<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-1
TENDER OFFER STATEMENT PURSUANT TO SECTION 14(d)(1)
OF THE SECURITIES EXCHANGE ACT OF 1934
AND
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
REGENCY HEALTH SERVICES, INC.
(NAME OF SUBJECT COMPANY)
SUNREG ACQUISITION CORP.
SUN HEALTHCARE GROUP, INC.
(BIDDERS)
COMMON STOCK, $.01 PAR VALUE
(TITLE OF CLASS OF SECURITIES)
758934-10-3
(CUSIP NUMBER OF CLASS OF SECURITIES)
ROBERT MURPHY, ESQ.
SUN HEALTHCARE GROUP, INC.
101 SUN LANE NE
ALBUQUERQUE, NEW MEXICO 87109
TELEPHONE: (505) 821-3355
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES
AND COMMUNICATIONS ON BEHALF OF BIDDERS)
COPY TO:
MICHAEL KENNEDY, ESQ.
STEVE CAMAHORT, ESQ.
BROBECK, PHLEGER & HARRISON LLP
ONE MARKET--SPEAR STREET TOWER
SAN FRANCISCO, CALIFORNIA 94105
TELEPHONE:(415) 442-0900
CALCULATION OF FILING FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TRANSACTION VALUE AMOUNT OF FILING FEE
- --------------------------------------------------------------------------------
<S> <C>
$350,576,600/1/ $70,115.32/2/
- --------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
(1) Calculated by multiplying $22.00, the per share tender offer price, by
15,935,300, the number of shares of Common Stock outstanding on July 25,
1997.
(2) 1/50 of 1% of Transaction Value.
[_] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
Amount Previously Paid:_____________ Filing Party:____________
Form or Registration No.:___________ Date Filed:______________
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
CUSIP NO. 758934-10-3 PAGE 2 OF 8 PAGES
<TABLE>
<C> <S>
NAME OF REPORTING PERSONS:
1 S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS:
Sunreg Acquisition Corp.
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a)[_]
(b)[_]
- -------------------------------------------------------------------------------
3 SEC USE ONLY
- -------------------------------------------------------------------------------
4 SOURCE OF FUNDS
AF and BK
- -------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM
5 2(e) OR 2(f) [_]
- -------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OR ORGANIZATION
Delaware
- -------------------------------------------------------------------------------
7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
4,074,913
- -------------------------------------------------------------------------------
8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES [_]
- -------------------------------------------------------------------------------
9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7)
25.6% (based on 15,935,300 shares outstanding)
- -------------------------------------------------------------------------------
10 TYPE OF REPORTING PERSON*
CO
</TABLE>
<PAGE>
CUSIP NO. 758934-10-3 PAGE 3 OF 8 PAGES
<TABLE>
<C> <S>
NAME OF REPORTING PERSONS:
1 S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS:
Sun Healthcare Group, Inc.
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a)[_]
(b)[_]
- -------------------------------------------------------------------------------
3 SEC USE ONLY
- -------------------------------------------------------------------------------
4 SOURCE OF FUNDS
AF and BK
- -------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM
5 2(e) OR 2(f) [_]
- -------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OR ORGANIZATION
Delaware
- -------------------------------------------------------------------------------
7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
4,074,913
- -------------------------------------------------------------------------------
8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES [_]
- -------------------------------------------------------------------------------
9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7)
25.6% (based on 15,935,300 shares outstanding)
- -------------------------------------------------------------------------------
10 TYPE OF REPORTING PERSON*
HC
</TABLE>
<PAGE>
This Tender Offer Statement on Schedule 14D-1 and Schedule 13D (the
"Statement") relates to the offer by Sunreg Acquisition Corp., a corporation
organized and existing under the laws of the State of Delaware ("Purchaser")
and a wholly owned subsidiary of Sun Healthcare Group, Inc., a Delaware
corporation ("Parent"), to purchase all outstanding shares of Common Stock,
par value $.01 per share (the "Shares"), of Regency Health Services, Inc., a
corporation organized and existing under the laws of the State of Delaware
(the "Company"), at a price of $22.00 per Share, net to the seller in cash,
upon the terms and subject to the conditions set forth in Purchaser's Offer to
Purchase dated August 1, 1997 (the "Offer to Purchase") and in the related
Letter of Transmittal (which together constitute the "Offer"), copies of which
are attached hereto as Exhibits (a)(1) and (a)(2), respectively.
ITEM 1. SECURITY AND SUBJECT COMPANY.
(a) The name of the subject company is Regency Health Services, Inc., a
corporation organized and existing under the laws of the State of Delaware
(the "Company"), which has its principal executive offices at 2742 Dow Avenue,
Tustin, California 92780.
(b) The class of equity securities being sought is all the outstanding
shares of Common Stock, par value $.01 per share, of the Company. The
information set forth in the Introduction and Section 1 ("Terms of the Offer;
Expiration Date") of the Offer to Purchase is incorporated herein by
reference.
(c) The information concerning the principal market in which the Shares are
traded and certain high and low sales prices for the Shares in such principal
market set forth in Section 6 ("Price Range of Shares; Dividends") of the
Offer to Purchase is incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(d) and (g) This Statement is filed by Purchaser and Parent. The
information concerning the name, state or other place of organization,
principal business and address of the principal office of each of Purchaser
and Parent and the information concerning the name, business address, present
principal occupation or employment and the name, principal business and
address of any corporation or other organization in which such employment or
occupation is conducted, material occupations, positions, offices or
employments during the last five years and citizenship of each of the
executive officers and directors of Purchaser and Parent are set forth in the
Introduction, Section 8 ("Certain Information Concerning Purchaser and
Parent") and Schedule I of the Offer to Purchase and are incorporated herein
by reference.
(e) and (f) During the last five years, none of Purchaser or Parent and, to
the best knowledge of Purchaser and Parent, none of the persons listed in
Schedule I of the Offer to Purchase has been (i) convicted in a criminal
proceeding (excluding traffic violations or similar misdemeanors) or (ii) a
party to a civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding was or is subject to a
judgment, decree or final order enjoining future violations of, or prohibiting
activities subject to, federal or state securities laws or finding any
violation of such laws.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY.
(a) The information set forth in Section 8 ("Certain Information Concerning
Purchaser and Parent") and Section 10 ("Background of the Offer; Contacts with
the Company; the Merger Agreement; the Stockholder Agreement") is incorporated
herein by reference.
(b) The information set forth in the Introduction, Section 7 ("Certain
Information Concerning the Company"), Section 8 ("Certain Information
Concerning Purchaser and Parent"), Section 10 ("Background of the Offer;
Contacts with the Company; the Merger Agreement; the Stockholder Agreement")
and Section 11 ("Purpose of the Offer; Plans for the Company After the Offer
and the Merger") of the Offer to Purchase is incorporated herein by reference.
4
<PAGE>
ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a)-(c) The information set forth in Section 9 ("Financing of the Offer and
the Merger") of the Offer to Purchase is incorporated herein by reference.
ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER.
(a)-(e) The information set forth in the Introduction, Section 10
("Background of the Offer; Contacts with the Company; the Merger Agreement;
the Stockholder Agreement") and Section 11 ("Purpose of the Offer; Plans for
the Company After the Offer and the Merger") of the Offer to Purchase is
incorporated herein by reference.
(f) and (g) The information set forth in Section 13 ("Effect of the Offer on
the Market for Shares, Exchange Listing and Exchange Act Registration") of the
Offer to Purchase is incorporated herein by reference.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
(a) and (b) The information set forth in Section 8 ("Certain Information
Concerning Purchaser and Parent") and Schedule I of the Offer to Purchase is
incorporated herein by reference.
ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE SUBJECT COMPANY'S SECURITIES.
The information set forth in the Introduction, Section 8 ("Certain
Information Concerning Purchaser and Parent"), Section 10 ("Background of the
Offer; Contacts with the Company; the Merger Agreement; the Stockholder
Agreement") and Section 11 ("Purpose of the Offer; Plans for the Company After
the Offer and the Merger") of the Offer to Purchase is incorporated herein by
reference.
ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The information set forth in the Introduction and Section 16 ("Fees and
Expenses") of the Offer to Purchase is incorporated herein by reference.
ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS.
The information set forth in Section 8 ("Certain Information Concerning
Purchaser and Parent") of the Offer to Purchase is incorporated herein by
reference.
ITEM 10. ADDITIONAL INFORMATION.
(a) None.
(b) and (c) The information set forth in Section 15 ("Certain Legal Matters
and Regulatory Approvals") of the Offer to Purchase is incorporated herein by
reference.
(d) The information set forth in Section 15 ("Certain Legal Matters and
Regulatory Approvals") of the Offer to Purchase is incorporated herein by
reference.
(e) None.
(f) The information set forth in the Offer to Purchase is incorporated
herein by reference.
5
<PAGE>
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<C> <S>
(a)(1) --Form of Offer to Purchase dated August 1, 1997.
(a)(2) --Form of Letter of Transmittal.
(a)(3) --Form of Notice of Guaranteed Delivery.
(a)(4) --Form of Letter from Schroder & Co. Inc. to Brokers, Dealers,
Commercial Banks, Trust Companies and Nominees.
(a)(5) --Form of Letter from Brokers, Dealers, Commercial Banks, Trust
Companies and Nominees to Clients.
--Form of Guidelines for Certification of Taxpayer Identification
(a)(6) Number on Substitute Form W-9.
--Summary Advertisement as published in The Wall Street Journal on
(a)(7) August 1, 1997.
(a)(8) --Press Release issued by Parent and the Company on July 28, 1997.
(b)(1) --Commitment Letter, effective as of July 26, 1997, from NationsBank of
Texas, N.A.
(c)(1) --Agreement and Plan of Merger, dated as of July 26, 1997, among
Parent, Purchaser and the Company.
(c)(2) --Stockholder Agreement, dated as of July 26, 1997, among Parent,
Purchaser, Richard K. Matros, Bruce Broussard, Energy Management
Corporation, Solvation Inc., Pengo Securities Corp.,
Sega Associates, L.P., Durian Securities, Inc., Randall D. Smith and
John W. Adams.
(d) --Not applicable.
(e) --Not applicable.
(f) --Not applicable.
</TABLE>
6
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
August 1, 1997
SUNREG ACQUISITION CORP.
By /s/ Robert D. Woltil
----------------------------------
Name: Robert D. Woltil
Title: Vice President
SUN HEALTHCARE GROUP, INC.
By /s/ Robert D. Woltil
----------------------------------
Name: Robert D. Woltil
Title: Senior Vice President for
Financial Services and
Chief Financial Officer
7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. ITEM
------- ----
<C> <S>
(a)(1) --Form of Offer to Purchase dated August 1, 1997.
(a)(2) --Form of Letter of Transmittal.
(a)(3) --Form of Notice of Guaranteed Delivery.
(a)(4) --Form of Letter from Schroder & Co. Inc. to Brokers, Dealers,
Commercial Banks, Trust Companies and Nominees.
(a)(5) --Form of Letter from Brokers, Dealers, Commercial Banks, Trust
Companies and Nominees to Clients.
--Form of Guidelines for Certification of Taxpayer Identification
(a)(6) Number on Substitute Form W-9.
--Summary Advertisement as published in The Wall Street Journal on
(a)(7) August 1, 1997.
(a)(8) --Press Release issued by Parent on July 28, 1997.
(b)(1) --Commitment Letter, effective as of July 26, 1997, from NationsBank
of Texas, N.A.
(c)(1) --Agreement and Plan of Merger, dated as of July 26, 1997, among
Parent, Purchaser and Company.
(c)(2) --Stockholder Agreement, dated as of July 26, 1997, among Parent,
Purchaser, Richard K. Matros, Bruce Broussard, Energy Management
Corporation, Solvation Inc., Pengo Securities Corp.,
Sega Associates, L.P., Durian Securities, Inc., Randall D. Smith
and John W. Adams.
(d) --Not applicable.
(e) --Not applicable.
(f) --Not applicable.
</TABLE>
8
<PAGE>
EXHIBIT (a)(1)
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
REGENCY HEALTH SERVICES, INC.
AT
$22.00 NET PER SHARE
BY
SUNREG ACQUISITION CORP.
A WHOLLY OWNED SUBSIDIARY OF
SUN HEALTHCARE GROUP, INC.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON SEPTEMBER 15, 1997, UNLESS THE OFFER IS EXTENDED.
---------------
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (I) THERE BEING VALIDLY
TENDERED AND NOT PROPERLY WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT
LEAST A MAJORITY OF THE SHARES OUTSTANDING ON A FULLY DILUTED BASIS (THE
"MINIMUM CONDITION"), (II) THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN
PURSUANT TO PARENT'S DEBT TENDER OFFERS A MAJORITY IN PRINCIPAL AMOUNT OF EACH
OF THE COMPANY'S 12 1/4% SUBORDINATED SECURITIES DUE 2003 (THE "JUNIOR
SECURITIES") AND THE COMPANY'S 9 7/8% SENIOR SUBORDINATED SECURITIES DUE 2002
(THE "SENIOR SECURITIES") (THE "TENDER CONDITION") AND (III) VALID CONSENTS
HAVING BEEN OBTAINED PURSUANT TO PARENT'S DEBT CONSENT SOLICITATIONS FROM
HOLDERS (EXCLUDING THE COMPANY AND ITS AFFILIATES) OF A MAJORITY IN PRINCIPAL
AMOUNT AS OF THE APPLICABLE RECORD DATE OF EACH OF THE JUNIOR SECURITIES AND
THE SENIOR SECURITIES (THE "CONSENT CONDITION"). THE CONDITIONS OF THE OFFER
(OTHER THAN THE MINIMUM CONDITION), INCLUDING THE TENDER CONDITION AND THE
CONSENT CONDITION, MAY BE WAIVED BY PURCHASER IN ITS SOLE DISCRETION.
---------------
THE BOARD OF DIRECTORS OF REGENCY HEALTH SERVICES, INC. (THE "COMPANY")
UNANIMOUSLY HAS DETERMINED THAT EACH OF THE OFFER AND THE MERGER IS FAIR TO,
AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF THE COMPANY, AND RECOMMENDS
THAT STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE
OFFER.
---------------
IMPORTANT
Any stockholder desiring to tender all or any portion of such stockholder's
shares of common stock, par value $.01 per share (the "Shares"), of the
Company should either (i) complete and sign the Letter of Transmittal (or a
facsimile thereof) in accordance with the instructions in the Letter of
Transmittal and mail or deliver it together with the certificate(s) evidencing
tendered Shares, and any other required documents, to the Depositary or tender
such Shares pursuant to the procedure for book-entry transfer set forth in
Section 3 or (ii) request such stockholder's broker, dealer, commercial bank,
trust company or other nominee to effect the transaction for such stockholder.
Any stockholder whose Shares are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee must contact such broker,
dealer, commercial bank, trust company or other nominee if such stockholder
desires to tender such Shares.
A stockholder who desires to tender Shares and whose certificates evidencing
such Shares are not immediately available, or who cannot comply with the
procedure for book-entry transfer on a timely basis, may tender such Shares by
following the procedure for guaranteed delivery set forth in Section 3.
Questions or requests for assistance may be directed to the Information
Agents or to the Dealer Manager at their respective addresses and telephone
numbers set forth on the back cover of this Offer to Purchase. Additional
copies of this Offer to Purchase, the Letter of Transmittal and the Notice of
Guaranteed Delivery may also be obtained from the Information Agents or from
brokers, dealers, commercial banks or trust companies.
---------------
The Dealer Manager for the Offer is:
SCHRODER & CO. INC.
August 1, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
INTRODUCTION............................................................. 1
1. Terms of the Offer; Expiration Date.............................. 3
2. Acceptance for Payment and Payment for Shares.................... 5
3. Procedures for Accepting the Offer and Tendering Shares.......... 6
4. Withdrawal Rights................................................ 8
5. Certain Federal Income Tax Consequences.......................... 9
6. Price Range of Shares; Dividends................................. 9
7. Certain Information Concerning the Company....................... 10
8. Certain Information Concerning Purchaser and Parent.............. 12
9. Financing of the Offer and the Merger............................ 15
10. Background of the Offer; Contacts with the Company; the Merger
Agreement; the Stockholder Agreement............................. 17
Purpose of the Offer; Plans for the Company After the Offer and
11. the Merger....................................................... 26
12. Dividends and Distributions...................................... 28
13. Effect of the Offer on the Market for the Shares, Exchange
Listing and Exchange Act Registration............................ 29
14. Certain Conditions of the Offer.................................. 30
15. Certain Legal Matters and Regulatory Approvals................... 31
16. Fees and Expenses................................................ 35
17. Miscellaneous.................................................... 36
Schedule I. Directors and Executive Officers of Parent and Purchaser.. I-1
</TABLE>
i
<PAGE>
To the Holders of Common Stock of
Regency Health Services, Inc.:
INTRODUCTION
Sunreg Acquisition Corp., a corporation organized and existing under the
laws of the State of Delaware ("Purchaser") and a wholly owned subsidiary of
Sun Healthcare Group, Inc. a corporation organized and existing under the laws
of the State of Delaware ("Parent"), hereby offers to purchase all outstanding
shares of common stock, par value $.01 per share (the "Shares"), of Regency
Health Services, Inc., a corporation organized and existing under the laws of
the State of Delaware (the "Company"), at a price of $22.00 per Share, net to
the seller in cash, upon the terms and subject to the conditions set forth in
this Offer to Purchase and in the related Letter of Transmittal (which
together constitute the "Offer").
Tendering stockholders will not be obligated to pay brokerage fees or
commissions or, except as otherwise provided in Instruction 6 of the Letter of
Transmittal, stock transfer taxes with respect to the purchase of Shares by
Purchaser pursuant to the Offer. Purchaser will pay all charges and expenses
of Schroder & Co. Inc. ("Schroders"), which is acting as Dealer Manager for
the Offer (in such capacity, the "Dealer Manager"), ChaseMellon Shareholder
Services, L.L.C. (the "Depositary") and Innisfree M&A Incorporated and Morrow
& Co., Inc. (the "Information Agents") incurred in connection with the Offer.
See Section 16.
THE BOARD OF DIRECTORS OF THE COMPANY (THE "BOARD") UNANIMOUSLY HAS
DETERMINED THAT EACH OF THE OFFER AND THE MERGER (AS DEFINED BELOW) IS FAIR
TO, AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF THE COMPANY, AND
RECOMMENDS THAT STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT
TO THE OFFER.
Smith Barney Inc. ("Smith Barney") has delivered to the Board its written
opinion dated July 26, 1997 to the effect that, as of such date and based upon
and subject to certain matters stated therein, the $22.00 per Share cash
consideration to be received by the holders of Shares in the Offer and the
Merger was fair, from a financial point of view, to such holders. A copy of
the written opinion of Smith Barney, dated July 26, 1997, which sets forth the
assumptions made, matters considered and limitations on the review undertaken
by Smith Barney is contained in the Company's Solicitation/Recommendation
Statement on Schedule 14D-9 (the "Schedule 14D-9"), which is being mailed to
stockholders herewith.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (I) THERE BEING VALIDLY
TENDERED AND NOT PROPERLY WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT
LEAST A MAJORITY OF THE SHARES THEN OUTSTANDING ON A FULLY DILUTED BASIS (THE
"MINIMUM CONDITION"), (II) THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN
PURSUANT TO PARENT'S DEBT TENDER OFFERS A MAJORITY IN PRINCIPAL AMOUNT OF EACH
OF THE COMPANY'S 12 1/4% SUBORDINATED SECURITIES DUE 2003 (THE "JUNIOR
SECURITIES") AND THE COMPANY'S 9 7/8% SENIOR SUBORDINATED SECURITIES DUE 2002
(THE "SENIOR SECURITIES") (THE "TENDER CONDITION") AND (III) VALID CONSENTS
HAVING BEEN OBTAINED PURSUANT TO PARENT'S DEBT CONSENT SOLICITATIONS FROM
HOLDERS (EXCLUDING THE COMPANY AND ITS AFFILIATES) OF A MAJORITY IN PRINCIPAL
AMOUNT AS OF THE APPLICABLE RECORD DATE OF EACH OF THE JUNIOR SECURITIES AND
THE SENIOR SECURITIES (THE "CONSENT CONDITION"). THE CONDITIONS OF THE OFFER
(OTHER THAN THE MINIMUM CONDITION), INCLUDING THE TENDER CONDITION AND THE
CONSENT CONDITION, MAY BE WAIVED BY PURCHASER IN ITS SOLE DISCRETION.
1
<PAGE>
The Offer is being made pursuant to the Agreement and Plan of Merger, dated
as of July 26, 1997 (the "Merger Agreement"), among Parent, Purchaser and the
Company. The Merger Agreement provides that, among other things, at the
effective time of the Merger (the "Effective Time") and in accordance with the
General Corporation Law of the State of Delaware ("Delaware Law"), Purchaser
will be merged with and into the Company (the "Merger"). Following
consummation of the Merger, the Company will continue as the surviving
corporation (the "Surviving Corporation") and will become a wholly owned
subsidiary of Parent. At the Effective Time, each Share issued and outstanding
immediately prior to the Effective Time (other than Shares held in the
treasury of the Company or owned by Purchaser, Parent or any direct or
indirect wholly owned subsidiary of Parent or of the Company, and other than
Shares held by stockholders who shall have demanded and perfected appraisal
rights, if any, under Delaware Law) will be cancelled and converted
automatically into the right to receive $22.00 in cash, or any higher price
that may be paid per Share in the Offer, without interest (the "Merger
Consideration"). The Merger Agreement is more fully described in Section 10.
The Merger Agreement provides that, promptly upon the purchase by Purchaser
of Shares pursuant to the Offer and from time to time thereafter, Purchaser
shall be entitled to designate up to such number of directors, rounded up to
the next whole number, on the Board as will give Purchaser representation on
the Board equal to the product of the number of directors on the Board
multiplied by the percentage that the aggregate number of Shares then
beneficially owned by Purchaser and its affiliates following such purchase
bears to the total number of Shares then outstanding. In the Merger Agreement,
the Company has agreed to take all actions necessary to cause Purchaser's
designees to be elected as directors of the Company, including increasing the
size of the Board or securing the resignations of incumbent directors or both.
The consummation of the Merger is subject to the satisfaction or waiver of
certain conditions, including the approval and adoption of the Merger
Agreement by the requisite vote of the stockholders of the Company. See
Section 11. Under the Company's Bylaws and Delaware Law, the affirmative vote
of the holders of a majority of the outstanding Shares is required to approve
and adopt the Merger Agreement and the Merger. Consequently, if Purchaser
acquires (pursuant to the Offer or otherwise) at least a majority of the
outstanding Shares, Purchaser will have sufficient voting power to approve and
adopt the Merger Agreement and the Merger without the vote of any other
stockholder.
Under Delaware Law, if Purchaser acquires, pursuant to the Offer or
otherwise, at least 90% of the then outstanding Shares, Purchaser will be able
to approve and adopt the Merger Agreement and the transactions contemplated
thereby, including the Merger, without a vote of the Company's stockholders.
In such event, Parent, Purchaser and the Company have agreed to take, at the
request of Purchaser, all necessary and appropriate action to cause the Merger
to become effective as soon as reasonably practicable after such acquisition,
without a meeting of the Company's stockholders. If, however, Purchaser does
not acquire at least 90% of the then outstanding Shares pursuant to the Offer
or otherwise and a vote of the Company's stockholders is required under
Delaware Law, a significantly longer period of time will be required to effect
the Merger. See Section 11.
The Company has advised Purchaser that as of July 25, 1997, 15,935,300
Shares were issued and outstanding, and 1,801,859 Shares were reserved for
issuance upon exercise of Company Stock Options (as defined). As a result, as
of such date, the Minimum Condition would be satisfied if Purchaser acquired
8,868,580 Shares.
Simultaneously with entering into the Merger Agreement, Purchaser and
certain Stockholders of the Company also entered into a Stockholder Agreement,
dated as of July 26, 1997 (the "Stockholder Agreement"), pursuant to which
certain of the Company's Stockholders have agreed to tender their Shares of
the Common Stock of the Company into the Offer, subject to certain conditions.
The Stockholder Agreement provides that each Stockholder shall not, except
as contemplated by the terms of the Stockholder Agreement, take any action
that would in any way restrict, limit or interfere with the performance of its
obligations thereunder or the transactions contemplated thereby. Until the
Merger is consummated or the Merger Agreement is terminated, each Stockholder
shall not, nor shall each Stockholder permit any investment banker, financial
adviser, attorney, accountant or other representative or agent of such
2
<PAGE>
Stockholder to, directly or indirectly, subject to the terms of the
Stockholder Agreement, (i) solicit, initiate or encourage (including by way of
furnishing information), or take any other action designed or reasonably
likely to facilitate, any inquiries or the making of any proposal which
constitutes, or may reasonably be expected to lead to, any Acquisition
Proposal (as defined) or (ii) participate in any discussions or negotiations
regarding any Acquisition Proposal.
The Stockholder Agreement further provides that each Stockholder irrevocably
grants to, and appoints, certain executive officers of Parent, such
Stockholder's proxy and attorney-in-fact (with full power of substitution),
for and in the name, place and stead of such Stockholder, to vote such
Stockholder's Shares (the "Proxy Shares"), or grant a consent or approval in
respect of such Proxy Shares, at any meeting of stockholders of the Company or
at any adjournment thereof or in any other circumstances upon which their
vote, consent or other approval is sought, against (i) any merger agreement or
merger (other than the Merger Agreement and the Merger), consolidation,
combination, sale of substantial assets, reorganization, joint venture,
recapitalization, dissolution, liquidation or winding up of or by the Company
and (ii) any amendment of the Company's Certificate of Incorporation or
Bylaws, as amended and restated, or other proposals or transaction (including
any consent solicitation to remove or elect any directors of the Company)
involving the Company which amendment or other proposal or transaction would
in any manner impede, frustrate, prevent or nullify, or result in a breach of
covenant, representation or warranty or any other obligation or agreement of
the Company under or with respect to, the Offer, the Merger, the Merger
Agreement or any of the other transactions contemplated by the Merger
Agreement.
As of July 25, 1997, the Stockholders owned 4,074,913 Shares representing
approximately 25.6% of the outstanding shares.
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION WHICH SHOULD BE READ BEFORE ANY DECISION IS MADE WITH
RESPECT TO THE OFFER.
1. Terms of the Offer; Expiration Date. Upon the terms and subject to the
conditions of the Offer (including, if the Offer is extended or amended, the
terms and conditions of such extension or amendment), Purchaser will accept
for payment and pay for all Shares validly tendered prior to the Expiration
Date (as hereinafter defined) and not withdrawn as permitted by Section 4. The
term "Expiration Date" means 12:00 midnight, New York City time, on September
15, 1997, unless and until Purchaser or Parent, subject to the terms and
conditions of the Merger Agreement, shall have extended the period during
which the Offer is open, in which event the term "Expiration Date" shall mean
the latest time and date at which the Offer, as so extended by Purchaser or
Parent, shall expire.
The initial expiration date of the Offer shall be September 15, 1997. IF, AT
ANY SCHEDULED EXPIRATION DATE PRIOR TO OCTOBER 1, 1997, THERE SHALL HAVE BEEN
TENDERED, AND NOT WITHDRAWN, FEWER THAN 90% OF THE SHARES, THEN PURCHASER
SHALL, AT THE REQUEST OF THE COMPANY, EXTEND THE OFFER FOR SUCH NUMBER OF DAYS
(UP TO 20 CALENDAR DAYS) AS THE COMPANY MAY REQUEST. NO SUCH REQUEST SHALL BE
MADE BY THE COMPANY IF, IN ITS SOLE JUDGMENT, IT CONCLUDES THAT THE MERGER
COULD BE CONSUMMATED ON OR PRIOR TO OCTOBER 6, 1997.
The Merger Agreement provides that Purchaser may at any time transfer or
assign to one or more corporations directly or indirectly wholly owned by
Parent the right to purchase all or any portion of the Shares tendered
pursuant to the Offer, but no such assignment shall relieve Parent or
Purchaser of its obligations thereunder. Purchaser expressly reserves the
right to modify the terms of the Offer, except that, without the consent of
the Company, Purchaser shall not (i) reduce the number of shares of Common
Stock subject to the Offer, (ii) reduce the price per share of Common Stock to
be paid pursuant to the Offer (except as set forth below), (iii) modify or add
to the conditions set forth in Section 14, (iv) except as provided in this
Section 1 or Section 10, extend the Offer, (v) change the form of
consideration payable in the Offer (other than by increasing the cash offer
price) or (vi) amend or modify any term of the Offer in any manner adverse to
any of the Company's stockholders.
3
<PAGE>
The Merger Agreement provides that notwithstanding the foregoing, Purchaser
may, without the consent of the Company, but subject to the terms and
conditions of the Merger Agreement, (i) extend the Offer, if at the scheduled
expiration date of the Offer any of the conditions to Purchaser's obligation
to purchase shares of Common Stock shall not be satisfied, until such time as
such conditions are satisfied or waived or (ii) extend the Offer for any
period required by any rule, regulation, interpretation or position of the
Securities and Exchange Commission (the "SEC") or the staff thereof applicable
to the Offer or in order to obtain any material regulatory approval applicable
to the Offer.
The Merger Agreement also provides that Purchaser agrees that: (A) in the
event it would otherwise be entitled to terminate the Offer at any scheduled
expiration thereof due to the failure of one or more of the conditions set
forth in the first sentence of the introductory paragraph or paragraphs (a) or
(g) of Section 14 to be satisfied or waived, it shall give the Company notice
thereof and, at the request of the Company, if such conditions are reasonably
likely to be satisfied during the requested extension period, extend the Offer
until the earlier of (1) such time as such condition is, or conditions are,
satisfied or waived and (2) the date chosen by the Company which shall not be
later than (x) December 31, 1997 or (y) the date on which the Company
reasonably believes all such conditions will be satisfied (it being understood
that the Company shall not be entitled to make such request if it is then in
breach of the Merger Agreement, and that none of the foregoing shall modify
Parent's and Purchaser's right to terminate the Merger Agreement in the event
that the Company is in breach thereof or the conditions specified in
paragraphs (d) or (e) of Section 14 are applicable); provided that if any such
condition is not satisfied by the date so chosen by the Company, the Company
may request and Purchaser shall make further extensions of the Offer in
accordance with the terms of the Merger Agreement; and (B) in the event that
Purchaser would otherwise be entitled to terminate the Offer at any scheduled
expiration date thereof due solely to the failure of the Minimum Condition to
be satisfied, it shall, at the request of the Company, extend the Offer for
such period as may be requested by the Company not to exceed ten business days
from such scheduled expiration date. Subject to the terms and conditions of
the Offer and the Merger Agreement, Purchaser shall, and Parent shall cause
Purchaser to, pay for all shares of Common Stock validly tendered and not
withdrawn pursuant to the Offer that Purchaser becomes obligated to purchase
pursuant to the Offer immediately after the expiration of the Offer.
Notwithstanding the foregoing Parent may, in its sole discretion, extend the
expiration date of the Offer for a period not to exceed ten business days and
in no event ending after December 31, 1997, if Parent reasonably believes that
as a result of such extension 90% or more of the Shares will be tendered in
the Offer.
During any such extension, all Shares previously tendered and not withdrawn
will remain subject to the Offer, subject to the rights of a tendering
Stockholder to withdraw his shares. See Section 4.
Purchaser acknowledges that (i) Rule 14e-1(c) under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), requires Purchaser to pay the
consideration offered or return the Shares tendered promptly after the
termination or withdrawal of the Offer and (ii) Purchaser may not delay
acceptance for payment of, or payment for (except as provided herein) any
Shares upon the occurrence of any of the conditions specified in Section 14
without extending the period of time during which the Offer is open.
Any such extension, delay, termination, waiver or amendment will be followed
as promptly as practicable by public announcement thereof, such announcement
in the case of an extension to be made no later than 9:00 a.m., New York City
time, on the next business day after the previously scheduled Expiration Date.
Subject to applicable law (including Rules 14d-4(c) and 14d-6(d) under the
Exchange Act, which require that material changes be promptly disseminated to
stockholders in a manner reasonably designed to inform them of such changes)
and without limiting the manner in which Purchaser may choose to make any
public announcement, Purchaser shall have no obligation to publish, advertise
or otherwise communicate any such public announcement other than by issuing a
press release to the Dow Jones News Service.
If Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer, or if it waives a material condition of the
Offer, Purchaser will extend the Offer to the extent required by Rules l4d-
4(c) and l4d-6(d) under the Exchange Act.
4
<PAGE>
Subject to the terms of the Merger Agreement, if, prior to the Expiration
Date, Purchaser should decide to decrease the number of Shares being sought or
to increase or decrease the consideration being offered in the Offer, such
decrease in the number of Shares being sought or such increase or decrease in
the consideration being offered will be applicable to all stockholders whose
Shares are accepted for payment pursuant to the Offer and, if at the time
notice of any such decrease in the number of Shares being sought or such
increase or decrease in the consideration being offered is first published,
sent or given to holders of such Shares, the Offer is scheduled to expire at
any time earlier than the period ending on the tenth business day from and
including the date that such notice is first so published, sent or given, the
Offer will be extended at least until the expiration of such ten business day
period. For purposes of the Offer, a "business day" means any day other than a
Saturday, Sunday or federal holiday and consists of the time period from 12:01
a.m. through 12:00 midnight, New York City time.
The Company has provided Purchaser with the Company's stockholder list and
security position listings for the purpose of disseminating the Offer to
holders of Shares. This Offer to Purchase and the related Letter of
Transmittal will be mailed to record holders of Shares whose names appear on
the Company's stockholder list and will be furnished, for subsequent
transmittal to beneficial owners of Shares, to brokers, dealers, commercial
banks, trust companies and similar persons whose names, or the names of whose
nominees, appear on the stockholder list or, if applicable, who are listed as
participants in a clearing agency's security position listing.
2. Acceptance for Payment and Payment for Shares. Upon the terms and subject
to the conditions of the Offer (including, if the Offer is extended or
amended, the terms and conditions of any such extension or amendment),
Purchaser will accept for payment, and will pay for, all Shares validly
tendered prior to the Expiration Date and not properly withdrawn promptly
after the later to occur of (i) the Expiration Date, (ii) the expiration or
termination of any applicable waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and (iii) the
satisfaction or waiver of the conditions to the Offer set forth in Section 14.
Subject to applicable rules of the SEC, Purchaser expressly reserves the right
to delay acceptance for payment of, or payment for, Shares pending receipt of
any regulatory approvals specified in Section 15 or in order to comply in
whole or in part with any other applicable law.
In all cases, payment for Shares tendered and accepted for payment pursuant
to the Offer will be made only after timely receipt by the Depositary of (i)
the certificates evidencing such Shares (the "Share Certificates") or timely
confirmation (a "Book-Entry Confirmation") of a book-entry transfer of such
Shares into the Depositary's account at The Depository Trust Company, the
Midwest Securities Trust Company or the Philadelphia Depository Trust Company
(each, a "Book-Entry Transfer Facility" and, collectively, the "Book-Entry
Transfer Facilities") pursuant to the procedures set forth in Section 3, (ii)
the Letter of Transmittal (or a facsimile thereof), properly completed and
duly executed, with any required signature guarantees, or an Agent's Message
(as defined below) in connection with a book-entry transfer, and (iii) any
other documents required by the Letter of Transmittal.
The term "Agent's Message" means a message, transmitted by a Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, which states that such Book-Entry Transfer Facility
has received an express acknowledgement from the participant in such Book-
Entry Transfer Facility tendering the Shares, that such participant has
received and agrees to be bound by the terms of the Letter of Transmittal and
that Purchaser may enforce such agreement against such participant.
Parent expects to file with the Federal Trade Commission (the "FTC") and the
Antitrust Division of the Department of Justice (the "Antitrust Division") a
Premerger Notification and Report Form under the HSR Act with respect to the
Offer on or about August 15, 1997. The waiting period under the HSR Act
applicable to the Offer will expire at 11:59 p.m., New York City time, on the
date 15 days after such filing date. Prior to the expiration or termination of
such waiting period, the FTC or the Antitrust Division may extend such waiting
period by requesting additional information from Parent with respect to the
Offer. If such a request is made with respect to the purchase of Shares in the
Offer, the waiting period will expire at 11:59 p.m., New York City time, on
the tenth calendar day after substantial compliance by Parent with such a
request. Thereafter, the waiting period may only be extended by court order.
The waiting period under the HSR Act may be terminated prior to
5
<PAGE>
expiration by the FTC and the Antitrust Division. Parent will request early
termination of the waiting period, although there can be no assurance that
this request will be granted. See Section 15 for additional information
regarding the HSR Act.
For purposes of the Offer, Purchaser will be deemed to have accepted for
payment (and thereby purchased) Shares validly tendered and not properly
withdrawn as, if and when Purchaser gives oral or written notice to the
Depositary of Purchaser's acceptance for payment of such Shares pursuant to
the Offer. Upon the terms and subject to the conditions of the Offer, payment
for Shares accepted for payment pursuant to the Offer will be made by deposit
of the purchase price therefor with the Depositary, which will act as agent
for tendering stockholders for the purpose of receiving payments from
Purchaser and transmitting such payments to tendering stockholders whose
Shares have been accepted for payment. Under no circumstances will interest on
the purchase price for Shares be paid, regardless of any delay in making such
payment.
If any tendered Shares are not accepted for payment for any reason pursuant
to the terms and conditions of the Offer, or if Share Certificates are
submitted evidencing more Shares than are tendered, Share Certificates
evidencing unpurchased Shares will be returned, without expense to the
tendering stockholder (or, in the case of Shares tendered by book-entry
transfer into the Depositary's account at a Book-Entry Transfer Facility
pursuant to the procedure set forth in Section 3, such Shares will be credited
to an account maintained at such Book-Entry Transfer Facility), as promptly as
practicable following the expiration or termination of the Offer.
Purchaser reserves the right to transfer or assign, in whole or from time to
time in part, to one or more of its affiliates, the right to purchase all or
any portion of the Shares tendered pursuant to the Offer, but any such
transfer or assignment will not relieve Purchaser of its obligations under the
Offer and will in no way prejudice the rights of tendering stockholders to
receive payment for Shares validly tendered and accepted for payment pursuant
to the Offer.
3. Procedures for Accepting the Offer and Tendering Shares. In order for a
holder of Shares validly to tender Shares pursuant to the Offer, the Letter of
Transmittal (or a facsimile thereof), properly completed and duly executed,
together with any required signature guarantees, or an Agent's Message in
connection with a book-entry delivery of Shares, and any other documents
required by the Letter of Transmittal, must be received by the Depositary at
one of its addresses set forth on the back cover of this Offer to Purchase and
either (i) the Share Certificates evidencing tendered Shares must be received
by the Depositary at such address or such Shares must be tendered pursuant to
the procedure for book-entry transfer described below and a Book-Entry
Confirmation must be received by the Depositary, in each case prior to the
Expiration Date, or (ii) the tendering stockholder must comply with the
guaranteed delivery procedures described below.
THE METHOD OF DELIVERY OF SHARE CERTIFICATES AND ALL OTHER REQUIRED
DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT
THE OPTION AND RISK OF THE TENDERING STOCKHOLDER, AND THE DELIVERY WILL BE
DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS BY
MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY
DELIVERY.
Book-Entry Transfer. The Depositary will establish accounts with respect to
the Shares at the Book-Entry Transfer Facilities for purposes of the Offer
within two business days after the date of this Offer to Purchase. Any
financial institution that is a participant in the system of any Book-Entry
Transfer Facility may make a book-entry delivery of Shares by causing such
Book-Entry Transfer Facility to transfer such Shares into the Depositary's
account at such Book-Entry Transfer Facility in accordance with such Book-
Entry Transfer Facility's procedures for such transfer. However, although
delivery of Shares may be effected through book-entry transfer at a Book-Entry
Transfer Facility, the Letter of Transmittal (or a facsimile thereof),
properly completed and duly executed, together with any required signature
guarantees, or an Agent's Message in connection with a book-entry transfer,
and any other required documents, must, in any case, be received by the
Depositary at one
6
<PAGE>
of its addresses set forth on the back cover of this Offer to Purchase prior
to the Expiration Date, or the tendering stockholder must comply with the
guaranteed delivery procedure described below. DELIVERY OF DOCUMENTS TO A
BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
Signature Guarantees. Signatures on all Letters of Transmittal must be
guaranteed by a firm which is a member of the Medallion Signature Guarantee
Program, or by any other "eligible guarantor institution," as such term is
defined in Rule 17Ad-15 under the Exchange Act (each of the foregoing being
referred to as an "Eligible Institution"), except in cases where Shares are
tendered (i) by a registered holder of Shares who has not completed either the
box entitled "Special Payment Instructions" or the box entitled "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution. If a Share Certificate is registered in the name of a
person other than the person who or which signs of the Letter of Transmittal,
or if payment is to be made, or a Share Certificate not accepted for payment
or not tendered is to be returned, to a person other than the registered
holder(s), then the Share Certificate must be endorsed or accompanied by
appropriate stock powers, in either case signed exactly as the name(s) of the
registered holder(s) appear on the Share Certificate, with the signature(s) on
such Share Certificate or stock powers guaranteed by an Eligible Institution.
See Instructions 1 and 5 of the Letter of Transmittal.
Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to
the Offer and such stockholder's Share Certificates evidencing such Shares are
not immediately available or such stockholder cannot deliver the Share
Certificates and all other required documents to the Depositary prior to the
Expiration Date, or such stockholder cannot complete the procedure for
delivery by book-entry transfer on a timely basis, such Shares may
nevertheless be tendered, provided that all the following conditions are
satisfied:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form made available by Purchaser, is
received by the Depositary prior to the Expiration Date as provided below;
and
(iii) the Share Certificates (or a Book-Entry Confirmation) evidencing
all tendered Shares, in proper form for transfer, in each case together
with the Letter of Transmittal (or a facsimile thereof), properly completed
and duly executed, with any required signature guarantees (or, in the case
of a book-entry transfer, an Agent's Message), and any other documents
required by the Letter of Transmittal are received by the Depositary within
three New York Stock Exchange, Inc. ("NYSE") trading days after the date of
execution of such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or mail or
transmitted by telegram or facsimile transmission to the Depositary and must
include a guarantee by an Eligible Institution in the form set forth in the
form of Notice of Guaranteed Delivery made available by Purchaser.
In all cases, payment for Shares tendered and accepted for payment pursuant
to the Offer will be made only after timely receipt by the Depositary of the
Share Certificates evidencing such Shares, or a Book-Entry Confirmation of the
delivery of such Shares, and the Letter of Transmittal (or a facsimile
thereof), properly completed and duly executed, with any required signature
guarantees (or, in the case of a book-entry transfer, an Agent's Message), and
any other documents required by the Letter of Transmittal.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any
tender of Shares will be determined by Purchaser in its sole discretion, which
determination shall be final and binding on all parties. Purchaser reserves
the absolute right to reject any and all tenders determined by it not to be in
proper form or the acceptance for payment of which may, in the opinion of its
counsel, be unlawful. Purchaser also reserves the absolute right to waive any
condition of the Offer or any defect or irregularity, in the tender of any
Shares of any particular stockholder, whether or not similar defects or
irregularities are waived in the case of other stockholders. No tender of
Shares will be deemed to have been validly made until all defects and
irregularities have been cured or waived. None of Purchaser, Parent, the
Dealer Manager, the Depositary, the Information Agents or any other person
will be under any duty to give notification
7
<PAGE>
of any defects or irregularities in tenders or incur any liability for failure
to give any such notification. Purchaser's interpretation of the terms and
conditions of the Offer (including the Letter of Transmittal and the
instructions thereto) will be final and binding.
Other Requirements. By executing the Letter of Transmittal as set forth
above, a tendering stockholder irrevocably appoints designees of Purchaser as
such stockholder's proxies, each with full power of substitution, in the
manner set forth in the Letter of Transmittal, to the full extent of such
stockholder's rights with respect to the Shares tendered by such stockholder
and accepted for payment by Purchaser (and with respect to any and all other
Shares or other securities issued or issuable in respect of such Shares on or
after July 26, 1997). All such proxies shall be considered coupled with an
interest in the tendered Shares. Such appointment will be effective when, and
only to the extent that, Purchaser accepts such Shares for payment. Upon such
acceptance for payment, all prior proxies given by such stockholder with
respect to such Shares (and such other Shares and securities) will be revoked
without further action, and no subsequent proxies may be given nor any
subsequent written consent executed by such stockholder (and, if given or
executed, will not be deemed to be effective) with respect thereto. The
designees of Purchaser will, with respect to the Shares for which the
appointment is effective, be empowered to exercise all voting and other rights
of such stockholder as they in their sole discretion may deem proper at any
annual or special meeting of the Company's stockholders or any adjournment or
postponement thereof, by written consent in lieu of any such meeting or
otherwise. Purchaser reserves the right to require that, in order for Shares
to be deemed validly tendered, immediately upon Purchaser's payment for such
Shares, Purchaser must be able to exercise full voting rights with respect to
such Shares.
The acceptance for payment by Purchaser of Shares pursuant to any of the
procedures described above will constitute a binding agreement between the
tendering stockholder and Purchaser upon the terms and subject to the
conditions of the Offer.
UNDER THE FEDERAL INCOME TAX LAWS, THE DEPOSITARY WILL BE REQUIRED TO
WITHHOLD 31 PERCENT OF THE AMOUNT OF ANY PAYMENTS MADE TO CERTAIN STOCKHOLDERS
PURSUANT TO THE OFFER. TO PREVENT BACKUP FEDERAL INCOME TAX WITHHOLDING WITH
RESPECT TO PAYMENT TO CERTAIN STOCKHOLDERS OF THE PURCHASE PRICE OF SHARES
PURCHASED PURSUANT TO THE OFFER, EACH SUCH STOCKHOLDER MUST PROVIDE THE
DEPOSITARY WITH SUCH STOCKHOLDER'S CORRECT TAXPAYER IDENTIFICATION NUMBER AND
CERTIFY THAT SUCH STOCKHOLDER IS NOT SUBJECT TO BACKUP FEDERAL INCOME TAX
WITHHOLDING BY COMPLETING THE SUBSTITUTE FORM W-9 IN THE LETTER OF
TRANSMITTAL. SEE INSTRUCTION 9 OF THE LETTER OF TRANSMITTAL.
4. Withdrawal Rights. Tenders of Shares made pursuant to the Offer are
irrevocable except that such Shares may be withdrawn at any time prior to the
Expiration Date and, unless theretofore accepted for payment by Purchaser
pursuant to the Offer, may also be withdrawn at any time after September 29,
1997. If Purchaser extends the Offer, is delayed in its acceptance for payment
of Shares or is unable to accept Shares for payment pursuant to the Offer for
any reason, then, without prejudice to Purchaser's rights under the Offer, the
Depositary may, nevertheless, on behalf of Purchaser, retain tendered Shares,
and such Shares may not be withdrawn except to the extent that tendering
stockholders are entitled to withdrawal rights as described in this Section 4.
Any such delay will be by an extension of the Offer to the extent required by
law.
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
one of its addresses set forth on the back cover page of this Offer to
Purchase. Any such notice of withdrawal must specify the name of the person
who tendered the Shares to be withdrawn, the number of Shares to be withdrawn
and the name of the registered holder of such Shares, if different from that
of the person who tendered such Shares. If Share Certificates evidencing
Shares to be withdrawn have been delivered or otherwise identified to the
Depositary, then, prior to the physical release of such Share Certificates,
the serial numbers shown on such Share Certificates must be submitted to the
Depositary and the signature(s) on the notice of withdrawal must be guaranteed
by an Eligible Institution, unless such Shares have been tendered for the
account of an Eligible Institution. If Shares have been tendered pursuant to
the procedure for book-entry transfer as set forth in Section 3, any notice of
withdrawal must specify the name and number of the account at the Book-Entry
Transfer Facility to be credited with the withdrawn Shares, in which case a
notice of withdrawal will be effective if delivered to the Depositary by any
method described in the first sentence of this paragraph.
8
<PAGE>
All questions as to the form and validity (including time of receipt) of any
notice of withdrawal will be determined by Purchaser, in its sole discretion,
whose determination will be final and binding. None of Purchaser, Parent, the
Dealer Manager, the Depositary, the Information Agents or any other person
will be under any duty to give notification of any defects or irregularities
in any notice of withdrawal or incur any liability for failure to give any
such notification.
Any Shares properly withdrawn will thereafter be deemed not to have been
validly tendered for purposes of the Offer. However, withdrawn Shares may be
re-tendered at any time prior to the Expiration Date by following one of the
procedures described in Section 3.
5. Certain Federal Income Tax Consequences. The receipt of cash for Shares
pursuant to the Offer or in the Merger will be a taxable transaction for
federal income tax purposes and may also be a taxable transaction under
applicable state, local or foreign tax laws. In general, a stockholder will
recognize gain or loss for federal income tax purposes equal to the difference
between the amount of cash received in exchange for the Shares sold and such
stockholder's adjusted tax basis in such Shares. Assuming the Shares
constitute capital assets in the hands of the stockholder, such gain or loss
will be capital gain or loss.
Legislation has been passed by Congress which would reduce the maximum rate
of federal income taxation on long-term capital gains for individual taxpayers
to a 20% rate from the present rate of 28%, effective for sales of assets
after May 6, 1997. However, in order to qualify for the reduced rate of
taxation, a taxpayer would have to have held the asset disposed of for more
than 18 months (as compared to the present long-term capital gain holding
period of one year) in the case of assets disposed of after July 28, 1997.
THE FOREGOING DISCUSSION MAY NOT BE APPLICABLE TO CERTAIN TYPES OF
STOCKHOLDERS, INCLUDING STOCKHOLDERS WHO ACQUIRED SHARES PURSUANT TO THE
EXERCISE OF EMPLOYEE STOCK OPTIONS OR OTHERWISE AS COMPENSATION, INDIVIDUALS
WHO ARE NOT CITIZENS OR RESIDENTS OF THE UNITED STATES, AND FOREIGN
CORPORATIONS.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND IS BASED UPON PRESENT LAW. STOCKHOLDERS ARE URGED TO
CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF
THE OFFER AND THE MERGER TO THEM, INCLUDING THE APPLICATION AND EFFECT OF THE
ALTERNATIVE MINIMUM TAX, AND STATE, LOCAL AND FOREIGN TAX LAWS, AND THE TAX
LEGISLATION REFERRED TO ABOVE.
6. Price Range of Shares; Dividends. The Shares are listed and principally
traded on the NYSE. The following table sets forth, for the quarters
indicated, the high and low sales prices per Share on the NYSE as reported by
the Dow Jones News Service. The Company has not declared or paid cash
dividends on its Common Stock since inception.
<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
1995
First Quarter.......................................... $16 1/2 $10 7/8
Second Quarter......................................... 13 7/8 10
Third Quarter.......................................... 12 3/8 10 1/8
Fourth Quarter......................................... 11 1/8 9 1/4
1996
First Quarter.......................................... $13 1/8 $ 9 7/8
Second Quarter......................................... 11 1/2 8 7/8
Third Quarter.......................................... 11 7/8 10 1/8
Fourth Quarter......................................... 11 3/8 9 1/2
1997
First Quarter.......................................... $11 1/8 $ 9 5/8
Second Quarter......................................... 16 10 1/4
Third Quarter (through July 31, 1997).................. 21 7/16 14 3/8
</TABLE>
On July 25, 1997, the last full trading day prior to the announcement of the
execution of the Merger Agreement and of Purchaser's intention to commence the
Offer, the closing price per Share as reported on the
9
<PAGE>
NYSE was $16 3/8. On July 31, 1997, the last full trading day prior to the
commencement of the Offer, the closing price per Share as reported on the NYSE
was $21 1/4.
STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE SHARES.
7. Certain Information Concerning the Company. Except as otherwise set forth
herein, the information concerning the Company contained in this Offer to
Purchase, including financial information, has been furnished by the Company
or has been taken from or based upon publicly available documents and records
on file with the SEC and other public sources. Neither Purchaser nor Parent
assumes any responsibility for the accuracy or completeness of the information
concerning the Company furnished by the Company or contained in such documents
and records or for any failure by the Company to disclose events which may
have occurred or may affect the significance or accuracy of any such
information but which are unknown to Purchaser or Parent.
General. The Company is a corporation organized and existing under the laws
of the State of Delaware with its principal executive offices located at 2742
Dow Avenue, Tustin, CA 92680.
The Company is a national provider of an array of health care services from
acute rehabilitation to home health care. As of February 28, 1997, the Company
delivered care from 116 Company operated inpatient facilities in five states.
These facilities provide a spectrum of services including acute
rehabilitation, neurological care, subacute treatment, basic and intermediate
skilled nursing care, assisted living and ancillary services such as
rehabilitation and pharmacy services. Additionally, the Company provides
outpatient rehabilitation through 10 clinics. It also continues to expand its
contract rehabilitation therapy, pharmacy and home health operations. As of
February 28, 1997, the Company provided contract rehabilitation therapy
services in 15 states to 63 affiliated and 116 non-affiliated facilities,
pharmacy services in four states to 70 affiliated and 84 non-affiliated
facilities and home health care services through 28 operating locations in
California and Ohio.
The Company was incorporated in Delaware in 1986 and grew rapidly through
acquisitions. In April 1994, the Company merged with Care Enterprises, Inc.
("Care") in a stock transaction accounted for as a pooling of interests. This
merger more than doubled the number of facilities and beds operated by the
Company and made the Company a leading provider of long-term and specialty
health care services in California. It established a presence for the Company
in West Virginia, Ohio and New Mexico. Additionally, it provided a significant
base for the expansion of both the ancillary services offered by the Company
and the home health care services offered by Care. Following this merger,
management focused on integrating the Company and Care operations. This
included instituting standardized systems, operating procedures and cost
controls. The Company added several experienced senior officers. Others were
replaced, along with a number of administrators at under-performing
facilities. During 1995, the Company exchanged leasehold interests in three
nursing facilities in New Mexico for leasehold interests in four nursing
facilities in Ohio which were operated by another company; opened a newly
constructed facility; and acquired SCRS & Communicology, Inc., a contract
rehabilitation therapy company. In 1996, the Company disposed of seven health
care facilities in California. It also acquired 19 health care facilities in
Tennessee and North Carolina; pharmacy operations in California, Tennessee and
North Carolina; and entered into a joint venture with a pharmacy in Ohio. To
complete the roster of contract rehabilitation services provided by SCRS, this
subsidiary acquired a respiratory therapy company. In early 1997, the Company
acquired four acute rehabilitation hospitals, six neurological treatment
centers and eleven outpatient rehabilitation clinics in California.
Financial Information. Set forth below is certain selected consolidated
financial information relating to the Company and its subsidiaries which has
been excerpted or derived from the audited financial statements contained in
the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1996 (the "Form 10-K") and the unaudited financial statements contained in
the Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1997 (the "Form 10-Q"). More comprehensive financial information is included
in the Form 10-K, the Form 10-Q and other documents filed by the Company with
the SEC. The financial information that follows is qualified in its entirety
by reference to such reports and other documents, including the financial
statements and related notes contained therein. Such reports and other
documents may be examined and copies may be obtained from the offices of the
SEC in the manner set forth below.
10
<PAGE>
REGENCY HEALTH SERVICES, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
-------------------------- -----------------
1996(1) 1995(2) 1994(3) 1997 1996
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net operating revenue............ $558,050 $416,093 $377,336 $159,447 $128,973
Income (loss) before
extraordinary item............... 6,399 4,454 (800) 3,156 2,737
Net income (loss)................ 5,206 2,845 (800) 3,156 2,737
Income (loss) per common share
before extraordinary item (fully
diluted)........................ .39 .27 (.05) .20 .16
Net income (loss) per common
share (fully diluted)............ .32 .17 (.05) .20 .16
BALANCE SHEET DATA (AT END OF
PERIOD):
Total assets..................... 353,576 338,942 250,896 413,315 354,306
Total long-term debt(4).......... 184,908 183,986 101,941 237,954 185,854
</TABLE>
- --------
(1) In 1996, the Company redeemed all $48.9 million of its outstanding
Convertible Subordinated Debentures resulting in an extraordinary loss on
extinguishment of debt of $1,459,000 ($868,000 net of tax) and refinanced
three of its Industrial Revenue Bond Issues with a principal balance of
$7,560,000 resulting in an extraordinary loss of $546,000 ($325,000 net of
tax). In addition, the Company recorded an $11,283,000 ($6,769,000 net of
tax) charge, primarily related to severance, the write-off of property
which will have no value under the Company's new operating model,
allowances for certain notes and non-patient receivables and a reduction
of the reserve for assets held for sale recorded in 1995.
(2) In 1995, a class action lawsuit, which had been filed against the Company
in July 1994, was settled for $9,000,000. The Company's portion of this
settlement, together with related legal fees and other costs, resulted in
a pre-tax charge of $3,098,000 ($1,921,000 net of tax), which is included
in the Company's Consolidated Statement of Operations for the year ended
December 31, 1995. In addition, the Company repaid its $30 million, 8.10%
Senior Secured Notes resulting in costs and a prepayment penalty of
$2,681,000 ($1,609,000 net of tax), classified as an extraordinary item
and the Company recorded a $9,000,000 ($8,200,000 net of tax) charge,
primarily related to the disposition of certain facilities.
(3) In 1994, the Company changed its policy on recognizing revenue from
exception requests filed with the Health Care Financing Administration.
Previously, no revenue was recognized until payment in respect of the
exception request was actually received. In 1994, the Company began
recognizing 50% of the estimated exception requests anticipated to be
filed for the applicable period. In 1995 and 1996, the Company recognized
70% of the estimated exception requests anticipated to be received for the
applicable period.
(4) Includes current portion of long-term debt.
In connection with Parent's review of the Company and in the course of the
negotiations between the Company and Parent described in Section 10, the
Company provided Parent with certain business and financial information which
Parent and Purchaser believe is not publicly available, including financial
forecasts, which contain, among other things, the summary financial
information set forth below.
REGENCY HEALTH SERVICES, INC.
PROJECTED STATEMENTS OF INCOME DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1996A 1997 1998 1999 2000 2001
-------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $555,354 $708,027 $794,538 $894,862 $991,669 $1,090,536
Income before provision
for income taxes....... 11,011 24,488 27,983 31,881 36,210 41,660
Net income.............. 6,399 14,938 17,070 19,447 22,088 25,413
Net income per share.... $ 0 .78(1) $ 0.94 $ 1.07 $ 1.22 $ 1.39 $ 1.60
</TABLE>
- --------
(1)Fully diluted.
PROJECTED INFORMATION OF THIS TYPE IS BASED ON ESTIMATES AND ASSUMPTIONS
THAT ARE INHERENTLY SUBJECT TO SIGNIFICANT ECONOMIC AND COMPETITIVE
UNCERTAINTIES AND CONTINGENCIES, ALL OF WHICH ARE DIFFICULT TO PREDICT AND
11
<PAGE>
MANY OF WHICH ARE BEYOND THE COMPANY'S CONTROL. ACCORDINGLY, THERE CAN BE NO
ASSURANCE THAT THE PROJECTED RESULTS WOULD BE REALIZED OR THAT ACTUAL RESULTS
WOULD NOT BE SIGNIFICANTLY HIGHER OR LOWER THAN THOSE SET FORTH ABOVE. IN
ADDITION, THESE PROJECTIONS WERE NOT PREPARED WITH A VIEW TO PUBLIC DISCLOSURE
OR COMPLIANCE WITH THE PUBLISHED GUIDELINES OF THE SEC OR THE GUIDELINES
ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
REGARDING PROJECTIONS AND FORECASTS AND ARE INCLUDED IN THIS OFFER TO PURCHASE
ONLY BECAUSE SUCH INFORMATION WAS MADE AVAILABLE TO PARENT BY THE COMPANY.
NONE OF PARENT, PURCHASER, THE COMPANY OR ANY OTHER PARTY ASSUMES ANY
RESPONSIBILITY FOR THE ACCURACY OR VALIDITY OF THE FOREGOING PROJECTIONS.
The Company is subject to the informational filing requirements of the
Exchange Act and, in accordance therewith, is required to file periodic
reports, proxy statements and other information with the SEC relating to its
business, financial condition and other matters. Information as of particular
dates concerning the Company's directors and officers, their remuneration,
stock options granted to them, the principal holders of the Company's
securities and any material interest of such persons in transactions with the
Company is required to be disclosed in proxy statements distributed to the
Company's stockholders and filed with the SEC. Such reports, proxy statements
and other information should be available for inspection at the public
reference facilities maintained by the SEC at Judiciary Plaza, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, and also should be available
for inspection at the SEC's regional offices located at Seven World Trade
Center, 13th Floor, New York, New York 10048 and the Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60604. Copies of such materials
may also be obtained by mail, upon payment of the SEC's customary fees, by
writing to its principal office at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The SEC also maintains a World Wide Web site that
contains such materials. The address of the site is http://www.sec.gov. The
information should also be available for inspection at the NYSE, 20 Broad
Street, New York, New York 10005.
8. Certain Information Concerning Purchaser and Parent. Purchaser is a newly
incorporated corporation organized and existing under the laws of the State of
Delaware organized in connection with the Offer and the Merger and has not
carried on any activities other than in connection with the Offer and the
Merger. The principal offices of Purchaser are located at 101 Sun Lane NE,
Albuquerque, New Mexico, 87109. Purchaser is a wholly owned subsidiary of
Parent.
Until immediately prior to the time that Purchaser will purchase Shares
pursuant to the Offer, it is not anticipated that Purchaser will have any
significant assets or liabilities or engage in activities other than those
incident to its formation and capitalization and the transactions contemplated
by the Offer and the Merger. Because Purchaser is newly formed and has minimal
assets and capitalization, no meaningful financial information regarding
Purchaser is available.
Parent is a corporation organized and existing under the laws of the State
of Delaware. Its principal offices are located at 101 Sun Lane NE,
Albuquerque, New Mexico 87109.
Parent is a leading provider of high-quality and cost efficient long-term,
subacute and related specialty healthcare services. At June 30, 1997, Parent
operated 183 long-term and subacute care facilities with 22,004 licensed beds
in 21 states in the United States and 133 long-term care facilities with 7,632
registered beds in the United Kingdom. Parent also is a leading provider of
ancillary services, including rehabilitation therapy, respiratory therapy,
temporary therapy staffing services and pharmaceutical products and services.
Parent provides these services to over 1,000 affiliated and nonaffiliated
long-term and subacute care facilities in the United States.
Parent's inpatient care facilities provide a broad range of healthcare
services, including nursing care, subacute care, therapy and other specialized
services such as care to patients with Alzheimer's disease. Parent's long-term
and subacute care facility operations have experienced significant growth
since Parent's inception in 1989, primarily from acquisitions of additional
facilities. Parent believes its inpatient care operations provide it with a
platform to expand its therapy and pharmaceutical businesses (which include
dispensing pharmaceuticals for such purposes as infusion therapy, pain
management, antibiotic therapy and parenteral nutrition) to affiliated and
nonaffiliated long-term and subacute care facilities. Parent believes that its
expertise in operating long-term and subacute care facilities enables it to
provide its therapy and pharmaceutical services more effectively and
efficiently than providers without such operating expertise.
12
<PAGE>
Parent believes it is one of the three largest providers of contract therapy
in the United States, offering rehabilitation therapy through Sundance
Rehabilitation Corporation and respiratory therapy through SunCare Respiratory
Services, Inc. At June 30, 1997, Parent provided therapy services to 1,012
facilities in 43 states, 844 of which were operated by nonaffiliated parties
and 168 of which were affiliated facilities. Parent's contract therapy
business has experienced compound annual revenue growth of 48.7% since 1994.
Through CareerStaff Unlimited, Inc. ("CareerStaff"), Parent is a nationwide
provider of temporary therapy staffing. CareerStaff provides therapists
skilled in the areas of physical, occupational and speech therapy primarily to
hospitals and nursing home contract service providers. At June 30, 1997,
Parent had 23 division offices providing temporary therapy staffing services
in major metropolitan areas and eight division offices specializing in
placements of temporary travelling therapists in smaller cities and rural
areas.
Through Sunscript Pharmacy Corporation ("Sunscript"), Parent operates 25
pharmacies, and one pharmaceutical billing and consulting center which
together provided pharmaceutical products and services to a total of 537 long-
term and subacute care facilities in 23 states, 394 of which were
nonaffiliated. In addition, Parent operated 12 pharmacies in the United
Kingdom at June 30, 1997.
Parent recently completed two substantial acquisitions in the United
Kingdom, making Parent the second largest operator of long-term care
facilities in that market. In December 1996, Parent acquired APTA Healthcare
PLC ("APTA"), which operated 32 facilities with 1,264 registered beds, for
total consideration of (Pounds)13.7 million ($23.5 million as of December 31,
1996). In January 1997, Parent acquired the 71% of Ashbourne PLC ("Ashbourne")
that it did not already own for (Pounds)67.3 million ($110.1 million) plus the
assumption of (Pounds)82.4 million ($134.9 million as of March 31, 1997) of
Ashbourne's indebtedness. As of the date of acquisition, Ashbourne operated 49
facilities with 3,613 registered beds.
The market for long-term care services is less developed in the United
Kingdom than in the United States, and legislative changes in the early 1990s
combined with undercapacity has led to the significant development of new
long-term care facilities. Of the 133 facilities that Parent presently
operated as of June 30, 1997 in the United Kingdom (including the 81
facilities previously operated by Ashbourne and APTA), 5, 15 and 6 were opened
in 1995, 1996 and the first three months of 1997, respectively. Parent
believes that the financial results of its United Kingdom operations will be
enhanced as these newer facilities, as well as the eight additional facilities
currently under development, mature and approach normal occupancy levels.
Parent has agreed to acquire Retirement Care Associates, Inc. ("Retirement
Care"), for approximately $268 million of Parent's common stock (based upon
the closing price of Parent's common stock as of July 31, 1997). Retirement
Care operates 107 skilled nursing facilities and assisted living centers in
the southeastern United States and also owns approximately 65% of Contour
Medical, Inc. ("Contour"), a national provider of medical/surgical supplies.
Parent has agreed to acquire the remaining 35% of Contour not presently owned
by Retirement Care for approximately $35 million, payable in Parent common
stock or cash, at the option of Parent. While there can be no assurance that
these transactions will be consummated, these transactions are currently
expected to close during the second half of 1997.
The name, citizenship, business address, principal occupation or employment,
and five-year employment history for each of the directors and executive
officers of Purchaser and Parent and certain other information are set forth
in Schedule I hereto.
Set forth below are certain selected consolidated financial data relating to
Parent and its subsidiaries for Parent's last three fiscal years, which have
been excerpted or derived from the audited financial statements contained in
Parent's Annual Report on Form 10-K for the fiscal year ended December 31,
1996 and from the unaudited financial statements contained in Parent's
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1997 in
each case filed by Parent with the SEC. More comprehensive financial
information is included in such reports and other documents filed by Parent
with the SEC, and the following financial data is qualified in its entirety by
reference to such reports and other documents, including the financial
information and related notes contained therein. Such reports and other
documents may be inspected and copies may be obtained from the offices of the
SEC in the same manner as set forth with respect to information about the
Company in Section 7.
13
<PAGE>
SUN HEALTHCARE GROUP, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE
FISCAL YEAR ENDED MONTHS ENDED
DECEMBER 31, MARCH 31,
--------------------------------- ---------------------
1996(2) 1995(3)(4) 1994(5) 1997 1996
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total net revenues...... $1,316,308 $1,135,508 $ 673,354 $ 398,636 $ 320,291
Earnings (loss) before
extraordinary item(1).. 21,536 (20,568) 19,561 15,937 15,339
Extraordinary item...... -- (3,413) -- -- --
Net earnings (loss)(1).. 21,536 (23,981) 19,561 15,937 15,339
Net earnings (loss) per
common and common
equivalent share before
extraordinary loss
(fully diluted)(1)..... 0.46 (0.43) 0.61 0.33 0.31
Extraordinary loss...... -- (0.07) -- -- --
Net earnings (fully
diluted)................ 0.46 (0.50) 0.61 0.33 0.31
Weighted average number
of common and common
equivalent shares...... 46,840 47,419 31,830 51,372 52,531
BALANCE SHEET DATA (AT
END OF PERIOD):
Working capital......... 211,582 237,147 197,150 226,061 241,510
Total assets............ 1,229,426 1,042,503 1,054,223 1,537,082 1,069,921
Long-term debt, net of
current portion......... 483,453 348,460 398,534 754,253 388,859
Stockholders' equity.... 572,137 569,042 550,449 585,333 559,552
</TABLE>
- --------
(1) Results for the year ended December 31, 1995 and prior years represent pro
forma amounts to include pro forma taxes of CareerStaff and Golden Care,
Inc. ("Golden Care") prior to their conversions to be taxed as C
corporations, which occurred in June 1994 and May 1995, respectively.
(2) Results for the year ended December 31, 1996 include a $24,000,000 charge
recognized by Parent to settle certain of the lawsuits brought by
shareholders and, as a reduction of this settlement charge, $9,000,000
which was received from Parent's director and officer liability insurance
carrier in connection with the settlement. In addition, in 1996, Parent
recorded additional expenses of $4,250,000 related to monitoring and
responding to the continuing investigation by the United States Department
of Health and Human Services' Office of Inspector General ("OIG") and to
responding to the remaining shareholder litigation related to the
announcement of the OIG investigation. The charges do not contain any
estimated amounts for settlement of the OIG investigation or remaining
shareholder litigation matters.
(3) Results for the year ended December 31, 1995 include a charge of
$3,256,000 in connection with the payment of an inducement fee to effect
the conversion in January 1995 of $39,449,000 of the 6 1/2% Convertible
Subordinated Debentures and an extraordinary charge of $3,413,000, net of
the related tax benefit, in connection with the tender offer of the 11
3/4% Senior Subordinated Notes.
(4) Also included in the results for the year ended December 31, 1995 is
$5,8000,000 of transaction-related merger costs incurred in connection
with the merger of Parent with CareerStaff and Golden Care, a $59,000,000
impairment loss recorded by Parent which primarily relates to goodwill
associated with six of the 40 facilities acquired in the acquisition of
The Mediplex Group, Inc., $4,006,000 related to averting a strike and
negotiating new contracts for certain unionized homes in Connecticut, and
a charge of $5,505,000 related to monitoring and responding to the
investigation by the OIG and legal fees resulting from the shareholder
litigation.
(5) Results for the year ended December 31, 1994 include a charge of
$2,275,000 in connection with the payment of an inducement fee to effect
the conversion in August 1994 of $24,377,000 of the 6 1/2% Convertible
Subordinated Debentures.
14
<PAGE>
Except as described in this Offer to Purchase, (i) none of Purchaser, Parent
nor, to the best knowledge of Purchaser and Parent, any of the persons listed
in Schedule I to this Offer to Purchase or any associate or majority-owned
subsidiary of Purchaser, Parent or any of the persons so listed beneficially
owns or has any right to acquire, directly or indirectly, any Shares and (ii)
none of Purchaser, Parent nor, to the best knowledge of Purchaser and Parent,
any of the persons or entities referred to above nor any director, executive
officer or subsidiary of any of the foregoing has effected any transaction in
the Shares during the past 60 days.
Except as provided in the Merger Agreement and the Stockholder Agreement and
as otherwise described in this Offer to Purchase, none of Purchaser, Parent
nor, to the best knowledge of Purchaser and Parent, any of the persons listed
in Schedule I to this Offer to Purchase, has any contract, arrangement,
understanding or relationship with any other person with respect to any
securities of the Company, including, but not limited to, any contract,
arrangement, understanding or relationship concerning the transfer or voting
of such securities, joint ventures, loan or option arrangements, puts or
calls, guaranties of loans, guaranties against loss or the giving or
withholding of proxies. Except as set forth in this Offer to Purchase, since
January 1, 1994, neither Purchaser nor Parent nor, to the best knowledge of
Purchaser and Parent, any of the persons listed on Schedule I hereto, has had
any business relationship or transaction with the Company or any of its
executive officers, directors or affiliates that is required to be reported
under the rules and regulations of the SEC applicable to the Offer. Except as
set forth in this Offer to Purchase, since January 1, 1994, there have been no
contacts, negotiations or transactions between any of Purchaser, Parent, or
any of their respective subsidiaries or, to the best knowledge of Purchaser
and Parent, any of the persons listed in Schedule I to this Offer to Purchase,
on the one hand, and the Company or its affiliates, on the other hand,
concerning a merger, consolidation or acquisition, tender offer or other
acquisition of securities, an election of directors or a sale or other
transfer of a material amount of assets.
9. Financing of the Offer and the Merger. Purchaser estimates that the total
funds required to purchase all Shares validly tendered pursuant to the Offer,
consummate the Merger, refinance certain existing indebtedness of Parent and
the Company, pay the costs and expenses related to the Offer and the Merger
and to provide for ongoing general corporate purposes after completion of the
Offer and the Merger will be approximately $1,000,000,000. Parent and
Purchaser intend to obtain such funds by means of proceeds from borrowings
from the Senior Credit Facilities (as defined). The terms of the Senior Credit
Facilities have not yet been finalized and are still being negotiated.
Moreover, the documentation evidencing the Senior Credit Facilities has not
yet been finalized. Accordingly, the description below of the Senior Credit
Facilities is preliminary and necessarily incomplete. In addition, the terms
and provisions of the Senior Credit Facilities, to the extent described, are
subject to change if the terms of the Offer and Merger change. In any event,
the ultimate financing instruments might contain certain terms that are more
or less onerous that those currently contemplated.
NationsBank of Texas, N.A. ("NationsBank") has delivered a bank commitment
letter (the "Bank Commitment Letter"), pursuant to which NationsBank has
committed to provide the Senior Credit Facilities upon the terms and subject
to the conditions set forth in the Bank Commitment Letter, and Nations Banc
Capital Markets, Inc. ("NCMI") has committed to form a syndicate of financial
institutions reasonably acceptable to Purchaser (the "Lenders") for the Senior
Credit Facilities, upon the terms and subject to the conditions of the Bank
Commitment Letter.
The Bank Commitment Letter provides that the commitments of NationsBank and
NCMI will terminate unless a Credit Agreement (as defined) is closed on or
prior to December 31, 1997.
Parent has agreed to pay certain fees to NationsBank and NCMI for their own
account and for the account of the Lenders payable as follows: (i) Letter of
Credit Fees due quarterly in arrears to be shared proportionately by the
Lenders, such fees to be equal to the applicable margins in effect from time
to time for loans under the Revolving Credit Facility (as defined) on a per
annum basis plus a fronting fee of .125% per annum to be paid to NationsBank,
as fronting bank, for its own account and (ii) a commitment fee of 1/2% per
annum of the unused portion of the Senior Credit Facilities accruing upon
execution of the Credit Agreement and payable thereafter quarterly in arrears,
subject to certain performance pricing step-downs.
15
<PAGE>
The Senior Credit Facilities will be provided pursuant to the terms and
conditions of a Credit Agreement to be entered into by Parent and NationsBank
and NCMI (the "Credit Agreement").
Pursuant to the Bank Commitment Letter, the Senior Credit Facilities (the
"Senior Credit Facilities") are expected to consist of an aggregate principal
amount of up to $1,000,000,000 as follows: (i) a $500 million revolving credit
facility (the "Revolving Credit Facility") which will include a $75 million
sublimit for the issuance of standby and commercial letters of credit and (ii)
a $500 million term loan facility (the "Term Loan Facility") comprised of the
following term loan tranches: (x) $250 million tranche A term loan (the
"Tranche A Term Loan") and (y) $250 million tranche B term loan (the "Tranche
B Term Loan").
Concurrently with the consummation of the Offer and the Merger, NCMI (on
behalf of the Lenders) shall receive a first priority perfected security
interest in all of the capital stock owned by Parent and its subsidiaries in
each of the domestic subsidiaries (direct and indirect) of Parent (other than
the Company if, after consummation of the Offer and Merger, the Company has
total assets with a book value of less than $500,000) and 66% of the capital
stock of each foreign subsidiary which is a direct subsidiary of Parent or any
of its domestic subsidiaries which capital stock shall not be subject to any
other lien or encumbrance. The foregoing security shall ratably secure the
Senior Credit Facilities and any interest rate swap/foreign currency swap or
similar arrangements with a Lender under the Senior Credit Facilities.
Until the borrower's leverage ratio is reduced below a mutually agreed upon
level, in addition to the amortization set forth in the Bank Commitment
Letter, the Senior Credit Facilities will be prepaid by an amount equal to (a)
100% of the net cash proceeds of all asset sales by Parent or any domestic
subsidiary of Parent (including stock of subsidiaries), subject to certain
conditions and net of selling expenses and taxes to the extent such taxes are
paid; (b) 75% of excess cash flow pursuant to an annual cash sweep
arrangement; (c) 100% of the net cash proceeds from the issuance of any debt
(excluding certain permitted debt) by Parent or any domestic subsidiary; and
(d) 100% of the net cash proceeds from the issuance of equity (excluding
certain proceeds such as proceeds from the exercise of options) by Parent or
any domestic subsidiary. Prepayments shall be applied pro rata to reduce the
Tranche A Term Loan and the Tranche B Term Loan and within each tranche pro
rata with respect to each remaining installment of principal. Holders of the
Tranche B Term Loan may, so long as there is a principal balance outstanding
with respect to the Tranche A Term Loan, decline to accept any mandatory
prepayment described above and, under such circumstances, all amounts that
would otherwise be used to prepay Tranche B Term Loan above shall be used to
prepay Tranche A Term Loan. In the event the Term Loan Facilities shall have
been completely prepaid, the mandatory payments described above shall be
applied to permanently reduce the amount available under the Revolving Credit
Facility.
The Senior Credit Facilities may be prepaid in whole or in part at any time
without penalty, subject to reimbursement of the Lenders' breakage and re-
deployment costs in the case of prepayment of LIBOR borrowings.
The Senior Credit Facilities shall bear interest, at the option of Parent,
at a rate per annum equal to either (i) the LIBOR interbank rate, adjusted for
reserves, or (ii) the Base Rate (defined at the higher of (a) the NationsBank
prime rate and (b) the Federal Funds rate plus 1/2%), in each case plus the
following Applicable Margins (subject to certain performance pricing step-
downs):
<TABLE>
<CAPTION>
LIBOR + BASE RATE +
------- -----------
<S> <C> <C>
Revolving Credit Loans.............. 2.25% 0.75%
Tranche A Term Loans................ 2.25% 0.75%
Tranche B Term Loans................ 2.75% 1.25%
</TABLE>
Parent may select interest periods of 1, 2, 3 or 6 months for LIBOR loans,
subject to availability. A penalty rate shall apply on all loans in the event
of default at a rate per annum of 2% above the applicable interest rate.
The revolving Credit Facility shall terminate and all amounts outstanding
thereunder shall be due and payable in full 6 years from the date of the
Credit Agreement.
16
<PAGE>
The Term Loan Facilities shall be subject to repayment according to the
schedule of amortization to be agreed upon, with the final payment of all
amounts outstanding, plus accrued interest, being due 6 years from the date of
the Credit Agreement for the Tranche A Term Loan and 7 years from the date of
the Credit Agreement for the Tranche B Term Loan.
The Tranche A Term Loan and the Tranche B Term Loan will be available in a
single borrowing following execution of the Credit Agreement. The Term Loan
Facility will be subject to quarterly amortization of principal, based upon
annual amounts to be determined.
The Senior Credit Facilities will contain certain representations and
warranties, certain negative and affirmative financial covenants, certain
conditions and events of default which are customarily required for similar
financings. Such covenants will include restrictions and limitations on
dividends and stock redemptions and the redemption and/or prepayment of other
debt, capital expenditures, leases, incurrence of debt, liens, investments,
transactions with affiliates, acquisitions, mergers, consolidations and asset
sales. Furthermore, Parent will be required to maintain compliance with
certain financial covenants such as a maximum leverage ratio, a maximum senior
debt/EBITDA ratio, a fixed charge coverage ratio/EBITDAR and a maximum total
debt/total capitalization ratio.
10. Background of the Offer; Contacts with the Company; the Merger
Agreement; the Stockholder Agreement. In January 1995, representatives of
Parent and the Company entered into discussions and meetings to explore the
possibility of a business combination involving the two companies. The parties
entered into a confidentiality agreement and, pursuant thereto, performed
extensive due diligence regarding each other. In March 1995, these discussions
terminated as a result of the inability of the parties to agree on the
fundamental terms of the proposed business combination. Upon such termination,
the parties returned the non-public information provided by the other party.
On May 30, 1997, a senior executive at the Company approached his
counterpart at Parent to suggest revisiting the possibility of a business
combination involving the two companies. After several conversations regarding
this potential transaction, the Company agreed to negotiate exclusively with
Parent for 30 days. Shortly thereafter, Parent's representatives informed the
Company that it did not wish to pursue discussions during such period and
instead would focus its attention on other matters, including the preparation
and completion of a high-yield debt offering. The initial 30-day period
expired without any negotiations occurring between the parties. On July 8,
1997, the parties entered into a confidentiality agreement. On July 9, 1997, a
meeting of representatives of the two companies and the Company's financial
advisors was held in Newport Beach, California at which members of the
Company's management made presentations regarding the Company's business and
discussions regarding the potential terms and time of a transaction were
discussed. No acquisition proposal was made at or following this meeting, but
representatives of the two companies continued their discussions for the
remainder of that week. At the end of that week Parent also engaged its own
financial advisor. The parties agreed on July 11, 1997 that Parent would have
an exclusive negotiating period until July 18, 1997.
The Company requested that Parent provide a written indication of interest
prior to the Company's July 15, 1997 Board meeting. On July 12, 1997, Parent
provided such an indication at a price of $21.00 per Share. After the Company
indicated that such price provided an insufficient basis to proceed with a
transaction on an exclusive basis, Parent provided an indication on July 14,
1997 at a price of $22.00 per Share. This indication was subject to, among
other things, satisfactory completion of Parent's due diligence and
arrangement of financing.
The Company advised Parent that at the conclusion of the Company's July 15,
1997 board meeting, the Board of Directors of the Company determined that it
would be consistent with the Company's objectives to continue to investigate a
possible business combination with Parent.
During the weeks of July 14, 1997, and July 21, 1997, Parent conducted a due
diligence investigation of the Company's business, and, beginning July 17,
1997, the parties began negotiating the terms of a definitive merger agreement
and stockholder agreement.
17
<PAGE>
On Tuesday, July 22, 1997, the Board of Directors of Parent met with
Parent's management and financial and legal representatives to review the
status of the negotiations between the parties, to discuss the terms of the
proposed transaction and to receive a presentation of Parent's financial
advisor's financial analysis of the proposed transaction.
On Friday, July 25, 1997, the Board of Directors of Parent met with Parent's
management and financial and legal representatives to review the results of
the negotiations between the parties, and to discuss the current draft of the
Merger Agreement and Stockholder Agreement. At the conclusion of this meeting,
the Board of Directors of Parent unanimously approved the Offer and the Merger
subject to the satisfactory resolution of the outstanding issues.
The Company advised Parent on Saturday, July 26, 1997 that the Board of
Directors of the Company had authorized the Offer, the Merger and the
Stockholder Agreement and the execution and delivery of the Merger Agreement
subject to completion of final negotiations and recommended that the
stockholders of the Company accept the Offer and tender their shares to
Parent.
Negotiations were completed, and the Merger Agreement and Stockholder
Agreement were executed, on July 26, 1997. The transaction was announced by
means of a joint press release of Parent and the Company issued during the
evening of Sunday, July 27, 1997.
On August 1, 1997, Purchaser commenced the Offer.
THE MERGER AGREEMENT
The following is a summary of the Merger Agreement, a copy of which is filed
as an Exhibit to the Tender Offer Statement on Schedule 14D-1 (the "Schedule
14D-1") filed by Purchaser and Parent with the SEC in connection with the
Offer. Such summary is qualified in its entirety by reference to the Merger
Agreement.
The Offer. The Merger Agreement provides for the commencement of the Offer
as promptly as practicable, but in no event later than the fifth business day
from and including the date of the public announcement of the Merger
Agreement. The obligation of Purchaser to, and of Parent to cause Purchaser
to, commence the Offer and accept for payment, and pay for, any Shares
tendered pursuant to the Offer is subject to the satisfaction of the Minimum
Condition and certain other conditions that are described in Section 14 (any
of which may be waived by Purchaser in its sole discretion, provided that,
without the consent of the Company, Purchaser shall not waive the Minimum
Condition) and to the terms and conditions of the Merger Agreement.
The Merger Agreement provides that Purchaser expressly reserves the right to
modify the terms of the Offer, except that no change in the Offer may be made
without the prior consent of the Company which (i) reduces the number of
Shares subject to the Offer, (ii) reduces the price per Share to be paid
pursuant to the Offer (except pursuant to Section 3.4 of the Merger Agreement
(Certain Adjustments)), (iii) modifies or adds to the conditions set forth in
Section 14, (iv) except as provided in this Section 10, extends the Offer, (v)
changes the form of consideration payable in the Offer (other than by
increasing the cash offer price) or (vi) amends or modifies any term of the
Offer in any manner adverse to the Company's stockholders. The initial
expiration date shall be September 15, 1997, provided, however, that
notwithstanding the foregoing, Purchaser may, without the consent of the
Company, but subject to the Company's right to terminate the Merger Agreement
pursuant to the terms and conditions of the Merger Agreement, (i) extend the
Offer, if at the scheduled expiration date of the Offer any of the conditions
to Purchaser's obligation to purchase Shares shall not be satisfied, until
such time as such conditions are satisfied or waived or (ii) extend the Offer
for any period required by any rule, regulation, interpretation or position of
the SEC or the staff thereof applicable to the Offer or in order to obtain any
material regulatory approval applicable to the Offer. IF, AT ANY SCHEDULED
EXPIRATION DATE PRIOR TO OCTOBER 1, 1997, THERE SHALL HAVE BEEN TENDERED, AND
NOT WITHDRAWN, FEWER THAN 90% OF THE SHARES, THEN PURCHASER SHALL, AT THE
REQUEST OF THE COMPANY, EXTEND THE OFFER FOR SUCH NUMBER OF DAYS (UP TO 20
CALENDAR DAYS) AS THE COMPANY MAY REQUEST. NO SUCH REQUEST SHALL BE MADE BY
THE COMPANY IF, IN ITS SOLE JUDGMENT, IT CONCLUDES THAT THE MERGER COULD BE
CONSUMMATED ON OR PRIOR TO OCTOBER 6, 1997.
18
<PAGE>
The Merger Agreement also provides that Purchaser agrees that: (A) in the
event it would otherwise be entitled to terminate the Offer at any scheduled
expiration thereof due to the failure of one or more of the conditions set
forth in the first sentence of the introductory paragraph or paragraphs (a) or
(g) of Section 14 to be satisfied or waived, it shall give the Company notice
thereof and, at the request of the Company, if such conditions are reasonably
likely to be satisfied during the requested extension period, extend the Offer
until the earlier of (1) such time as such condition is, or conditions are,
satisfied or waived and (2) the date chosen by the Company which shall not be
later than (x) December 31, 1997 or (y) the date on which the Company
reasonably believes all such conditions will be satisfied (it being understood
that the Company shall not be entitled to make such request if it is then in
breach of the Merger Agreement, and that none of the foregoing shall modify
Parent's and Purchaser's right to terminate the Merger Agreement in the event
that the Company is in breach hereof or the conditions specified in paragraphs
(d) or (e) of Section 14 are applicable); provided that if any such condition
is not satisfied by the date so chosen by the Company, the Company may request
and Purchaser shall make further extensions of the Offer in accordance with
the terms of the Merger Agreement; and (B) in the event that Purchaser would
otherwise be entitled to terminate the Offer at any scheduled expiration date
thereof due solely to the failure of the Minimum Condition to be satisfied, it
shall, at the request of the Company, extend the Offer for such period as may
be requested by the Company not to exceed ten business days from such
scheduled expiration date. Subject to the terms and conditions of the Offer
and the Merger Agreement, Purchaser shall, and Parent shall cause Purchaser
to, pay for all shares of Common Stock validly tendered and not withdrawn
pursuant to the Offer that Purchaser becomes obligated to purchase pursuant to
the Offer immediately after the expiration of the Offer. Notwithstanding the
foregoing Parent may, in its sole discretion, extend the expiration date of
the Offer for a period not to exceed ten business days and in no event ending
after December 31, 1997, if Parent reasonably believes that as a result of
such extension 90% or more of the Shares will be tendered in the Offer.
The Merger. The Merger Agreement provides that, upon the terms and subject
to the conditions thereof, at the Effective Time, and in accordance with
Delaware Law, Purchaser shall be merged with and into the Company. As a result
of the Merger, the separate corporate existence of Purchaser will cease and
the Company will continue as the surviving corporation (the "Surviving
Corporation") and will become a wholly owned subsidiary of Parent. At the
election of Parent, if such election would not in any manner adversely affect
the Company's stockholders or delay the transactions contemplated thereby, (i)
any direct or indirect wholly owned subsidiary of Parent may be substituted
for and assume all of the rights and obligations of Purchaser as a constituent
corporation in the Merger or (ii) the Company may be merged with and into
Purchaser or Parent with Purchaser or Parent, respectively, continuing as the
Surviving Corporation with the effects set forth above. In either such event,
the parties agree to execute an appropriate amendment to the Merger Agreement
in order to reflect the foregoing.
Upon consummation of the Merger, each issued and then outstanding Share
(other than any Shares held in the treasury of the Company, or owned by
Purchaser, Parent or any direct or indirect wholly owned subsidiary of Parent
or of the Company and any Shares which are held by stockholders who have not
voted in favor of the Merger or consented thereto in writing and who shall
have demanded properly in writing appraisal for such Shares in accordance with
Delaware Law) shall be converted automatically into the right to receive in
cash, without interest, the Merger Consideration.
The Merger Agreement provides that immediately prior to the Effective Time,
the unexercisable portion of each outstanding option (a "Company Stock
Option") to purchase shares of Common Stock, shall become immediately
exercisable in full (by their terms or, if necessary, by action of the
Company), subject to all expiration, lapse, forfeiture and other terms and
conditions thereof. The Company shall take all action necessary so that each
Company Stock Option (and any rights thereunder) outstanding immediately prior
to the Effective Time shall be canceled immediately prior to the Effective
Time in exchange for the right to receive an amount in cash equal to the
product of (A) the number of shares of Common Stock that was subject to such
Company Stock Option immediately prior to the Effective Time and (B) the
excess, if any, of (1) the Merger Consideration over (2) the per share
exercise price of such Company Stock Option, to be delivered by the Surviving
Corporation immediately following the Effective Time.
19
<PAGE>
Pursuant to the Merger Agreement, each share of common stock, par value $.01
per share, of Purchaser issued and outstanding immediately prior to the
Effective Time shall be converted into and become one fully paid and
nonassessable share of common stock, par value $.01 per share, of the
Surviving Corporation.
The Merger Agreement provides that the directors of Purchaser immediately
prior to the Effective Time will be the initial directors and officers of the
Surviving Corporation until their respective successors are duly elected or
appointed and qualified or until their earlier resignation or removal. The
Merger Agreement provides that, at the Effective Time, the Certificate of
Incorporation of Purchaser as in effect immediately prior to the Effective
Time, will be the Certificate of Incorporation of the Surviving Corporation
until thereafter altered, amended or repealed as provided therein and in
accordance with applicable law. The Merger Agreement also provides that the
By-laws of Purchaser, as in effect immediately prior to the Effective Time,
will be the By-laws of the Surviving Corporation until thereafter altered,
amended or repealed as provided therein and in accordance with applicable law.
Agreements of Parent, Purchaser and the Company. Pursuant to the Merger
Agreement, the Company shall, if required by applicable law in order to
consummate the Merger, take all action necessary in accordance with applicable
law to convene and hold an annual or special meeting of its stockholders as
promptly as practicable following consummation of the Offer for the purpose of
considering and taking action on the Merger Agreement and the transactions
contemplated thereby (the "Stockholders' Meeting"). If Purchaser acquires at
least a majority of the outstanding Shares, Purchaser will have sufficient
voting power to approve the Merger, even if no other stockholder votes in
favor of the Merger.
The Merger Agreement provides that the Company shall, if required by
applicable law, as soon as practicable following the purchase of Shares
pursuant to the Offer, prepare and file with the SEC under the Exchange Act a
proxy statement and related proxy materials (the "Proxy Statement") with
respect to the Stockholders' Meeting and shall use its reasonable best efforts
to cause the Proxy Statement to be mailed to stockholders of the Company as
promptly as practicable after such filing. Parent and Purchaser have agreed
that Parent shall cause all Shares then owned by Parent to be voted in favor
of the adoption of the Merger Agreement and the transactions contemplated
thereby.
Pursuant to the Merger Agreement, the Company has covenanted and agreed
that, between the date of the Merger Agreement and the Effective Time, unless
Parent shall otherwise agree in writing, and except as otherwise contemplated
by the Merger Agreement, the Company shall, and shall cause each of its
subsidiaries to (the "Subsidiaries" and, individually, a "Subsidiary") conduct
its operations according to its ordinary course of business consistent with
past practice, and the Company shall, and shall cause each Subsidiary to use
all reasonable efforts to preserve intact its business organization and to
maintain satisfactory relationships with its customers, suppliers, employees
and others having material business relationships with it.
The Merger Agreement provides that by way of amplification and not
limitation, and except as otherwise expressly provided therein neither the
Company nor any Subsidiary shall, between the date of the Merger Agreement and
the Effective Time, without the prior written consent of Parent: (a) amend or
propose to amend its Certificate of Incorporation or By-laws; (b) authorize
for issuance, issue, sell, pledge, deliver or agree or commit to issue, sell,
pledge or deliver (whether through the issuance or granting of any options,
warrants, calls, subscriptions, stock appreciation rights or other rights or
other agreements) any capital stock of any class or any securities convertible
into or exchangeable for shares of capital stock of any class of the Company,
or any other ownership interest (including stock appreciation rights or
phantom stock) other than shares of Common Stock issuable upon exercise of
Company Stock Options outstanding on the date of the Merger Agreement; (c)
split, combine or reclassify any shares of Common Stock or declare, pay or set
aside for payment any dividend or other distribution in respect of any Common
Stock, or redeem, purchase or otherwise acquire any shares of Common Stock or
any other securities of the Company or any rights, warrants or options to
acquire any such shares of other securities; (d) enter into any other
agreements, commitments or contracts that are material to the Company and its
subsidiaries taken as a whole or otherwise make any material change that is
adverse to the Company in (i) any existing agreement, commitment or
arrangement that is material to the Company and its subsidiaries taken as a
whole or (ii) the conduct of the business or operations of the Company and its
subsidiaries;
20
<PAGE>
(e) sell, pledge, dispose of or encumber any assets of the Company or any of
its subsidiaries (except for (i) sales of assets in the ordinary course of
business and in a manner consistent with past practice, (ii) dispositions of
obsolete or worthless assets, (iii) certain pending dispositions, and (iv) the
sale of six neurological centers to Messrs. Matros and Broussard for a cash
purchase price of $3,000,000 without recourse to the Company if, and only if,
five days prior to such sale the chief financial officer of the Company shall
have certified in writing to Parent that as of the date of the Merger
Agreement the twelve months trailing EBITDA (determined on the basis disclosed
to Parent prior to the date of the Merger Agreement) associated with such
assets is $1,300,000 or less); (f) (i) acquire (by merger, consolidation, or
acquisition of stock or assets) any corporation, partnership or other business
organization or division thereof, except for certain pending acquisitions;
(ii) incur any indebtedness for borrowed money (other than pursuant to the
Company's credit facilities as in effect on the date of the Merger Agreement)
or issue any debt securities or assume, guarantee or endorse or otherwise as
an accommodation become responsible for, the obligations of any person, or
make any loans or advances; (iii) enter into or amend any material contract or
agreement other than in the ordinary course of business or enter into any
management contract for a facility not cancelable without penalty within 30
days of notice; (iv) authorize or make any capital expenditures or purchase of
fixed assets which are, in the aggregate, in excess of $7,400,000 (exclusive
of management information systems expenditures as described in the proviso
thereto) for the Company and its subsidiaries, taken as a whole; provided,
however, the Company will give Parent prior notice of the making or the firm
commitment of capital expenditure or lease payment in any calendar quarter
relating to management information systems equipment with a fair market value
greater than $1,000,000; or (v) terminate any material contract or amend any
of its material terms (other than amendments to existing credit arrangements
designed to remedy defaults thereunder); (g) increase the compensation payable
or to become payable to its officers or employees, or grant any severance or
termination pay to, or except for certain planned changes, enter into any
employment or severance agreement with any director, officer or other employee
of the Company or any of its subsidiaries; (h) take any action, other than as
required by GAAP, to change accounting policies or procedures or cash
maintenance policies or procedures (including, without limitation, procedures
with respect to revenue recognition, capitalization of development costs,
payments of accounts payable and collection of accounts receivable); (i) make
any material tax election inconsistent with past practices or settle or
compromise any material federal, state, local or foreign tax liability or
agree to an extension of a statute of limitations for any assessment of
federal income tax or material state corporate income or franchise tax, except
to the extent the amount of any such settlement has been reserved for on the
Company's most recent filing required to be made under the Exchange Act with
the SEC since December 31, 1995 ("SEC Filing"); (j) pay, discharge, settle, or
satisfy any lawsuits, claims, liabilities or obligations (absolute, accrued,
asserted or unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction in the ordinary course of business and consistent
with past practice of liabilities reflected or reserved against in the
financial statements of the Company or incurred in the ordinary course of
business and consistent with past practice; (k) except as may be required by
law, take any action to establish, adopt or enter into, or to terminate or
amend any employee benefit plan (as defined under Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended) maintained by the Company
or any Subsidiary; (l) (i) permit any increase in the number of employees of
the Company employed by the Company on the date hereof other than pursuant to
an employee plan to be agreed to by the Company and Parent as promptly as
practicable after the date hereof acting reasonably and in good faith or (ii)
terminate certain identified employees of the Company other than for cause;
(m) enter into any contract or arrangement with any affiliate of the Company
(other than subsidiaries of the Company); or (n) agree, commit or arrange to
do any of the foregoing.
Pursuant to the Merger Agreement, between the date of the Merger Agreement
and the Effective Time, the Company shall, and shall cause its subsidiaries
to, afford Parent and its authorized representatives (including its
accountants, financial advisors and legal counsel) reasonable access during
normal business hours to all of the properties, personnel, books and records,
notes, bonds, mortgages, indentures, leases, agreements or other obligations
to which the Company or any of its subsidiaries is a party or by which any of
them or any material portion of their property or assets may be bound, of the
Company and its subsidiaries and shall promptly deliver or make available to
Parent (a) a copy of each report, schedule and other document filed by the
Company pursuant to the requirements of federal or state securities laws and
(b) all other information concerning the
21
<PAGE>
business, properties, assets and personnel of the Company and its subsidiaries
as Parent may from time to time reasonably request. The terms of the
Confidentiality Agreement dated July 8, 1997 (the "Confidentiality Agreement")
between the Company and Parent are incorporated into the Merger Agreement by
reference and shall remain in full force and effect.
The Merger Agreement provides that the Company shall not, directly or
indirectly, through any officer, director, employee, representative or agent
of the Company or any of its subsidiaries, solicit or encourage (including by
way of furnishing information) the initiation of any inquiries or proposals
regarding an Alternative Transaction (as described below) (any of the
foregoing inquiries or proposals being referred to herein as an "Acquisition
Proposal"). The Merger Agreement provides that, provided that the Company and
its Board of Directors shall have complied with the first sentence of this
paragraph, nothing contained in this paragraph or any other provision of the
Merger Agreement shall prevent its Board of Directors if it determines in good
faith, after consultation with, and the receipt of advice from, outside
counsel, that it is required to do so in order to discharge properly its
fiduciary duties, from considering, negotiating, approving and recommending to
the stockholders of the Company an unsolicited bona fide written Acquisition
Proposal (provided that such Acquisition Proposal is for not less than $23.00
per Share and has no financing contingencies) which the Board of Directors of
the Company determines in good faith (after consultation with its financial
advisors) would result in a transaction more favorable to the Company's
stockholders than the transaction contemplated by the Merger Agreement (any
Acquisition Proposal meeting such criteria, including those specified in the
immediately preceding parenthetical proviso, being referred to herein as a
"Superior Proposal"). Nothing in the Merger Agreement shall prohibit the
Company from complying with Rules 14d-9 and 14e-2 under the Exchange Act with
respect to any other tender offers.
The Merger Agreement provides that the Company shall promptly, but in no
event later than 24 hours, notify Parent after receipt of any Acquisition
Proposal or any request for nonpublic information relating to the Company or
any of its subsidiaries in connection with an Acquisition Proposal or for
access to the properties, books or records of the Company or any subsidiary by
any person or entity that informs the Board that it is considering making, or
has made, an Acquisition Proposal. Such notice to Parent shall be made orally
and in writing and shall indicate in reasonable detail the identity of the
offeror and the terms and conditions of such proposal, inquiry or contact.
The Merger Agreement provides that if the Board receives a request for
material nonpublic information by a party who makes an unsolicited bona fide
Acquisition Proposal and the Board determines that such proposal, if
consummated pursuant to its terms would be a Superior Proposal, then, and only
in such case, the Company may, subject to the execution of a confidentiality
agreement substantially similar to that then in effect between the Company and
Parent, provide such party with access to information regarding the Company.
The Company shall immediately cease and cause to be terminated any existing
discussions or negotiations with any parties (other than Parent and Purchaser)
conducted heretofore with respect to any of the foregoing. The Company agrees
not to release any third party from any confidentiality or standstill
agreement to which the Company is a party. The Company shall ensure that the
officers, directors and employees of the Company and its subsidiaries and any
investment banker or other advisor or representative retained by the Company
are aware of the restrictions described in the Merger Agreement; and shall be
responsible for any breach of such terms and conditions of the Merger
Agreement by such bankers, advisors and representatives.
The Merger Agreement further provides that upon the terms and subject to the
conditions of the Merger Agreement, each of the parties thereto shall use all
reasonable efforts to take, or cause to be taken, all action, and to do or
cause to be done, and to assist and cooperate with the other parties in doing,
all things necessary, proper or advisable to consummate and make effective as
promptly as practicable the transactions contemplated by the Merger Agreement,
including using all reasonable efforts to (i) obtain all consents, amendments
to or waivers under the terms of any of the Company's contractual arrangements
required by the transactions contemplated by the Merger Agreement, (ii) effect
promptly all necessary or appropriate registrations and filings with
Governmental Entities, including, without limitation, filings and submissions
pursuant to the HSR Act, the Exchange Act, Delaware Law and state and federal
licensing authorities, (iii) defend any lawsuits or other legal
22
<PAGE>
proceedings, whether judicial or administrative, challenging the Merger
Agreement or the consummation of the transactions contemplated thereby and
(iv) fulfill or cause the fulfillment of the conditions the Merger set forth
below under "Conditions to the Merger." In connection with and without
limiting the foregoing, the Company and its Board of Directors shall (x) take
all action necessary to ensure that no state takeover statute or similar
statute or regulation (including, without limitation, Section 203 of the
Delaware Law) is or becomes applicable to the Offer, the Merger, the Merger
Agreement or any of the other transactions contemplated by the Merger
Agreement and (y) if any state takeover statute or similar statute or
regulation becomes applicable to the Offer, the Merger, the Agreement, the
Stockholder Agreement or any other transaction contemplated by the Merger
Agreement or the Stockholder Agreement, take all action necessary to ensure
that the Offer, the Merger and the other transactions contemplated by the
Merger Agreement and the Stockholder Agreement may be consummated as promptly
as practicable on the terms contemplated by the Merger Agreement and the
Stockholder Agreement and otherwise to minimize the effect of such statute or
regulation on the Offer, the Merger, the Merger Agreement, the Stockholder
Agreement and the other transactions contemplated by the Merger Agreement and
the Stockholder Agreement. Nothwithstanding the foregoing, the Board of
Directors of the Company shall not be prohibited from taking any action
expressly permitted by the terms of the Merger Agreement.
The Merger Agreement further provides that Parent agrees that all rights to
indemnification existing in favor of the present or former directors,
officers, and employees of the Company (as such) or any of its subsidiaries or
present or former directors of the Company or any of its subsidiaries serving
or who served at the Company's or any of its subsidiaries' request as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, as provided
in the Company's certificate of incorporation or by-laws, or the articles of
incorporation, by-laws or similar organizational documents of any of the
Company's subsidiaries and the indemnification agreements with such present
and former directors, officers and employees as in effect as of the date
hereof (true and correct copies of which have been provided to Parent) with
respect to matters occurring at or prior to the Effective Time shall survive
the Merger and shall continue in full force and effect and without
modification (other than modifications following the Merger which would
enlarge the indemnification rights) for a period of not less than six years,
and the Surviving Corporation shall comply fully with its obligations
hereunder and thereunder. For a period of not less than six years after the
Effective Time, the Surviving Corporation shall maintain officers' and
directors' liability insurance and fiduciary liability insurance covering the
persons described in this paragraph (whether or not they are entitled to
indemnification thereunder) who are currently covered by the Company's
existing officers' and directors' or fiduciary liability insurance policies on
terms no less advantageous to such indemnified parties than such existing
insurance; provided, however, that in no event shall Parent be required to
expend in any one year an amount in excess of 150% of the annual premiums
currently paid by the Company for such insurance.
The Merger Agreement provides that, promptly upon the acceptance for payment
of, and payment for, such number of shares of Common Stock by Purchaser
pursuant to the Offer as satisfies the Minimum Condition (the "Majority
Acquisition"), and from time to time thereafter, Purchaser shall be entitled
to designate such number of directors on the Board of Directors of the
Company, rounded up to the next greatest whole number, subject to compliance
with Section 14(f) of the Exchange Act, as shall represent a percentage of the
Board of Directors equal to the percentage of the outstanding shares of Common
Stock owned by Purchaser; provided that, from the Majority Acquisition until
the Effective Time, at least two persons who are directors of the Company on
the date hereof shall be directors of the Company (the "Continuing
Directors"); and provided further that, if the number of Continuing Directors
shall be reduced below two for any reason whatsoever, any remaining Continuing
Directors shall be entitled to designate a person to fill such vacancy as a
Continuing Director for purposes of the Merger Agreement or, if no Continuing
Directors then remain, the other directors shall designate two persons to fill
such vacancies who shall not be officers, directors, stockholders or
affiliates of Parent, Purchaser or the Company, and such persons shall be
deemed to be Continuing Directors for purposes of the Merger Agreement. At
such times, the Company will also cause (i) each committee of the Board of
Directors, (ii) if requested by Purchaser, the board of directors of each of
the Company's subsidiaries and (iii) if requested by Purchaser, each committee
of such board to include persons designated by Purchaser constituting the same
percentage of each such committee or board as Purchaser's designees are of the
Board. The Company shall, upon request by
23
<PAGE>
Purchaser, promptly increase the size of the Board or exercise its best
efforts to secure the resignations of such number of directors as is necessary
to enable Purchaser designees to be elected to the Board and shall cause
Purchaser's designees to be so elected.
Representations and Warranties. The Merger Agreement contains various
customary representations and warranties of the parties thereto including
representations by the Company as to the absence of certain changes or events
concerning the Company's business, compliance with law, litigation, employee
benefit plans, title to property, property and environmental matters.
Conditions to the Merger. Under the Merger Agreement, the respective
obligations of each party to effect the Merger are subject to the fulfillment
at or prior to the Effective Time of the following conditions: (a) if required
by applicable law, the Merger shall have been approved by holders of Common
Stock as required by such applicable law; (b) no orders, judgments, writs,
injunctions, determinations, awards, decrees, laws, statutes, rules or
regulations shall have been enacted, entered, promulgated or enforced by any
court or foreign, federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality ("Government Entity")
that prohibits or prevents the consummation of the Merger; (c) Purchaser shall
have previously accepted for payment and paid for Shares pursuant to the
Offer; and (d) any waiting period applicable to the Merger under the HSR Act
shall have expired or been terminated.
Termination; Fees and Expenses. The Merger Agreement provides that it may be
terminated and the Merger contemplated thereby may be abandoned at any time
prior to the Effective Time, whether before or after adoption by the
stockholders of the Company: (a) by the mutual written consent of Parent,
Purchaser and the Company (but only by action of the Continuing Directors
after the purchase of Common Stock pursuant to the Offer); (b) by Parent,
Purchaser or the Company (but only by action of the Continuing Directors after
the purchase of Common Stock pursuant to the Offer): (i) if a court of
competent jurisdiction or other Governmental Entity shall have issued an order
or taken any other action permanently restraining, enjoining or otherwise
prohibiting the Offer or the Merger and such order or other action shall have
become final and nonappealable; or (ii) (x) as a result of the failure,
occurrence or existence of any of the conditions set forth in Section 14 (1)
Purchaser shall have failed to commence the Offer within five business days
following the date of the Merger Agreement or (2) the Offer shall have
terminated or expired in accordance with its terms without Purchaser having
accepted for payment any shares of Common Stock pursuant to the Offer or (y)
Purchaser shall not have accepted for payment any shares of Common Stock
pursuant to the Offer by December 31, 1997; provided, however, that the right
to terminate the Merger Agreement pursuant to this subparagraph (b)(ii) shall
not be available to any party whose failure to perform any of its obligations
under the Merger Agreement results in the failure, occurrence or existence of
any such condition; (c) by the Company in connection with the entering into,
or consummation of, a Superior Proposal, provided that it has complied with
all provisions thereof, including the notice provisions therein, and that it
complies with applicable requirements relating to the payment (including the
timing of any payment) of the Expenses and the Fee (as such terms are defined
below); (d) by Parent or Purchaser prior to the purchase of Shares of Common
Stock pursuant to the Offer in the event of a breach by the Company of any
representation, warranty, covenant or other agreement contained in the Merger
Agreement, which (A) would give rise to the failure of a condition set forth
in paragraph (d) or (e) of Section 14, and (B) has not been or cannot be cured
within 20 days after the giving of written notice to the Company; (e) by the
Company, if Parent or Purchaser shall have breached in any material respect
any of their respective representations, warranties, covenants or other
agreements contained in the Merger Agreement, which failure to perform has not
been cured within 20 days after the giving of written notice to Parent or
Purchaser; or (f) by Parent or Purchaser if either Parent or Purchaser is
entitled to terminate the Offer as a result of the occurrence of any event set
forth in paragraph (c) of Section 14.
In the event that the Merger Agreement is terminated and the Merger is
abandoned by Parent or Purchaser, on the one hand, or by the Company, on the
other hand, written notice of such termination and abandonment shall forthwith
be given to the other parties and the Merger Agreement shall terminate and the
Merger shall be abandoned without any further action. If the Merger Agreement
is terminated as provided herein, no party hereto
24
<PAGE>
shall have any liability or further obligation to any other party under the
terms of the Merger Agreement except with respect to the willful breach by any
party hereto and except under the provisions of the Merger Agreement related
to fees and expenses described below and under certain other provisions of the
Merger Agreement which survive termination.
The Merger Agreement provides that, except as set forth below, all fees and
expenses incurred in connection with the Merger Agreement and the transactions
contemplated thereby shall be paid by the party incurring such expenses,
whether or not the Merger is consummated. The Company shall pay Parent a fee
of $12,000,000 (the "Fee"), and reimburse Parent for actual and documented
out-of-pocket expenses of Parent relating to the transactions contemplated by
the Merger Agreement (including, but not limited to, fees and expenses of
Parent's counsel) not in excess of $4,000,000 ("Expenses") in the event that:
(i) the Merger Agreement is terminated (x) by Parent if either Parent or
Purchaser is entitled to terminate the Offer as a result of the occurrence of
any event set forth in paragraph (c) of Section 14 or (y) by the Company in
connection with the entering into, or consummation of, a Superior Proposal,
provided that it has complied with all provisions thereof, including the
notice provisions therein, and that it complies with applicable requirements
relating to the payment (including the timing of any payment) of the Expenses
and the Fee; (ii) the Merger Agreement is terminated by Parent prior to the
purchase of Shares of Common Stock pursuant to the Offer in the event of any
breach by the Company of any representation, warranty, covenant or other
agreement contained in the Merger Agreement, which (A) would give rise to the
failure of a condition set forth in paragraph (d) or (e) of Section 14, and
(B) has not been or cannot be cured within 20 days after the giving of written
notice to the Company after breach by the Company of Section 6.4 of the Merger
Agreement (No Solicitation); and (iii) (A) the Company shall have received an
Acquisition Proposal at or prior to, or within 30 days after, the termination
of the Merger Agreement and (B) an Alternative Transaction is consummated on
or prior to the one-year anniversary of the termination of the Merger
Agreement (collectively, "Certain Payment Events"). As used herein,
"Alternative Transaction" means (i) a transaction pursuant to which any person
(or group of persons) other than Parent or its affiliates (a "Third Party")
acquires more than 40% of the outstanding Shares, whether from the Company or
pursuant to a tender offer or exchange offer or otherwise, (ii) a merger or
other business combination involving the Company pursuant to which any Third
Party acquires more than 40% of the outstanding equity securities of the
Company or the entity surviving such merger or business combination or (iii)
any other transaction pursuant to which any Third Party acquires control of
assets (including for this purpose the outstanding equity securities of
subsidiaries of the Company, and the entity surviving any merger or business
combination including any of them) of the Company and its subsidiaries having
a fair market value equal to more than 40% of the fair market value of all the
assets of the Company and its subsidiaries, taken as a whole, immediately
prior to such transaction; provided, however, that the term Alternative
Transaction shall not include any acquisition of securities by a broker dealer
in connection with a bona fide public offering of such securities. The Fee and
Expenses shall be paid upon the earlier of (i) immediately prior to the
termination of the Merger Agreement by the Company in connection with the
entering into, or consummation of, a Superior Proposal, provided that it has
complied with all provisions thereof, including the notice provisions therein,
and that it complies with applicable requirements relating to the payment
(including the timing of any payment) of the Expenses and the Fee; and (ii)
within one business day after the first to occur of any of the Certain Payment
Events other than if this Agreement is terminated by the Company in connection
with the entering into, or consummation of, a Superior Proposal, provided that
it has complied with all provisions thereof, including the notice provisions
therein, and that it complies with applicable requirements relating to the
payment (including the timing of any payment) of the Expenses and the Fee.
STOCKHOLDER AGREEMENT
Parent, Purchaser and the Company have also entered into the Stockholder
Agreement pursuant to which Richard K. Matros, Bruce Broussard, John W. Adams,
Randall D. Smith, Energy Management Corporation, Solvation Inc. (d/b/a Smith
Management Company), Pengo Securities Corp., Sega Associates, L.P. and Durian
Securities, Inc. (each a "Stockholder") have severally and not jointly agreed
that they shall tender their Shares into the Offer and that they shall not
withdraw any Shares so tendered (it being understood that such obligation
contained in this sentence is unconditional, subject to the termination
provisions discussed below). The Stockholder
25
<PAGE>
Agreement also provides that notwithstanding the foregoing, the Stockholders
(other than Richard K. Matros and Bruce Broussard) will have no obligation to
tender their Shares, and such Shares so tendered shall, without further act of
such Stockholder, be deemed to be withdrawn from the Offer, prior to October
1, 1997.
The Stockholder Agreement also provides that each Stockholder shall not,
except as contemplated by the terms of the Stockholder Agreement, (i) sell,
transfer, pledge, assign or otherwise dispose of, or enter into any contract,
option or other arrangement (including any profit sharing arrangement) or
understanding with respect to the sale, transfer, pledge, assignment or other
disposition of, the Shares to any person other than Parent or Parent's
designee, (ii) enter into any voting arrangement, whether by proxy, voting
agreement, voting trust, power-of-attorney or otherwise, with respect to the
Shares or (iii) take any other action that would in any way restrict, limit or
interfere with the performance of its obligations thereunder or the
transactions contemplated thereby. Until the Merger is consummated or the
Merger Agreement is terminated, each Stockholder shall not, nor shall each
Stockholder permit any investment banker, financial adviser, attorney,
accountant or other representative or agent of such Stockholder to, directly
or indirectly (i) solicit, initiate or encourage (including by way of
furnishing information), or take any other action designed or reasonably
likely to facilitate, any inquiries or the making of any proposal which
constitutes, or may reasonably be expected to lead to, any Acquisition
Proposal or (ii) participate in any discussions or negotiations regarding any
Acquisition Proposal. Without limiting the foregoing, it is understood that
any violation of the restrictions set forth in the preceding sentence by an
investment banker, financial advisor, attorney, accountant or other
representative or agent of such Stockholder shall be deemed to be a violation
of this provision by such Stockholder; provided, however, that action by a
Stockholder in his or her capacity as an officer or director of the Company
that is permitted by the Merger Agreement in connection with an Acquisition
Proposal shall not be a violation of the Stockholder Agreement.
The Stockholder Agreement further provides that each Stockholder irrevocably
grants to, and appoints, Andrew Turner, Robert Woltil and Robert Murphy, and
any other individual who shall thereafter be designated by Parent, and each of
them, such Stockholder's proxy and attorney-in-fact (with full power of
substitution), for and in the name, place and stead of such Stockholder, to
vote such Stockholder's Shares (the "Proxy Shares"), or grant a consent or
approval in respect of such Proxy Shares, at any meeting of stockholders of
the Company or at any adjournment thereof or in any other circumstances upon
which their vote, consent or other approval is sought, against (i) any merger
agreement or merger (other than the Merger Agreement and the Merger),
consolidation, combination, sale of substantial assets, reorganization, joint
venture, recapitalization, dissolution, liquidation or winding up of or by the
Company and (ii) any amendment of the Company's Certificate of Incorporation
or Bylaws, as amended and restated, or other proposals or transaction
(including any consent solicitation to remove or elect any directors of the
Company) involving the Company which amendment or other proposal or
transaction would in any manner impede, frustrate, prevent or nullify, or
result in a breach of covenant, representation or warranty or any other
obligation or agreement of the Company under or with respect to, the Offer,
the Merger, the Merger Agreement or any of the other transactions contemplated
by the Merger Agreement.
The Stockholder Agreement also provides that the Stockholder Agreement and
all rights and obligations of the parties thereunder, shall terminate upon the
date upon which the Merger Agreement is terminated pursuant to its terms.
11. Purpose of the Offer; Plans for the Company After the Offer and the
Merger.
Purpose of the Offer. The purpose of the Offer and the Merger is for Parent
to acquire control of, and the entire equity interest in, the Company. The
purpose of the Merger is for Parent to acquire all Shares not purchased
pursuant to the Offer. Upon consummation of the Merger, the Company will
become a wholly owned subsidiary of Parent. The Offer is being made pursuant
to the Merger Agreement.
Under Delaware Law, the approval of the Board and the affirmative vote of
the holders of a majority of the outstanding Shares is required to approve and
adopt the Merger Agreement and the transactions contemplated thereby,
including the Merger. The Board of Directors of the Company has unanimously
approved and adopted the Merger Agreement and the transactions contemplated
thereby, and, unless the Merger is consummated pursuant
26
<PAGE>
to the short-form merger provisions under Delaware Law described below, the
only remaining required corporate action of the Company is the approval and
adoption of the Merger Agreement and the transactions contemplated thereby by
the affirmative vote of the holders of a majority of the Shares. Accordingly,
if the Minimum Condition is satisfied, Purchaser will have sufficient voting
power to cause the approval and adoption of the Merger Agreement and the
transactions contemplated thereby without the affirmative vote of any other
stockholder.
In the Merger Agreement, the Company has agreed to take all action necessary
to convene a meeting of its stockholders as promptly as practicable after the
purchase of Shares of Common Stock pursuant to the Offer for the purpose of
considering and voting on the Merger Agreement and the transactions
contemplated thereby, if such action is required by Delaware Law. Parent has
agreed that all Shares owned by it and its subsidiaries will be voted in favor
of the Merger Agreement and the transactions contemplated thereby.
If Purchaser purchases Shares pursuant to the Offer, the Merger Agreement
provides that Purchaser will be entitled to designate representatives to serve
on the Board in proportion to Purchaser's ownership of Shares following such
purchase. See Section 10. Purchaser expects that such representation would
permit Purchaser to exert substantial influence over the Company's conduct of
its business and operations.
Under Delaware Law, if Purchaser acquires, pursuant to the Offer or
otherwise, at least 90% of the outstanding Shares, Purchaser will be able to
approve the Merger without a vote of the Company's stockholders. In such
event, Parent, Purchaser and the Company have agreed in the Merger Agreement
to take, at the request of Purchaser, all necessary and appropriate action to
cause the Merger to become effective as soon as reasonably practicable after
such acquisition, without a meeting of the Company's stockholders. If,
however, Purchaser does not acquire at least 90% of the outstanding Shares
pursuant to the Offer and the Stockholder Agreement or otherwise and a vote of
the Company's stockholders is required under Delaware Law, a significantly
longer period of time would be required to effect the Merger.
No appraisal rights are available in connection with the Offer. However, if
the Merger is consummated, stockholders will have certain rights under
Delaware Law to dissent and demand appraisal of, and to receive payment in
cash of the fair value of, their Shares. Such rights to dissent, if the
statutory procedures are complied with, could lead to a judicial determination
of the fair value of the Shares, as of the day prior to the date on which the
stockholders vote was taken approving the Merger or similar business
combination (excluding any element of value arising from the accomplishment or
expectation of the Merger), required to be paid in cash to such dissenting
holders for their Shares. In addition, such dissenting stockholders would be
entitled to receive payment of a fair rate of interest from the date of
consummation of the Merger on the amount determined to be the fair value of
their Shares. In determining the fair value of the Shares, the court is
required to take into account all relevant factors. Accordingly, such
determination could be based upon considerations other than, or in addition
to, the market value of the Shares, including, among other things, asset
values and earning capacity. In Weinberger v. UOP, Inc., the Delaware Supreme
Court stated, among other things, that proof of value by any techniques or
methods which are generally considered acceptable in the financial community
and otherwise admissible in court should be considered in an appraisal
proceeding. Therefore, the value so determined in any appraisal proceeding
could be the same, more or less than the purchase price per Share in the Offer
or the Merger Consideration.
In addition, several decisions by Delaware courts have held that, in certain
circumstances, a controlling stockholder of a company involved in a merger has
a fiduciary duty to other stockholders which requires that the merger be fair
to such other stockholders. In determining whether a merger is fair to
minority stockholders, Delaware courts have considered, among other things,
the type and amount of consideration to be received by the stockholders and
whether there was fair dealing among the parties. The Delaware Supreme Court
stated in Weinberger and Rabkin v. Philip A. Hunt Chemical Corp. that the
remedy ordinarily available to minority stockholders in a cash-out merger is
the right to appraisal described above. However, a damages remedy or
injunctive relief may be available if a merger is found to be the product of
procedural unfairness, including fraud, misrepresentation or other misconduct.
27
<PAGE>
The SEC has adopted Rule 13e-3 under the Exchange Act which is applicable to
certain "going private" transactions and which may under certain circumstances
be applicable to the Merger or another business combination following the
purchase of Shares pursuant to the Offer in which Purchaser seeks to acquire
the remaining Shares not held by it. Purchaser believes, however, that Rule
13e-3 will not be applicable to the Merger. Rule 13e-3 requires, among other
things, that certain financial information concerning the Company and certain
information relating to the fairness of the proposed transaction and the
consideration offered to minority stockholders in such transaction, be filed
with the SEC and disclosed to stockholders prior to consummation of the
transaction.
Plans for the Company. It is expected that, initially following the Merger,
the business and operations of the Company will, except as set forth in this
Offer to Purchase, be continued by the Company substantially as they are
currently being conducted. Parent will continue to evaluate the business and
operations of the Company during the pendency of the Offer and after the
consummation of the Offer and the Merger, and will take such actions as it
deems appropriate under the circumstances then existing. Parent intends to
seek additional information about the Company during this period. Thereafter,
Parent intends to review such information as part of a comprehensive review of
the Company's business, operations, capitalization and management with a view
to optimizing exploitation of the Company's potential in conjunction with
Parent's businesses. It is expected that the business and operations of the
Company would form an important part of Parent's future business plans.
Except as indicated in this Offer to Purchase, Parent does not have any
present plans or proposals which relate to or would result in an extraordinary
corporate transaction, such as a merger, reorganization or liquidation,
involving the Company or any Subsidiary, a sale or transfer of a material
amount of assets of the Company or any Subsidiary or any material change in
the Company's capitalization or dividend policy or any other material changes
in the Company's corporate structure or business, or the composition of the
Board or the Company's management.
12. Dividends and Distributions. The Merger Agreement provides that the
Company shall not, between the date of the Merger Agreement and the Effective
Time, without the prior written consent of Parent, (a) authorize for issuance,
issue, sell, pledge, deliver or agree or commit to issue, sell, pledge or
deliver (whether through the issuance or granting of any options, warrants,
calls, subscriptions, stock appreciation rights or other rights or other
agreements) any capital stock of any class or any securities convertible into
or exchangeable for shares of capital stock of any class of the Company, or
any other ownership interest (including stock appreciation rights or phantom
stock) other than shares of Common Stock issuable upon exercise of Company
Stock Options outstanding on the date of the Merger Agreement; or (b) split,
combine or reclassify any shares of Common Stock or declare, pay or set aside
for payment any dividend or other distribution in respect of any Common Stock,
or redeem, purchase or otherwise acquire any shares of Common Stock or any
other securities of the Company or any rights, warrants or options to acquire
any such shares of other securities. See Section 10. If, however, the Company
should, during the pendency of the Offer, (i) split, combine or otherwise
change the Shares or its capitalization, (ii) acquire or otherwise cause a
reduction in the number of outstanding Shares or (iii) issue or sell any
additional Shares, shares of any other class or series of capital stock, other
voting securities or any securities convertible into, or options, rights, or
warrants, conditional or otherwise, to acquire, any of the foregoing, then,
without prejudice to Purchaser's rights under Section 14, Purchaser may
(subject to the provisions of the Merger Agreement) make such adjustments to
the purchase price and other terms of the Offer (including the number and type
of securities to be purchased) as it deems appropriate to reflect such split,
combination or other change.
If, on or after July 26, 1997, the Company should declare or pay any
dividend on the Shares or make any other distribution (including the issuance
of additional shares of capital stock pursuant to a stock dividend or stock
split, the issuance of other securities or the issuance of rights for the
purchase of any securities) with respect to the Shares that is payable or
distributable to stockholders of record on a date prior to the transfer to the
name of Purchaser or its nominee or transferee on the Company's stock transfer
records of the Shares purchased pursuant to the Offer, then, without prejudice
to Purchaser's rights under Section 14, (i) the purchase price per Share
payable by Purchaser pursuant to the Offer will be reduced (subject to the
Merger Agreement) to the extent any such dividend or distribution is payable
in cash and (ii) any non-cash dividend, distribution or
28
<PAGE>
right shall be received and held by the tendering stockholder for the account
of Purchaser and will be required to be promptly remitted and transferred by
each tendering stockholder to the Depositary for the account of Purchaser,
accompanied by appropriate documentation of transfer. Pending such remittance
and subject to applicable law, Purchaser will be entitled to all the rights
and privileges as owner of any such non-cash dividend, distribution or right
and may withhold the entire purchase price or deduct from the purchase price
the amount or value thereof, as determined by Purchaser in its sole
discretion.
13. Effect of the Offer on the Market for the Shares, Exchange Listing and
Exchange Act Registration. The purchase of Shares by Purchaser pursuant to the
Offer will reduce the number of Shares that might otherwise trade publicly and
will reduce the number of holders of Shares, which could adversely affect the
liquidity and market value of the remaining Shares held by the public.
Parent intends to cause the delisting of the Shares by the NYSE following
consummation of the Offer.
Depending upon the number of Shares purchased pursuant to the Offer, the
Shares may no longer meet the requirements of the NYSE for continued listing
and may be delisted from the NYSE. According to the NYSE's published
guidelines, the NYSE would consider delisting the Shares if, among other
things, the number of record holders of at least 100 Shares should fall below
1,200, the number of publicly held Shares (exclusive of holdings of officers,
directors and their families and other concentrated holdings of 10% or more
("NYSE Excluded Holdings")) should fall below 600,000 or the aggregate market
value of publicly held Shares (exclusive of NYSE Excluded Holdings) should
fall below $5,000,000. The Company has advised Purchaser that, as of July 25,
1997, there were 15,935,300 Shares outstanding. If, as a result of the
purchase of Shares pursuant to the Offer or otherwise, the Shares no longer
meet the requirements of the NYSE for continued listing and the listing of the
Shares is discontinued, the market for the Shares could be adversely affected.
If the NYSE were to delist the Shares, it is possible that the Shares would
continue to trade on another securities exchange or in the over-the-counter
market and that price or other quotations would be reported by such exchange
or through the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") or other sources. The extent of the public market therefor
and the availability of such quotations would depend, however, upon such
factors as the number of stockholders and/or the aggregate market value of
such securities remaining at such time, the interest in maintaining a market
in the Shares on the part of securities firms, the possible termination of
registration under the Exchange Act as described below, and other factors.
Purchaser cannot predict whether the reduction in the number of Shares that
might otherwise trade publicly would have an adverse or beneficial effect on
the market price for or marketability of the Shares or whether it would cause
future market prices to be greater or less than the Merger Consideration.
The Shares are currently "margin securities," as such term is defined under
the rules of the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"), which has the effect, among other things, of
allowing brokers to extend credit on the collateral of such securities.
Depending upon factors similar to those described above regarding listing and
market quotations, following the Offer it is possible that the Shares might no
longer constitute "margin securities" for purposes of the margin regulations
of the Federal Reserve Board, in which event such Shares could no longer be
used as collateral for loans made by brokers.
The Shares are currently registered under the Exchange Act. Such
registration may be terminated upon application by the Company to the SEC if
the Shares are not listed on a national securities exchange and there are
fewer than 300 record holders. The termination of the registration of the
Shares under the Exchange Act would substantially reduce the information
required to be furnished by the Company to holders of Shares and to the SEC
and would make certain provisions of the Exchange Act, such as the short-swing
profit recovery provisions of Section 16(b), the requirement of furnishing a
proxy statement in connection with stockholders' meetings and the requirements
of Rule 13e-3 under the Exchange Act with respect to "going private"
transactions, no longer applicable to the Shares. In addition, "affiliates" of
the Company and persons holding "restricted securities" of the Company may be
deprived of the ability to dispose of such securities pursuant to Rule 144
promulgated under the Securities Act of 1933, as amended. If registration of
the Shares under the
29
<PAGE>
Exchange Act were terminated, the Shares would no longer be "margin
securities" or be eligible for NASDAQ reporting. Purchaser currently intends
to seek to cause the Company to terminate the registration of the Shares under
the Exchange Act as soon after consummation of the Offer as the requirements
for termination of registration are met.
14. Certain Conditions of the Offer. Notwithstanding any other term of the
Offer or the Merger Agreement, Purchaser shall not be required to accept for
payment or, subject to any applicable rules and regulations of the SEC,
including Rule 14e-1(c) under the Exchange Act (relating to Purchaser's
obligation to pay for or return tendered shares of Common Stock after the
termination or withdrawal of the Offer), to pay for any shares of Common Stock
tendered pursuant to the Offer unless, (i) there shall have been validly
tendered and not properly withdrawn prior to the expiration of the Offer such
number of shares of Common Stock which would constitute a majority of the
outstanding shares of Common Stock on a fully-diluted basis on the date of
purchase (the "Minimum Condition") ("on a fully-diluted basis" means, as of
the date of the purchase of shares of Common Stock pursuant to the Offer, the
number of shares of Common Stock outstanding, together with all shares of
Common Stock issuable pursuant to options, convertible securities and any
other rights to acquire Shares) and (ii) any waiting period under the HSR Act
or applicable state regulatory statutes or regulations applicable to the
purchase of shares of Common Stock pursuant to the Offer shall have expired or
been terminated. Furthermore, notwithstanding any other term of the Offer or
the Merger Agreement, Purchaser shall not be required to accept for payment
or, subject as aforesaid, to pay for any shares of Common Stock not
theretofore accepted for payment or paid for, and (subject to certain
provisions of the Merger Agreement) may terminate the Offer if, at any time on
or after the date of the Merger Agreement and before the acceptance of such
shares for payment or the payment therefor, any of the following conditions
exists:
a. there shall be pending by any Governmental Entity or other person any
suit, action or proceeding (i) challenging the acquisition by Parent or
Purchaser of any shares of Common Stock under the Offer, seeking to
restrain or prohibit the making or consummation of the Offer or the Merger
or the performance of any of the other transactions contemplated by the
Merger Agreement or the Stockholder Agreement or seeking to obtain from the
Company, Parent or Purchaser any damages that are material in relation to
the Company and its subsidiaries taken as a whole, (ii) seeking to prohibit
or limit the ownership or operation by the Company, Parent or any of their
respective subsidiaries of a material portion of the business or assets of
the Company and its subsidiaries, taken as a whole, or Parent and its
subsidiaries, taken as a whole, or to compel the Company or Parent to
dispose of or hold separate any material portion of the business or assets
of the Company and its subsidiaries, taken as a whole, or Parent and its
subsidiaries, taken as a whole, as a result of the Offer, the Merger or any
of the other transactions contemplated by the Merger Agreement or the
Stockholder Agreement, (iii) seeking to impose material limitations on the
ability of Parent or Purchaser to acquire or hold, or exercise full rights
of ownership of, any shares of Common Stock accepted for payment pursuant
to the Offer, including, without limitation, the right to vote such Common
Stock on all matters properly presented to the stockholders of the Company,
(iv) seeking to prohibit Parent or any of its subsidiaries from effectively
controlling in any material respect the business or operations of the
Company and its subsidiaries, taken as a whole or (v) which otherwise is
reasonably likely to have with, respect to the Company, a material adverse
effect on the business, assets, properties, financial condition or results
of operations of the Company and its subsidiaries taken as a whole;
b. there shall be any statute, rule, regulation, legislation, judgment,
order or injunction enacted, entered, enforced, promulgated, or deemed
applicable to the Offer or the Merger, or any other action shall be taken
by any Governmental Entity, other than the application to the Offer or the
Merger of applicable waiting periods under the HSR Act which, in any case,
is reasonably likely to result, directly or indirectly, in any of the
consequences referred to in clauses (i) through (v) of paragraph (a) above;
c. (i) the Board or any committee thereof shall have withdrawn or
modified in a manner adverse to Parent or Purchaser its approval or
recommendation of the Offer or the Merger or its adoption of the Merger
Agreement, or approved or failed to reject within 10 business days any,
Acquisition Proposal, (ii) the Company shall have entered into any
agreement with respect to any Superior Proposal or (iii) the Board or any
committee thereof shall have resolved to take any of the foregoing actions;
30
<PAGE>
d. any of the representations and warranties of the Company set forth in
the Merger Agreement that are qualified as to materiality shall not be true
and correct or any such representations and warranties that are not so
qualified shall not be true and correct in any material respect, in each
case at the date of the Merger Agreement and, in the case of
representations and warranties other than those made specifically as of the
date of the Merger Agreement, at the scheduled or extended expiration of
the Offer;
e. the Company shall have failed to perform in any material respect any
obligation or to comply in any material respect with any agreement or
covenant of the Company to be performed or complied with by it under the
Merger Agreement;
f. the Merger Agreement shall have been terminated in accordance with its
terms or the Offer shall have been terminated with the consent of the
Company;
g. (i) less than a majority in principal amount of either of the
Securities shall have been tendered and not withdrawn pursuant to debt
tender offers (i.e., the Tender Condition) or (ii) consents shall have been
obtained in consent solicitations from holders (other than the Company and
its Affiliates (as such term is defined in the applicable Indenture)) of
less than a majority in principal amount as of the applicable record date
of either of the Securities (i.e., the Consent Condition); or
h. there shall have occurred (i) any general suspension of, or limitation
of prices for, trading on the NYSE, American Stock Exchange, Nasdaq
National Market, (ii) any declaration of banking moratorium or suspension
or payment in respect of banks in the United States, (iii) any general
limitation by a Governmental Entity on, or any other event that would
limit, the extension of credit by banks or other lending institutions, (iv)
any commencement of war, armed hostilities or other international or
national calamity directly or indirectly involving the United States having
a significant adverse effect on the functionality of financial markets in
the United States or (v) in the case of any of the foregoing, existing at
time of the commencement of the Offer, a material acceleration or worsening
thereof which, in the reasonable judgment of Purchaser in any case and
regardless of circumstances, makes it inadvisable to proceed with such
acceptance for payment or payment.
The foregoing conditions are for the sole benefit of Purchaser and Parent
and may, subject to the terms of the Merger Agreement, be waived by Purchaser
and Parent in whole or in part at any time and from time to time in their sole
discretion. In particular, Parent and Purchaser continue to assess whether to
not conduct the debt tender offers and/or the consent solicitations and thus
waive the Tender Condition and/or the Consent Condition. The failure by
Parent, or Purchaser at any time to exercise any of the foregoing rights shall
not be deemed a waiver of any such right, the waiver of any such right with
respect to particular facts and circumstances shall not be deemed a waiver
with respect to any other facts and circumstances and each such right shall be
deemed an ongoing right that may be asserted at any time and from time to
time.
15. Certain Legal Matters and Regulatory Approvals.
General. Based upon its examination of publicly available information with
respect to the Company and the review of certain information furnished by the
Company to Parent and discussions of representatives of Parent with
representatives of the Company during Parent's investigation of the Company
(see Section 10), neither Purchaser nor Parent is aware of any license or
other regulatory permit that appears to be material to the business of the
Company and the Subsidiaries, taken as a whole, which might be adversely
affected by the acquisition of Shares by Purchaser pursuant to the Offer or,
except as set forth below, of any approval or other action by any domestic
(federal or state) or foreign governmental, administrative or regulatory
authority or agency which would be required prior to the acquisition of Shares
by Purchaser pursuant to the Offer. Should any such approval or other action
be required, it is Purchaser's present intention to seek such approval or
action. Purchaser does not currently intend, however, to delay the purchase of
Shares tendered pursuant to the Offer pending the outcome of any such action
or the receipt of any such approval (subject to Purchaser's right to decline
to purchase Shares if any of the conditions in Section 14 shall have
occurred). There can be no assurance that any such approval or other action,
if needed, would be obtained without substantial conditions or that adverse
consequences might not result to the business of the Company, Purchaser or
Parent or that certain parts of the
31
<PAGE>
businesses of the Company, Purchaser or Parent might not have to be disposed
of or held separate or other substantial conditions complied with in order to
obtain such approval or other action or in the event that such approval was
not obtained or such other action was not taken. Purchaser's obligation under
the Offer to accept for payment and pay for Shares is subject to certain
conditions, including conditions relating to the legal matters discussed in
this Section 15. See Section 14.
State Takeover Laws. The Company is incorporated under the laws of the State
of Delaware. In general, Section 203 of Delaware Law prevents an "interested
stockholder" (generally a person who owns or has the right to acquire 15% or
more of a corporation's outstanding voting stock, or an affiliate or associate
thereof) from engaging in a "business combination" (defined to include mergers
and certain other transactions) with a Delaware corporation for a period of
three years following the date such person became an interested stockholder
unless, among other things, prior to such date the board of directors of the
corporation approved either the business combination or the transaction in
which the interested stockholder became an interested stockholder. On July 26,
1997, prior to the execution of the Merger Agreement and the Stockholder
Agreement, the Board of Directors of the Company, by unanimous vote of all
directors present at a meeting held on such date, approved the Merger
Agreement and the Stockholder Agreement, determined that each of the Offer and
the Merger is fair to, and in the best interest of, the stockholders of the
Company. Accordingly, Section 203 is inapplicable to the Offer and the Merger.
A number of other states have adopted laws and regulations applicable to
attempts to acquire securities of corporations which are incorporated, or have
substantial assets, stockholders, principal executive offices or principal
places of business, or whose business operations otherwise have substantial
economic effects, in such states. In Edgar v. MITE Corp., the Supreme Court of
the United States invalidated on constitutional grounds the Illinois Business
Takeover Statute, which, as a matter of state securities law, made takeovers
of corporations meeting certain requirements more difficult. However, in 1987
in CTS Corp. v. Dynamics Corp. of America, the Supreme Court held that the
State of Indiana may, as a matter of corporate law and, in particular, with
respect to those aspects of corporate law concerning corporate governance,
constitutionally disqualify a potential acquiror from voting on the affairs of
a target corporation without the prior approval of the remaining stockholders.
The state law before the Supreme Court was by its terms applicable only to
corporations that had a substantial number of stockholders in the state and
were incorporated there.
The Company, directly or through subsidiaries, conducts business in a number
of states throughout the United States, some of which have enacted takeover
laws. Purchaser does not know whether any of these laws will, by their terms,
apply to the Offer or the Merger and has not complied with any such laws.
Should any person seek to apply any state takeover law, Purchaser will take
such action as then appears desirable, which may include challenging the
validity or applicability of any such statute in appropriate court
proceedings. In the event it is asserted that one or more state takeover laws
is applicable to the Offer or the Merger, and an appropriate court does not
determine that it is inapplicable or invalid as applied to the Offer,
Purchaser might be required to file certain information with, or receive
approvals from, the relevant state authorities. In addition, if enjoined,
Purchaser might be unable to accept for payment any Shares tendered pursuant
to the Offer, or be delayed in continuing or consummating the Offer, and the
Merger. In such case, Purchaser may not be obligated to accept for payment any
Shares tendered. See Section 14.
Antitrust. Under the HSR Act and the rules that have been promulgated
thereunder by the FTC, certain acquisition transactions may not be consummated
unless certain information has been furnished to the Antitrust Division and
the FTC and certain waiting period requirements have been satisfied. The
acquisition of Shares by Purchaser pursuant to the Offer are subject to such
requirements. See Section 2.
Pursuant to the HSR Act, Parent expects to file a Premerger Notification and
Report Form in connection with the purchase of Shares pursuant to the Offer
with the Antitrust Division and the FTC. Under the provisions of the HSR Act
applicable to the Offer, the purchase of Shares pursuant to the Offer may not
be consummated until the expiration of a 15-calendar day waiting period
following the filing by Parent, unless such waiting period is earlier
terminated by the FTC and the Antitrust Division or extended by a request from
the FTC or the Antitrust Division for additional information or documentary
material prior to the expiration of the waiting
32
<PAGE>
period. Pursuant to the HSR Act, Parent will request early termination of the
waiting period applicable to the Offer. There can be no assurance, however,
that the 15-day HSR Act waiting period will be terminated early. If either the
FTC or the Antitrust Division were to request additional information or
documentary material from Parent with respect to the Offer, the waiting period
with respect to the Offer would expire at 11:59 p.m., New York City time, on
the tenth calendar day after the date of substantial compliance by Parent with
such request. Thereafter, the waiting period could be extended only by court
order. If the acquisition of Shares is delayed pursuant to a request by the
FTC or the Antitrust Division for additional information or documentary
material pursuant to the HSR Act, the Offer may, but need not, be extended
and, in any event, the purchase of and payment for Shares will be deferred
until 10 days after the request is substantially complied with, unless the
extended period expires on or before the date when the initial 15-day period
would otherwise have expired, or unless the waiting period is sooner
terminated by the FTC and the Antitrust Division. Only one extension of such
waiting period pursuant to a request for additional information is authorized
by the HSR Act and the rules promulgated thereunder, except by court order.
Any such extension of the waiting period will not give rise to any withdrawal
rights not otherwise provided for by applicable law. See Section 4. It is a
condition to the Offer that the waiting period applicable under the HSR Act to
the Offer expire or be terminated. See Section 2 and Section 14.
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as the proposed acquisition of Shares
by Purchaser pursuant to the Offer. At any time before or after the purchase
of Shares pursuant to the Offer by Purchaser, the FTC or the Antitrust
Division could take such action under the antitrust laws as it deems necessary
or desirable in the public interest, including seeking to enjoin the purchase
of Shares pursuant to the Offer or seeking the divestiture of Shares purchased
by Purchaser or the divestiture of substantial assets of Parent, the Company
or their respective subsidiaries. Private parties and state attorneys general
may also bring legal action under federal or state antitrust laws under
certain circumstances. Based upon an examination of information available to
Parent relating to the businesses in which Parent, the Company and their
respective subsidiaries are engaged, Parent and Purchaser believe that the
Offer will not violate the antitrust laws. Nevertheless, there can be no
assurance that a challenge to the Offer on antitrust grounds will not be made
or, if such a challenge is made, what the result would be. See Section 14 for
certain conditions to the Offer, including conditions with respect to
litigation.
Federal and State Healthcare Regulatory Authorities. The Company owns,
operates and/or manages long term care facilities, assisted living facilities
and rehabilitation hospitals, and provides institutional pharmacy services and
other non-acute health services including rehabilitation therapy services and
home health agency services. Certain of the above services or facilities are
provided or operated in California, North Carolina, Ohio, Tennessee and West
Virginia.
The regulatory requirements of these jurisdictions may require notice of
and/or approval prior to any direct or indirect change in ownership, control
or management of any of the facilities or services. These regulatory
requirements include, without limitation, those providing for licensure,
dispensing pharmaceuticals and related medical supplies, certificate of need
or similar laws restricting development and/or expansion activities ("CON
laws" or "CON"), participation in the Medicaid program, as well as federal
laws regarding participation in the Medicare and the Medicaid programs and
dispensing pharmaceuticals. To the extent that the consummation of the Offer
or the consummation of the Merger is determined to constitute any such change
in ownership, control or management of facilities or services under the
applicable regulatory requirements, consummation of the Offer and the
consummation of the Merger would be subject to compliance with the regulatory
requirements of the applicable state, as well as any applicable federal laws
and receipt, to the extent applicable, of any required approvals or other
authorizations. The state and federal requirements are subject to
interpretation by the various agencies and may, in certain instance, be
subject to waiver.
Pursuant to federal Medicare program standards, providers must notify the
Medicare program as promptly as possible upon initiating negotiations for a
change of ownership but in no event later than 15 working days after the
transaction causing the change in ownership occurs. When a provider undergoes
a change of ownership, the provider must also file a final cost report no
later than 45 days following the change in ownership. According
33
<PAGE>
to Medicare program standards, the merger of the provider corporation into
another corporation, or the consolidation of two or more corporations,
resulting in the creation of a new corporation constitutes a change in
ownership. However, transfer of corporate stock or the merger of another
corporation into the provider corporation does not constitute a change of
ownership. The Drug Enforcement Agency ("DEA") standards provide that written
consent of the administrator of the DEA is required for a transfer of DEA
registration.
California. In California, the Department of Health Services regulates
licensed nursing homes and developmental disability facilities, the California
Department of Social Services regulates licensed residential care and
community care facilities and the Department of Mental Health regulates mental
health rehabilitation and psychiatric health facilities. All such regulation
is handled on a de-centralized basis by local district offices. Neither the
Department of Health Services nor the Department of Mental Health considers
the transfer of corporate stock where there is no change in the provider to be
a change of ownership for licensure or Medi-Cal certification purposes. It is
anticipated that the position of the Department of Social Services will be
similar although the Department's position can vary from district to district.
The California Board of Pharmacy will consider a stock transaction to be a
change of ownership which requires the submission of a new licensure
application. Although it can take up to 90 days for the application to be
processed, the Board will permit the new entity to operate under the prior
provider's license until a new license is issued. A stock transfer is deemed
to be a change of ownership with respect to a Home Health Care agency license
in California. The home health agency change of ownership process generally is
not anticipated to take more than 30 days.
North Carolina. The Department of Human Resources does not consider the
transfer of corporate stock to be a change of ownership for licensure purposes
in the case of licensed nursing homes and thus no notice or change of
ownership application must be filed. However, the Board of Pharmacy will treat
a stock transfer as a change of ownership and will require the submission of a
transfer application which generally takes no more than one month to process
and for a new license to be issued by the Board of Pharmacy. The Board of
Pharmacy will permit the new applicant to operate under the current owner's
license until the transfer approval has been granted.
Ohio. The Ohio licensure requirements provide that health care facilities
must provide notice of changes in ownership to the Department of Health.
However, Ohio does not consider the transfer of corporate stock where there is
no change in the provider to be a change of ownership for nursing home
licensure and thus no notice or change of ownership application must be filed.
As a general rule, if a transaction is not considered to be a change of
ownership for licensure purposes, it will not be considered to be one for
purposes of Medicaid certification either. In addition, although there is a
CON law in effect in Ohio that is applicable to nursing homes, a transfer of
corporate stock is not subject to CON review. A certificate of need is not
needed for the acquisition or merger of an existing health care facility that
does not involve a change in the number of beds or in the number or type of
service. However, a notice of intent is required to be filed with the Ohio
Department of Health ("OHDOH") and the health service agency designated for
the health service area in which the activity will be conducted. The Ohio
Medical Assistance regulations require long term care providers to notify the
OHDOH at least 45 days prior to the effective date of certain changes
including any contract of sale. The Board of Pharmacy will require a change of
ownership application to be filed and will schedule a survey of the pharmacy
within 7-10 days after the receipt of the application. Provided no objections
are raised by any other regulatory agency having authority over the pharmacy,
the Board of Pharmacy will permit the new applicant to operate under the
current license until its application has been approved. In Ohio, home health
agencies are licensed or certified to participate in Medicare and Medicaid,
and thus a stock transfer may be subject to regulatory review.
Tennessee. The Department of Health does not consider the transfer of
corporate stock to be a change of ownership for licensure or Medicaid
certification purposes in the case of licensed nursing homes and institutional
homes for the aged and thus no notice or change of ownership application must
be filed. In addition, although there is a CON law in effect in Ohio, a
transfer of corporate stock is not subject to CON review. However, the Board
of Pharmacy may not treat a stock transfer as a change of ownership. However,
they reserve the right to make a final determination upon the submission of a
written request for review.
34
<PAGE>
West Virginia. The West Virginia long term care facility licensure standards
provide that, in the case of a transfer of ownership, the proposed new owner
must file an application with the West Virginia Department of Health and Human
Resources ("WVaDHHR") no more than 90 nor later than 30 days before the
proposed transfer date. Thereafter, the WVaDHHR is required to issue or deny
the license within three months of proof of the transfer of ownership is
submitted. During the time period between the application and the
determination of the WVaDHHR, the pending application serves as a license.
West Virginia CON laws prohibit the transfer of ownership of a long term care
facility without first obtaining CON approval. West Virginia's Health Care
Cost Review Authority recently concluded that a stock transfer which does not
change the provider or have any effect on the administrators, key management
staff or licensure status of the facilities located in West Virginia is
reviewable under West Virginia's CON law but that no substantive review is
required if appropriate financial information is submitted with respect to the
acquiring entity. Accordingly, CON approval of a stock transfer was recently
granted within less than one month after the receipt of a request therefor.
Rehabilitation Services. As a general rule, rehabilitation therapy companies
are not licensed under state law or certified to participate in the Medicare
or Medicaid programs and thus a transfer of ownership affecting such entities
does not require regulatory review or approval.
Margin Credit Regulations. Federal Reserve Board Regulations G, T, U and X
(the "Margin Credit Regulations") restrict the extension or maintenance of
credit for the purpose of buying or carrying margin stock, including the
Shares, if the credit is secured directly or indirectly thereby. Such secured
credit may not be extended or maintained in an amount that exceeds the maximum
loan value of the margin stock. Under the Margin Credit Regulations, the
Shares are presently margin stock and the maximum loan value thereof is
generally 50% of their current market value. The definition of "indirectly
secured" contained in the Margin Credit Regulations provides that the term
does not include an arrangement with a customer if the lender in good faith
has not relied upon margin stock as collateral in extending or maintaining the
particular credit.
16. Fees and Expenses. Except as set forth below, Purchaser will not pay any
fees or commissions to any broker, dealer or other person for soliciting
tenders of Shares pursuant to the Offer.
Schroders is acting as Dealer Manager in connection with the Offer and has
provided certain financial advisory services in connection with the
acquisition of the Company. Parent has agreed to pay Schroders the following
fees:
(A) a fee of $250,000, contingent upon and payable in cash upon the
issuance and delivery of Schroders' opinion (the "Opinion") to the
Board of Directors of Parent as to whether or not the financial
consideration to be paid by Purchaser pursuant to the Offer and the
Merger is fair from a financial point of view to Purchaser and Parent;
(B) a fee of $250,000, contingent upon and payable in cash upon the public
announcement by Purchaser of the Offer;
(C) an additional fee (the "Transaction Fee") equal to 1.0% of the total
consideration paid in the Offer and the Merger, payable in cash upon
the closing of such Offer and Merger (such amount will be computed on
the assumption that all the then-outstanding shares of capital stock of
the Company on a fully diluted basis (including stock options) are
acquired in the Offer and the Merger at a price per share equal to the
highest price paid per share of capital stock in the Offer and the
Merger). Any fees previously paid to Schroders pursuant to clauses (A)
and (B) above shall be deducted from any Transaction Fee which
Schroders is entitled to receive pursuant to this clause (C).
Parent has also agreed to reimburse Schroders, whether or not the Offer or
Merger is consummated, or any Opinion is rendered for all reasonable out-of-
pocket expenses incurred by Schroders, including the reasonable fees and
expenses of legal counsel (such fees and expenses not to exceed $50,000
without the consent of Purchaser or Parent), and to indemnify Schroders
against certain liabilities and expenses in connection with its engagement,
including certain liabilities under the federal securities laws.
35
<PAGE>
Purchaser and Parent have retained Innisfree M&A Incorporated ("Innisfree")
and Morrow & Co., Inc. ("Morrow"), as the Information Agents, and ChaseMellon
Shareholder Services, L.L.C., as the Depositary, in connection with the Offer.
The Information Agents may contact holders of Shares by mail, telephone,
telex, telecopy, telegraph and personal interview and may request banks,
brokers, dealers and other nominee stockholders to forward materials relating
to the Offer to beneficial owners.
As compensation for acting as Information Agents in connection with the
Offer, Innisfree and Morrow will be paid a fee of $10,000 in the aggregate and
will also be reimbursed for certain out-of-pocket expenses and may be
indemnified against certain liabilities and expenses in connection with the
Offer, including certain liabilities under the federal securities laws.
Purchaser will pay the Depositary reasonable and customary compensation for
its services in connection with the Offer, plus reimbursement for out-of-
pocket expenses, and will indemnify the Depositary against certain liabilities
and expenses in connection therewith, including under federal securities laws.
Brokers, dealers, commercial banks and trust companies will be reimbursed by
Purchaser for customary handling and mailing expenses incurred by them in
forwarding material to their customers.
17. Miscellaneous. Purchaser is not aware of any jurisdiction where the
making of the Offer is prohibited by any administrative or judicial action
pursuant to any valid state statute. If Purchaser becomes aware of any valid
state statute prohibiting the making of the Offer or the acceptance of Shares
pursuant thereto, Purchaser will make a good faith effort to comply with any
such state statute. If, after such good faith effort, Purchaser cannot comply
with any such state statute, the Offer will not be made to (nor will tenders
be accepted from or on behalf of) the holders of Shares in such state. In any
jurisdiction where the securities, blue sky or other laws require the Offer to
be made by a licensed broker or dealer, the Offer shall be deemed to be made
on behalf of Purchaser by the Dealer Manager or by one or more registered
brokers or dealers licensed under the laws of such jurisdiction.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF PURCHASER OR THE COMPANY NOT CONTAINED IN THIS
OFFER TO PURCHASE OR IN THE LETTER OF TRANSMITTAL, AND IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED.
Pursuant to Rule 14d-3 of the General Rules and Regulations under the
Exchange Act, Parent and Purchaser have filed with the SEC the Schedule 14D-1,
together with exhibits, furnishing certain additional information with respect
to the Offer. The Schedule 14D-1 and any amendments thereto, including
exhibits, may be inspected at, and copies may be obtained from, the same
places and in the same manner as set forth in Section 7 (except that they will
not be available at the regional offices of the SEC).
Sunreg Acquisition Corp.
August 1, 1997
36
<PAGE>
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF
PARENT AND PURCHASER
1. Directors and Executive Officers of Parent. The following table sets
forth the name, current business address, citizenship and present principal
occupation or employment, and material occupations, positions, offices or
employments and business addresses thereof for the past five years of each
director and executive officer of Parent. Unless otherwise indicated, the
current business address of each person is 101 Sun Lane NE, Albuquerque, New
Mexico 87109. Each such person is a citizen of the United States of America
and, unless otherwise indicated, has held his or her present position as set
forth below for the past five years. Unless otherwise indicated, each
occupation set forth opposite an individual's name refers to employment with
Parent.
<TABLE>
<CAPTION>
Present Principal Occupation or Employment;
Name, Citizenship and Material Positions Held During the Past Five
Current Business Address Years and Business Addresses Thereof
------------------------ --------------------------------------------
DIRECTORS
---------
<C> <S>
1. Andrew L. Turner Mr. Turner is the Chairman of the Board of Directors,
President and Chief Executive Officer.
2. John E. Bingaman Mr. Bingaman has been the Vice President of BKS
Properties, since July 1993. From July 1993 to October
BKS Properties 1, 1994, Mr. Bingaman was also the President of Four
120 East Sheridan Seasons Healthcare Management, Inc., a subsidiary of
Oklahoma City, Oklahoma Parent that managed certain long-term care facilities
73104 through management contracts. From October 1, 1994, to
July 12, 1996, Mr. Bingaman also served as a consultant
to Parent. Between 1984 and July 1993, Mr. Bingaman was
Chief Executive Officer and responsible for the overall
management and strategic planning of Honorcare
Corporation, a provider of long-term care services.
3. Zev Karkomi Mr. Karkomi has served as President of Karell Capital
Ventures, Inc., a corporation involved in the
Karell Capital Ventures, Inc. acquisition, sale, leasing and management of longterm
2 North LaSalle St.-Suite 1901 care facilities, since 1980.
Chicago, Illinois 60602
4. Robert A. Levin Mr. Levin has been the Senior Vice President of
Rehabilitation Services since January 1, 1996. From
April 1993 to October 1996, Mr. Levin served as
Secretary. From January 1991 to December 1995, Mr.
Levin was the President and Chief Operating Officer of
Sundance Rehabilitation Corp., a subsidiary of Parent.
5. Martin G. Mand Mr. Mand has been Chairman, President and Chief
Executive Officer of Mand Associates, Limited, a
618 Berwick Road, Eldenridge financial consulting, speaking and writing firm, since
Wilmington, Delaware 19803 January 1995. From March 1990 to June 1994, Mr. Mand
was Executive Vice President and Chief Financial
Officer of Northern Telecom, Ltd., a global
manufacturer of telecommunications equipment.
6. Warren C. Schelling Mr. Schelling has been the Senior Vice President of
Pharmaceutical Services since January 1, 1996. From
July 1994 to December 1995, Mr. Schelling was the
President of Sunscript Pharmacy Corporation. From
January 1993 to July 1994, Mr. Schelling was the
President and Chief Operating
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
Present Principal Occupation or Employment;
Name, Citizenship and Material Positions Held During the Past Five
Current Business Address Years and Business Addresses Thereof
------------------------ --------------------------------------------
DIRECTORS
---------
<C> <S>
Officer of HPI Health Care Services, Inc., a subsidiary
of Diagnostek, Inc., which provides pharmacy management
services to hospitals, HMOs and long-term care
facilities and health systems. From January 1994 to July
1994, Mr. Schelling also served as Executive Vice
President/Pharmacy Services Officer of Diagnostek, Inc.
From September 1985 to January 1993, Mr. Schelling was a
manager in HPI Health Care Services, Inc.
7. Lois E. Silverman Ms. Silverman has served as the Chairman of the Board
since March 1994, and the Chief Executive Officer from
312 Wharf Street 1988 to 1995, of CRA Managed Care, Inc., a provider of
Boston, Massachusetts services designed to reduce the costs associated with
02109 workers' compensation, automobile and disability claims.
8. James R. Tolbert, III Mr. Tolbert has served as the Chairman, President, Chief
Executive Officer and Treasurer of First Oklahoma
First Oklahoma Corporation Corporation, a holding company, since July 1986.
116 East Sheriden
Oklahoma City, Oklahoma
73104
9. Mark G. Wimer Mr. Wimer has been the Senior Vice President for
Inpatient Services since January 1, 1996. From July 1993
to December 1995, Mr. Wimer served as the President of
Sunrise Healthcare Corp., a subsidiary of Parent. From
February 1988 to July 1993, Mr. Wimer was President and
Chief Executive Officer of Franciscan Eldercare
Corporation, a non-profit organization that develops and
manages long-term care facilities.
10. Robert D. Woltil Mr. Woltil has been the Senior Vice President for
Financial Services and Chief Financial Officer since
February 1996. From 1982 to January 1996, Mr. Woltil
served in various capacities for Beverly Enterprises,
Inc. ("Beverly"), a healthcare services provider. From
May 1995 to January 1996, Mr. Woltil was President and
Chief Executive Officer of Pharmacy Corporation of
America, a subsidiary of Beverly. From 1992 to May 1995,
Mr. Woltil was the Chief Financial Officer of Beverly.
11. R. James Woolsey Mr. Woolsey has been a partner in the law firm of Shea &
Gardner since January 1995, where he previously had been
Shea & Gardner a partner from 1980 to 1989 and from 1991 to 1993. From
1800 Massachusetts Ave. 1993 to 1995, Mr. Woolsey served as the Director of
Washington, D.C. 20036 Central Intelligence for the United States of America.
<CAPTION>
EXECUTIVE OFFICERS
------------------
<C> <S>
1. Andrew L. Turner Chairman of the Board, President and Chief Executive
Officer. For further information, see above.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Present Principal Occupation or Employment;
Name, Citizenship and Material Positions Held During the Past Five
Current Business Address Years and Business Addresses Thereof
------------------------ --------------------------------------------
EXECUTIVE OFFICERS
------------------
<C> <S>
2. Julie Collins Ms. Collins has been the Senior Vice President for
Administrative Services since January 1, 1996. From
September 1994 to December 1995, Ms. Collins was the
Vice President of Human Resources. From 1993 to 1994,
Ms. Collins was the Vice President of Human Resources
and Support Services for St. Joseph Health System.
3. Thomas Hamilton Mr. Hamilton is the Chairman and Chief Executive
Officer of Ashbourne PLC.
Ashbourne PLC
Sun House
5P West Regent Street
Glascow, G2 2Q2,
Scotland
Citizen of Great
Britain
4. Robert A. Levin Senior Vice President for Rehabilitation Services. For
further information, see above.
5. Warren H. McInteer Mr. McInteer has been the Vice President of Mergers &
Acquisitions since August 1995 and Treasurer since June
1996. From June 1993 to August 1995, Mr. McInteer was
the Vice President of Financial Planning for
Continental Medical Systems, Inc. ("Continental"). From
January 1992 to June 1993, Mr. McInteer was a Senior
Manager for Price Waterhouse LLP.
6. Robert F. Murphy Mr. Murphy has been Senior Vice President and General
Counsel since November 1995 and Secretary since October
1996. From 1986 to 1995, Mr. Murphy served in several
capacities as an officer and legal counsel to FHP
International Corporation, most recently as Vice
President and Associate General Counsel.
7. Kevin C. Noonan Mr. Noonan has been the Senior Vice President for
SunSolution since July 1997. From June 1994 to June
1997, Mr. Noonan was Vice President--Managed Care, Inc.
Ventures and Alliances for Manor Health Care Services,
Inc. From January 1992 to May 1994, Mr. Noonan was Vice
President--Western Operations for Option Care, Inc.
8. Warren C. Schelling Senior Vice President for Pharmaceutical Services. For
further information, see above.
9. William C. Warrick Mr. Warrick has been Vice President, Corporate
Controller since March 1994. From July 1991 to March
1994, Mr. Warrick directed financial reporting for
Continental.
10. Mark G. Wimer Senior Vice President for Inpatient Services. For
further information, see above.
11. Robert D. Woltil Senior Vice President for Financial Services and Chief
Financial Officer. For further information, see above.
</TABLE>
3
<PAGE>
2. Directors and Executive Officers of Purchaser. The following table sets
forth the name, current business address, citizenship and present principal
occupation or employment, and material occupations, positions, offices or
employments and business addresses thereof for the past five years of each
director and executive officer of Purchaser. The current business address of
each person is 101 Sun Lane, NE, Albuquerque, New Mexico 87109. Each such
person is a citizen of the United States of America.
<TABLE>
<CAPTION>
Present Principal Occupation or Employment;
Material Positions Held During the Past Five
Name, Positions with Purchaser Years and Business Addresses Thereof
------------------------------ --------------------------------------------
<C> <S>
1. Andrew L. Turner, Chairman and President See above.
2. Robert D. Woltil, Director, Vice President and Treasurer See above.
3. Robert F. Murphy, Director, Vice President and Secretary See above.
</TABLE>
4
<PAGE>
Facsimiles of the Letter of Transmittal will be accepted. The Letter of
Transmittal and certificates evidencing Shares and any other required
documents should be sent or delivered by each stockholder or his broker,
dealer, commercial bank, trust company or other nominee to the Depositary at
one of its addresses set forth below.
The Depositary for the Offer is:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
By Mail: By Facsimile: By Hand:
ChaseMellon Shareholder (201) 329-8936 ChaseMellon Shareholder
Services, L.L.C. Services, L.L.C.
Post Office Box 3301 120 Broadway-13th Floor
South Hackensack, NJ New York, NY 10271
07606 Attn: Reorganization
Attn: Reorganization Department
Department
By Overnight Courier: Confirm by Telephone:
ChaseMellon Shareholder (201) 296-4860
Services, L.L.C.
85 Challenger Road
Mail Drop Reorganization
Department
Ridgefield Park, NJ 07660
Questions or requests for assistance may be directed to the Information
Agents or the Dealer Manager at their respective addresses and telephone
numbers listed below. Additional copies of this Offer to Purchase, the Letter
of Transmittal and the Notice of Guaranteed Delivery may be obtained from the
Information Agents. A stockholder may also contact brokers, dealers,
commercial banks or trust companies for assistance concerning the Offer.
The Information Agents for the Offer are:
INNISFREE M&A INCORPORATED MORROW & CO., INC.
909 Third Avenue, 20th Floor
New York, NY 10022
Call Toll Free: (800) 566-9061
Banks and Brokers Call: (800) 662-5200
The Dealer Manager for the Offer is:
SCHRODER & CO. INC.
Equitable Center
787 Seventh Avenue
New York, New York 10019
Phone: (212) 492-6000 (Call Collect)
<PAGE>
EXHIBIT (a)(2)
LETTER OF TRANSMITTAL
TO TENDER SHARES OF COMMON STOCK
OF
REGENCY HEALTH SERVICES, INC.
PURSUANT TO THE OFFER TO PURCHASE DATED AUGUST 1, 1997
OF
SUNREG ACQUISITION CORP.,
A WHOLLY OWNED SUBSIDIARY OF
SUN HEALTHCARE GROUP, INC.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00
MIDNIGHT, NEW YORK CITY TIME, ON SEPTEMBER 15, 1997,
UNLESS THE OFFER IS EXTENDED.
The Depositary for the Offer is:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
By Mail: By Facsimile Transmission: By Hand:
ChaseMellon Shareholder (201) 329-8936 ChaseMellon Shareholder
Services, L.L.C. Services, L.L.C.
Post Office Box 3301 120 Broadway-13th Floor
South Hackensack, NJ New York, NY 10271
07606 Attn: Reorganization
Attn: Reorganization Department
Department
By Overnight Courier: Confirm by Telephone:
ChaseMellon Shareholder (201) 296-4860
Services, L.L.C.
85 Challenger Road
Mail Drop Reorganization
Department
Ridgefield Park, NJ 07660
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER
THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS
VIA FACSIMILE TRANSMISSION OTHER THAN AS SET FORTH
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL
SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF
TRANSMITTAL IS COMPLETED.
<PAGE>
This Letter of Transmittal is to be completed by stockholders either if
certificates evidencing Shares (as defined below) are to be forwarded herewith
or, unless an Agent's Message (as defined in the Offer to Purchase) is
utilized, if delivery of Shares is to be made by book-entry transfer to the
Depositary's account at The Depository Trust Company ("DTC"), the Midwest
Securities Trust Company ("MSTC") or the Philadelphia Depository Trust Company
("PDTC") (each a "Book-Entry Transfer Facility" and collectively, the "Book-
Entry Transfer Facilities") pursuant to the book-entry transfer procedure
described in Section 3 of the Offer to Purchase (as defined below). DELIVERY
OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO
THE DEPOSITARY.
Stockholders whose certificates evidencing Shares ("Share Certificates") are
not immediately available or who cannot deliver their Share Certificates and
all other documents required hereby to the Depositary prior to the Expiration
Date (as defined in Section 1 of the Offer to Purchase) or who cannot complete
the procedure for delivery by book-entry transfer on a timely basis and who
wish to tender their Shares must do so pursuant to the guaranteed delivery
procedure described in Section 3 of the Offer to Purchase. See Instruction 2.
[_]CHECK HERE IF SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO THE
DEPOSITARY'S ACCOUNT AT ONE OF THE BOOK-ENTRY TRANSFER FACILITIES AND
COMPLETE THE FOLLOWING:
Name of Tendering Institution: _____________________________________________
Check Box of Applicable Book-Entry Transfer Facility:
(check one) [_]DTC [_]MSTC [_]PDTC
Account Number: ____________________________________________________________
Transaction Code Number: ___________________________________________________
[_]CHECK HERE IF SHARES ARE BEING TENDERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s): ___________________________________________
Window Ticket No. (if any): ________________________________________________
Date of Execution of Notice of Guaranteed Delivery:_________________________
Name of Institution which Guaranteed Delivery: _____________________________
2
<PAGE>
DESCRIPTION OF SHARES TENDERED
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NAME(S) AND ADDRESS(ES) OF
REGISTERED HOLDER(S)
(PLEASE FILL IN, IF BLANK, EXACTLY SHARE CERTIFICATE(S)
AS NAME(S) AND SHARES TENDERED
APPEAR(S) ON SHARE CERTIFICATE(S)) (ATTACH ADDITIONAL LIST, IF NECESSARY)
- -------------------------------------------------------------------------------
SHARE TOTAL NUMBER OF NUMBER OF
CERTIFICATE SHARES EVIDENCED SHARES
NUMBER(S)* BY SHARE CERTIFICATE(S)* TENDERED**
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
TOTAL SHARES:
</TABLE>
- -------------------------------------------------------------------------------
* Need not be completed by stockholders delivering Shares by book-entry
transfer.
** Unless otherwise indicated, it will be assumed that all Shares evidenced
by each Share Certificate delivered to the Depositary are being tendered
hereby. See Instruction 4.
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
Ladies and Gentlemen:
The undersigned hereby tenders to Sunreg Acquisition Corp., a corporation
organized and existing under the laws of the State of Delaware ("Purchaser")
and a wholly owned subsidiary of Sun Healthcare Group, Inc., a corporation
organized and existing under the laws of the State of Delaware, the above-
described shares of common stock, par value $.01 per share (the "Shares"), of
Regency Health Services, Inc. a corporation organized and existing under the
laws of the State of Delaware (the "Company"), pursuant to Purchaser's offer
to purchase all Shares, at $22.00 per Share, net to the seller in cash, upon
the terms and subject to the conditions set forth in the Offer to Purchase,
dated August 1, 1997 (the "Offer to Purchase"), receipt of which is hereby
acknowledged, and in this Letter of Transmittal (which together constitute the
"Offer"). The undersigned understands that Purchaser reserves the right to
transfer or assign, in whole or from time to time in part, to one or more of
its affiliates, the right to purchase all or any portion of the Shares
tendered pursuant to the Offer.
Subject to, and effective upon, acceptance for payment of the Shares
tendered herewith, in accordance with the terms of the Offer, the undersigned
hereby sells, assigns and transfers to, or upon the order of, Purchaser all
right, title and interest in and to all the Shares that are being tendered
hereby and all dividends, distributions (including, without limitation,
distributions of additional Shares) and rights declared, paid or distributed
in respect of such Shares on or after August 1, 1997 (collectively,
"Distributions") and irrevocably appoints the Depositary the true and lawful
agent and attorney-in-fact of the undersigned with respect to such Shares and
all Distributions, with full power of substitution (such power of attorney
being deemed to be an irrevocable power coupled with an interest), to (i)
deliver Share Certificates evidencing such Shares and all Distributions, or
transfer ownership of such Shares and all Distributions on the account books
maintained by a Book-Entry Transfer Facility, together, in either case, with
all accompanying evidences of transfer and authenticity, to or upon the order
of Purchaser, (ii) present such Shares and all Distributions for transfer on
the books of the Company and
3
<PAGE>
(iii) receive all benefits and otherwise exercise all rights of beneficial
ownership of such Shares and all Distributions, all in accordance with the
terms of the Offer.
The undersigned hereby irrevocably appoints Andrew Turner, Robert Woltil and
Robert Murphy, and each of them, as the attorneys and proxies of the
undersigned, each with full power of substitution, to vote in such manner as
each such attorney and proxy or his substitute shall, in his sole discretion,
deem proper and otherwise act (by written consent or otherwise) with respect
to al the Shares tendered hereby which have been accepted for payment by
Purchaser prior to the time of such vote or other action and all Shares and
other securities issued in Distributions in respect of such Shares, which the
undersigned is entitled to vote at any meeting of stockholders of the Company
(whether annual or special and whether or not an adjourned or postponed
meeting) or consent in lieu of any such meeting or otherwise. This proxy and
power of attorney is coupled with an interest in the Shares tendered hereby,
is irrevocable and is granted in consideration of, and is effective upon, the
acceptance for payment of such Shares by Purchaser in accordance with other
terms of the Offer. Such acceptance for payment shall revoke all other proxies
and powers of attorney granted by the undersigned at any time with respect to
such Shares (and all Shares and other securities issued in Distributions in
respect of such Shares), and no subsequent proxy or power of attorney shall be
given or written consent executed (and if given or executed, shall not be
effective) by the undersigned with respect thereto. The undersigned
understands that, in order for Shares to be deemed validly tendered,
immediately upon Purchaser's acceptance of such Shares for payment, Purchaser
must be able to exercise full voting and other rights with respect to such
Shares and all Distributions, including, without limitation, voting at any
meeting of the Company's stockholders then scheduled.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Shares tendered
hereby and all Distributions, and that when such Shares are accepted for
payment by Purchaser, Purchaser will acquire good, marketable and unencumbered
title thereto and to all Distributions, free and clear of all liens,
restrictions, charges and encumbrances, and that none of such Shares and
Distributions will be subject to any adverse claim. The undersigned, upon
request, shall execute and deliver all additional documents deemed by the
Depositary or Purchaser to be necessary or desirable to complete the sale,
assignment and transfer of the Shares tendered hereby and all Distributions.
In addition, the undersigned shall remit and transfer promptly to the
Depositary for the account of Purchaser all Distributions in respect of the
Shares tendered hereby, accompanied by appropriate documentation of transfer,
and, pending such remittance and transfer or appropriate assurance thereof,
Purchaser shall be entitled to all rights and privileges as owner of each such
Distribution and may withhold the entire purchase price of the Shares tendered
hereby, or deduct from such purchaser price, the amount or value of such
Distribution as determined by Purchaser in its sole discretion.
No authority herein conferred or agreed to be conferred shall be affected
by, and all such authority shall survive, the death or incapacity of the
undersigned. All obligations of the undersigned hereunder shall be binding
upon the heirs, personal representatives, successors and assigns of the
undersigned. Except as stated in the Offer to Purchase, this tender is
irrevocable.
The undersigned understands that tenders of Shares pursuant to any one of
the procedures described in Section 3 of the Offer to Purchase and in the
instructions hereto will constitute the undersigned's acceptance of the terms
and conditions of the Offer. Purchaser's acceptance of such Shares for payment
will constitute a binding agreement between the undersigned and Purchaser upon
the terms and subject to the conditions of the Offer.
Unless otherwise indicated herein in the box entitled "Special Payment
Instructions", please issue the check for the purchase price of all Shares
purchased, and return all Share Certificates evidencing Shares not purchased
or not tendered in the name(s) of the registered holder(s) appearing above
under "Description of Shares Tendered". Similarly, unless otherwise indicated
in the box entitled "Special Delivery Instructions", please mail the check for
the purchase price of all Shares purchased and all Share Certificates
evidencing Shares not tendered or not purchased (and accompanying documents,
as appropriate) to the address(es) of the registered holder(s) appearing above
under "Description of Shares Tendered". In the event that the boxes entitled
"Special Payment Instructions" and "Special Delivery Instructions" are both
completed, please issue the check for the purchase
4
<PAGE>
price of all Shares purchased and return all Share Certificates evidencing
Shares not purchased or not tendered in the name(s) of, and mail such check
and Share Certificates to, the person(s) so indicated. Unless otherwise
indicated herein in the box entitled "Special Payment Instructions", please
credit any Shares tendered hereby and delivered by book-entry transfer, but
which are not purchased by crediting the account at the Book-Entry Transfer
Facility designated above. The undersigned recognizes that Purchaser has no
obligation, pursuant to the Special Payment Instructions, to transfer any
Shares from the name of the registered holder(s) thereof if Purchaser does not
purchase any of the Shares tendered hereby.
SPECIAL PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 1, 5, 6 and 7) (See Instructions 1, 5, 6 and 7)
To be completed ONLY if the check To be completed ONLY if the check
for the purchase price of Shares or for the purchase price of Shares
Share Certificates evidencing purchased or Share Certificates
Shares not tendered or not evidencing Shares not tendered or
purchased to be issued in the name not purchased are to be mailed to
of someone other than the someone other than the undersigned,
undersigned, or if Shares tendered or the undersigned at an address
hereby and delivered by book-entry other than that shown under
transfer which are not purchased "Description of Shares Tendered."
are to be returned by credit to an
account at one of the Book-Entry
Transfer Facilities other than that
designated above.
Mail check and/or certificate(s)
to:
Name: ______________________________
Issue check and/or certificate(s) (Please Print)
to: Address: ___________________________
____________________________________
Name: ______________________________ ____________________________________
(Please Print) (Include Zip Code)
Address: ___________________________
____________________________________
____________________________________
(Include Zip Code)
____________________________________
Taxpayer identification or Social
Security Number (See Substitute
Form W-9 on reverse side)
[_]Credit Shares delivered by book-
entry transfer and not purchased
to the account set forth below:
[_]The Depository Trust Company
[_]Midwest Securities Trust Company
[_]Philadelphia Depository Trust
Company
____________________________________
(Account Number)
5
<PAGE>
IMPORTANT
STOCKHOLDER(S): SIGN HERE
(Please Complete Substitute From W-9 on Reverse)
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Signature(s) of Holder(s)
Dated:_________________, 199__
(Must be signed by registered holder(s) exactly as name(s) appear(s) on
Share Certificates or on a security position listing by a person(s)
authorized to become registered holder(s) by certificates and documents
transmitted herewith. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer of a corporation or other person acting
in a fiduciary or representative capacity, please provide the following
information and see Instruction 5).
Name(s): ____________________________________________________________________
-----------------------------------------------------------------------------
Please Print
Capacity: ___________________________________________________________________
Please Provide Full Title
Address: ____________________________________________________________________
-----------------------------------------------------------------------------
Include Zip Code
Telephone No.: ______________________________________________________________
Include Area Code
Taxpayer Identification or
Social Security Number: _____________________________________________________
See Substitute Form W-9 on Reverse Side
GUARANTEE OF SIGNATURES
(If Required--See Instructions 1 and 5)
SPACE BELOW IS FOR USE BY FINANCIAL INSTITUTIONS ONLY.
FINANCIAL INSTITUTIONS: PLACE MEDALLION GUARANTEE IN SPACE PROVIDED BELOW.
6
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Offer
1. Guarantee of Signatures. All signatures on this Letter of Transmittal
must be medallion guaranteed by a firm which is a member of the Medallion
Signature Guarantee Program, or by any other "eligible guarantor institution",
as such term is defined in Rule 17Ad-15 under the Securities Exchange Act of
1934, as amended (each of the foregoing being referred to as an "Eligible
Institution") unless (i) this Letter of Transmittal is signed by the
registered holder(s) of the Shares (which term, for purposes of this document,
shall include any participant in a Book-Entry Transfer Facility whose name
appears on a security position listing as the owner of Shares) tendered hereby
and such holder(s) has (have) completed neither the box entitled "Special
Payment Instructions" nor the box entitled "Special Delivery Instructions" on
the reverse hereof or (ii) such Shares are tendered for the account of an
Eligible Institution. See Instruction 5.
2. Delivery of Letter of Transmittal and Share Certificates. This Letter of
Transmittal is to be used either if Share Certificates are to be forwarded
herewith or, unless an Agent's Message (as defined in the Offer to Purchase)
is utilized, if Shares are to be delivered by book-entry transfer pursuant to
the procedure set forth in Section 3 of the Offer to Purchase. Share
Certificates evidencing all physically tendered Shares, or a confirmation of a
book-entry transfer into the Depositary's account at a Book-Entry Transfer
Facility of all Shares delivered by book-entry transfer as well as a properly
completed and duly executed Letter of Transmittal (or facsimile thereof), with
any required signature guarantees, or an Agent's Message in the case of a
book-entry delivery, and any other documents required by this Letter of
Transmittal, must be received by the Depositary at one of its addresses set
forth on the reverse hereof prior to the Expiration Date (as defined in
Section 1 of the Offer to Purchase). If Share Certificates are forwarded to
the Depositary in multiple deliveries, a properly completed and duly executed
Letter of Transmittal must accompany each such delivery. Stockholders whose
Share Certificates are not immediately available, who cannot deliver their
Share Certificates and all other required documents to the Depositary prior to
the Expiration Date or who cannot complete the procedure for delivery by book-
entry transfer on a timely basis may tender their Shares pursuant to the
guaranteed delivery procedure described in Section 3 of the Offer to Purchase.
Pursuant to such procedure (i) such tender must be made by or through an
Eligible Institution; (ii) a properly completed and duly executed Notice of
Guaranteed Delivery, substantially in the form made available by Purchaser,
must be received by the Depositary prior to the Expiration Date; and (iii) the
Share Certificates evidencing all physically delivered Shares in proper form
for transfer by delivery, or a confirmation of a book-entry transfer into the
Depositary's account at a Book-Entry Transfer Facility of all Shares delivered
by book-entry transfer, in each case together with a Letter of Transmittal (or
a facsimile thereof), properly completed and duly executed, with any required
signature guarantees (or, in the case of book-entry delivery, an Agent's
Message), and any other documents required by this Letter of Transmittal, must
be received by the Depositary within three New York Stock Exchange trading
days after the date of execution of such Notice of Guaranteed Delivery, all as
described in Section 3 of the Offer to Purchase.
The method of delivery of this Letter of Transmittal, Share Certificates and
all other required documents, including delivery through any Book-Entry
Transfer Facility, is at the option and risk of the tendering stockholder, and
the delivery will be deemed made only when actually received by the
Depositary. If delivery is by mail, registered mail with return receipt
requested, properly insured, is recommended. In all cases, sufficient time
should be allowed to ensure timely delivery.
No alternative, conditional or contingent tenders will be accepted and no
fractional Shares will be purchased. By execution of this Letter of
Transmittal (or a facsimile hereof), all tendering stockholders waive any
right to receive any notice of the acceptance of their Shares for payment.
3. Inadequate Space. If the space provided herein under "Description of
Shares Tendered" is inadequate, the Share Certificate numbers, the number of
Shares evidenced by such Share Certificates and the number of Shares tendered
should be listed on a separate schedule and attached hereto.
7
<PAGE>
4. Partial Tenders (not applicable to stockholders who tender by book-entry
transfer). If fewer than all the Shares evidenced by any Share Certificate
delivered to the Depositary herewith are to be tendered hereby, fill in the
number of Shares which are to be tendered in the box entitled "Number of
Shares Tendered". In such cases, new Share Certificate(s) evidencing the
remainder of the Shares that were evidenced by the Share Certificates
delivered to the Depositary herewith will be sent to the person(s) signing
this Letter of Transmittal, unless otherwise provided in the box entitled
"Special Delivery Instructions" on the reverse hereof, as soon as practicable
after the expiration or termination of the Offer. All Shares evidenced by
Share Certificates delivered to the Depositary will be deemed to have been
tendered unless otherwise indicated.
5. Signatures on Letter of Transmittal; Stock Powers and Endorsements. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signature(s) must correspond with the name(s) as written
on the face of the Share Certificates evidencing such Shares without
alteration, enlargement or any other change whatsoever.
If any Share tendered hereby is owned of record by two or more persons, all
such persons must sign this Letter of Transmittal.
If any of the Shares tendered hereby are registered in the names of
different holders, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal as there are different registrations of such
Shares.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares tendered hereby, no endorsements of Share Certificates or separate
stock powers are required, unless payment is to be made to, or Share
Certificates evidencing Shares not tendered or not purchased are to be issued
in the name of, a person other than the registered holder(s), in which case,
the Share Certificate(s) evidencing the Shares tendered hereby must be
endorsed or accompanied by appropriate stock powers, in either case signed
exactly as the name(s) of the registered holder(s) appear(s) on such Share
Certificate(s). Signatures on such Share Certificate(s) and stock powers must
be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Shares tendered hereby, the Share Certificate(s)
evidencing the Shares tendered hereby must be endorsed or accompanied by
appropriate stock powers, in either case signed exactly as the name(s) of the
registered holder(s) appear(s) on such Share Certificate(s). Signatures on
such Share Certificate(s) and stock powers must be guaranteed by an Eligible
Institution.
If this Letter of Transmittal or any Share Certificate or stock power is
signed by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or
representative capacity, such person should so indicate when signing, and
proper evidence satisfactory to Purchaser of such person's authority so to act
must be submitted.
6. Stock Transfer Taxes. Except as otherwise provided in this Instruction 6,
Purchaser will pay all stock transfer taxes with respect to the sale and
transfer of any Shares to it or its order pursuant to the Offer. If, however,
payment of the purchase price of any Shares purchased is to be made to, or
Share Certificate(s) evidencing Shares not tendered or not purchased are to be
issued in the name of, a person other than the registered holder(s), the
amount of any stock transfer taxes (whether imposed on the registered
holder(s), such other person or otherwise) payable on account of the transfer
to such other person will be deducted from the purchase price of such Shares
purchased, unless evidence satisfactory to Purchaser of the payment of such
taxes, or exemption therefrom, is submitted. Except as provided in this
Instruction 6, it will not be necessary for transfer tax stamps to be affixed
to the Share Certificates evidencing the Shares tendered hereby.
7. Special Payment and Delivery Instructions. If a check for the purchase
price of any Shares tendered hereby is to be issued, or Share Certificate(s)
evidencing Shares not tendered or not purchased are to be issued, in the name
of a person other than the person(s) signing this Letter of Transmittal or if
such check or any such
8
<PAGE>
Share Certificate is to be sent to someone other than the person(s) signing
this Letter of Transmittal or to the person(s) signing this Letter of
Transmittal but at an address other than that shown in the box entitled
"Description of Shares Tendered" on the reverse hereof, the appropriate boxes
on the reverse of this Letter of Transmittal must be completed. Stockholders
delivering Shares tendered hereby by book-entry transfer may request that
Shares not purchased be credited to such account maintained at a Book-Entry
Transfer Facility as such stockholder may designate in the box entitled
"Special Payment Instructions" on the reverse hereof. If no such instructions
are given, all such Shares not purchased will be returned by crediting the
account at the Book-Entry Transfer Facility designated on the reverse hereof
as the account from which such Shares were delivered.
8. Questions and Requests for Assistance or Additional Copies. Questions and
requests for assistance may be directed to the Information Agents at the
address or telephone numbers set forth below. Additional copies of the Offer
to Purchase, this Letter of Transmittal and the Notice of Guaranteed Delivery
may be obtained from the Information Agents or from brokers, dealers,
commercial banks or trust companies.
9. Substitute Form W-9. Each tendering stockholder is required to provide
the Depositary with a correct Taxpayer Identification Number ("TIN") on the
Substitute Form W-9 which is provided under "Important Tax Information" below,
and to certify whether such stockholder is subject to backup withholding of
federal income tax. If a tendering stockholder has been notified by the
Internal Revenue Service that such stockholder is subject to backup
withholding, such stockholder must cross out item (2) of the Certification box
of the Substitute Form W-9, unless such stockholder has since been notified by
the Internal Revenue Service that such stockholder is no longer subject to
backup withholding. Failure to provide the information on the Substitute Form
W-9 may subject the tendering stockholder to 31% federal income tax
withholding on the payment of the purchase price of all Shares purchased from
such stockholder. If the tendering stockholder has not been issued a TIN and
has applied for one or intends to apply for one in the near future, such
stockholder should write "Applied For" in the space provided for the TIN in
Part I of the Substitute Form W-9, and sign and date the Substitute Form W-9.
If "Applied For" is written in Part I and the Depositary is not provided with
a TIN within 60 days, the Depositary will withhold 31% on all payments of the
purchase price to such stockholder until a TIN is provided to the Depositary.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE HEREOF), PROPERLY
COMPLETED AND DULY EXECUTED (TOGETHER WITH ANY REQUIRED SIGNATURE GUARANTEES,
OR AN AGENT'S MESSAGE IN THE CASE OF BOOK-ENTRY DELIVERY, AND SHARE
CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED
DOCUMENTS) OR A PROPERLY COMPLETED AND DULY EXECUTED NOTICE OF GUARANTEED
DELIVERY MUST BE RECEIVED BY THE DEPOSITARY PRIOR TO THE EXPIRATION DATE (AS
DEFINED IN THE OFFER TO PURCHASE).
9
<PAGE>
IMPORTANT TAX INFORMATION
Under the federal income tax law, a stockholder whose tendered Shares are
accepted for payment is required by law to provide the Depositary (as payer)
with such stockholder's correct TIN on Substitute Form W-9 below. If such
stockholder is an individual, the TIN is such stockholder's social security
number. If the Depositary is not provided with the correct TIN, the
stockholder may be subject to a $500 penalty imposed by the Internal Revenue
Service. In addition, payments that are made to such stockholder with respect
to Shares purchased pursuant to the Offer may be subject to backup
withholding.
Certain stockholders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, such individual must submit a an Internal Revenue Form W-8, signed
under penalties of perjury, attesting to such individual's exempt status. A
Form W-8 may be obtained from the Depositary. See the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional instructions.
If backup withholding applies, the Depositary is required to withhold 31% of
any payments made to the stockholder. Backup withholding is not an additional
tax. Rather, the tax liability of persons subject to backup withholding will
be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained from the Internal Revenue
Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to a stockholder
with respect to Shares purchased pursuant to the Offer, the stockholder is
required to notify the Depositary of such stockholder's correct TIN by
completing the form below certifying that the TIN provided on Substitute Form
W-9 is correct (or that such stockholder is awaiting a TIN), and that (i) such
stockholder has not been notified by the Internal Revenue Service that he is
subject to backup withholding as a result of a failure to report all interest
or dividends or (ii) the Internal Revenue Service has notified such
stockholder that such stockholder is no longer subject to backup withholding.
WHAT NUMBER TO GIVE THE DEPOSITARY
The stockholder is required to give the Depositary the social security
number or employer identification number of the record holder of the Shares
tendered hereby. If the Shares are in more than one name or are not in the
name of the actual owner, consult the enclosed Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9 for additional guidance
on which number to report. If the tendering stockholder has not been issued a
TIN and has applied for a number or intends to apply for a number in the near
future, the stockholder should write "Applied For" in the space provided for
the TIN in Part I, and sign and dated the Substitute Form W-9. If "Applied
For" is written in Part I and the Depositary is not provided with a TIN within
60 days, the Depositary will withhold 31% of all payments of the purchase
price to such stockholder until a TIN is provided to the Depositary.
10
<PAGE>
- --------------------------------------------------------------------------------
PAYER'S NAME: CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
- --------------------------------------------------------------------------------
PART I: Taxpayer
Identification Number--For -------------------------
all accounts, enter you TIN Social Security Number
in the box at right. (For
most individuals, this is OR ______________________
your social security Employer Identification
number. If you do not have Number
a TIN, See How to Obtain a
TIN in the enclosed
Guidelines.) Certify by
signing and dating below.
SUBSTITUTE Note: If the account is in
FORM W-9 more than one name, see the
chart in the enclosed
DEPARTMENT OF THE Guidelines to determine
TREASURY INTERNAL which number to give the (If awaiting TIN write
REVENUE SERVICE payer. "Applied For")
---------------------------------------------------------
PART II: For Payees Exempt From Backup Withholding,
see the enclosed Guidelines and complete as instructed
therein.
---------------------------------------------------------
Certification--Under the penalties of perjury, I
certify that:
(1) The number shown on this form is my correct
Taxpayer Identification Number (or I am waiting
for a number to be issued to me), and
(2) I am not subject to backup withholding because:
PAYER'S REQUEST FOR (a) I am exempt from backup withholding, (b) I
TAXPAYER have not been notified by the Internal Revenue
IDENTIFICATION Service (the "IRS") that I am subject to
NUMBER (TIN) backup withholding as a result of a failure to
report all interest or dividends, or (c) the IRS
has notified me that I am no longer subject to
backup withholding.
Certification instructions--You must cross out item
(2) above if you have been notified by the IRS that
you are subject to backup withholding because of
underreporting interest or dividends on your tax
return. However, if after being notified by the IRS
that you were subject to backup withholding you
received another notification from the IRS that you
are no longer subject to backup withholding, do not
cross out item (2). (Also see instructions in the
enclosed Guidelines.)
SIGNATURE _____________________________________________
DATE __________________________________________ , 199
- --------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. FOR ADDITIONAL
DETAILS, PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9.
11
<PAGE>
The Information Agents for the Offer are:
INNISFREE M&A INCORPORATED MORROW & CO., INC.
909 Third Avenue, 20th Floor
New York, NY 10022
Call Toll Free: (800) 566-9061
Banks and Brokers Call: (800) 662-5200
The Dealer Manager for the Offer is:
SCHRODER & CO. INC.
Equitable Center
787 Third Avenue
New York, New York 10019
Phone: (212) 492-6000 (Call Collect)
The Depositary for the Offer is:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
By Mail: By Facsimile Transmission: By Hand:
ChaseMellon Shareholder (201) 329-8936 ChaseMellon Shareholder
Services, L.L.C. Services, L.L.C.
Post Office Box 3301 120 Broadway-13th Floor
South Hackensack, NJ New York, NY 10271
07606 Attn: Reorganization
Attn: Reorganization Department
Department
By Overnight Courier: Confirm by Telephone:
ChaseMellon Shareholder (201) 296-4860
Services, L.L.C.
85 Challenger Road
Mail Drop Reorganization
Department
Ridgefield Park, NJ 07660
<PAGE>
EXHIBIT (a)(3)
NOTICE OF GUARANTEED DELIVERY
for
Tender of Shares of Common Stock
of
REGENCY HEALTH SERVICES, INC.
(Not to be Used for Signature Guarantees)
This Notice of Guaranteed Delivery, or one substantially in the form hereof,
must be used to accept the Offer (as defined below) (i) if certificates
("Share Certificates") evidencing shares of common stock, par value $.01 per
share (the "Shares"), of Regency Health Services, Inc., a corporation
organized and existing under the laws of the State of Delaware (the
"Company"), are not immediately available, (ii) if Share Certificates and all
other required documents cannot be delivered to ChaseMellon Shareholder
Services, L.L.C., as Depositary (the "Depositary"), prior to the Expiration
Date (as defined in Section 1 of the Offer to Purchase (as defined below)) or
(iii) if the procedure for delivery by book-entry transfer cannot be completed
on a timely basis. This Notice of Guaranteed Delivery may be delivered by hand
or mail or transmitted by telegram or facsimile transmission to the
Depositary. See Section 3 of the Offer to Purchase.
The Depositary for the Offer is:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
By Mail: By Facsimile Transmission: By Hand:
(201) 329-8936 ChaseMellon Shareholder
ChaseMellon Shareholder Services, L.L.C.
Services, L.L.C. 120 Broadway-13th Floor
Post Office Box 3301 New York, NY 10271
South Hackensack, NJ Attn: Reorganization
07606 Department
Attn: Reorganization
Department
By Overnight Courier: Confirm by Telephone:
(201) 296-4860
ChaseMellon Shareholder
Services, L.L.C.
85 Challenger Road
Mail Drop Reorganization
Department
Ridgefield Park, NJ 07660
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION
OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
This form is not to be used to guarantee signatures. If a signature on a
Letter of Transmittal is required to be guaranteed by an "Eligible
Institution" under the instructions thereto, such signature guarantee must
appear in the applicable space provided in the signature box on the Letter of
Transmittal.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Sunreg Acquisition Corp., a corporation
organized and existing under the laws of the State of Delaware and a wholly
owned subsidiary of Sun Healthcare Group, Inc., a corporation organized and
existing under the laws of the State of Delaware, upon the terms and subject
to the conditions set forth in the Offer to Purchase, dated August 1, 1997
(the "Offer to Purchase"), and the related Letter of Transmittal (which
together constitute the "Offer"), receipt of each of which is hereby
acknowledged, the number of Shares specified below pursuant to the guaranteed
delivery procedure described in Section 3 of the Offer to Purchase.
Number of Shares: ____________________ ______________________________________
______________________________________
Signature(s) of Holder(s)
Certificate Nos. (if available): _____ Dated: ________________________ , 199
______________________________________
Name(s) of Holder(s):
Check one box if Shares will be ______________________________________
delivered by book-entry transfer: ______________________________________
Please Type or Print
[_] The Depository Trust Company
[_] Midwest Securities Trust Company ______________________________________
[_] Philadelphia Depository Trust Address
Company
Account No.: _________________________ ______________________________________
Zip Code
______________________________________
Area Code and Telephone No.
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, a firm which is a member of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.
or which is a commercial bank or trust company having an office or
correspondent in the United States, guarantees to deliver to the Depositary,
at one of its addresses set forth above, Share Certificates evidencing the
Shares tendered hereby, in proper form for transfer, or confirmation of book-
entry transfer of such Shares into the Depositary's account at The Depository
Trust Company, the Midwest Securities Trust Company or the Philadelphia
Depository Trust Company, in each case with delivery of a Letter of
Transmittal (or facsimile thereof) properly completed and duly executed, with
any required signature guarantees or an Agent's Message (as defined in the
Offer to Purchase) in the case of a book-entry delivery, and any other
required documents, all within three New York Stock Exchange trading days of
the date hereof.
______________________________________ ______________________________________
Name of Firm Authorized Signature
______________________________________ ______________________________________
Address Title
______________________________________ Name: ________________________________
Zip Code Please Type or Print
______________________________________ Dated: ________________________ , 199
Area Code and Telephone No.
DO NOT SEND SHARE CERTIFICATES WITH THIS NOTICE.
SHARE CERTIFICATES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL.
<PAGE>
EXHIBIT (a)(4)
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
REGENCY HEALTH SERVICES, INC.
AT
$22.00 NET PER SHARE
BY
SUNREG ACQUISITION CORP.,
A WHOLLY OWNED SUBSIDIARY OF
SUN HEALTHCARE GROUP, INC.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON SEPTEMBER 15, 1997 UNLESS THE OFFER IS EXTENDED.
August 1, 1997
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
We have been appointed by Sunreg Acquisition Group, a corporation organized
and existing under the laws of the State of Delaware ("Purchaser") and a
wholly owned subsidiary of Sun Healthcare Group, Inc., a Delaware corporation
("Parent"), to act as Dealer Manager in connection with Purchaser's offer to
purchase all outstanding shares of Common Stock, par value $.01 per share (the
"Shares"), of Regency Health Services, Inc., a corporation organized and
existing under the laws of the State of Delaware (the "Company"), at a price
of $22.00 per Share, net to the seller in cash, upon the terms and subject to
the conditions set forth in Purchaser's Offer to Purchase, dated August 1,
1997 (the "Offer to Purchase"), and the related Letter of Transmittal (which
together constitute the "Offer") enclosed herewith. Please furnish copies of
the enclosed materials to those of your clients for whose accounts you hold
Shares registered in your name or in the name of your nominee.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (I) THERE BEING VALIDLY
TENDERED AND NOT PROPERLY WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER THAT
NUMBER OF SHARES WHICH CONSTITUTES AT LEAST A MAJORITY OF THE SHARES THEN
OUTSTANDING ON A FULLY DILUTED BASIS (THE "MINIMUM CONDITION"), (II) THERE
BEING VALIDLY TENDERED AND NOT WITHDRAWN PURSUANT TO PARENT'S DEBT TENDER
OFFERS A MAJORITY IN PRINCIPAL AMOUNT OF EACH OF THE COMPANY'S 12 1/4%
SUBORDINATED SECURITIES DUE 2003 (THE "JUNIOR SECURITIES") AND THE COMPANY'S
9 7/8% SENIOR SUBORDINATED SECURITIES DUE 2002 (THE "SENIOR SECURITIES") (THE
"TENDER CONDITION") AND (III) VALID CONSENTS HAVING BEEN OBTAINED PURSUANT TO
PARENT'S DEBT CONSENT SOLICITATIONS FROM HOLDERS (EXCLUDING THE COMPANY AND
ITS AFFILIATES) OF A MAJORITY IN PRINCIPAL AMOUNT AS OF THE APPLICABLE RECORD
DATE OF EACH OF THE JUNIOR SECURITIES AND THE SENIOR SECURITIES (THE "CONSENT
CONDITION"). THE CONDITIONS TO THE OFFER (OTHER THAN THE MINIMUM CONDITION),
INCLUDING THE TENDER CONDITION AND THE CONSENT CONDITION, MAY BE WAIVED BY
PURCHASER IN ITS SOLE DISCRETION.
Enclosed for your information and use are copies of the following documents:
1. Offer to Purchase, dated August 1, 1997;
2. Letter of Transmittal to be used by holders of Shares in accepting the
Offer and tendering Shares;
3. Notice of Guaranteed Delivery to be used to accept the Offer if the
Shares and all other required documents are not immediately available or
cannot be delivered to ChaseMellon Shareholder Services,
1
<PAGE>
L.L.C. (the "Depositary") by the Expiration Date (as defined in the Offer
to Purchase) or if the procedure for book-entry transfer cannot be
completed by the Expiration Date;
4. A letter to stockholders of the Company from Richard K. Matros,
President and Chief Executive Officer of the Company, together with a
Solicitation/Recommendation Statement on Schedule 14D-9 filed with the
Securities and Exchange Commission by the Company;
5. A letter which may be sent to your clients for whose accounts you hold
Shares registered in your name or in the name of your nominee, with space
provided for obtaining such clients' instructions with regard to the Offer;
6. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9; and
7. Return envelope addressed to the Depositary.
WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE NOTE
THAT THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON SEPTEMBER 15, 1997, UNLESS THE OFFER IS EXTENDED.
In all cases, payment for Shares accepted for payment pursuant to the Offer
will be made only after timely receipt by the Depositary of (i) certificates
evidencing such Shares (or a confirmation of a book-entry transfer of such
Shares into the Depositary's account at one of the Book-Entry Transfer
Facilities (as defined in the Offer to Purchase)), (ii) a Letter of
Transmittal (or facsimile thereof) properly completed and duly executed, with
any required signature guarantees, or an Agent's Message (as defined in the
Offer to Purchase) in connection with a book-entry delivery of Shares and
(iii) and any other required documents required by the Letter of Transmittal.
If holders of Shares wish to tender Shares, but cannot deliver such holder's
certificates or other required documents, or cannot comply with the procedure
for book-entry transfer, prior to the expiration of the Offer, a tender may be
effected by following the guaranteed delivery procedure described in Section 3
of the Offer to Purchase.
Purchaser will not pay any fees or commissions to any broker, dealer or
other person (other than the Depositary and the Information Agents as
described in the Offer) in connection with the solicitation of tenders of
Shares pursuant to the Offer. However, Purchaser will reimburse you for
customary mailing and handling expenses incurred by you in forwarding any of
the enclosed materials to your clients. Purchaser will pay or cause to be paid
any stock transfer taxes payable with respect to the transfer of Shares to it,
except as otherwise provided in Instruction 6 of the Letter of Transmittal.
Any inquiries you may have with respect to the Offer should be addressed to
us at our address and telephone number set forth on the back cover page of the
Offer to Purchase.
Additional copies of the enclosed material may be obtained from the
Information Agents, at the address or telephone numbers set forth on the back
cover page of the Offer to Purchase.
Very truly yours,
SCHRODER & CO. INC.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL AUTHORIZE YOU OR
ANY OTHER PERSON TO ACT ON BEHALF OF OR AS THE AGENT OF PARENT, PURCHASER, THE
COMPANY, THE INFORMATION AGENTS OR THE DEPOSITARY, OR OF ANY AFFILIATE OF ANY
OF THEM, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR TO MAKE
ANY STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN
THE ENCLOSED DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN.
2
<PAGE>
EXHIBIT (a)(5)
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
REGENCY HEALTH SERVICES, INC.
AT
$22.00 NET PER SHARE
BY
SUNREG ACQUISITION CORP.,
A WHOLLY OWNED SUBSIDIARY OF
SUN HEALTHCARE GROUP, INC.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON SEPTEMBER 15, 1997 UNLESS THE OFFER IS EXTENDED.
To Our Clients:
Enclosed for your consideration are an Offer to Purchase, dated August 1,
1997 (the "Offer to Purchase"), and a related Letter of Transmittal in
connection with the offer by Sunreg Acquisition Corp., a corporation organized
and existing under the laws of the State of Delaware ("Purchaser") and a
wholly owned subsidiary of Sun Healthcare Group, Inc., a corporation organized
and existing under the laws of the State of Delaware ("Parent"), to purchase
all outstanding shares of common stock, par value $.01 per share (the
"Shares"), of Regency Health Services, Inc., a corporation organized and
existing under the laws of the State of Delaware (the "Company"), at a price
of $22.00 per Share, net to the seller in cash, upon the terms and subject to
the conditions set forth in the Offer to Purchase and in the related Letter of
Transmittal (which together constitute the "Offer").
We are (or our nominee is) the holder of record of Shares held by us for
your account. A TENDER OF SUCH SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF
RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS
FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER
SHARES HELD BY US FOR YOUR ACCOUNT.
We request instructions as to whether you wish to have us tender on your
behalf any or all of the Shares held by us for your account, upon the terms
and subject to the conditions set forth in the Offer.
Your attention is invited to the following:
1. The tender price is $22.00 per Share, net to the seller in cash.
2. The Offer is being made for all outstanding Shares.
3. The Board of Directors of the Company unanimously has determined that
each of the Offer and the Merger is fair to, and in the best interests of,
the stockholders of the Company, and recommends that stockholders accept
the Offer and tender all of their Shares pursuant to the Offer.
4. The Offer and withdrawal rights will expire at 12:00 Midnight, New
York City time, on September 15, 1997, unless the Offer is extended.
1
<PAGE>
5. The Offer is conditioned upon, among other things, (i) there being
validly tendered and not properly withdrawn prior to the expiration of the
offer that number of Shares which constitutes at least a majority of the
Shares then outstanding on a fully diluted basis (the "Minimum Condition"),
(ii) there being validly tendered and not withdrawn pursuant to Parent's
debt tender offers a majority in principal amount of each of the Company's
12 1/4% Subordinated Securities due 2003 (the "Junior Securities") and the
Company's 9 7/8% Senior Subordinated Securities due 2002 (the "Senior
Securities") (the "Tender Condition") and (iii) valid consents having been
obtained pursuant to Parent's debt consent solicitations from holders
(excluding the Company and its affiliates) of a majority in principal
amount as of the applicable record date of each of the Junior Securities
and the Senior Securities (the "Consent Condition"). The conditions to the
Offer (other than the Minimum Condition), including the Tender Condition
and the Consent Condition, may be waived by Purchaser in its sole
discretion.
6. Tendering stockholders will not be obligated to pay brokerage fees or
commissions or, except as otherwise provided in Instruction 6 of the Letter
of Transmittal, stock transfer taxes with respect to the purchase of Shares
by Purchaser pursuant to the Offer.
If you wish to have us tender any or all of your Shares, please so instruct
us by completing, executing and returning to us the instruction form contained
in this letter. An envelope in which to return your instructions to us is
enclosed. If you authorize the tender of your Shares, all such Shares will be
tendered unless otherwise specified in your instructions. YOUR INSTRUCTIONS
SHOULD BE FORWARDED TO US IN AMPLE TIME TO PERMIT US TO SUBMIT A TENDER ON
YOUR BEHALF PRIOR TO THE EXPIRATION OF THE OFFER.
The Offer is made solely by the Offer to Purchase and the related Letter of
Transmittal and is being made to all holders of Shares. Purchaser is not aware
of any jurisdiction where the making of the Offer is prohibited by
administrative or judicial action pursuant to any valid state statute. If
Purchaser becomes aware of any valid state statute prohibiting the making of
the Offer or the acceptance of Shares pursuant thereto, Purchaser will make a
good faith effort to comply with such state statute. If, after such good faith
effort, Purchaser cannot comply with such state statute, the Offer will not be
made to (nor will tenders be accepted from or on behalf of) the holders of
Shares in such state. In any jurisdiction where the securities, blue sky or
other laws require the Offer to be made by a licensed broker or dealer, the
Offer shall be deemed to be made on behalf of Purchaser by one or more
registered brokers or dealers licensed under the laws of such jurisdiction.
2
<PAGE>
INSTRUCTIONS WITH RESPECT TO THE OFFER TO PURCHASE FOR
CASH ALL OUTSTANDING SHARES OF COMMON STOCK OF
REGENCY HEALTH SERVICES, INC. BY SUNREG ACQUISITION CORP.
The undersigned acknowledge(s) receipt of your letter and the enclosed Offer
to Purchase, dated August 1, 1997, and the related Letter of Transmittal
(which together constitute the "Offer" in connection with the offer by Sunreg
Acquisition Corp., a corporation organized and existing under the laws of the
State of Delaware and a wholly owned subsidiary of Sun Healthcare Group, Inc.,
a corporation organized and existing under the laws of the State of Delaware,
to purchase all outstanding shares of common stock, par value $.01 per share
(the "Shares"), of Regency Health Services, Inc., a corporation organized and
existing under the laws of the State of Delaware.
This will instruct you to tender the number of Shares indicated below (or,
if no number is indicated below, all Shares) that are held by you for the
account of the undersigned, upon the terms and subject to the conditions set
forth in the Offer.
Dated: _____________________, 199
SIGN HERE
-------------------------------------
NUMBER OF SHARES TO BE TENDERED: -------------------------------------
Signature(s) of Holder(s)
___________________________ Shares* Name(s) of Holder(s):
-------------------------------------
-------------------------------------
Please Type or Print
-------------------------------------
Address
-------------------------------------
Zip Code
-------------------------------------
Area Code and Telephone Number
-------------------------------------
Taxpayer Identification or Social
Security Number
* Unless otherwise indicated, it will be assumed that all Shares held by us
for your account are to be tendered.
3
<PAGE>
EXHIBIT (a)(6)
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER.--Social Security numbers have nine digits separated by two hyphens: i.e.
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e. 00-0000000. The table below will help determine the number to
give the payer.
- ----------------------------------- -----------------------------------
<TABLE>
<CAPTION>
GIVE THE
SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- ---------------------------------------------
<S> <C>
1. An individual's account The individual
2. Two or more individuals The actual owner
(joint account) of the account
or, if combined
funds, any one
of the
individuals(1)
3. Custodian account of a The minor(2)
minor (Uniform Gift to
Minors Act)
4.a. The usual revocable The grantor-
savings trust account trustee(1)
(grantor is also
trustee)
b. So-called trust account The actual
that is not a legal or owner(1)
valid trust under State
law
5. Sole proprietorship The owner(3)
account
</TABLE>
<TABLE>
<CAPTION>
GIVE THE EMPLOYER
IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
---
<S> <C>
6. A valid trust, estate, The legal entity
or pension trust (Do not furnish
the identifying
number of the
personal
representative
or trustee
unless the legal
entity itself is
not designated
in the account
title.)(4)
7. Corporate account The corporation
8. Religious, charitable, The organization
or educational
organization account
9. Partnership The partnership
10. Association, club, or The organization
other tax-exempt
organization
11. A broker or registered The broker or
nominee nominee
12. Account with the The public
Department of entity
Agriculture in the name
of a public entity
(such as a State or
local government,
school district, or
prison) that receives
agricultural program
payments
---
</TABLE>
- -----------------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Show the name of the owner. You may also enter your business name. You may
use your Social Security Number or Employer Identification Number.
(4) List first and circle the name of the legal trust, estate, or pension
trust.
NOTE: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or
Form SS-4, Application for Employer Identification Number, at the local office
of the Social Security Administration or the Internal Revenue Service and
apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include
the following:
. A corporation.
. A financial institution.
. An organization exempt from tax under section 501(a), or an individual
retirement plan.
. The United States or any agency or instrumentality thereof.
. A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
. A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
. An international organization or any agency, or instrumentality thereof.
. A registered dealer in securities or commodities registered in the U.S. or
a possession of the U.S.
. A real estate investment trust.
. A common trust fund operated by a bank under section 584(a).
. An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1).
. An entity registered at all times under the investment Company Act of
1940.
. A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
. Payments to nonresident aliens subject to withholding under section 1441.
. Payments to partnerships not engaged in a trade or business in the U.S.
and which have at least one nonresident partner.
. Payments of patronage dividends where the amount received is not paid in
money.
. Payments made by certain foreign organizations.
Payments of interest not generally subject to backup withholding include the
following:
. Payments of interest on obligations issued by individuals. NOTE: You may
be subject to backup withholding if this interest is $600 or more and is
paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
. Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
. Payments described in section 6049(b)(5) to nonresident aliens.
. Payments on tax-free covenant bonds under section 1451.
. Payments made by certain foreign organizations.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT
TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS,
ALSO SIGN AND DATE THE FORM.
Certain payments other than interest dividends, and patronage dividends, that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A.
PRIVATE ACT NOTICE.--Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to IRS. IRS uses the numbers for identification
purposes. Payers must be given the numbers whether or not recipients are
required to file tax returns. Payers must generally withhold 31% of taxable
interest, dividend, and certain other payments to a payee who does not furnish
a taxpayer identification number to a payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you
fail to furnish your taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure unless your failure is due
to reasonable cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
2
<PAGE>
EXHIBIT (a)(7)
FORM OF SUMMARY ADVERTISEMENT
This announcement is neither an offer to purchase nor a solicitation of an
offer to sell Shares. The Offer is made solely by the Offer to Purchase dated
August 1, 1997 and the related Letter of Transmittal, and is being made to all
holders of Shares. Purchaser is not aware of any state where the making of the
Offer is prohibited by administrative or judicial action pursuant to any valid
state statute. If Purchaser becomes aware of any valid state statute
prohibiting the making of the Offer or the acceptance of Shares pursuant
thereto, Purchaser will make a good faith effort to comply with such state
statute. If, after such good faith effort, Purchaser cannot comply with such
state statute, the Offer will not be made to (nor will tenders be accepted
from or on behalf of) the holders of Shares in such state. In any jurisdiction
where the securities, blue sky or other laws require the offer to be made by a
licensed broker or dealer, the Offer shall be deemed to be made on behalf of
Purchaser by Schroder & Co. Inc. or one or more registered brokers or dealers
licensed under the laws of such jurisdiction.
NOTICE OF OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
REGENCY HEALTH SERVICES, INC.
AT
$22.00 NET PER SHARE
BY
SUNREG ACQUISITION CORP.
A WHOLLY OWNED SUBSIDIARY OF
SUN HEALTHCARE GROUP, INC.
Sunreg Acquisition Corp., a corporation organized and existing under the
laws of the State of Delaware ("Purchaser") and a wholly owned subsidiary of
Sun Healthcare Group, Inc., a corporation organized and existing under the
laws of the State of Delaware ("Parent"), is offering to purchase all
outstanding shares of common stock, par value $.01 per share (the "Shares"),
of Regency Health Services, Inc. a corporation organized and existing under
the laws of the State of Delaware (the "Company"), at a price of $22.00 per
Share, net to the seller in cash, upon the terms and subject to the conditions
set forth in the Offer to Purchase, dated August 1, 1997 (the "Offer to
Purchase"), and in the related Letter of Transmittal (which together
constitute the "Offer"). Following the Offer, Purchaser intends to effect the
Merger (as defined below).
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON SEPTEMBER 15, 1997 UNLESS THE OFFER IS EXTENDED.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (I) THERE BEING VALIDLY
TENDERED AND NOT PROPERLY WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER THAT
NUMBER OF SHARES WHICH CONSTITUTES AT LEAST A MAJORITY OF THE SHARES THEN
OUTSTANDING ON A FULLY DILUTED BASIS (THE "MINIMUM CONDITION"), (II) THERE
BEING VALIDLY TENDERED AND NOT WITHDRAWN PURSUANT TO PARENT'S DEBT TENDER
OFFERS A MAJORITY IN PRINCIPAL AMOUNT OF EACH OF THE COMPANY'S 12 1/4%
SUBORDINATED SECURITIES DUE 2003 (THE "JUNIOR SECURITIES") AND THE COMPANY'S 9
7/8% SENIOR SUBORDINATED SECURITIES DUE 2002 (THE "SENIOR SECURITIES") (THE
"TENDER CONDITION") AND (III) VALID CONSENTS HAVING BEEN OBTAINED PURSUANT TO
PARENT'S DEBT CONSENT SOLICITATIONS FROM HOLDERS (EXCLUDING THE COMPANY AND
ITS AFFILIATES) OF A MAJORITY IN PRINCIPAL AMOUNT AS OF THE APPLICABLE RECORD
DATE OF EACH OF THE JUNIOR SECURITIES AND THE SENIOR SECURITIES (THE "CONSENT
CONDITION"). THE CONDITIONS TO THE OFFER (OTHER THAN THE MINIMUM CONDITION),
INCLUDING THE TENDER CONDITION AND THE CONSENT CONDITION, MAY BE WAIVED BY
PURCHASER IN ITS SOLE DISCRETION.
1
<PAGE>
The Offer is being made pursuant to the Agreement and Plan of Merger, dated
as of July 26, 1997 (the "Merger Agreement"), among Parent, Purchaser and the
Company. The Merger Agreement provides that, upon the terms and subject to the
conditions thereof, at the effective time of the Merger, and in accordance
with the General Corporation Law of the State of Delaware ("Delaware Law"),
Purchaser shall be merged with and into the Company (the "Merger"). As a
result of the Merger, the separate corporate existence of Purchaser will cease
and the Company will continue as the surviving corporation (the "Surviving
Corporation") and will become a wholly owned subsidiary of Parent. At the
election of Parent, if such election would not in any manner adversely affect
the Company's stockholders or delay the transactions contemplated by the
Merger Agreement, (i) any direct or indirect wholly owned subsidiary of Parent
may be substituted for and assume all of the rights and obligations of
Purchaser as a constituent corporation in the Merger or (ii) the Company may
be merged with and into Purchaser or Parent with Purchaser or Parent,
respectively, continuing as the Surviving Corporation with the effects set
forth above. In either such event, the parties agree to execute an appropriate
amendment to the Merger Agreement in order to reflect the foregoing.
Upon consummation of the Merger, each issued and then outstanding Share
(other than any Shares held in the treasury of the Company, or owned by
Purchaser, Parent or any direct or indirect wholly owned subsidiary of Parent
or of the Company and any Shares which are held by stockholders who have not
voted in favor of the Merger or consented thereto in writing and who shall
have demanded properly in writing appraisal for such Shares in accordance with
Delaware Law) shall be converted automatically into the right to receive
$22.00 in cash, or any higher price that may be paid per Share in the Offer,
without interest.
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY HAS DETERMINED THAT EACH
OF THE OFFER AND THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF, THE
STOCKHOLDERS OF THE COMPANY, AND RECOMMENDS THAT STOCKHOLDERS ACCEPT THE OFFER
AND TENDER THEIR SHARES PURSUANT TO THE OFFER.
For purposes of the Offer, Purchaser will be deemed to have accepted for
payment (and thereby purchased) Shares validly tendered and not properly
withdrawn as, if and when Purchaser gives oral or written notice to
ChaseMellon Shareholder Services, L.L.C. (the "Depositary") of Purchaser's
acceptance for payment of such Shares pursuant to the Offer. Upon the terms
and subject to the conditions of the Offer, payment for Shares accepted for
payment pursuant to the Offer will be made by deposit of the purchase price
therefor with the Depositary, which will act as agent for tendering
stockholders for the purpose of receiving payments from Purchaser and
transmitting such payments to tendering stockholders whose Shares have been
accepted for payment. Under no circumstances will interest on the purchase
price for Shares be paid, regardless of any delay in making such payment. In
all cases, payment for Shares tendered and accepted for payment pursuant to
the Offer will be made only after timely receipt by the Depositary of (i) the
certificates evidencing such Shares (the "Share Certificates") or timely
confirmation of a book-entry transfer of such Shares into the Depositary's
account at one of the Book-Entry Transfer Facilities (as defined in Section 2
of the Offer to Purchase) pursuant to the procedures set forth in Section 3 of
the Offer to Purchase, (ii) the Letter of Transmittal (or a facsimile
thereof), properly completed and duly executed, with any required signature
guarantees, or an Agent's Message (as defined in Section 2 of the Offer to
Purchase) in connection with a book-entry transfer, and (iii) any other
documents required under the Letter of Transmittal.
The Merger Agreement provides that Purchaser may, with the consent of the
Company, extend the Offer, and that Purchaser may, without the consent of the
Company, but subject to the terms and conditions of the Merger Agreement, (i)
extend the Offer, if at the scheduled expiration date of the Offer any of the
conditions to Purchaser's obligation to purchase shares of Common Stock shall
not be satisfied, until such time as such conditions are satisfied or waived
or (ii) extend the Offer for any period required by any rule, regulation,
interpretation or position of the Securities and Exchange Commission or the
staff thereof applicable to the Offer or in order to obtain any material
regulatory approval applicable to the Offer. Any such extension will be
followed as promptly as practicable by public announcement thereof, such
announcement to be made no later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled expiration date of the Offer.
During any such extension, all Shares previously tendered and not withdrawn
will remain subject to the Offer, subject to the rights of a tendering
stockholder to withdraw his Shares.
2
<PAGE>
Tenders of Shares made pursuant to the Offer are irrevocable except that
such Shares may be withdrawn at any time prior to the Expiration Date and,
unless theretofore accepted for payment by Purchaser pursuant to the Offer,
may also be withdrawn at any time after September 29, 1997.
For the withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
one of its addresses set forth on the back cover page of the Offer to
Purchase. Any such notice of withdrawal must specify the name of the person
who tendered the Shares to be withdrawn, the number of Shares to be withdrawn
and the name of the registered holder of such Shares, if different from that
of the person who tendered such Shares. If Share Certificates evidencing
Shares to be withdrawn have been delivered or otherwise identified to the
Depositary, then, prior to the physical release of such Share Certificates,
the serial numbers shown on such Share Certificates must be submitted to the
Depositary and the signature(s) on the notice of withdrawal must be guaranteed
by an Eligible Institution (as defined in Section 3 of the Offer to Purchase),
unless such Shares have been tendered for the account of an Eligible
Institution. If Shares have been tendered pursuant to the procedure for book-
entry transfer as set forth in Section 3 of the Offer to Purchase, any notice
of withdrawal must specify the name and number of the account at the Book-
Entry Transfer Facility to be credited with the withdrawn Shares, in which
case a notice of withdrawal will be effective if delivered to the Depositary
by any method described in the first sentence of this paragraph.
The information required to be disclosed by Rule 14d-6(e)(1)(vii) of the
General Rules and Regulations under the Securities Exchange Act of 1934, as
amended, is contained in the Offer to Purchase and is incorporated herein by
reference.
The Company has provided Purchaser with the Company's stockholder list and
security position listings for the purpose of disseminating the Offer to
holders of Shares. The Offer to Purchase and the related Letter of Transmittal
will be mailed to record holders of Shares whose names appear on the Company's
stockholder list and will be furnished, for subsequent transmittal to
beneficial owners of Shares, to brokers, dealers, commercial banks, trust
companies and similar persons whose names, or the names of whose nominees,
appear on the stockholder list or, if applicable, who are listed as
participants in a clearing agency's security position listing.
THE OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION WHICH SHOULD BE READ BEFORE ANY DECISION IS MADE WITH
RESPECT TO THE OFFER.
Questions and requests for assistance or for additional copies of the Offer
to Purchase and the related Letter of Transmittal and other tender offer
materials may be directed to the Information Agents and the Dealer Manager as
set forth below, and copies will be furnished promptly at Purchaser's expense.
No fees or commissions will be paid to brokers, dealers or other persons
(other than the Information Agents and the Dealer Manager) for soliciting
tenders of Shares pursuant to the Offer.
The Information Agents for the Offer are:
INNISFREE M&A INCORPORATED MORROW & CO., INC.
909 Third Avenue, 20th Floor
New York, NY 10022
Call Toll Free: (800) 566-9061
Banks and Brokers Call: (800) 662-5200
The Dealer Manager for the Offer is:
SCHRODER & CO. INC.
Equitable Center
787 Third Avenue
New York, New York 10019
Phone: (212) 492-6000 (Call Collect)
August 1, 1997
3
<PAGE>
Exhibit (A)(8)
[LOGO OF SUN HEALTHCARE GROUP, INC. APPEARS HERE]
Contacts: Phyllis Goodman (media)
Marjorie Goldstein (investors)
505-821-3355
101 SUN LANE, NE
ALBUQUERQUE, NEW MEXICO 87109
SUN HEALTHCARE GROUP TO ACQUIRE REGENCY HEALTH SERVICES
FOR $589 MILLION
Transaction Will Move Sun to Top-Three Ranking
Among U.S. Long-Term Care Providers
Albuquerque, N.M., and Tustin, Calif., July 27, 1997 -- Sun Heathcare Group,
Inc. (NYSE:SHG) and Regency Health Services, Inc. (NYSE:RHS) announced today
that the companies have signed a definitive agreement under which Sun will
acquire all of the outstanding shares of Regency for $22 per share, or
approximately $369 million in cash. In addition, approximately $220 million of
Regency debt will be assumed or refinanced, putting the value of the total
transaction at approximately $589 million. Regency is an operator of skilled
nursing facilities and a diversified provider of rehabilitation therapy,
institutional pharmacy and home health services.
Regency presently operates 116 inpatient facilities (including 46 with
subacute specialty units), 26 outpatient rehabilitation therapy clinics, and
eight institutional pharmacies. Regency currently has rehabilitation therapy
contracts with 202 facilities and pharmacy contracts with 164 facilities.
Regency's projected total revenues for 1997 are approximately $670 million.
Pursuant to the merger agreement, which was unanimously approved by each of
Sun's and Regency's board of directors, Sun will commence a tender offer for all
of the outstanding shares of Regency within five business days. Upon completion
of the tender offer, the merger agreement provides that shares of Regency not
tendered will be acquired in a merger at the same price per share in cash. Smith
Management Company and its affiliates, Regency's largest shareholder group, have
agreed to tender their shares, which constitute 25 percent of Regency's common
stock pursuant to the tender offer. In addition, certain officers and directors
have agreed to tender their shares.
Sun has obtained a long-term financing commitment of approximately $1
billion through
<PAGE>
2
NationsBank of Texas, N.A., the lead lender in Sun's existing credit facility,
to provide financing for the Regency acquisition, satisfy outstanding credit
facility obligations and provide for ongoing working capital needs. Depending
on market conditions, Sun subsequently plans to replace a portion of the
NationsBank financing through a combination of equity and debt offerings.
The merger will be accounted for on a purchase accounting basis. The
offer is subject to the tender of at least a majority of Regency's shares on a
fully diluted basis, the consent of a majority of Regency's existing
subordinated debt holders, and other customary conditions including required
government approvals. The offer is not subject to Sun's arranging for financing
as a condition for closing.
Sun expects to complete the merger with Regency during the fourth quarter
of 1997, and expects the transaction to be accretive in 1998. No changes will
be made to Sun's board of directors and no significant changes are expected to
be made to Sun's senior management.
Upon completion of the Regency acquisition, and Sun's pending acquisition
of Retirement Care Associates, Inc., Sun will operate 510 long-term care
facilities in the United States and the United Kingdom, with a total of 49,141
beds, and 47 assisted living facilities, with 4,583 units. Considering both
acquisitions, Sun expects annualized revenues in excess of $3 billion in 1998,
and will employ more than 72,000 people in the United States and the United
Kingdom.
Sun expects to realize significant business synergies for the acquisition
of Regency, including the following:
1. Sun's assimilation of Regency's corporate operations is expected to
result in a significant reduction in combined general and
administrative expense.
2. The addition of Regency's 116 inpatient facilities provides immediate
opportunities to expand Sun's pharmacy, medical supply, therapy and
ancillary service businesses.
3. Sun expects to leverage its infrastructure and management expertise
to achieve enhanced efficiencies and improved operational performance
in Regency's contract therapy business.
4. The combination of Sun's and Regency's pharmacy businesses will create
<PAGE>
3
significant economies of scale and operating efficiencies.
Andrew L. Turner, Sun's chairman and chief executive officer, said, "The
acquisition of Regency will significantly increase our facility operations and
revenues and substantially improve our administrative efficiency. By every
important objective measure -- facility operations, revenues or contracts -- Sun
will become one of the three largest providers of long-term care services in the
country."
John W. Adams, president of Smith Management Company and chairman of
Regency, stated, "We are supportive of the transaction completely, which is
demonstrated by the commitment to tender our shares."
Richard K. Matros, president and chief executive officer of Regency, noted,
"The addition of Regency's dedicated and skilled employees to Sun's operations,
combined with the size, strength and market presence of the newly created
entity, will enhance the company's ability to succeed in the dynamic environment
of the evolving long-term care industry."
Sun has engaged Schroder & Co., Inc. as financial advisor for the
transaction; Regency has engaged Smith Barney.
Headquartered in Albuquerque, N.M., Sun is a diversified international
long-term care provider. Sun companies operate long-term care facilities and
pharmacy services across the United States and in the United Kingdom. Sun
subsidiaries also provide therapy services in the United States, fulfill the
medical supply needs of nursing homes, and offer a comprehensive array of
ancillary services for the healthcare industry.
Regency, a national healthcare provider with headquarters in Tustin,
Calif., offers acute rehabilitation, subacute care, skilled nursing,
neurological care and other specialized long-term care and outpatient services.
The company has licensed beds in California, Ohio, West Virginia, North
Carolina and Tennessee, and home health services in 23 locations in two states.
It also offers contract rehabilitation therapy services and institutional
pharmacy services.
Except for historical information, all other matters in this press release
are forward-looking statements that involve risks and uncertainties including,
but not limited to, those detailed from time to time in the company's SEC
filings, which include Sun's and Regency's annual reports on Form 10-K for the
fiscal year ended December 31, 1996.
##
<PAGE>
4
- --------------------------------------------------------------------------------
STATISTICAL SUMMARY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Sun Retirement Regency COMBINED
Healthcare Care Health
Group Associates Services
and
Contour
Medical
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-term care facilities 311 83 116 510
- ------------------------------------------------------------------------------------------------
Long-term care beds 29,122 8,526 11,493 49,141
- ------------------------------------------------------------------------------------------------
Assisted living facilities 5 42 0 47
- ------------------------------------------------------------------------------------------------
Assisted living units 514 4,069 0 4,583
- ------------------------------------------------------------------------------------------------
Facilities served through 1,012 83* 202 1,297
therapy contracts
- ------------------------------------------------------------------------------------------------
Facilities served through 537 125* 164 826
pharmacy contracts
- ------------------------------------------------------------------------------------------------
Facilities served through 183* 1,400 116* 1,699
medical supply contracts
- ------------------------------------------------------------------------------------------------
Acute hospital specialty supply contracts 0 550 0 550
- ------------------------------------------------------------------------------------------------
Outpatient rehabilitation clinics 43 0 26 69
- ------------------------------------------------------------------------------------------------
Home health service locations 0 0 23 23
- ------------------------------------------------------------------------------------------------
Total employees 48,500 7,700 16,000 72,200
- ------------------------------------------------------------------------------------------------
*Expected synergies
</TABLE>
<PAGE>
Exhibit (b)(1)
[LOGO for NATIONSBANK]
July 24, 1997
Robert D. Woltil
Chief Financial Officer
Sun Healthcare Group, Inc.
101 Sun Lane, N.E.
Albuquerque, New Mexico 87109
RE: Acquisition Financing
---------------------
Ladies and Gentlemen:
You have advised us that Sun Healthcare Group, Inc. (the "Borrower") intends to
make a tender offer (the "Offer") to acquire the capital stock of Regency Health
Services (the "Acquired Company") (hereinafter the acquisition of Acquired
Company may be referred to as the "Acquisition") for approximately $390,000,000.
The Acquisition will be structured as an equity purchase. You have advised us
that approximately $1,000,000,000 in senior debt financing will be required in
order to effect the Acquisition, to refinance approximately $550,000,000 of
existing indebtedness of the Borrower and the Acquired Company, to pay the costs
and expenses related to the Acquisition and to provide for ongoing general
corporate purposes after completion of the Acquisition. You have further
advised us that any other external financing (including sale and leaseback
transactions) utilized in connection with the Acquisition will be used to reduce
NationsBank's commitments hereunder.
In connection with the foregoing, NationsBank of Texas, N.A. ("NationsBank" or
the "Agent") is pleased to advise you of its commitment (this letter agreement
being the "Commitment Letter") to provide the full principal amount of the
Senior Credit Facilities described in the Summary of Indicative Terms and
Conditions attached to this Commitment Letter as Exhibit A (the "Term Sheet").
NationsBanc Capital Markets, Inc. ("NCMI") is pleased to advise you of its
commitment, as Arranger and Syndication Agent for the Senior Credit Facilities,
to form a syndicate of financial institutions (the "Lenders") reasonably
acceptable to you for the Senior Credit Facilities. All capitalized terms used
and not otherwise defined herein shall have the meanings set forth in the Term
Sheet, and this letter agreement.
The commitments of NationsBank and NCMI hereunder are subject to the
satisfaction of each of the following conditions precedent in a manner
acceptable to NationsBank and NCMI in their sole discretion:
(a) each of the terms and conditions set forth herein;
(b) each of the terms and conditions set forth in the Term Sheet;
<PAGE>
Sun Healthcare Group, Inc.
July 24, 1997
Page 2
(c) execution by the Borrower, the Acquired Company and/or other
appropriate parties of the definitive Purchase Agreement and other related
documentation relating to the Acquisition, in form and substance
satisfactory to NationsBank and NCMI;
(d) the negotiation, execution and delivery of definitive documentation
with respect to the Senior Credit Facilities consistent with the Term Sheet
and otherwise satisfactory to NationsBank and NCMI; and
(e) there not having occurred and being continuing since the date hereof a
material adverse change in the market for syndicated bank credit facilities
or a material disruption of, or a material adverse change in, financial,
banking or capital market conditions, in each case as determined by
NationsBank and NCMI in their reasonable discretion.
NationsBank will act as Agent for the Senior Credit Facilities and NCMI will act
as Arranger and Syndication Agent for the Senior Credit Facilities. No
additional agents will be appointed without the prior approval of NationsBank
and NCMI.
Furthermore, the commitments of NationsBank and NCMI hereunder are based upon
the financial and other information regarding the Borrower, the Acquired Company
and their respective subsidiaries previously provided to NationsBank and NCMI
and are subject to the condition, among others, that there shall not have
occurred after the date of such information, in the opinion of NationsBank and
NCMI, any material adverse change in the business, assets, liabilities (actual
or contingent), operations, condition (financial or otherwise) or prospects of
the Borrower, the Acquired Company and their subsidiaries taken as a whole. If
the continuing review by NationsBank and NCMI of the Borrower and the Acquired
Company discloses information relating to conditions or events not previously
disclosed to NationsBank and NCMI or relating to new information or additional
developments concerning conditions or events previously disclosed to NationsBank
and NCMI which NationsBank and NCMI in their sole discretion believe may have a
material adverse effect on the condition (financial or otherwise), assets,
properties, business, operations or prospects of the Borrower, the Acquired
Company, and their subsidiaries taken as a whole, NationsBank and NCMI may, in
their sole discretion, suggest alternative financing amounts or structures that
ensure adequate protection for the Lenders or decline to participate in the
proposed financing.
In addition to the forgoing conditions, as you know, neither we nor you know at
this time the precise terms of any additional financing which may be utilized in
connection with the Acquisition. Our commitment to provide the Senior Credit
Facilities is subject to the requirement that the terms of any such financing be
satisfactory to the Agent and the Lenders.
You agree to actively assist NationsBank and NCMI in achieving a syndication of
the Senior Credit Facilities that is satisfactory to NationsBank, NCMI and you.
In the event that such syndication cannot be achieved in a manner satisfactory
to NationsBank and NCMI under the structure outlined in the Term Sheet you agree
to cooperate with NationsBank and NCMI in developing an alternative structure
that will permit a satisfactory syndication of the Senior Credit Facilities.
Syndication of the Senior Credit Facilities will be accomplished by a variety of
means, including direct contact during the syndication between senior management
and advisors of the Borrower and the Acquired Company, and the proposed Lenders.
To assist NationsBank and NCMI in the syndication efforts, you hereby agree to
(a) provide and cause your advisors to provide NationsBank and NCMI and the
other Lenders upon request with all information reasonably deemed necessary by
NationsBank and NCMI to
<PAGE>
Sun Healthcare Group, Inc.
July 24, 1997
Page 3
complete syndication, including but not limited to information and evaluations
prepared by the Borrower and the Acquired Company and their advisors, or on
their behalf, relating to the Acquisition, (b) assist NationsBank and NCMI upon
their reasonable request in the preparation of an Information Memorandum to be
used in connection with the syndication of the Senior Credit Facilities and (c)
otherwise assist NationsBank and NCMI in their syndication efforts, including
making available officers and advisors of the Borrower and the Acquired Company
and their subsidiaries from time to time to attend and make presentations
regarding the business and prospects of the Borrower and the Acquired Company
and their subsidiaries, as appropriate, at a meeting or meetings of prospective
Lenders. You further agree to refrain from engaging in any additional financings
for the Acquired Company during such syndication process unless otherwise agreed
to by NationsBank and NCMI.
It is understood and agreed that NationsBank and NCMI, after consultation with
you, will manage and control all aspects of the syndication, including decisions
as to the selection of proposed Lenders and any titles offered to proposed
Lenders, when commitments will be accepted and the final allocations of the
commitments among the Lenders. It is understood that no Lender participating in
the Senior Credit Facilities will receive compensation from you outside the
terms contained herein and in the Term Sheet in order to obtain its commitment.
It is also understood and agreed that the amount and distribution of the fees
among the Lenders will be at the sole discretion of NationsBank and NCMI and
that any syndication prior to execution of definitive documentation will reduce
the commitment of NationsBank.
You hereby represent, warrant and covenant that (a) all information, other than
Projections (as defined below), which has been or is hereafter made available to
NationsBank and NCMI or the Lenders by you or any of your representatives in
connection with the transactions contemplated hereby ("Information") is and will
be complete and correct in all material respects and does not and will not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements contained therein not misleading, and (b) all
financial projections concerning the Borrower and the Acquired Company that have
been or are hereafter made available to NationsBank and NCMI or the Lenders by
you or any of your representatives (the "Projections") have been or will be
prepared in good faith based upon reasonable assumptions. You agree to furnish
us with such Information and Projections as we may reasonably request and to
supplement the Information and the Projections from time to time until the
closing date for the Senior Credit Facilities so that the representation and
warranty in the preceding sentence is correct on the such date. In arranging
and syndicating the Senior Credit Facilities, NationsBank and NCMI will be using
and relying on the Information and the Projections without independent
verification thereof.
By executing this Commitment Letter, you agree to pay the fees set forth in the
Term Sheet and Exhibit B attached to this Commitment Letter.
By executing this Commitment Letter you also agree to reimburse NationsBank and
NCMI from time to time on demand for all reasonable out-of-pocket fees and
expenses (including, but not limited to, the reasonable fees, disbursements and
other charges of legal counsel to NationsBank) incurred in connection with the
Senior Credit Facilities and the preparation of the definitive documentation for
the Senior Credit Facilities and the other transactions contemplated hereby.
IN THE EVENT THAT NATIONSBANK OR NCMI BECOMES INVOLVED IN ANY CAPACITY IN ANY
ACTION, PROCEEDING OR INVESTIGATION IN CONNECTION WITH ANY MATTER CONTEMPLATED
BY THIS LETTER, THE COMPANY WILL REIMBURSE
<PAGE>
Sun Healthcare Group, Inc.
July 24, 1997
Page 4
NATIONSBANK AND NCMI FOR THEIR LEGAL AND OTHER EXPENSES (INCLUDING THE COST OF
ANY INVESTIGATION AND PREPARATION) AS THEY ARE INCURRED BY NATIONSBANK OR NCMI.
THE COMPANY ALSO AGREES TO INDEMNIFY AND HOLD HARMLESS NATIONSBANK, NCMI AND
THEIR AFFILIATES AND THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS
(THE "INDEMNIFIED PARTIES") FROM AND AGAINST ANY AND ALL LOSSES, CLAIMS, DAMAGES
AND LIABILITIES, JOINT OR SEVERAL, RELATED TO OR ARISING OUT OF ANY MATTERS
CONTEMPLATED BY THIS LETTER (INCLUDING ANY ARISING OUT OF THE NEGLIGENCE OF ANY
INDEMNIFIED PARTY), UNLESS AND ONLY TO THE EXTENT THAT IT SHALL BE FINALLY
JUDICIALLY DETERMINED THAT SUCH LOSSES, CLAIMS, DAMAGES OR LIABILITIES RESULTED
PRIMARILY FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF NATIONSBANK OR
NCMI.
The provisions of the immediately preceding two paragraphs shall remain in full
force and effect regardless of whether definitive financing documentation shall
be executed and delivered and notwithstanding the termination of this letter
agreement or the commitment of NationsBank and NCMI hereunder, provided,
however, that the Borrower shall be deemed released of its obligations under the
immediately preceding two paragraphs upon the execution of definitive financing
documentation.
As described herein and in the Term Sheet, NCMI will act as Arranger and
Syndication Agent for the Senior Credit Facilities. NationsBank reserves the
right to allocate, in whole or in part, to NCMI certain fees payable to
NationsBank in such manner as NationsBank and NCMI agree in their sole
discretion. You acknowledge and agree that NationsBank may share with any of
its affiliates (including specifically NCMI) any information relating to the
Senior Credit Facilities, the Borrower, the Acquired Company and their
subsidiaries and affiliates.
This Commitment Letter may not be assigned by the Borrower without the prior
written consent of NationsBank and NCMI.
If you are in agreement with the foregoing, please execute and return the
enclosed copy of this Commitment Letter no later than the close of business on
July 28, 1997. Our commitments shall terminate if not so accepted by you prior
to that time. Following acceptance by you, our commitments will terminate on
December 31, 1997, unless the Senior Credit Facilities are closed by such time.
Except as required by applicable law, this Commitment Letter (including the Term
Sheet and Exhibit B) and the contents hereof shall not be disclosed by you to
any third party without the prior consent of NationsBank and NCMI, other than to
your attorneys, financial advisors and accountants, in each case to the extent
necessary in your reasonable judgment; provided, however, it is understood and
agreed that following your acceptance of this Commitment Letter you may disclose
the terms of this Commitment Letter (excluding Exhibit B) to the Acquired
--------------------
Company and its attorneys and financial advisors in connection with the Offer.
Without limiting the foregoing, in the event that you disclose the contents of
this letter in contravention of the preceding sentence, you shall be deemed to
have accepted the terms of this Commitment Letter (including attached Exhibits A
and B).
THIS COMMITMENT LETTER (INCLUDING THE TERM SHEET AND EXHIBIT B) REPRESENTS THE
FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE MATTERS COVERED HEREIN
AND THEREIN AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
<PAGE>
Sun Healthcare Group, Inc.
July 24, 1997
Page 5
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENT OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
THIS LETTER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF TEXAS, WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS OF LAW.
This letter may be executed in counterparts which, taken together, shall
constitute an original.
Very truly yours,
NATIONSBANK OF TEXAS, N.A.
/s/ Steve Deily
---------------
By: Steve Deily
Title: Senior Vice President
NATIONSBANC CAPITAL MARKETS, INC.
/s/ Gary Kahn
-------------
By: Gary Kahn
Title: Senior Vice President and Director
ACCEPTED AND AGREED TO:
SUN HEALTHCARE GROUP, INC.
/s/ Robert D. Woltil
- --------------------
By: Robert D. Woltil
Title: Chief Financial Officer
Date: July 26, 1997
<PAGE>
=============================================================================
The following exhibit is confidential and may not be disclosed by you to any
third party or governmental entity without the prior written consent of
NationsBank and NationsBanc Capital Markets, Inc., except as provided in the
Commitment Letter to which this exhibit is attached.
=============================================================================
EXHIBIT A
---------
SUN HEALTHCARE GROUP, INC.
SUMMARY OF PROPOSED TERMS AND CONDITIONS
JULY 24, 1997
=============================================================================
BORROWER: Sun Healthcare Group, Inc. ("Sun") and certain of its
subsidiaries which NationsBank may elect to designate as
co-Borrowers (collectively the "Borrower").
GUARANTORS: The Senior Credit Facilities shall be guaranteed by all
existing and hereafter acquired material domestic
subsidiaries of Sun upon consummation of the
Acquisition. All guarantees shall be guarantees of
payment and not of collection.
AGENT: NationsBank of Texas, N.A. (the "Agent" or
"NationsBank") will act as sole and exclusive
administrative and collateral agent. As such,
NationsBank will negotiate with the Borrower, act as the
primary contact for the Borrower and perform all other
duties associated with the role of exclusive
administrative agent. No other agents or co-agents may
be appointed without the prior written consent of
NationsBank and NCMI.
ARRANGER &
SYNDICATION AGENT: NationsBanc Capital Markets, Inc. ("NCMI").
LENDERS: A syndicate of financial institutions (including
NationsBank) arranged by NCMI, which institutions shall
be acceptable to the Borrower and the Agent
(collectively, the "Lenders").
SENIOR CREDIT
FACILITIES: An aggregate principal amount of up to $1,000,000,000
will be available under the conditions hereinafter set
forth:
Revolving Credit Facility: $500 million revolving
--------------------------
credit facility, which will include a $75 million
sublimit for the issuance of standby and commercial
letters of credit (each a "Letter of Credit"). Letters
of Credit will be issued by NationsBank (in such
capacity, the "Fronting Bank"), and each Lender will
purchase an irrevocable and unconditional participation
in each Letter of Credit.
A-1
<PAGE>
Summary of Proposed Terms and Conditions (continued...) Confidential
- --------------------------------------------------------------------------------
Term Loan Facility: $500 million term loan
-------------------
facility comprised of the following term loan tranches.
(i) $250 million Tranche A Term Loan
(ii) $250 million Tranche B Term Loan.
Provided, however, the Agent reserves the right, in its
discretion, to reallocate the principal amount of the
Term Loan Facility among the various tranches (with
corresponding changes to the amortization schedule set
forth below) if the Agent believes such reallocation
will result in a more successful syndication of the
Senior Credit Facilities.
PURPOSE: The proceeds of the Senior Credit Facilities shall be
used: (i) to refinance the outstanding principal
balance of certain existing indebtedness of Regency
Health Services (the "Acquired Company") and the
Borrower (ii) to pay the cash portion of the purchase
price for the Acquired Company pursuant to the Purchase
Agreement (as defined below); (iii) to pay fees and
expenses incurred in connection with the Acquisition and
(iv) to provide for working capital and general
corporate purposes of the Borrower.
INTEREST RATES: The Senior Credit Facilities shall bear interest, at the
option of the Borrower, at a rates per annum equal to
either (i) the LIBOR interbank rate, adjusted for
reserves, or (ii) the Base Rate (defined as the higher
of (a) the NationsBank prime rate and (b) the Federal
Funds rate plus 1/2%), in each case plus the "Applicable
Margins" set forth below.
<TABLE>
<CAPTION>
LIBOR + Base Rate +
------- -----------
<S> <C> <C>
Revolving Credit Loans 225 bps 75 bps
Tranche A Term Loans 225 bps 75 bps
Tranche B Term Loans 275 bps 125 bps
</TABLE>
The Applicable Margins set forth above for the Senior
Credit Facilities will be subject to performance pricing
step-downs commencing upon receipt of the 12/31/97
financial statements, based upon the Borrower's Leverage
Ratio (including Operating Lease Payments times a factor
of 8), to be mutually agreed upon.
If during the 180 day period following the Closing, any
breakage costs, charges or fees are incurred with
respect to LIBOR loans on account of the syndication of
the Senior Credit Facilities, the Borrower shall
immediately reimburse the Agent for any such costs,
charges or fees. Such right of reimbursement to be in
addition to and not in limitation of customary cost and
yield protection.
The Borrower may select interest periods of 1, 2, 3 or 6
months for LIBOR loans, subject to availability.
A penalty rate shall apply on all loans in the event of
default at a rate per annum of 2% above the applicable
interest rate.
A-2
<PAGE>
Summary of Proposed Terms and Conditions (continued...) Confidential
- --------------------------------------------------------------------------------
The loan documentation shall include cost and yield
protection customary for transaction and facilities of
this type, including without limitation changes in
capital adequacy and capital requirements or their
interpretation, illegality, unavailability, and
reserves, all without proration or offset.
LETTER OF CREDIT FEES: Letter of credit fees are due quarterly in arrears to be
shared proportionately by the Lenders. Fees will be
equal to the Applicable Margin in effect from time to
time for Revolving Credit LIBOR loans on a per annum
basis plus a fronting fee of 12.5 bps per annum to be
paid to Fronting Bank for its own account. Fees will be
calculated on the aggregate stated amount for each
letter of credit for the stated duration thereof.
COMMITMENT FEE A 50 basis points per annum (calculated on the basis of
actual number of days elapsed in a year of 360 days)
Commitment Fee calculated on the unused portion of the
Senior Credit Facilities shall commence to accrue upon
execution of a definitive credit agreement, and payable
thereafter quarterly in arrears. The Commitment Fee will
be subject to performance pricing step-downs commencing
upon receipt of the 12/31/97 financial statements, based
upon the Borrower's Leverage Ratio (including Operating
Lease Payments times a factor of 8), to be mutually
agreed upon.
MATURITY: The Revolving Credit Facility shall terminate and all
amounts outstanding thereunder shall be due and payable
in full 6 years from Closing.
The Term Loan Facilities shall be subject to repayment
according to the Scheduled Amortization, with the final
payment of all amounts outstanding, plus accrued
interest, being due 6 years from Closing for the Tranche
A Term Loan and 7 years from Closing for the Tranche B
Term Loan.
AVAILABILITY/SCHEDULED
AMORTIZATION: Revolving Credit Facility: Loans under the Revolving
--------------------------
Credit Facility ("Revolving Credit Loans", and together
with the Term Loans, the "Loans") may be made, and
Letters of Credit may be issued (subject to the $75
million sublimit) up to the amount of the Revolving
Credit Facility.
Term Loan Facilities: The Tranche A Term Loan and the
---------------------
Tranche B Term Loan will be available in a single
borrowing at Closing. The Term Loan Facility will be
subject to quarterly amortization of principal, based
upon the annual amounts shown below (the "Scheduled
Amortization").
<TABLE>
<CAPTION>
Tranche A Tranche B
--------- ---------
<S> <C> <C>
Loan year 1 [TBD] [TBD]
Loan year 2 [TBD] [TBD]
Loan year 3 [TBD] [TBD]
Loan year 4 [TBD] [TBD]
Loan year 5 [TBD] [TBD]
Loan year 6 [TBD] [TBD]
Loan year 7 - [TBD]
</TABLE>
A-3
<PAGE>
Summary of Proposed Terms and Conditions (continued...) Confidential
- --------------------------------------------------------------------------------
SECURITY: Concurrently with the Acquisition, the Agent (on behalf
of the Lenders) shall receive a first priority perfected
security interest in all of the capital stock of each of
the domestic subsidiaries (direct or indirect) of Sun
(other than Regency Health Services ("Regency") if after
consummation of the Acquisition, Regency has total
assets with a book value of less than $500,000) and 66%
of the capital stock of each foreign subsidiary which is
a direct subsidiary of the Borrower or any of its
domestic subsidiaries, which capital stock shall not be
subject to any other lien or encumbrance.
The foregoing security shall ratably secure the Senior
Credit Facilities and any interest rate swap/foreign
currency swap or similar agreements with a Lender under
the Senior Credit Facilities.
MANDATORY PREPAYMENTS
AND COMMITMENT
REDUCTIONS: Until the Borrower's Leverage Ratio is reduced below a
mutually agreed upon level, in addition to the
amortization set forth above, the Senior Credit
Facilities will be prepaid by an amount equal to (a)
100% of the net cash proceeds of all asset sales by the
Borrower or any domestic subsidiary of the Borrower
(including stock of subsidiaries), subject to de minimus
baskets and reinvestment provisions to be agreed upon
and net of selling expenses and taxes to the extent such
taxes are paid; (b) 75% of Excess Cash Flow (to be
defined) pursuant to an annual cash sweep arrangement;
(c) 100% of the net cash proceeds from the issuance of
any debt (excluding certain permitted debt) by the
Borrower or any domestic subsidiary; and (d) 100% of the
net cash proceeds from the issuance of equity (excluding
certain proceeds such as proceeds from the exercise of
options) by the Borrower or any domestic subsidiary.
Prepayments shall be applied pro rata to reduce the
Tranche A Term Loan and the Tranche B Term Loan and
within each tranche pro rata with respect to each
remaining installment of principal. Holders of the
Tranche B Term Loan may, so long as there is a principal
balance outstanding with respect to the Tranche A Term
Loan, decline to accept any mandatory prepayment
described above and, under such circumstances, all
amounts that would otherwise be used to prepay Tranche B
Term Loan above shall be used to prepay Tranche A Term
Loan. In the event the Term Loan Facilities shall have
been completely prepaid, the mandatory payments
described above shall be applied to permanently reduce
the amount available under the Revolving Credit
Facility.
OPTIONAL PREPAYMENTS
AND COMMITMENT
REDUCTIONS: The Borrower may prepay the Senior Credit Facilities in
whole or in part at any time without penalty, subject to
reimbursement of the Lenders' breakage and re-deployment
costs in the case of prepayment of LIBOR borrowings.
A-4
<PAGE>
Summary of Proposed Terms and Conditions (continued...) Confidential
- --------------------------------------------------------------------------------
CONDITIONS PRECEDENT
TO CLOSING: The initial funding of the Senior Credit Facilities will
be subject to satisfaction of the conditions precedent
deemed appropriate by the Agent and the Lenders for
leveraged financings generally and for this transaction
in particular, including but not limited to the
following:
(i) The completion of all due diligence with respect
to the Borrower and its subsidiaries (including
the Acquired Company and its subsidiaries) in
scope and determination satisfactory to
NationsBank and NCMI in their sole discretion.
(ii) The negotiation, execution and delivery of
definitive documentation with respect to the
Senior Credit Facilities satisfactory to NCMI, the
Agent and the Lenders.
(iii) The Agent's satisfactory review of the purchase
agreement (including all schedules exhibits
thereto) regarding the Acquired Company (the
"Purchase Agreement"). The Purchase Agreement
shall have been consummated in accordance with the
terms thereof and in compliance with applicable
law and regulatory approvals. The Purchase
Agreement shall not be altered, amended or
otherwise changed or supplemented or any condition
therein waived, without the prior written consent
of the Agent.
(iv) After giving effect to the Acquisition, the
corporate capital and ownership structure
(including articles of incorporation and by-laws),
shareholders agreements and management of the
Borrower and its subsidiaries (including the
Acquired Company and its subsidiaries), shall be
satisfactory to the Agent. Without limiting the
generality of the above, the Agent shall be
satisfied that after giving affect to transactions
contemplated hereby, at the Closing (a) the
Borrower's ratio of senior indebtedness to pro-
forma EBITDA shall not exceed 4.35 to 1.0, and (b)
the Borrower's ratio of total indebtedness plus
8x's operating leases to pro-forma EBITDAR shall
not exceed 6.25 to 1.0.
(v) The Agent shall have received and, in each case,
approved the consolidated financial statements of
the Acquired Company and its subsidiaries for the
fiscal years 12/31/94, 12/31/95 and 12/31/96
including balance sheets, income and cash flow
statements audited by independent public
accountants of recognized national standing and
prepared in conformity with GAAP, a pro forma
balance sheet of the Borrower and its subsidiaries
(including the Acquired Company and its
subsidiaries) as of the Closing Date giving effect
to the Acquisition and the transactions
contemplated hereby and reflecting estimated
purchase price accounting adjustments, and such
other
A-5
<PAGE>
Summary of Proposed Terms and Conditions (continued...) Confidential
- --------------------------------------------------------------------------------
information relating to the Acquisition as the
Agent may require.
(vi) There shall not have occurred a material adverse
change since 12/31/96 in the business, assets,
operations, condition (financial or otherwise) or
prospects of the Borrower and its subsidiaries and
the Acquired Company and its subsidiaries taken as
a whole, or in the facts and information regarding
such entities as represented to date.
(vii) The Agent shall have been satisfied with the form
and content of the reports of the environmental
consultants with respect to all real properties
owned or leased by the Borrower and its
subsidiaries (including the Acquired Company and
its subsidiaries).
(viii) The Agent shall have received (a) satisfactory
opinions of counsel to the Borrower (which shall
cover, among other things, authority, legality,
validity, binding effect and enforceability of the
documents for the Senior Credit Facilities) and
such corporate resolutions, certificates and other
documents as the Agent shall reasonably require and
(b) satisfactory evidence that the Agent (on behalf
of the Lenders) holds a perfected, first priority
lien in all collateral for the Senior Credit
Facilities, subject to no other liens except for
permitted liens to be determined.
(ix) Receipt of all governmental, shareholder and third
party consents (including Hart-Scott Rodino
clearance) and approvals necessary or, in the
opinion of the Agent, desirable in connection with
the purchase of the Acquired Company and the
related financings and other transactions
contemplated hereby and expiration of all
applicable waiting periods without any action being
taken by any authority that could restrain, prevent
or impose any material adverse conditions on the
Borrower and its subsidiaries (including the
Acquired Company and its subsidiaries), or such
other transactions, or that could seek or threaten
any of the foregoing, and no law or regulation
shall be applicable which in the judgment of the
Agent could have such effect.
(x) The absence of any action, suit, investigation or
proceeding pending or threatened in any court or
before any arbitrator or governmental authority
that purports to affect the Borrower and its
subsidiaries (including the Acquired Company and
its subsidiaries) or any transaction contemplated
hereby, that could, if adversely determined, have a
material adverse effect on the Borrower and its
subsidiaries (including the Acquired Company and
its subsidiaries) or any transaction contemplated
hereby, or that could, if adversely determined,
have an adverse affect on the ability of the
Borrower and its subsidiaries (including
A-6
<PAGE>
Summary of Proposed Terms and Conditions (continued...) Confidential
- --------------------------------------------------------------------------------
the Acquired Company and its subsidiaries) to
perform their obligations under the documents to be
executed in connection with the Senior Credit
Facilities.
(xi) The Borrower and its subsidiaries (including the
Acquired Company and its subsidiaries) shall be in
compliance with all existing financial obligations
(after giving effect to the Acquisition).
(xii) Receipt and review, with results satisfactory to
the Agent and its counsel, of information regarding
litigation, tax, accounting, labor, insurance,
pension liabilities (actual or contingent), real
estate leases, material contracts, debt agreements,
property ownership, and contingent liabilities of
the Borrower and its subsidiaries (including the
Acquired Company and its subsidiaries).
REPRESENTATIONS &
WARRANTIES: Consistent with the current Credit Agreement and taking
into account the transaction contemplated hereby, to
include without limitation: (i) corporate status; (ii)
corporate power and authority/enforceability; (iii) no
violation of law or contracts or organizational
documents; (iv) no material litigation; (v) correctness
of specified financial statements and no material
adverse change; (vi) no required governmental or third
party approvals; (vii) use of proceeds/compliance with
margin regulations; (viii) status under Investment
Company Act; (ix) ERISA; (x) environmental matters; (xi)
perfected liens and security interests; (xii) payment of
taxes, and (xiii) consummation of the Acquisition.
COVENANTS: Consistent with the current Credit Agreement and taking
into account the transaction contemplated hereby, to
include without limitation: (i) delivery of financial
statements and other reports; (ii) delivery of
compliance certificates: (iii) notices of default,
material litigation and material governmental and
environmental proceedings; (iv) compliance with laws;
(v) payment of taxes; (vi) maintenance of insurance;
(vii) limitation on liens; (viii) limitations on
mergers, consolidations and sales of assets; (ix)
limitations on incurrence of debt; (x) limitations on
dividends and stock redemptions and the redemption
and/or prepayment of other debt; (xi) limitations on
investments; (xii) ERISA; (xiii) limitation on
transactions with affiliates; and (xiv) limitation on
capital expenditures.
Financial covenants to include (but not limited to):
. Maintenance on a rolling four quarter basis of a
Maximum Leverage Ratio (total funded debt + 8x
operating leases/EBITDAR),
. Maintenance on a rolling four quarter basis of a
Maximum Senior Debt/EBITDA Ratio.
A-7
<PAGE>
Summary of Proposed Terms and Conditions (continued...) Confidential
- --------------------------------------------------------------------------------
. Maintenance on a rolling four quarter basis of a
Minimum Fixed Charge Coverage Ratio
(EBITDAR)/(interest expense + scheduled principal
repayments + leases), and
. Maximum Total Debt/Total Capitalization
EVENTS OF DEFAULT: Consistent with the current Credit Agreement and taking
into account the transaction contemplated hereby, to
include without limitation: (i) nonpayment of principal,
interest, fees or other amounts, (ii) violation of
covenants, (iii) inaccuracy of representations and
warranties, (iii) cross-default to other material
agreements and indebtedness, (iv) bankruptcy, (v)
material judgments, (vi) ERISA, (vii) actual or asserted
invalidity of any loan documents or security interests,
(viii) Change in Control of the Borrower.
ASSIGNMENTS/
PARTICIPATIONS: Each Lender will be permitted to make assignments to
other financial institutions approved by the Borrower
and the Agent, which approval shall not be unreasonably
withheld. Lenders will be permitted to sell
participations with voting rights limited to significant
matters such as changes in amount, rate, and maturity
date. An assignment fee of $3,500 is payable by the
Lender to the Agent upon any such assignment occurring
(including, but not limited to an assignment by a Lender
to another Lender).
WAIVERS &
AMENDMENTS: Amendments and waivers of the provisions of the loan
agreement and other definitive credit documentation will
require the approval of Lenders holding loans and
commitments representing more than 50% of the aggregate
amount of loans and commitments under the Senior Credit
Facilities, except that (a) the consent of all the
Lenders affected thereby shall be required with respect
to (i) increases in commitment amounts, (ii) reductions
of principal, interest, or fees, (iii) extensions of
scheduled maturities or times for payment, (iv) releases
of all or substantially all collateral and (v) releases
of all or substantially all guarantors and (b) the
consent of the Lenders holding at least 50% of the
Tranche A Term Loan Facility and at least 50% of the
Tranche B Term Loan Facility shall be required with
respect to any amendment that changes the allocation of
any payment between the Tranche A and Tranche B Term
Loan Facilities.
INDEMNIFICATION: The Borrower shall indemnify the Lenders from and
against all losses, liabilities, claims, damages or
expenses relating to their loans, the Borrower's use of
loan proceeds or the commitments, including but not
limited to reasonable attorneys' fees and settlements
costs. This indemnification shall survive and continue
for the benefit of the Lenders at all times after the
Borrower's acceptance of the Lenders' commitment for the
Senior Credit Facilities, notwithstanding any failure of
the Senior Credit Facilities to close.
A-8
<PAGE>
Summary of Proposed Terms and Conditions (continued...) Confidential
- --------------------------------------------------------------------------------
CLOSING: On or before December 31, 1997, unless extended to a
later Closing Date in the sole discretion of the
Arranger.
GOVERNING LAW: Texas.
EXPENSES: Borrower will pay all reasonable costs and expenses
associated with the preparation, due diligence,
administration, syndication and enforcement of all
documents executed in connection with the Senior Credit
Facilities, including without limitation, the legal fees
of the Agent's counsel regardless of whether or not the
Senior Credit Facilities are closed.
OTHER: This term sheet is intended as an outline only and does
not purport to summarize all the conditions, covenants,
representations, warranties and other provisions which
would be contained in definitive legal documentation for
the Senior Credit Facilities contemplated hereby. The
parties to the Senior Credit Facility shall waive their
right to a trial by jury.
A-9
<PAGE>
Exhibit (c)(1)
CONFORMED COPY
================================================================================
AGREEMENT AND PLAN OF MERGER
by and among
SUN HEALTHCARE GROUP, INC.,
SUNREG ACQUISITION CORP.
and
REGENCY HEALTH SERVICES, INC.
------------------
DATED AS OF JULY 26, 1997
------------------
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1 THE OFFER...................................................... 2
Section 1.1 The Offer................................................ 2
Section 1.2 Company Actions.......................................... 4
ARTICLE 2 THE MERGER..................................................... 5
Section 2.1 The Merger............................................... 5
Section 2.2 Closing; Effective Time.................................. 5
Section 2.3 Certificate of Incorporation............................. 6
Section 2.4 By-laws.................................................. 6
Section 2.5 Directors and Officers................................... 6
ARTICLE 3 EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATION; EXCHANGE OF CERTIFICATES.......................... 6
Section 3.1 Effect on Capital Stock.................................. 6
Section 3.2 Exchange of Common Stock................................. 7
Section 3.3 No Liability............................................. 8
Section 3.4 Certain Adjustments...................................... 8
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................. 9
Section 4.1 Organization............................................. 9
Section 4.2 Capitalization........................................... 9
Section 4.3 Subsidiaries............................................. 10
Section 4.4 Authorization; Binding Agreement......................... 10
Section 4.5 Noncontravention......................................... 10
Section 4.6 Governmental Approvals................................... 11
Section 4.7 SEC Filings; Financial Statements........................ 11
Section 4.8 Information Supplied..................................... 12
Section 4.9 Absence of Certain Changes or Events..................... 12
Section 4.10 Finders and Investment Bankers; Transaction Expenses..... 13
Section 4.11 Voting Requirement....................................... 13
Section 4.12 Litigation............................................... 13
Section 4.13 Taxes.................................................... 13
Section 4.14 Permits; Compliance with Laws............................ 14
Section 4.15 Title to Properties...................................... 15
Section 4.16 State Takeover Statutes.................................. 15
Section 4.17 Employee Benefit Plans................................... 16
Section 4.18 Insurance................................................ 17
Section 4.19 Environmental Matters.................................... 17
Section 4.20 Opinion of Financial Advisor............................. 18
Section 4.21 Intellectual Property.................................... 18
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB........ 19
Section 5.1 Organization............................................. 19
Section 5.2 Authorization; Binding Agreement......................... 19
Section 5.3 Noncontravention......................................... 19
Section 5.4 Governmental Approvals................................... 19
Section 5.5 Information Supplied..................................... 20
Section 5.6 Financing................................................ 20
Section 5.7 Regulatory Approval...................................... 20
Section 5.8 Compliance with Laws..................................... 21
Section 5.9 Litigation............................................... 21
ARTICLE 6 COVENANTS...................................................... 21
Section 6.1 Conduct of Business of the Company....................... 21
Section 6.2 Stockholder Approval; Proxy Statement.................... 23
Section 6.3 Access and Information................................... 24
Section 6.4 No Solicitation.......................................... 24
Section 6.5 Reasonable Efforts; Additional Actions................... 25
Section 6.6 Notification of Certain Matters.......................... 26
Section 6.7 Public Announcements..................................... 27
Section 6.8 Indemnification and Insurance............................ 27
Section 6.9 Directors................................................ 28
Section 6.10 Employee Matters......................................... 28
Section 6.11 Consummation of Merger................................... 29
Section 6.12 Debt Offers/Consent Solicitations........................ 30
ARTICLE 7 CONDITIONS..................................................... 30
Section 7.1 Conditions to Each Party's Obligations................... 30
ARTICLE 8 TERMINATION.................................................... 31
Section 8.1 Termination.............................................. 31
Section 8.2 Procedure for and Effect of Termination.................. 32
Section 8.3 Fees and Expenses........................................ 32
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE 9 MISCELLANEOUS................................................ 33
Section 9.1 Certain Definitions................................... 33
Section 9.2 Amendment and Modification............................ 33
Section 9.3 Waiver of Compliance; Consents........................ 34
Section 9.4 Survival.............................................. 34
Section 9.5 Notices............................................... 34
Section 9.6 Assignment............................................ 35
Section 9.7 GOVERNING LAW......................................... 35
Section 9.8 Counterparts.......................................... 35
Section 9.9 Interpretation........................................ 36
Section 9.10 Entire Agreement...................................... 36
Section 9.11 No Third Party Beneficiaries.......................... 36
Section 9.12 Obligations of Parent................................. 36
EXHIBIT A - CONDITIONS OF THE OFFER
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of July 26, 1997 (the
"Agreement"), by and among SUN HEALTHCARE GROUP, INC., a Delaware corporation
---------
("Parent"), SUNREG ACQUISITION CORP., a Delaware corporation and a wholly owned
------
subsidiary of the Parent ("Merger Sub"), and REGENCY HEALTH SERVICES, INC., a
----------
Delaware corporation (the "Company"). Merger Sub and the Company are sometimes
-------
collectively referred to herein as the "Constituent Corporations."
------------------------
WHEREAS, the respective Boards of Directors of Parent, Merger Sub and
the Company have each determined that it is advisable and in the best interests
of their respective stockholders for Parent to acquire the Company on the terms
and subject to the conditions set forth in this Agreement;
WHEREAS, in furtherance of such acquisition, Parent proposes to cause
Merger Sub to make a tender offer (as it may be amended from time to time as
permitted under this Agreement, the "Offer") to purchase all the issued and
-----
outstanding shares ("Shares") of Common Stock, par value $.01 per share, of the
------
Company (the "Common Stock"), at a price per share of Common Stock of $22.00 net
------------
to the seller in cash, upon the terms and subject to the conditions set forth in
this Agreement; and the Board of Directors of the Company has approved the Offer
and the Merger (as hereinafter defined) and is recommending that the Company's
stockholders accept the Offer;
WHEREAS, concurrently with the execution of this Agreement and as an
inducement to Parent to enter into this Agreement, Parent, Merger Sub and
certain stockholders of the Company are entering into a Stockholder Agreement
(the "Stockholder Agreement") pursuant to which such stockholders have, among
---------------------
other things, agreed to tender all such stockholders' shares of Common Stock to
Merger Sub at the price per Share paid in the Offer, upon the terms and subject
to the conditions set forth in the Stockholder Agreement; and the Stockholder
Agreement has been approved by the Board of Directors of the Company;
WHEREAS, Parent, Merger Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Offer and the Merger and also to prescribe various conditions to the Offer and
the Merger.
NOW THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties hereto agree as follows:
1
<PAGE>
ARTICLE 1
THE OFFER
Section 1.1 The Offer.
---------
(a) Subject to the provisions of this Agreement, as promptly as
practicable but in no event later than the fifth business day from and including
the date of the public announcement of this Agreement, Merger Sub shall, and
Parent shall cause Merger Sub to, commence the Offer. The obligation of Merger
Sub to, and of Parent to cause Merger Sub to, commence the Offer and accept for
payment, and pay for, any shares of Common Stock tendered pursuant to the Offer
shall be subject only to the conditions set forth in Exhibit A (any of which may
be waived by Merger Sub in its sole discretion, provided that, without the
consent of the Company, Merger Sub shall not waive the Minimum Condition (as
defined in Exhibit A)) and to the terms and conditions of this Agreement.
Merger Sub may at any time transfer or assign to one or more corporations
directly or indirectly wholly owned by Parent the right to purchase all or any
portion of the Shares tendered pursuant to the Offer, but no such assignment
shall relieve Parent or Merger Sub of its obligations hereunder. Merger Sub
expressly reserves the right to modify the terms of the Offer, except that,
without the consent of the Company, Merger Sub shall not (i) reduce the number
of shares of Common Stock subject to the Offer, (ii) reduce the price per share
of Common Stock to be paid pursuant to the Offer (except pursuant to Section
3.4), (iii) modify or add to the conditions set forth in Exhibit A, (iv) except
as provided in the remainder of this Section 1.1, extend the Offer, (v) change
the form of consideration payable in the Offer (other than by increasing the
cash offer price) or (vi) amend or modify any term of the Offer in any manner
adverse to any of the Company's stockholders. The initial expiration date shall
be September 15, 1997. Notwithstanding the foregoing, Merger Sub may, without
the consent of the Company, but subject to the Company's right to terminate this
Agreement pursuant to Section 8.1(b)(ii), (i) extend the Offer, if at the
scheduled expiration date of the Offer any of the conditions to Merger Sub's
obligation to purchase shares of Common Stock shall not be satisfied, until such
time as such conditions are satisfied or waived or (ii) extend the Offer for any
period required by any rule, regulation, interpretation or position of the
Securities and Exchange Commission (the "SEC") or the staff thereof applicable
---
to the Offer or in order to obtain any material regulatory approval applicable
to the Offer. Merger Sub agrees that: (A) in the event it would otherwise be
entitled to terminate the Offer at any scheduled expiration thereof due to the
failure of one or more of the conditions set forth in the first sentence of the
introductory paragraph or paragraphs (a) or (g) of Exhibit A to be satisfied or
waived, it shall give the Company notice thereof and, at the request of the
Company, if such conditions are reasonably likely to be satisfied during the
requested extension period, extend the Offer until the earlier of (1) such time
as such condition is, or conditions are, satisfied or waived and (2) the date
chosen by the Company, which shall not be later than (x) December 31, 1997 or
(y) the date on which the Company reasonably believes all such conditions will
be satisfied (it being understood that the Company shall not be entitled to make
such request if it is then in breach of this Agreement, and that nothing in this
Section 1.1 shall modify Parent's and Merger Sub's right to terminate this
Agreement in the event that the Company is in breach hereof or the conditions
specified in paragraphs (d) or (e) of Annex A are applicable); provided that if
--------
any such condition is not satisfied by the date so chosen by the Company, the
Company may request
2
<PAGE>
and Merger Sub shall make further extensions of the Offer in accordance with
the terms of this Section 1.1(a); and (B) in the event that Merger Sub would
otherwise be entitled to terminate the Offer at any scheduled expiration date
thereof due solely to the failure of the Minimum Condition to be satisfied, it
shall, at the request of the Company, extend the Offer for such period as may be
requested by the Company not to exceed ten business days from such scheduled
expiration date. Subject to the terms and conditions of the Offer and this
Agreement, Merger Sub shall, and Parent shall cause Merger Sub to, pay for all
shares of Common Stock validly tendered and not withdrawn pursuant to the Offer
that Merger Sub becomes obligated to purchase pursuant to the Offer immediately
after the expiration of the Offer; provided, however, that notwithstanding the
-------- -------
foregoing Parent may, in its sole discretion, extend the expiration date of the
Offer for a period not to exceed ten business days and in no event ending after
December 31, 1997, if Parent reasonably believes that as a result of such
extension 90% or more of the Shares will be tendered in the Offer. If, at any
scheduled expiration date prior to October 1, 1997, there shall have been
tendered, and not withdrawn, fewer than 90% of the Shares, then Merger Sub
shall, at the request of the Company, extend the Offer for such number of days
(up to 20 calendar days) as the Company may request. No such request shall be
made by the Company if, in its sole judgment, it concludes that the Merger could
be consummated on or prior to October 6, 1997.
(b) On the date of commencement of the Offer, Parent and Merger Sub
shall file with the SEC a Tender Offer Statement on Schedule 14D-1 with respect
to the Offer, which shall contain an offer to purchase and a related letter of
transmittal and summary advertisement (such Schedule 14D-1 and the documents and
exhibits included therein pursuant to which the Offer will be made, together
with any supplements or amendments thereto, the "Offer Documents"). The Offer
---------------
Documents shall comply as to form in all material respects with the requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
------------
rules and regulations promulgated thereunder and the Offer Documents on the date
first published, sent or given to the Company's stockholders, shall not 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, except that no representation is made by Parent or Merger Sub with
respect to information supplied by the Company in writing for inclusion in the
Offer Documents. Each of Parent, Merger Sub and the Company agrees promptly to
correct any information provided by it for use in the Offer Documents if and to
the extent that such information shall have become false or misleading in any
material respect, and each of Parent and Merger Sub further agrees to take all
steps necessary to amend or supplement the Offer Documents and to cause the
Offer Documents as so amended or supplemented to be filed with the SEC and to be
disseminated to the Company's stockholders, in each case as and to the extent
required by applicable Federal securities laws. The Company and its counsel
shall be given a reasonable opportunity to review the Offer Documents and all
amendments and supplements thereto prior to their filing with the SEC or
dissemination to stockholders of the Company. Parent and Merger Sub agree to
provide the Company and its counsel any comments Parent, Merger Sub or their
counsel may receive from the SEC or its staff with respect to the Offer
Documents promptly after the receipt of such comments.
3
<PAGE>
(c) Parent shall contribute to Merger Sub on a timely basis the funds
necessary to purchase any shares of Common Stock that Merger Sub becomes
obligated to purchase pursuant to the Offer and to perform any of its other
obligations pursuant to this Agreement.
Section 1.2 Company Actions.
---------------
(a) The Company hereby approves of and consents to the Offer and
represents that the Board of Directors of the Company, at a meeting duly called
and held on July 26, 1997, unanimously adopted resolutions approving this
Agreement and the Stockholder Agreement and the transactions contemplated hereby
and thereby, including, the Offer and the Merger, determining that the terms of
the Offer and the Merger are fair to, and in the best interests of, the
Company's stockholders and recommending that the Company's stockholders accept
the Offer and tender their shares pursuant to the Offer and approve and adopt
this Agreement. The Company has been advised by each of its directors and
executive officers that each such person intends to tender all shares of Common
Stock owned individually by such person pursuant to the Offer.
(b) Promptly following the filing of the Offer Documents with the SEC,
the Company shall file with the SEC a Solicitation/Recommendation Statement on
Schedule 14D-9 with respect to the Offer (such Schedule 14D-9, as amended from
time to time, the "Schedule 14D-9") containing the recommendation described in
--------------
Section 1.2(a) and shall mail the Schedule 14D-9 to the stockholders of the
Company; provided that the Company shall not be required to include such
--------
recommendation in the Schedule 14D-9 if the Company receives a bona fide written
Acquisition Proposal (as defined in Section 6.4) from any person or group, the
receipt of which was not related to a breach of Section 6.4, (i) that the Board
of Directors of the Company determines in its good faith judgment, after
consultation with the Company's financial advisor, is a Superior Proposal (as
defined in Section 6.4) and (ii) as a result of which, the Board determines in
good faith, after consultation with, and receipt of advice from, the Company's
outside counsel, that it would constitute a breach of the Board's fiduciary duty
under applicable law to so include such recommendation. The Schedule 14D-9
shall comply as to form in all material respects with the requirements of the
Exchange Act and the rules and regulations promulgated thereunder and, on the
date filed with the SEC and on the date first published, sent or given to the
Company's stockholders, shall not 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, except that no representation is
made by the Company with respect to information supplied by Parent or Merger Sub
in writing for inclusion in the Schedule 14D-9. Each of the Company, Parent and
Merger Sub agrees promptly to correct any information provided by it for use in
the Schedule 14D-9 if and to the extent that such information shall have become
false or misleading in any material respect, and the Company further agrees to
take all steps necessary to amend or supplement the Schedule 14D-9 and to cause
the Schedule 14D-9 as so amended or supplemented to be filed with the SEC and
disseminated to the Company's stockholders, in each case as and to the extent
required by applicable Federal securities laws. Parent and its counsel shall be
given a reasonable opportunity to review the Schedule 14D-9 and all amendments
and supplements thereto prior to their filing with the SEC or dissemination to
stockholders of the
4
<PAGE>
Company. The Company agrees to provide Parent and its counsel in writing with
any comments the Company or its counsel may receive from the SEC or its staff
with respect to the Schedule 14D-9 promptly upon the receipt of such comments.
(c) In connection with the Offer, the Company shall cause its transfer
agent to furnish Merger Sub promptly with mailing labels containing the names
and addresses of the record holders of Common Stock as of a recent date and of
those persons becoming record holders subsequent to such date, together with
copies of all lists of stockholders, security position listings and computer
files and all other information in the Company's possession or control regarding
the beneficial owners of Common Stock, and shall furnish to Merger Sub such
information and assistance (including updated lists of stockholders, security
position listings and computer files) as Parent may reasonably request in
communicating the Offer to the Company's stockholders. Subject to the
requirements of applicable law, and except for such steps as are necessary to
disseminate the Offer Documents and any other documents necessary to consummate
the Merger, Parent and Merger Sub shall hold in confidence the information
contained in any such labels, listings and files, will use such information only
in connection with the Offer and the Merger and, if this Agreement shall be
terminated, will, upon request, deliver to the Company all copies (in all forms)
of such information then in their possession or control.
ARTICLE 2
THE MERGER
Section 2.1 The Merger. Subject to the last two sentences of this
----------
Section 2.1, upon the terms and subject to the conditions of this Agreement, at
the Effective Time (as defined in Section 2.2) and in accordance with the
General Corporation Law of the State of Delaware (the "DGCL"), Merger Sub shall
----
be merged with and into the Company, which shall be the surviving corporation in
the Merger (the "Surviving Corporation"). At the Effective Time, the separate
---------------------
existence of Merger Sub shall cease and the other effects of the Merger shall be
as set forth in Section 259 of the DGCL. At the election of Parent, if such
election would not in any manner adversely affect the Company's stockholders or
delay the transactions contemplated hereby, (i) any direct or indirect wholly
owned subsidiary (as defined in Section 9.1(e)) of Parent may be substituted for
and assume all of the rights and obligations of Merger Sub as a constituent
corporation in the Merger or (ii) the Company may be merged with and into Merger
Sub or Parent with Merger Sub or Parent, respectively, continuing as the
Surviving Corporation with the effects set forth above. In either such event,
the parties agree to execute an appropriate amendment to this Agreement in order
to reflect the foregoing.
Section 2.2 Closing; Effective Time. Subject to the provisions of
-----------------------
Article 7, the closing of the Merger (the "Closing") shall take place in New
-------
York City at the offices of Brobeck, Phleger & Harrison LLP, as soon as
practicable but in no event later than 10:00 a.m. New York City time on the
second business day after the date on which each of the conditions set forth in
Article 7 have been satisfied or waived by the party or parties entitled to the
benefit of such conditions, or at such other place, at such other time or on
such other date as Parent, Merger Sub and the Company may mutually agree. The
date on which the Closing actually
5
<PAGE>
occurs is hereinafter referred to as the "Closing Date." At the Closing,
------------
Parent, Merger Sub and the Company shall cause a certificate of merger (the
"Certificate of Merger") to be executed and filed with the Secretary of State of
- ----------------------
the State of Delaware in accordance with the DGCL. The Merger shall become
effective as of the date and time of such filing, or such other time within one
business day of such filing as Merger Sub and the Company shall agree to be set
forth in the Certificate of Merger (the "Effective Time").
--------------
Section 2.3 Certificate of Incorporation. The certificate of
----------------------------
incorporation of Merger Sub, as in effect immediately prior to the Effective
Time, shall become, from and after the Effective Time, the certificate of
incorporation of the Surviving Corporation, until thereafter altered, amended or
repealed as provided therein and in accordance with applicable law.
Section 2.4 By-laws. The by-laws of Merger Sub, as in effect
-------
immediately prior to the Effective Time, shall become, from and after the
Effective Time, the by-laws of the Surviving Corporation, until thereafter
altered, amended or repealed as provided therein and in accordance with
applicable law.
Section 2.5 Directors and Officers. The directors and officers of
----------------------
Merger Sub immediately prior to the Effective Time shall become, from and after
the Effective Time, the directors and officers of the Surviving Corporation,
until their respective successors are duly elected or appointed and qualify or
their earlier resignation or removal.
ARTICLE 3
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATION; EXCHANGE OF CERTIFICATES
Section 3.1 Effect on Capital Stock. As of the Effective Time, by
-----------------------
virtue of the Merger and without any action on the part of the holder of any
shares of Common Stock or any shares of capital stock of Merger Sub:
(a) Capital Stock of Merger Sub. Each share of the capital
---------------------------
stock of Merger Sub issued and outstanding immediately prior to the Effective
Time shall be converted into and become one fully paid and nonassessable share
of common stock, par value $0.01 per share, of the Surviving Corporation.
(b) Treasury Stock and Parent-Owned Stock. Each share of
-------------------------------------
Common Stock that is owned by the Company or any subsidiary of the Company
("Treasury Shares") and each share of Common Stock that is owned by Parent,
---------------
Merger Sub or any other subsidiary of Parent ("Parent Shares") shall
-------------
automatically be canceled and retired and shall cease to exist, and no
consideration shall be delivered in exchange therefor.
(c) Conversion of Common Stock. Subject to Section 3.1(e),
--------------------------
each issued and outstanding share of Common Stock (other than shares to be
canceled in accordance with Section 3.1(b)) shall be converted into the right to
receive from the Surviving Corporation
6
<PAGE>
in cash, without interest, the price paid for each share of Common Stock in the
Offer (the "Merger Consideration"). As of the Effective Time, all shares of the
--------------------
Common Stock shall no longer be outstanding and shall automatically be canceled
and retired and shall cease to exist, and each holder of a certificate
representing any such shares of Common Stock shall cease to have any rights with
respect thereto, except the right to receive the Merger Consideration, without
interest.
(d) Options. Immediately prior to the Effective Time, the
-------
unexercisable portion of each outstanding option (a "Company Stock Option") to
--------------------
purchase shares of Common Stock, shall become immediately exercisable in full
(by their terms or, if necessary, by action of the Company), subject to all
expiration, lapse, forfeiture and other terms and conditions thereof. The
Company shall take all action necessary so that each Company Stock Option (and
any rights thereunder) outstanding immediately prior to the Effective Time shall
be canceled immediately prior to the Effective Time in exchange for the right to
receive an amount in cash equal to the product of (A) the number of shares of
Common Stock subject to such Company Stock Option immediately prior to the
Effective Time (after giving effect to the first sentence of this Section
3.1(d)) and (B) the excess, if any, of (1) the Merger Consideration over (2) the
per share exercise price of such Company Stock Option, to be delivered by the
Surviving Corporation immediately following the Effective Time.
(e) Dissenting Shares. Notwithstanding anything in this Agreement to
-----------------
the contrary, each share of Common Stock that is issued and outstanding
immediately prior to the Effective Time and that is held by a stockholder who
has available to it, and who has properly exercised and perfected, appraisal
rights under Section 262 of the DGCL (the "Dissenting Shares"), shall not be
-----------------
converted into or exchangeable for the right to receive the Merger
Consideration, but shall be entitled to receive such consideration as shall be
determined pursuant to Section 262 of the DGCL; provided, however, that if such
-------- -------
holder shall have failed to perfect or shall have effectively withdrawn or lost
the right to appraisal and payment under the DGCL, each share of Common Stock of
such holder shall thereupon be deemed to have been converted into and to have
become exchangeable for, as of the Effective Time, the right to receive the
Merger Consideration, without any interest thereon, in accordance with Section
3.1(a), and such shares shall no longer be Dissenting Shares. The Company shall
give Parent (i) prompt notice of any demands for fair value for shares of Common
Stock received by the Company and (ii) the opportunity to participate in and
direct all negotiations and proceedings with respect to any such demands. The
Company shall not, without the prior written consent of Parent, make any payment
with respect to, or settle, offer to settle or otherwise negotiate, any such
demands.
Section 3.2 Exchange of Common Stock.
------------------------
(a) From time to time, on or before the Effective Time, in the event
fewer than 80% of the then outstanding Shares are tendered and not withdrawn
pursuant to the Offer, Parent shall cause to be deposited in trust with a bank
or trust company designated by Parent and satisfactory to the Company (the
"Paying Agent") cash, cash equivalents or a combination thereof in amounts and
- -------------
at the times necessary for the prompt payment of the Merger Consideration upon
surrender of certificates representing Shares as part of the Merger pursuant
7
<PAGE>
to Section 3.1 (it being understood that any and all interest earned on funds
made available to the Paying Agent pursuant to this Agreement and not used to
pay Merger Consideration shall be turned over to Parent).
(b) Promptly after the Effective Time, the Paying Agent (which, for
the purposes of this subsection (b), may be Parent) shall mail to each holder of
record of a certificate or certificates that immediately prior to the Effective
Time represented outstanding shares of Common Stock that were converted into the
right to receive the Merger Consideration pursuant to Section 3.1 (the
"Certificates") a form letter of transmittal (which shall specify that delivery
- -------------
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon proper delivery of the Certificates to the Paying Agent) and
instructions for use in effecting the surrender of the Certificates for payment
therefor. Upon surrender by such holder to the Paying Agent of a Certificate,
together with such letter of transmittal duly executed, the holder of such
Certificate shall be entitled to receive in exchange therefor, cash in an amount
equal to the product of the number of shares of Common Stock represented by such
Certificate multiplied by the Merger Consideration, and such Certificate shall
forthwith be canceled. No interest will be paid or accrued on the cash payable
upon the surrender of the Certificates. If the payment is to be made to a
person other than the person in whose name a Certificate surrendered is
registered, it shall be a condition of payment that (a) the Certificate so
surrendered shall be properly endorsed or otherwise in proper form for transfer
and (b) the person requesting such payment shall pay any transfer or other taxes
required by reason of the payment to a person other than the registered holder
of the Certificate surrendered or establish to the satisfaction of the Surviving
Corporation that such tax has been paid or is not applicable. Until surrendered
in accordance with the provisions of this Section 3.2, each Certificate shall
represent for all purposes whatsoever only the right to receive the Merger
Consideration in cash multiplied by the number of shares evidenced by such
Certificate, without any interest thereon.
(c) After the Effective Time there shall be no transfers on the stock
transfer books of the Surviving Corporation of the shares of Common Stock that
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for
transfer or for any other reason, they shall be canceled and exchanged for cash
as provided in this Article 3, except as otherwise provided by law.
Section 3.3 No Liability. None of Parent, Merger Sub, the Company or
------------
the Paying Agent shall be liable to any person in respect of any cash from the
Payment Fund delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
Section 3.4 Certain Adjustments. If between the date of this Agreement
-------------------
and the time of the Majority Acquisition (as defined below), the outstanding
shares of Common Stock shall be changed into a different number of shares by
reason of any reclassification, recapitalization, split-up, combination or
exchange of shares, or any dividend payable in stock or other securities shall
be declared thereon with a record date within such period, or the number of
shares of Common Stock on a fully diluted basis is in excess of that specified
in Section 4.2 (regardless of whether such excess is a result of an additional
issuance of Common Stock or a
8
<PAGE>
correction to such Section) (excluding, however, changes in such number on a
fully diluted basis caused solely by a change in the price of the Common Stock
and by the exercise of Company Stock Options outstanding on the date of this
Agreement), then Parent may unilaterally cause the Merger Consideration and the
per share price to be paid in the Offer to be adjusted accordingly to provide to
the holders of Common Stock the same aggregate economic effect as contemplated
by this Agreement prior to such reclassification, recapitalization, split-up,
combination, exchange, dividend or increase.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company represents and warrants to Parent and Merger Sub as follows:
Section 4.1 Organization. The Company and each of its subsidiaries is
------------
duly organized and validly existing under the laws of the jurisdiction of its
incorporation or organization and has all requisite power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted. The Company and each of its subsidiaries are duly qualified to do
business and in good standing in its jurisdiction of organization and in each
jurisdiction in which the property owned, leased or operated by it or the nature
of the business conducted by it makes such qualification necessary, except for
such failures to be so duly qualified and in good standing that, individually or
in the aggregate, will not have a Material Adverse Effect (as defined in Section
9.1(c)) with respect to the Company. The Company has previously delivered or
made available to Parent correct and complete copies of the certificates of
incorporation and by-laws (or equivalent governing instruments), as currently in
effect, of the Company and each of its subsidiaries.
Section 4.2 Capitalization. The authorized capital stock of the
--------------
Company is as disclosed in the SEC Filings (as defined in Section 4.7). At the
close of business on July 25, 1997, (a) 15,935,300 shares of Common Stock were
issued and outstanding, and (b) 1,801,859 shares of Common Stock were reserved
for issuance upon exercise of Company Stock Options. All issued and outstanding
shares of Common Stock have been duly authorized and are validly issued, fully
paid, nonassessable and free of preemptive rights. Except as set forth in this
Section 4.2 and on Schedule 4.2, as of the date of this Agreement, there are no
outstanding securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to which the Company or any
of its subsidiaries is a party or by which any of them is bound (i) obligating
the Company or any of its subsidiaries to issue, deliver, sell, transfer,
repurchase, redeem or otherwise acquire or vote, or cause to be issued,
delivered, sold, transferred, repurchased, redeemed or otherwise acquired or
voted, any shares of capital stock or other voting securities of the Company or
of any of its subsidiaries, (ii) restricting the transfer of Common Stock or
(iii) obligating the Company or any of its subsidiaries to issue, grant, extend
or enter into any such security, option, warrant, call, right, commitment,
agreement, arrangement or undertaking. The Company is not aware of any voting
trust, stockholder agreement or other similar arrangement relating to any shares
of Common Stock. Schedule 4.2
9
<PAGE>
sets forth a complete and correct list as of the date hereof of (w) the number
of options and warrants to purchase Common Stock outstanding and the number of
shares of Common Stock issuable thereunder, (x) the exercise price of each such
outstanding stock option and warrant, (y) the vesting schedule of each such
outstanding stock option (it being understood that all such stock options shall
become exercisable pursuant to Section 3.1(d)) and (z) the grantee or holder of
each such option and warrant. All shares of Common Stock subject to issuance as
aforesaid, upon issuance prior to the Effective Time 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. Except as is set
forth on Schedule 4.2, there are no material outstanding contractual obligations
of the Company to provide funds to, or make any material investment (in the form
of a loan, capital contribution or otherwise) in, any Company subsidiary or any
other person.
Section 4.3 Subsidiaries. All of the outstanding shares of capital
------------
stock of each of the Company's subsidiaries that are owned by the Company or any
other subsidiary of the Company (collectively, the "Subsidiary Shares") have
-----------------
been duly authorized and are validly issued, fully paid and nonassessable and
free of preemptive rights. Except as set forth on Schedule 4.3, all of the
Subsidiary Shares are owned by the Company free and clear of all liens, claims,
charges, encumbrances or security interests (collectively, "Liens") with respect
-----
thereto.
Section 4.4 Authorization; Binding Agreement. The Company has the full
--------------------------------
corporate power and authority to execute and deliver this Agreement and, subject
to adoption of this Agreement by the stockholders of the Company in accordance
with the DGCL, the certificate of incorporation and by-laws of the Company, 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 all necessary corporate action on the part
of the Company, subject to the adoption of this Agreement by the stockholders of
the Company in accordance with the DGCL and the certificate of incorporation and
by-laws of the Company. This Agreement has been duly and validly executed and
delivered by the Company and, subject to the adoption of this Agreement by the
stockholders of the Company in accordance with the DGCL and the certificate of
incorporation and by-laws of the Company, constitutes a legal, valid and binding
agreement of the Company, enforceable against the Company in accordance with its
terms except as may be limited by (a) bankruptcy, insolvency, reorganization or
other laws now or hereafter in effect relating to creditors' rights generally
and (b) general principles of equity (regardless of whether enforceability is
considered in a proceeding at law or in equity).
Section 4.5 Noncontravention. Neither the execution and delivery of
----------------
this Agreement nor the consummation of the transactions contemplated hereby or
thereby will (a) conflict with or result in any breach of any provision of the
certificate of incorporation or by-laws (or equivalent governing instruments) of
the Company or any of its subsidiaries, (b) except as set forth on Schedule 4.5
and in connection with the Consent Solicitations (as defined below), require any
consent, approval or notice under, or conflict with or result in a violation or
breach of, or constitute (with or without notice or lapse of time or both) a
default (or give rise to any right of termination, cancellation or acceleration)
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, lease, agreement or other
10
<PAGE>
instrument or obligation (collectively, "Contracts and Other Agreements") to
------------------------------
which the Company or any of its subsidiaries is a party or by which any of them
or any material portion of their properties or assets may be bound or (c)
subject to the approvals, filings and consents referred to in Section 4.6,
violate any order, judgment, writ, injunction, determination, award, decree,
law, statute, rule or regulation (collectively, "Legal Requirements") applicable
------------------
to the Company or any of its subsidiaries or any material portion of their
properties or assets; provided that no representation or warranty is made (i) in
--------
the foregoing clauses (b) or (c) or with respect to matters that, individually
or in the aggregate, will not (i) have a Material Adverse Effect with respect to
the Company or (ii) materially delay the transactions contemplated by this
Agreement.
Section 4.6 Governmental Approvals. No consent, approval or
----------------------
authorization of or declaration or filing with any foreign, federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality (each, a "Governmental Entity") on the part of the Company or
-------------------
any of its subsidiaries that has not been obtained or made is required in
connection with the execution or delivery by the Company of this Agreement or
the consummation by the Company of the transactions contemplated hereby, other
than (a) the filing of the Certificate of Merger with the Secretary of State of
the State of Delaware, (b) filings and other applicable requirements under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
---
Act"), and the Exchange Act, (c) the filing of appropriate documents with the
- ---
relevant authorities of states other than Delaware in which the Company or any
of its subsidiaries is authorized to do business, (d) such filings as may be
required in connection with any state or local tax which is attributable to the
beneficial ownership of the Company's or its subsidiaries, real property, if
any, (e) such filings and consents as may be required under any environmental,
health or safety law or regulation, or any health care licensure laws,
reimbursement authorities and their agents, certificate of need laws and other
health care laws and regulations, pertaining to any notification, disclosure or
required approval required by the Merger or the transactions contemplated by
this Agreement, (f) such filings as may be required by any applicable state
securities or "blue sky" laws or state takeover laws, and (g) consents,
approvals, authorizations, declarations or filings that, if not obtained or
made, will not, individually or in the aggregate, result in a Material Adverse
Effect with respect to the Company or a material delay in the transactions
contemplated by this Agreement or the Stockholder Agreement.
Section 4.7 SEC Filings; Financial Statements. The Company has made
---------------------------------
all filings required to be made under the Exchange Act with the SEC since
December 31, 1996 (the "SEC Filings"). As of their respective dates, the SEC
-----------
Filings complied as to form in all material respects with the requirements of
the Securities Act of 1933, as amended (the "Securities Act"), or the Exchange
--------------
Act, as the case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to such SEC Filings, and the SEC Filings did not contain
any 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, in
light of the circumstances under which they were made, not misleading. The
financial statements set forth in the SEC Filings comply as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC promulgated under the Securities Act or the
Exchange Act, as the case may be, and have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except
11
<PAGE>
as may be indicated in the notes to such financial statements) and fairly
present in all material respects the consolidated financial position of the
Company and its subsidiaries at the respective dates thereof and the
consolidated results of operations and cash flows for the respective periods
then ended (subject, in the case of unaudited interim financial statements, to
exceptions permitted by Form 10-Q under the Exchange Act and to normal year-end
adjustments). As of March 31, 1997, neither the Company nor any of its
subsidiaries had, and since such date neither the Company nor any of its
subsidiaries has incurred, any liabilities of any nature, whether accrued,
absolute, contingent or otherwise, whether due or to become due that are
required to be recorded or reflected on a consolidated balance sheet of the
Company under generally accepted accounting principles, except as reflected or
reserved against or disclosed in the financial statements of the Company
included in the SEC Filings or set forth on Schedule 4.7.
Section 4.8 Information Supplied. None of the information supplied or
--------------------
to be supplied by the Company for inclusion or incorporation by reference in (i)
the Offer Documents, (ii) the Schedule 14D-9, (iii) if applicable, the proxy
statement relating to the adoption of this agreement by the Company's
stockholders (the "Proxy Statement") or (iv) the information to be filed by the
---------------
Company in connection with the Offer pursuant to Rule 14f-1 promulgated under
the Exchange Act (the "Information Statement"), will, in the case of the Offer
---------------------
Documents and the Schedule 14D-9 and the Information Statement, at the
respective times the Offer Documents, the Schedule 14D-9 and the Information
Statement are filed with the SEC or first published, sent or given to the
holders, or, in the case of the Proxy Statement, at the date the Proxy Statement
is first mailed to the Company's stockholders or at the time of the meeting of
the Company's stockholders held to vote on approval and adoption of 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 are made, not
misleading, except that no representation or warranty is made by the Company
with respect to statements made or incorporated by reference therein based on
information supplied by Parent or Merger Sub in writing specifically for
inclusion or incorporation by reference therein. The Schedule 14D-9, the Proxy
Statement and the Information Statement will comply as to form in all material
respects with the requirements of the Exchange Act and the rules and regulations
thereunder, except that no representation or warranty is made by the Company
with respect to statements made or incorporated by reference therein based on
information supplied by Parent or Merger Sub in writing specifically for
inclusion or incorporation by reference therein or as set forth in any of
Parent's SEC Filings.
Section 4.9 Absence of Certain Changes or Events. Except as disclosed
------------------------------------
in the SEC Filings or on Schedule 4.9, since March 31, 1997, the Company and its
subsidiaries have conducted their respective businesses in the ordinary course
consistent with past practice and as of the date hereof there has not been (i)
any condition, event or occurrence that, individually or in the aggregate, has
resulted in a Material Adverse Effect with respect to the Company (without
regard, however, to changes in conditions generally applicable to the long-term
care industry or general economic conditions), (ii) any declaration, setting
aside or payment of any dividend or other distribution (whether in cash, stock
or property) with respect to any of the Company's capital stock, (iii) any
split, combination or reclassification of any of its capital stock or any
issuance or the authorization of any issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital stock, (iv) except
as reflected on Schedule 4.2 and except
12
<PAGE>
as disclosed in this Agreement, (x) any granting by the Company or any of its
subsidiaries to any executive officer or other key employee of the Company or
any of its subsidiaries of any increase in compensation, except as required
under employment agreements in effect as of July 1, 1997 (true and correct
copies of which have been provided to Parent), or (y) any granting by the
Company or any of its subsidiaries to any such executive officer of any increase
in severance or termination pay, except as was required under any employment,
severance or termination agreements in effect as of July 1, 1997 (true and
correct copies of which have been provided to Parent) as the same may be amended
consistent with terms described on Schedule 6.10(c), (v) any damage, destruction
or loss, whether or not covered by insurance, that has had or will have a
Material Adverse Effect with respect to the Company or (vi) except insofar as
may have been disclosed in the SEC Filings or required by a change in generally
accepted accounting principles and set forth on Schedule 4.9, any change in
accounting methods, principles or practices except as required by generally
accepted accounting principles.
Section 4.10 Finders and Investment Bankers; Transaction Expenses.
----------------------------------------------------
Neither the Company nor any of its officers or directors has employed any
investment banker, business consultant, financial advisor, broker or finder in
connection with the transactions contemplated by this Agreement, except for
Smith Barney Inc. ("Smith Barney") and Smith Management Company ("SMC"), or
------------ ---
incurred any liability for any investment banking, business consultancy,
financial advisory, brokerage or finders' fees or commissions in connection with
the transactions contemplated hereby, except for fees payable to Smith Barney
and SMC (as reflected in agreements between such firms and the Company, copies
of which have been delivered to Parent).
Section 4.11 Voting Requirement. The affirmative vote of the holders
------------------
of a majority of the outstanding shares of Common Stock in favor of adoption of
this Agreement and the Merger is the only vote of the holders of any class or
series of the Company's capital stock necessary to approve this Agreement and
the transactions contemplated hereby under any applicable law, rule or
regulation or pursuant to the requirements of the Company's certificate of
incorporation or by-laws.
Section 4.12 Litigation. Except as disclosed in the SEC Filings or on
----------
Schedule 4.12, there is no suit, action, proceeding or investigation pending or,
to the knowledge of the Company, overtly threatened against the Company or any
of its subsidiaries that, individually or in the aggregate, will have a Material
Adverse Effect with respect to the Company, nor is there any judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator outstanding
against the Company or any of its subsidiaries having any such effect.
Section 4.13 Taxes. The Company has filed all material tax returns
-----
required to be filed by it and has paid, or has set up an adequate reserve for
the payment of, all taxes required to be paid as shown on such returns, and the
most recent financial statements contained in the SEC Filings reflect an
adequate reserve for all taxes payable by the Company accrued through the date
of such financial statements. The unpaid taxes, including any contingent tax
liabilities and net deferred tax liabilities, of the Company which have accrued
as of the date of the most recent financial statements contained in the SEC
Filings do not materially exceed the
13
<PAGE>
reserve for accrued tax liability set forth or included in such financial
statements. Except as disclosed in Schedule 4.13, no federal, state or local
audits, examinations or other administrative proceedings have been commenced or,
to the Company's knowledge, are pending with regard to any taxes or tax returns
of the Company or any of its subsidiaries which such audit, if determined
adversely, will have a Material Adverse Effect with respect to the Company. No
agreements have been made by the Company for the extension of time or the waiver
of the statute of limitations for the assessment or payment of any federal,
state or local taxes. Neither the Company nor any of its subsidiaries is or has
been a United States real property holding company within the meaning of Section
897(c)(2) of the Internal Revenue Code of 1986, as amended (the "Code").
----
Section 4.14 Permits; Compliance with Laws.
-----------------------------
(a) The Company and the Company subsidiaries have (i) all franchises,
grants, authorizations, licenses, establishment registrations, product listings,
permits, easements, variances, exceptions, consents, certificates,
identification and registration numbers, approvals and orders of any
Governmental Entity necessary for the Company or any Company subsidiary to own,
lease and operate its properties or to produce, store, distribute and market its
products or otherwise to carry on its business as it is now being conducted and
(ii) agreements and certifications from all Federal, state, foreign and local
governmental agencies and accrediting and certifying organizations having
jurisdiction over such facility or facilities that are required to operate the
facility or facilities in the manner in which it or they are currently operated
and receive reimbursement for care provided to patients covered under the
Federal Medicare program ("Medicare"), any applicable state Medicaid program
--------
("Medicaid") or any comparable foreign medical reimbursement program (all the
--------
matters referred to in clauses (i) and (ii) collectively, the "Company
-------
Permits"), except where the failure to have, or the suspension or cancellation
- -------
of, any of the Company Permits will not have, individually or in the aggregate,
a Material Adverse Effect with respect to the Company, and no suspension or
cancellation of any of the Company Permits is pending or, to the knowledge of
the Company, threatened, except where the failure to have, or the suspension or
cancellation of, any of the Company Permits will not have, individually or in
the aggregate, a Material Adverse Effect with respect to the Company. Without
limiting the generality of the foregoing, except as set forth in Schedule
4.14(a), all of the Company's facilities are certified for participation or
enrollment in the Medicare program and the Medicaid programs for states in which
the Company has facilities, have current and valid provider contracts with the
Medicare program and the Medicaid programs for states in which the Company has
facilities and are in substantial compliance with the conditions of
participation of such programs. Neither the Company nor any Company subsidiary
is in conflict with, or in default or violation of, (A) any law applicable to
the Company or any Company subsidiary or by which any property or asset of the
Company or any Company subsidiary is bound or affected or (B) any Company
Permits, except in the case of clauses (A) and (B) for any such conflicts,
defaults or violations that will not have, individually or in the aggregate, a
Material Adverse Effect with respect to the Company. Neither the Company nor
any Company subsidiary has received notice from the regulatory authorities that
enforce the statutory or regulatory provisions in respect of either the Medicare
or the Medicaid program of any pending or threatened investigations or surveys,
and no such investigations or surveys are pending or, to the knowledge of the
Company, threatened or imminent. Schedule 4.14(a) sets
14
<PAGE>
forth, as of the date of this Agreement, all actions, proceedings,
investigations or surveys pending or, to the knowledge of the Company,
threatened against the Company or any Company subsidiary that could reasonably
be expected to result in (i) the loss or revocation of a Company Permit
necessary to operate one or more facilities or for a facility to receive
reimbursement under the Medicare or Medicaid programs or (ii) the suspension or
cancellation of any other Company Permit, except, in the case of clauses (i) and
(ii), any such Company Permit where such suspension or cancellation will not
have, individually or in the aggregate, a Material Adverse Effect with respect
to the Company.
(b) The Company and each Company subsidiary, as appropriate, is an
approved participating provider in and under all third party payment programs
from which it receives revenues. No action or investigation is pending, or to
the knowledge of the Company, threatened to suspend, limit, terminate,
condition, or revoke the status of the Company or any Company subsidiary as a
provider in any such program, and neither the Company nor any Company subsidiary
has been provided written notice by any third party payor of its intention to
suspend, limit, terminate, revoke, condition or fail to renew in whole or in
part or decrease the amounts payable under any arrangement with the Company or
such Company subsidiary as a provider, which action, investigation, proceeding,
suspension, limitation, termination, revocation, conditioning or failure to
renew will have, individually or in the aggregate, a Material Adverse Effect
with respect to the Company.
(c) Neither the Company nor any Company subsidiary is delinquent with
respect to the filing of any claims, cost reports or annual filings required to
be filed to secure payments for services rendered by them under any third-party
payment program from which they receive or expect to receive revenues,
including, without limitation, Medicare and Medicaid, except where such
delinquency will not individually or in the aggregate have a Material Adverse
Effect with respect to the Company. Except as indicated in its financial
statements included in the SEC Filings, the Company or each Company subsidiary,
as applicable, has paid, or caused to be paid, all refunds, discounts,
adjustments, or amounts owing that have become due to such third party payors
pursuant to such claims, reports or filings and, to the knowledge of the
Company, there are no material changes required to be made to any cost reports,
claims or filings made by it for any period or of any deficiency in any such
claim, report, or filing, except for changes and deficiencies that in the
aggregate will not have a Material Adverse Effect with respect to the Company.
Section 4.15 Title to Properties. The Company and its subsidiaries
-------------------
have good, valid and marketable title to the properties and assets reflected on
the most recent consolidated balance sheet included in the SEC Filings (the
"Balance Sheet") (other than properties and assets disposed of in the ordinary
-------------
course of business since the date of the Balance Sheet, and all such properties
and assets are free and clear of any Liens, except as described in the SEC
Filings and the financial statements included therein or on Schedule 4.3 or
4.15, liens for current taxes not yet due and other than Liens or title
imperfections that will not have a Material Adverse Effect with respect to the
Company.
Section 4.16 State Takeover Statutes. The Board of Directors of the
-----------------------
Company has approved the Offer, the Merger, this Agreement, the Stockholder
Agreement, the pledge,
15
<PAGE>
if any, of Shares by Merger Sub to a provider of financing for the Offer to
Parent or Merger Sub and the exercise of remedies after the Majority Acquisition
with regard to any such pledged Shares and such approval is sufficient to render
inapplicable to the Offer, the Merger, this Agreement, the Stockholder
Agreement, the pledge, if any, of Shares by Merger Sub to a provider of
financing for the Offer to Parent or Merger Sub and the exercise of remedies
after the Majority Acquisition with regard to any such pledged Shares and the
transactions contemplated by this Agreement and the Stockholder Agreement, the
provisions of Section 203 of the DGCL.
Section 4.17 Employee Benefit Plans.
----------------------
(a) The Company and each of its subsidiaries have complied, and
currently are in compliance, in all material respects with the applicable
provisions of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") and the Code with respect to each employee benefit plan (as defined
-----
under Section 3(3) of ERISA) maintained by the Company or any of its
subsidiaries (each, a "Plan"). There has been no prohibited transaction (within
----
the meaning of Section 406 of ERISA or Section 4975 of the Code) with respect to
any Plan.
(b) Each of the Plans that is intended to qualify under Section 401(a)
of the Code does so qualify and is exempt from taxation pursuant to Section
501(a) of the Code. The Company has no Plans which are employee pension benefit
plans (within the meaning of Section 3(2)(A) of ERISA).
(c) Neither the Company nor any of its subsidiaries has maintained,
adopted or established, contributed or been required to contribute to, or
otherwise participated in or been required to participate in, any employee
benefit plan or other program or arrangement subject to Title IV of ERISA
(including, without limitation, a "multi-employer plan" (as defined in Section
3(37) of ERISA) and a defined benefit plan (as defined in Section 3(35) of
ERISA)).
(d) No Plan provides benefits, including, without limitation, death,
health or medical benefits (whether or not insured), with respect to current or
former employees of the Company beyond their retirement or other termination of
service with the Company (other than (i) coverage mandated by applicable law,
(ii) deferred compensation benefits accrued as liabilities on the books of the
Company, or (iii) benefits the full cost of which is borne by the current or
former employee (or his beneficiary)).
(e) The Company has made available to Parent (i) copies of all
employment agreements with officers of the Company; (ii) copies of all
agreements with consultants who are individuals obligating the Company to make
annual cash payments in an amount exceeding $100,000 and which are not
terminable on less than 60 days' notice without penalty; (iii) copies of all
plans, programs, agreements and other arrangements of the Company with or
relating to its employees which contain change of control provisions; and (iv)
the various forms of employment agreement, if any, of the Company for its non-
executive employees.
16
<PAGE>
(f) To the Company's knowledge, the Company and the Company
subsidiaries are in compliance with the requirements of the Americans With
Disabilities Act and the health care continuation and notice provisions of the
Consolidated Omnibus Budget Reconciliation Act of 1985.
(g) The Company and the Company subsidiaries are in compliance with
the requirements of the Workers Adjustment and Retraining Notification Act
("WARN") and have no liabilities pursuant to WARN.
----
(h) Except as set forth on Schedule 4.17(h), neither the Company nor
any Company subsidiary is a party to any collective bargaining or other labor
union contract applicable to persons employed by the Company or any Company
subsidiary and no collective bargaining agreement is being negotiated by the
Company or any Company subsidiary. As of the date of this Agreement, there is
no labor dispute, strike or work stoppage against the Company or any Company
subsidiary pending or, to the knowledge of the Company, threatened which may
interfere with the respective business activities of the Company or any Company
subsidiary. As of the date of this Agreement, to the knowledge of the Company,
none of the Company, any Company subsidiary, or any of their respective
representatives or employees has committed any unfair labor practice in
connection with the operation of the respective businesses of the Company or any
Company subsidiary, and there is no charge or complaint against the Company or
any Company subsidiary by the National Labor Relations Board or any comparable
governmental entity pending or threatened in writing, except where such unfair
labor practice, charge or complaint will not have a Material Adverse Effect with
respect to the Company.
Section 4.18 Insurance. The Company maintains, and has maintained,
---------
without interruption, during the past three years, policies or binders of
insurance covering such risks, and events, including personal injury, property
damage and general liability, in amounts the Company reasonably believes
adequate for its business and operations.
Section 4.19 Environmental Matters.
---------------------
(a) Except as set forth in the SEC Filings, (i) the assets,
properties, businesses and operations of the Company and its subsidiaries are
and have been in compliance with applicable Environmental Laws (as defined
below), except for such non-compliance which has not had and will not have a
Material Adverse Effect with respect to the Company); (ii) the Company and its
subsidiaries have obtained and, as currently operating, are in compliance with
all Company Permits necessary under any Environmental Law for the conduct of the
business and operations of the Company and its subsidiaries in the manner now
conducted except for such non-compliance which has not had and will not have a
Material Adverse Effect with respect to the Company; (iii) all Hazardous
Substances generated at or in connection with the real properties and operation
of the Company have been transported and otherwise handled, treated and disposed
of in compliance with all applicable Environmental Laws and in a manner that
does not result in liability under Environmental Laws, except for noncompliance
or liability which has not had and will not have a Material Adverse Effect with
respect to the Company, (iv) no Hazardous Substances have been disposed of or
otherwise released, handled or stored by the Company on the real properties on
which the Company's business is conducted or elsewhere in
17
<PAGE>
violation of applicable Environmental Laws or in a manner that would result in
liability under applicable Environmental Laws which will have a Material Adverse
Effect with respect to the Company and (v) neither the Company nor any of its
subsidiaries nor any of their respective assets, properties, businesses or
operations has received or is subject to any outstanding order, decree,
judgment, complaint, agreement, claim, citation, notice, or to the knowledge of
the Company, any investigation, inquiry or proceeding indicating that the
Company or any of its subsidiaries is or may be (a) liable for a violation of
any Environmental Law or (b) liable for any Environmental Liabilities and Costs
(including, without limitation, any such Environmental Liabilities or Costs
incurred in connection with being designated as a "potentially responsible
party" pursuant to the Comprehensive Environmental Response, Compensation and
Liability Act or any analogous state law (any such designation of the Company
being set forth on Schedule 4.19)), where such liabilities, individually or in
the aggregate, will have a Material Adverse Effect with respect to the Company.
(b) For purposes of this Agreement, the terms below shall have the
following meanings:
"Environmental Law" means any law (including, without limitation, common
-----------------
law), regulation, ordinance, guideline, code, decree, judgment, order, permit or
authorization or other legally enforceable requirement of any Governmental
Authority relating to worker or public safety and the indoor and outdoor
environment, including, without limitation, pollution, contamination, Hazardous
Substances, cleanup, regulation and protection of the air, water or soils in the
indoor or outdoor environment; and
"Environmental Liabilities and Costs" means all damages, penalties,
-----------------------------------
obligations or clean-up costs assessed or levied pursuant to any Environmental
Law;
"Hazardous Substances" means petroleum products, asbestos, radioactive
--------------------
material, or hazardous or toxic substances or wastes as defined or regulated
under any Environmental Law.
Section 4.20 Opinion of Financial Advisor. The Board of Directors of
----------------------------
the Company has received the opinion of Smith Barney, dated the date of this
Agreement, to the effect that, as of the date of this Agreement, the cash
consideration to be received in the Offer and the Merger by the holders of
Common Stock (other than Parent and its affiliates) is fair, from a financial
point of view, to such holders, and a complete and correct signed copy of such
opinion will be delivered to Parent after receipt thereof by the Company.
Section 4.21 Intellectual Property. The Company neither owns nor
---------------------
licenses any intellectual property (including, without limitation, patents,
copyrights, trademarks or know-how) the absence of which will have a Material
Adverse Effect with respect to the Company.
18
<PAGE>
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company as follows:
Section 5.1 Organization. Each of Parent and Merger Sub is a
------------
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation. Merger Sub is a newly formed, wholly
owned subsidiary of the Parent and, except for activities incident to the
acquisition of the Company, Merger Sub has not engaged in any business
activities of any type or kind whatsoever.
Section 5.2 Authorization; Binding Agreement. Each of Parent and
--------------------------------
Merger Sub has the 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 all
necessary corporate action on the part of each of Parent and Merger Sub. This
Agreement has been duly and validly executed and delivered by each of Parent and
Merger Sub and constitutes a legal, valid and binding agreement of each of
Parent and Merger Sub, enforceable against each of them in accordance with its
terms except as may be limited by (a) bankruptcy, insolvency, reorganization or
other laws now or hereafter in effect relating to creditors' rights generally
and (b) general principles of equity (regardless of whether enforceability is
considered in a proceeding at law or in equity).
Section 5.3 Noncontravention. Neither the execution and delivery of
----------------
this Agreement nor the consummation of the transactions contemplated hereby will
(a) conflict with or result in any breach of any provision of the certificate of
incorporation or by-laws of Parent or Merger Sub, (b) require any consent,
approval or notice under or conflict with or result in a violation or breach of,
or constitute (with or without notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation or acceleration) under, any
of the terms, conditions or provisions of any Contracts and Other Agreements to
which Parent or Merger Sub is a party or by which either of them or any material
portion of their properties or assets may be bound or (c) subject to the matters
referred to in clauses (a), (b) and (c) of Section 5.4 below, violate any Legal
Requirements applicable to Parent or Merger Sub or any material portion of their
properties or assets; provided that no representation or warranty is made in the
--------
foregoing clauses (b) and (c) with respect to matters that, individually or in
the aggregate, will neither materially delay the transactions contemplated
hereby nor have a Material Adverse Effect with respect to Parent.
Section 5.4 Governmental Approvals. No consent, approval or
----------------------
authorization of, or declaration or filing with, any Governmental Entity on the
part of either Parent or Merger Sub that has not been obtained or made is
required in connection with the execution or delivery by Parent or Merger Sub of
this Agreement or the consummation by Parent or Merger Sub of the transactions
contemplated hereby, other than (a) the filing of the Certificate of Merger with
the Secretary of State of the State of Delaware, (b) filings under the HSR Act,
the Exchange Act
19
<PAGE>
and as set forth on Schedule 5.4, (c) the filing of appropriate documents with
the relevant authorities of states other than Delaware in which Parent or any of
its subsidiaries is authorized to do business, (d) such filings as may be
required in connection with any state or local tax which is attributable to the
beneficial ownership of Parent's or its subsidiaries' real property, if any, (e)
such filings and consents as may be required under any environmental, health or
safety law or regulation, or any health care licensure laws, reimbursement
authorities and their agents, certificate of need laws and other health care
laws and regulations, pertaining to any notification, disclosure or required
approval required by the Merger or the transactions contemplated by this
Agreement, (f) such filings as may be required by any applicable state
securities or "blue sky" laws or state takeover laws and (g) consents,
approvals, authorizations, declarations or filings that, if not obtained or
made, will neither, individually or in the aggregate, materially delay the
transactions contemplated hereby nor have a Material Adverse Effect with respect
to Parent.
Section 5.5 Information Supplied. None of the information supplied or
--------------------
to be supplied in writing by Parent or Merger Sub specifically for inclusion or
incorporation by reference in the Offer Documents, the Schedule 14D-9, the
Information Statement, or, if applicable, the Proxy Statement will, in the case
of the Offer Documents, the Schedule 14D-9 and the Information Statement, at the
respective times the Offer Documents, the Schedule 14D-9 and the Information
Statement are filed with the SEC or first published, sent or given to the
holders, or, in the case of the Proxy Statement, at the date the Proxy Statement
is first mailed to the Company's stockholders or at the time of the meeting of
the Company's stockholders held to vote on approval and adoption of 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 are made, not
misleading. The Offer Documents will comply as to form in all material respects
with the requirements of the Exchange Act and the rules and regulations
promulgated thereunder, except that no representation or warranty is made by
Parent or Merger Sub with respect to statements made or incorporated by
reference therein based on information supplied in writing by the Company
specifically for inclusion or incorporation by reference therein.
Section 5.6 Financing. After giving effect to borrowings under
---------
Parent's financing commitments, Merger Sub will have sufficient funds available
to purchase all the outstanding shares on a fully diluted basis of Common Stock
pursuant to the Offer and the Merger, to satisfy its obligations under Section
3.1(d), to refinance all indebtedness that will or may become due as a result of
the consummation of the Offer or the Merger, to comply with Section 10.1 of each
of the Indentures (as defined in Section 6.12) and to pay all fees and expenses
incurred by it or disclosed pursuant to Section 4.10 related to the transactions
contemplated by this Agreement.
Section 5.7 Regulatory Approval. Parent is not aware of any existing
-------------------
impediment to the approval of the transactions contemplated hereby by any
Governmental Authority whose approval is required to consummate the transactions
contemplated hereby.
20
<PAGE>
Section 5.8 Compliance with Laws. Except as set forth in Parent's SEC
--------------------
Filings, neither Parent nor any of its subsidiaries is in conflict with, or in
default or violation of, any law, rule, regulation, order, judgment or decree
applicable to Parent or any subsidiary or by which any property or asset of
Parent or any subsidiary is bound or affected, except for any such conflicts,
defaults or violations that will not in the aggregate materially delay the
transactions contemplated hereby. Except as set forth in Parent's SEC Filings,
Parent and its subsidiaries have all permits, licenses, authorizations,
consents, approvals and franchises from governmental agencies required to
conduct their businesses as now being conducted (the "Parent Permits"), except
--------------
for such permits, licenses, authorizations, consents, approvals and franchises
the absence of which would not in the aggregate materially delay the
transactions contemplated hereby. Except as set forth in the Parent's SEC
Filings, Parent and its subsidiaries are in compliance with the terms of the
Parent Permits, except where the failure so to comply would not in the aggregate
materially delay the transactions contemplated hereby.
Section 5.9 Litigation. Except as disclosed in Parent's Filings, there
----------
is no suit, action, proceeding or investigation pending or, to the knowledge of
Parent, overtly threatened in writing against Parent or any of its subsidiaries
that, individually or in the aggregate, will materially delay the transactions
contemplated hereby, nor is there any judgment, decree, injunction, rule or
order of any Governmental Entity or arbitrator outstanding against Parent or any
of its subsidiaries having any such effect.
ARTICLE 6
COVENANTS
Section 6.1 Conduct of Business of the Company. Except as contemplated
----------------------------------
by this Agreement, during the period commencing on the date hereof and ending at
the Effective Time, the Company shall, and shall cause each of its subsidiaries
to, conduct its operations according to its ordinary course of business
consistent with past practice, and the Company shall, and shall cause each of
its subsidiaries to, use all reasonable efforts to preserve intact its business
organization and to maintain satisfactory relationships with its customers,
suppliers, employees and others having material business relationships with it.
Without limiting the generality of the foregoing, and except as otherwise
expressly provided in this Agreement, prior to the Effective Time, neither the
Company nor any or its subsidiaries will, without the prior written consent of
the Parent:
(a) amend or propose to amend its certificate of incorporation or
by-laws;
(b) authorize for issuance, issue, sell, pledge, deliver or agree
or commit to issue, sell, pledge or deliver (whether through the issuance or
granting of any options, warrants, calls, subscriptions, stock appreciation
rights or other rights or other agreements) any capital stock of any class or
any securities convertible into or exchangeable for shares of capital stock of
any class of the Company, or any other ownership interest (including stock
appreciation
21
<PAGE>
rights or phantom stock) other than shares of Common Stock issuable upon
exercise of Company Stock Options outstanding on the date of this Agreement;
(c) split, combine or reclassify any shares of Common Stock or
declare, pay or set aside for payment any dividend or other distribution in
respect of any Common Stock, or redeem, purchase or otherwise acquire any shares
of Common Stock or any other securities of the Company or any rights, warrants
or options to acquire any such shares of other securities;
(d) enter into any other agreements, commitments or contracts that are
material to the Company and its subsidiaries taken as a whole or otherwise make
any material change that is adverse to the Company in (i) any existing
agreement, commitment or arrangement that is material to the Company and its
subsidiaries taken as a whole or (ii) the conduct of the business or operations
of the Company and its subsidiaries;
(e) sell, pledge, dispose of or encumber any assets of the Company or
any of its subsidiaries (except for (i) sales of assets in the ordinary course
of business and in a manner consistent with past practice, (ii) dispositions of
obsolete or worthless assets, (iii) the dispositions described on, and pursuant
to the terms described in, Schedule 6.1(e) and (iv) the sale of the assets on
Schedule 6.1(e) hereto (the "Meridian Assets") on an "as is, where is," basis to
---------------
the individuals named thereon for a cash purchase price of $3,000,000 without
recourse to the Company if, and only if, five days prior to such sale the chief
financial officer of the Company shall have certified in writing to Parent that
as of the date of this Agreement the twelve months trailing EBITDA (determined
on the basis disclosed to Parent prior to the date of this Agreement) associated
with such assets is $1,300,000 or less;
(f) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or division
thereof, except for the acquisitions described on Schedule 6.1(f); (ii) incur
any indebtedness for borrowed money (other than pursuant to the Company's credit
facilities as in effect on the date of this Agreement) or issue any debt
securities or assume, guarantee or endorse or otherwise as an accommodation
become responsible for, the obligations of any person, or make any loans or
advances; (iii) enter into or amend any material contract or agreement other
than in the ordinary course of business or enter into any management contract
for a facility not cancelable without penalty within 30 days of notice; (iv)
authorize or make any capital expenditures or purchase of fixed assets which
are, in the aggregate, in excess of $7,400,000 (exclusive of management
information systems expenditures as described in the proviso hereto) for the
Company and its subsidiaries, taken as a whole; provided, however, the Company
-------- -------
will give Parent prior notice of the making or the firm commitment of capital
expenditure or lease payment in any calendar quarter relating to management
information systems equipment with a fair market value greater than $1,000,000;
or (v) terminate any material contract or amend any of its material terms (other
than amendments to existing credit arrangements designed to remedy defaults
thereunder);
(g) increase the compensation payable or to become payable to its
officers or employees, or grant any severance or termination pay to, or, except
as set forth on
22
<PAGE>
Schedule 6.10(c), enter into any employment or severance agreement with any
director, officer or other employee of the Company or any of its subsidiaries;
(h) take any action, other than as required by GAAP, to change
accounting policies or procedures or cash maintenance policies or procedures
(including, without limitation, procedures with respect to revenue recognition,
capitalization of development costs, payments of accounts payable and collection
of accounts receivable);
(i) make any material Tax election inconsistent with past practices or
settle or compromise any material federal, state, local or foreign tax liability
or agree to an extension of a statute of limitations for any assessment of
federal income tax or material state corporate income or franchise tax, except
to the extent the amount of any such settlement has been reserved for on the
Company's most recent SEC Filings;
(j) pay, discharge, settle, or satisfy any lawsuits, claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or satisfaction in
the ordinary course of business and consistent with past practice of liabilities
reflected or reserved against in the financial statements of the Company or
incurred in the ordinary course of business and consistent with past practice;
(k) except as may be required by law, take any action to establish,
adopt or enter into, or to terminate or amend any Plan;
(l) (i) permit any increase in the number of employees of the Company
employed by the Company on the date hereof other than pursuant to an employee
plan to be agreed to by the Company and Parent as promptly as practicable after
the date hereof acting reasonably and in good faith or (ii) terminate any
employees of the Company identified on Schedule 6.10(c) other than for Cause (as
defined below);
(m) enter into any contract or arrangement with any affiliate of the
Company (other than subsidiaries of the Company); or
(n) agree, commit or arrange to do any of the foregoing.
Section 6.2 Stockholder Approval; Proxy Statement. Following the
-------------------------------------
purchase of shares of Common Stock pursuant to the Offer, if required by
applicable law in order to consummate the Merger, the Company shall take all
action necessary in accordance with applicable law to convene a meeting of its
stockholders as promptly as practicable to consider and vote upon this Agreement
and the transactions contemplated hereby. The Company shall, through its Board
of Directors (the "Board"), recommend that the Company's stockholders vote in
-----
favor of the adoption of this Agreement and the transactions contemplated
hereby, subject to the Board's fiduciary duty under applicable law. As soon as
practicable following the purchase of shares of Common Stock pursuant to the
Offer, the Company shall prepare and file with the SEC under the Exchange Act
the Proxy Statement and shall use its reasonable best efforts to cause the Proxy
Statement to be mailed to stockholders of the Company as promptly as practicable
after such filing. At the meeting of the Company's stockholders, the Parent
shall
23
<PAGE>
cause all Parent Shares to be voted in favor of the adoption of this Agreement
and the transactions contemplated hereby.
Section 6.3 Access and Information. Between the date of this Agreement
----------------------
and the Effective Time, the Company shall, and shall cause its subsidiaries to,
afford the Parent and its authorized representatives (including its accountants,
financial advisors and legal counsel) reasonable access during normal business
hours to all of the properties, personnel, Contracts and Other Agreements, books
and records of the Company and its subsidiaries and shall promptly deliver or
make available to the Parent (a) a copy of each report, schedule and other
document filed by the Company pursuant to the requirements of Federal or state
securities laws and (b) all other information concerning the business,
properties, assets and personnel of the Company and its subsidiaries as the
Parent may from time to time reasonably request. The terms of the
Confidentiality Agreement dated July 8, 1997 (the "Confidentiality Agreement")
-------------------------
between the Company and the Parent) are incorporated herein by reference and
shall remain in full force and effect.
Section 6.4 No Solicitation.
---------------
(a) The Company shall not, directly or indirectly, through any
officer, director, employee, representative or agent of the Company or any of
its subsidiaries, solicit or encourage (including by way of furnishing
information) the initiation of any inquiries or proposals regarding an
Alternative Transaction (as defined below) (any of the foregoing inquiries or
proposals being referred to herein as an "Acquisition Proposal"). Provided that
--------------------
the Company and the Board shall have complied with the first sentence of this
Section 6.4(a), nothing contained in this Section 6.4(a) or any other provision
of this Agreement shall prevent the Board if it determines in good faith, after
consultation with, and the receipt of advice from, outside counsel, that it is
required to do so in order to discharge properly its fiduciary duties, from
considering, negotiating, approving and recommending to the stockholders of the
Company an unsolicited bona fide written Acquisition Proposal (provided that
--------
such Acquisition Proposal is for not less than $23.00 per Share and has no
financing contingencies) which the Board of Directors of the Company determines
in good faith (after consultation with its financial advisors) would result in a
transaction more favorable to the Company's stockholders than the transaction
contemplated by this Agreement (any Acquisition Proposal meeting such criteria,
including those specified in the immediately preceding parenthetical proviso,
being referred to herein as a "Superior Proposal"). Nothing herein shall
-----------------
prohibit the Company from complying with Rules 14d-9 and 14e-2 under the
Exchange Act with respect to any other tender offers.
(b) The Company shall promptly, but in no event later than 24 hours,
notify Parent after receipt of any Acquisition Proposal or any request for
nonpublic information relating to the Company or any of its subsidiaries in
connection with an Acquisition Proposal or for access to the properties, books
or records of the Company or any subsidiary by any person or entity that informs
the Board that it is considering making, or has made, an Acquisition Proposal.
Such notice to Parent shall be made orally and in writing and shall indicate in
reasonable detail the identity of the offeror and the terms and conditions of
such proposal, inquiry or contact.
24
<PAGE>
(c) If the Board receives a request for material nonpublic information
by a party who makes an unsolicited bona fide Acquisition Proposal and the Board
determines that such proposal, if consummated pursuant to its terms would be a
Superior Proposal, then, and only in such case, the Company may, subject to the
execution of a confidentiality agreement substantially similar to that then in
effect between the Company and Parent, provide such party with access to
information regarding the Company.
(d) The Company shall immediately cease and cause to be terminated any
existing discussions or negotiations with any parties (other than Parent and
Merger Sub) conducted heretofore with respect to any of the foregoing. The
Company agrees not to release any third party from any confidentiality or
standstill agreement to which the Company is a party.
(e) The Company shall ensure that the officers, directors and
employees of the Company and its subsidiaries and any investment banker or other
advisor or representative retained by the Company are aware of the restrictions
described in this Section; and shall be responsible for any breach of this
Section 6.4 by such bankers, advisors and representatives.
Section 6.5 Reasonable Efforts; Additional Actions.
--------------------------------------
(a) Upon the terms and subject to the 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, and to assist and cooperate
with the other parties in doing, all things necessary, proper or advisable to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement, including using all reasonable efforts to (i)
obtain all consents, amendments to or waivers under the terms of any of the
Company's contractual arrangements required by the transactions contemplated by
this Agreement, (ii) effect promptly all necessary or appropriate registrations
and filings with Governmental Entities, including, without limitation, filings
and submissions pursuant to the HSR Act, the Exchange Act, the DGCL and state
and Federal licensing authorities, (iii) defend any lawsuits or other legal
proceedings, whether judicial or administrative, challenging this Agreement or
the consummation of the transactions contemplated hereby and (iv) fulfill or
cause the fulfillment of the conditions to Closing set forth in Article 7. In
connection with and without limiting the foregoing, the Company and its Board of
Directors shall (x) take all action necessary to ensure that no state takeover
statute or similar statute or regulation (including, without limitation, Section
203 of the DGCL) is or becomes applicable to the Offer, the Merger, this
Agreement or any of the other transactions contemplated by this Agreement and
(y) if any state takeover statute or similar statute or regulation becomes
applicable to the Offer, the Merger, this Agreement, the Stockholder Agreement
or any other transaction contemplated by this Agreement or the Stockholder
Agreement, take all action necessary to ensure that the Offer, the Merger and
the other transactions contemplated by this Agreement and the Stockholder
Agreement may be consummated as promptly as practicable on the terms
contemplated by this Agreement and the Stockholder Agreement and otherwise to
minimize the effect of such statute or regulation on the Offer, the Merger, this
Agreement, the Stockholder Agreement and the other transactions contemplated by
this Agreement and the Stockholder Agreement. Notwithstanding the foregoing,
the Board of Directors of the Company shall not be prohibited from taking any
action expressly permitted by the terms of this Agreement.
25
<PAGE>
(b) If, at any time after the Effective Time, the Surviving
Corporation shall determine or be advised that any deeds, bills of sale,
assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation the right, title or interest in, to or under any of the rights,
properties or assets of either of the Constituent Corporations acquired or to be
acquired by the Surviving Corporation as a result of, or in connection with, the
Merger or otherwise to carry out this Agreement, the officers and directors of
the Surviving Corporation shall be authorized to execute and deliver, in the
name and on behalf of each of the Constituent Corporations or otherwise, all
such deeds, bills of sale, assignments and assurances and to take and do, in the
name and on behalf of each of the Constituent Corporations or otherwise, all
such other actions and things as may be necessary or desirable to vest, perfect
or confirm any and all right, title and interest in, to and under such rights,
properties or assets in the Surviving Corporation or otherwise to carry out this
Agreement.
(c) In furtherance and without limiting the above provisions, each of
the Company and Parent shall as promptly as practicable following the execution
and delivery of this Agreement file with the United States Federal Trade
Commission (the "FTC") and the United States Department of Justice ("DOJ") the
--- ---
notification and report form, if any, required for the transactions contemplated
hereby (using reasonable best efforts to make such filings within ten business
days after the date hereof) and any supplemental information requested in
connection therewith pursuant to the HSR Act. Any such notification and report
form and supplemental information shall be in substantial compliance with the
requirements of the HSR Act. Each of the Company and Parent shall furnish to
the other such necessary information and reasonable assistance as the other may
request in connection with its preparation of any filing or submission which is
necessary under the HSR Act. The Company and Parent shall keep each other
apprised of the status of any communications with, and any inquiries or requests
for additional information from, the FTC and the DOJ and shall comply promptly
with any such inquiry or request. Each of Parent and the Company shall use all
reasonable efforts to obtain any clearance required under the HSR Act for, and
to provide assistance to the other in any antitrust proceedings related to, the
consummation of the transactions contemplated by this Agreement.
(d) Each of Parent and the Company agrees to cause to be filed as
promptly as practicable all other applications and notices ("Applications")
------------
required to be filed with Governmental Authorities in order to consummate the
Offer and the Merger (using reasonable best efforts to make such filings within
ten business days after the date hereof), and to pursue diligently the approval
of such Applications.
(e) The Company shall use all reasonable efforts to cause its present
and past, if any, independent auditors to consent to the inclusion or
incorporation by reference of the Company's historical financial statements any
registration statement or proxy statement of Parent, to the extent such consents
are required by applicable law or regulation.
Section 6.6 Notification of Certain Matters. The Company shall give
-------------------------------
notice to Parent, and Parent and Merger Sub shall give notice to the Company,
promptly upon becoming aware of (a) any occurrence, or failure to occur, of any
event, which occurrence or
26
<PAGE>
failure to occur has caused or will cause any representation or warranty in this
Agreement to be untrue or inaccurate in any material respect at any time after
the date hereof and prior to the Effective Time and (b) any material failure on
its part to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided that the delivery of any
--------
notice pursuant to this Section 6.6 shall not limit or otherwise affect the
remedies available hereunder to the party receiving such notice.
Section 6.7 Public Announcements. The initial press release or
--------------------
releases with respect to the transactions contemplated by this Agreement shall
be in the form agreed to by Parent and the Company. Thereafter, for as long as
this Agreement is in effect, Parent and Merger Sub, on the one hand, and the
Company, on the other hand, shall not, and shall cause their subsidiaries and
affiliates not to, issue or cause the publication of any press release or any
other announcement with respect to the Offer, the Merger, this Agreement or the
other transactions contemplated hereby without the consent of the other (which
shall not be unreasonably withheld or delayed), except where such release or
announcement is required by applicable law or pursuant to any listing agreement
with, or the rules or regulations of, any securities exchange or any other
regulatory requirement.
Section 6.8 Indemnification and Insurance.
-----------------------------
(a) Parent agrees that all rights to indemnification existing in favor
of the present or former directors, officers, and employees of the Company (as
such) or any of its subsidiaries or present or former directors of the Company
or any of its subsidiaries serving or who served at the Company's or any of its
subsidiaries' request as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, as provided in the Company's certificate of incorporation or by-
laws, or the articles of incorporation, by-laws or similar organizational
documents of any of the Company's subsidiaries and the indemnification
agreements with such present and former directors, officers and employees as in
effect as of the date hereof (true and correct copies of which have been
provided to Parent) with respect to matters occurring at or prior to the
Effective Time shall survive the Merger and shall continue in full force and
effect and without modification (other than modifications following the Merger
which would enlarge the indemnification rights) for a period of not less than
six years, and the Surviving Corporation shall comply fully with its obligations
hereunder and thereunder.
(b) For a period of not less than six years after the Effective Time,
the Surviving Corporation shall maintain officers' and directors' liability
insurance and fiduciary liability insurance covering the persons described in
paragraph (a) of this Section 6.8 (whether or not they are entitled to
indemnification thereunder) who are currently covered by the Company's existing
officers' and directors' or fiduciary liability insurance policies on terms no
less advantageous to such indemnified parties than such existing insurance;
provided, however, that in no event shall Parent be required to expend in any
- -------- -------
one year an amount in excess of 150% of the annual premiums currently paid by
the Company for such insurance.
(c) This Section 6.8, which shall survive the consummation of the
Merger at the Effective Time and shall continue for the periods specified
herein, is intended to
27
<PAGE>
benefit the Company, the Surviving Corporation, and any person or entity
referenced in this Section 6.8 or indemnified hereunder each of whom may enforce
the provisions of this Section 6.8 (whether or not parties to this Agreement).
Section 6.9 Directors. Promptly upon the acceptance for payment of,
---------
and payment for, such number of shares of Common Stock by Merger Sub pursuant to
the Offer as satisfies the Minimum Condition (the "Majority Acquisition"), and
--------------------
from time to time thereafter, Merger Sub shall be entitled to designate such
number of directors on the Board of Directors of the Company, rounded up to the
next greatest whole number, subject to compliance with Section 14(f) of the
Exchange Act, as shall represent a percentage of the Board of Directors equal to
the percentage of the outstanding shares of Common Stock owned by Merger Sub;
provided that, from the Majority Acquisition until the Effective Time, at least
- --------
two persons who are directors of the Company on the date hereof shall be
directors of the Company (the "Continuing Directors"); and provided further
-------------------- --- -------- -------
that, if the number of Continuing Directors shall be reduced below two for any
reason whatsoever, any remaining Continuing Directors shall be entitled to
designate a person to fill such vacancy as a Continuing Director for purposes of
this Agreement or, if no Continuing Directors then remain, the other directors
shall designate two persons to fill such vacancies who shall not be officers,
directors, stockholders or affiliates of Parent, Merger Sub or the Company, and
such persons shall be deemed to be Continuing Directors for purposes of this
Agreement. The Company and its Board of Directors shall, at such time, take all
such action needed to cause Merger Sub's designees to be appointed to the
Company's Board of Directors. Subject to applicable law, the Company shall take
all action requested by Parent necessary to effect any such election, including
mailing to its stockholders the Information Statement containing the information
required by Section 14(f) of the Exchange Act and Rule 14f-1 promulgated
thereunder not later than ten days prior to the scheduled expiration date of the
Offer, and the Company agrees to make such mailing with the mailing of the
Schedule 14D-9 (provided that Merger Sub shall have provided to the Company on a
timely basis all information required to be included in the Information
Statement with respect to Merger Sub's designees). At such times, the Company
will also cause (i) each committee of the Board of Directors, (ii) if requested
by Merger Sub, the board of directors of each of the Company's subsidiaries and
(iii) if requested by Merger Sub, each committee of such board to include
persons designated by Merger Sub constituting the same percentage of each such
committee or board as Merger Sub's designees are of the Board. The Company
shall, upon request by Merger Sub, promptly increase the size of the Board or
exercise its best efforts to secure the resignations of such number of directors
as is necessary to enable Merger Sub designees to be elected to the Board and
shall cause Merger Sub's designees to be so elected.
Section 6.10 Employee Matters.
----------------
(a) Parent agrees to cause the Surviving Corporation to comply in all
respects with the change of control provisions of the employment agreements of
each of the persons identified in Schedule 6.10(a) (the "Executives"). Without
----------
limiting the foregoing, all amounts payable upon such change in control shall be
paid in cash immediately following the Majority Acquisition, excluding payments
with respect to Company Stock Options which shall be paid as provided in Section
3.1(d).
28
<PAGE>
(b) (A) Parent agrees to pay or to cause the Surviving Corporation to
pay, in either case upon the terms and subject to the conditions set forth in
this Section 6.10(b), to each of the employees of the Company identified on
Schedule 6.10(b) (the "Affected Employees") an amount (the "Accrued Bonus
------------------ -------------
Payment") equal to such Affected Employee's annual bonus (which amount is set
- -------
forth opposite such Affected Employee's name on Schedule 6.10(b) under the
heading "Stakeholder Bonus 1997") multiplied by a fraction, the numerator of
which is the number of days that have elapsed from December 31, 1996 (or the
date of hire of the Affected Employee, if later) until the earlier to occur of
the dates set forth in clauses (B)(i) and (B)(ii) hereof and the denominator of
which is 365; provided, that if any such Affected Employee (other than the
--------
persons referred to in Section 6.10(a)) voluntarily terminates his or her
employment other than for Good Reason to Terminate (as defined below), or dies
or becomes disabled, or is terminated for Cause prior to December 31, 1997, the
Surviving Corporation shall not be obligated to make such payment with respect
to such Affected Employee.
(B) Payment of each Affected Employee's Accrued Bonus Payment
shall be payable within two weeks after the earlier to occur of (i) the
termination following the purchase of shares of Common Stock pursuant to the
Offer of such Affected Employee's employment (other than for Cause, disability,
death or termination by such Affected Employee without Good Reason to Terminate)
and (ii) December 31, 1997, if the Affected Employee is employed by the
Surviving Corporation or any of its subsidiaries at such time.
(c) Parent, Merger Sub and the Company agree to comply with the terms,
policies and procedures specified on Schedule 6.10(c).
(d) For purposes of this Section 6.10, "Cause" means conviction of a
-----
felony or a crime involving personal dishonesty or theft or misappropriation of
the property of the Surviving Corporation or its subsidiaries; and "Good Reason
-----------
to Terminate" shall be deemed to occur if Parent, the Surviving Corporation or
- ------------
any of their subsidiaries or affiliates shall (i) take any action which
substantially reduces an Affected Employee's title, duties, responsibilities,
salary, or, unless such change affects all employees of the Surviving
Corporation or its subsidiaries at a comparable level of seniority and
responsibility, benefits, or (ii) require the Affected Employee to relocate
permanently in excess of 35 miles from the Affected Employees' primary place of
business.
(e) Notwithstanding anything to the contrary contained herein or in
any other document, agreement or instrument, if any person is terminated by the
Company (other than for Cause) following the purchase of shares of Common Stock
pursuant to the Offer but prior to the Effective Time, all Company Stock Options
held by any such person shall be treated as provided in Section 3.1(d) hereof.
Section 6.11 Consummation of Merger. Parent agrees that, subject to
----------------------
the satisfaction of the conditions set forth in Section 7.1, in the event ninety
percent or more of the Shares are tendered pursuant to the Offer, it will unless
precluded by applicable law cause Merger Sub to consummate the Merger as soon as
practicable, but in no event later than five business days after the expiration
of the Offer.
29
<PAGE>
Section 6.12 Debt Offers/Consent Solicitations. Subject to the
---------------------------------
provisions of this Agreement, Merger Sub shall, and Parent shall cause Merger
Sub to, commence (i) a tender offer (the "Junior Tender Offer") to purchase all
-------------------
of the principal amount of, and a consent solicitation (the "Junior Consent
--------------
Solicitation") to the holders of, the Company's 12 1/4% Subordinated Securities
- ------------
due 2003 (the "Junior Securities") upon the terms and subject to the conditions
-----------------
set forth in Schedule 6.12 and (ii) a tender offer (the "Senior Tender Offer"
-------------------
and, together with the Junior Tender Offer, the "Debt Offers") to purchase all
-----------
of the principal amount of, and a consent solicitation (the "Senior Consent
--------------
Solicitation" and, together with the Junior Consent Solicitation, the "Consent
- ------------ -------
Solicitations") to the holders of, the Company's 9 7/8% Senior Subordinated
- -------------
Securities due 2002 (the "Senior Securities" and, together with the Junior
-----------------
Securities, the "Securities") upon the terms and subject to the conditions set
----------
forth in Schedule 6.12. The obligations of Merger Sub to, and of Parent to
cause Merger Sub to, (i) commence the Debt Offers and the Consent Solicitations,
(ii) accept for payment, and pay for, any Securities tendered pursuant to the
Debt Offers and (iii) effect amendments to the terms of the respective
indentures governing the Junior Securities and the Senior Securities (the
"Junior Indenture" and the "Senior Indenture", respectively, and together the
---------------- ----------------
"Indentures") by means of consents obtained pursuant to the Consent
----------
Solicitations, shall be subject only to the conditions set forth in Schedule
6.12 (any of which may be waived by Merger Sub in its sole discretion). Parent
shall contribute to Merger Sub on a timely basis the funds necessary to purchase
any Securities that Merger Sub becomes obligated to purchase pursuant to the
Debt Offers. The Company shall make all reasonable efforts to assist and
cooperate with Merger Sub in conducting the Debt Offers and the Consent
Solicitations.
ARTICLE 7
CONDITIONS
Section 7.1 Conditions to Each Party's Obligations. 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) If required by applicable law, the Merger shall have been
approved by holders of Common Stock as required by such applicable law;
(b) No Legal Requirements shall have been enacted, entered,
promulgated or enforced by any court or Governmental Entity that prohibits or
prevents the consummation of the Merger;
(c) Merger Sub shall have previously accepted for payment and
paid for Shares pursuant to the Offer; and
(d) Any waiting period applicable to the Merger under the HSR
Act shall have expired or been terminated.
30
<PAGE>
ARTICLE 8
TERMINATION
Section 8.1 Termination. This Agreement may be terminated and the
-----------
Merger contemplated hereby may be abandoned at any time prior to the Effective
Time, whether before or after adoption by the stockholders of the Company:
(a) By the mutual written consent of Parent, Merger Sub and the
Company (but only by action of the Continuing Directors after the purchase of
Common Stock pursuant to the Offer);
(b) By Parent, Merger Sub or the Company (but only by action of
the Continuing Directors after the purchase of Common Stock pursuant to the
Offer):
(i) if a court of competent jurisdiction or other
Governmental Entity shall have issued an order or taken any other action
permanently restraining, enjoining or otherwise prohibiting the Offer or
the Merger and such order or other action shall have become final and
nonappealable; or
(ii) (x) as a result of the failure, occurrence or
existence of any of the conditions set forth in Exhibit A (1) Merger Sub
shall have failed to commence the Offer within five business days following
the date of this Agreement or (2) the Offer shall have terminated or
expired in accordance with its terms without Merger Sub having accepted for
payment any shares of Common Stock pursuant to the Offer or (y) Merger Sub
shall not have accepted for payment any shares of Common Stock pursuant to
the Offer by December 31, 1997; provided, however, that the right to
-------- -------
terminate this Agreement pursuant to this Section 8.1(b)(ii) shall not be
available to any party whose failure to perform any of its obligations
under this Agreement results in the failure, occurrence or existence of any
such condition;
(c) By the Company in connection with the entering into, or
consummation of, a Superior Proposal in accordance with Section 6.4, provided
that it has complied with all provisions thereof, including the notice
provisions therein, and that it complies with applicable requirements relating
to the payment (including the timing of any payment) of the Expenses and the
Fee;
(d) By Parent or Merger Sub prior to the purchase of Shares of
Common Stock pursuant to the Offer in the event of a breach by the Company of
any representation, warranty, covenant or other agreement contained in this
Agreement, which (A) would give rise to the failure of a condition set forth in
paragraph (d) or (e) of Exhibit A, and (B) has not been or cannot be cured
within 20 days after the giving of written notice to the Company;
(e) By the Company, if Parent or Merger Sub shall have breached
in any material respect any of their respective representations, warranties,
covenants or other
31
<PAGE>
agreements contained in this Agreement, which failure to perform has not been
cured within 20 days after the giving of written notice to Parent or Merger Sub;
or
(f) by Parent or Merger Sub if either Parent or Merger Sub is
entitled to terminate the Offer as a result of the occurrence of any event set
forth in paragraph (c) of Exhibit A.
Section 8.2 Procedure for and Effect of Termination. In the event that
---------------------------------------
this Agreement is terminated and the Merger is abandoned by the Parent or the
Merger Sub, on the one hand, or by the Company, on the other hand, pursuant to
Section 8.1, written notice of such termination and abandonment shall forthwith
be given to the other parties and this Agreement shall terminate and the Merger
shall be abandoned without any further action. If this Agreement is terminated
as provided herein, no party hereto shall have any liability or further
obligation to any other party under the terms of this Agreement except with
respect to the willful breach by any party hereto and except that the provisions
of this Section 8.2, the final sentence of Section 6.3, Section 8.3 and Article
9 shall survive the termination of this Agreement.
Section 8.3 Fees and Expenses. (a) Except as set forth in this Section
-----------------
8.3, all fees and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses, whether or not the Merger is consummated.
(b) The Company shall pay Parent a fee of $12,000,000 (the
"Fee"), and reimburse Parent for actual and documented out-of-pocket expenses of
---
Parent relating to the transactions contemplated by this Agreement (including,
but not limited to, fees and expenses of Parent's counsel) not in excess of
$4,000,000 ("Expenses"), in the event that:
--------
(i) this Agreement is terminated (x) by Parent pursuant
to Section 8.1(f) or (y) by the Company pursuant to Section
8.1(c);
(ii) this Agreement is terminated by Parent pursuant to
Section 8.1(d) after a breach of Section 6.4 by the Company; or
(iii) (A) the Company shall have received an Acquisition
Proposal at or prior to, or within 30 days after, the termination
of this Agreement and (B) an Alternative Transaction is
consummated on or prior to the one-year anniversary of the
termination of this Agreement.
(c) As used herein, "Alternative Transaction" means (i) a
-----------------------
transaction pursuant to which any person (or group of persons) other than Parent
or its affiliates (a "Third Party") acquires more than 40% of the outstanding
-----------
Shares, whether from the Company or pursuant to a tender offer or exchange offer
or otherwise, (ii) a merger or other business combination involving the Company
pursuant to which any Third Party acquires more than 40% of the outstanding
equity securities of the Company or the entity surviving such merger or business
combination or (iii) any other transaction pursuant to which any Third Party
acquires control of assets (including for this purpose the outstanding equity
securities of subsidiaries of
32
<PAGE>
the Company, and the entity surviving any merger or business combination
including any of them) of the Company and its subsidiaries having a fair market
value equal to more than 40% of the fair market value of all the assets of the
Company and its subsidiaries, taken as a whole, immediately prior to such
transaction; provided, however, that the term Alternative Transaction shall not
-------- -------
include any acquisition of securities by a broker dealer in connection with a
bona fide public offering of such securities.
(d) The Fee and Expenses payable pursuant to Section 8.3(b) shall be
paid upon the earlier of (i) immediately prior to the termination of this
Agreement by the Company pursuant to Section 8.1(c) and (ii) within one business
day after the first to occur of the events described in Section 8.3(b)(i)(x),
(ii) and (iii).
ARTICLE 9
MISCELLANEOUS
Section 9.1 Certain Definitions. For purposes of this Agreement, the
-------------------
following terms shall have the meanings ascribed to them in this Section 9.1(a):
(a) "affiliate," with respect to any person, shall mean any person
---------
controlling, controlled by or under common control with such person;
(b) "knowledge," with respect to the Company, shall mean the actual
---------
knowledge of any executive officer or director of the Company;
(c) "Material Adverse Effect," with respect to any person, shall mean
-----------------------
a material adverse effect on the business, assets, properties, financial
condition or results of operations of such person and its subsidiaries taken as
a whole;
(d) "person" shall mean and include an individual, a partnership, a
------
joint venture, a limited liability company, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof; and
(e) "subsidiary," with respect to any person, shall mean any
----------
corporation 50% or more of the outstanding voting power of which, or any
partnership, joint venture, limited liability company or other entity 50% or
more of the total equity interest of which, is directly or indirectly owned by
such person. For purposes of this Agreement, all references to "subsidiaries"
of a person shall be deemed to mean "subsidiary" if such person has only one
subsidiary.
Section 9.2 Amendment and Modification. Subject to applicable law,
--------------------------
this Agreement may be amended, modified or supplemented only by a written
agreement signed by each of the parties hereto at any time prior to the
Effective Time with respect to any of the terms contained herein; provided,
--------
however, that after this Agreement is adopted by the Company's stockholders
- -------
pursuant to Section 6.2, no such amendment or modification shall
33
<PAGE>
(a) alter or change the amount or kind of the consideration to be delivered to
the stockholders of the Company, (b) alter or change any term of the certificate
of incorporation of the Surviving Corporation or (c) alter or change any of the
terms or conditions of this Agreement if such alteration or change would
adversely affect the stockholders of the Company. If Merger Sub's designees are
appointed or elected to the Board of Directors of the Company as provided in
Section 6.10, after the acceptance for payment of shares of the Common Stock
pursuant to the Offer and prior to the Effective Time, the affirmative vote of a
majority of the Continuing Directors of the Company shall be required for the
Company to take action to (i) amend or terminate this Agreement, (ii) exercise
or waive any of the Company's rights or remedies under this Agreement, (iii)
extend the time for performance of Parent's and Merger Sub's respective
obligations under this Agreement, (iv) take any action to amend or otherwise
modify the Company's certificate of incorporation or by-laws or (v) take any
action that would adversely affect the rights of the holders of Common Stock or
the holders of Company Stock Options with respect to the transactions
contemplated hereby.
Section 9.3 Waiver of Compliance; Consents. Any failure of Parent or
------------------------------
Merger Sub, on the one hand, or the Company, on the other hand, to comply with
any obligation, covenant, agreement or condition herein may, subject to Section
9.2, be waived by Parent, Merger Sub or the Company, respectively, only by a
written instrument signed by the party granting such waiver, but such waiver or
failure to insist upon strict compliance with such obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure. Whenever this Agreement requires
or permits consent by or on behalf of any party hereto, such consent shall be
given in writing in a manner consistent with the requirements for a waiver of
compliance as set forth in this Section 9.3 and in Section 9.2. Notwithstanding
anything herein to the contrary, if Merger Sub accepts Shares for payment prior
to October 1, 1997, Parent and Merger Sub shall not be obligated to, and shall
not, consummate the Merger (subject to the other terms and conditions hereof)
until October 2, 1997.
Section 9.4 Survival. The respective representations and warranties of
--------
Parent, Merger Sub and the Company contained herein shall not survive the
Closing hereunder.
Section 9.5 Notices. All notices and other communications hereunder
-------
shall be in writing and shall be deemed to have been duly given when delivered
in person or by telecopier (with a confirmed receipt thereof), and on the next
business day when sent by overnight courier service, to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) if to Parent or Merger Sub, to:
Sun Healthcare Group, Inc.
101 Sun Lane NE
Albuquerque, New Mexico 87109
Attention: General Counsel
Telecopier: (505) 822-0747
34
<PAGE>
with a copy to:
Brobeck, Phleger & Harrison LLP
One Market
Spear Street Tower
San Francisco, California 94105
Attention: Michael J. Kennedy
Telecopier: (415) 442-1010
(b) if to the Company, to:
Regency Health Services, Inc.
2742 Dow Avenue
Tustin, California 92780
Attention: General Counsel
Telecopier: (714) 544-4413
with a copy to:
Paul, Weiss, Rifkind,
Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Judith R. Thoyer
Telecopier: (212) 757-3990
Section 9.6 Assignment. This Agreement and all of the provisions
----------
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, but neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto without the prior written consent of the other
parties, except that Parent and Merger Sub may assign all or any of their rights
hereunder to any affiliate provided that no such assignment shall relieve the
assigning party of its obligations hereunder.
Section 9.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD
TO THE CHOICE OF LAW PRINCIPLES THEREOF.
Section 9.8 Counterparts. This Agreement may be executed and delivered
------------
(including by facsimile transmission) in one or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
35
<PAGE>
Section 9.9 Interpretation. The article and section headings contained
--------------
in this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement.
Section 9.10 Entire Agreement. This Agreement (including the
----------------
schedules, exhibits, documents or instruments referred to herein) and the
Confidentiality Agreement embody the entire agreement and understanding of the
parties hereto in respect of the subject matter hereof and thereof and supersede
all prior agreements and understandings, both written and oral, among the
parties, or between any of them, with respect to the subject matter hereof and
thereof.
Section 9.11 No Third Party Beneficiaries. Except as expressly
----------------------------
provided in Section 6.8, this Agreement is not intended to, and does not, create
any rights or benefits of any party other than the parties hereto.
Section 9.12 Obligations of Parent. Wherever this Agreement requires
---------------------
Merger Sub to take any action, such requirement shall be deemed to include an
undertaking on the part of Parent to cause Merger Sub to take such action.
36
<PAGE>
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement to be signed by their respective duly authorized officers as of the
date first above written.
SUN HEALTHCARE GROUP, INC.
By /s/ Robert D. Woltil
--------------------------------------------
Name: Robert D. Woltil
Title: Senior Vice President for Financial
Services and Chief Financial Officer
SUNREG ACQUISITION CORP.
By /s/ Robert D. Woltil
--------------------------------------------
Name: Robert D. Woltil
Title: Vice President
REGENCY HEALTH SERVICES, INC.
By /s/ Richard K. Matros
--------------------------------------------
Name: Richard K. Matros
Title: President and Chief Executive
Officer
<PAGE>
EXHIBIT A
CONDITIONS OF THE OFFER
-----------------------
Notwithstanding any other term of the Offer or this Agreement, Merger Sub
shall not be required to accept for payment or, subject to any applicable rules
and regulations of the SEC, including Rule 14e-1(c) under the Exchange Act
(relating to Merger Sub's obligation to pay for or return tendered shares of
Common Stock after the termination or withdrawal of the Offer), to pay for any
shares of Common Stock tendered pursuant to the Offer unless, (i) there shall
have been validly tendered and not properly withdrawn prior to the expiration of
the Offer such number of shares of Common Stock which would constitute a
majority of the outstanding shares of Common Stock on a fully-diluted basis on
the date of purchase (the "Minimum Condition") ("on a fully-diluted basis"
-----------------
means, as of the date of the purchase of shares of Common Stock pursuant to the
Offer, the number of shares of Common Stock outstanding, together with all
shares of Common Stock issuable pursuant to options, convertible securities and
any other rights to acquire Shares) and (ii) any waiting period under the HSR
Act or applicable state regulatory statutes or regulations applicable to the
purchase of shares of Common Stock pursuant to the Offer shall have expired or
been terminated. Furthermore, notwithstanding any other term of the Offer or
this Agreement, Merger Sub shall not be required to accept for payment or,
subject as aforesaid, to pay for any shares of Common Stock not theretofore
accepted for payment or paid for, and (subject to Sections 1.1(a) and 6.5(a) of
this Agreement) may terminate the Offer if, at any time on or after the date of
this Agreement and before the acceptance of such shares for payment or the
payment therefor, any of the following conditions exists:
(a) there shall be pending by any Governmental Entity or other person any
suit, action or proceeding (i) challenging the acquisition by Parent or Merger
Sub of any shares of Common Stock under the Offer, seeking to restrain or
prohibit the making or consummation of the Offer or the Merger or the
performance of any of the other transactions contemplated by this Agreement or
the Stockholder Agreement or seeking to obtain from the Company, Parent or
Merger Sub any damages that are material in relation to the Company and its
subsidiaries taken as a whole, (ii) seeking to prohibit or limit the ownership
or operation by the Company, Parent or any of their respective subsidiaries of a
material portion of the business or assets of the Company and its subsidiaries,
taken as a whole, or Parent and its subsidiaries, taken as a whole, or to compel
the Company or Parent to dispose of or hold separate any material portion of the
business or assets of the Company and its subsidiaries, taken as a whole, or
Parent and its subsidiaries, taken as a whole, as a result of the Offer, the
Merger or any of the other transactions contemplated by this Agreement or the
Stockholder Agreement, (iii) seeking to impose material limitations on the
ability of Parent or Merger Sub to acquire or hold, or exercise full rights of
ownership of, any shares of Common Stock accepted for payment pursuant to the
Offer, including, without limitation, the right to vote such Common Stock on all
matters properly presented to the stockholders of the Company, (iv) seeking to
prohibit Parent or any of its subsidiaries from effectively controlling in any
material respect the business or operations of the Company and its subsidiaries,
taken as a whole or (v) which otherwise is reasonably likely to have a Material
Adverse Effect with respect to the Company;
A-1
<PAGE>
(b) there shall be any statute, rule, regulation, legislation, judgment,
order or injunction enacted, entered, enforced, promulgated, or deemed
applicable to the Offer or the Merger, or any other action shall be taken by any
Governmental Entity, other than the application to the Offer or the Merger of
applicable waiting periods under the HSR Act which, in any case, is reasonably
likely to result, directly or indirectly, in any of the consequences referred to
in clauses (i) through (v) of paragraph (a) above;
(c) (i) the Board or any committee thereof shall have withdrawn or modified
in a manner adverse to Parent or Merger Sub its approval or recommendation of
the Offer or the Merger or its adoption of this Agreement, or approved or failed
to reject within 10 business days, any Acquisition Proposal, (ii) the Company
shall have entered into any agreement with respect to any Superior Proposal in
accordance with Section 6.4 of this Agreement or (iii) the Board or any
committee thereof shall have resolved to take any of the foregoing actions;
(d) any of the representations and warranties of the Company set forth in
this Agreement that are qualified as to materiality shall not be true and
correct or any such representations and warranties that are not so qualified
shall not be true and correct in any material respect, in each case at the date
of this Agreement and, in the case of representations and warranties other than
those made specifically as of the date of this Agreement, at the scheduled or
extended expiration of the Offer;
(e) the Company shall have failed to perform in any material respect any
obligation or to comply in any material respect with any agreement or covenant
of the Company to be performed or complied with by it under this Agreement;
(f) this Agreement shall have been terminated in accordance with its terms or
the Offer shall have been terminated with the consent of the Company;
(g) (i) less than a majority in principal amount of either of the Securities
shall have been tendered and not withdrawn pursuant to the Debt Offers or (ii)
consents shall have been obtained in the Consent Solicitations from holders
(other than the Company and its Affiliates (as such term is defined in the
applicable Indenture)) of less than a majority in principal amount as of the
applicable record date of either of the Securities;
(h) there shall have occurred (i) any general suspension of, or limitation of
prices for, trading on the NYSE, AMEX, Nasdaq National Market, (ii) any
declaration of banking moratorium or suspension or payment in respect of banks
in the United States, (iii) any general limitation by a Government Entity on, or
any other event that would limit, the extension of credit by banks or other
lending institutions, (iv) any commencement of war, armed hostilities or other
international or national calamity directly or indirectly involving the United
States having a significant adverse effect on the functionality of financial
markets in the United States or (v) in the case of any of the foregoing,
existing at time of the commencement of the Offer, a material acceleration or
worsening thereof which, in the reasonable judgment of Merger Sub in any case
and regardless of circumstances, makes it inadvisable to proceed with such
acceptance for payment or payment.
A-2
<PAGE>
The foregoing conditions are for the sole benefit of Merger Sub and Parent
and may, subject to the terms of this Agreement, be waived by Merger Sub and
Parent in whole or in part at any time and from time to time in their sole
discretion. The failure by Parent, or Merger Sub at any time to exercise any of
the foregoing rights shall not be deemed a waiver of any such right, the waiver
of any such right with respect to particular facts and circumstances shall not
be deemed a waiver with respect to any other facts and circumstances and each
such right shall be deemed an ongoing right that may be asserted at any time and
from time to time.
A-3
<PAGE>
Exhibit (c)(2)
CONFORMED COPY
STOCKHOLDER AGREEMENT
STOCKHOLDER AGREEMENT, dated as of July 26, 1997, among SUN HEALTHCARE
GROUP, INC., a Delaware corporation ("Parent"), SUNREG ACQUISITION CORP., a
------
Delaware corporation and a wholly owned subsidiary of Parent ("Sub"), and the
---
persons listed on Schedule A hereto (each a "Stockholder," and collectively, the
-----------
"Stockholders").
------------
WHEREAS, Parent, Sub and Regency Health Services, Inc., a Delaware
corporation (the "Company"), propose to enter into an Agreement and Plan of
-------
Merger of even date herewith (as the same may be amended or supplemented, the
"Merger Agreement"; capitalized terms not otherwise defined herein shall have
----------------
the meanings ascribed thereto in the Merger Agreement) providing for (i) the
making of a cash tender offer (as such offer may be amended from time to time as
permitted under the Merger Agreement, the "Offer") by Sub for all of the
-----
outstanding shares of Common Stock, par value $.01 per share, of the Company
(the "Common Stock") and (ii) the merger of Sub with the Company (the "Merger");
------------ ------
WHEREAS, each Stockholder is the record and beneficial owner of the
number of shares of Common Stock set forth opposite such Stockholder's name on
Schedule A hereto, which number excludes shares issuable upon the exercise of
Company Stock Options (as such term is defined in the Merger Agreement, "Company
-------
Options") held by such Stockholder; such shares of Common Stock, as such shares
- -------
may be adjusted by stock dividend, stock split, recapitalization, combination or
exchange of shares, merger, consolidation, reorganization or other change or
transaction of or by the Company, together with shares of the Common Stock which
may be acquired after the date hereof by such Stockholder, including shares of
Common Stock issuable upon the exercise of Company Options (as the same may be
adjusted as aforesaid), being collectively referred to herein as the "Shares";
------
and
WHEREAS, as a condition to their willingness to enter into the Merger
Agreement, Parent and Sub have requested that the Stockholders enter into this
Agreement.
NOW, THEREFORE, to induce Parent and Sub to enter into, and in
consideration of their entering into, the Merger Agreement, and in consideration
of the premises and the representations, warranties and agreements contained
herein, the parties agree as follows:
1. Tender of Shares.
----------------
(a) Each Stockholder hereby severally and not jointly agrees that
it shall tender its Shares into the Offer and that it shall not withdraw any
Shares so tendered (it being understood that the obligation contained in this
sentence is unconditional, subject to
1
<PAGE>
Section 8). Notwithstanding the foregoing, the Stockholders (other than Messrs.
Matros and Broussard) will have no obligation to tender their shares, and any
such shares so tendered shall, without further act of such Stockholder, be
deemed to be withdrawn from the Offer, prior to October 1, 1997.
2. Representations and Warranties of the Stockholders. Each
--------------------------------------------------
Stockholder hereby, severally and not jointly, represents and warrants to Parent
and Sub as follows:
(a) Authority. The Stockholder has all requisite power and
---------
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by the Stockholder. This Agreement has been duly executed
and delivered by the Stockholder and constitutes a valid and binding obligation
of the Stockholder enforceable against the Stockholder in accordance with its
terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally and (ii) as limited by laws relating
to the availability of specific performance, injunctive relief or other
equitable remedies. Except for filings with the Securities and Exchange
Commission, neither the execution, delivery or performance of this Agreement by
the Stockholder nor the consummation by the Stockholder of the transactions
contemplated hereby will (i) require any filing with, or permit, authorization,
consent or approval of, any federal, state or local government or any court,
tribunal, administrative agency or commission or other governmental or
regulatory authority or agency, domestic, foreign or supranational (other than
any such filings that are required solely due to attributes of Parent or Sub),
(ii) result in a violation or breach of, or constitute (with or without notice
or lapse of time or both) a default (or give rise to an right of termination,
amendment, cancellation or acceleration) under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease, license, contract,
agreement or other instrument or obligation to which the Stockholder is a party
or by which the Stockholder or any of the Stockholder's Shares, may be bound or
(iii) violate any order, writ, injunction, decree, statute, rule or regulation
applicable to the Stockholder or any of the Stockholder's properties or assets,
including the Stockholder's Shares.
(b) The Shares. The Stockholder's Shares and the certificate
----------
representing such Shares are now and at all times during the term hereof will be
held by such Stockholder, or by a nominee or custodian for the benefit of such
Stockholder, and the Stockholder has good and marketable title to such Shares,
free and clear of any pledges, claims, liens, charges, encumbrances, security
interests, proxies, voting trusts or agreements, understandings or arrangements
or any other encumbrances of any kind or nature whatsoever, except for any such
encumbrances or proxies arising hereunder. The Stockholder owns of record or
beneficially no shares of Common Stock other than such Stockholder's Shares and
shares of Common Stock issuable upon the exercise of Company Options. The
Stockholder hereby irrevocably waives all rights to appraisal under the DGCL
with respect to the Merger.
(c) Brokers. No broker, investment banker, financial advisor or
-------
other person is entitled to any broker's financial advisor's or other similar
fee or commission in
2
<PAGE>
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of such Stockholder.
(d) Merger Agreement. The Stockholder understands and acknowledges
----------------
that Parent is entering into, and causing Sub to enter into, the Merger
Agreement in reliance upon the Stockholder's execution and delivery of this
Agreement.
3. Representations and Warranties of Parent and Sub. Parent and Sub
------------------------------------------------
hereby jointly and severally represent and warrant to the Stockholders as
follows:
(a) Authority. Parent and Sub have the requisite corporate power
---------
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by Parent and Sub and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of Parent and Sub. This Agreement has been fully executed and
delivered by Parent and Sub and constitutes a valid and binding obligation of
Parent and Sub enforceable in accordance with its terms, except (i) as limited
by applicable bankruptcy, insolvency, reorganization, moratorium and other laws
of general application affecting enforcement of creditors' rights generally and
(ii) as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies.
(b) Securities Act. The Shares will be acquired in compliance
--------------
with, and Sub will not offer to sell or otherwise dispose of any Shares so
acquired by it in violation of any of, the Securities Exchange Act of 1934, as
amended, or the registration requirements of the Securities Act of 1933, as
amended.
4. Covenants of the Stockholders. Each Stockholder severally and not
-----------------------------
jointly agrees as follows:
(a) The Stockholder shall not, except as contemplated by the terms
of this Agreement, (i) sell, transfer, pledge, assign or otherwise dispose of,
or enter into any contract, option or other arrangement (including any profit
sharing arrangement) or understanding with respect to the sale, transfer,
pledge, assignment or other disposition of, the Shares to any person other than
pursuant to the Offer, (ii) enter into any voting arrangement, whether by proxy,
voting agreement, voting trust, power-of-attorney or otherwise, with respect to
the Shares or (iii) take any other action that would in any way restrict, limit
or interfere with the performance of its obligations hereunder or the
transactions contemplated hereby.
(b) Until the Merger is consummated or the Merger Agreement is
terminated, the Stockholder shall not, nor shall the Stockholder permit any
investment banker, financial adviser, attorney, accountant or other
representative or agent of the Stockholder to, directly or indirectly (i)
solicit, initiate or encourage (including by way of furnishing information), or
take any other action designed or reasonably likely to facilitate, any inquiries
or the making of any proposal which constitutes, or may reasonable be expected
to lead to, any Acquisition Proposal or (ii) participate in any discussions or
negotiations regarding any Acquisition Proposal. Without limiting the
foregoing, it is understood that any violation of the
3
<PAGE>
restrictions set forth in the preceding sentence by an investment banker,
financial advisor, attorney, accountant or other representative or agent of the
Stockholder shall be deemed to be a violation of this Section 4(b) by the
Stockholder; provided, however, that action by a Stockholder in his or her
-------- -------
capacity as an officer or director of the Company that is permitted by Section
6.4 of the Merger Agreement shall not be a violation of this Agreement.
5. Grant of Irrevocable Proxy; Appointment of Proxy.
------------------------------------------------
(a) Each Stockholder hereby irrevocably grants to, and appoints,
Andrew Turner, Robert Woltil and Robert Murphy, and any other individual who
shall hereafter he designated by Parent, and each of them, such Stockholder's
proxy and attorney-in-fact (with full power of substitution), for and in the
name, place and stead of such Stockholder, to vote such Stockholder's Shares
(the "Proxy Shares"), or grant a consent or approval in respect of such Proxy
------------
Shares, at any meeting of shareholders of the Company or at any adjournment
thereof or in any other circumstances upon which their vote, consent or other
approval is sought, against (i) any merger agreement or merger (other than the
Merger Agreement and the Merger), consolidation, combination, sale of
substantial assets, reorganization, joint venture, recapitalization,
dissolution, liquidation or winding up of or by the Company and (ii) any
amendment of the Company's Certificate of Incorporation or Bylaws, as amended
and restated, or other proposals or transaction (including any consent
solicitation to remove or elect any directors of the Company) involving the
Company which amendment or other proposal or transaction would in any manner
impede, frustrate, prevent or nullify, or result in a breach of covenant,
representation or warranty or any other obligation or agreement of the Company
under or with respect to, the Offer, the Merger, the Merger Agreement or any of
the other transactions contemplated by the Merger Agreement.
(b) Each Stockholder represents that any proxies heretofore given
in respect of such Stockholder's Proxy Shares are not irrevocable, and that any
such proxies are hereby revoked.
(c) Each Stockholder hereby affirms that the irrevocable proxy set
forth in this Section 5 is given in connection with the execution of the Merger
Agreement, and that such irrevocable proxy is given to secure the performance of
the duties of such Stockholder under this Agreement. Such Stockholder hereby
further affirms that the irrevocable proxy is coupled with an interest and may
under no circumstances be revoked, subject to Section 8. Such Stockholder
hereby ratifies and confirms all that such irrevocable proxy may lawfully do or
cause to be done by virtue hereof. Such irrevocable proxy is executed and
intended to be irrevocable in accordance with the provisions of the Delaware
General Corporation Law.
6. Further Assurances. Each Stockholder will, from time to time,
------------------
execute and deliver, or cause to be executed and delivered, such additional or
further transfers, assignments, endorsements, consents and other instruments as
Parent or Sub may reasonably request for the purpose of effectively carrying out
the transactions contemplated by this Agreement and to vest the power to vote
such Stockholder's Proxy Shares as contemplated by Section 5. Parent and Sub
jointly and severally agree to use reasonable efforts to take, or cause to be
taken, all actions necessary to comply promptly with all legal requirements that
may be
4
<PAGE>
imposed with respect to the transactions contemplated by this Agreement
(including legal requirements of the HSR Act).
7. Assignment. Neither this Agreement nor any of the rights,
----------
interests or obligations hereunder shall be assigned by any of the parties
without the prior written consent of the other parties, except that Parent may
assign all or any of their rights hereunder to any affiliate, provided that no
such assignment shall relieve the assigning party of its obligations hereunder.
Subject to the preceding sentence, this Agreement will be binding upon, inure to
the benefit of and be enforceable by the parties and their respective successors
and assigns. Each Stockholder agrees that this Agreement and the obligations of
such Stockholder hereunder shall attach to such Stockholder's Shares and shall
be binding upon any person or entity to which legal or beneficial ownership of
such Shares shall pass, whether by operation of law or otherwise, including
without limitation such Stockholder's heirs, guardians, administrators or
successors.
8. Termination. This Agreement, and all rights and obligations of
-----------
the parties hereunder, shall terminate upon the date upon which the Merger
Agreement is terminated pursuant to its terms.
9. General Provisions.
------------------
(a) Expenses. All costs and expenses incurred in connection with
--------
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such expense.
(b) Amendments. This Agreement may not be amended except by an
----------
instrument in writing signed by each of the parties hereto.
(c) Notice. All notices and other communications hereunder shall
------
be in writing and shall be deemed given if delivered personally, telecopied
(which is confirmed), sent by overnight courier (providing proof delivery) or
mailed by registered or certified mail (return receipt requested) to the parties
at the following addresses (or at such other address for a party as shall be
specified by like notice):
(i) if to Parent, to
Sun Healthcare Group, Inc.
101 Sun Lane NE
Albuquerque, New Mexico 87109
Attention: General Counsel
Telecopier: (505) 822-0747
5
<PAGE>
with a copy to:
Brobeck, Phleger & Harrison LLP
One Market
Spear Street Tower
San Francisco, California 94105
Attention: Michael J. Kennedy
Telecopier: (415) 442-1010
and
(ii) if to a Stockholder, to the address set forth under the
name of such Stockholder on Schedule A hereto.
(d) Interpretation. When a reference is made in this Agreement to
--------------
a Section, such reference shall be to a Section of this Agreement unless
otherwise indicated. 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. Wherever the words "include", "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation."
(e) Counterparts. This Agreement may be executed and delivered
------------
(including by facsimile) in two or more counterparts, all of which shall be
considered one and the same agreement and shall become effective when two or
more counterparts have been signed by each of the parties and delivered to the
other parties, it being understood that all parties need not sign the same
counterpart.
(f) Entire Agreement; No Third-Party Beneficiaries. This Agreement
----------------------------------------------
(including the documents and instruments referred to herein) (i) constitutes the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof
and (ii) is not intended to confer upon any person other than the parties hereto
any rights or remedies hereunder.
(g) Governing Law. This Agreement shall be governed and construed
-------------
in accordance with the laws of the State of Delaware without regard to any
applicable conflicts of law.
(h) Publicity. Except as otherwise required by law, court process
---------
or the rules of a national securities exchange or as contemplated or provided in
the Merger Agreement, for so long as this Agreement is in effect, neither any
Stockholder nor Parent shall issue or cause the publication of any press release
or other public announcement with respect to the transactions contemplated by
this Agreement or the Merger Agreement without the consent of the other parties,
which consent shall not be unreasonably withheld.
10. Stockholder Capacity. No person executing this Agreement who
--------------------
is or become during the term hereof a director or officer of the Company makes
any agreement or
6
<PAGE>
understanding herein in his or her capacity as such director or officer. Each
Stockholder signs solely in his or her capacity as the record holder and
beneficial owner of, or the trustee of a trust whose beneficiaries are the
beneficial owners of, such Stockholder's Shares and nothing herein shall limit
or affect any actions taken by a Stockholder in its capacity as an officer or
director of the Company to the extent specifically permitted by the Merger
Agreement.
11. Performance by Sub. Parent covenants and agrees for the benefit
------------------
of the Stockholders that it will cause Sub to perform in full each obligations
of Sub set forth in this Agreement.
12. Enforcement. The parties agree that irreparable damage would
-----------
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement, this being in addition to any other
remedy to which they are entitled at law or in equity. In addition, each of the
parties hereto waives any right to trial by jury with respect to any claim or
proceeding related to or arising out of this Agreement or any of the
transactions contemplated hereby.
7
<PAGE>
IN WITNESS WHEREOF, each of Parent and Sub has caused this Agreement
to be signed by its officer thereunto duly authorized and each Stockholder has
signed this Agreement, all as of the date first written above.
SUN HEALTHCARE GROUP, INC.
By: /s/ Robert D. Woltil
-------------------------------
SUNREG ACQUISITION CORP.
By: /s/ Robert D. Woltil
-------------------------------
/s/ Richard K. Matros
----------------------------------
Richard K. Matros
/s/ Bruce Broussard
----------------------------------
Bruce Broussard
8
<PAGE>
ENERGY MANAGEMENT CORPORATION
By: /s/ David A. Persing
-------------------------------
David A. Persing
Senior Vice President
SOLVATION INC.
dba Smith Management Company
By: /s/ David A. Persing
-------------------------------
David A. Persing
Senior Vice President
PENGO SECURITIES CORP.
By: /s/ David A. Persing
-------------------------------
David A. Persing
Senior Vice President
SEGA ASSOCIATES, L.P.
By: /s/ John W. Adams
-------------------------------
John W. Adams
General Partner
DURIAN SECURITIES, INC.
By: /s/ David A. Persing
-------------------------------
David A. Persing
Senior Vice President
/s/ Randall D. Smith
-------------------------------
Randall D. Smith
/s/ John W. Adams
-------------------------------
John W. Adams
9
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE A
Stockholder No. of Shares
----------- -------------
<S> <C>
Richard K. Matros
c/o Regency Health Services, Inc. 0
2742 Dow Avenue
Tustin, CA 92780
Bruce Broussard
c/o Regency Health Services, Inc. 0
2742 Dow Avenue
Tustin, CA 92780
Energy Management Corporation 1,120,011
c/o Smith Management Company
885 Third Avenue
New York, NY 10022
SOLVation Inc. 1,141,071
dba Smith Management Company
c/o Smith Management Company
885 Third Avenue
New York, NY 10022
Pengo Securities Corp. 1,286,993
c/o Smith Management Company
885 Third Avenue
New York, NY 10022
Sega Associates, L.P. 45,564
c/o Smith Management Company
885 Third Avenue
New York, NY 10022
Durian Securities, Inc. 90,597
c/o Smith Management Company
885 Third Avenue
New York, NY 10022
Randall D. Smith 364,677(1)
c/o Smith Management Company
885 Third Avenue
New York, NY 10022
John W. Adams 26,000
c/o Smith Management Company
885 Third Avenue
New York, NY 10022
</TABLE>
_______________
(1) Includes shares held as trustee.
10
