
Services, Inc., Mary Jane Gross, Ginger Sumner, and Peter Zucker.(1)
10.52 Form of Indemnity Agreement between Regency Health Services, Inc. and its
Directors.(1)
10.55 Master Contract for Non-Public, Non-Sectarian School Agency Services,
dated September 16, 1991, between Regency High School and Long Beach
Unified School District.(1)
10.57 Promissory note, dated June 21, 1993, payable to Sunset Convalescent
Corporation in the amount of $675,000, between Regency Health Services,
Inc. and Sunset Convalescent Corporation.(5)
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10.65 Form of Enteral Therapy Services Agreement between Regency Health
Services, Inc.'s facilities and Regency Health Services, Inc.'s
subsidiary, First Class Pharmacy, Inc., dba Resource Pharmaceutical
Services.(1)
10.66 Form of Intravenous Therapy Services Agreement between Regency Health
Services, Inc.'s facilities and Regency Health Services, Inc.'s
subsidiary, First Class Pharmacy, Inc., dba Resource Pharmaceutical
Services.(1)
10.67 Form of Consultant Pharmacist Services Agreement between Regency Health
Services, Inc.'s facilities and Regency Health Services, Inc.'s
subsidiary, First Class Pharmacy, Inc., dba Resource Pharmaceutical
Services.(1)
10.68 Form of Pharmaceutical Services Agreement between Regency Health Services,
Inc.'s facilities and Regency Health Services, Inc.'s subsidiary, First
Class Pharmacy, Inc., dba Resource Pharmaceutical Services.(1)
10.69 Foster Care Group Home Rate Application and Letters, dated September 11,
1990 and August 29, 1991, from the California Department of Social
Services to Regency Health Services, Inc.(1)
10.70 Mental Health Services Agreement, dated June 17, 1991, between Regency
Health Services, Inc. and the California Department of Mental Health.(1)
10.71 Mental Health Services Agreement, dated June 29, 1993, between San
Bernardino County and Shandin Hills Behavior Therapy Center.(5)
10.75 First Amendment to Office Building Lease between Regency Health Services,
Inc. and Nexus Corporate Place Associates, dated as of December 10,
1991.(1)
10.76 Second Amendment to Office Building Lease between Regency Health Services,
Inc. and Nexus Corporate Place Associates, dated as of January 9, 1992.(1)
10.77 Standard Industrial Lease between Regency Health Services, Inc. and Red
Gum Business Park, dated July 24, 1991.(1)
10.78 Lease between Regency Health Services, Inc. and Red Gum Business Park,
dated February 1, 1992.(1)
10.79 Service Programs Agreement between First Class Pharmacy, Inc. and Bergen
Brunswig Drug Company, dated October 2, 1991.(1)
10.80 Amendment and Modification Agreement to Lease of Glendora Rehabilitation
Center (formerly Adventist Convalescent Hospital), dated as of June 1,
1990.(1)
10.82 Mental Health Services Agreement, dated July 13, 1993, between Kern County
and Shandin Hills Behavior Therapy Center.(5)
10.83 Mental Health Services Agreement for adolescent center for 1993 between
the County of Los Angeles, Department of Mental Health and Harbor View,
formerly Harbor View Rehabilitation Center.(2)
10.84 Mental Health Services Agreement for adolescent center for 1993, 1994, and
1995 between the County of Los Angeles, Department of Mental Health and
Harbor View, formerly Harbor View Rehabilitation Center.(2)
10.85 Mental Health Services Agreement, dated August 3, 1993, between Tulare
County and the Company.(5)
10.86 Ancillary Services Agreement, dated July 1, 1992, between Aetna Health
Plans for Southern California, Inc. and the Company.(2)
10.87 Agreement for Services, dated July 1, 1992, between FHP Healthcare and the
Company.(2)
10.89 Agreement for Purchase of Long Term Care Leasehold Properties, dated
December 3, 1992, by and between Regency Health Services, Inc. and Newport
Federal (Heritage Paradise and Heritage of Stockton).(3)
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10.90 Agreement for Purchase of Long Term Care Leasehold Properties, dated
December 3, 1992, by and between Regency Health Services, Inc. and Newport
Federal (Rosewood Terrace Rehabilitation and Living Center).(3)
10.91 Management Agreement, dated December 3, 1992, by and between Regency
Health Services, Inc. and Newport Federal (Heritage of Stockton).(3)
10.92 Management Agreement, dated December 3, 1992, by and between Regency
Health Services, Inc. and Newport Federal (Heritage Paradise).(3)
10.93 Management Agreement, dated December 3, 1992, by and between Regency
Health Services, Inc. and Newport Federal (Rosewood Terrace Rehabilitation
and Living Center).(3)
10.94 Lease of Heritage of Stockton, dated December 3, 1992, by and between
Regency Health Services, Inc. and Newport Federal.(3)
10.95 Lease of Heritage Paradise, dated December 3, 1992, by and between Regency
Health Services, Inc. and Newport Federal.(3)
10.96 Lease of Rosewood Terrace Rehabilitation and Living Center, dated December
3, 1992, by and between Regency Health Services, Inc. and Newport
Federal.(3)
10.97 Building Loan Agreement, dated November 20, 1992, by and between
Carmichael Convalescent Hospital and PFC Corporation.(3)
10.98 Security Agreement, dated as of November 20, 1992, between Carmichael
Convalescent Hospital and PFC Corporation.(3)
10.99 Aircraft Bill of Sale, dated November 6, 1992, between Regency Health
Services, Inc. and Newport Harbor Investments, Inc.(3)
10.100 Employment agreement, dated April 1, 1993, between Regency Health
Services, Inc. and Cecil Mays.(5)
10.101 Employment agreement, dated April 1, 1993, between Regency Health
Services, Inc. and Tim Paulsen.(5)
10.102 Employment agreement, dated April 1, 1993, between Regency Health
Services, Inc. and James R. Wodach.(5)
10.103 Employment agreement, dated April l, 1993, between Regency Health
Services, Inc. and T. Craig Nordstrom.(5)
10.104 Mental Health Services Agreement, dated June 29, 1993, between Riverside
County and Shandin Hills Behavior Therapy Center.(5)
10.105 Revolving credit note in the amount of $15,000,000, dated July 27, 1993,
between Regency Health Services, Inc. and City National Bank.(5)
10.106 Credit and security agreement, dated July 27, 1993, between Regency Health
Services, Inc. and City National Bank.(5)
10.107 Note receivable, dated August 16, 1993, due from Stanton Medical
Development Company in the amount of $2,300,000, between Regency Health
Services, Inc. and Stanton Medical Development Company.(6)
10.108 Regency Health Services, Inc. Director Stock Plan.(4)
10.109 Stock Purchase Agreement, dated October 5, 1993, as amended November 5,
1993, between Regency Health Services, Inc. and Braswell Enterprises
Inc.(3)
10.110 Program Consultant Agreement, dated November 8, 1993, between C. Allen
Braswell and Regency Health Services, Inc.(3)
10.111 Management Agreement, dated December 1, 1993, between RHS Management, Inc.
and Ray Properties.(3)
</TABLE>
II-7
<PAGE> 217
<TABLE>
<S> <C>
10.112 Second Amended and Restated Registration Rights Agreement, dated as of
January 31, 1994, among Regency Health Services, Inc., Care Enterprises,
Inc. and the stockholders named therein.
10.113 Amendment to Regency Health Services, Inc. Long-Term Incentive Plan.
10.114 Employment Agreement between Regency Health Services, Inc. and Cecil Mays
to be effective as of the Effective Time (as defined therein).
10.115 Employment Agreement between Regency Health Services, Inc. and Richard K.
Matros to be effective as of the Effective Time (as defined therein).
10.116 Employment Agreement between Regency Health Services, Inc. and Gary L.
Massimino to be effective as of the Effective Time (as defined therein).
10.117 Employment Agreement between Regency Health Services, Inc. and Tim J.
Paulsen to be effective as of the Effective Time (as defined therein).
10.118 Employment Agreement between Regency Health Services, Inc. and T. Craig
Nordstrom to be effective as of the Effective Time (as defined therein).
10.119 Employment Agreement between Regency Health Services, Inc. and James R.
Wodach to be effective as of the Effective Time (as defined therein).
10.120 Employment Agreement between Regency Health Services, Inc. and Brad L.
Kerby to be effective as of the Effective Time (as defined therein).
11 Regency Health Services, Inc.'s Statements re Computation of Per Share
Earnings.
21 Subsidiaries of Regency Health Services, Inc.
23.1 Consent of Ernst & Young.
23.2 Consent of Arthur Andersen & Co.
23.3 Consent of Skadden, Arps, Slate, Meagher & Flom (included in their opinion
filed as Exhibit 5).
24 Power of Attorney (see signature page included in Registration Statement).
</TABLE>
- ---------------
(1) Incorporated by reference to Regency Health Services, Inc.'s Registration
Statement on Form S-1 (No. 33-45591).
(2) Incorporated by reference to Regency Health Services, Inc.'s 1992 Annual
Report on Form 10-K (File No. 1-11144).
(3) Incorporated by reference to Regency Health Services, Inc.'s Registration
Statement on Form S-1 (No. 33-53590).
(4) Incorporated by reference to Regency Health Services, Inc.'s 1993 Proxy
Statement dated December 10, 1993 (File No. 1-11144).
(5) Incorporated by reference to Regency Health Services, Inc.'s 1993 Annual
Report on Form 10-K (File No. 1-11144).
(6) Incorporated by reference to Regency Health Services, Inc.'s Report on Form
10-Q for the Quarter Ended September 30, 1993 (File No. 1-11144).
II-8
<PAGE> 218
(B) FINANCIAL STATEMENT SCHEDULES
<TABLE>
<S> <C>
Regency Health Services, Inc.
Schedule IV -- Indebtedness Of and To Related Parties -- Not Current
Schedule V -- Property, Plant and Equipment
Schedule VI -- Accumulated Depreciation, Depletion and Amortization of
Property, Plant and Equipment
Schedule VIII -- Valuation and Qualifying Accounts
Care Enterprises, Inc.
Schedule IV -- Indebtedness Of and To Related Parties -- Not Current
Schedule V -- Property, Plant and Equipment
Schedule VI -- Accumulated Depreciation, Depletion and Amortization of
Property, Plant and Equipment
Schedule VIII -- Valuation and Qualifying Accounts
Schedule IX -- Short-term Borrowings
</TABLE>
Financial Statement Schedules other than those referred to above have been
omitted because they are not applicable or not required or because the
information is included elsewhere in the financial statements or the notes
thereto.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) (1) The undersigned registrant hereby undertakes that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (b)(1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Securities Act of 1933 and is
used in connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will not be
used until such amendment is effective, and
II-9
<PAGE> 219
that, for purposes of determining any liability under the Securities Act of
1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-10
<PAGE> 220
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Newport Beach, State of
California, on the 3rd day of March, 1994.
REGENCY HEALTH SERVICES, INC.
By: /s/ CECIL MAYS
---------------------------------
Name: Cecil Mays
Title: Chairman of the Board of
Directors,
President and Chief
Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints James R.
Wodach and Brad L. Kerby, his true and lawful attorney-in-fact, each acting
alone, with full power of substitution and resubstitution for him and in his
name, place and stead, in any and all capacities to sign any and all amendments
including post-effective amendments to this registration statement, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorneys-in-fact or their substitutes, each acting
alone, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME AND SIGNATURE TITLE DATE
------------------ ----- ----
<C> <S> <C>
/s/ CECIL MAYS Director, Chairman of the March 3, 1994
-------------------------- Board of Directors,
Cecil Mays President and Chief
Executive Officer
/s/ JAMES R. WODACH Senior Vice President and March 3, 1994
-------------------------- Chief Financial Officer
James R. Wodach
/s/ GREGORY S. ANDERSON Director March 3, 1994
--------------------------
Gregory S. Anderson
/s/ TONY ASTORGA Director March 3, 1994
--------------------------
Tony Astorga
/s/ KENNETH PLUMLEE Director March 3, 1994
--------------------------
Kenneth Plumlee
</TABLE>
II-11
<PAGE> 221
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Regency Health Services, Inc.:
We have audited in accordance with generally accepted auditing standards the
financial statements of Regency Health Services, Inc. included in this Form S-4
and have issued our report thereon dated September 1, 1993. Our audit was made
for the purpose of forming an opinion on the basic financial statements taken as
a whole. The schedules listed in the index to consolidated financial statements
are presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial statements. These
schedules have been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly state in all material
respects the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
ARTHUR ANDERSEN & CO.
Orange County, California
September 1, 1993
<PAGE> 222
SCHEDULE IV
REGENCY HEALTH SERVICES, INC.
INDEBTEDNESS OF AND TO RELATED PARTIES - NOT CURRENT
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1990 YEAR ENDED JUNE 30, 1991
---------------------------------------------- --------------------------------------------
INDEBTEDNESS OF INDEBTEDNESS OF
BALANCE AT ---------------------- BALANCE AT BALANCE AT -------------------- BALANCE AT
NAME OF PERSON BEGINNING ADDITIONS DEDUCTIONS END BEGINNING ADDITIONS DEDUCTIONS END
- ---------------------------- ---------- ---------- ---------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Inco Securities
Corporation................ $0 $ 125,000 $ 125,000 $ 125,000 $ 125,000
One New York Plaza
37th Floor
New York, NY 10004
North American Partners
Limited Partnership II..... 0 125,000 125,000 125,000 125,000
One New York Plaza
37th Floor
New York, NY 10004
Sundance Management
Company, Inc............... 0 500,000 500,000 500,000 500,000
3000 Sand Hill Road
Building 4, Suite 130
Menlo Park, CA 94025
El Dorado Investments....... 0 204,642 204,642 204,642 204,642
2828 North Central Avenue
Phoenix, AZ 85004
SunVen Capital
Corporation................ 0 154,642 154,642 154,642 154,642
2828 North Central Avenue
Suite 1275
Phoenix, AZ 85004
-
---------- ---------- ---------- ---------- -------- ---------- ----------
$0 $1,109,284 $1,109,284 $1,109,284 $1,109,284
-
-
---------- ---------- ---------- ---------- -------- ---------- ----------
---------- ---------- ---------- ---------- -------- ---------- ----------
<CAPTION>
YEAR ENDED JUNE 30, 1992
-------------------------------------------
INDEBTEDNESS OF
BALANCE AT ---------------------- BALANCE
NAME OF PERSON BEGINNING ADDITIONS DEDUCTIONS AT END
- ---------------------------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Inco Securities
Corporation................ $ 125,000 $ 125,000 $ 0
One New York Plaza
37th Floor
New York, NY 10004
North American Partners
Limited Partnership II..... 125,000 125,000 0
One New York Plaza
37th Floor
New York, NY 10004
Sundance Management
Company, Inc............... 500,000 500,000 0
3000 Sand Hill Road
Building 4, Suite 130
Menlo Park, CA 94025
El Dorado Investments....... 204,642 204,642 0
2828 North Central Avenue
Phoenix, AZ 85004
SunVen Capital
Corporation................ 154,642 154,642 0
2828 North Central Avenue
Suite 1275
Phoenix, AZ 85004
-
---------- ---------- ----------
$1,109,284 $1,109,284 $ 0
-
-
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
In 1990, the Company issued notes payable, which were convertible at the
option of the holder, with detachable warrants to purchase Series D preferred
stock. Interest accrued at a rate of 13 percent. The Company has accordingly
reduced notes payable and recorded $88,000 as the value of the warrants on June
30, 1990. The warrants are amortized over 60 months at approximately $18,000 per
year.
The notes, along with any accrued and unpaid interest, were converted into
529,510 shares of Series D preferred stock on December 31, 1991. The detachable
warrants which have not been exercised, may be used to purchase Series D
preferred stock at a price of $.30 per share.
Regency S-1
<PAGE> 223
SCHEDULE V
REGENCY HEALTH SERVICES, INC
PROPERTY, EQUIPMENT
<TABLE>
<CAPTION>
OTHER CHANGES
BALANCE AT --------------------- BALANCE AT
BEGINNING ADDITIONS ADD END OF
CLASSIFICATION OF PERIOD AT COST RETIREMENT DESCRIPTION (DEDUCT) PERIOD
- ------------------------------------ ---------- ---------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED JUNE 30, 1991
Land.............................. $11,443,924 $ -- $ (200,000) $ -- $11,243,924
Buildings and Improvements........ 17,126,638 241,335 (1,139,939) -- 16,228,034
Leasehold Interests............... 6,698,817 -- -- -- 6,698,817
Equipment......................... 2,025,528 143,241 (108,418) -- 2,060,351
---------- ---------- ---------- -------- ----------
$37,294,907 $ 384,576 $(1,448,357) $ -- $36,231,126
---------- ---------- ---------- -------- ----------
---------- ---------- ---------- -------- ----------
FOR THE YEAR ENDED JUNE 30, 1992
Land.............................. $11,243,924 $ -- $ -- $ -- $11,243,924
Buildings and Improvements........ 16,228,034 1,068,812(1) -- -- 17,296,846
Leasehold Interests............... 6,698,817 1,858,156 -- -- 8,556,973
Equipment......................... 2,060,351 1,549,453(1) -- -- 3,609,804
---------- ---------- ---------- -------- ----------
$36,231,126 $4,476,421 $ -- $ -- $40,707,547
---------- ---------- ---------- -------- ----------
---------- ---------- ---------- -------- ----------
FOR THE YEAR ENDED JUNE 30, 1993
Land.............................. $11,243,924 $ -- $ -- $ -- $11,243,924
Buildings and Improvements........ 17,296,846 2,836,632 -- -- 20,133,478
Leasehold Interests............... 8,556,973 649,985 -- -- 9,206,958
Equipment......................... 3,609,804 1,049,128 -- -- 4,658,932
---------- ---------- ---------- -------- ----------
$40,707,547 $4,535,745 $ -- $ -- $45,243,292
---------- ---------- ---------- -------- ----------
---------- ---------- ---------- -------- ----------
</TABLE>
- ---------------
(1) Included in additions to property, plant and equipment are $671,363 of
buildings and improvements $1,123,156 of leasehold interests, and $1,069,200
of equipment obtained in the Hallmark acquisition.
Regency S-2
<PAGE> 224
SCHEDULE VI
REGENCY HEALTH SERVICES, INC.
ACCUMULATED DEPRECIATION, DEPLETION
AND AMORTIZATION OF PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
ADDITIONS
BALANCE CHARGED OTHER CHANGES
AT TO COSTS -------------------- BALANCE
BEGINNING AND ADD AT END OF
CLASSIFICATION OF PERIOD EXPENSES RETIREMENT DESCRIPTION (DEDUCT) PERIOD
- ---------------------------------------- --------- --------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED JUNE 30, 1991
Land.................................. $ -- $ -- $ -- $ -- $ --
Buildings and Improvements............ 1,360,588 567,360 (80,356) -- 1,847,592
Leasehold Interests................... 885,730 362,883 -- -- 1,248,613
Equipment............................. 390,669 188,262 (28,510) -- 550,421
--------- --------- --------- -------- ---------
$2,636,987 $1,118,505 $(108,866) $ -- $3,646,626
--------- --------- --------- -------- ---------
--------- --------- --------- -------- ---------
FOR THE YEAR ENDED JUNE 30, 1992
Land.................................. $ -- $ -- $ -- $ -- $ --
Buildings and Improvements............ 1,847,592 815,278(1) -- -- 2,662,870
Leasehold Interests................... 1,248,613 520,800(1) -- -- 1,769,413
Equipment............................. 550,421 596,083(1) -- -- 1,146,504
--------- --------- --------- -------- ---------
$3,646,626 $1,932,161 $ -- $ -- $5,578,787
--------- --------- --------- -------- ---------
--------- --------- --------- -------- ---------
FOR THE YEAR ENDED JUNE 30, 1993
Land.................................. $ -- $ -- $ -- $ -- $ --
Buildings and Improvements............ 2,662,870 747,583 -- -- 3,410,453
Leasehold Interests................... 1,769,413 403,822 -- -- 2,173,235
Equipment............................. 1,146,504 604,963 -- -- 1,751,467
--------- --------- --------- -------- ---------
$5,578,787 $1,756,368 $ -- $ -- $7,335,155
--------- --------- --------- -------- ---------
--------- --------- --------- -------- ---------
</TABLE>
- ---------------
(1) Included in additions to accumulated depreciation are $194,920 for buildings
and improvements, $154,418 for leasehold interests, and $382,691 for
equipment obtained in the Hallmark acquisition.
Regency S-3
<PAGE> 225
SCHEDULE VIII
REGENCY HEALTH SERVICES, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE
AT CHARGED BALANCE
BEGINNING TO COSTS CHARGED AT END
OF AND TO OTHER OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS(1) PERIOD
- ----------------------------------------------- -------- -------- -------- ------------- --------
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1991 -
Allowance for doubtful accounts.............. $208,000 $ 30,000 -- $ (51,000) $187,000
-------- -------- -------- ------------- --------
-------- -------- -------- ------------- --------
Year ended June 30, 1992 -
Allowance for doubtful accounts.............. $187,000 $295,000 -- $(112,000) $370,000
-------- -------- -------- ------------- --------
-------- -------- -------- ------------- --------
Year ended June 30, 1993 -
Allowance for doubtful accounts.............. $370,000 $239,000 $ -- $ (89,000) $520,000
-------- -------- -------- ------------- --------
-------- -------- -------- ------------- --------
</TABLE>
- ------------
(1) Accounts written off against the allowance for doubtful accounts.
Regency S-4
<PAGE> 226
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Care Enterprises, Inc.
We have audited the consolidated financial statements of Care Enterprises,
Inc. as of December 31, 1992 and 1991, and for each of the two years in the
period ended December 31, 1992 (post-reorganization) and for the year ended
December 31, 1990 (pre-reorganization), and have issued our report thereon dated
March 12, 1993 (included elsewhere in this Registration Statement). Our audits
also included the financial statement schedules listed in Item 21(b) of this
Registration Statement. These schedules are the responsibilities of the
Company's management. Our responsibility is to express an opinion based on our
audits.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
ERNST & YOUNG
Orange County, California
March 12, 1993
<PAGE> 227
CARE ENTERPRISES, INC. AND SUBSIDIARIES
SCHEDULE IV -- INDEBTEDNESS OF AND TO RELATED PARTIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
INDEBTEDNESS OF -- INDEBTEDNESS TO --
------------------------------------------------ -------------------------------------------------
COL. B COL. E COL. F COL. I
---------- ---------- ---------- ----------
COL. A BALANCE AT COL. C COL. D BALANCE AT BALANCE AT COL. G COL. H BALANCE AT
- --------------------------- BEGINNING --------- ---------- END OF BEGINNING --------- ---------- END OF
DESCRIPTION OF PERIOD ADDITIONS DEDUCTIONS PERIOD OF PERIOD ADDITIONS DEDUCTIONS PERIOD
- --------------------------- ---------- --------- ---------- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1992
Foothill Capital
Corporation...........
Term Notes............ $ -- $13,213(a) $3,838 $ 9,375
Working capital
loan................ -- 1,000(b) -- 1,000
---------- --------- ---------- ----------
$ -- $ -- $ -- $ -- $ -- $14,213 $3,838 $ 10,375
---------- --------- ---------- ---------- ---------- --------- ---------- ----------
---------- --------- ---------- ---------- ---------- --------- ---------- ----------
YEAR ENDED DECEMBER 31,
1991
$ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
---------- --------- ---------- ---------- ---------- --------- ---------- ----------
---------- --------- ---------- ---------- ---------- --------- ---------- ----------
</TABLE>
- ---------------
(a) In January 1992, Foothill Capital Corporation acquired from Wells Fargo
Bank, N.A. a 50% interest in the Company's Term Note obligation.
(b) Borrowings under the working capital loan.
Care S-1
<PAGE> 228
CARE ENTERPRISES, INC. AND SUBSIDIARIES
SCHEDULE V -- PROPERTY AND EQUIPMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
REFLECTING
"FRESH-START
REPORTING"(A)
------------
COL. B
--------- COL. E COL. F COL. G
BALANCE COL. C ------------ --------- ------------
COL. A AT --------- COL. D OTHER BALANCE ELIMINATE
- ------------------------------------------- BEGINNING ADDITIONS ----------- CHARGES AT END OF ACCUMULATED
CLASSIFICATION OF PERIOD AT COST RETIREMENTS ADD(DEDUCT) PERIOD DEPRECIATION
- ------------------------------------------- --------- --------- ----------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1992
Land and land improvements................. $ 8,659 $ 166 $ 114 $ -- $ 8,711
Buildings.................................. 37,008 470 9 -- 37,469
Leasehold interests and improvements....... 18,635 964 190 -- 19,409
Equipment.................................. 10,081 1,886 1,066 -- 10,901
Capitalized leases......................... 3,087 94 -- -- 3,181
--------- --------- ----------- ------------ ---------
Totals................................ $ 77,470 $ 3,580 $ 1,379 $ 0 $ 79,671
--------- --------- ----------- ------------ ---------
--------- --------- ----------- ------------ ---------
YEAR ENDED DECEMBER 31, 1991
Land and land improvements................. $ 8,334(e) 101 1,030 1,254 8,659
Buildings.................................. 36,415(e) 413 3,327 3,507 37,008
Leasehold interests and improvements....... 13,673(e) 1,167 1,064 4,859 18,635
Equipment.................................. 7,766(e) 1,898 875 1,292 10,081
Capitalized leases......................... 3,089(e) -- 2 -- 3,087
--------- --------- ----------- ------------ ---------
Totals................................ $ 69,277 $ 3,579 $ 6,298 $ 10,912 $ 77,470
--------- --------- ----------- ------------ ---------
--------- --------- ----------- ------------ ---------
YEAR ENDED DECEMBER 31, 1990
Land....................................... $ 11,549 $ 68 $ 6,336 $ (1,253)(d) $ 4,028 $ --
Buildings.................................. 56,194 318 26,874 (5,344)(d) 24,294 (2,927)
Leasehold interests and improvements....... 32,936 1,131 7,207 1,261(b)
(9,134)(d) 18,987 (8,560)
Equipment.................................. 27,741 2,010 8,700 943(b)
(2,667)(d) 19,327 (14,185)
Capitalized leases......................... 19,601 -- 3,687 (9,981)(c) 5,933 (2,843)
--------- --------- ----------- ------------ --------- ------------
Totals................................ $ 148,021 $ 3,527 $52,804 $(26,175) $ 72,569 $(28,515)
--------- --------- ----------- ------------ --------- ------------
--------- --------- ----------- ------------ --------- ------------
<CAPTION>
COL. H COL. I
------------ -------------
COL. A ADJUSTMENTS FINAL
- ------------------------------------------- TO FAIR BALANCE AT
CLASSIFICATION MARKET VALUE END OF PERIOD
- ------------------------------------------- ------------ -------------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1992
Land and land improvements.................
Buildings..................................
Leasehold interests and improvements.......
Equipment..................................
Capitalized leases.........................
Totals................................
YEAR ENDED DECEMBER 31, 1991
Land and land improvements.................
Buildings..................................
Leasehold interests and improvements.......
Equipment..................................
Capitalized leases.........................
Totals................................
YEAR ENDED DECEMBER 31, 1990
Land....................................... $ 4,041 $ 8,069
Buildings.................................. 12,552 33,919
Leasehold interests and improvements.......
6,334 16,761
Equipment..................................
2,296 7,438
Capitalized leases......................... -- 3,090
------------ -------------
Totals................................ $ 25,223 $69,277
------------ -------------
------------ -------------
</TABLE>
- ---------------
(a) In conjunction with the Company's emergence from Chapter 11 reorganization,
"Fresh-Start Reporting" was adopted. Accordingly, property and equipment was
revalued to reflect fair market values at December 31, 1990, the effective
date of the reorganization (See Note 3 to the Company's Consolidated
Financial Statements).
(b) Reclassification and restoration of assets previously written-off as fully
depreciated.
(c) Three leases previously recorded as capital leases were renegotiated and are
now categorized as operating leases.
(d) Reclassify to assets held for sale.
(e) Differences in the 1991 beginning balances from 1990 ending balances are due
to reclassifications.
Care S-2
<PAGE> 229
CARE ENTERPRISES, INC. AND SUBSIDIARIES
SCHEDULE VI -- ACCUMULATED DEPRECIATION AND AMORTIZATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
REFLECTING
"FRESH-START
REPORTING"(A)
COL. C ------------
COL. B ---------
--------- ADDITIONS COL. E COL. F COL. G
BALANCE CHARGED ------------ --------- ------------
COL. A AT TO COL. D OTHER BALANCE ELIMINATE
- ------------------------------------------- BEGINNING COST AND ----------- CHARGES AT END OF ACCUMULATED
DESCRIPTION OF PERIOD EXPENSES RETIREMENTS ADD(DEDUCT) PERIOD DEPRECIATION
- ------------------------------------------- --------- --------- ----------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1992
Land and land improvements................. $ 30 48 $ -- $ -- $ 78
Buildings.................................. 1,167 1,187 3 -- 2,351
Leasehold interests and improvements....... 2,127 1,958 38 -- 4,047
Equipment.................................. 1,932 1,870 242 -- 3,560
Capitalized leases......................... 232 237 -- -- 469
--------- --------- ----------- ------------ ---------
Totals........................... $ 5,488 $ 5,300 $ 283 $ 0 $ 10,505
--------- --------- ----------- ------------ ---------
--------- --------- ----------- ------------ ---------
YEAR ENDED DECEMBER 31, 1991
Land and land improvements................. $ 0 34 $ 4 -- $ 30
Buildings.................................. 0 1,262 95 -- 1,167
Leasehold interests and improvements....... 0 2,268 141 -- 2,127
Equipment.................................. 0 2,081 149 -- 1,932
Capitalized leases......................... 0 232 0 -- 232
--------- --------- ----------- ------------ ---------
Totals................................ $ 0 $ 5,877 $ 389 $ 0 $ 5,488
--------- --------- ----------- ------------ ---------
--------- --------- ----------- ------------ ---------
YEAR ENDED DECEMBER 31, 1990
Buildings.................................. $ 7,180 $ 1,350 $ 3,767 $ (1,836)(d) $ 2,927 $ (2,927)
Leasehold interests and improvements....... 14,200 2,422 5,083 1,295(b)
(4,274)(d) 8,560 (8,560)
Equipment.................................. 18,138 2,714 6,245 1,493(b)
(1,915)(d) 14,185 (14,185)
Capitalized leases......................... 4,371 517 826 (1,219)(c) 2,843 (2,843)
--------- --------- ----------- ------------ --------- ------------
Totals................................ $ 43,889 $ 7,003 $15,921 $ (6,456) $ 28,515 $(28,515)
--------- --------- ----------- ------------ --------- ------------
--------- --------- ----------- ------------ --------- ------------
<CAPTION>
COL. H COL. I
------------ -------------
COL. A ADJUSTMENTS FINAL
- ------------------------------------------- FOR FAIR BALANCE AT
DESCRIPTION MARKET VALUE END OF PERIOD
- ------------------------------------------- ------------ -------------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1992
Land and land improvements.................
Buildings..................................
Leasehold interests and improvements.......
Equipment..................................
Capitalized leases.........................
Totals...........................
YEAR ENDED DECEMBER 31, 1991
Land and land improvements.................
Buildings..................................
Leasehold interests and improvements.......
Equipment..................................
Capitalized leases.........................
Totals................................
YEAR ENDED DECEMBER 31, 1990
Buildings.................................. -- $ 0
Leasehold interests and improvements.......
-- 0
Equipment..................................
-- 0
Capitalized leases......................... 0
------------ -------------
Totals................................ $ 0 $ 0
------------ -------------
------------ -------------
</TABLE>
- ---------------
(a) In conjunction with the Company's emergence from Chapter 11 reorganization,
"Fresh-Start Reporting" was adopted. Accordingly, property and equipment
were revalued to reflect fair market values at the effective date of the
reorganization (See Note 3 to the Company's Consolidated Financial
Statements).
(b) Reclassifications and restoration of assets previously written-off as fully
depreciated.
(c) Three leases previously recorded as capital leases were renegotiated and are
now categorized as operating leases.
(d) Reclassify to assets held for sale.
Care S-3
<PAGE> 230
CARE ENTERPRISES, INC. AND SUBSIDIARIES
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COL. C
-----------------------
ADDITIONS
COL. B ----------------------- COL. E
---------- CHARGED TO ---------
COL. A BALANCE AT CHARGED TO OTHER COL. D BALANCE
- --------------------------------------------- BEGINNING COSTS AND ACCOUNTS ---------- AT END
DESCRIPTION OF PERIOD EXPENSES (DESCRIBE) DEDUCTIONS OF PERIOD
- --------------------------------------------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Deducted from the assets to which they apply:
YEAR ENDED DECEMBER 31, 1992
Allowance for doubtful accounts......... $ 3,404 $ 30 $ -- $ 839 $ 2,595
Allowance for mortgage loan losses...... 1,074 117 -- 254 937
---------- ---------- ---------- ---------- ---------
$ 4,478 $ 147 $ -- $ 1,093 $ 3,532
---------- ---------- ---------- ---------- ---------
---------- ---------- ---------- ---------- ---------
YEAR ENDED DECEMBER 31, 1991
Allowance for doubtful accounts......... $ 2,487 $1,036 $105 $ 224 $ 3,404
Allowance for mortgage loan losses...... 2,999 511 -- 2,436 1,074
---------- ---------- ---------- ---------- ---------
$ 5,486 $1,547 $105 $ 2,660 $ 4,478
---------- ---------- ---------- ---------- ---------
---------- ---------- ---------- ---------- ---------
YEAR ENDED DECEMBER 31, 1990
Allowance for doubtful accounts......... $ 4,200 $1,572 $ -- $ 3,285 $ 2,487
Allowance for notes and contracts....... 13,599 -- -- 13,599 0
Allowance for mortgage loan losses...... 3,925 680 -- 1,606 2,999
---------- ---------- ---------- ---------- ---------
$ 21,724 $2,252 $ -- $ 18,490 $ 5,486
---------- ---------- ---------- ---------- ---------
---------- ---------- ---------- ---------- ---------
</TABLE>
Care S-4
<PAGE> 231
CARE ENTERPRISES, INC AND SUBSIDIARIES
SCHEDULE IX -- SHORT-TERM BORROWINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E COL. F
- ---------------------------------------------- ------- -------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
WEIGHTED
MAXIMUM AVERAGE AVERAGE
WEIGHTED AMOUNT AMOUNT INTEREST
BALANCE AVERAGE OUTSTANDING OUTSTANDING RATE
END OF INTEREST DURING THE DURING THE DURING THE
DESCRIPTION PERIOD RATE PERIOD PERIOD PERIOD(1)
- ---------------------------------------------- ------- -------- ----------- ----------- ----------
December 31, 1992
Notes payable to bank....................... $ 0 0.00% $ 0 $ 0 0.00%
December 31, 1991
Notes payable to bank....................... $ 0 0.00% $ 0 $ 0 0.00%
December 31, 1990
Notes payable to bank....................... $ 0(2) 0.00% $32,646 $31,683 12.14%
</TABLE>
- ---------------
(1) Interest is calculated on the average outstanding debt at a rate related to
prime.
(2) As part of the Company's plan of reorganization, effective December 31, 1990
the Company replaced existing short term borrowings with long term debt (See
Note 7 to Care's Consolidated Financial Statements).
See Independent Auditor's Report and Notes to Consolidated Financial Statements.
Care S-5
<PAGE> 232
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
------- -------------------------------------------------------------------------------
<S> <C> <C>
2.1 Agreement and Plan of Merger, dated as of December 20, 1993, by
and between Regency Health Services, Inc. and Care Enterprises,
Inc. (included as Annex A to the Proxy Statement/Prospectus)......
2.1.1 Amendment to Agreement and Plan of Merger, dated as of January 31,
1994, by and between Regency Health Services, Inc. and Care
Enterprises, Inc. (included as Annex A to the Proxy
Statement/Prospectus).............................................
3.1 Restated Certificate of Incorporation of Regency Health Services,
Inc.(1)...........................................................
3.2 Form of Second Restated Certificate of Incorporation of Regency
Health Services, Inc. (included as Annex B to the Proxy
Statement/Prospectus).............................................
3.3 Bylaws of Regency Health Services, Inc.(1)........................
3.4 Form of Restated Bylaws of Regency Health Services, Inc. (included
as Annex C to the Proxy Statement/Prospectus).....................
4.1 Specimen of common stock certificate of Regency Health Services,
Inc.(1)...........................................................
4.3 Voting Agreement, dated as of December 27, 1993, by and among
Regency Health Services, Inc. and the stockholders named
therein...........................................................
4.4 Voting Agreement, dated as of December 27, 1993, by and between
Care Enterprises, Inc. and the stockholders named therein.........
5 Opinion of Skadden, Arps, Slate, Meagher & Flom...................
10.1 Lease, dated December 2, 1990, by and between Nexus Corporate
Place Associates, a California limited partnership, as lessor, and
Regency Health Services, Inc., as lessee, concerning the real
property located at 3636 Birch Street, Suite 195, Newport Beach,
California, as amended by a First Amendment to Office Building
Lease dated December 10, 1991, by and between the same
parties.(1).......................................................
10.3 Lease, dated June l, 1990, by and between Glendora Hospital
Partners, as lessor, and Regency Health Services, Inc., as lessee,
concerning the real property located at 435 E. Gladstone Avenue,
Glendora, California (Glendora Rehabilitation Center -- formerly
Adventist Rehabilitation Center).(1)..............................
10.4 Sublease Agreement, dated September 1, 1988, by and between San
Dimas Golden Age Convalescent Home, Inc., an Oregon corporation,
as sublessor, and Hallmark Health Services, Inc., a Delaware
corporation, as sublessee, concerning the real property located at
1033 East Arrow Highway, Glendora, California (Arbor Glen Care
Center), as amended by an Amendment of Sublease Agreement dated
August 23, 1990, by and between the same parties.(1)..............
10.5 Sublease Agreement, dated September 1, 1988, by and between Pico
Downey Golden Age Convalescent Home, Inc., an Oregon corporation,
as sublessor, and Hallmark Health Services, Inc., a Delaware
corporation, as sublessee, concerning the real property located at
9300 Telescope Road, Downey, California (Brookwood Care Center),
as amended by an Amendment of Sublease Agreement dated August 23,
1990, by and between the same parties.(1).........................
</TABLE>
<PAGE> 233
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
------- -------------------------------------------------------------------------------
<S> <C> <C>
10.6 Lease Modification Agreement, dated March 5, 1975, by and between
Aaron Sage, et al., dba Covina Venture, as lessor, and Covina
Rehabilitation Center, dba Glenhaven of Covina, as lessee,
concerning the real property located at 261 West Badillo, Covina,
California (Covina Rehabilitation Center -- formerly Covina
Convalescent Hospital), as amended by an Agreement dated June 28,
1976, by and between the same parties.(1).........................
10.7 Assignment of Lease and Assumption, dated January 4, 1988, between
Regency Health Services, Inc. and Rose Convalescent Hospital of
Fairfield, and Lease dated February 6, 1985, by and between
Fairfield Development Co., a limited partnership, as lessor, and
Rose Convalescent Hospital of Fairfield, a California corporation,
as lessee, concerning the real property located at 1255 Travis
Boulevard, Fairfield, California (Fairfield Healthcare Center,
formerly Fairfield Convalescent Hospital), as amended by an
amendment dated March 10, 1987, by and between the same
parties.(1).......................................................
10.8 Sublease Agreement, dated November 1, 1987, by and among Saint
Elizabeth Convalescent Hospital, Inc., as sublessor, Hallmark
Health Services, Inc., as sublessee, and Lee A. Johnson and Carol
Johnson, as owner, concerning the real property located at 3435
West Ball Road, Anaheim, California (Park Anaheim Healthcare
Center, formerly Hallmark Nursing Center -- Anaheim), as amended
by a letter dated November 1, 1987 from Saint Elizabeth
Convalescent Hospital, Lee A. Johnson and Carol Johnson to
Hallmark Health Services, Inc.(1).................................
10.9 Lease, dated March 15, 1990, by and between K.H.I.K. Company, a
partnership, as lessor, and Hallmark Health Services, Inc., as
lessee, concerning the real property located at 12681 Haster
Street, Garden Grove, California (Garden Park Care Center,
formerly Hallmark Nursing Center -- Garden Grove).(1).............
10.10 Lease, dated March 10, 1989, by and between Sam Menlo, Trustee of
the Menlo Trust U/T/I of February 22, 1983, as lessor, and
Hallmark Health Services, Inc., as lessee, concerning the real
property located at 3665 East Imperial Highway, Lynwood,
California (Royal Oaks Care Center, formerly Hallmark Nursing
Center -- Lynwood)(1).............................................
10.11 Lease Agreement, dated August 1, 1990, by and between H&P
Investment Properties, a general partnership, as lessor, and
Hallmark Health Services, Inc., as lessee, concerning the real
property located at 7716 Manchester Avenue, Playa del Rey,
California (Playa del Rey Rehabilitation and Care Center, formerly
Hallmark Nursing Center -- Playa del Rey)(1)......................
10.12 Sublease Agreement, dated August 1, 1989, by and between Pomona
Golden Age Convalescent Home, Inc., an Oregon corporation, as
sublessor, and Hallmark Health Services, Inc., as sublessee,
concerning the real property located at 315 West Pearl, Pomona,
California (Country Oaks Care Center -- formerly Hallmark Nursing
Center -- Pomona)(1)..............................................
</TABLE>
<PAGE> 234
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
------- -------------------------------------------------------------------------------
<S> <C> <C>
10.13 Sublease Agreement, dated August 7, 1987, by and between Golden
Oaks Management Corporation, a California corporation, as
sublessor, and Hallmark Health Services, Inc., as sublessee,
concerning the real property located at 5270 Los Angeles Street,
Simi Valley, California (Simi Valley Rehabilitation and Nursing
Center, formerly Hallmark Nursing Center -- Simi Valley), as
amended by an Agreement dated August 1, 1988, by and between
Philip Chase and Hallmark Health Services, Inc.(1)................
10.14 Lease Agreement, dated April 4, 1989, by and between Arthur
Strich, M.D., as lessor, and Hallmark Health Services, Inc., as
lessee, concerning the real property located at 2210 East First
Street, Santa Ana, California (Park Tustin Rehabilitation and
Healthcare Center, formerly Hallmark Nursing Center --
Tustin)(1)........................................................
10.15 Amendment and Restatement of Lease, dated September l, 1976, by
and between James A. Pine and Dorothy K. McDonald, as lessor, and
Seaside Extended Care Center, a California corporation, as lessee,
concerning the real property located at 490 W. 14th Street, Long
Beach, California (Harbor View, formerly Harbor View Center), as
amended by an Amendment and Assignment of Lease dated February 3,
1988, by and between James A. Pine and Dorothy K. Pine, H&L 1200
Company and Regency Health Services, Inc.(1)......................
10.16 Lease, dated January 1, 1988, by and between Cecil Mays and Carol
Mays, as lessor, and Regency Health Services, Inc., as lessee,
concerning the real property located at 21414 South Vermont
Avenue, Torrance, California (Heritage Rehabilitation
Center -- formerly Heritage Convalescent Hospital)(1).............
10.17 Lease, dated August 1, 1986, by and between Robert J. Zinngrabe,
Trustee of the Zinngrabe Family Trust, dated November 23, 1981, as
lessor, and Huntington Beach Convalescent Hospital, a California
corporation, as lessee, concerning the real property located at
18811 and 18851 Florida Street, Huntington Beach, California
(Huntington Beach Convalescent Hospital and The Huntington), as
amended by (i) an Amendment and Modification Agreement dated
August 4, 1986, by and between Zinngrabe Family Trust and
Huntington Beach Convalescent Hospital, (ii) an Agreement Granting
Right of First Refusal dated August 18, 1986, by and between
Zinngrabe Family Trust and Huntington Beach Convalescent Hospital,
and (iii) letter dated December 27, 1986 from Zinngrabe Family
Trust to Huntington Beach Convalescent Hospital(1)................
10.18 License Agreement, dated August 4, 1986, by and among Delma
Construction Corporation, a California corporation, Zinngrabe
Family Trust, and Huntington Beach Convalescent Hospital(1).......
10.19 Assignment of Lease and Assumption, dated January 4, 1988, between
Regency Health Services, Inc. and Rose Convalescent Hospital of
Fairfield, and Lease dated February 6, 1985, by and between
Fairfield Pacifica Co., a limited partnership, as lessor, and Rose
Convalescent Hospital of Pacifica, a California corporation, as
lessee, concerning the real property located at 751 San Pedro
Road, Pacifica, California (Linda-Mar Healthcare and
Rehabilitation Center, formerly Linda-Mar Convalescent Hospital),
as amended by an amendment dated March 10, 1987, by and between
the same parties(1)...............................................
</TABLE>
<PAGE> 235
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
------- -------------------------------------------------------------------------------
<S> <C> <C>
10.20 Lease, dated December l, 1976, by and among Raymond W. Conn, Ida
Conn, Harold Shrier and Dorothy F. Shrier, as lessor, and Meadow
View Park, a California corporation, as lessee, concerning the
real property located at 13392 Taft Avenue, Garden Grove,
California (Meadowview Park), as amended by (i) Supplement to
Lease, dated February 1, 1977, by and between the same parties and
(ii) Amendment to Lease, dated February l, 1988, by and between
Raymond W. Conn, Ida Conn, Harold Shrier and Dorothy F. Shrier, as
lessor, and Regency Health Services, Inc., as lessee(1)...........
10.21 Sublease Agreement, dated September 1, 1988, by and between
Bellflower Golden Age Convalescent Home, Inc., an Oregon
corporation, as sublessor, and Hallmark Health Services, Inc., as
sublessee, concerning the real property located at 9028 Rose
Street, Bellflower, California (Rose Villa Care Center), as
amended by an Amendment of Sublease Agreement, dated August 23,
1990, by and between the same parties(1)..........................
10.22 Lease, dated August 1, 1991, by and between Brittany Healthcare
Center, Inc., a California corporation, as lessor, and Brittany
Rehabilitation Center, Inc., a California corporation, as lessee,
concerning the real property located at 3900 Garfield Avenue,
Carmichael, California (Brittany Healthcare Center)(1)............
10.23 Leasehold Purchase and Sales Agreement, dated August 1, 1991, by
and between Regency Health Services, Inc. and Brittany Healthcare
Center, Inc.(1)...................................................
10.24 Standard Industrial Lease -- Multi-Tenant, dated July 24, 1991, by
and between Red Gum Business Park, a California limited
partnership, as lessor, and Regency Health Services, Inc. dba
First Class Pharmacy, a California corporation, as lessee(1)......
10.25 Form of Lease Agreement(1)........................................
10.26 Form of Sublease Agreement(1).....................................
10.27 Consent Agreement, dated as of December 16, 1991, among Regency
Health Services, Inc., Inco Securities Corporation, North American
Partners Limited Partnership II, El Dorado Investment Company,
SunVen Partners Limited Partnership, Sundance Venture Partners
Limited Partnership, Wescot Partners III Limited Partnership,
Cecil Mays, and Carol Mays(1).....................................
10.28 Agreement Among Stockholders, dated as of December 31, 1991, among
Regency Health Services, Inc., Peter J. Madigan, Inco Securities
Corporation, North American Partners Limited Partnership II, El
Dorado Investment Company, SunVen Partners Limited Partnership,
Sundance Venture Partners Limited Partnership, Wescot Partners III
Limited Partnership, Cecil Mays, and Carol Mays(1)................
10.29 Stock Indemnity Agreements, dated as of December 31, 1991, among
Regency Health Services, Inc., Inco Securities Corporation, North
American Partners Limited Partnership II, El Dorado Investment
Company, SunVen Partners Limited Partnership, Sundance Venture
Partners Limited Partnership, Wescot Partners III Limited
Partnership, Cecil Mays, and Carol Mays(1)........................
10.30 Amended and Restated Registration Rights Agreement, dated as of
January 21, 1992, among Regency Health Services, Inc. and the
stockholders named therein(1).....................................
</TABLE>
<PAGE> 236
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
------- -------------------------------------------------------------------------------
<S> <C> <C>
10.31 Escrow Agreement, dated January 21, 1992, among Regency Health
Services, Inc., Snell & Wilmer, Peter J. Madigan, Inco Securities
Corporation, North American Partners Limited Partnership II, El
Dorado Investment Company, SunVen Partners Limited Partnership,
Sundance Venture Partners Limited Partnership, Wescot Partners III
Limited Partnership, Cecil Mays, and Carol Mays(1)................
10.32 Allocation and Escrow Agreement, dated January 21, 1992, among the
former stockholders of Hallmark Health Services, Inc.(1)..........
10.33 Warrant Amendment Agreement, dated as of January 21, 1992, among
Regency Health Services, Inc., Inco Securities Corporation, North
American Partners Limited Partnership II, El Dorado Investment
Company, SunVen Partners Limited Partnership, Sundance Venture
Partners Limited Partnership, Wescot Partners III Limited
Partnership, and Cecil Mays(1)....................................
10.34 Letter Warrant Amendment Agreement, dated as of January 15, 1992,
between Regency Health Services, Inc. and Cecil Mays(1)...........
10.35 Series B Common Stock Purchase Warrant, dated May 31, 1988,
between Regency Health Services, Inc. and Cecil Mays(1)...........
10.36 Series C Common Stock Purchase Warrant, dated January 11, 1989,
between Regency Health Services, Inc. and Inco Securities
Corporation(1)....................................................
10.37 Series C Common Stock Purchase Warrant, dated January 11, 1989
between Regency Health Services, Inc. and North American Partners
Limited Partnership II(1).........................................
10.38 Series C Common Stock Purchase Warrant, dated January 11, 1989
between Regency Health Services, Inc. and SunVen Partners Limited
Partnership(1)....................................................
10.39 Series C Common Stock Purchase Warrant, dated January 11, 1989
between Regency Health Services, Inc. and El Dorado Investment
Company(1)........................................................
10.40 Series D Stock Purchase Warrant, dated June 12, 1990, between
Regency Health Services, Inc. and Inco Securities
Corporation(1)....................................................
10.41 Series D Stock Purchase Warrant, dated June 12, 1990, between
Regency Health Services, Inc. and North American Partners Limited
Partnership II(1).................................................
10.42 Series D Stock Purchase Warrant, dated June 12, 1990, between
Regency Health Services, Inc. and Sundance Venture Partners,
L.P.(1)...........................................................
10.43 Series D Stock Purchase Warrant, dated June 12, 1990, between
Regency Health Services, Inc. and SunVen Partners Limited
Partnership(1)....................................................
10.44 Series D Stock Purchase Warrant, dated June 12, 1990, between
Regency Health Services, Inc. and El Dorado Investment
Company(1)........................................................
10.45 Regency Health Services, Inc. Long-Term Incentive Plan(4).........
10.46 Regency Health Services, Inc.'s 401(K) Employee Retirement Savings
Plan(1)...........................................................
10.48 Key Man Life Insurance Policy for Cecil R. Mays(1)................
10.50 Settlement and Contract, dated June 4, 1991, among Regency Health
Services, Inc., Mary Jane Gross, Ginger Sumner, and Peter
Zucker(1).........................................................
10.52 Form of Indemnity Agreement between Regency Health Services, Inc.
and its Directors(1)..............................................
</TABLE>
<PAGE> 237
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
------- -------------------------------------------------------------------------------
<S> <C> <C>
10.55 Master Contract for Non-Public, Non-Sectarian School Agency
Services, dated September 16, 1991, between Regency High School
and Long Beach Unified School District(1).........................
10.57 Promissory note, dated June 21, 1993, payable to Sunset
Convalescent Corporation in the amount of $675,000, between
Regency Health Services, Inc. and Sunset Convalescent
Corporation(5)....................................................
10.65 Form of Enteral Therapy Services Agreement between Regency Health
Services, Inc.'s facilities and Regency Health Services, Inc.'s
subsidiary, First Class Pharmacy, Inc., dba Resource
Pharmaceutical Services(1)........................................
10.66 Form of Intravenous Therapy Services Agreement between Regency
Health Services, Inc.'s facilities and Regency Health Services,
Inc.'s subsidiary, First Class Pharmacy, Inc., dba Resource
Pharmaceutical Services(1)........................................
10.67 Form of Consultant Pharmacist Services Agreement between Regency
Health Services, Inc.'s facilities and Regency Health Services,
Inc.'s subsidiary, First Class Pharmacy, Inc., dba Resource
Pharmaceutical Services(1)........................................
10.68 Form of Pharmaceutical Services Agreement between Regency Health
Services, Inc.'s facilities and Regency Health Services, Inc.'s
subsidiary, First Class Pharmacy, Inc., dba Resource
Pharmaceutical Services(1)........................................
10.69 Foster Care Group Home Rate Application and Letters, dated
September 11, 1990 and August 29, 1991, from the California
Department of Social Services to Regency Health Services,
Inc.(1)...........................................................
10.70 Mental Health Services Agreement, dated June 17, 1991, between
Regency Health Services, Inc. and the California Department of
Mental Health(1)..................................................
10.71 Mental Health Services Agreement, dated June 29, 1993, between San
Bernardino County and Shandin Hills Behavior Therapy Center(5)....
10.75 First Amendment to Office Building Lease between Regency Health
Services, Inc. and Nexus Corporate Place Associates, dated as of
December 10, 1991(1)..............................................
10.76 Second Amendment to Office Building Lease between Regency Health
Services, Inc. and Nexus Corporate Place Associates, dated as of
January 9, 1992(1)................................................
10.77 Standard Industrial Lease between Regency Health Services, Inc.
and Red Gum Business Park, dated July 24, 1991(1).................
10.78 Lease between Regency Health Services, Inc. and Red Gum Business
Park, dated February 1, 1992(1)...................................
10.79 Service Programs Agreement between First Class Pharmacy, Inc. and
Bergen Brunswig Drug Company, dated October 2, 1991(1)............
10.80 Amendment and Modification Agreement to Lease of Glendora
Rehabilitation Center (formerly Adventist Convalescent Hospital),
dated as of June 1, 1990(1).......................................
10.82 Mental Health Services Agreement, dated July 13, 1993, between
Kern County and Shandin Hills Behavior Therapy Center(5)..........
10.83 Mental Health Services Agreement for adolescent center for 1993
between the County of Los Angeles, Department of Mental Health and
Harbor View, formerly Harbor View Rehabilitation Center(2)........
</TABLE>
<PAGE> 238
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
------- -------------------------------------------------------------------------------
<S> <C> <C>
10.84 Mental Health Services Agreement for adolescent center for 1993,
1994, and 1995 between the County of Los Angeles, Department of
Mental Health and Harbor View, formerly Harbor View Rehabilitation
Center(2).........................................................
10.85 Mental Health Services Agreement, dated August 3, 1993, between
Tulare County and the Company(5)..................................
10.86 Ancillary Services Agreement, dated July 1, 1992, between Aetna
Health Plans for Southern California, Inc. and the Company(2).....
10.87 Agreement for Services, dated July 1, 1992, between FHP Healthcare
and the Company(2)................................................
10.89 Agreement for Purchase of Long Term Care Leasehold Properties,
dated December 3, 1992, by and between Regency Health Services,
Inc. and Newport Federal (Heritage Paradise and Heritage of
Stockton)(3)......................................................
10.90 Agreement for Purchase of Long Term Care Leasehold Properties,
dated December 3, 1992, by and between Regency Health Services,
Inc. and Newport Federal (Rosewood Terrace Rehabilitation and
Living Center)(3).................................................
10.91 Management Agreement, dated December 3, 1992, by and between
Regency Health Services, Inc. and Newport Federal (Heritage of
Stockton)(3)......................................................
10.92 Management Agreement, dated December 3, 1992, by and between
Regency Health Services, Inc. and Newport Federal (Heritage
Paradise)(3)......................................................
10.93 Management Agreement, dated December 3, 1992, by and between
Regency Health Services, Inc. and Newport Federal (Rosewood
Terrace Rehabilitation and Living Center)(3)......................
10.94 Lease of Heritage of Stockton, dated December 3, 1992, by and
between Regency Health Services, Inc. and Newport Federal(3)......
10.95 Lease of Heritage Paradise, dated December 3, 1992, by and between
Regency Health Services, Inc. and Newport Federal(3)..............
10.96 Lease of Rosewood Terrace Rehabilitation and Living Center, dated
December 3, 1992, by and between Regency Health Services, Inc. and
Newport Federal(3)................................................
10.97 Building Loan Agreement, dated November 20, 1992, by and between
Carmichael Convalescent Hospital and PFC Corporation(3)...........
10.98 Security Agreement, dated as of November 20, 1992, between
Carmichael Convalescent Hospital and PFC Corporation(3)...........
10.99 Aircraft Bill of Sale, dated November 6, 1992, between Regency
Health Services, Inc. and Newport Harbor Investments, Inc.(3).....
10.100 Employment agreement, dated April 1, 1993, between Regency Health
Services, Inc. and Cecil Mays(5)..................................
10.101 Employment agreement, dated April 1, 1993, between Regency Health
Services, Inc. and Tim Paulsen(5).................................
10.102 Employment agreement, dated April 1, 1993, between Regency Health
Services, Inc. and James R. Wodach(5).............................
10.103 Employment agreement, dated April l, 1993, between Regency Health
Services, Inc. and T. Craig Nordstrom(5)..........................
10.104 Mental Health Services Agreement, dated June 29, 1993, between
Riverside County and Shandin Hills Behavior Therapy Center(5).....
</TABLE>
<PAGE> 239
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
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<S> <C> <C>
10.105 Revolving credit note in the amount of $15,000,000, dated July 27,
1993, between Regency Health Services, Inc. and City National
Bank(5)...........................................................
10.106 Credit and security agreement, dated July 27, 1993, between
Regency Health Services, Inc. and City National Bank(5)...........
10.107 Note receivable, dated August 16, 1993, due from Stanton Medical
Development Company in the amount of $2,300,000, between Regency
Health Services, Inc. and Stanton Medical Development Company.(6)
10.108 Regency Health Services, Inc. Director Stock Plan.(4)
10.109 Stock Purchase Agreement, dated October 5, 1993, as amended
November 5, 1993, between Regency Health Services, Inc. and
Braswell Enterprises Inc.(3)......................................
10.110 Program Consultant Agreement, dated November 8, 1993, between C.
Allen Braswell and Regency Health Services, Inc.(3)...............
10.111 Management Agreement, dated December 1, 1993, between RHS Manage-
ment, Inc. and Ray Properties(3)..................................
10.112 Second Amended and Restated Registration Rights Agreement, dated
as of January 31, 1994, among Regency Health Services, Inc., Care
Enterprises, Inc. and the stockholders named therein..............
10.113 Amendment to Regency Health Services, Inc. Long-Term Incentive
Plan..............................................................
10.114 Employment Agreement between Regency Health Services, Inc. and
Cecil Mays to be effective as of the Effective Time (as defined
therein)..........................................................
10.115 Employment Agreement between Regency Health Services, Inc. and
Richard K. Matros to be effective as of the Effective Time (as
defined therein)..................................................
10.116 Employment Agreement between Regency Health Services, Inc. and
Gary L. Massimino to be effective as of the Effective Time (as
defined therein)..................................................
10.117 Employment Agreement between Regency Health Services, Inc. and Tim
J. Paulsen to be effective as of the Effective Time (as defined
therein)..........................................................
10.118 Employment Agreement between Regency Health Services, Inc. and T.
Craig Nordstrom to be effective as of the Effective Time (as
defined therein)..................................................
10.119 Employment Agreement between Regency Health Services, Inc. and
James R. Wodach to be effective as of the Effective Time (as
defined therein)..................................................
10.120 Employment Agreement between Regency Health Services, Inc. and
Brad L. Kerby to be effective as of the Effective Time (as defined
therein)..........................................................
11 Regency Health Services, Inc.'s Statements re Computation of Per
Share Earnings.
21 Subsidiaries of Regency Health Services, Inc. ....................
23.1 Consent of Ernst & Young..........................................
23.2 Consent of Arthur Andersen & Co. .................................
23.3 Consent of Skadden, Arps, Slate, Meagher & Flom (included in their
opinion filed as Exhibit 5).......................................
24 Power of Attorney (see signature page included in Registration
Statement)........................................................
</TABLE>
- ---------------
(1) Incorporated by reference to Regency Health Services, Inc.'s Registration
Statement on Form S-1 (No. 33-45591).
(2) Incorporated by reference to Regency Health Services, Inc.'s 1992 Annual
Report on Form 10-K (File No. 1-11144).
<PAGE> 240
(3) Incorporated by reference to Regency Health Services, Inc.'s Registration
Statement on Form S-1 (No. 33-53590).
(4) Incorporated by reference to Regency Health Services, Inc.'s 1993 Proxy
Statement dated December 10, 1993 (File No. 1-11144).
(5) Incorporated by reference to Regency Health Services, Inc.'s 1993 Annual
Report on Form 10-K (File No. 1-11144).
(6) Incorporated by reference to Regency Health Services, Inc.'s Report on Form
10-Q for the Quarter Ended September 30, 1993 (File No. 1-11144).
<PAGE> 1
EXHIBIT 4.3
VOTING AGREEMENT
THIS VOTING AGREEMENT is made and entered into as of this 27th
day of December, 1993, by and between Regency Health Services, Inc., a Delaware
corporation ("Regency"), and each of the persons named on Exhibit A hereto
(each a "Stockholder" and, collectively, the "Stockholders").
WHEREAS, Regency and Care Enterprises, Inc., a Delaware
corporation ("Care"), have entered into an agreement with respect to a merger
of Regency and Care (the "Merger Agreement"); and
WHEREAS, as a condition to its willingness to enter into the
Merger Agreement, Regency requested that each Stockholder agree, and in order
to induce Regency to enter into the Merger Agreement, each Stockholder has
agreed, to vote certain shares of common stock, par value $.01 per share ("Care
Common Stock"), of Care owned by such Stockholder as of the date hereof or at
any time hereafter (the "Care Shares") as provided herein; and
WHEREAS, Care and certain stockholders of Regency have agreed
to enter into a voting agreement pursuant to which such stockholders will vote
all shares of common stock, par value $.01 per share ("Regency Common Stock"),
owned by such stockholder as of the date hereof or at any time hereafter and
over which such stockholder has voting power;
NOW, THEREFORE, in consideration of the foregoing, and the
representations, warranties, covenants and agreements contained herein and in
the Merger Agreement, and intending to be legally bound, the parties hereto
agree as follows:
1. Voting Agreement. Each Stockholder hereby agrees to
appear at any annual or special meeting of stockholders of Care for the purpose
of obtaining a quorum. If Regency holds a special meeting of stockholders for
the purpose of voting upon transactions contemplated by the Merger Agreement
and the stockholders of
<PAGE> 2
Regency approve the transactions contemplated by the Merger Agreement by the
affirmative vote of a majority of the outstanding shares of Regency Common
Stock, then each Stockholder hereby agrees to vote all of its Care Shares in
favor of the transactions contemplated by the Merger Agreement.
2. Termination. This Agreement shall terminate upon the
earlier to occur of (i) the approval of the transactions contemplated by the
Merger Agreement by the affirmative vote of a majority of the outstanding
shares of Care Common Stock and (ii) the termination of the Merger Agreement in
accordance with its terms.
3. Representations and Warranties. Each Stockholder hereby
represents and warrants to Regency as follows:
(a) Authority Relative to this Agreement. Such
Stockholder has all necessary power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by such Stockholder
and, assuming that this Agreement has been duly and validly authorized,
executed and delivered by Regency, this Agreement constitutes a valid and
binding agreement of such Stockholder, enforceable against such Stockholder in
accordance with its terms.
(b) Ownership of Shares. Such Stockholder has good
and marketable title to all of the shares of Care Common Stock indicated
opposite such Stockholder's name on Exhibit A hereto, which constitute all the
shares of Care Common Stock owned by such Stockholder. There are no
restrictions on the voting rights pertaining to such shares of Care Common
Stock.
(c) No Conflicts. Neither the execution and
delivery of this Agreement nor the consummation by such Stockholder of the
transactions contemplated hereby will conflict with or constitute a violation
of or default under any contract, commitment, agreement, arrangement or
restriction of any kind to which such Stockholder is a party or by which such
Stockholder is bound. Other than this Agreement, there are no other agreements
or understandings with respect to the voting of the Care
2
<PAGE> 3
Shares, and each Stockholder hereby agrees that it will not enter into such an
agreement.
4. Representations and Warranties of Regency. Regency
hereby represents and warrants to the Stockholders as follows:
(a) Authority Relative to this Agreement. Regency
has full corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by the Board of
Directors of Regency and no other corporate proceedings on the part of Regency
are necessary to authorize this Agreement or to consummate the transactions so
contemplated. This Agreement has been duly and validly executed and delivered
by Regency and, assuming that this Agreement has been duly and validly
authorized, executed and delivered by each Stockholder, this Agreement
constitutes a valid and binding agreement of Regency, enforceable against
Regency in accordance with its terms.
5. Transfer. Stockholders may sell, transfer, assign or
otherwise dispose of any of the Care Shares; provided, however, that each
Stockholder hereby agrees not to sell, transfer, assign or otherwise dispose of
the Care Shares to any Affiliate or Associate (as such terms are defined in
Rule 12b-2 of the Securities Exchange Act of 1934, as amended) unless such
Affiliate or Associate becomes a party to this Agreement. Any purported
transfer of Care Shares to any such Affiliate or Associate that does not become
a party hereto shall be null and void.
6. Entire Agreement. This Agreement (a) constitutes the
entire agreement between the parties hereto with respect to the subject matter
hereof and supersedes all other prior agreements and understandings, both
written and oral, among the parties, or any of them, with respect to the
subject matter hereof; (b) shall not be amended, altered or modified in any
manner whatsoever, except by a written instrument executed by the parties
hereto; and (c) shall be governed in all respects, including validity,
interpretation and effect, by the laws
3
<PAGE> 4
of the State of Delaware (without giving effect to the provisions thereof
relating to conflicts of law).
7. Specific Performance. The parties hereto acknowledge that
damages would be an inadequate remedy for a breach of this Agreement and that
the obligations of the parties hereto shall be specifically enforceable.
8. Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto and their respective
successors, assigns, heirs, executors, administrators and other legal
representatives; provided, that this Agreement shall not be assigned without
the prior written consent of the other party hereto, except that Regency may
assign, in its sole discretion, all or any of its rights, interests and
obligations hereunder to any direct or indirect wholly owned subsidiary of
Regency. Nothing in this Agreement, express or implied, is intended to confer
upon any other person any rights or remedies of any nature whatsoever under or
by reason of this Agreement.
9. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
10. Notices. Any notices or other communications required or
permitted hereunder shall be in writing and shall be deemed duly given upon (a)
transmitter's confirmation of a receipt of a facsimile transmission, (b)
confirmed delivery by a standard overnight carrier or (c) the expiration of
five business days after the day when mailed by certified or registered mail,
postage prepaid, addressed at the following addresses (or at such other address
as the parties hereto shall specify by like notice):
(a) If to Regency, to:
Regency Health Services, Inc.
3636 Birch Street
Suite 195
Newport Beach, California 92660
Telecopy No. (714) 851-2927
Attention: Cecil Mays
4
<PAGE> 5
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
300 So. Grand Avenue
Los Angeles, California 90071
Telecopy No. (213) 687-5600
Attention: Brian J. McCarthy, Esq.
(b) If to any of the Stockholders, to the
respective addresses noted on Exhibit A hereto.
11. Descriptive Headings. The descriptive headings 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 Agreement.
12. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, each of which shall remain in full force
and effect.
13. Further Assurances. Each Stockholder will execute and
deliver all such further documents and instruments and take all such further
actions as may be necessary in order to consummate the transactions
contemplated hereby.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
REGENCY HEALTH SERVICES, INC.
By: /s/ Cecil Mays
-----------------------------
Name: Cecil Mays
Title: President
Stockholders:
THE FOOTHILL GROUP, INC.
By: /s/ Jeff Nakora
-----------------------------
Name: Jeff Nakora
Title: Vice President
THE FOOTHILL FUND, a
California Limited Partnership
By: The Foothill Group, Inc.,
its General Partner
By: /s/ Jeff Nakora
-----------------------------
Name: Jeff Nakora
Title: Vice President
6
<PAGE> 7
FOOTHILL CAPITAL CORPORATION
By: /s/ Jeff Nakora
--------------------------------
Name: Jeff Nakora
Title: Vice President
FOOTHILL PARTNERS, L.P.,
a Delaware Limited Partnership
By: Jeff Nakora, its General Partner
By: /s/ Jeff Nakora
--------------------------------
Name: Jeff Nakora
FOOTHILL MANAGERS LIMITED II,
a California Limited Partnership
By: The Foothill Group, Inc.,
its General Partner
By: /s/ Jeff Nakora
--------------------------------
Name: Jeff Nakora
Title: Vice President
/s/ John F. Nickoll
--------------------------------
John F. Nickoll
7
<PAGE> 8
SOLVATION d/b/a SMITH
MANAGEMENT COMPANY
By: /s/ John W. Adams
--------------------------------
Name: John W. Adams
Title: President
/s/ Randall D. Smith
-------------------------------------
Randall D. Smith
/s/ John W. Adams
-------------------------------------
John W. Adams
/s/ Jeffrey A. Smith
-------------------------------------
Jeffrey A. Smith
ENERGY MANAGEMENT CORPORATION
By: /s/ Jeffrey A. Smith
Name: Jeffrey A. Smith
Title: President
SEGA ASSOCIATES, L.P.
By: John W. Adams,
its General Partner
By: /s/ John W. Adams
--------------------------------
Name: John W. Adams
8
<PAGE> 9
THE DURIAN TRUST
By: /s/ Jeffrey A. Smith
--------------------------------
Name: Jeffrey A. Smith
Title: Trustee
WOODSTEAD ASSOCIATES, L.P.
By: Randall D. Smith,
its General Partner
By: /s/ Randall D. Smith
--------------------------------
Name: Randall D. Smith
9
<PAGE> 10
EXHIBIT A
<TABLE>
<CAPTION>
Name of Stockholder Number
and Securities as of
Address for Notice Class of Securities the Date Hereof
- ------------------- ------------------- ----------------
<S> <C> <C>
The Foothill Group* Common Stock 193,362
The Foothill Fund* Common Stock 1,663,857
Foothill Capital Common Stock 714,286
Corporation*
Foothill Partners, Common Stock 553,921
L.P.*
John F. Nickoll* Common Stock 35,803
Solvation d/b/a Smith Common Stock 1,607,143
Management Company**
Randall D. Smith** Common Stock 332,735
Energy Management Common Stock 1,466,604
Corporation**
SEGA Associates, Common Stock 64,175
L.P.**
The Durian Trust** Common Stock 312,962
Woodstead Associates Common Stock 916,935
L.P.**
</TABLE>
* Address for Notice: 11111 Santa Monica Blvd.
Suite 1500
Los Angeles, CA 90025
** Address for Notice: 767 Third Avenue
New York, NY 10017
<PAGE> 1
EXHIBIT 4.4
VOTING AGREEMENT
THIS VOTING AGREEMENT is made and entered into as of this 27th
day of December, 1993, by and between Care Enterprises, Inc., a Delaware
corporation ("Care"), and each of the persons named on Exhibit A hereto (each a
"Stockholder" and, collectively, the "Stockholders").
WHEREAS, Care and Regency Health Services, Inc., a Delaware
corporation ("Regency"), have entered into an agreement with respect to a
merger of Care and Regency (the "Merger Agreement"); and
WHEREAS, as a condition to its willingness to enter into the
Merger Agreement, Care requested that each Stockholder agree, and in order to
induce Care to enter into the Merger Agreement, each Stockholder has agreed, to
vote all shares of Common Stock, par value $.01 per share ("Regency Common
Stock"), of Regency beneficially owned by such Stockholder as of the date
hereof or at any time hereafter (the "Regency Shares") as provided herein; and
WHEREAS, Regency and certain stockholders of Care have agreed
to enter into a voting agreement pursuant to which such stockholders will,
subject to certain conditions, vote all shares of Common Stock, par value $.01
per share ("Care Common Stock"), owned by such Stockholder as of the date
hereof or at any time hereafter and over which such Stockholder has voting
power;
NOW, THEREFORE, in consideration of the foregoing, and the
representations, warranties, covenants and agreements contained herein and in
the Merger Agreement, and intending to be legally bound, the parties hereto
agree as follows:
1. Voting Agreement. Each Stockholder hereby agrees to
appear at any annual or special meeting of stockholders of Regency for the
purpose of obtaining a quorum. Each Stockholder hereby agrees to vote all of
its Regency Shares in favor of the transactions contemplated by the Merger
Agreement.
<PAGE> 2
2. Termination. This Agreement shall terminate upon the
earlier to occur of (i) the approval of the transactions contemplated by the
Merger Agreement by the affirmative vote of a majority of the outstanding
shares of Regency Common Stock and (ii) the termination of the Merger Agreement
in accordance with its terms.
3. Representations and Warranties. Each Stockholder hereby
represents and warrants to Care as follows:
(a) Authority Relative to this Agreement. Such
Stockholder has all necessary power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by such Stockholder
and, assuming that this Agreement has been duly and validly authorized,
executed and delivered by Care, this Agreement constitutes a valid and binding
agreement of such Stockholder, enforceable against such Stockholder in
accordance with its terms.
(b) Ownership of Shares. Such Stockholder has good
and marketable title to all of the shares of Regency Common Stock indicated
opposite such Stockholder's name on Exhibit A hereto, which constitute all the
shares of Regency Common Stock owned by such Stockholder. There are no
restrictions on the voting rights pertaining to such shares of Regency Common
Stock.
(c) No Conflicts. Neither the execution and
delivery of this Agreement nor the consummation by such Stockholder of the
transactions contemplated hereby will conflict with or constitute a violation
of or default under any contract, commitment, agreement, arrangement or
restriction of any kind to which such Stockholder is a party or by which such
Stockholder is bound. Other than this Agreement, there are no other agreements
or understandings with respect to the voting of the Regency Shares, and each
Stockholder hereby agrees that it will not enter into such an agreement.
4. Representations and Warranties of Care. Care hereby
represents and warrants to the Stockholders as follows:
2
<PAGE> 3
(a) Authority Relative to this Agreement. Care has
full corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby
have been duly and validly authorized by the Board of Directors of Care and no
other corporate proceedings on the part of Care are necessary to authorize this
Agreement or to consummate the transactions so contemplated. This Agreement
has been duly and validly executed and delivered by Care and, assuming that
this Agreement has been duly and validly authorized, executed and delivered by
each Stockholder, this Agreement constitutes a valid and binding agreement of
Care, enforceable against Care in accordance with its terms.
5. Transfer. Stockholders may sell, transfer, assign or
otherwise dispose of any of the Regency Shares; provided, however, that each
Stockholder hereby agrees not to sell, transfer, assign or otherwise dispose of
the Regency Shares to any Affiliate or Associate (as such terms are defined in
Rule 12b-2 of the Securities Exchange Act of 1934, as amended) unless such
Affiliate or Associate becomes a party to this Agreement. Any purported
transfer of Regency Shares to any such Affiliate or Associate that does not
become a party hereto shall be null and void.
6. Entire Agreement. This Agreement (a) constitutes the
entire agreement between the parties hereto with respect to the subject matter
hereof and supersedes all other prior agreements and understandings, both
written and oral, among the parties, or any of them, with respect to the
subject matter hereof; (b) shall not be amended, altered or modified in any
manner whatsoever, except by a written instrument executed by the parties
hereto; and (c) shall be governed in all respects, including validity,
interpretation and effect, by the laws of the State of Delaware (without giving
effect to the provisions thereof relating to conflicts of law).
7. Specific Performance. The parties hereto acknowledge that
damages would be an inadequate remedy for a breach of this Agreement and that
the obligations of the parties hereto shall be specifically enforceable.
3
<PAGE> 4
8. Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto and their respective
successors, assigns, heirs, executors, administrators and other legal
representatives; provided, that this Agreement shall not be assigned without
the prior written consent of the other party hereto, except that Care may
assign, in its sole discretion, all or any of its rights, interests and
obligations hereunder to any direct or indirect wholly owned subsidiary of
Care. Nothing in this Agreement, express or implied, is intended to confer
upon any other person any rights or remedies of any nature whatsoever under or
by reason of this Agreement.
9. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
10. Notices. Any notices or other communications required or
permitted hereunder shall be in writing and shall be deemed duly given upon (a)
transmitter's confirmation of a receipt of a facsimile transmission, (b)
confirmed delivery by a standard overnight carrier or (c) the expiration of
five business days after the day when mailed by certified or registered mail,
postage prepaid, addressed at the following addresses (or at such other address
as the parties hereto shall specify by like notice):
(a) If to Care, to:
Care Enterprises, Inc.
2742 Dow Avenue
Tustin, California 92680-7245
Telecopy No. (714) 544-4443 x2401
Attention: John W. Adams
4
<PAGE> 5
with a copy to:
Sidley & Austin
2049 Century Park East
Los Angeles, California 90067-3208
Telecopy No. (310) 556-6502
Attention: Moshe J. Kupietzky, Esq.
(b) If to any of the Stockholders, to the
respective addresses noted on Exhibit A hereto.
11. Descriptive Headings. The descriptive headings 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 Agreement.
12. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, each of which shall remain in full force
and effect.
13. Further Assurances. Each Stockholder will execute and
deliver all such further documents and instruments and take all such further
actions as may be necessary in order to consummate the transactions
contemplated hereby.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
CARE ENTERPRISES, INC.
By: /s/ John W. Adams
--------------------------------
Name: John W. Adams
Title: Chairman and Chief
Executive Officer
Stockholders:
/s/ Cecil Mays
--------------------------------
Cecil Mays
/s/ Carol Mays
--------------------------------
Carol Mays
EL DORADO INVESTMENT COMPANY
By: /s/ Gregory S. Anderson
---------------------------
Name: Gregory S. Anderson
Title: Managing Director
SUNDANCE CAPITAL CORPORATION
By: /s/ Gregory S. Anderson
---------------------------
Name: Gregory S. Anderson
Title: Vice President
6
<PAGE> 7
EXHIBIT A
<TABLE>
<CAPTION>
Name of Stockholder Number of
and Securities as of
Address for Notice Class of Securities the Date Hereof
- ------------------- ------------------- ----------------
<S> <C> <C>
Cecil and Carol Mays Common Stock 596,703
3636 Birch Street
Suite 195
Newport Beach, CA 92660
El Dorado Investment Common Stock 746,143
Company
400 East Van Buren St.
Suite 650
Phoenix, AZ 85004
Sundance Capital Common Stock 131,516
Corporation
400 East Van Buren St.
Suite 650
Phoenix, AZ 85004
</TABLE>
7
<PAGE> 1
EXHIBIT 5
SKADDEN, ARPS, SLATE, MEAGHER & FLOM
ONE RODNEY SQUARE
WILMINGTON, DELAWARE 19801
March 1, 1994
Regency Health Services, Inc.
3636 Birch Street, Suite 195
Newport Beach, California 92660
Ladies and Gentlemen:
We have acted as special counsel to Regency Health Service, Inc., a
Delaware corporation ("Regency"), in connection with the proposed merger (the
"Merger") of Care Merger Sub, Inc., a Delaware corporation and wholly owned
subsidiary of Regency, with and into Care Enterprises, Inc., a Delaware
corporation ("Care"), pursuant to an Agreement and Plan of Merger, dated as of
December 20, 1994, by and between Regency and Care, as amended by an Amendment,
dated as of January 31, 1994 (the "Plan of Merger"), a copy of which is
included as Annex A to the Joint Proxy Statement/Prospectus of Regency and Care
(the "Proxy Statement") included or part of the Registration Statement (as
defined below). Regency has filed with the Securities and Exchange Commission
(the "Commission") on March __, 1994 a registration statement on Form S-4 (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), relating to the shares of common stock, par value $.01 per
share (the "Regency Common Stock"), of Regency to be issued in the Merger. We
have been requested to furnish an opinion to you with respect to the Regency
Common Stock to be issued to holders of common stock, par value $.01 per share
("Care Common Stock"), of Care in the Merger.
<PAGE> 2
In connection with this opinion, we have examined and are
familiar with originals or copies, certified or otherwise identified to our
satisfaction, of (i) the Registration Statement, (ii) the Restated Certificate
of Incorporation and Bylaws of Regency as currently in effect and as will be in
effect as of the effective time of the Merger, (iii) copies of certain
resolutions adopted by the Board of Directors of Regency and (iv) such other
documents as we have deemed necessary or appropriate as a basis for the opinion
set forth below. In our examination, we have assumed the genuineness of all
signatures, the legal capacity of all natural persons, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified or photostatic copies and the
authenticity of the original of such copies. As to any facts material to this
opinion that we did not independently establish or verify, we have relied upon
statements and representations of officers and other representatives of each of
Regency and Care and others.
Members of our firm are admitted to the Bar in the State of
Delaware and express no opinion as to the laws of any other jurisdiction.
Based upon the foregoing, we are of the opinion that the
Regency Common Stock to be issued to holders of Care Common Stock upon
consummation of the Merger, when issued and delivered in accordance with the
terms and conditions of the Plan of Merger, will be legally issued, fully paid
and nonassessable.
We hereby consent to the filing of this opinion with the
Commission as Exhibit 5 to the Registration Statement and to the reference to
our firm under the captions "Legal Matters" and "The Plan of Merger--Certain
Conditions" in the Prospectus forming a part thereof. In giving this consent,
we do not thereby admit that we are
<PAGE> 3
in the category of persons whose consent is required under Section 7 of the
Securities Act or the rules and regulations of the Commission.
Very truly yours,
SKADDEN, ARPS, SLATE, MEAGHER
& FLOM
<PAGE> 1
EXHIBIT 10.112
FORM OF
SECOND AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
THIS SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
(this "Agreement"), dated as of January 31, 1994, is entered into by and among
Regency Health Services, Inc., a Delaware corporation (the "Company"), Care
Enterprises, Inc., a Delaware corporation ("Care"), and the parties signatory
to this Agreement (each, a "Holder" and collectively, the "Holders").
WHEREAS, the Company and Care entered into an Agreement and
Plan of Merger, dated as of December 20, 1993, as amended by an Amendment to
Agreement and Plan of Merger, dated as of January 31, 1994 (the "Merger
Agreement"), pursuant to which Care Merger Sub, Inc., a Delaware corporation
and a wholly owned subsidiary of Regency, will be merged with and into Care
(the "Merger").
WHEREAS, pursuant to the Merger Agreement, at the effective
time of the Merger (the "Effective Time"), each share of common stock of Care
outstanding prior to the Effective Time will be converted into 0.71 of a share
(the "Merger Common Stock") of the Company's common stock, par value $.01 per
share (the "Common Stock").
WHEREAS, pursuant to Section 7.12 of the Merger Agreement, the
Company has agreed to use its best efforts to enter into a Registration Rights
Agreement with each person who will be an Affiliate (as defined in the Merger
Agreement) of the Company after the Effective Time and each person who
presently has registration rights with respect to shares of Common Stock.
WHEREAS, pursuant to the Amended and Restated Registration
Rights Agreement (the "Company Registration Rights Agreement"), dated as of
January 21, 1992, by and among the Company and the stockholders named therein
(collectively, the "Regency Holders"), the Company granted certain registration
rights to the Regency Holders.
<PAGE> 2
WHEREAS, pursuant to the Stock Purchase Agreement (the "Stock
Purchase Agreement"), dated as of December 15, 1992, by and among Care and
Foothill Group Inc., Foothill Partners and Energy Management Corporation
(collectively, the "Stock Purchase Holders"), Care granted certain registration
rights to the Stock Purchase Holders.
WHEREAS, pursuant to the Note Purchase, Loan and Guaranty
Agreement (the "Note Purchase Agreement"), first closing date December 31, 1990
and second closing date January 18, 1991, by and among Care and Care
Enterprises West and Solvation Inc., d/b/a Smith Management Company,
participated in by Foothill Capital Corporation (collectively, the "Note
Purchase Holders"), Care granted certain registration rights to the Note
Purchase Holders.
WHEREAS, each person listed on the signature pages hereto
under the heading "Affiliates" (collectively, the "Affiliates") will be an
Affiliate of the Company after the Effective Time.
WHEREAS, the parties hereto desire to amend and restate each
of the Company Registration Rights Agreement and the provisions relating to
registration rights in the Stock Purchase Agreement and the Note Purchase
Agreement.
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. Definitions. As used in this Agreement:
(a) "Shares" shall mean and include any of the
following securities:
(i) as to the Regency Holders, (A) shares of Common Stock
issued to the Regency Holders pursuant to a Purchase Agreement dated
as of December 31, 1986, as amended by a First Amendment to Purchase
Agreement, (B) shares of Common Stock issued upon conversion of Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
and Series D Preferred Stock (the "Series D Stock") previously issued
to certain of the Regency Holders (including shares of Series D Stock
issued upon conversion of Series D Convertible Secured Subordinated
Promissory Notes), (C) shares of Common Stock issuable to Regency
Holders upon
2
<PAGE> 3
exercise of the Series C Common Stock Purchase Warrants and
Series D Warrants issued to certain of the Regency Holders, and (D)
shares of Common Stock issued or issuable in connection with the
merger of a wholly owned subsidiary of the Company with and into
Hallmark Health Services, Inc., provided that such shares have not
been sold to the public pursuant to a registered public offering or
pursuant to Rule 144 ("Rule 144") under the Securities Act of 1993, as
amended (the "Securities Act") ,
(ii) as to the Stock Purchase Holders and the Affiliates, all
Merger Common Stock issued to the Stock Purchase Holders and the
Affiliates in exchange for shares of Care common stock held by the
Stock Purchase Holders and the Affiliates,
(iii) as to the Note Purchase Holders, (A) Common Stock issued
to the Note Purchase Holders in exchange for (x) any and all Secured
Convertible Exchangeable Notes of Care issued pursuant to the Note
Purchase Agreement (the "Convertible Notes") and (y) shares of Series
A Convertible Preferred Stock of Care issued in exchange for
Convertible Notes (the "Preferred Shares"), and (B) all Merger Common
Stock issued to the Note Purchase Holders in exchange for shares of
Care common stock held by the Note Purchase Holders, and
(iv) any additional securities issued to Holders with respect
to the foregoing upon any stock split, stock dividend,
recapitalization, dilution adjustment or similar event,
provided, however, that any shares of Common Stock or Merger Common Stock sold
to the public pursuant to a registered public offering or pursuant to Rule 144
under the Securities Act shall cease to be Shares.
(b) The terms "register," "registered," and
"registration" refer to a registration effected by filing with the Securities
and Exchange Commission (the "SEC") a registration statement ("Registration
Statement") in compliance with the Securities Act and the declaration or
ordering by the SEC of the effectiveness of such Registration Statement.
2. [Intentionally omitted]
3. Piggyback Registration Rights.
3
<PAGE> 4
(a) If (but without any obligation to do so) at any
time or from time to time, the Company shall determine to register (including
for this purpose a registration effected by the Company for stockholders other
than the Holders) any of its securities, either for its own account or the
account of a security holder or holders, other than a registration relating
solely to employee stock option or purchase plans, a registration relating
solely to a transaction pursuant to Rule 145 promulgated under the Securities
Act, a registration on Form S-4 or any successor form or a registration on any
other form (other than Form S-1, S-2, S-3, or S-8 or any successor form) that
does not include substantially the same information as would be required to be
included in a Registration Statement covering the sale of the Shares, the
Company will:
(i) promptly give to each Holder written
notice thereof (which shall include a list of the jurisdictions in which the
Company intends to attempt to qualify such securities under the applicable blue
sky or other state securities laws); and
(ii) include in such registration (and any
related qualification under blue sky laws or other compliance), and in any
underwriting involved therein, all the Shares specified in a written request or
requests, made within 30 days after receipt of such written notice from the
Company, by any Holder or Holders, except as set forth in Section 3(b) or
Section 4(c) hereof.
(b) If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to subparagraph (a)(i) of this Section 3. In such event, the right of
any Holder to registration pursuant to this Section 3 shall be conditioned upon
such Holder's participation in such underwriting and the inclusion of such
Holder's Shares in the underwriting to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall,
together with the Company and the other parties distributing their securities
through such underwriting, enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such underwriting by the
Company. Notwithstanding any other provision of this Section 3, if the
underwriter determines that marketing factors require a limitation of the
number of shares of Common Stock to be underwritten and the underwriter has
eliminated all securities being sold by other selling stockholders, the
underwriter may limit the number of Shares to be included in the registration
and underwriting, or may exclude Shares entirely from such registration and
underwriting. Shares shall have priority over all other Common Stock in any
such
4
<PAGE> 5
underwriting other than the Common Stock offered by the Company. The Company
shall so advise all Holders of Shares that would otherwise be registered and
underwritten pursuant hereto, and the number of Shares that may be included in
the registration and underwriting shall be allocated among the Holders thereof
in proportion, as nearly as practicable, to the respective amounts of Shares
otherwise entitled to inclusion in such registration held by each such Holder
at the time of filing the Registration Statement. No Shares excluded from the
underwriting by reason of the underwriter's marketing limitation shall be
included in such registration. If any Holder disapproves of the terms of the
underwriting, he may elect to withdraw therefrom by written notice to the
Company and the underwriter. The Shares so withdrawn shall also be withdrawn
from registration and, if the total number of Shares to be underwritten has
been limited, there shall be a reallocation of the amounts of participation of
the other Holders.
4. Demand Registration Rights.
(a) If at any time the Company shall receive from
the Stock Purchase Holders, the Note Purchase Holders and the Affiliates
(together, the "Demand Holders") holding not less than 66 2/3% of the aggregate
outstanding Shares held by the Demand Holders (the "Demand Shares") a written
demand that the Company file a Registration Statement (including a "shelf"
registration pursuant to Rule 415 promulgated under the Securities Act (a
"Shelf Registration")) under the Securities Act of all or part of the Shares (a
"Demand Registration"), the Company will:
(i) promptly give written notice of the
proposed registration to all other Demand Holders; and
(ii) use its diligent best efforts to
effect such registration as soon as practicable (including, without limitation,
the execution of an undertaking to file post-effective amendments, appropriate
qualification under the applicable blue sky or other state securities laws, and
appropriate compliance with exemptive regulations issued under the Securities
Act and any other government requirements or regulations) as may be so demanded
and as will permit or facilitate the sale and distribution of all or such
portion of such Shares as are specified in such demand, together with all or
such portion of the Shares of any Holder or Holders joining in such demand as
are specified in a written demand received by the Company within 30 days after
such written notice is given, provided that the Company shall not be obligated
to effect a registration, qualification, or compliance under this Section 4 if
the Company shall have registered
5
<PAGE> 6
Common Stock pursuant to a demand made hereunder within six months preceding
the receipt of the demand (or, if the Company is not then entitled to use Form
S-2 or S-3, within 11 months preceding the receipt of the demand); and
(iii) Subject to the foregoing, the Company
shall file a Registration Statement covering the Shares so demanded to be
registered as soon as practicable, but in any event within 90 days after
receipt of the demand or demands of the Holders; provided, however, that if the
Company shall furnish to such Holders a certificate signed by the Chief
Executive Officer of the Company stating that in the good faith judgment of the
board of directors of the Company it would be seriously detrimental to the
Company and its stockholders for such Registration Statement to be filed at the
date filing would be required, the Company shall have an additional period of
not more than 90 days within which to file such Registration Statement.
(b) If the Demand Holders intend to distribute the
Shares covered by their demand by means of an underwriting, they shall so
advise the Company as part of their demand made pursuant to this Section 4,
and, subject to the Company's contractual obligations, a majority in interest
of the Holders making the demand may designate an underwriter reasonably
acceptable to the Company; and the Company shall include such information in
the written notice referred to in this Section 4. In such event, the right of
any Holder to registration pursuant to this Section shall be conditioned upon
such Holder's participation in such underwriting and the inclusion of such
Holder's Shares in the underwriting (unless otherwise mutually agreed by a
majority in interest of the Holders making the demand and such Holder) to the
extent provided herein. All Holders proposing to distribute their securities
through such underwriting shall, together with the Company, enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected by such Holders, subject to the reasonable approval of the Company.
Notwithstanding any other provision of this Section 4, if the underwriter
determines that marketing factors require a limitation of the number of shares
of Common Stock to be underwritten, then the Company shall so advise all
Holders of Shares that would otherwise be registered and underwritten pursuant
hereto, and the number of Shares that may be included in the registration and
underwriting shall be allocated among the Holders thereof pro rata in
proportion, as nearly as practicable, to the respective amounts of Shares held
by such Holders at the time of filing the Registration Statement. No Shares
excluded from the underwriting by reason of the underwriter's marketing
limitation shall be included in such registration. If any Holder disapproves
of the terms of the underwriting, he may elect to withdraw therefrom by written
notice
6
<PAGE> 7
to the Company, the underwriter and the Holders making the demand. The Shares
so withdrawn shall also be withdrawn from registration and, if the total number
of Shares to be underwritten has been limited, there shall be a reallocation of
the amounts of participation of the other Holders.
(c) Shares shall have priority over any other
securities of the Company in determining which securities may be included in a
registration effected pursuant to this Section 4, including securities offered
for the Company's own account. The Holders or their representatives shall have
the right, if in their reasonable opinion market factors so require, to limit
the amount of such other securities that may be included in any such
registration.
(d) Notwithstanding anything to the contrary in this
Section 4, at any time after a request for registration is made under this
Section 4, any Holder who has requested registration of its Shares or has
notified the Company of its desire to include its Shares in such registration
may withdraw from such registration by giving written notice to the Company.
5. Expenses of Registration. All expenses incurred in
connection with any registration, qualification, or compliance pursuant to this
Agreement, including without limitation all registration, filing, and
qualification fees, printing expenses, escrow fees, fees and disbursements of
counsel for the Company and of one counsel for the participating Holders, and
expenses of any special audits incidental to or required by such registration,
shall be borne by the Company; provided, however, that the Company shall not be
required to pay for (i) stock transfer taxes or underwriters' fees, discounts,
commissions or expenses relating to the Shares or the distribution of the
Shares, (ii) any expenses relating to more than one registration pursuant to
Section 4 and (iii) any expenses of any registration proceeding if the
registration request is subsequently withdrawn at any time at the request of
the Holders of a majority of the Shares to be registered (in which case all
participating Holders shall bear such expenses pro rata).
6. Registration Procedures. In the case of each
registration, qualification or compliance effected by the Company pursuant to
this Agreement, the Company will keep each Holder participating therein advised
in writing as to the initiation of such registration, qualification and
compliance and as to the completion thereof.
7
<PAGE> 8
The Company will also:
(a) Prepare and file with the SEC a registration
statement with respect to such Shares on Form S-1 or such other general form as
to permit registration of the Shares (including Form S-2 or S-3 if the Company
then qualifies for the use of such form), and use its best efforts to cause
such registration to become effective.
(b) Upon the request of the Holders of a majority of
the Shares registered thereunder, (i) in the case of a registration pursuant
to Section 4 other than a Shelf Registration, keep such Registration Statement
effective for up to nine months or until the Holders thereof have informed the
Company in writing that the distribution of their Shares has been completed,
whichever shall occur first, and (ii) in the case of a Shelf Registration
pursuant to Section 4, keep such Shelf Registration effective for up to 18
months or until the Holders thereof have informed the Company in writing that
the distributions of their Shares have been completed, whichever shall occur
first.
(c) Prepare and file with the SEC such amendments
and supplements to such Registration Statement, and use its best efforts to
cause each such Registration Statement to become effective, as may be necessary
to comply with the provisions of the Securities Act.
(d) Furnish such number of prospectuses and other
documents incident thereto as a Holder from time to time may reasonably
request.
(e) Upon the request of Holders holding at least 5%
of the Shares, but no more frequently than once per quarter, prepare such
supplemental or amended prospectuses as may be required to disclose the
intended method of distribution with respect to a proposed sale by Holders
participating therein of any Shares.
(f) Use its best efforts to register and qualify the
Shares covered by such Registration Statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection
therewith or as a condition thereto to (i) qualify to do business or (ii)
register to transact business as a "broker/dealer" (except in jurisdictions
where such registration would not subject the Company to liability as a
"broker/dealer" generally, or in jurisdictions where no significant expense is
involved in the registration and maintenance of
8
<PAGE> 9
the Company as a "broker/dealer," such as, by way of example only, the State of
New York).
(g) In the event of any underwritten public
offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing underwriter of such
offering. Each Holder participating in such underwriting shall also enter into
and perform it obligations under such an agreement, including furnishing any
opinion of counsel or entering into a lock-up agreement reasonably requested by
the managing underwriter.
(h) Notify each Holder of securities covered by such
Registration Statement, at any time when a prospectus relating thereto covered
by such Registration Statement is required to be delivered under the Securities
Act, of the happening of any event as a result of which the prospectus included
in such Registration Statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statement therein not misleading in the light
of the circumstances then existing and promptly file such amendments and
supplements which may be required pursuant to subparagraph (c) of this Section
6 on account of such event and use its best efforts to cause each such
amendment and supplement to become effective.
(i) With respect to registrations pursuant to
Section 4 only, furnish, at the request of any Holder requesting registration
of securities pursuant to such Section 4, on the date that such securities are
delivered to the underwriters for sale in connection with a registration
pursuant to such Section 4, if such securities are being sold through
underwriters, or, if such securities are not being sold through underwriters on
the date that the registration statement with respect to such securities
becomes effective, (i) an opinion, dated such date, of the counsel representing
the Company for the purposes of such registration, in form and substance as is
customarily given by company counsel to the underwriters in an underwritten
public offering, addressed to the underwriters, if any, and to the Holders
requesting registration of securities and (ii) a letter dated such date, from
the independent certified public accountant of the Company, in form and
substance as is customarily given by independent certified public accountants
to underwriters in an underwritten public offering, addressed to the
underwriters, if any, and to the Holders requesting registration of securities.
It shall be a condition precedent to the obligations of the
Company to take any action pursuant to this Agreement that each seller of
Shares as to
9
<PAGE> 10
which any registration is being effected furnish to the Company such
information regarding such Holder and the distribution of such Shares as may be
required to be disclosed in the Registration Statement in question by the rules
and regulations under the Securities Act or under any other applicable
securities or blue sky laws.
Each Holder agrees that, upon receipt of any notice from the
Company of the happening of any event as a result of which the prospectus
included in the Registration Statement contains an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, such Holder will
forthwith discontinue disposition of Shares pursuant to the Registration
Statement covering such Shares until such Holder's receipt of a supplemented or
amended prospectus so that such prospectus will not contain an untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and, if so
directed by the Company, such Holder will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
Holder's possession, of the prospectus covering such Shares current at the time
of receipt of such notice. In any such event, the Company will promptly
prepare and file and use best efforts to cause to be declared effective a
supplement or amendment to such prospectus such that the prospectus will not
contain an untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading.
7. Indemnification.
(a) To the extent permitted by law, the Company will
indemnify each Holder, each of such Holder's officers, directors and agents,
and each person controlling such Holder, with respect to any registration,
qualification, or compliance effected pursuant to this Agreement and each
underwriter, if any, and each person who controls any underwriter, of the
Shares held by or issuable to such Holder, against all claims, losses, damages,
and liabilities (or actions in respect thereto) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any prospectus, offering circular, or other document (including any related
Registration Statement, notification, or the like) incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation of
the Company of any rule or regulation promulgated under the Securities
Exchange Act of 1934, as amended (the
10
<PAGE> 11
"Exchange Act"), any state securities law or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any state securities law
applicable to the Company and relating to action or inaction required of the
Company in connection with any such registration, qualification, or compliance,
and will reimburse each such Holder, each such underwriter, and each such
director, officer, agent and controlling person, for any legal (provided that
the Company shall reimburse the legal fees and expenses of no more than one law
firm for all such Holders) and any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this Section 7 shall not apply to amounts paid in settlement of any such
claim, loss, damage, liability or action if such settlement is effected without
the consent of the Company (which consent shall not be unreasonably withheld),
nor shall the Company be liable in any such case to the extent that any such
claim, loss, damage or liability arises out of or is based on any untrue
statement or omission based upon written information furnished to the Company
by an instrument duly executed by such Holder or underwriter specifically for
use therein.
(b) To the extent permitted by law, each Holder
will, if Shares held by or issuable to such Holder are included in the
securities as to which such registration, qualification or compliance is being
effected, indemnify the Company, each of its directors and officers who sign a
Registration Statement in connection therewith, and each person controlling the
Company, each underwriter, if any, and each person who controls any
underwriter, of the Company's securities covered by such a Registration
Statement, and each other Holder, each of such other Holder's officers,
directors and agents and each person controlling such other Holder, against all
claims, losses, damages, and liabilities (or actions in respect thereof)
arising out of or based on any untrue statement (or alleged untrue statement)
of a material fact contained in a written document furnished by or on behalf of
such Holder specifically for use in and actually contained in any such
Registration Statement, prospectus, offering circular, or other document filed
by the Company and relating to the registration or qualification of such
Holder's Shares, and will reimburse the Company, each such underwriter, each
such other Holder, and each such director, officer and controlling person, for
any legal or any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action;
provided, however, that the liability of any Holder hereunder shall be limited
to the amount of proceeds received by such Holder in the offering giving rise
to the loss, claim, damage, liability or action; provided, further, that the
indemnity agreement contained in this Section 7 shall not apply to amounts paid
in settlement of any
11
<PAGE> 12
such claim, loss, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld). Each Holder agrees to notify the Company as promptly as practicable
of any inaccuracy or change in information previously furnished by such Holder
to the Company or of the occurrence of any event in either case as a result of
which any prospectus relating to such registration contains or would contain an
untrue statement of a material fact regarding such Holder or such Holder's
intended method of distribution of such Shares or omits to state any material
fact regarding such Holder or such Holder's intended method of distribution of
such Shares required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing, and
promptly to furnish to the Company any additional information required to
correct and update any previously furnished information or required so that
such prospectus shall not contain, with respect to such Holder or the
distribution of such Shares, an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing.
The Company may require, as a condition to entering into any
sales or placement agency agreement or underwriting agreement with respect to
any Shares, that the Company shall have received an undertaking in customary
form and substance reasonably satisfactory to it from any agent named in any
such sales or placement agency agreement and from each underwriter named in any
such underwriting agreement, severally and not jointly, to (i) indemnify and
hold harmless the Company, each of its officers and directors, and all other
Holders, and each of their officers and directors, against any losses, claims,
damages or liabilities to which the Company or such other persons may become
subject, under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon an untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement, or any preliminary, final or summary
prospectus contained therein or furnished by the Company to any such agent or
underwriter, or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission
was made in reliance upon and in conformity with written information furnished
to the Company by such agent or underwriter expressly for use therein, and (ii)
reimburse the Company for any
12
<PAGE> 13
legal or other expenses reasonably incurred by the Company in connection with
investigating or defending any such action or claim.
(c) Each party entitled to indemnification under
this Agreement (the "Indemnified Party") shall give notice to the party
required to provide such indemnification (the "Indemnifying Party") of any
claim as to which indemnification may be sought promptly after such Indemnified
Party has actual knowledge thereof, and shall permit the Indemnifying Party to
assume the defense of any such claim or any litigation resulting therefrom,
provided that counsel for the Indemnifying Party, who shall conduct the defense
of such claim or litigation, shall be subject to approval by the Indemnified
Party (whose approval shall not be unreasonably withheld), and the Indemnified
Party any participate in such defense at such party's own expense, and provided
further that the failure of any Indemnified Party to give notice as provided
herein shall not relieve the Indemnifying Party of its obligations under this
Agreement. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff therein,
to such Indemnified Party, of a release from all liability in respect to such
claim or litigation.
(d) The obligations under this Section 7 shall
survive the completion of any offering of Shares in a Registration Statement.
8. [Intentionally omitted]
9. Transfer of Registration Rights. The rights granted to
the Holders to cause the Company to register the Shares pursuant to Sections 3
and 4 above may be assigned by the Holder to a transferee or assignee of any
Shares; provided that the Company is given written notice by the Holder at the
time of or within a reasonable time after said transfer, stating the name and
address of said transferee or assignee and identifying the Shares with respect
to which such registration rights are being assigned.
10. Limitations on Subsequent Registration Rights. The
Company shall not, without the prior written consent of the Holders of not less
than fifty-one percent (51%) of the Shares, enter into any agreement with any
holder or prospective holder of any securities of the Company which would allow
such holder or prospective holders to include any securities in any
registration filed under (i) under Section 3 hereof, unless, under the terms of
such agreement, such
13
<PAGE> 14
holder or prospective holder may include such securities in any such
registration statement only on a basis no more favorable than that of Holders,
or (ii) Section 4 hereof, unless, under the terms of such agreement, such
holder or prospective holder may include such securities in any such
registration only to the extent that the inclusion of his securities will not
diminish the amount of Shares which are included in such registration.
11. Reports Under the Exchange Act. With a view to making
available to the Holders the benefits of Rule 144 the Company agrees to use its
best efforts: (i) to file with the SEC in a timely manner all reports and
other documents required to be filed by an issuer of securities registered
under the Securities Act or Exchange Act, and (ii) so long as any Holder owns
any of the Shares, to furnish in writing upon such Holder's request the
following information:
(A) the Company's name, address and telephone number;
(B) the Company's Internal Revenue Service identification
number;
(C) the Company's SEC file number;
(D) the number of shares of Common Stock issued and
outstanding as shown by the most recent report or statement published by the
Company; and
(E) whether the Company has filed all reports required to
be filed pursuant to sections 13 or 15(d) of the Exchange Act during the
preceding 12 months. With respect to a rule or regulation of the SEC (other
than Rule 144) which may at any time permit a Holder to sell Shares to the
public without registration, the Company agrees to take such action as is
reasonable to enable utilization of such rule.
12. Termination of Registration Rights. The registration
rights granted pursuant to this Agreement shall terminate as to each Holder and
any subsequent transferee (i) in the case of registration rights provided
pursuant to Section 3 hereof, upon the expiration of five years from the
Effective Time of the Merger, and (ii) in the case of registration rights
provided pursuant to Section 4 hereof, upon the expiration of three years from
the Effective Time of the Merger.
14
<PAGE> 15
13. [Intentionally omitted]
14. Modification and Waiver. The parties may amend, modify
or supplement this Agreement in such manner as may be agreed upon in writing at
any time by the Company and Holders of not less than 66 2/3% of the Shares.
Any party may by an instrument in writing extend the time for or waive the
performance of any of the obligations of the other or waive compliance by the
other with any of the provisions contained herein. The failure of any party at
any time or times to require performance of any provision hereof shall in no
manner affect such party's right at a later date to enforce the same. No
waiver by any party of a breach of this Agreement, whether by conduct or
otherwise, in any one or more instances shall be deemed to be construed as a
further or continuing waiver of such breach of a waiver of any condition or of
any other breach of this Agreement.
15. Notices. Any notices or other communications required or
permitted hereunder shall be deemed to have been duly given when delivered
personally or sent by registered or certified mail, postage prepaid (return
receipt requested), to the party to whom such notice or communication is
addressed at the following addresses (or at such other address for a party as
shall be specified by like notice):
<TABLE>
<S> <C>
To Holders: At addresses shown on the signature pages hereto
To the Company: (prior to the Effective Time)
Regency Health Services, Inc.
3636 Birch Street, Suite 195
Newport Beach, California 92660
Attention: Mr. Cecil Mays
(after the Effective Time)
Regency Health Services, Inc.
2742 Dow Avenue
Tustin, California 92680-7245
Attention: Mr. Cecil Mays
</TABLE>
16. Gender and Number, Etc. All words or terms used in this
Agreement, regardless of the number or gender in which they are used, shall be
deemed to include any other number and any other gender as the context may
15
<PAGE> 16
require. "Hereof," "herein," and "hereunder" and words of similar import shall
be construed to refer to this Agreement as a whole, and not to any particular
paragraph or provisions, unless expressly so stated.
17. Non-Assignment. Except as otherwise provided in Section
9 herein, this Agreement shall not be assignable by any party without the
written consent of all other parties hereto. Subject to the foregoing, this
Agreement shall be binding upon and inure to the benefit of the respective
successors, assigns, heirs and personal representatives of the parties hereto.
18. Counterparts. This Agreement may be executed in any
number of counterparts with the same effect as if the signatures to each
counterpart were upon the same instrument.
19. Entire Agreement/Captions. This Agreement sets forth the
entire understanding of the parties hereto and supersedes all prior agreements,
arrangements and communications, whether oral or written between or among the
parties with respect to the subject matter hereof. Captions appearing in this
Agreement are for convenience of reference only and shall not be deemed to
explain, limit or amplify the provisions hereof.
20. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without regard
to principles of conflicts of law.
21. Severability. If any provisions contained in this
Agreement shall for any reason be held invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not invalidate
the entire Agreement. Such provision shall be deemed to be modified to the
extent necessary to render it valid and enforceable and if no such modification
shall render it valid and enforceable then the Agreement shall be construed as
if not containing such provision.
22. No Third Party Beneficiaries. Nothing herein expressed
or implied is intended to confer upon any person, other than the parties hereto
or their respective permitted assigns, successors, heirs and legal
representatives, any rights, remedies, obligations or liabilities under or by
reason of this Agreement.
23. No Partnership or Joint Venture. Notwithstanding
anything to the contrary contained herein, nothing contained herein shall be
construed as
16
<PAGE> 17
creating a partnership or joint venture relationship between the parties
hereto, and the parties hereto shall be deemed to have made any election
necessary under applicable law, rule or regulation to prevent their being
considered or deemed to be a partnership or joint venture.
24. No Impairment. The Company will not take any action, or
fail to take any action, avoid or seem to avoid the observance or performance
of any of the terms to be performed by Company hereunder and Company will at
all times act in good faith to assist Holders in the carrying out of the
provisions of this Agreement as may be necessary to preserve and protect the
registration rights of Holders under this Agreement.
25. Effective Date. Notwithstanding any other provision of
this Agreement, as to the Demand Holders this Agreement shall only become
effective upon the Effective Time, and the Demand Holders shall have no rights
hereunder unless and until the occurrence of the Effective Time. This
Agreement shall be effective as of the date first written above as to the
Regency Holders regardless of the occurrence of the Effective Time.
26. Effect on Agreements.
(a) Regency Holders agree that the Company
Registration Rights Agreement is hereby amended and restated in its entirety as
set forth herein.
(b) Stock Purchase Holders agree that the provisions
relating to registration rights in the Stock Purchase Agreement, including
without limitation the provisions of Section 6 thereof, are hereby amended and
restated in their entirety as set forth herein, and that in the event of any
conflict between the provisions of the agreements as they relate to
registration rights (e.g., notice, waiver, amendment), the provisions of this
Agreement shall prevail.
(c) Note Purchase Holders agree that the provisions
relating to registration rights in the Note Purchase Agreement, including
without limitation the provisions of Section 11 thereof, are hereby amended and
restated in their entirety as set forth herein, and that in the event of any
conflict between the provisions of the agreements as they relate to
registration rights (e.g., notice, waiver, amendment), the provisions of this
Agreement shall prevail.
18746
17
<PAGE> 18
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first written above.
COMPANY: REGENCY HEALTH SERVICES, INC.
By: /s/
-------------------------------
Name: Cecil Mays
Title: President
CARE: CARE ENTERPRISES, INC.
By: /s/
-------------------------------
Name: Richard M. Matros
Title: President
REGENCY HOLDERS: EL DORADO INVESTMENT COMPANY
By: /s/
-------------------------------
Name: Gregory S. Anderson
Title: Managing Director
Address: 400 E. Van Buren
Suite 650
Phoenix, Arizona 85004
18
<PAGE> 19
SUNDANCE CAPITAL CORPORATION
By:
---------------------------------
Name: Gregory S. Anderson
Title: Vice President
Address: 400 E. Van Buren
Suite 650
Phoenix, Arizona 81004
------------------------------------
Peter Madigan
Address:
---------------------------
---------------------------
19
<PAGE> 20
--------------------------------------
Cecil Mays
Address: c/o Regency Health
Services, Inc.
3636 Birch Street, Suite 195
Newport Beach, California
92660
ENTERPRISE PARTNERS
By:
--------------------------------------
Name:
Title:
Address:
-----------------------------
-----------------------------
MBW VENTURE PARTNERS LIMITED PARTNERSHIP
By: MBW Management, Inc., its Authorized
Agent
By:
--------------------------------------
Name:
Title:
Address:
-----------------------------
-----------------------------
20
<PAGE> 21
MICHIGAN INVESTMENT FUND, L.P.
By: MBW Management, Inc., its Authorized
Agent
By:
-----------------------------------------
Name:
Title:
Address:
--------------------------------
--------------------------------
---------------------------------------------
James R. Weersing, Trustee for the Weersing
Family Trust u/d/t April 24, 1991
Address:
------------------------------------
------------------------------------
---------------------------------------------
Robert J. Harrington
Address:
------------------------------------
------------------------------------
---------------------------------------------
Lawrence A. Brown, Jr.
Address:
------------------------------------
------------------------------------
---------------------------------------------
Ned M. Weinshenker, Trustee for Ned M.
Weinshenker Profit Sharing Plan
Address:
------------------------------------
------------------------------------
21
<PAGE> 22
-------------------------------------------
Philip E. McCarthy for Philip E. McCarthy
Pension Plan
Address:
----------------------------------
----------------------------------
STOCK PURCHASE ENERGY MANAGEMENT
HOLDERS: CORPORATION
By:
---------------------------------------
Name: Jeffrey A. Smith
Title: President
Address: 767 Third Avenue
New York, New York 10017
THE FOOTHILL PARTNERS, L.P.,
a Delaware limited partnership
By:
---------------------------------------
Name: Jeff Nakora
Title: Vice President
Address: 11111 Santa Monica Boulevard
Los Angeles, California 90025
THE FOOTHILL GROUP, INC.
By:
---------------------------------------
Name: Jeff Nakora
Title: Vice President
Address: 11111 Santa Monica Boulevard
Los Angeles, California 90025
22
<PAGE> 23
NOTE PURCHASE SOLVATION INC.
HOLDERS: d/b/a SMITH MANAGEMENT COMPANY
By:
----------------------------------------
Name: John W. Adams
Title: President
Address: 767 Third Avenue
New York, New York 10017
FOOTHILL CAPITAL CORPORATION
By:
----------------------------------------
Name: Jeff Nakora
Title: Vice President
Address: 11111 Santa Monica Boulevard
Los Angeles, California 90025
AFFILIATES: WOODSTEAD ASSOCIATES, L.P.,
a Texas limited partnership
By:
----------------------------------------
Name: Randall D. Smith
Title: General Partner
Address: 767 Third Avenue
New York, New York 10017
23
<PAGE> 24
-------------------------------------------
Randall D. Smith
Address: 767 Third Avenue
New York, New York 10017
THE DURIAN TRUST
By:
---------------------------------------
Jeffrey A. Smith, Trustee
Address: 767 Third Avenue
New York, New York 10017
SEGA ASSOCIATES, L.P.
By:
---------------------------------------
John W. Adams
Address: 767 Third Avenue
New York, New York 10017
THE FOOTHILL MANAGERS LIMITED II,
a California limited partnership
By:
---------------------------------------
Name: Jeff Nakora
Title: Vice President
Address: 11111 Santa Monica Boulevard
Los Angeles, California 90025
24
<PAGE> 25
----------------------------------------
John F. Nickoll
Address: 11111 Santa Monica Boulevard
Los Angeles, California 90025
----------------------------------------
Robert G. Coo
Address: 710 Zwissig Way
Union City, California 94587
25
<PAGE> 26
THE FOOTHILL FUND,
a California limited partnership
By:
---------------------------------------
Name: Jeff Nakora
Title: Vice President
Address: 11111 Santa Monica Boulevard
Los Angeles, California 90025
26
<PAGE> 1
EXHIBIT 10.113
AMENDMENTS TO
REGENCY HEALTH SERVICES, INC.
LONG-TERM INCENTIVE PLAN
Section 5.1 is amended and restated in its entirety as
follows:
5.1 Number of Shares. Subject to adjustment provided in
Section 14.1, the aggregate number of shares of Stock reserved and available
for Awards or which may be used to provide a basis of measurement for or to
determine the value of an Award (such as with a Stock Appreciation Right or
Performance Share Award) shall be 2,000,000 shares.
The following Section 5.4 is added:
5.4 Annual Limit on Stock Options and SARs. More than one
Stock Option or SAR may be granted to an eligible employee during any fiscal
year of the Company, but the aggregate number of shares of Stock underlying
Stock Options or SARs granted to any eligible employee during any such fiscal
year shall not exceed fifty percent (50%) of the shares of Stock reserved for
issuance under the Plan pursuant to Section 5.1 of the Plan.
<PAGE> 1
EXHIBIT 10.114
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), effective as of the Effective
Time set forth in Section 2.2 of that certain Agreement and Plan of Merger,
dated December 20, 1993, by and between Regency Health Services, Inc. and Care
Enterprises, Inc. ("Effective Date") is entered into by and between Cecil Mays
("Employee") and Regency Health Services, Inc., a Delaware corporation
("Company").
The Company desires to establish its right to the continued services
of the Employee, in the capacity described below, on the terms and conditions
and subject to the rights of termination hereinafter set forth, and the
Employee is willing to accept such employment on such terms and conditions.
In consideration of the mutual agreements hereinafter set forth, the
Employee and the Company have agreed and do hereby agree as follows:
1. EMPLOYMENT AS CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE
OFFICER OF THE COMPANY AND OF CARE ENTERPRISES, INC. The Company does hereby
employ, engage, and hire the Employee as Chairman of the Board and Chief
Executive Officer of the Company and of Care Enterprises, Inc., a wholly-owned
subsidiary of the Company ("Care"), and the Employee does hereby accept and
agree to such hiring, engagement, and employment. The Employee's duties as
Chief Executive Officer during the Employment Period (defined below) shall be
such executive and managerial duties as the Board of Directors of the Company
and Care shall from time to time prescribe and as provided in the Bylaws of the
Company and Care. The Employee shall devote his full time, energy, and skill
to the performance of his duties for the Company and Care and for the benefit
of the Company and Care, reasonable vacations authorized by the Company's Board
of Directors and reasonable absences because of illness excepted. Furthermore,
the Employee shall exercise due diligence and care in the performance of his
duties to the Company under this Agreement.
2. TERM OF AGREEMENT. The term ("Term") of this Agreement shall
commence on the Effective Date and shall continue for a period of three (3)
years; provided, however, that on each anniversary of the Effective Date at
which time the remaining term of the Agreement is two (2) years, the Term of
the Agreement shall automatically be extended for one additional year unless,
not later than any such anniversary date, either party shall have given written
notice to the other that it does not wish to extend the Term of the Agreement.
The period of time commencing on the Effective Date and ending on the date of
termination of the Employee's employment ("Termination Date") under this or any
successor agreement shall be referred to as the "Employment Period."
1
<PAGE> 2
3. COMPENSATION.
(a) BASE SALARY. The Company shall pay the
Employee, and the Employee agrees to accept from the Company,
in full payment for his services to the Company a base salary
at the rate of Four Hundred Thousand Dollars ($400,000) per
year ("Base Salary"), payable in equal biweekly installments
or at such other time or times as the Employee and the Company
shall agree. Employee's Base Salary shall be reviewed at
least annually by the Company and may be increased as
determined by the Company's Board of Directors in its sole and
absolute discretion. Employee's Base Salary shall not be
decreased at any time during the Term of the Agreement from
the Base Salary then in effect.
(b) PERFORMANCE BONUS - BOARD OF DIRECTORS
DISCRETION. Employee shall be eligible to receive an annual
performance bonus based upon a percentage of his Base Salary.
Except as provided in Section 7, any such bonus awarded to the
Employee shall be payable in the amount, in the manner, and at
the time determined by the Company's Board of Directors in its
sole and absolute discretion; provided, however, that, with
respect to each fiscal year that ends during the Term of the
Agreement, in the event the Company's actual aggregate pre-tax
net income for such fiscal year, as reasonably determined by
the Company on the basis of its audited financial statements
prepared in accordance with generally accepted accounting
principles ("Pre-Tax Net Income"), exceeds the Company's
projected Pre-Tax Net Income, as established by the Company's
Board of Directors in its budget for such fiscal year, the
Company shall pay Employee a bonus in an amount equal to or in
excess of fifty percent (50%) of Employee's Base Salary as in
effect for such fiscal year. Such amount shall be paid within
sixty (60) days following the close of such fiscal year.
Employee's bonus payable pursuant to this Agreement for fiscal
(calendar) year 1994 shall be calculated based upon the amount
of Base Salary for the period beginning on the Effective Date
and ending December 31, 1994 and based upon the actual and
projected Pre-Tax Net Income for the same period. In no event
shall the provisions of this Paragraph 3(b) reduce or in any
other manner affect Employee's entitlement under any other
bonus program of the Company, including, but not limited to,
any bonus to which Employee may be entitled pursuant to his
Employment Agreement, dated April 1, 1993, in effect
immediately prior to the Effective Date, with respect to the
period beginning on July 1, 1993 and ending on the Effective
Date.
4. FRINGE BENEFITS. Employee shall be entitled to participate in
any benefit programs adopted from time to time by the Company for the benefit
of its executive employees, and Employee shall be entitled to receive such
other fringe benefits as may be granted to him from time to time by the
Company's Board of Directors.
2
<PAGE> 3
(a) BENEFIT PLANS. Employee shall be entitled to
participate in any benefit plans relating to stock options,
stock purchases, pension, thrift, profit sharing, life
insurance, medical coverage, education, or other retirement or
employee benefits available to other executive employees of
the Company, subject to any restrictions (including waiting
periods) specified in such plans.
(b) AUTOMOBILE. The Company shall provide
Employee with a car allowance of Three Hundred Dollars ($300)
per month, which shall be applied by Employee towards the
purchase or lease of a suitable vehicle.
(c) VACATION. Employee shall be entitled to four
(4) weeks of paid vacation per calendar year, with such
vacation to be scheduled and taken in accordance with the
Company's standard vacation policies.
(d) DISABILITY INSURANCE. The Company shall
purchase and maintain or self insure and maintain a disability
insurance policy for Employee during the term of this
Agreement and any consulting period pursuant to Section 7(d)
hereof, which policy shall guarantee to Employee the payment
to Employee of a minimum of 60% of his Base Salary and bonus
(as described in Section 7(b) hereof), or a minimum of 100% of
such Base Salary and bonus in the event the policy is self
insured, for the period of such Disability or until Employee
attains the age of 67 years.
5. BUSINESS EXPENSES. The Company shall reimburse the Employee
for any and all necessary, customary, and usual expenses, properly receipted in
accordance with Company policies, incurred by Employee on behalf of the
Company.
6. TERMINATION OF EMPLOYEE'S EMPLOYMENT.
(a) DEATH. If the Employee dies while employed
by the Company, his employment shall immediately terminate.
The Company's obligation to pay the Employee's Base Salary
shall cease as of the date of Employee's death. Thereafter,
Employee's beneficiaries or his estate shall receive benefits
in accordance with the Company's retirement, insurance, and
other applicable programs and plans then in effect.
(b) DISABILITY. If, as a result of the
Employee's incapacity due to physical or mental illness,
Employee shall have been absent from the full-time performance
of his duties with the Company for six (6) consecutive months,
and, within thirty (30) days after written notice is provided
to him by the Company, he shall not have returned to the
full-time performance of his duties, Employee's employment
under this Agreement may be terminated by the Company for
Disability. During the period prior to such termination
during which the Employee is absent from the full-time
performance of his
3
<PAGE> 4
duties with the Company due to Disability, the Company shall
continue to pay Employee's Base Salary at the rate in effect
at the commencement of such Disability. Subsequent to such
termination, Employee's benefits shall be determined under the
Company's retirement insurance, and other compensation
programs then in effect in accordance with the terms of such
programs.
(c) TERMINATION BY THE COMPANY FOR CAUSE. The
Company may terminate Employee's employment under this
Agreement for "Cause," at any time prior to expiration of the
Term of the Agreement, only in the event of the Employee's
conviction for fraud, misappropriation, or embezzlement or a
determination that Employee has been grossly negligent in the
execution of his duties under this Agreement. In such a case,
Employee's employment under this Agreement may be terminated
immediately without any advance written notice, and the
Company's obligation to pay Employee's Base Salary shall cease
as of the Termination Date.
(d) TERMINATION BY THE EMPLOYEE FOR GOOD REASON.
The Employee shall have the right to terminate this Agreement
for Good Reason. For purposes of this Agreement, "Good
Reason" shall mean the occurrence, without the Employee's
express written consent, of any one or more of the following
events:
(i) The assignment to the Employee of any
duties that are inconsistent with, or the reduction
of powers or functions associated with Employee's
positions, duties, responsibilities, and status with
the Company as of the Effective Date; a change in
Employee's reporting responsibilities; or improper
intervention by the Company in the Employee's ability
to materially perform the duties and responsibilities
that have been assigned to the Employee under this
Agreement, except in connection with the Company's
termination of Employee's employment pursuant to
Section 6(c);
(ii) The Company's material breach of any of
the provisions of this Agreement, including, but not
limited to, a reduction by the Company in the
Employee's Base Salary in effect as of the Effective
Date, or as the same may be increased as provided
herein; or a change in the conditions of Employee's
employment (e.g., including, without limitation, a
failure by the Company to provide the Employee with
incentive compensation and benefit plans that
provide comparable benefits and amounts as such type
programs in effect as of the Effective Date, etc.);
or
4
<PAGE> 5
(iii) The relocation of the Company's
principal executive offices to a location more than
25 miles from its location as of the Effective Date
or the Company's requiring the Employee to be based
anywhere other than the Company's principal executive
offices, except for required travel on the Company's
business to an extent substantially consistent with
the Employee's present business travel obligations.
The Employee agrees to provide the Company thirty (30) days' prior
written notice of any termination for Good Reason, during which 30 day period
the Company shall have the right to cure the circumstances giving rise to the
Good Reason stated in such notice.
7. COMPENSATION UPON TERMINATION BY THE COMPANY OTHER THAN FOR
CAUSE, OR BY THE EMPLOYEE FOR GOOD REASON. If the Employee's employment shall
be terminated (i) by the Company other than for Cause, or (ii) by the Employee
for Good Reason, the Employee shall be entitled to the following benefits:
(a) PAYMENT OF UNPAID BASE SALARY. The Company
shall immediately pay the Employee any portion of the
Employee's Base Salary not paid prior to the Termination Date.
(b) LUMP SUM PAYMENT. Within five days from the
Termination Date, the Company shall pay to the Employee, in a
lump sum, an amount equal to the sum of (i) an amount equal to
all Base Salary that would have been payable to the Employee
pursuant to this Agreement had the Employee continued to be
employed for the remaining unexpired term of this Agreement
(such Base Salary for such remaining term being equal to the
Employee's Base Salary in effect as of the Termination Date),
and (ii) an amount equal to the bonus payments that would have
been payable to the Employee pursuant to this Agreement had
his annual bonus for each year, or portion thereof, of the
remaining unexpired term of this Agreement been equal to the
greater of (A) the total of any performance bonus or bonuses
paid to the Employee pursuant to Section 3(b) above in the
fiscal year of the Company ended immediately prior to the
fiscal year in which the Termination Date occurs, (B) the
average yearly amount of such bonuses with respect to the
three (or, if less, the number of years the Employee has been
employed by the Company or its predecessor) fiscal years ended
immediately prior to the fiscal year in which the Termination
Date occurs, and (C) fifty percent (50%) of Employee's Base
Salary in effect as of the Termination Date.
(c) IMMEDIATE VESTING OF STOCK OPTIONS.
Notwithstanding any provision in any applicable Company
benefit plans or agreements (including, but not limited to,
those relating to stock options,
5
<PAGE> 6
stock appreciation rights, restricted stock awards, stock
purchases, pensions, thrifts, profit sharing, or other
retirement or employee benefits) to the contrary, all rights
to such benefits previously granted to Employee shall, as of
the Termination Date, become immediately fully vested and
exercisable by the Employee and shall remain exercisable for a
period thereafter of not less than one (1) year. The
provisions of this Section 7(c) shall constitute an amendment
to any such plans or agreements of the Company referred to
above as of the Effective Date.
(d) CONSULTING AGREEMENT. For a period of two
years following the Termination Date, the Company shall pay
the Employee his annual Base Salary as of the Termination
Date, together with a yearly bonus equal to the amount
specified in Section 7(b)(ii), in exchange for the Employee's
agreement to provide, subject to his continuing availability
and discretion, consulting services to the Company during such
two-year period. Payments for Base Salary shall be made as
provided in Section 3(a), and bonus payments shall be made
within 30 days of the end of such fiscal year of the Company
ending within such two-year period. The provisions of this
Section 7(d) shall also accrue to Employee for two (2) years
following the Termination Date in the event of normal temporal
termination of this Agreement following a cessation in the
automatic renewal provided for in Section 2 hereof and in the
event Employee terminates his employment for any reason or the
Company terminates the Employee for any reason other than
Cause.
(e) CONTINUATION OF FRINGE BENEFITS. The Company
shall continue to provide the Employee with all Fringe
Benefits set forth in Section 4 throughout the remaining
unexpired Term of the Agreement, as if the Employee's
employment under the Agreement had not been terminated. If,
as the result of termination of Employee's employment,
Employee and/or his otherwise eligible dependents or
beneficiaries shall become ineligible for benefits under any
one or more of the Company's benefit plans, the Company shall
continue to provide the Employee and his eligible dependents
or beneficiaries with benefits at a level at least equivalent
to the level of benefits for which the Employee and his
dependents and beneficiaries were eligible under such plans
immediately prior to the Termination Date.
(f) NO MITIGATION REQUIRED; NO OTHER ENTITLEMENT
TO BENEFITS UNDER AGREEMENT. The Employee shall not be
required in any way to mitigate the amount of any payment
provided for in this Section 7, including, but not limited to,
by seeking other employment, nor shall the amount of any
payment provided for in this Section 7 be reduced by any
compensation earned by the Employee as the result of
employment with another employer after the Termination Date,
or
6
<PAGE> 7
otherwise. Except as set forth in this Section 7, following a
termination governed by this Section 7, the Employee shall not
be entitled to any other compensation or benefits set forth in
this Agreement, except as may be separately negotiated by the
parties and approved by the Board of Directors of the Company
in writing in conjunction with the termination of Employee's
employment under this Section 7.
8. DISPUTE RELATING TO EMPLOYEE'S TERMINATION OF EMPLOYMENT FOR
GOOD REASON. If the Employee resigns his employment with the Company alleging
in good faith as the basis for such resignation any of the grounds specified in
Section 6(d), and if the Company then disputes Employee's right to the payment
of benefits under Section 7, the Company shall continue to pay Employee the
full compensation (including, but not limited to, his Base Salary) in effect at
the date Employee provided notice of such resignation, and the Company shall
continue the Employee as a participant in all compensation, benefit, and
insurance plans in which the Employee was then a participant, until the earlier
of the expiration of the Term of the Agreement or the date the dispute is
finally resolved, either by mutual written agreement of the parties or by
decree of a court of competent jurisdiction that is not appealable or with
respect to which the time for appeal has expired and no appeal has been
perfected. For the purposes of this Section, the Company shall bear the burden
of proving that the grounds for Employee's resignation do not fall within the
scope of Section 6(d), and there shall be a rebuttable presumption that the
Employee alleged such grounds in good faith.
9. NONCOMPETITION PROVISIONS.
(a) RIGHT TO COMPANY MATERIALS. Employee agrees
that all styles, designs, lists, materials, books, files,
reports, correspondence, records, and other documents
("Company Materials") used, prepared, or made available to
Employee, shall be and shall remain the property of the
Company. Upon the termination of employment or the expiration
of this Agreement, all Company Materials shall be returned
immediately to the Company, and Employee shall not make or
retain any copies thereof.
(b) ANTISOLICITATION. Employee promises and
agrees that during the term of this Agreement he will not
influence or attempt to influence customers or suppliers of
the Company or any of its present or future subsidiaries or
affiliates, either directly or indirectly, to divert their
business to any individual, partnership, firm, corporation or
other entity then in competition with the business of the
Company, or any subsidiary or affiliate of the Company.
7
<PAGE> 8
(c) SOLICITING EMPLOYEES. During the term of
this Agreement and for the 12-month period commencing on the
Termination Date, Employee promises and agrees that he will
not directly or indirectly solicit any of the Company's
employees to work for any business, individual, partnership,
firm, corporation, or other entity then in competition with
the business of the Company or any subsidiary or affiliate of
the Company.
10. NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be given by fax or first class mail,
certified or registered with return receipt requested, and shall be deemed to
have been duly given three (3) days after mailing or twenty-four (24) hours
after transmission of a fax to the respective persons named below:
If to Company: Regency Health Services, Inc.
2742 Dow Avenue
Tustin, CA 92680
Phone: (714) 544-4443
Fax: (714) 544-2401
If to Employee: Cecil Mays
7 Muir Beach Circle
Corona Del Mar, CA 92625
Phone: (714) 721-9306
Either party may change such party's address for notices by notice duly given
pursuant hereto.
11. ATTORNEYS' FEES. In the event arbitral or judicial
determination is necessary of any dispute arising as to the parties' rights and
obligations hereunder, the Company and Employee shall bear their respective
attorneys' fees and costs associated with such dispute; provided, however, that
in the event that it is determined that the Company breached this Agreement,
the Company shall pay or reimburse Employee for all reasonable attorneys' fees
and costs associated with such dispute.
12. TERMINATION OF PRIOR AGREEMENTS. This Agreement terminates
and supersedes any and all prior agreements and understandings between the
parties with respect to employment or with respect to the compensation of the
Employee by the Company from and after the Effective Date.
13. ASSIGNMENT; SUCCESSORS. This Agreement is personal in its
nature and neither of the parties hereto shall, without the consent of the
other, assign or transfer this Agreement or any rights or obligations
hereunder; provided that, in the event of the
8
<PAGE> 9
merger, consolidation, transfer, or sale of all or substantially all of the
assets of the Company with or to any other individual or entity, this Agreement
shall, subject to the provisions hereof, be binding upon and inure to the
benefit of such successor and such successor shall discharge and perform all
the promises, covenants, duties, and obligations of the Company hereunder.
14. GOVERNING LAW. This Agreement and the legal relations thus
created between the parties hereto shall be governed by and construed under and
in accordance with the laws of the State of California.
15. ENTIRE AGREEMENT; HEADINGS. This Agreement embodies the
entire agreement of the parties respecting the matters within its scope and may
be modified only in writing. Section headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of
this Agreement for any other purpose.
16. WAIVER; MODIFICATION. Failure to insist upon strict
compliance with any of the terms, covenants, or conditions hereof shall not be
deemed a waiver of such term, covenant, or condition, nor shall any waiver or
relinquishment of, or failure to insist upon strict compliance with, any right
or power hereunder at any one or more times be deemed a waiver or
relinquishment of such right or power at any other time or times. This
Agreement shall not be modified in any respect except by a writing executed by
each party hereto.
17. SEVERABILITY. In the event that a court of competent
jurisdiction determines that any portion of this Agreement is in violation of
any statute or public policy, only the portions of this Agreement that violate
such statute or public policy shall be stricken. All portions of this
Agreement that do not violate any statute or public policy shall continue in
full force and effect. Further, any court order striking any portion of this
Agreement shall modify the stricken terms as narrowly as possible to give as
much effect as possible to the intentions of the parties under this Agreement.
18. INDEMNIFICATION. The Company shall indemnify and hold
Employee harmless to the maximum extent permitted by Section 317 of the
California Corporations Code or its successor statute.
19. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
9
<PAGE> 10
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized Director, and the Employee has hereunto signed
this Agreement, as of the date first above written.
REGENCY HEALTH SERVICES, INC.
By: ____________________________
Gregory S. Anderson
Chairman, Compensation Committee
________________________________
Cecil Mays
10
<PAGE> 1
EXHIBIT 10.115
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), effective as of the Effective
Time set forth in Section 2.2 of that certain Agreement and Plan of Merger,
dated December 20, 1993, by and between Regency Health Services, Inc. and Care
Enterprises, Inc. ("Effective Date") is entered into by and between Richard K.
Matros ("Employee") and Regency Health Services, Inc., a Delaware corporation
("Company").
The Company desires to establish its right to the continued services
of the Employee, in the capacity described below, on the terms and conditions
and subject to the rights of termination hereinafter set forth, and the
Employee is willing to accept such employment on such terms and conditions.
In consideration of the mutual agreements hereinafter set forth, the
Employee and the Company have agreed and do hereby agree as follows:
1. EMPLOYMENT AS PRESIDENT AND CHIEF OPERATING OFFICER OF THE
COMPANY AND OF CARE ENTERPRISES, INC. The Company does hereby employ, engage,
and hire the Employee as President and Chief Operating Officer of the Company
and of Care Enterprises, Inc., a wholly-owned subsidiary of the Company
("Care"), and the Employee does hereby accept and agree to such hiring,
engagement, and employment. The Employee's duties during the Employment Period
(defined below) shall be the executive, managerial, and reporting duties set
forth on Exhibit A hereto and such other duties as the Board of Directors of
the Company shall from time to time prescribe and as provided in the Bylaws of
the Company. The Employee shall devote his full time, energy, and skill to the
performance of his duties for the Company and for the benefit of the Company,
reasonable vacations authorized by the Company's Board of Directors and
reasonable absences because of illness excepted. Furthermore, the Employee
shall exercise due diligence and care in the performance of his duties to the
Company under this Agreement.
2. TERM OF AGREEMENT. The term ("Term") of this Agreement shall
commence on the Effective Date and shall continue for a period of three (3)
years; provided, however, that on each anniversary of the Effective Date at
which time the remaining term of the Agreement is two (2) years, the Term of
the Agreement shall automatically be extended for one additional year unless,
not later than any such anniversary date, either party shall have given written
notice to the other that it does not wish to extend the Term of the Agreement.
The period of time commencing on the Effective Date and ending on the date of
termination of the Employee's employment ("Termination Date") under this or any
successor agreement shall be referred to as the "Employment Period."
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<PAGE> 2
3. COMPENSATION.
(a) BASE SALARY. The Company shall pay the
Employee, and the Employee agrees to accept from the Company,
in full payment for his services to the Company a base salary
at the rate of Three Hundred Thousand Dollars ($300,000) per
year ("Base Salary"), payable in equal biweekly installments
or at such other time or times as the Employee and the Company
shall agree. Employee's Base Salary shall be reviewed at
least annually by the Company and may be increased as
determined by the Company's Board of Directors in its sole and
absolute discretion. Employee's Base Salary shall not be
decreased at any time during the Term of the Agreement from
the Base Salary then in effect.
(b) PERFORMANCE BONUS - BOARD OF DIRECTORS
DISCRETION. Employee shall be eligible to receive an annual
performance bonus based upon a percentage of his Base Salary.
Except as provided in Section 7 and Section 8, any such bonus
awarded to the Employee shall be payable in the amount, in the
manner, and at the time determined by the Company's Board of
Directors in its sole and absolute discretion.
4. FRINGE BENEFITS. Employee shall be entitled to participate in
any benefit programs adopted from time to time by the Company for the benefit
of its executive employees, and Employee shall be entitled to receive such
other fringe benefits as may be granted to him from time to time by the
Company's Board of Directors.
(a) BENEFIT PLANS. Employee shall be entitled to
participate in any benefit plans relating to stock options,
stock purchases, pension, thrift, profit sharing, life
insurance, medical coverage, education, or other retirement or
employee benefits available to other executive employees of
the Company, subject to any restrictions (including waiting
periods) specified in such plans.
(b) AUTOMOBILE. The Company shall provide Employee
with a car allowance of Three Hundred Dollars ($300) per
month, which shall be applied by Employee towards the purchase
or lease of a suitable vehicle.
(c) VACATION. Employee shall be entitled to four
(4) weeks of paid vacation per calendar year, with such
vacation to be scheduled and taken in accordance with the
Company's standard vacation policies.
(d) DISABILITY INSURANCE. The Company shall
purchase and maintain or self insure and maintain a disability
insurance policy for Employee during the Term of this
Agreement, which policy shall guarantee to Employee the
payment to Employee of a minimum of 60% of his Base Salary and
bonus (as provided in Section 7(b) hereof), or a minimum of
100% of such Base
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<PAGE> 3
Salary and bonus in the event the policy is self insured. In
the case of self insurance, the Company shall be
required to pay proceeds for the shorter of (i) the period of
such Disability or (ii) seven (7) years. Such insurance
policies will have customary exclusions, conditions and
elimination periods.
5. BUSINESS EXPENSES. The Company shall reimburse the Employee
for any and all necessary, customary, and usual expenses, properly receipted in
accordance with Company policies, incurred by Employee on behalf of the
Company.
6. TERMINATION OF EMPLOYEE'S EMPLOYMENT.
(a) DEATH. If the Employee dies while employed by
the Company, his employment shall immediately terminate. The
Company's obligation to pay the Employee's Base Salary shall
cease as of the date of Employee's death. Thereafter,
Employee's beneficiaries or his estate shall receive benefits
in accordance with the Company's retirement, insurance, and
other applicable programs and plans then in effect.
(b) DISABILITY. If, as a result of Employee's
mental or physical incapacity Employee shall be unable to
perform the services for the Company contemplated by this
Agreement in the manner in which he previously performed them
during an aggregate of 120 business days in any consecutive
seven (7) month period ("Disability"), Employee's employment
may be terminated by the Company for Disability. During any
period prior to such termination during which Employee is
absent from the full-time performance of his duties with the
Company due to Disability, the Company shall continue to pay
Employee his Base Salary at the rate in effect at the
commencement of such period of Disability. Any such payments
made to the Employee shall be reduced by amounts received from
disability insurance obtained or provided by the Company
pursuant to Section 4(d). Subsequent to the termination
provided for in this Section 6(b), Employee's benefits shall
be determined under the Company's retirement, insurance, and
other compensation programs then in effect in accordance with
the terms of such programs.
(c) TERMINATION BY THE COMPANY. This Agreement may
be terminated by the Company only by the act of the Chief
Executive Officer of the Company. The Company, through such
act of the Chief Executive Officer, may terminate Employee's
employment under this Agreement for "Cause," at any time prior
to expiration of the Term of the Agreement, only upon the
occurrence of any one or more of the following events:
(i) The material breach of this Agreement by
Employee, including without limitation, repeated
willful neglect of Employee's duties as set forth
on Exhibit A hereto, Employee's material lack of
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<PAGE> 4
diligence and attention in performing services as
provided in this Agreement, or Employee's repeated
willful failure to implement or adhere to policies
established by, or directives of, the Company's Board
of Directors.
(ii) Conduct of a criminal nature that may
have an adverse impact on the Company's reputation
and standing in the community; or
(iii) Fraudulent conduct in connection with
the business affairs of the Company, regardless of
whether said conduct is designed to defraud the
Company or others.
In the event of termination for Cause, the Company's obligation to pay
Employee's Base Salary shall cease as of the Termination Date. If Employee's
employment is terminated for Cause, Employee's employment may be terminated
immediately without any advance written notice.
(d) TERMINATION BY THE EMPLOYEE FOR GOOD REASON.
The Employee shall have the right to terminate this Agreement
for Good Reason. For purposes of this Agreement, "Good
Reason" shall mean the occurrence, without the Employee's
prior written consent, of any one or more of the following
events:
(i) The assignment to the Employee of any
duties that are materially inconsistent with, or
reflect a material continuing reduction of the powers
and responsibilities, or a change of the Employee's
reporting responsibilities, set forth on Exhibit A
hereto, or a material improper intervention by the
Company's Board of Directors in the Employee's
ability to materially perform the duties and
responsibilities set forth on Exhibit A hereto.
(ii) The Company's material breach of any of
the provisions of this Agreement, including, but not
limited to, a reduction by the Company in the
Employee's Base Salary in effect as of the Effective
Date, or as the same may be increased as provided
herein; or a change in the conditions of Employee's
employment (e.g., including, without limitation, a
failure by the Company to provide the Employee with
incentive compensation and benefit plans that provide
comparable benefits and amounts as such type programs
in effect as of the Effective Date, etc.); or
(iii) The relocation of the Company's
principal executive offices to a location outside
the Southern California area or the Company's
requiring the Employee to be based anywhere other
than
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<PAGE> 5
the Company's principal executive offices, except for
travel on the Company's business to an extent
substantially consistent with the Employee's present
business travel obligations.
The Employee agrees to provide the Company thirty (30) days' prior
written notice of any termination for Good Reason, during which
30 day period the Company shall have the right to cure the
circumstances giving rise to the Good Reason stated in such notice.
In the event of termination for Good Reason, the Employee shall
receive compensation pursuant to the provisions of Section 7
hereof.
7. COMPENSATION UPON TERMINATION BY THE COMPANY OTHER THAN FOR
CAUSE OR BY THE EMPLOYEE FOR GOOD REASON. If the Employee's employment shall
be terminated (i) by act of the Company other than for Cause or (ii) by the
Employee for Good Reason, the Employee shall be entitled to the following
benefits:
(a) PAYMENT OF UNPAID BASE SALARY AND BONUS. The
Company shall immediately pay the Employee any portion of the
Employee's Base Salary not paid prior to the Termination Date.
(b) CONTINUED PAYMENT OF BASE SALARY AND BONUS.
Within five (5) days of the Termination Date, the Company or
Care shall pay to the Employee, in a lump sum, an amount equal
to the sum of (i) an amount equal to all Base Salary that
would have been payable to the Employee pursuant to this
Agreement had the Employee continued to be employed for the
remaining unexpired term of this Agreement (such Base Salary
for such remaining term being equal to the Employee's Base
Salary in effect as of the Termination Date); and (ii) an
amount equal to the bonus payments that would have been
payable to the Employee pursuant to this Agreement had his
annual bonus for each year, or portion thereof, of the
remaining unexpired term of this Agreement been equal to the
greater of (A) the total of any performance bonus or bonuses
paid to the Employee pursuant to Section 3(b) in the fiscal
year of the Company or Care ended immediately prior to the
fiscal year in which the Termination Date occurs, and (B)
the average of the annual bonuses paid to him by the
Company or Care (or their predecessors) with respect to the
three (or, if less, the number of years the Employee has
been employed with the Company or Care or their predecessor)
fiscal years ended immediately prior to the fiscal year in
which the Termination Date occurs.
(c) CONTINUATION OF FRINGE BENEFITS. The Company
shall continue to provide the Employee with all Fringe
Benefits set forth in Section 4 throughout the remaining
unexpired Term of the Agreement, as if the Employee's
employment under the Agreement had not been terminated.
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<PAGE> 6
If, as the result of termination of Employee's employment,
Employee and/or his otherwise eligible dependents or
beneficiaries shall become ineligible for benefits under any
one or more of the Company's benefit plans, the Company shall
continue to provide the Employee and his eligible dependents
or beneficiaries with benefits at a level at least equivalent
to the level of benefits for which the Employee and his
dependents and beneficiaries were eligible under such plans
immediately prior to the Termination Date.
(d) STOCK OPTIONS AND STOCK APPRECIATION RIGHTS.
Commencing as of the date one (1) year following the Effective
Date, notwithstanding any provision in any applicable Company
benefit plans or agreements (including, but not limited to,
those relating to stock options, stock appreciation rights,
restricted stock awards, stock purchases, pensions, thrifts,
profit sharing, or other retirement or employee benefits) to
the contrary, all rights to such benefits previously granted
to Employee shall become immediately fully vested and
exercisable as of the Termination Date and shall remain
exercisable for a period thereafter of not less than one (1)
year. If any such plan or agreement provides for an exercise
period ending after the one (1) year period following the
Termination Date, then such provision shall control. The
provisions of this Section 7(d) shall constitute an amendment
to any such plans or agreements of the Company referred to
above as of the Effective Date.
(e) NO MITIGATION REQUIRED; NO OTHER ENTITLEMENT TO
BENEFITS UNDER AGREEMENT. The Employee shall not be required
in any way to mitigate the amount of any payment provided for
in this Section 7, including, but not limited to, by seeking
other employment, nor shall the amount of any payment provided
for in this Section 7 be reduced by any compensation earned by
the Employee as the result of employment with another employer
after the Termination Date, or otherwise. Except as set forth
in this Section 7, following a termination governed by this
Section 7, the Employee shall not be entitled to any other
compensation or benefits set forth in this Agreement, except
as may be separately negotiated by the parties and approved by
the Board of Directors of the Company in writing in
conjunction with the termination of Employee's employment
under this Section 7.
8. DISPUTE RELATING TO TERMINATION OF EMPLOYMENT FOR GOOD REASON.
If the Employee resigns his employment with the Company alleging in good faith
as the basis for such resignation any of the "Good Reasons" specified in
Section 6(d) and if the Company then disputes Employee's right to the payment
of benefits under
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<PAGE> 7
Section 7, the Company shall, at the option of the Employee (a written
notice of which shall be given to the Company), continue to pay Employee the
full compensation (including, but not limited to, his Base Salary) in effect at
the date Employee provided notice of such resignation, and the Company shall
continue the Employee as a participant in all compensation, benefit, and
insurance plans in which the Employee was then a participant, until the earlier
of the expiration of the Term of the Agreement or the date the dispute is
finally resolved, either by mutual written agreement of the parties or by
decree of a court of competent jurisdiction that is not appealable or with
respect to which the time for appeal has expired and no appeal has been
perfected. In the event the Employee opts to continue receiving compensation
and benefits during the term of such dispute as provided in this Section 8,
then until the earlier of the expiration of the Term of this Agreement or the
date the dispute is finally resolved as provided above, the Employee shall not,
without the prior written consent of the Company, provide consultative service
to or be employed by any entity that is then in competition with the Company or
any affiliate thereof. In the event the Court (or other trier of fact)
determines that no "Good Reason" justifying Employee's resignation existed,
then Employee shall repay to Company all compensation and benefits paid to
Employee by Company from and after the date of termination of employment.
9. NONCOMPETITION PROVISIONS.
(a) RIGHT TO COMPANY MATERIALS. Employee agrees
that all styles, designs, lists, materials, books, files,
reports, correspondence, records, and other documents
("Company Materials") used, prepared, or made available to
Employee, shall be and shall remain the property of the
Company. Upon the termination of employment or the expiration
of this Agreement, all Company Materials shall be returned
immediately to the Company, and Employee shall not make or
retain any copies thereof.
(b) ANTISOLICITATION. Employee promises and agrees
that during the term of this Agreement he will not influence
or attempt to influence customers or suppliers of the Company
or any of its present or future subsidiaries or affiliates,
either directly or indirectly, to divert their business to any
individual, partnership, firm, corporation or other entity
then in competition with the business of the Company, or any
subsidiary or affiliate of the Company.
(c) SOLICITING EMPLOYEES. During the term of this
Agreement and for the 12-month period commencing on the
Termination Date, Employee promises and agrees that he will
not directly or indirectly solicit any of the Company's
employees to work for any business, individual, partnership,
firm, corporation, or other entity then in competition with
the business of the Company or any subsidiary or affiliate of
the Company.
10. NOTICES. All notices and other communications under this
Agreement shall
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<PAGE> 8
be in writing and shall be given by fax or first class mail, certified or
registered with return receipt requested, and shall be deemed to have been duly
given three (3) days after mailing or twenty-four (24) hours after transmission
of a fax to the respective persons named below:
If to Company: Regency Health Services, Inc.
2742 Dow Avenue
Tustin, CA 92680
Phone: (714) 544-4443
Fax: (714) 544-2401
If to Employee: Richard K. Matros
2742 Dow Avenue
Tustin, CA 92680
Phone: (714) 544-4443
Either party may change such party's address for notices by notice duly given
pursuant hereto.
11. ATTORNEYS' FEES. In the event arbitral or judicial
determination is necessary of any dispute arising as to the parties' rights and
obligations hereunder, the Company and Employee shall bear their respective
attorneys' fees and costs associated with such dispute; provided, however, that
in the event it is determined that the Company breached this Agreement, the
Company shall pay or reimburse Employee for all reasonable attorneys' fees and
costs associated with such dispute.
12. TERMINATION OF PRIOR AGREEMENTS. This Agreement terminates
and supersedes any and all prior agreements and understandings between the
parties with respect to employment or with respect to the compensation of the
Employee by the Company from and after the Effective Date.
13. ASSIGNMENT; SUCCESSORS. This Agreement is personal in its
nature and neither of the parties hereto shall, without the consent of the
other, assign or transfer this Agreement or any rights or obligations
hereunder; provided that, in the event of the merger, consolidation, transfer,
or sale of all or substantially all of the assets of the Company with or to any
other individual or entity, this Agreement shall, subject to the provisions
hereof, be binding upon and inure to the benefit of such successor and such
successor shall discharge and perform all the promises, covenants, duties, and
obligations of the Company hereunder.
14. GOVERNING LAW. This Agreement and the legal relations thus
created between the parties hereto shall be governed by and construed under and
in accordance with the laws of the State of California.
15. ENTIRE AGREEMENT; HEADINGS. This Agreement embodies the
entire agreement of the parties respecting the matters within its scope and may
be modified only in
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<PAGE> 9
writing. Section headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.
16. WAIVER; MODIFICATION. Failure to insist upon strict
compliance with any of the terms, covenants, or conditions hereof shall not be
deemed a waiver of such term, covenant, or condition, nor shall any waiver or
relinquishment of, or failure to insist upon strict compliance with, any right
or power hereunder at any one or more times be deemed a waiver or
relinquishment of such right or power at any other time or times. This
Agreement shall not be modified in any respect except by a writing executed by
each party hereto.
17. SEVERABILITY. In the event that a court of competent
jurisdiction determines that any portion of this Agreement is in violation of
any statute or public policy, only the portions of this Agreement that violate
such statute or public policy shall be stricken. All portions of this
Agreement that do not violate any statute or public policy shall continue in
full force and effect. Further, any court order striking any portion of this
Agreement shall modify the stricken terms as narrowly as possible to give as
much effect as possible to the intentions of the parties under this Agreement.
18. INDEMNIFICATION. The Company shall indemnify and hold
Employee harmless to the maximum extent permitted by Section 317 of the
California Corporations Code or its successor statute.
19. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
20. SUCCESSOR SECTIONS. References herein to sections or rules of
the Code or Exchange Act shall be deemed to include any successor sections or
rules.
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<PAGE> 10
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized Director, and the Employee has hereunto signed
this Agreement, as of the date first above written.
REGENCY HEALTH SERVICES, INC.
By: __________________________________
Gregory S. Anderson
Chairman, Compensation Committee
_______________________________________
Richard K. Matros
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EXHIBIT "A"
DUTIES OF RICHARD K. MATROS ("EMPLOYEE")
AS A DIRECTOR, PRESIDENT AND CHIEF OPERATING OFFICER
OF THE COMPANY AND CARE
PRESIDENT
In his capacity as President of the Company and Care, the Employee
shall report directly to the Chairman of the Board and the Chief Executive
Officer of the Company and shall have supervisory and monitoring
responsibilities for the preparation, development, and implementation of the
Company's strategic business plan and shall have such other powers and perform
such other duties as may be deemed necessary or appropriate to the operation of
a publicly held corporation and as may be prescribed from time to time by the
Chairman of the Board and the Chief Executive Officer of the Company.
CHIEF OPERATING OFFICER
In his capacity as Chief Operating Officer of the Company and Care,
the Employee shall report to the Chairman of the Board and the Chief Executive
Officer of the Company and shall have supervisory and monitoring
responsibilities for all Company operations and shall have such other powers
and perform such other duties as may be prescribed from time to time by the
Chairman of the Board and the Chief Executive Officer of the Company,
including, but not limited to, the following:
o Be involved in all key decisions impacting current and future
strategies of the Company.
o Implement plans to improve financial performance of the
Company's operations and maximize returns to stockholders.
o Oversee the delivery of quality healthcare services at all
Company operating units.
o Actively seek new business ventures and acquisitions for the
Company to improve margins and profitability.
o Participation in investment banking conferences, analyst
and/or stockholder meetings, "road show" presentations, and
other investor relations functions.
o Develop an organizational culture that promotes a positive
approach to employee relations.
o Review profit and loss performance of all operating units
monthly, and other reports, i.e., quality assurance, as
necessary.
<PAGE> 12
o Work with local, state, and national healthcare and political
organizations to improve the regulatory, fiscal, and political
environment governing the Long Term Care and Home Care
industries.
<PAGE> 1
EXHIBIT 10.116
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), effective as of the Effective
Time set forth in Section 2.2 of that certain Agreement and Plan of Merger,
dated December 20, 1993, by and between Regency Health Services, Inc. and Care
Enterprises, Inc. ("Effective Date") is entered into by and between Gary L.
Massimino ("Employee") and Regency Health Services, Inc., a Delaware
corporation ("Company").
The Company desires to establish its right to the continued services
of the Employee, in the capacity described below, on the terms and conditions
and subject to the rights of termination hereinafter set forth, and the
Employee is willing to accept such employment on such terms and conditions.
In consideration of the mutual agreements hereinafter set forth, the
Employee and the Company have agreed and do hereby agree as follows:
1. EMPLOYMENT AS EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER OF THE COMPANY AND OF CARE ENTERPRISES, INC. The Company does hereby
employ, engage, and hire the Employee as Executive Vice President and Chief
Financial Officer of the Company and of Care Enterprises, Inc., a wholly-owned
subsidiary of the Company ("Care"), and the Employee does hereby accept and
agree to such hiring, engagement, and employment. The Employee's duties during
the Employment Period (defined below) shall be the executive, managerial, and
reporting duties set forth on Exhibit A hereto and such other duties as the
Board of Directors of the Company shall from time to time prescribe and as
provided in the Bylaws of the Company. The Employee shall devote his full
time, energy, and skill to the performance of his duties for the Company and
for the benefit of the Company, reasonable vacations authorized by the
Company's Board of Directors and reasonable absences because of illness
excepted. Furthermore, the Employee shall exercise due diligence and care in
the performance of his duties to the Company under this Agreement.
2. TERM OF AGREEMENT. The term ("Term") of this Agreement shall
commence on the Effective Date and shall continue for a period of three (3)
years; provided, however, that on each anniversary of the Effective Date at
which time the remaining term of the Agreement is two (2) years, the Term of
the Agreement shall automatically be extended for one additional year unless,
not later than any such anniversary date, either party shall have given written
notice to the other that it does not wish to extend the Term of the Agreement.
The period of time commencing on the Effective Date and ending on the date of
termination of the Employee's employment ("Termination Date") under this or any
successor agreement shall be referred to as the "Employment Period."
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<PAGE> 2
3. COMPENSATION.
(a) BASE SALARY. The Company shall pay the
Employee, and the Employee agrees to accept from the Company,
in full payment for his services to the Company a base salary
at the rate of Two Hundred Thirty Thousand Dollars ($230,000)
per year ("Base Salary"), payable in equal biweekly
installments or at such other time or times as the Employee
and the Company shall agree. Employee's Base Salary shall be
reviewed at least annually by the Company and may be increased
as determined by the Company's Board of Directors in its sole
and absolute discretion. Employee's Base Salary shall not be
decreased at any time during the Term of the Agreement from
the Base Salary then in effect.
(b) PERFORMANCE BONUS - BOARD OF DIRECTORS
DISCRETION. Employee shall be eligible to receive an annual
performance bonus based upon a percentage of his Base Salary.
Except as provided in Section 7 and Section 8, any such bonus
awarded to the Employee shall be payable in the amount, in the
manner, and at the time determined by the Company's Board of
Directors in its sole and absolute discretion.
4. FRINGE BENEFITS. Employee shall be entitled to participate in
any benefit programs adopted from time to time by the Company for the benefit
of its executive employees, and Employee shall be entitled to receive such
other fringe benefits as may be granted to him from time to time by the
Company's Board of Directors.
(a) BENEFIT PLANS. Employee shall be entitled to
participate in any benefit plans relating to stock options,
stock purchases, pension, thrift, profit sharing, life
insurance, medical coverage, education, or other retirement or
employee benefits available to other executive employees of
the Company, subject to any restrictions (including waiting
periods) specified in such plans.
(b) AUTOMOBILE. The Company shall provide Employee
with a car allowance of Three Hundred Dollars ($300) per
month, which shall be applied by Employee towards the purchase
or lease of a suitable vehicle.
(c) VACATION. Employee shall be entitled to four
(4) weeks of paid vacation per calendar year, with such
vacation to be scheduled and taken in accordance with the
Company's standard vacation policies.
(d) DISABILITY INSURANCE. The Company shall
purchase and maintain or self insure and maintain a disability
insurance policy for Employee during the Term of this
Agreement, which policy shall guarantee to Employee the
payment to Employee of a minimum of 60% of his Base Salary and
bonus (as provided in Section 7(b) hereof), or a minimum of
100% of such Base
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<PAGE> 3
Salary and bonus in the event the policy is self insured. In
the case of self insurance, the Company shall be required to
pay proceeds for the shorter of (i) the period of such
Disability or (ii) seven (7) years. Such insurance policies
will have customary exclusions, conditions and elimination
periods.
5. BUSINESS EXPENSES. The Company shall reimburse the Employee
for any and all necessary, customary, and usual expenses, properly receipted in
accordance with Company policies, incurred by Employee on behalf of the
Company.
6. TERMINATION OF EMPLOYEE'S EMPLOYMENT.
(a) DEATH. If the Employee dies while employed by
the Company, his employment shall immediately terminate. The
Company's obligation to pay the Employee's Base Salary shall
cease as of the date of Employee's death. Thereafter,
Employee's beneficiaries or his estate shall receive benefits
in accordance with the Company's retirement, insurance, and
other applicable programs and plans then in effect.
(b) DISABILITY. If, as a result of Employee's
mental or physical incapacity Employee shall be unable to
perform the services for the Company contemplated by this
Agreement in the manner in which he previously performed them
during an aggregate of 120 business days in any consecutive
seven (7) month period ("Disability"), Employee's employment
may be terminated by the Company for Disability. During any
period prior to such termination during which Employee is
absent from the full-time performance of his duties with the
Company due to Disability, the Company shall continue to pay
Employee his Base Salary at the rate in effect at the
commencement of such period of Disability. Any such payments
made to the Employee shall be reduced by amounts received from
disability insurance obtained or provided by the Company
pursuant to Section 4(d). Subsequent to the termination
provided for in this Section 6(b), Employee's benefits shall
be determined under the Company's retirement, insurance, and
other compensation programs then in effect in accordance with
the terms of such programs.
(c) TERMINATION BY THE COMPANY. This Agreement may
be terminated by the Company only by the act of the Chief
Executive Officer of the Company. The Company, through such
act of the Chief Executive Officer, may terminate Employee's
employment under this Agreement for "Cause," at any time prior
to expiration of the Term of the Agreement, only upon the
occurrence of any one or more of the following events:
(i) The material breach of this Agreement by
Employee, including without limitation, repeated
willful neglect of Employee's duties as set forth
on Exhibit A hereto, Employee's material lack of
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<PAGE> 4
diligence and attention in performing services as
provided in this Agreement, or Employee's repeated
willful failure to implement or adhere to policies
established by, or directives of, the Company's Board
of Directors.
(ii) Conduct of a criminal nature that may
have an adverse impact on the Company's reputation
and standing in the community; or
(iii) Fraudulent conduct in connection with
the business affairs of the Company, regardless of
whether said conduct is designed to defraud the
Company or others.
In the event of termination for Cause, the Company's obligation to pay
Employee's Base Salary shall cease as of the Termination Date. If Employee's
employment is terminated for Cause, Employee's employment may be terminated
immediately without any advance written notice.
(d) TERMINATION BY THE EMPLOYEE FOR GOOD REASON.
The Employee shall have the right to terminate this Agreement
for Good Reason. For purposes of this Agreement, "Good
Reason" shall mean the occurrence, without the Employee's
prior written consent, of any one or more of the following
events:
(i) The assignment to the Employee of any
duties that are materially inconsistent with, or
reflect a material continuing reduction of the powers
and responsibilities, or a change of the Employee's
reporting responsibilities, set forth on Exhibit A
hereto, or a material improper intervention by the
Company's Board of Directors in the Employee's
ability to materially perform the duties and
responsibilities set forth on Exhibit A hereto.
(ii) The Company's material breach of any of
the provisions of this Agreement, including, but not
limited to, a reduction by the Company in the
Employee's Base Salary in effect as of the Effective
Date, or as the same may be increased as provided
herein; or a change in the conditions of Employee's
employment (e.g., including, without limitation, a
failure by the Company to provide the Employee with
incentive compensation and benefit plans that provide
comparable benefits and amounts as such type programs
in effect as of the Effective Date, etc.); or
(iii) The relocation of the Company's
principal executive offices to a location outside the
Southern California area or the Company's requiring
the Employee to be based anywhere other than
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the Company's principal executive offices, except for
travel on the Company's business to an extent
substantially consistent with the Employee's present
business travel obligations.
The Employee agrees to provide the Company thirty (30) days' prior
written notice of any termination for Good Reason, during which 30 day
period the Company shall have the right to cure the circumstances
giving rise to the Good Reason stated in such notice. In the event of
termination for Good Reason, the Employee shall receive compensation
pursuant to the provisions of Section 7 hereof.
7. COMPENSATION UPON TERMINATION BY THE COMPANY OTHER THAN FOR
CAUSE OR BY THE EMPLOYEE FOR GOOD REASON. If the Employee's employment shall
be terminated (i) by act of the Company other than for Cause or (ii) by the
Employee for Good Reason, the Employee shall be entitled to the following
benefits:
(a) PAYMENT OF UNPAID BASE SALARY AND BONUS. The
Company shall immediately pay the Employee any portion of the
Employee's Base Salary not paid prior to the Termination Date.
(b) CONTINUED PAYMENT OF BASE SALARY AND BONUS.
Within five (5) days of the Termination Date, the Company or
Care shall pay to the Employee, in a lump sum, an amount equal
to the sum of (i) an amount equal to all Base Salary that
would have been payable to the Employee pursuant to this
Agreement had the Employee continued to be employed for the
remaining unexpired term of this Agreement (such Base Salary
for such remaining term being equal to the Employee's Base
Salary in effect as of the Termination Date); and (ii) an
amount equal to the bonus payments that would have been
payable to the Employee pursuant to this Agreement had his
annual bonus for each year, or portion thereof, of the
remaining unexpired term of this Agreement been equal to the
greater of (A) the total of any performance bonus or bonuses
paid to the Employee pursuant to Section 3(b) in the fiscal
year of the Company or Care ended immediately prior to the
fiscal year in which the Termination Date occurs, and
(B) the average of the annual bonuses paid to him by the
Company or Care (or their predecessors) with respect to the
three (or, if less, the number of years the Employee has
been employed with the Company or Care or their
predecessor) fiscal years ended immediately prior to the
fiscal year in which the Termination Date occurs.
(c) CONTINUATION OF FRINGE BENEFITS. The Company
shall continue to provide the Employee with all Fringe
Benefits set forth in Section 4 throughout the remaining
unexpired Term of the Agreement, as if the Employee's
employment under the Agreement had not been terminated.
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If, as the result of termination of Employee's employment,
Employee and/or his otherwise eligible dependents or
beneficiaries shall become ineligible for benefits under any
one or more of the Company's benefit plans, the Company shall
continue to provide the Employee and his eligible dependents
or beneficiaries with benefits at a level at least equivalent
to the level of benefits for which the Employee and his
dependents and beneficiaries were eligible under such plans
immediately prior to the Termination Date.
(d) STOCK OPTIONS AND STOCK APPRECIATION RIGHTS.
Commencing as of the date one (1) year following the Effective
Date, notwithstanding any provision in any applicable Company
benefit plans or agreements (including, but not limited to,
those relating to stock options, stock appreciation rights,
restricted stock awards, stock purchases, pensions, thrifts,
profit sharing, or other retirement or employee benefits) to
the contrary, all rights to such benefits previously granted
to Employee shall become immediately fully vested and
exercisable as of the Termination Date and shall remain
exercisable for a period thereafter of not less than one (1)
year. If any such plan or agreement provides for an exercise
period ending after the one (1) year period following the
Termination Date, then such provision shall control. The
provisions of this Section 7(d) shall constitute an amendment
to any such plans or agreements of the Company referred to
above as of the Effective Date.
(e) NO MITIGATION REQUIRED; NO OTHER ENTITLEMENT TO
BENEFITS UNDER AGREEMENT. The Employee shall not be required
in any way to mitigate the amount of any payment provided for
in this Section 7, including, but not limited to, by seeking
other employment, nor shall the amount of any payment provided
for in this Section 7 be reduced by any compensation earned by
the Employee as the result of employment with another employer
after the Termination Date, or otherwise. Except as set forth
in this Section 7, following a termination governed by this
Section 7, the Employee shall not be entitled to any other
compensation or benefits set forth in this Agreement, except
as may be separately negotiated by the parties and approved by
the Board of Directors of the Company in writing in
conjunction with the termination of Employee's employment
under this Section 7.
8. DISPUTE RELATING TO TERMINATION OF EMPLOYMENT FOR GOOD REASON.
If the Employee resigns his employment with the Company alleging in good faith
as the basis for such resignation any of the "Good Reasons" specified in
Section 6(d) and if the Company then disputes Employee's right to the payment
of benefits under
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Section 7, the Company shall, at the option of the Employee (a written
notice of which shall be given to the Company), continue to pay Employee the
full compensation (including, but not limited to, his Base Salary) in effect at
the date Employee provided notice of such resignation, and the Company shall
continue the Employee as a participant in all compensation, benefit, and
insurance plans in which the Employee was then a participant, until the earlier
of the expiration of the Term of the Agreement or the date the dispute is
finally resolved, either by mutual written agreement of the parties or by
decree of a court of competent jurisdiction that is not appealable or with
respect to which the time for appeal has expired and no appeal has been
perfected. In the event the Employee opts to continue receiving compensation
and benefits during the term of such dispute as provided in this Section 8,
then until the earlier of the expiration of the Term of this Agreement or the
date the dispute is finally resolved as provided above, the Employee shall not,
without the prior written consent of the Company, provide consultative service
to or be employed by any entity that is then in competition with the Company or
any affiliate thereof. In the event the Court (or other trier of fact)
determines that no "Good Reason" justifying Employee's resignation existed,
then Employee shall repay to Company all compensation and benefits paid to
Employee by Company from and after the date of termination of employment.
9. NONCOMPETITION PROVISIONS.
(a) RIGHT TO COMPANY MATERIALS. Employee agrees
that all styles, designs, lists, materials, books, files,
reports, correspondence, records, and other documents ("Company
Materials") used, prepared, or made available to Employee,
shall be and shall remain the property of the Company. Upon
the termination of employment or the expiration of this
Agreement, all Company Materials shall be returned immediately
to the Company, and Employee shall not make or retain any
copies thereof.
(b) ANTISOLICITATION. Employee promises and agrees
that during the term of this Agreement he will not influence
or attempt to influence customers or suppliers of the Company
or any of its present or future subsidiaries or affiliates,
either directly or indirectly, to divert their business to any
individual, partnership, firm, corporation or other entity
then in competition with the business of the Company, or any
subsidiary or affiliate of the Company.
(c) SOLICITING EMPLOYEES. During the term of this
Agreement and for the 12-month period commencing on the
Termination Date, Employee promises and agrees that he will
not directly or indirectly solicit any of the Company's
employees to work for any business, individual, partnership,
firm, corporation, or other entity then in competition with
the business of the Company or any subsidiary or affiliate of
the Company.
10. NOTICES. All notices and other communications under this
Agreement shall
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be in writing and shall be given by fax or first class mail, certified or
registered with return receipt requested, and shall be deemed to have been duly
given three (3) days after mailing or twenty-four (24) hours after transmission
of a fax to the respective persons named below:
If to Company: Regency Health Services, Inc.
2742 Dow Avenue
Tustin, CA 92680
Phone: (714) 544-4443
Fax: (714) 544-2401
If to Employee: Gary L. Massimino
2742 Dow Avenue
Tustin, CA 92680
Phone: (714) 544-4443
Either party may change such party's address for notices by notice duly given
pursuant hereto.
11. ATTORNEYS' FEES. In the event arbitral or judicial
determination is necessary of any dispute arising as to the parties' rights and
obligations hereunder, the Company and Employee shall bear their respective
attorneys' fees and costs associated with such dispute; provided, however, that
in the event it is determined that the Company breached this Agreement, the
Company shall pay or reimburse Employee for all reasonable attorneys' fees and
costs associated with such dispute.
12. TERMINATION OF PRIOR AGREEMENTS. This Agreement terminates
and supersedes any and all prior agreements and understandings between the
parties with respect to employment or with respect to the compensation of the
Employee by the Company from and after the Effective Date.
13. ASSIGNMENT; SUCCESSORS. This Agreement is personal in its
nature and neither of the parties hereto shall, without the consent of the
other, assign or transfer this Agreement or any rights or obligations
hereunder; provided that, in the event of the merger, consolidation, transfer,
or sale of all or substantially all of the assets of the Company with or to any
other individual or entity, this Agreement shall, subject to the provisions
hereof, be binding upon and inure to the benefit of such successor and such
successor shall discharge and perform all the promises, covenants, duties, and
obligations of the Company hereunder.
14. GOVERNING LAW. This Agreement and the legal relations thus
created between the parties hereto shall be governed by and construed under and
in accordance with the laws of the State of California.
15. ENTIRE AGREEMENT; HEADINGS. This Agreement embodies the
entire agreement of the parties respecting the matters within its scope and may
be modified only in
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writing. Section headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.
16. WAIVER; MODIFICATION. Failure to insist upon strict
compliance with any of the terms, covenants, or conditions hereof shall not be
deemed a waiver of such term, covenant, or condition, nor shall any waiver or
relinquishment of, or failure to insist upon strict compliance with, any right
or power hereunder at any one or more times be deemed a waiver or
relinquishment of such right or power at any other time or times. This
Agreement shall not be modified in any respect except by a writing executed by
each party hereto.
17. SEVERABILITY. In the event that a court of competent
jurisdiction determines that any portion of this Agreement is in violation of
any statute or public policy, only the portions of this Agreement that violate
such statute or public policy shall be stricken. All portions of this
Agreement that do not violate any statute or public policy shall continue in
full force and effect. Further, any court order striking any portion of this
Agreement shall modify the stricken terms as narrowly as possible to give as
much effect as possible to the intentions of the parties under this Agreement.
18. INDEMNIFICATION. The Company shall indemnify and hold
Employee harmless to the maximum extent permitted by Section 317 of the
California Corporations Code or its successor statute.
19. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
20. SUCCESSOR SECTIONS. References herein to sections or rules of
the Code or Exchange Act shall be deemed to include any successor sections or
rules.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized Director, and the Employee has hereunto signed
this Agreement, as of the date first above written.
REGENCY HEALTH SERVICES, INC.
By: __________________________________
Gregory S. Anderson
Chairman, Compensation Committee
_______________________________________
Gary L. Massimino
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EXHIBIT "A"
DUTIES OF GARY L. MASSIMINO ("EMPLOYEE")
AS EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
OF THE COMPANY AND CARE
EXECUTIVE VICE PRESIDENT
In his capacity as Executive Vice President of the Company and Care,
the Employee shall report directly to the Chief Executive Officer of the
Company and shall have supervisory and monitoring responsibilities for the
preparation, development and implementation of the Company's strategic business
plan and shall have such other powers and perform such other duties as may be
deemed necessary or appropriate to the operation of a publicly held corporation
and as may be prescribed from time to time by the Chief Executive Officer of
the Company.
CHIEF FINANCIAL OFFICER
In his capacity as Chief Financial Officer of the Company and Care,
the Employee shall report directly to the Chief Executive Officer of the
Company and shall supervise and monitor the accounting and finance functions,
the Management Information Systems, and Risk Management departments and staffs
of the Company and Care and perform such other duties as may be prescribed from
time to time by the Chief Executive Officer of the Company, including, but not
limited to, the following:
o Responsibility for the financial affairs of the
Company, which will include:
o Responsibility for financial reporting to the Board
of Directors, management, stockholders, the SEC, and
the investment community.
o Responsibility for state and federal reimbursement
and tax planning and reporting.
o Maintenance of relationships with the investment
banking community and the stock exchange where the
Company's stock is traded.
o Responsibility for relationships with banks, lenders,
and financial institutions.
o Strategic and acquisition planning.
o Safeguarding the Company's assets through appropriate risk
management.
o Responsibility for the Company's information systems to
determine that they produce accurate and timely information
via appropriate hardware, software, and staff.
<PAGE> 1
EXHIBIT 10.117
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), effective as of the Effective
Time set forth in Section 2.2 of that certain Agreement and Plan of Merger,
dated December 20, 1993, by and between Regency Health Services, Inc. and Care
Enterprises, Inc. ("Effective Date") is entered into by and between Tim J.
Paulsen ("Employee") and Regency Health Services, Inc., a Delaware corporation
("Company").
The Company desires to establish its right to the continued services
of the Employee, in the capacity described below, on the terms and conditions
and subject to the rights of termination hereinafter set forth, and the
Employee is willing to accept such employment on such terms and conditions.
In consideration of the mutual agreements hereinafter set forth, the
Employee and the Company have agreed and do hereby agree as follows:
1. EMPLOYMENT AS SENIOR VICE PRESIDENT AND DIRECTOR OF OPERATIONS OF
THE COMPANY AND OF CARE ENTERPRISES, INC. The Company does hereby employ,
engage, and hire the Employee as Senior Vice President and Director of
Operations of the Company and of Care Enterprises, Inc., a wholly-owned
subsidiary of the Company ("Care"), and the Employee does hereby accept and
agree to such hiring, engagement, and employment. The Employee's duties during
the Employment Period (defined below) shall be the executive, managerial, and
reporting duties set forth on Exhibit A hereto and such other duties as the
Board of Directors of the Company shall from time to time prescribe and as
provided in the Bylaws of the Company. The Employee shall devote his full
time, energy, and skill to the performance of his duties for the Company and
for the benefit of the Company, reasonable vacations authorized by the
Company's Board of Directors and reasonable absences because of illness
excepted. Furthermore, the Employee shall exercise due diligence and care in
the performance of his duties to the Company under this Agreement.
2. TERM OF AGREEMENT. The term ("Term") of this Agreement shall
commence on the Effective Date and shall continue for a period of three (3)
years; provided, however, that on each anniversary of the Effective Date at
which time the remaining term of the Agreement is two (2) years, the Term of
the Agreement shall automatically be extended for one additional year unless,
not later than any such anniversary date, either party shall have given written
notice to the other that it does not wish to extend the Term of the Agreement.
The period of time commencing on the Effective Date and ending on the date of
termination of the Employee's employment ("Termination Date") under this or any
successor agreement shall be referred to as the "Employment Period."
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3. COMPENSATION.
(a) BASE SALARY. The Company shall pay the
Employee, and the Employee agrees to accept from the Company,
in full payment for his services to the Company a base salary
at the rate of One Hundred Seventy-Five Thousand Dollars
($175,000) per year ("Base Salary"), payable in equal biweekly
installments or at such other time or times as the Employee
and the Company shall agree. Employee's Base Salary shall be
reviewed at least annually by the Company and may be increased
as determined by the Company's Board of Directors in its sole
and absolute discretion. Employee's Base Salary shall not be
decreased at any time during the Term of the Agreement from
the Base Salary then in effect.
(b) PERFORMANCE BONUS - BOARD OF DIRECTORS
DISCRETION. Employee shall be eligible to receive an annual
performance bonus based upon a percentage of his Base Salary.
Except as provided in Section 7 and Section 8, any such bonus
awarded to the Employee shall be payable in the amount, in the
manner, and at the time determined by the Company's Board of
Directors in its sole and absolute discretion.
4. FRINGE BENEFITS. Employee shall be entitled to participate in
any benefit programs adopted from time to time by the Company for the benefit
of its executive employees, and Employee shall be entitled to receive such
other fringe benefits as may be granted to him from time to time by the
Company's Board of Directors.
(a) BENEFIT PLANS. Employee shall be entitled to
participate in any benefit plans relating to stock options,
stock purchases, pension, thrift, profit sharing, life
insurance, medical coverage, education, or other retirement or
employee benefits available to other executive employees of
the Company, subject to any restrictions (including waiting
periods) specified in such plans.
(b) AUTOMOBILE. The Company shall provide Employee
with a car allowance of Three Hundred Dollars ($300) per
month, which shall be applied by Employee towards the purchase
or lease of a suitable vehicle.
(c) VACATION. Employee shall be entitled to four
(4) weeks of paid vacation per calendar year, with such
vacation to be scheduled and taken in accordance with the
Company's standard vacation policies.
(d) DISABILITY INSURANCE. The Company shall
purchase and maintain or self insure and maintain a disability
insurance policy for Employee during the Term of this
Agreement, which policy shall guarantee to Employee the
payment to Employee of a minimum of 60% of his Base Salary and
bonus (as provided in Section 7(b) hereof), or a minimum of
100% of such Base
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<PAGE> 3
Salary and bonus in the event the policy is self insured. In
the case of self insurance, the Company shall be required to
pay proceeds for the shorter of (i) the period of such
Disability or (ii) seven (7) years. Such insurance policies
will have customary exclusions, conditions and elimination
periods.
5. BUSINESS EXPENSES. The Company shall reimburse the Employee
for any and all necessary, customary, and usual expenses, properly receipted in
accordance with Company policies, incurred by Employee on behalf of the
Company.
6. TERMINATION OF EMPLOYEE'S EMPLOYMENT.
(a) DEATH. If the Employee dies while employed by
the Company, his employment shall immediately
terminate. The Company's obligation to pay the Employee's
Base Salary shall cease as of the date of Employee's death.
Thereafter, Employee's beneficiaries or his estate shall
receive benefits in accordance with the Company's retirement,
insurance, and other applicable programs and plans then in
effect.
(b) DISABILITY. If, as a result of Employee's
mental or physical incapacity Employee shall be unable to
perform the services for the Company contemplated by this
Agreement in the manner in which he previously performed them
during an aggregate of 120 business days in any consecutive
seven (7) month period ("Disability"), Employee's employment
may be terminated by the Company for Disability. During any
period prior to such termination during which Employee is
absent from the full-time performance of his duties with the
Company due to Disability, the Company shall continue to pay
Employee his Base Salary at the rate in effect at the
commencement of such period of Disability. Any such payments
made to the Employee shall be reduced by amounts received from
disability insurance obtained or provided by the Company
pursuant to Section 4(d). Subsequent to the termination
provided for in this Section 6(b), Employee's benefits shall
be determined under the Company's retirement, insurance, and
other compensation programs then in effect in accordance with
the terms of such programs.
(c) TERMINATION BY THE COMPANY. This Agreement may
be terminated by the Company only by the act of the Chief
Executive Officer of the Company. The Company, through such
act of the Chief Executive Officer, may terminate Employee's
employment under this Agreement for "Cause," at any time prior
to expiration of the Term of the Agreement, only upon the
occurrence of any one or more of the following events:
(i) The material breach of this Agreement by
Employee, including without limitation, repeated
willful neglect of Employee's duties as set forth
on Exhibit A hereto, Employee's material lack of
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diligence and attention in performing services as
provided in this Agreement, or Employee's repeated
willful failure to implement or adhere to policies
established by, or directives of, the Company's Board
of Directors.
(ii) Conduct of a criminal nature that may
have an adverse impact on the Company's reputation
and standing in the community; or
(iii) Fraudulent conduct in connection with
the business affairs of the Company, regardless of
whether said conduct is designed to defraud the
Company or others.
In the event of termination for Cause, the Company's obligation to pay
Employee's Base Salary shall cease as of the Termination Date. If
Employee's employment is terminated for Cause, Employee's employment
may be terminated immediately without any advance written notice.
(d) TERMINATION BY THE EMPLOYEE FOR GOOD REASON.
The Employee shall have the right to terminate this Agreement
for Good Reason. For purposes of this Agreement, "Good
Reason" shall mean the occurrence, without the Employee's
prior written consent, of any one or more of the following
events:
(i) The assignment to the Employee of any
duties that are materially inconsistent with, or
reflect a material continuing reduction of the powers
and responsibilities, or a change of the Employee's
reporting responsibilities, set forth on Exhibit A
hereto, or a material improper intervention by the
Company's Board of Directors in the Employee's
ability to materially perform the duties and
responsibilities set forth on Exhibit A hereto.
(ii) The Company's material breach of any of
the provisions of this Agreement, including, but not
limited to, a reduction by the Company in the
Employee's Base Salary in effect as of the Effective
Date, or as the same may be increased as provided
herein; or a change in the conditions of Employee's
employment (e.g., including, without limitation, a
failure by the Company to provide the Employee with
incentive compensation and benefit plans that provide
comparable benefits and amounts as such type programs
in effect as of the Effective Date, etc.); or
(iii) The relocation of the Company's
principal executive offices to a location outside the
Southern California area or the Company's requiring
the Employee to be based anywhere other than
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the Company's principal executive offices, except for
travel on the Company's business to an extent
substantially consistent with the Employee's present
business travel obligations.
The Employee agrees to provide the Company thirty (30) days' prior
written notice of any termination for Good Reason, during which 30 day
period the Company shall have the right to cure the circumstances
giving rise to the Good Reason stated in such notice. In the event of
termination for Good Reason, the Employee shall receive compensation
pursuant to the provisions of Section 7 hereof.
7. COMPENSATION UPON TERMINATION BY THE COMPANY OTHER THAN FOR
CAUSE OR BY THE EMPLOYEE FOR GOOD REASON. If the Employee's employment shall
be terminated (i) by act of the Company other than for Cause or (ii) by the
Employee for Good Reason, the Employee shall be entitled to the following
benefits:
(a) PAYMENT OF UNPAID BASE SALARY AND BONUS. The
Company shall immediately pay the Employee any portion of the
Employee's Base Salary not paid prior to the Termination Date.
(b) CONTINUED PAYMENT OF BASE SALARY AND BONUS.
Within five (5) days of the Termination Date, the Company or
Care shall pay to the Employee, in a lump sum, an amount equal
to the sum of (i) an amount equal to all Base Salary that
would have been payable to the Employee pursuant to this
Agreement had the Employee continued to be employed for the
remaining unexpired term of this Agreement (such Base Salary
for such remaining term being equal to the Employee's Base
Salary in effect as of the Termination Date); and (ii) an
amount equal to the bonus payments that would have been
payable to the Employee pursuant to this Agreement had his
annual bonus for each year, or portion thereof, of the
remaining unexpired term of this Agreement been equal to the
greater of (A) the total of any performance bonus or bonuses
paid to the Employee pursuant to Section 3(b) in the fiscal
year of the Company or Care ended immediately prior to the
fiscal year in which the Termination Date occurs, and (B) the
average of the annual bonuses paid to him by the Company or
Care (or their predecessors) with respect to the three (or, if
less, the number of years the Employee has been employed with
the Company or Care or their predecessor) fiscal years ended
immediately prior to the fiscal year in which the Termination
Date occurs.
(c) CONTINUATION OF FRINGE BENEFITS. The Company
shall continue to provide the Employee with all Fringe
Benefits set forth in Section 4 throughout the remaining
unexpired Term of the Agreement, as if the Employee's
employment under the Agreement had not been terminated.
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If, as the result of termination of Employee's employment,
Employee and/or his otherwise eligible dependents or
beneficiaries shall become ineligible for benefits under any
one or more of the Company's benefit plans, the Company shall
continue to provide the Employee and his eligible dependents
or beneficiaries with benefits at a level at least equivalent
to the level of benefits for which the Employee and his
dependents and beneficiaries were eligible under such plans
immediately prior to the Termination Date.
(d) STOCK OPTIONS AND STOCK APPRECIATION RIGHTS.
Commencing as of the date one (1) year following the Effective
Date, notwithstanding any provision in any applicable Company
benefit plans or agreements (including, but not limited to,
those relating to stock options, stock appreciation rights,
restricted stock awards, stock purchases, pensions, thrifts,
profit sharing, or other retirement or employee benefits) to
the contrary, all rights to such benefits previously granted
to Employee shall become immediately fully vested and
exercisable as of the Termination Date and shall remain
exercisable for a period thereafter of not less than one (1)
year. If any such plan or agreement provides for an exercise
period ending after the one (1) year period following the
Termination Date, then such provision shall control. The
provisions of this Section 7(d) shall constitute an amendment
to any such plans or agreements of the Company referred to
above as of the Effective Date.
(e) NO MITIGATION REQUIRED; NO OTHER ENTITLEMENT TO
BENEFITS UNDER AGREEMENT. The Employee shall not be required
in any way to mitigate the amount of any payment provided for
in this Section 7, including, but not limited to, by seeking
other employment, nor shall the amount of any payment provided
for in this Section 7 be reduced by any compensation earned by
the Employee as the result of employment with another employer
after the Termination Date, or otherwise. Except as set forth
in this Section 7, following a termination governed by this
Section 7, the Employee shall not be entitled to any other
compensation or benefits set forth in this Agreement, except
as may be separately negotiated by the parties and approved by
the Board of Directors of the Company in writing in
conjunction with the termination of Employee's employment
under this Section 7.
8. DISPUTE RELATING TO TERMINATION OF EMPLOYMENT FOR GOOD REASON.
If the Employee resigns his employment with the Company alleging in good faith
as the basis for such resignation any of the "Good Reasons" specified in
Section 6(d) and if the Company then disputes Employee's right to the payment
of benefits under
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Section 7, the Company shall, at the option of the Employee (a written
notice of which shall be given to the Company), continue to pay Employee the
full compensation (including, but not limited to, his Base Salary) in effect at
the date Employee provided notice of such resignation, and the Company shall
continue the Employee as a participant in all compensation, benefit, and
insurance plans in which the Employee was then a participant, until the earlier
of the expiration of the Term of the Agreement or the date the dispute is
finally resolved, either by mutual written agreement of the parties or by
decree of a court of competent jurisdiction that is not appealable or with
respect to which the time for appeal has expired and no appeal has been
perfected. In the event the Employee opts to continue receiving compensation
and benefits during the term of such dispute as provided in this Section 8,
then until the earlier of the expiration of the Term of this Agreement or the
date the dispute is finally resolved as provided above, the Employee shall not,
without the prior written consent of the Company, provide consultative service
to or be employed by any entity that is then in competition with the Company or
any affiliate thereof. In the event the Court (or other trier of fact)
determines that no "Good Reason" justifying Employee's resignation existed,
then Employee shall repay to Company all compensation and benefits paid to
Employee by Company from and after the date of termination of employment.
9. NONCOMPETITION PROVISIONS.
(a) RIGHT TO COMPANY MATERIALS. Employee agrees
that all styles, designs, lists, materials, books, files,
reports, correspondence, records, and other documents
("Company Materials") used, prepared, or made available to
Employee, shall be and shall remain the property of the
Company. Upon the termination of employment or the expiration
of this Agreement, all Company Materials shall be returned
immediately to the Company, and Employee shall not make or
retain any copies thereof.
(b) ANTISOLICITATION. Employee promises and agrees
that during the term of this Agreement he will not influence
or attempt to influence customers or suppliers of the Company
or any of its present or future subsidiaries or affiliates,
either directly or indirectly, to divert their business to any
individual, partnership, firm, corporation or other entity
then in competition with the business of the Company, or any
subsidiary or affiliate of the Company.
(c) SOLICITING EMPLOYEES. During the term of this
Agreement and for the 12-month period commencing on the
Termination Date, Employee promises and agrees that he will
not directly or indirectly solicit any of the Company's
employees to work for any business, individual, partnership,
firm, corporation, or other entity then in competition with
the business of the Company or any subsidiary or affiliate of
the Company.
10. NOTICES. All notices and other communications under this
Agreement shall
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be in writing and shall be given by fax or first class mail, certified or
registered with return receipt requested, and shall be deemed to have been duly
given three (3) days after mailing or twenty-four (24) hours after transmission
of a fax to the respective persons named below:
If to Company: Regency Health Services, Inc.
2742 Dow Avenue
Tustin, CA 92680
Phone: (714) 544-4443
Fax: (714) 544-2401
If to Employee: Tim J. Paulsen
2742 Dow Avenue
Tustin, CA 92680
Phone: (714) 544-4443
Either party may change such party's address for notices by notice duly given
pursuant hereto.
11. ATTORNEYS' FEES. In the event arbitral or judicial
determination is necessary of any dispute arising as to the parties' rights and
obligations hereunder, the Company and Employee shall bear their respective
attorneys' fees and costs associated with such dispute; provided, however, that
in the event it is determined that the Company breached this Agreement, the
Company shall pay or reimburse Employee for all reasonable attorneys' fees and
costs associated with such dispute.
12. TERMINATION OF PRIOR AGREEMENTS. This Agreement terminates
and supersedes any and all prior agreements and understandings between the
parties with respect to employment or with respect to the compensation of the
Employee by the Company from and after the Effective Date.
13. ASSIGNMENT; SUCCESSORS. This Agreement is personal in its
nature and neither of the parties hereto shall, without the consent of the
other, assign or transfer this Agreement or any rights or obligations
hereunder; provided that, in the event of the merger, consolidation, transfer,
or sale of all or substantially all of the assets of the Company with or to any
other individual or entity, this Agreement shall, subject to the provisions
hereof, be binding upon and inure to the benefit of such successor and such
successor shall discharge and perform all the promises, covenants, duties, and
obligations of the Company hereunder.
14. GOVERNING LAW. This Agreement and the legal relations thus
created between the parties hereto shall be governed by and construed under and
in accordance with the laws of the State of California.
15. ENTIRE AGREEMENT; HEADINGS. This Agreement embodies the
entire agreement of the parties respecting the matters within its scope and may
be modified only in
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writing. Section headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.
16. WAIVER; MODIFICATION. Failure to insist upon strict
compliance with any of the terms, covenants, or conditions hereof shall not be
deemed a waiver of such term, covenant, or condition, nor shall any waiver or
relinquishment of, or failure to insist upon strict compliance with, any right
or power hereunder at any one or more times be deemed a waiver or
relinquishment of such right or power at any other time or times. This
Agreement shall not be modified in any respect except by a writing executed by
each party hereto.
17. SEVERABILITY. In the event that a court of competent
jurisdiction determines that any portion of this Agreement is in violation of
any statute or public policy, only the portions of this Agreement that violate
such statute or public policy shall be stricken. All portions of this
Agreement that do not violate any statute or public policy shall continue in
full force and effect. Further, any court order striking any portion of this
Agreement shall modify the stricken terms as narrowly as possible to give as
much effect as possible to the intentions of the parties under this Agreement.
18. INDEMNIFICATION. The Company shall indemnify and hold
Employee harmless to the maximum extent permitted by Section 317 of the
California Corporations Code or its successor statute.
19. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
20. SUCCESSOR SECTIONS. References herein to sections or rules of
the Code or Exchange Act shall be deemed to include any successor sections or
rules.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized Director, and the Employee has hereunto signed
this Agreement, as of the date first above written.
REGENCY HEALTH SERVICES, INC.
By: __________________________________
Gregory S. Anderson
Chairman, Compensation Committee
______________________________________
Tim J. Paulsen
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EXHIBIT "A"
DUTIES OF TIM J. PAULSEN ("EMPLOYEE")
AS SENIOR VICE PRESIDENT,
SENIOR VICE PRESIDENT AND DIRECTOR OF OPERATIONS
OF THE COMPANY AND CARE
SENIOR VICE PRESIDENT
In his capacity as Senior Vice President and Director of Operations of
the Company and Care, the Employee shall report directly to the President of
the Company and shall have supervisory and monitoring responsibilities for the
preparation, development, and implementation of the Company's strategic
business plan and shall have such other powers and perform such other duties as
may be deemed necessary or appropriate to the operation of a publicly held
corporation and as may be prescribed from time to time by the President of the
Company.
SENIOR VICE PRESIDENT AND DIRECTOR OF OPERATIONS
In his capacity as Senior Vice President and Director of Operations of
the Company and Care, the Employee shall report directly to the President of
the Company and shall have supervisory and monitoring responsibilities for the
operations of the Company and Care and shall have such other powers and perform
such other duties as may be prescribed from time to time by the President of
the Company, including, but not limited to, the following:
o Oversee and ensure the development of operating budgets for
all Company units assigned.
o Organize the development and implementation of operating plans
that will assure that Company strategic goals and budgets are
met.
o Follow-up and report regularly to the President of the Company
as to the status of all operating units assigned.
o Coordinate the utilization of Company resources necessary to
ensure that operating goals are met.
o Participate as requested and assigned by the President of the
Company in meetings, committees, associations and
organizations in support of Long-Term Care and related
industries.
o Actively support an organizational culture that promotes
positive employee relations.
o Ensure substantial compliance with appropriate regulatory
agencies.
<PAGE> 1
EXHIBIT 10.118
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), effective as of the Effective
Time set forth in Section 2.2 of that certain Agreement and Plan of Merger,
dated December 20, 1993, by and between Regency Health Services, Inc. and Care
Enterprises, Inc. ("Effective Date") is entered into by and between T. Craig
Nordstrom ("Employee") and Regency Health Services, Inc., a Delaware
corporation ("Company").
The Company desires to establish its right to the continued services
of the Employee, in the capacity described below, on the terms and conditions
and subject to the rights of termination hereinafter set forth, and the
Employee is willing to accept such employment on such terms and conditions.
In consideration of the mutual agreements hereinafter set forth, the
Employee and the Company have agreed and do hereby agree as follows:
1. EMPLOYMENT AS SENIOR VICE PRESIDENT AND DIRECTOR OF CORPORATE
DEVELOPMENT OF THE COMPANY AND OF CARE ENTERPRISES, INC. The Company does
hereby employ, engage, and hire the Employee as Senior Vice President and
Director of Corporate Development of the Company and of Care Enterprises, Inc.,
a wholly-owned subsidiary of the Company ("Care"), and the Employee does hereby
accept and agree to such hiring, engagement, and employment. The Employee's
duties during the Employment Period (defined below) shall be the executive,
managerial, and reporting duties set forth on Exhibit A hereto and such other
duties as the Board of Directors of the Company shall from time to time
prescribe and as provided in the Bylaws of the Company. The Employee shall
devote his full time, energy, and skill to the performance of his duties for
the Company and for the benefit of the Company, reasonable vacations authorized
by the Company's Board of Directors and reasonable absences because of illness
excepted. Furthermore, the Employee shall exercise due diligence and care in
the performance of his duties to the Company under this Agreement.
2. TERM OF AGREEMENT. The term ("Term") of this Agreement shall
commence on the Effective Date and shall continue for a period of three (3)
years; provided, however, that on each anniversary of the Effective Date at
which time the remaining term of the Agreement is two (2) years, the Term of
the Agreement shall automatically be extended for one additional year unless,
not later than any such anniversary date, either party shall have given written
notice to the other that it does not wish to extend the Term of the Agreement.
The period of time commencing on the Effective Date and ending on the date of
termination of the Employee's employment ("Termination Date") under this or any
successor agreement shall be referred to as the "Employment Period."
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3. COMPENSATION.
(a) BASE SALARY. The Company shall pay the
Employee, and the Employee agrees to accept from the Company,
in full payment for his services to the Company a base salary
at the rate of One Hundred Forty Thousand Dollars ($140,000)
per year ("Base Salary"), payable in equal biweekly
installments or at such other time or times as the Employee
and the Company shall agree. Employee's Base Salary shall be
reviewed at least annually by the Company and may be increased
as determined by the Company's Board of Directors in its sole
and absolute discretion. Employee's Base Salary shall not be
decreased at any time during the Term of the Agreement from
the Base Salary then in effect.
(b) PERFORMANCE BONUS - BOARD OF DIRECTORS
DISCRETION. Employee shall be eligible to receive an annual
performance bonus based upon a percentage of his Base Salary.
Except as provided in Section 7 and Section 8, any such bonus
awarded to the Employee shall be payable in the amount, in the
manner, and at the time determined by the Company's Board of
Directors in its sole and absolute discretion.
4. FRINGE BENEFITS. Employee shall be entitled to participate in
any benefit programs adopted from time to time by the Company for the benefit
of its executive employees, and Employee shall be entitled to receive such
other fringe benefits as may be granted to him from time to time by the
Company's Board of Directors.
(a) BENEFIT PLANS. Employee shall be entitled to
participate in any benefit plans relating to stock options,
stock purchases, pension, thrift, profit sharing, life
insurance, medical coverage, education, or other retirement or
employee benefits available to other executive employees of
the Company, subject to any restrictions (including waiting
periods) specified in such plans.
(b) AUTOMOBILE. The Company shall provide Employee
with a car allowance of Three Hundred Dollars ($300) per
month, which shall be applied by Employee towards the purchase
or lease of a suitable vehicle.
(c) VACATION. Employee shall be entitled to four
(4) weeks of paid vacation per calendar year, with such
vacation to be scheduled and taken in accordance with the
Company's standard vacation policies.
(d) DISABILITY INSURANCE. The Company shall
purchase and maintain or self insure and maintain a disability
insurance policy for Employee during the Term of this
Agreement, which policy shall guarantee to Employee the
payment to Employee of a minimum of 60% of his Base Salary and
bonus (as provided in Section 7(b) hereof), or a minimum of
100% of such Base
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<PAGE> 3
Salary and bonus in the event the policy is self insured. In
the case of self insurance, the Company shall be required to
pay proceeds for the shorter of (i) the period of such
Disability or (ii) seven (7) years. Such insurance policies
will have customary exclusions, conditions and elimination
periods.
5. BUSINESS EXPENSES. The Company shall reimburse the Employee
for any and all necessary, customary, and usual expenses, properly receipted in
accordance with Company policies, incurred by Employee on behalf of the
Company.
6. TERMINATION OF EMPLOYEE'S EMPLOYMENT.
(a) DEATH. If the Employee dies while employed by
the Company, his employment shall immediately terminate. The
Company's obligation to pay the Employee's Base Salary shall
cease as of the date of Employee's death. Thereafter,
Employee's beneficiaries or his estate shall receive benefits
in accordance with the Company's retirement, insurance, and
other applicable programs and plans then in effect.
(b) DISABILITY. If, as a result of Employee's
mental or physical incapacity Employee shall be unable to
perform the services for the Company contemplated by this
Agreement in the manner in which he previously performed them
during an aggregate of 120 business days in any consecutive
seven (7) month period ("Disability"), Employee's employment
may be terminated by the Company for Disability. During any
period prior to such termination during which Employee is
absent from the full-time performance of his duties with the
Company due to Disability, the Company shall continue to pay
Employee his Base Salary at the rate in effect at the
commencement of such period of Disability. Any such payments
made to the Employee shall be reduced by amounts received from
disability insurance obtained or provided by the Company
pursuant to Section 4(d). Subsequent to the termination
provided for in this Section 6(b), Employee's benefits shall
be determined under the Company's retirement, insurance, and
other compensation programs then in effect in accordance with
the terms of such programs.
(c) TERMINATION BY THE COMPANY. This Agreement may
be terminated by the Company only by the act of the Chief
Executive Officer of the Company. The Company, through such
act of the Chief Executive Officer, may terminate Employee's
employment under this Agreement for "Cause," at any time prior
to expiration of the Term of the Agreement, only upon the
occurrence of any one or more of the following events:
(i) The material breach of this Agreement by
Employee, including without limitation, repeated
willful neglect of Employee's duties as set forth
on Exhibit A hereto, Employee's material lack of
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diligence and attention in performing services as
provided in this Agreement, or Employee's repeated
willful failure to implement or adhere to policies
established by, or directives of, the Company's Board
of Directors.
(ii) Conduct of a criminal nature that may
have an adverse impact on the Company's reputation
and standing in the community; or
(iii) Fraudulent conduct in connection with
the business affairs of the Company, regardless of
whether said conduct is designed to defraud the
Company or others.
In the event of termination for Cause, the Company's obligation to pay
Employee's Base Salary shall cease as of the Termination Date. If Employee's
employment is terminated for Cause, Employee's employment may be terminated
immediately without any advance written notice.
(d) TERMINATION BY THE EMPLOYEE FOR GOOD REASON.
The Employee shall have the right to terminate this Agreement
for Good Reason. For purposes of this Agreement, "Good
Reason" shall mean the occurrence, without the Employee's
prior written consent, of any one or more of the following
events:
(i) The assignment to the Employee of any
duties that are materially inconsistent with, or
reflect a material continuing reduction of the powers
and responsibilities, or a change of the Employee's
reporting responsibilities, set forth on Exhibit A
hereto, or a material improper intervention by the
Company's Board of Directors in the Employee's
ability to materially perform the duties and
responsibilities set forth on Exhibit A hereto.
(ii) The Company's material breach of any of
the provisions of this Agreement, including, but not
limited to, a reduction by the Company in the
Employee's Base Salary in effect as of the Effective
Date, or as the same may be increased as provided
herein; or a change in the conditions of Employee's
employment (e.g., including, without limitation, a
failure by the Company to provide the Employee with
incentive compensation and benefit plans that provide
comparable benefits and amounts as such type programs
in effect as of the Effective Date, etc.); or
(iii) The relocation of the Company's
principal executive offices to a location outside the
Southern California area or the Company's requiring
the Employee to be based anywhere other than
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<PAGE> 5
the Company's principal executive offices, except for
travel on the Company's business to an extent
substantially consistent with the Employee's present
business travel obligations.
The Employee agrees to provide the Company thirty (30) days' prior
written notice of any termination for Good Reason, during which 30 day
period the Company shall have the right to cure the circumstances
giving rise to the Good Reason stated in such notice. In the event of
termination for Good Reason, the Employee shall receive compensation
pursuant to the provisions of Section 7 hereof.
7. COMPENSATION UPON TERMINATION BY THE COMPANY OTHER THAN FOR
CAUSE OR BY THE EMPLOYEE FOR GOOD REASON. If the Employee's employment shall
be terminated (i) by act of the Company other than for Cause or (ii) by the
Employee for Good Reason, the Employee shall be entitled to the following
benefits:
(a) PAYMENT OF UNPAID BASE SALARY AND BONUS. The
Company shall immediately pay the Employee any portion of the
Employee's Base Salary not paid prior to the Termination Date.
(b) CONTINUED PAYMENT OF BASE SALARY AND BONUS.
Within five (5) days of the Termination Date, the Company or
Care shall pay to the Employee, in a lump sum, an amount equal
to the sum of (i) an amount equal to all Base Salary that
would have been payable to the Employee pursuant to this
Agreement had the Employee continued to be employed for the
remaining unexpired term of this Agreement (such Base Salary
for such remaining term being equal to the Employee's Base
Salary in effect as of the Termination Date); and (ii) an
amount equal to the bonus payments that would have been
payable to the Employee pursuant to this Agreement had his
annual bonus for each year, or portion thereof, of the
remaining unexpired term of this Agreement been equal to the
greater of (A) the total of any performance bonus or bonuses
paid to the Employee pursuant to Section 3(b) in the fiscal
year of the Company or Care ended immediately prior to the
fiscal year in which the Termination Date occurs, and (B) the
average of the annual bonuses paid to him by the Company or
Care (or their predecessors) with respect to the three (or, if
less, the number of years the Employee has been employed with
the Company or Care or their predecessor) fiscal years ended
immediately prior to the fiscal year in which the Termination
Date occurs.
(c) CONTINUATION OF FRINGE BENEFITS. The Company
shall continue to provide the Employee with all Fringe
Benefits set forth in Section 4 throughout the remaining
unexpired Term of the Agreement, as if the Employee's
employment under the Agreement had not been terminated.
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<PAGE> 6
If, as the result of termination of Employee's employment,
Employee and/or his otherwise eligible dependents or
beneficiaries shall become ineligible for benefits under any
one or more of the Company's benefit plans, the Company shall
continue to provide the Employee and his eligible dependents
or beneficiaries with benefits at a level at least equivalent
to the level of benefits for which the Employee and his
dependents and beneficiaries were eligible under such plans
immediately prior to the Termination Date.
(d) STOCK OPTIONS AND STOCK APPRECIATION RIGHTS.
Commencing as of the date one (1) year following the Effective
Date, notwithstanding any provision in any applicable Company
benefit plans or agreements (including, but not limited to,
those relating to stock options, stock appreciation rights,
restricted stock awards, stock purchases, pensions, thrifts,
profit sharing, or other retirement or employee benefits) to
the contrary, all rights to such benefits previously granted
to Employee shall become immediately fully vested and
exercisable as of the Termination Date and shall remain
exercisable for a period thereafter of not less than one (1)
year. If any such plan or agreement provides for an exercise
period ending after the one (1) year period following the
Termination Date, then such provision shall control. The
provisions of this Section 7(d) shall constitute an amendment
to any such plans or agreements of the Company referred to
above as of the Effective Date.
(e) NO MITIGATION REQUIRED; NO OTHER ENTITLEMENT TO
BENEFITS UNDER AGREEMENT. The Employee shall not be required
in any way to mitigate the amount of any payment provided for
in this Section 7, including, but not limited to, by seeking
other employment, nor shall the amount of any payment provided
for in this Section 7 be reduced by any compensation earned by
the Employee as the result of employment with another employer
after the Termination Date, or otherwise. Except as set forth
in this Section 7, following a termination governed by this
Section 7, the Employee shall not be entitled to any other
compensation or benefits set forth in this Agreement, except
as may be separately negotiated by the parties and approved by
the Board of Directors of the Company in writing in
conjunction with the termination of Employee's employment
under this Section 7.
8. DISPUTE RELATING TO TERMINATION OF EMPLOYMENT FOR GOOD REASON.
If the Employee resigns his employment with the Company alleging in good faith
as the basis for such resignation any of the "Good Reasons" specified in
Section 6(d) and if the Company then disputes Employee's right to the payment
of benefits under
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<PAGE> 7
Section 7, the Company shall, at the option of the Employee (a written
notice of which shall be given to the Company), continue to pay Employee the
full compensation (including, but not limited to, his Base Salary) in effect at
the date Employee provided notice of such resignation, and the Company shall
continue the Employee as a participant in all compensation, benefit, and
insurance plans in which the Employee was then a participant, until the earlier
of the expiration of the Term of the Agreement or the date the dispute is
finally resolved, either by mutual written agreement of the parties or by
decree of a court of competent jurisdiction that is not appealable or with
respect to which the time for appeal has expired and no appeal has been
perfected. In the event the Employee opts to continue receiving compensation
and benefits during the term of such dispute as provided in this Section 8,
then until the earlier of the expiration of the Term of this Agreement or the
date the dispute is finally resolved as provided above, the Employee shall not,
without the prior written consent of the Company, provide consultative service
to or be employed by any entity that is then in competition with the Company or
any affiliate thereof. In the event the Court (or other trier of fact)
determines that no "Good Reason" justifying Employee's resignation existed,
then Employee shall repay to Company all compensation and benefits paid to
Employee by Company from and after the date of termination of employment.
9. NONCOMPETITION PROVISIONS.
(a) RIGHT TO COMPANY MATERIALS. Employee agrees
that all styles, designs, lists, materials, books, files,
reports, correspondence, records, and other documents
("Company Materials") used, prepared, or made available to
Employee, shall be and shall remain the property of the
Company. Upon the termination of employment or the expiration
of this Agreement, all Company Materials shall be returned
immediately to the Company, and Employee shall not make or
retain any copies thereof.
(b) ANTISOLICITATION. Employee promises and agrees
that during the term of this Agreement he will not influence
or attempt to influence customers or suppliers of the Company
or any of its present or future subsidiaries or affiliates,
either directly or indirectly, to divert their business to any
individual, partnership, firm, corporation or other entity
then in competition with the business of the Company, or any
subsidiary or affiliate of the Company.
(c) SOLICITING EMPLOYEES. During the term of this
Agreement and for the 12-month period commencing on the
Termination Date, Employee promises and agrees that he will
not directly or indirectly solicit any of the Company's
employees to work for any business, individual, partnership,
firm, corporation, or other entity then in competition with
the business of the Company or any subsidiary or affiliate
of the Company.
10. NOTICES. All notices and other communications under this
Agreement shall
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<PAGE> 8
be in writing and shall be given by fax or first class mail, certified or
registered with return receipt requested, and shall be deemed to have been duly
given three (3) days after mailing or twenty-four (24) hours after transmission
of a fax to the respective persons named below:
If to Company: Regency Health Services, Inc.
2742 Dow Avenue
Tustin, CA 92680
Phone: (714) 544-4443
Fax: (714) 544-2401
If to Employee: T. Craig Nordstrom
2742 Dow Avenue
Tustin, CA 92680
Phone: (714) 544-4443
Either party may change such party's address for notices by notice duly given
pursuant hereto.
11. ATTORNEYS' FEES. In the event arbitral or judicial
determination is necessary of any dispute arising as to the parties' rights and
obligations hereunder, the Company and Employee shall bear their respective
attorneys' fees and costs associated with such dispute; provided, however, that
in the event it is determined that the Company breached this Agreement, the
Company shall pay or reimburse Employee for all reasonable attorneys' fees and
costs associated with such dispute.
12. TERMINATION OF PRIOR AGREEMENTS. This Agreement terminates
and supersedes any and all prior agreements and understandings between the
parties with respect to employment or with respect to the compensation of the
Employee by the Company from and after the Effective Date.
13. ASSIGNMENT; SUCCESSORS. This Agreement is personal in its
nature and neither of the parties hereto shall, without the consent of the
other, assign or transfer this Agreement or any rights or obligations
hereunder; provided that, in the event of the merger, consolidation, transfer,
or sale of all or substantially all of the assets of the Company with or to any
other individual or entity, this Agreement shall, subject to the provisions
hereof, be binding upon and inure to the benefit of such successor and such
successor shall discharge and perform all the promises, covenants, duties, and
obligations of the Company hereunder.
14. GOVERNING LAW. This Agreement and the legal relations thus
created between the parties hereto shall be governed by and construed under and
in accordance with the laws of the State of California.
15. ENTIRE AGREEMENT; HEADINGS. This Agreement embodies the
entire agreement of the parties respecting the matters within its scope and may
be modified only in
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writing. Section headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.
16. WAIVER; MODIFICATION. Failure to insist upon strict
compliance with any of the terms, covenants, or conditions hereof shall not be
deemed a waiver of such term, covenant, or condition, nor shall any waiver or
relinquishment of, or failure to insist upon strict compliance with, any right
or power hereunder at any one or more times be deemed a waiver or
relinquishment of such right or power at any other time or times. This
Agreement shall not be modified in any respect except by a writing executed by
each party hereto.
17. SEVERABILITY. In the event that a court of competent
jurisdiction determines that any portion of this Agreement is in violation of
any statute or public policy, only the portions of this Agreement that violate
such statute or public policy shall be stricken. All portions of this
Agreement that do not violate any statute or public policy shall continue in
full force and effect. Further, any court order striking any portion of this
Agreement shall modify the stricken terms as narrowly as possible to give as
much effect as possible to the intentions of the parties under this Agreement.
18. INDEMNIFICATION. The Company shall indemnify and hold
Employee harmless to the maximum extent permitted by Section 317 of the
California Corporations Code or its successor statute.
19. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
20. SUCCESSOR SECTIONS. References herein to sections or rules of
the Code or Exchange Act shall be deemed to include any successor sections or
rules.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized Director, and the Employee has hereunto signed
this Agreement, as of the date first above written.
REGENCY HEALTH SERVICES, INC.
By: __________________________________
Gregory S. Anderson
Chairman, Compensation Committee
_______________________________________
T. Craig Nordstrom
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EXHIBIT "A"
DUTIES OF T. CRAIG NORDSTROM ("EMPLOYEE")
AS SENIOR VICE PRESIDENT AND
SENIOR VICE PRESIDENT OF CORPORATE DEVELOPMENT
OF THE COMPANY AND CARE
SENIOR VICE PRESIDENT
In his capacity as Senior Vice President of the Company and Care, the
Employee shall report directly to the President of the Company and shall have
supervisory and monitoring responsibilities for the preparation, development,
and implementation of the Company's strategic business plan and shall have such
other powers and perform such other duties as may be deemed necessary or
appropriate to the operation of a publicly held corporation and as may be
prescribed from time to time by the President of the Company.
SENIOR VICE PRESIDENT OF CORPORATE DEVELOPMENT
In his capacity as Senior Vice President of Corporate Development of
the Company and Care, the Employee shall report to the President of the Company
and shall have supervisory and monitoring responsibilities for the corporate
development departments and staffs of the Company and Care and shall have such
other powers and perform such other duties as may be prescribed from time to
time by the President of the Company, including, but not limited to, the
following:
o Identify possible facility, home health, pharmacy, and other
ancillary acquisitions and evaluate profit and loss, physical
plant, services, and markets regarding same. Negotiate and
close approved acquisitions.
o Manage leased properties and renegotiate same as required.
o Identify and evaluate facilities for possible divestiture and
identify and negotiate with purchasers.
o Negotiate and obtain real property financing as required.
<PAGE> 1
EXHIBIT 10.119
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), effective as of the Effective
Time set forth in Section 2.2 of that certain Agreement and Plan of Merger,
dated December 20, 1993, by and between Regency Health Services, Inc. and Care
Enterprises, Inc. ("Effective Date") is entered into by and between James R.
Wodach ("Employee") and Regency Health Services, Inc., a Delaware corporation
("Company").
The Company desires to establish its right to the continued services
of the Employee, in the capacity described below, on the terms and conditions
and subject to the rights of termination hereinafter set forth, and the
Employee is willing to accept such employment on such terms and conditions.
In consideration of the mutual agreements hereinafter set forth, the
Employee and the Company have agreed and do hereby agree as follows:
1. EMPLOYMENT AS SENIOR VICE PRESIDENT FINANCE OF THE COMPANY AND OF
CARE ENTERPRISES, INC. The Company does hereby employ, engage, and hire the
Employee as Senior Vice President Finance of the Company and of Care
Enterprises, Inc., a wholly-owned subsidiary of the Company ("Care"), and the
Employee does hereby accept and agree to such hiring, engagement, and
employment. The Employee's duties during the Employment Period (defined below)
shall be the executive, managerial, and reporting duties set forth on Exhibit A
hereto and such other duties as the Board of Directors of the Company shall
from time to time prescribe and as provided in the Bylaws of the Company. The
Employee shall devote his full time, energy, and skill to the performance of
his duties for the Company and for the benefit of the Company, reasonable
vacations authorized by the Company's Board of Directors and reasonable
absences because of illness excepted. Furthermore, the Employee shall exercise
due diligence and care in the performance of his duties to the Company under
this Agreement.
2. TERM OF AGREEMENT. The term ("Term") of this Agreement shall
commence on the Effective Date and shall continue for a period of three (3)
years; provided, however, that on each anniversary of the Effective Date at
which time the remaining term of the Agreement is two (2) years, the Term of
the Agreement shall automatically be extended for one additional year unless,
not later than any such anniversary date, either party shall have given written
notice to the other that it does not wish to extend the Term of the Agreement.
The period of time commencing on the Effective Date and ending on the date of
termination of the Employee's employment ("Termination Date") under this or any
successor agreement shall be referred to as the "Employment Period."
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3. COMPENSATION.
(a) BASE SALARY. The Company shall pay the
Employee, and the Employee agrees to accept from the Company,
in full payment for his services to the Company a base salary
at the rate of One Hundred Seventy-Five Thousand Dollars
($175,000) per year ("Base Salary"), payable in equal biweekly
installments or at such other time or times as the Employee
and the Company shall agree. Employee's Base Salary shall be
reviewed at least annually by the Company and may be increased
as determined by the Company's Board of Directors in its sole
and absolute discretion. Employee's Base Salary shall not be
decreased at any time during the Term of the Agreement from
the Base Salary then in effect.
(b) PERFORMANCE BONUS - BOARD OF DIRECTORS
DISCRETION. Employee shall be eligible to receive an annual
performance bonus based upon a percentage of his Base Salary.
Except as provided in Section 7 and Section 8, any such bonus
awarded to the Employee shall be payable in the amount, in the
manner, and at the time determined by the Company's Board of
Directors in its sole and absolute discretion.
4. FRINGE BENEFITS. Employee shall be entitled to participate in
any benefit programs adopted from time to time by the Company for the benefit
of its executive employees, and Employee shall be entitled to receive such
other fringe benefits as may be granted to him from time to time by the
Company's Board of Directors.
(a) BENEFIT PLANS. Employee shall be entitled to
participate in any benefit plans relating to stock options,
stock purchases, pension, thrift, profit sharing, life
insurance, medical coverage, education, or other retirement or
employee benefits available to other executive employees of
the Company, subject to any restrictions (including waiting
periods) specified in such plans.
(b) AUTOMOBILE. The Company shall provide Employee
with a car allowance of Three Hundred Dollars ($300) per
month, which shall be applied by Employee towards the purchase
or lease of a suitable vehicle.
(c) VACATION. Employee shall be entitled to four
(4) weeks of paid vacation per calendar year, with such
vacation to be scheduled and taken in accordance with the
Company's standard vacation policies.
(d) DISABILITY INSURANCE. The Company shall
purchase and maintain or self insure and maintain a disability
insurance policy for Employee during the Term of this
Agreement, which policy shall guarantee to Employee the
payment to Employee of a minimum of 60% of his Base Salary and
bonus (as provided in Section 7(b) hereof), or a minimum of
100% of such Base
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<PAGE> 3
Salary and bonus in the event the policy is self insured. In
the case of self insurance, the Company shall be required to
pay proceeds for the shorter of (i) the period of such
Disability or (ii) seven (7) years. Such insurance policies
will have customary exclusions, conditions and elimination
periods.
5. BUSINESS EXPENSES. The Company shall reimburse the Employee
for any and all necessary, customary, and usual expenses, properly receipted in
accordance with Company policies, incurred by Employee on behalf of the
Company.
6. TERMINATION OF EMPLOYEE'S EMPLOYMENT.
(a) DEATH. If the Employee dies while employed by
the Company, his employment shall immediately terminate. The
Company's obligation to pay the Employee's Base Salary shall
cease as of the date of Employee's death. Thereafter,
Employee's beneficiaries or his estate shall receive benefits
in accordance with the Company's retirement, insurance, and
other applicable programs and plans then in effect.
(b) DISABILITY. If, as a result of Employee's
mental or physical incapacity Employee shall be unable to
perform the services for the Company contemplated by this
Agreement in the manner in which he previously performed them
during an aggregate of 120 business days in any consecutive
seven (7) month period ("Disability"), Employee's employment
may be terminated by the Company for Disability. During any
period prior to such termination during which Employee is
absent from the full-time performance of his duties with the
Company due to Disability, the Company shall continue to pay
Employee his Base Salary at the rate in effect at the
commencement of such period of Disability. Any such payments
made to the Employee shall be reduced by amounts received from
disability insurance obtained or provided by the Company
pursuant to Section 4(d). Subsequent to the termination
provided for in this Section 6(b), Employee's benefits shall
be determined under the Company's retirement, insurance, and
other compensation programs then in effect in accordance with
the terms of such programs.
(c) TERMINATION BY THE COMPANY. This Agreement may
be terminated by the Company only by the act of the Chief
Executive Officer of the Company. The Company, through such
act of the Chief Executive Officer, may terminate Employee's
employment under this Agreement for "Cause," at any time prior
to expiration of the Term of the Agreement, only upon the
occurrence of any one or more of the following events:
(i) The material breach of this Agreement by
Employee, including without limitation, repeated
willful neglect of Employee's duties as set forth
on Exhibit A hereto, Employee's material lack of
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diligence and attention in performing services as
provided in this Agreement, or Employee's repeated
willful failure to implement or adhere to policies
established by, or directives of, the Company's Board
of Directors.
(ii) Conduct of a criminal nature that may
have an adverse impact on the Company's reputation
and standing in the community; or
(iii) Fraudulent conduct in connection with
the business affairs of the Company, regardless of
whether said conduct is designed to defraud the
Company or others.
In the event of termination for Cause, the Company's obligation to pay
Employee's Base Salary shall cease as of the Termination Date. If Employee's
employment is terminated for Cause, Employee's employment may be terminated
immediately without any advance written notice.
(d) TERMINATION BY THE EMPLOYEE FOR GOOD REASON.
The Employee shall have the right to terminate this Agreement
for Good Reason. For purposes of this Agreement, "Good
Reason" shall mean the occurrence, without the Employee's
prior written consent, of any one or more of the following
events:
(i) The assignment to the Employee of any
duties that are materially inconsistent with, or
reflect a material continuing reduction of the powers
and responsibilities, or a change of the Employee's
reporting responsibilities, set forth on Exhibit A
hereto, or a material improper intervention by the
Company's Board of Directors in the Employee's
ability to materially perform the duties and
responsibilities set forth on Exhibit A hereto.
(ii) The Company's material breach of any of
the provisions of this Agreement, including, but not
limited to, a reduction by the Company in the
Employee's Base Salary in effect as of the Effective
Date, or as the same may be increased as provided
herein; or a change in the conditions of Employee's
employment (e.g., including, without limitation, a
failure by the Company to provide the Employee with
incentive compensation and benefit plans that provide
comparable benefits and amounts as such type programs
in effect as of the Effective Date, etc.); or
(iii) The relocation of the Company's
principal executive offices to a location outside the
Southern California area or the Company's requiring
the Employee to be based anywhere other than
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<PAGE> 5
the Company's principal executive offices, except for
travel on the Company's business to an extent
substantially consistent with the Employee's present
business travel obligations.
The Employee agrees to provide the Company thirty (30) days' prior
written notice of any termination for Good Reason, during which 30 day
period the Company shall have the right to cure the circumstances
giving rise to the Good Reason stated in such notice. In the event of
termination for Good Reason, the Employee shall receive compensation
pursuant to the provisions of Section 7 hereof.
7. COMPENSATION UPON TERMINATION BY THE COMPANY OTHER THAN FOR
CAUSE OR BY THE EMPLOYEE FOR GOOD REASON. If the Employee's employment shall
be terminated (i) by act of the Company other than for Cause or (ii) by the
Employee for Good Reason, the Employee shall be entitled to the following
benefits:
(a) PAYMENT OF UNPAID BASE SALARY AND BONUS. The
Company shall immediately pay the Employee any portion of the
Employee's Base Salary not paid prior to the Termination Date.
(b) CONTINUED PAYMENT OF BASE SALARY AND BONUS.
Within five (5) days of the Termination Date, the Company or
Care shall pay to the Employee, in a lump sum, an amount equal
to the sum of (i) an amount equal to all Base Salary that
would have been payable to the Employee pursuant to this
Agreement had the Employee continued to be employed for the
remaining unexpired term of this Agreement (such Base Salary
for such remaining term being equal to the Employee's Base
Salary in effect as of the Termination Date); and (ii) an
amount equal to the bonus payments that would have been
payable to the Employee pursuant to this Agreement had his
annual bonus for each year, or portion thereof, of the
remaining unexpired term of this Agreement been equal to the
greater of (A) the total of any performance bonus or bonuses
paid to the Employee pursuant to Section 3(b) in the fiscal
year of the Company or Care ended immediately prior to the
fiscal year in which the Termination Date occurs, and (B) the
average of the annual bonuses paid to him by the Company or
Care (or their predecessors) with respect to the three (or,
if less, the number of years the Employee has been employed
with the Company or Care or their predecessor) fiscal years
ended immediately prior to the fiscal year in which the
Termination Date occurs.
(c) CONTINUATION OF FRINGE BENEFITS. The Company
shall continue to provide the Employee with all Fringe
Benefits set forth in Section 4 throughout the remaining
unexpired Term of the Agreement, as if the Employee's
employment under the Agreement had not been terminated.
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<PAGE> 6
If, as the result of termination of Employee's employment,
Employee and/or his otherwise eligible dependents or
beneficiaries shall become ineligible for benefits under any
one or more of the Company's benefit plans, the Company shall
continue to provide the Employee and his eligible dependents
or beneficiaries with benefits at a level at least equivalent
to the level of benefits for which the Employee and his
dependents and beneficiaries were eligible under such plans
immediately prior to the Termination Date.
(d) STOCK OPTIONS AND STOCK APPRECIATION RIGHTS.
Commencing as of the date one (1) year following the Effective
Date, notwithstanding any provision in any applicable Company
benefit plans or agreements (including, but not limited to,
those relating to stock options, stock appreciation rights,
restricted stock awards, stock purchases, pensions, thrifts,
profit sharing, or other retirement or employee benefits) to
the contrary, all rights to such benefits previously granted
to Employee shall become immediately fully vested and
exercisable as of the Termination Date and shall remain
exercisable for a period thereafter of not less than one (1)
year. If any such plan or agreement provides for an exercise
period ending after the one (1) year period following the
Termination Date, then such provision shall control. The
provisions of this Section 7(d) shall constitute an amendment
to any such plans or agreements of the Company referred to
above as of the Effective Date.
(e) NO MITIGATION REQUIRED; NO OTHER ENTITLEMENT TO
BENEFITS UNDER AGREEMENT. The Employee shall not be required
in any way to mitigate the amount of any payment provided for
in this Section 7, including, but not limited to, by seeking
other employment, nor shall the amount of any payment provided
for in this Section 7 be reduced by any compensation earned by
the Employee as the result of employment with another employer
after the Termination Date, or otherwise. Except as set forth
in this Section 7, following a termination governed by this
Section 7, the Employee shall not be entitled to any other
compensation or benefits set forth in this Agreement, except
as may be separately negotiated by the parties and approved by
the Board of Directors of the Company in writing in
conjunction with the termination of Employee's employment
under this Section 7.
8. DISPUTE RELATING TO TERMINATION OF EMPLOYMENT FOR GOOD REASON.
If the Employee resigns his employment with the Company alleging in good faith
as the basis for such resignation any of the "Good Reasons" specified in
Section 6(d) and if the Company then disputes Employee's right to the payment
of benefits under
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<PAGE> 7
Section 7, the Company shall, at the option of the Employee (a written
notice of which shall be given to the Company), continue to pay Employee the
full compensation (including, but not limited to, his Base Salary) in effect at
the date Employee provided notice of such resignation, and the Company shall
continue the Employee as a participant in all compensation, benefit, and
insurance plans in which the Employee was then a participant, until the earlier
of the expiration of the Term of the Agreement or the date the dispute is
finally resolved, either by mutual written agreement of the parties or by
decree of a court of competent jurisdiction that is not appealable or with
respect to which the time for appeal has expired and no appeal has been
perfected. In the event the Employee opts to continue receiving compensation
and benefits during the term of such dispute as provided in this Section 8,
then until the earlier of the expiration of the Term of this Agreement or the
date the dispute is finally resolved as provided above, the Employee shall not,
without the prior written consent of the Company, provide consultative service
to or be employed by any entity that is then in competition with the Company or
any affiliate thereof. In the event the Court (or other trier of fact)
determines that no "Good Reason" justifying Employee's resignation existed,
then Employee shall repay to Company all compensation and benefits paid to
Employee by Company from and after the date of termination of employment.
9. NONCOMPETITION PROVISIONS.
(a) RIGHT TO COMPANY MATERIALS. Employee agrees
that all styles, designs, lists, materials, books, files,
reports, correspondence, records, and other documents
("Company Materials") used, prepared, or made available to
Employee, shall be and shall remain the property of the
Company. Upon the termination of employment or the expiration
of this Agreement, all Company Materials shall be returned
immediately to the Company, and Employee shall not make or
retain any copies thereof.
(b) ANTISOLICITATION. Employee promises and agrees
that during the term of this Agreement he will not influence
or attempt to influence customers or suppliers of the Company
or any of its present or future subsidiaries or affiliates,
either directly or indirectly, to divert their business to any
individual, partnership, firm, corporation or other entity
then in competition with the business of the Company, or any
subsidiary or affiliate of the Company.
(c) SOLICITING EMPLOYEES. During the term of this
Agreement and for the 12-month period commencing on the
Termination Date, Employee promises and agrees that he will
not directly or indirectly solicit any of the Company's
employees to work for any business, individual, partnership,
firm, corporation, or other entity then in competition with
the business of the Company or any subsidiary or affiliate of
the Company.
10. NOTICES. All notices and other communications under this
Agreement shall
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<PAGE> 8
be in writing and shall be given by fax or first class mail, certified or
registered with return receipt requested, and shall be deemed to have been duly
given three (3) days after mailing or twenty-four (24) hours after transmission
of a fax to the respective persons named below:
If to Company: Regency Health Services, Inc.
2742 Dow Avenue
Tustin, CA 92680
Phone: (714) 544-4443
Fax: (714) 544-2401
If to Employee: James R. Wodach
2742 Dow Avenue
Tustin, CA 92680
Phone: (714) 544-4443
Either party may change such party's address for notices by notice duly given
pursuant hereto.
11. ATTORNEYS' FEES. In the event arbitral or judicial
determination is necessary of any dispute arising as to the parties' rights and
obligations hereunder, the Company and Employee shall bear their respective
attorneys' fees and costs associated with such dispute; provided, however, that
in the event it is determined that the Company breached this Agreement, the
Company shall pay or reimburse Employee for all reasonable attorneys' fees and
costs associated with such dispute.
12. TERMINATION OF PRIOR AGREEMENTS. This Agreement terminates
and supersedes any and all prior agreements and understandings between the
parties with respect to employment or with respect to the compensation of the
Employee by the Company from and after the Effective Date.
13. ASSIGNMENT; SUCCESSORS. This Agreement is personal in its
nature and neither of the parties hereto shall, without the consent of the
other, assign or transfer this Agreement or any rights or obligations
hereunder; provided that, in the event of the merger, consolidation, transfer,
or sale of all or substantially all of the assets of the Company with or to any
other individual or entity, this Agreement shall, subject to the provisions
hereof, be binding upon and inure to the benefit of such successor and such
successor shall discharge and perform all the promises, covenants, duties, and
obligations of the Company hereunder.
14. GOVERNING LAW. This Agreement and the legal relations thus
created between the parties hereto shall be governed by and construed under and
in accordance with the laws of the State of California.
15. ENTIRE AGREEMENT; HEADINGS. This Agreement embodies the
entire agreement of the parties respecting the matters within its scope and may
be modified only in
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<PAGE> 9
writing. Section headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.
16. WAIVER; MODIFICATION. Failure to insist upon strict
compliance with any of the terms, covenants, or conditions hereof shall not be
deemed a waiver of such term, covenant, or condition, nor shall any waiver or
relinquishment of, or failure to insist upon strict compliance with, any right
or power hereunder at any one or more times be deemed a waiver or
relinquishment of such right or power at any other time or times. This
Agreement shall not be modified in any respect except by a writing executed by
each party hereto.
17. SEVERABILITY. In the event that a court of competent
jurisdiction determines that any portion of this Agreement is in violation of
any statute or public policy, only the portions of this Agreement that violate
such statute or public policy shall be stricken. All portions of this
Agreement that do not violate any statute or public policy shall continue in
full force and effect. Further, any court order striking any portion of this
Agreement shall modify the stricken terms as narrowly as possible to give as
much effect as possible to the intentions of the parties under this Agreement.
18. INDEMNIFICATION. The Company shall indemnify and hold
Employee harmless to the maximum extent permitted by Section 317 of the
California Corporations Code or its successor statute.
19. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
20. SUCCESSOR SECTIONS. References herein to sections or rules of
the Code or Exchange Act shall be deemed to include any successor sections or
rules.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized Director, and the Employee has hereunto signed
this Agreement, as of the date first above written.
REGENCY HEALTH SERVICES, INC.
By: __________________________________
Gregory S. Anderson
Chairman, Compensation Committee
_______________________________________
James R. Wodach
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EXHIBIT "A"
DUTIES OF JAMES R. WODACH ("EMPLOYEE")
AS SENIOR VICE PRESIDENT AND
SENIOR VICE PRESIDENT FINANCE
OF THE COMPANY AND CARE
SENIOR VICE PRESIDENT
In his capacity as Senior Vice President of the Company and Care, the
Employee shall report directly to the President of the Company and shall have
supervisory and monitoring responsibilities for the preparation, development,
and implementation of the Company's strategic business plan and shall have such
other powers and perform such other duties as may be deemed necessary or
appropriate to the operation of a publicly held corporation and as may be
prescribed from time to time by the President of the Company.
SENIOR VICE PRESIDENT FINANCE
In his capacity as Senior Vice President Finance of the Company and
Care, the Employee shall report directly to the Chief Financial Officer of the
Company and shall supervise and monitor the accounting, finance, and
reimbursement departments and staffs of the Company and Care and perform such
other duties as may be prescribed from time to time by the Chief Financial
Officer of the Company including, but not limited to, the following:
o Oversee, monitor, and evaluate the quality and appropriateness
of performance of the total financial function of the Company
(including accounts receivable, accounts payable, payroll and
data processing). Identify and resolve problems in the
financial service area as they arise.
o Provide a system for timely preparation of all required
external reports, including those required by venture capital
investors, lending institutions, fiscal intermediaries, taxing
authorities, California Healthcare Facilities Commission,
OSHPD, insurance companies, etc.
o Coordinate and supervise preparation of all reports required
pursuant to the Securities and Exchange Act of 1934.
o Oversee the production of monthly financial statements in
accordance with generally accepted accounting principles.
o Oversee and evaluate cash flow requirements of the Company
(both short and long-term).
o Coordinate audits instituted by outside agencies (example -
financial, tax and Medicare).
<PAGE> 12
o Oversee preparation of Company forecasts and projections.
o Oversee preparation of entire Company budget and
budget/variance analysis.
o Monitor and evaluate budget compliance.
o Participation in investment banking conferences, analyst
and/or stockholder meetings, "road show" presentations, and
other investor relations functions.
o Assist in preparation, development, and implementation of
strategic business plan. Participate in key strategic
decisions.
o Analyze, assist, and participate in corporate development
efforts.
<PAGE> 1
EXHIBIT 10.120
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), effective as of the Effective
Time set forth in Section 2.2 of that certain Agreement and Plan of Merger,
dated December 20, 1993, by and between Regency Health Services, Inc. and Care
Enterprises, Inc. ("Effective Date") is entered into by and between Brad L.
Kerby ("Employee") and Regency Health Services, Inc., a Delaware corporation
("Company").
The Company desires to establish its right to the continued services
of the Employee, in the capacity described below, on the terms and conditions
and subject to the rights of termination hereinafter set forth, and the
Employee is willing to accept such employment on such terms and conditions.
In consideration of the mutual agreements hereinafter set forth, the
Employee and the Company have agreed and do hereby agree as follows:
1. EMPLOYMENT AS SENIOR VICE PRESIDENT, GENERAL COUNSEL, AND
SECRETARY OF THE COMPANY AND OF CARE ENTERPRISES, INC. The Company does hereby
employ, engage, and hire the Employee as Senior Vice President, General
Counsel, and Secretary of the Company and of Care Enterprises, Inc., a
wholly-owned subsidiary of the Company ("Care"), and the Employee does hereby
accept and agree to such hiring, engagement, and employment. The Employee's
duties during the Employment Period (defined below) shall be the executive,
managerial, and reporting duties set forth on Exhibit A hereto and such other
duties as the Board of Directors of the Company shall from time to time
prescribe and as provided in the Bylaws of the Company. The Employee shall
devote his full time, energy, and skill to the performance of his duties for
the Company and for the benefit of the Company, reasonable vacations authorized
by the Company's Board of Directors and reasonable absences because of illness
excepted. Furthermore, the Employee shall exercise due diligence and care in
the performance of his duties to the Company under this Agreement.
2. TERM OF AGREEMENT. The term ("Term") of this Agreement shall
commence on the Effective Date and shall continue for a period of three (3)
years; provided, however, that on each anniversary of the Effective Date at
which time the remaining term of the Agreement is two (2) years, the Term of
the Agreement shall automatically be extended for one additional year unless,
not later than any such anniversary date, either party shall have given written
notice to the other that it does not wish to extend the Term of the Agreement.
The period of time commencing on the Effective Date and ending on the date of
termination of the Employee's employment ("Termination Date") under this or any
successor agreement shall be referred to as the "Employment Period."
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<PAGE> 2
3. COMPENSATION.
(a) BASE SALARY. The Company shall pay the
Employee, and the Employee agrees to accept from the Company,
in full payment for his services to the Company a base salary
at the rate of One Hundred Fifty Thousand Dollars ($150,000)
per year ("Base Salary"), payable in equal biweekly
installments or at such other time or times as the Employee
and the Company shall agree. Employee's Base Salary shall be
reviewed at least annually by the Company and may be increased
as determined by the Company's Board of Directors in its sole
and absolute discretion. Employee's Base Salary shall not be
decreased at any time during the Term of the Agreement from
the Base Salary then in effect.
(b) PERFORMANCE BONUS - BOARD OF DIRECTORS
DISCRETION. Employee shall be eligible to receive an annual
performance bonus based upon a percentage of his Base Salary.
Except as provided in Section 7 and Section 8, any such bonus
awarded to the Employee shall be payable in the amount, in the
manner, and at the time determined by the Company's Board of
Directors in its sole and absolute discretion.
4. FRINGE BENEFITS. Employee shall be entitled to participate in
any benefit programs adopted from time to time by the Company for the benefit
of its executive employees, and Employee shall be entitled to receive such
other fringe benefits as may be granted to him from time to time by the
Company's Board of Directors.
(a) BENEFIT PLANS. Employee shall be entitled to
participate in any benefit plans relating to stock options,
stock purchases, pension, thrift, profit sharing, life
insurance, medical coverage, education, or other retirement or
employee benefits available to other executive employees of
the Company, subject to any restrictions (including waiting
periods) specified in such plans.
(b) AUTOMOBILE. The Company shall provide Employee
with a car allowance of Three Hundred Dollars ($300) per
month, which shall be applied by Employee towards the purchase
or lease of a suitable vehicle.
(c) VACATION. Employee shall be entitled to four
(4) weeks of paid vacation per calendar year, with such
vacation to be scheduled and taken in accordance with the
Company's standard vacation policies.
(d) DISABILITY INSURANCE. The Company shall
purchase and maintain or self insure and maintain a disability
insurance policy for Employee during the Term of this
Agreement, which policy shall guarantee to Employee the
payment to Employee of a minimum of 60% of his Base Salary and
bonus (as provided in Section 7(b) hereof), or a minimum of
100% of such Base
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<PAGE> 3
Salary and bonus in the event the policy is self insured. In
the case of self insurance, the Company shall be required to
pay proceeds for the shorter of (i) the period of such
Disability or (ii) seven (7) years. Such insurance policies
will have customary exclusions, conditions and elimination
periods.
5. BUSINESS EXPENSES. The Company shall reimburse the Employee
for any and all necessary, customary, and usual expenses, properly receipted in
accordance with Company policies, incurred by Employee on behalf of the
Company.
6. TERMINATION OF EMPLOYEE'S EMPLOYMENT.
(a) DEATH. If the Employee dies while employed by
the Company, his employment shall immediately terminate. The
Company's obligation to pay the Employee's Base Salary shall
cease as of the date of Employee's death. Thereafter,
Employee's beneficiaries or his estate shall receive benefits
in accordance with the Company's retirement, insurance, and
other applicable programs and plans then in effect.
(b) DISABILITY. If, as a result of Employee's
mental or physical incapacity Employee shall be unable to
perform the services for the Company contemplated by this
Agreement in the manner in which he previously performed them
during an aggregate of 120 business days in any consecutive
seven (7) month period ("Disability"), Employee's employment
may be terminated by the Company for Disability. During any
period prior to such termination during which Employee is
absent from the full-time performance of his duties with the
Company due to Disability, the Company shall continue to pay
Employee his Base Salary at the rate in effect at the
commencement of such period of Disability. Any such payments
made to the Employee shall be reduced by amounts received from
disability insurance obtained or provided by the Company
pursuant to Section 4(d). Subsequent to the termination
provided for in this Section 6(b), Employee's benefits shall
be determined under the Company's retirement, insurance, and
other compensation programs then in effect in accordance with
the terms of such programs.
(c) TERMINATION BY THE COMPANY. This Agreement may
be terminated by the Company only by the act of the Chief
Executive Officer of the Company. The Company, through such
act of the Chief Executive Officer, may terminate Employee's
employment under this Agreement for "Cause," at any time prior
to expiration of the Term of the Agreement, only upon the
occurrence of any one or more of the following events:
(i) The material breach of this Agreement by
Employee, including without limitation, repeated
willful neglect of Employee's duties as set forth
on Exhibit A hereto, Employee's material lack of
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diligence and attention in performing services as
provided in this Agreement, or Employee's repeated
willful failure to implement or adhere to policies
established by, or directives of, the Company's Board
of Directors.
(ii) Conduct of a criminal nature that may
have an adverse impact on the Company's reputation
and standing in the community; or
(iii) Fraudulent conduct in connection with
the business affairs of the Company, regardless of
whether said conduct is designed to defraud the
Company or others.
In the event of termination for Cause, the Company's obligation to pay
Employee's Base Salary shall cease as of the Termination Date. If Employee's
employment is terminated for Cause, Employee's employment may be terminated
immediately without any advance written notice.
(d) TERMINATION BY THE EMPLOYEE FOR GOOD REASON.
The Employee shall have the right to terminate this Agreement
for Good Reason. For purposes of this Agreement, "Good
Reason" shall mean the occurrence, without the Employee's
prior written consent, of any one or more of the following
events:
(i) The assignment to the Employee of any
duties that are materially inconsistent with, or
reflect a material continuing reduction of the powers
and responsibilities, or a change of the Employee's
reporting responsibilities, set forth on Exhibit A
hereto, or a material improper intervention by the
Company's Board of Directors in the Employee's
ability to materially perform the duties and
responsibilities set forth on Exhibit A hereto.
(ii) The Company's material breach of any of
the provisions of this Agreement, including, but not
limited to, a reduction by the Company in the
Employee's Base Salary in effect as of the Effective
Date, or as the same may be increased as provided
herein; or a change in the conditions of Employee's
employment (e.g., including, without limitation, a
failure by the Company to provide the Employee with
incentive compensation and benefit plans that provide
comparable benefits and amounts as such type programs
in effect as of the Effective Date, etc.); or
(iii) The relocation of the Company's
principal executive offices to a location outside the
Southern California area or the Company's requiring
the Employee to be based anywhere other than
4
<PAGE> 5
the Company's principal executive offices, except for
travel on the Company's business to an extent
substantially consistent with the Employee's present
business travel obligations.
The Employee agrees to provide the Company thirty (30) days' prior
written notice of any termination for Good Reason, during which 30 day
period the Company shall have the right to cure the circumstances
giving rise to the Good Reason stated in such notice. In the event of
termination for Good Reason, the Employee shall receive compensation
pursuant to the provisions of Section 7 hereof.
7. COMPENSATION UPON TERMINATION BY THE COMPANY OTHER THAN FOR
CAUSE OR BY THE EMPLOYEE FOR GOOD REASON. If the Employee's employment shall
be terminated (i) by act of the Company other than for Cause or (ii) by the
Employee for Good Reason, the Employee shall be entitled to the following
benefits:
(a) PAYMENT OF UNPAID BASE SALARY AND BONUS. The
Company shall immediately pay the Employee any portion of the
Employee's Base Salary not paid prior to the Termination Date.
(b) CONTINUED PAYMENT OF BASE SALARY AND BONUS.
Within five (5) days of the Termination Date, the Company or
Care shall pay to the Employee, in a lump sum, an amount equal
to the sum of (i) an amount equal to all Base Salary that
would have been payable to the Employee pursuant to this
Agreement had the Employee continued to be employed for the
remaining unexpired term of this Agreement (such Base Salary
for such remaining term being equal to the Employee's Base
Salary in effect as of the Termination Date); and (ii) an
amount equal to the bonus payments that would have been
payable to the Employee pursuant to this Agreement had his
annual bonus for each year, or portion thereof, of the
remaining unexpired term of this Agreement been equal to the
greater of (A) the total of any performance bonus or bonuses
paid to the Employee pursuant to Section 3(b) in the fiscal
year of the Company or Care ended immediately prior to the
fiscal year in which the Termination Date occurs, and (B) the
average of the annual bonuses paid to him by the Company or
Care (or their predecessors) with respect to the three (or,
if less, the number of years the Employee has been employed
with the Company or Care or their predecessor) fiscal years
ended immediately prior to the fiscal year in which the
Termination Date occurs.
(c) CONTINUATION OF FRINGE BENEFITS. The Company
shall continue to provide the Employee with all Fringe
Benefits set forth in Section 4 throughout the remaining
unexpired Term of the Agreement, as if
5
<PAGE> 6
the Employee's employment under the Agreement had not been
terminated. If, as the result of termination of Employee's
employment, Employee and/or his otherwise eligible dependents
or beneficiaries shall become ineligible for benefits under
any one or more of the Company's benefit plans, the Company
shall continue to provide the Employee and his eligible
dependents or beneficiaries with benefits at a level at least
equivalent to the level of benefits for which the Employee and
his dependents and beneficiaries were eligible under such
plans immediately prior to the Termination Date.
(d) STOCK OPTIONS AND STOCK APPRECIATION RIGHTS.
Commencing as of the date one (1) year following the Effective
Date, notwithstanding any provision in any applicable Company
benefit plans or agreements (including, but not limited to,
those relating to stock options, stock appreciation rights,
restricted stock awards, stock purchases, pensions, thrifts,
profit sharing, or other retirement or employee benefits) to
the contrary, all rights to such benefits previously granted
to Employee shall become immediately fully vested and
exercisable as of the Termination Date and shall remain
exercisable for a period thereafter of not less than one (1)
year. If any such plan or agreement provides for an exercise
period ending after the one (1) year period following the
Termination Date, then such provision shall control. The
provisions of this Section 7(d) shall constitute an amendment
to any such plans or agreements of the Company referred to
above as of the Effective Date.
(e) NO MITIGATION REQUIRED; NO OTHER ENTITLEMENT TO
BENEFITS UNDER AGREEMENT. The Employee shall not be required
in any way to mitigate the amount of any payment provided for
in this Section 7, including, but not limited to, by seeking
other employment, nor shall the amount of any payment provided
for in this Section 7 be reduced by any compensation earned by
the Employee as the result of employment with another employer
after the Termination Date, or otherwise. Except as set forth
in this Section 7, following a termination governed by this
Section 7, the Employee shall not be entitled to any other
compensation or benefits set forth in this Agreement, except
as may be separately negotiated by the parties and approved by
the Board of Directors of the Company in writing in
conjunction with the termination of Employee's employment
under this Section 7.
8. DISPUTE RELATING TO TERMINATION OF EMPLOYMENT FOR GOOD REASON.
If the Employee resigns his employment with the Company alleging in good faith
as the basis for such resignation any of the "Good Reasons" specified in
Section
6
<PAGE> 7
6(d) and if the Company then disputes Employee's right to the payment of
benefits under Section 7, the Company shall, at the option of the Employee
(a written notice of which shall be given to the Company), continue to pay
Employee the full compensation (including, but not limited to, his Base Salary)
in effect at the date Employee provided notice of such resignation, and the
Company shall continue the Employee as a participant in all compensation,
benefit, and insurance plans in which the Employee was then a participant,
until the earlier of the expiration of the Term of the Agreement or the date
the dispute is finally resolved, either by mutual written agreement of the
parties or by decree of a court of competent jurisdiction that is not
appealable or with respect to which the time for appeal has expired and no
appeal has been perfected. In the event the Employee opts to continue
receiving compensation and benefits during the term of such dispute as provided
in this Section 8, then until the earlier of the expiration of the Term of this
Agreement or the date the dispute is finally resolved as provided above, the
Employee shall not, without the prior written consent of the Company, provide
consultative service to or be employed by any entity that is then in
competition with the Company or any affiliate thereof. In the event the Court
(or other trier of fact) determines that no "Good Reason" justifying Employee's
resignation existed, then Employee shall repay to Company all compensation and
benefits paid to Employee by Company from and after the date of termination of
employment.
9. NONCOMPETITION PROVISIONS.
(a) RIGHT TO COMPANY MATERIALS. Employee agrees
that all styles, designs, lists, materials, books, files,
reports, correspondence, records, and other documents
("Company Materials") used, prepared, or made available to
Employee, shall be and shall remain the property of the
Company. Upon the termination of employment or the expiration
of this Agreement, all Company Materials shall be returned
immediately to the Company, and Employee shall not make or
retain any copies thereof.
(b) ANTISOLICITATION. Employee promises and agrees
that during the term of this Agreement he will not influence
or attempt to influence customers or suppliers of the Company
or any of its present or future subsidiaries or affiliates,
either directly or indirectly, to divert their business to any
individual, partnership, firm, corporation or other entity
then in competition with the business of the Company, or any
subsidiary or affiliate of the Company.
(c) SOLICITING EMPLOYEES. During the term of this
Agreement and for the 12-month period commencing on the
Termination Date, Employee promises and agrees that he will
not directly or indirectly solicit any of the Company's
employees to work for any business, individual, partnership,
firm, corporation, or other entity then in competition with
the business of the Company or any subsidiary or affiliate of
the Company.
7
<PAGE> 8
10. NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be given by fax or first class mail,
certified or registered with return receipt requested, and shall be deemed to
have been duly given three (3) days after mailing or twenty-four (24) hours
after transmission of a fax to the respective persons named below:
If to Company: Regency Health Services, Inc.
2742 Dow Avenue
Tustin, CA 92680
Phone: (714) 544-4443
Fax: (714) 544-2401
If to Employee: Brad L. Kerby
2742 Dow Avenue
Tustin, CA 92680
Phone: (714) 544-4443
Either party may change such party's address for notices by notice duly given
pursuant hereto.
11. ATTORNEYS' FEES. In the event arbitral or judicial
determination is necessary of any dispute arising as to the parties' rights and
obligations hereunder, the Company and Employee shall bear their respective
attorneys' fees and costs associated with such dispute; provided, however, that
in the event it is determined that the Company breached this Agreement, the
Company shall pay or reimburse Employee for all reasonable attorneys' fees and
costs associated with such dispute.
12. TERMINATION OF PRIOR AGREEMENTS. This Agreement terminates
and supersedes any and all prior agreements and understandings between the
parties with respect to employment or with respect to the compensation of the
Employee by the Company from and after the Effective Date.
13. ASSIGNMENT; SUCCESSORS. This Agreement is personal in its
nature and neither of the parties hereto shall, without the consent of the
other, assign or transfer this Agreement or any rights or obligations
hereunder; provided that, in the event of the merger, consolidation, transfer,
or sale of all or substantially all of the assets of the Company with or to any
other individual or entity, this Agreement shall, subject to the provisions
hereof, be binding upon and inure to the benefit of such successor and such
successor shall discharge and perform all the promises, covenants, duties, and
obligations of the Company hereunder.
14. GOVERNING LAW. This Agreement and the legal relations thus
created between the parties hereto shall be governed by and construed under and
in accordance with the laws of the State of California.
15. ENTIRE AGREEMENT; HEADINGS. This Agreement embodies the entire
8
<PAGE> 9
agreement of the parties respecting the matters within its scope and may be
modified only in writing. Section headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of
this Agreement for any other purpose.
16. WAIVER; MODIFICATION. Failure to insist upon strict
compliance with any of the terms, covenants, or conditions hereof shall not be
deemed a waiver of such term, covenant, or condition, nor shall any waiver or
relinquishment of, or failure to insist upon strict compliance with, any right
or power hereunder at any one or more times be deemed a waiver or
relinquishment of such right or power at any other time or times. This
Agreement shall not be modified in any respect except by a writing executed by
each party hereto.
17. SEVERABILITY. In the event that a court of competent
jurisdiction determines that any portion of this Agreement is in violation of
any statute or public policy, only the portions of this Agreement that violate
such statute or public policy shall be stricken. All portions of this
Agreement that do not violate any statute or public policy shall continue in
full force and effect. Further, any court order striking any portion of this
Agreement shall modify the stricken terms as narrowly as possible to give as
much effect as possible to the intentions of the parties under this Agreement.
18. INDEMNIFICATION. The Company shall indemnify and hold
Employee harmless to the maximum extent permitted by Section 317 of the
California Corporations Code or its successor statute.
19. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
20. SUCCESSOR SECTIONS. References herein to sections or rules of
the Code or Exchange Act shall be deemed to include any successor sections or
rules.
9
<PAGE> 10
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized Director, and the Employee has hereunto signed
this Agreement, as of the date first above written.
REGENCY HEALTH SERVICES, INC.
By: __________________________________
Gregory S. Anderson
Chairman, Compensation Committee
_______________________________________
Brad L. Kerby
10
<PAGE> 11
EXHIBIT "A"
DUTIES OF BRAD L. KERBY ("EMPLOYEE")
AS SENIOR VICE PRESIDENT,
GENERAL COUNSEL, AND CORPORATE SECRETARY
OF THE COMPANY AND CARE
SENIOR VICE PRESIDENT
In his capacity as Senior Vice President of the Company and Care, the
Employee shall report directly to the President of the Company and shall have
supervisory and monitoring responsibilities for the preparation, development,
and implementation of the Company's strategic business plan and shall have such
other powers and perform such other duties as may be deemed necessary or
appropriate to the operation of a publicly held corporation and as may be
prescribed from time to time by the President of the Company.
GENERAL COUNSEL
In his capacity as General Counsel of the Company and Care, the
Employee shall report directly to the Chief Executive Officer of the Company
and shall supervise and monitor the legal and property management departments
and staffs of the Company and Care and perform such other duties as may be
prescribed from time to time by the Chief Executive Officer of the Company,
including, but not limited to, the following:
o Provide legal counsel to the Board of Directors and management
of the Company and assist management in the achievement of
Company business goals.
o Negotiate and document mergers, acquisitions, and divestitures
and all other contractual or legal relationships of the
Company and its subsidiaries and third parties.
o Supervise and monitor all public company and securities law
registration and reporting matters.
o Participate in corporate planning and development processes.
o Monitor and provide legal counsel with respect to all
licensure, survey, citation, and other regulatory matters
affecting Company facility operations.
<PAGE> 12
o Monitor and supervise all litigation, including EEOC and labor
matters and collections; develop and implement litigation case
management program; minimize use and cost of outside legal
counsel and maximize internal handling of legal work; engage,
supervise, and dismiss outside counsel.
o Coordinate and monitor corporate compliance programs; develop
and maintain corporate preventative law program; conduct legal
audits from time to time.
o Provide for the protection and registration of all corporate
intellectual property, including trademarks, trade names,
service marks, etc.
o Provide continual education regarding legal and regulatory
developments and conduct training seminars regarding same.
CORPORATE SECRETARY
In his capacity as Corporate Secretary of the Company and Care, the
Employee shall report directly to the Chief Executive Officer of the Company
and shall keep or cause to be kept, at the principal executive office or such
other place as the Board of Directors may direct, a book of minutes of all
meetings and actions of directors, committees of directors, and stockholders of
each of the Company, Care, and their respective subsidiaries, with the time and
place of holding, whether regular or special, and, if special, how authorized,
the notice given, the names of those present at directors' meetings or
committee meetings, the number of shares present or represented at
stockholders' meetings, and the proceedings. The Employee, as Secretary, shall
also keep, or cause to be kept, at the principal executive office or at the
office of each such corporation's transfer agent or registrar, as determined by
resolution of the Board of Directors, a record of stockholders, or a duplicate
record of stockholders, showing the names of all stockholders and their
addresses, the number and classes of shares held by each, the number and date
of certificates issued for the same, and the number and data of cancellation of
every certificate surrendered for cancellation. The Employee, as Secretary,
shall also give, or cause to be given, notice of all meetings of the
stockholders and of the Board of Directors required by the Bylaws or by law to
be given, and he shall keep the seal of each such corporation if one be
adopted, in safe custody. The Employee, as Secretary, shall also maintain the
Company, Care and each of their respective subsidiaries in good standing in
each jurisdiction in which the same are incorporated or authorized to transact
business and shall file all necessary reports or other instruments with such
jurisdictions, and shall have such other powers and perform such other duties
as may be prescribed from time to time by the Chief Executive Officer of the
Company.
<PAGE> 1
EXHIBIT 11
REGENCY HEALTH SERVICES, INC.
SCHEDULE COMPUTING NET INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
FOR SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
------------------------------------ -----------------------
1991 1992 1993 1992 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PRIMARY NET INCOME:
Net Income.................................. $1,824,176 $3,246,314 $5,444,683 $2,589,000 $3,839,000
Add -- interest expense related to notes
payable, net of applicable income tax.... 163,200 72,000 -- -- --
---------- ---------- ---------- ---------- ----------
PRIMARY ADJUSTED NET INCOME................... $1,987,376 $3,318,314 $5,444,683 $2,589,000 $3,839,000
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
FULLY DILUTED NET INCOME:
Primary adjusted net income................. $1,987,376 $3,318,314 $5,444,683 $2,589,000 $3,839,000
Add -- interest and amortization expense
related to Convertible Debentures, net of
applicable income tax.................... -- -- 557,000 -- 1,041,000
---------- ---------- ---------- ---------- ----------
FULLY DILUTED ADJUSTED NET INCOME............. $1,987,376 $3,318,314 $6,001,683 $2,589,000 $4,880,000
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
WEIGHTED AVERAGE NUMBER OF SHARES:
Common and common equivalent shares......... 1,105,322 1,105,322 1,290,624 1,108,092 1,256,114
Conversion of preferred stock............... 1,506,684 1,506,684 1,506,684 1,506,684 1,506,684
Conversion of note payable.................. 529,510 529,510 529,510 529,510 529,510
Shares issued in connection with Hallmark
acquisition.............................. -- 541,206 1,092,378 1,092,378 1,092,378
Issuance of common stock in Initial Public
Offering................................. -- -- 2,358,334 2,500,251 2,528,634
---------- ---------- ---------- ---------- ----------
TOTAL SHARES IN COMPUTING PRIMARY INCOME PER
SHARE....................................... 3,141,516 3,682,722 6,777,530 6,736,915 6,913,320
---------- ---------- ---------- ---------- ----------
Convertible Debentures...................... -- -- 1,010,101 -- 4,040,404
---------- ---------- ---------- ---------- ----------
TOTAL SHARES IN COMPUTING FULLY DILUTED INCOME
PER SHARE................................... 3,141,516 3,682,722 7,787,631 6,736,915 10,953,724
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
INCOME PER SHARE:
Primary..................................... $ 0.63 $ 0.90 $ 0.80 $ 0.38 $ 0.56
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Fully Diluted............................... $ 0.63 $ 0.90 $ 0.77 $ 0.38 $ 0.45
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
<PAGE> 1
EXHIBIT 21
REGENCY HEALTH SERVICES, INC.
LIST OF WHOLLY OWNED SUBSIDIARIES
<TABLE>
<S> <C>
1. Hallmark Health Services, Inc. -- a Delaware corporation
2. Brittany Rehabilitation Center, Inc. -- a California corporation
3. Meadowbrook Rehabilitation Center -- a California corporation
4. Vista Knoll Rehabilitation Center, Inc. -- a California corporation
5. Paradise Rehabilitation Center, Inc. -- a California corporation
6. Rosewood Rehabilitation Center, Inc. -- a California corporation
7. Stockton Rehabilitation Center, Inc. -- a California corporation
8. North State Home Health Care, Inc. -- a California corporation
9. First Class Pharmacy, Inc. -- a California corporation
10. Paso Robles Rehabilitation Center -- a California corporation
11. Hawthorne Rehabilitation Center -- a California corporation
12. Willowview Rehabilitation Center -- a California corporation
13. Carmichael Rehabilitation Center -- a California corporation
14. Covina Rehabilitation Center -- a California corporation
15. Huntington Beach Convalescent Hospital -- a California corporation
16. Rose Rehabilitation Center -- a California corporation
17. Shandin Hills Rehabilitation Center -- a California corporation
18. Grand Terrace Rehabilitation Center -- a California corporation
19. Glendora Rehabilitation Center -- a California corporation
20. Meadowview Rehabilitation Center -- a California corporation
21. Newport Beach Rehabilitation Center -- a California corporation
22. Fairfield Rehabilitation Center -- a California corporation
23. Linda-Mar Rehabilitation Center -- a California corporation
24. Coalinga Rehabilitation Center -- a California corporation
25. Heritage Rehabilitation Center -- a California corporation
26. Harbor View Rehabilitation Center -- a California corporation
27. Fullerton Rehabilitation Center -- a California corporation
28. Evergreen Rehabilitation Center -- a California corporation
29. Casa de Vida Rehabilitation Center -- a California corporation
30. RHS Management Corporation -- a California corporation
31. Braswell Enterprises, Inc. -- a California corporation
32. Jackson Rehabilitation Center, Inc. -- a California corporation
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 12, 1993, with respect to the financial
statements of Care Enterprises, Inc. included in the Joint Proxy Statement of
Care Enterprises, Inc. and Regency Health Services, Inc. which is made a part of
the Registration Statement (Form S-4 No. 33- ) and Prospectus of
Regency Health Services, Inc. for the registration of 9,401,140 shares of its
common stock.
We also consent to the use of our report dated March 12, 1993 with respect
to the schedules of Care Enterprises, Inc. included in Registration Statement
(Form S-4 No. 33- ) and Prospectus of Regency Health Services, Inc.
ERNST & YOUNG
Orange County, California
March 2, 1994
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN & CO.
Orange County, California
March 2, 1994
