<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 17, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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HEALTH CARE AND RETIREMENT CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE 8051 34-1687107
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
ONE SEAGATE
TOLEDO, OH 43604-2616
(419) 252-5500
(Address, including zip code, telephone number, including area code, of
registrant's principal executive offices)
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R. JEFFREY BIXLER, ESQ.
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
ONE SEAGATE
TOLEDO, OH 43604-2616
(419) 252-5500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COPIES TO:
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MARK D. GERSTEIN, ESQ. W. LESLIE DUFFY, ESQ.
LATHAM & WATKINS CAHILL GORDON & REINDEL
233 SOUTH WACKER DRIVE, SUITE 5800 EIGHTY PINE STREET
CHICAGO, ILLINOIS 60606 NEW YORK, NEW YORK 10005
(312) 876-7700 (212) 701-3000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective and all other
conditions under the Merger Agreement (described in the Joint Proxy
Statement/Prospectus herein) are satisfied or waived.
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If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE(3)
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Common Stock, $.01 par value, including
the attached preferred stock purchase
rights.................................. 70,000,000 $30.91 $2,163,700,000 $638,291.50
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(1) Represents the maximum number of shares of common stock, $.01 par value per
share ("HCR Common Stock"), including the attached preferred stock purchase
rights of Health Care and Retirement Corporation (the "Registrant") issuable
in connection with the proposed merger (the "Merger") of Manor Care, Inc.
with and into a wholly owned subsidiary of the Registrant.
(2) Estimated solely for the purpose of determining the registration fee in
accordance with Rule 457(f)(1). The proposed maximum aggregate offering
price is based upon the product of (i) $31.65 (the average of the high and
low prices of common stock, par value $.10 per share, of Manor Care, Inc.
(the "Manor Care Common Stock") on August 14, 1998) times (ii) 70,000,000
(the sum of the number of shares of Manor Care Common Stock outstanding on
August 10, 1998 plus the number of shares of Manor Care Common Stock
issuable as of the effective time of the Merger upon the exercise of options
to purchase Manor Care Common Stock). The proposed maximum offering price
per share is based upon the proposed maximum aggregate offering price
divided by the amount to be registered.
(3) The registration fee for the securities registered hereby has been
calculated pursuant to Section 6(b) of the Securities Act of 1933, as
amended (the "Securities Act"), as the product of .000295 and the proposed
maximum aggregate offering price. A fee of $557,760 was paid on July 14,
1998 pursuant to Rules 14a-6 and 0-11 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), in respect of the
Merger upon filing by the Registrant and Manor Care, Inc. of a preliminary
joint proxy statement relating thereto. Pursuant to Rule 457(b) promulgated
under the Securities Act and Section 14(g)(1)(B) of the Exchange Act and
Rule 0-11 promulgated thereunder, the amount of such previously paid fee has
been credited against the registration fee payable in connection with this
filing.
-------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION"),
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE> 2
HCR LOGO
MANOR CARE LOGO
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
The Boards of Directors of Health Care and Retirement Corporation ("HCR")
and Manor Care, Inc. ("Manor Care") have agreed to a merger of equals designed
to create one of the premier long-term health care service companies in the
United States. The combined company initially will be named HCR Manor Care, Inc.
(the "Combined Company" or "HCR Manor Care") for one year and, unless its board
elects otherwise, Manor Care, Inc. thereafter and will be headquartered in
Toledo, Ohio.
If the merger is completed, each share of Manor Care common stock will be
converted into the right to receive one share of HCR Manor Care common stock.
The merger will not affect the shares held by the HCR stockholders. We estimate
that, following the merger, existing Manor Care stockholders will own
approximately 58% and existing HCR stockholders will own approximately 42% of
the outstanding stock of HCR Manor Care.
The merger cannot be completed unless both HCR's and Manor Care's
stockholders approve the stockholder proposals that are conditions to
consummation of the merger. We have scheduled special meetings for our
stockholders to vote on these and other matters related to the merger. YOUR VOTE
IS VERY IMPORTANT.
The Board of Directors of HCR has unanimously approved the merger and has
determined that the merger is in the best interests of HCR and its stockholders
and unanimously recommends that its stockholders vote FOR approval of each of
the stockholder proposals related to the merger. In addition, HCR's financial
advisor, Chase Securities Inc., delivered to the HCR Board of Directors a
written opinion dated as of June 10, 1998 to the effect that, as of such date,
the exchange ratio of HCR common stock to Manor Care common stock was fair from
a financial point of view to HCR.
The Board of Directors of Manor Care has unanimously approved the merger
and has determined that the merger is in the best interests of Manor Care and
its stockholders and unanimously recommends that its stockholders vote FOR
approval of the merger. In addition, Manor Care's financial advisor, Warburg
Dillon Read LLC, has advised the Manor Care Board of Directors in a written
opinion dated as of June 10, 1998 that, as of such date, the exchange ratio of
Manor Care common stock to HCR common stock was fair from a financial point of
view to the holders of Manor Care common stock.
Stewart Bainum, Stewart Bainum, Jr., and certain entities of which members
of the Bainum family are beneficiaries or beneficial owners, who together
beneficially own approximately 31% of the outstanding common stock of Manor
Care, have agreed to vote their shares in favor of the merger.
At the HCR Special Meeting, HCR stockholders will consider and vote upon a
proposal to (1) approve the issuance of up to 70,000,000 shares of HCR common
stock to the holders of Manor Care common stock and the amendment of HCR's
by-laws to require the approval of at least 80% of HCR's outstanding shares or
at least 75% of the members of HCR's board of directors to amend certain
sections of the by-laws relating to corporate governance, (2) amend HCR's
Certificate of Incorporation to increase the number of authorized shares of HCR
common stock from 160,000,000 shares to 300,000,000 shares, (3) increase the
number of shares of HCR common stock authorized for issuance pursuant to HCR's
Amended Stock Option Plan for Key Employees by 3,000,000 shares, (4) increase
the number of shares of HCR common stock authorized for issuance pursuant to the
HCR Stock Option Plan for Outside Directors by 500,000 shares, and (5) increase
the number of shares of HCR common stock authorized for issuance pursuant to
HCR's Amended Restricted Stock Plan by 500,000 shares. The proposal described in
clause (1) above is a condition to the consummation of the merger.
At the Manor Care Special Meeting, Manor Care stockholders will consider
and vote upon a proposal to approve the merger and to adopt the Amended and
Restated Agreement and Plan of Merger dated as of June 10, 1998 by and among
Manor Care, HCR and Catera Acquisition Corp.
<PAGE> 3
This proposal is a condition to the consummation of
the merger.
Whether or not you plan to attend a meeting, please take the time to vote
by completing and mailing the enclosed proxy card to us. If you sign, date and
mail your proxy card without indicating how you want to vote, your proxy will be
counted as a vote in favor of each of the above described proposals applicable
to you. If a Manor Care stockholder fails to return the proxy card and is not
otherwise present and voting at the meeting in person or by proxy, the effect
will be a vote against the merger.
The dates, times and places of the meetings are as follows:
For HCR stockholders:
Thursday, September 24, 1998
10:00 a.m.
Auditorium at One SeaGate
Toledo, Ohio
For Manor Care stockholders:
Thursday, September 24, 1998
9:00 a.m.
Auditorium at 11555 Darnestown Road
Gaithersburg, Maryland
This Joint Proxy Statement/Prospectus provides you with detailed
information about the proposed merger. In addition, you may obtain information
about our companies from documents that we have filed with the Securities and
Exchange Commission. We encourage you to read this entire document carefully.
/s/ Paul A. Ormond
Paul A. Ormond
Chairman of the Board
Health Care and Retirement Corporation
/s/ Stewart Bainum, Jr.
Stewart Bainum, Jr.
Chairman of the Board
Manor Care, Inc.
STOCKHOLDERS ARE URGED TO CONSIDER THOSE MATTERS SET FORTH IN "RISK FACTORS"
BEGINNING ON PAGE 15 OF THIS JOINT PROXY STATEMENT/PROSPECTUS. NEITHER THE
SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES REGULATORS HAVE
APPROVED THE HCR COMMON STOCK TO BE ISSUED UNDER THIS JOINT PROXY
STATEMENT/PROSPECTUS OR DETERMINED IF THIS JOINT PROXY STATEMENT/PROSPECTUS IS
ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Joint Proxy Statement/Prospectus dated August 18, 1998, and first mailed to
stockholders on or about August 18, 1998.
<PAGE> 4
HEALTH CARE AND RETIREMENT CORPORATION
ONE SEAGATE
TOLEDO, OHIO 43604-2616
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held on September 24, 1998
To the Stockholders of Health Care and Retirement Corporation:
A Special Meeting of Stockholders of Health Care and Retirement Corporation
("HCR") will be held on September 24, 1998, at 10:00 a.m., in the auditorium at
One SeaGate, Toledo, Ohio (the "HCR Special Meeting"), for the following
purposes:
(1) To consider and vote upon a proposal (the "Transaction Proposal") (i)
to approve the issuance of up to 70,000,000 shares of HCR common stock
to holders of Manor Care common stock, pursuant to the Amended and
Restated Agreement and Plan of Merger dated as of June 10, 1998 (the
"Merger Agreement") by and among HCR, Manor Care, Inc. ("Manor Care")
and Catera Acquisition Corp., a wholly owned subsidiary of HCR ("Merger
Sub"), which provides for, among other things, the merger of Merger Sub
with and into Manor Care (the "Merger") and (ii) to amend HCR's by-
laws effective upon consummation of the Merger to require the approval
of at least 80% of HCR's outstanding shares or at least 75% of the
members of HCR's board of directors to amend certain sections of the
by-laws relating to corporate governance (the "By-Law Amendment"),
which sections provide that from and after the consummation of the
Merger until and including the second annual stockholder meeting of HCR
Manor Care held after the consummation of the Merger (x) the size of
the board of directors cannot be changed without the approval of at
least 75% of its members, (y) the seats on the board of directors shall
initially be evenly allocated between persons initially nominated by
members of the Manor Care board of directors (together with their
successors, "Manor Care Designees") and persons initially nominated by
members of the HCR board of directors (together with their successors,
"HCR Designees") and that the Manor Care Designees and HCR Designees
shall each be entitled, subject to their fiduciary duties, to appoint
or nominate successor Manor Care Designees and HCR Designees,
respectively, and (z) each existing committee of the HCR board of
directors shall have four members, consisting of two Manor Care
Designees and two HCR Designees;
(2) To consider and vote upon a proposal to amend HCR's Certificate of
Incorporation to increase the number of authorized shares of HCR common
stock from 160,000,000 shares to 300,000,000 shares, effective upon the
consummation of the Merger (the "Share Amendment Proposal");
(3) To consider and vote upon a proposal to increase the number of shares
of HCR common stock authorized for issuance pursuant to the Health Care
and Retirement Corporation Amended Stock Option Plan for Key Employees
by 3,000,000 shares, effective upon the consummation of the Merger (the
"Employee Option Proposal");
(4) To consider and vote upon a proposal to increase the number of shares
of HCR common stock authorized for issuance pursuant to the Health Care
and Retirement Corporation Stock Option Plan for Outside Directors by
500,000 shares, effective upon the consummation of the Merger (the
"Director Option Proposal");
(5) To consider and vote upon a proposal to increase the number of shares
of HCR common stock authorized for issuance pursuant to the Health Care
and Retirement Corporation Amended Restricted Stock Plan by 500,000
shares, effective upon the consummation of the Merger (the "Restricted
Stock Proposal"); and
(6) To transact such other business as may properly come before the HCR
Special Meeting and any or all adjournments thereof.
<PAGE> 5
APPROVAL OF THE TRANSACTION PROPOSAL IS A CONDITION TO THE CONSUMMATION OF
THE MERGER. THE BOARD OF DIRECTORS OF HCR HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MATTERS THAT
ARE THE SUBJECT OF THE TRANSACTION PROPOSAL, AND HAS ALSO UNANIMOUSLY APPROVED
THE MATTERS THAT ARE THE SUBJECT OF THE SHARE AMENDMENT PROPOSAL, THE EMPLOYEE
OPTION PROPOSAL, THE DIRECTOR OPTION PROPOSAL AND THE RESTRICTED STOCK PROPOSAL,
AND RECOMMENDS THAT HCR STOCKHOLDERS VOTE FOR APPROVAL OF EACH OF THE
TRANSACTION PROPOSAL, THE SHARE AMENDMENT PROPOSAL, THE EMPLOYEE OPTION
PROPOSAL, THE DIRECTOR OPTION PROPOSAL AND THE RESTRICTED STOCK PROPOSAL.
The Merger Agreement, and related important matters, and each of the
proposals are explained in the accompanying Joint Proxy Statement/Prospectus,
which you are urged to read carefully. Copies of the Merger Agreement, the
proposed Amended and Restated By-Laws of HCR (which includes the terms of the
By-Law Amendment), and the proposed amendments to give effect to the Share
Amendment Proposal, the Employee Option Proposal, the Director Option Proposal
and the Restricted Stock Proposal are attached as annexes to the Joint Proxy
Statement/Prospectus.
The Board of Directors of HCR has fixed the close of business on August 10,
1998 as the record date for determining the stockholders entitled to receive
notice of and to vote at the HCR Special Meeting and at any and all adjournments
or postponements thereof.
Management welcomes your attendance at the HCR Special Meeting. Whether or
not you expect to attend the HCR Special Meeting in person, however, you are
requested to complete, sign, date and promptly return the enclosed proxy in the
accompanying postage-paid envelope. The prompt return of your proxy will save
expenses involved in further communication. Your proxy will not affect your
right to vote in person in the event you attend the HCR Special Meeting.
By: /s/ R. Jeffrey Bixler
R. Jeffrey Bixler
Secretary
Toledo, Ohio
August 18, 1998
YOUR VOTE IS IMPORTANT.
TO VOTE YOUR SHARES, PLEASE SIGN, DATE AND COMPLETE THE ENCLOSED PROXY AND MAIL
IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE.
<PAGE> 6
MANOR CARE, INC.
11555 DARNESTOWN ROAD
GAITHERSBURG, MARYLAND 20878-3200
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held on September 24, 1998
To the Stockholders of Manor Care, Inc.:
A Special Meeting of Stockholders of Manor Care, Inc. ("Manor Care") will
be held on September 24, 1998, at 9:00 a.m., in the Auditorium of Manor Care's
corporate headquarters, 11555 Darnestown Road, Gaithersburg, Maryland (the
"Manor Care Special Meeting"), for the following purposes:
(1) To consider and vote upon a proposal (the "Merger Proposal") to approve
and adopt the Amended and Restated Agreement and Plan of Merger dated
as of June 10, 1998 (the "Merger Agreement") by and among Manor Care,
Health Care and Retirement Corporation ("HCR") and Catera Acquisition
Corp., a wholly owned subsidiary of HCR ("Merger Sub"), pursuant to
which, among other things, Merger Sub will merge with and into Manor
Care (the "Merger"), with Manor Care surviving and becoming a wholly
owned subsidiary of HCR, and to approve the Merger and the transactions
contemplated by the Merger Agreement; and
(2) To transact such other business as may properly come before the Manor
Care Special Meeting and any or all adjournments thereof.
APPROVAL OF THE MERGER PROPOSAL IS A CONDITION TO THE CONSUMMATION OF THE
MERGER. THE BOARD OF DIRECTORS OF MANOR CARE HAS UNANIMOUSLY APPROVED THE
MERGER, THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY. THE
BOARD OF DIRECTORS OF MANOR CARE HAS DETERMINED THAT THE MERGER IS IN THE BEST
INTERESTS OF MANOR CARE AND ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT YOU
VOTE "FOR" APPROVAL OF THE MERGER, THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY.
The Merger Proposal, the Merger and the Merger Agreement are explained in
the accompanying Joint Proxy Statement/Prospectus, which you are urged to read
carefully. A copy of the Merger Agreement is attached as Annex A to the Joint
Proxy Statement/Prospectus.
The Board of Directors of Manor Care has fixed the close of business on
August 10, 1998 as the record date for determining the stockholders entitled to
receive notice of and to vote at the Manor Care Special Meeting and at any and
all adjournments or postponements thereof.
Management welcomes your attendance at the Manor Care Special Meeting.
Whether or not you expect to attend the Manor Care Special Meeting in person,
however, you are requested to complete, sign, date and promptly return the
enclosed proxy in the accompanying postage-paid envelope. The prompt return of
your proxy will save expenses involved in further communication. Your proxy will
not affect your right to vote in person in the event you attend the Manor Care
Special Meeting. UNLESS YOU ARE OTHERWISE PRESENT AND VOTE AT THE MANOR CARE
SPECIAL MEETING IN PERSON OR BY PROXY, FAILURE TO RETURN A PROPERLY EXECUTED
PROXY CARD OR TO VOTE IN PERSON AT THE MANOR CARE SPECIAL MEETING WILL HAVE THE
SAME EFFECT AS A VOTE AGAINST THE MERGER PROPOSAL.
By: /s/ James H. Rempe
James H. Rempe
Secretary
Gaithersburg, Maryland
August 18, 1998
YOUR VOTE IS IMPORTANT.
TO VOTE YOUR SHARES, PLEASE SIGN, DATE AND COMPLETE THE ENCLOSED PROXY AND MAIL
IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE.
STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXIES.
<PAGE> 7
TABLE OF CONTENTS
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QUESTIONS AND ANSWERS ABOUT THE HCR/MANOR CARE MERGER....... 1
WHO CAN HELP ANSWER YOUR QUESTIONS.......................... 3
SUMMARY..................................................... 4
RISK FACTORS................................................ 15
Risks Associated With the Integration of the Two
Companies.............................................. 15
Risks Associated with the Fixed Exchange Ratio............ 15
Competition............................................... 15
Regulation................................................ 15
Payment by Third-Party Payors............................. 19
Dependence on Key Personnel............................... 19
Staffing and Labor Costs.................................. 20
The Year 2000 Issue....................................... 20
Environmental Regulation.................................. 20
Adequacy of Certain Insurance............................. 21
THE HCR SPECIAL MEETING..................................... 22
General................................................... 22
Record Date and Voting.................................... 22
Voting and Revocation of Proxies.......................... 23
THE MANOR CARE SPECIAL MEETING.............................. 24
General................................................... 24
Record Date and Voting.................................... 24
Voting and Revocation of Proxies.......................... 25
THE MERGER.................................................. 26
Background of the Merger.................................. 26
Recommendations of the Boards of Directors of HCR and
Manor Care; Reasons for the Merger..................... 27
Opinion of Financial Advisor to HCR....................... 30
Opinion of Financial Advisor to Manor Care................ 34
Interests of Certain Persons in the Merger................ 37
Accounting Treatment of the Merger........................ 41
Certain Regulatory Matters................................ 42
Other Regulatory Approvals................................ 42
Certain Federal Income Tax Consequences................... 43
Listing of HCR Common Stock; Delisting and Deregistration
of Manor Care Common Stock............................. 44
No Appraisal Rights....................................... 44
Cautionary Statement Concerning Forward-Looking
Statements............................................. 44
THE COMBINED COMPANY........................................ 46
Business and Strategy..................................... 46
Governance................................................ 47
THE MERGER AGREEMENT........................................ 49
The Merger................................................ 49
Conversion of Securities.................................. 49
Exchange Procedures....................................... 49
Representations and Warranties............................ 51
Conduct of Business Before Effective Time................. 51
Additional Covenants...................................... 54
Conditions to Obligations to Effect the Merger............ 57
Termination; Termination Fees and Expenses................ 58
Amendment; Waiver of Compliance and Consents.............. 61
Press Releases and Public Announcements................... 61
OTHER AGREEMENTS............................................ 62
Voting Agreement.......................................... 62
HCR Stock Option Agreement................................ 63
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Manor Care Stock Option Agreement......................... 64
Registration Rights Agreement............................. 66
COMPARATIVE MARKET PRICES AND DIVIDENDS..................... 67
PRO FORMA SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF THE COMBINED COMPANY.................... 68
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
INFORMATION............................................... 70
DESCRIPTION OF HCR CAPITAL STOCK............................ 78
General................................................... 78
HCR Common Stock.......................................... 78
Preferred Stock........................................... 78
Preferred Share Purchase Rights........................... 79
Certain Effects of Preferred Share Purchase Rights........ 80
Delaware Statutory Matters................................ 80
Registrar and Transfer Agent.............................. 81
COMPARISON OF RIGHTS OF HOLDERS OF HCR COMMON STOCK AND
HOLDERS OF MANOR CARE COMMON STOCK........................ 81
Meetings of Stockholders.................................. 81
Certain Voting Rights with Respect to Mergers............. 81
Certain Voting Rights with Respect to Transactions with
Interested Stockholders................................ 82
Stockholder Action by Written Consent..................... 82
Number and Classification of Directors.................... 82
Cumulative Voting......................................... 82
Removal of Directors; Filling Vacancies on the Board of
Directors.............................................. 82
Limitation on Directors' Liability........................ 83
Indemnification of Officers and Directors................. 83
Amendment of By-laws...................................... 83
Rights Agreements......................................... 83
HCR VOTING PROPOSALS........................................ 84
Transaction Proposal...................................... 84
Share Amendment Proposal.................................. 85
Employee Option Proposal.................................. 85
Director Option Proposal.................................. 86
Restricted Stock Proposal................................. 86
THE MANOR CARE PROPOSAL..................................... 86
STOCKHOLDER PROPOSALS....................................... 87
LEGAL MATTERS............................................... 87
EXPERTS..................................................... 87
OTHER MATTERS............................................... 87
WHERE YOU CAN FIND MORE INFORMATION......................... 88
ANNEXES
A. MERGER AGREEMENT
B. FAIRNESS OPINION OF CHASE SECURITIES INC.
C. FAIRNESS OPINION OF WARBURG DILLON READ LLC
D. FORM OF AMENDMENT TO CERTIFICATE OF INCORPORATION OF HCR
E. FORM OF AMENDED AND RESTATED BY-LAWS OF HCR
F. FORM OF AMENDMENT TO THE HEALTH CARE AND RETIREMENT
CORPORATION AMENDED STOCK OPTION PLAN FOR KEY EMPLOYEES
G. FORM OF AMENDMENT TO THE HEALTH CARE AND RETIREMENT
CORPORATION STOCK OPTION PLAN FOR OUTSIDE DIRECTORS
H. FORM OF AMENDMENT TO THE HEALTH CARE AND RETIREMENT
CORPORATION AMENDED RESTRICTED STOCK PLAN
I. BUSINESS EXPERIENCE OF MANOR CARE DIRECTORS
</TABLE>
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<PAGE> 9
QUESTIONS AND ANSWERS
ABOUT THE HCR/MANOR CARE MERGER
Q: WHY ARE THE TWO COMPANIES PROPOSING TO COMBINE?
A: We believe that the combination of HCR and Manor Care will create the
country's premier long-term health care company in terms of facilities,
capabilities, profitability, market capitalization and financial strength.
The merger will bring together HCR's strong management capability, operating
expertise and record for creating stockholder value and Manor Care's
outstanding physical assets and development expertise, emphasis on the
private pay sector of the long-term care market and innovative health care
service offerings. We believe the combination will create opportunities for
significant cost savings and increased growth potential that we believe will
ultimately increase stockholder value.
HCR Manor Care will have 295 skilled nursing centers, 47 assisted living
facilities, 116 medical specialty units, 76 outpatient therapy clinics, 34
home health offices, and a 50% interest in an institutional pharmacy with
four locations. HCR Manor Care will have operations in 32 states. On a pro
forma basis for the year ended December 31, 1997, the Combined Company would
have had revenues of approximately $2.2 billion and income from continuing
operations of approximately $155.3 million. HCR Manor Care would have the
largest market capitalization and be the most profitable company in the
industry. The financial strength of the Combined Company will be reflected
in an equity market capitalization of approximately $4 billion and less than
$850 million of debt.
Q: WHAT DO I NEED TO DO NOW?
A: Just mail your signed proxy card in the enclosed return envelope as soon as
possible, so that your shares may be represented at the applicable special
meeting. The HCR and Manor Care special meetings will both take place on
September 24, 1998. The Board of Directors of HCR recommends voting FOR each
of the Transaction Proposal, the Share Amendment Proposal, the Employee
Option Proposal, the Director Option Proposal and the Restricted Stock
Proposal. The Board of Directors of Manor Care recommends voting FOR the
Merger Proposal.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: For the Manor Care stockholders' vote on the Merger Proposal and the HCR
stockholders' vote on the Transaction Proposal, your broker will vote the
respective shares of Manor Care or HCR only if you provide instruction on
how to vote such shares. Manor Care and HCR stockholders should follow the
directions provided by their broker to vote their shares. For HCR
stockholders, brokers that do not receive stockholder instructions will have
the discretion to vote your shares of HCR common stock in favor of the Share
Amendment Proposal, the Employee Option Proposal, the Director Option
Proposal and the Restricted Stock Proposal.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. You can change your vote at any time before your proxy is voted at the
applicable special meeting. You can do this in one of three ways. First, you
can send a written notice stating that you would like to revoke your proxy.
Second, you can complete and submit a new proxy card. If you choose either
of these two methods, you must submit your notice of revocation or your new
proxy card to HCR at the address on page 23 if you are a HCR stockholder, or
to Manor Care at the address on page 25 if you are a Manor Care stockholder.
Third, you can attend the applicable special meeting and vote in person.
Simply attending the meeting, however, will not revoke your proxy. If you
have instructed a broker to vote your shares, you must follow directions
received from your broker to change your vote.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. Manor Care stockholders will receive written instructions for exchanging
their share certificates after the merger is completed. HCR
<PAGE> 10
stockholders will not be required to exchange their certificates before or after
the merger.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: Manor Care stockholders will have the right to receive one share of HCR
Manor Care common stock for each share of Manor Care common stock that they
own. HCR stockholders will continue to own their existing shares of HCR
common stock after the merger.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working towards completing the merger as quickly as possible. In
addition to stockholder approvals, we must also obtain regulatory approvals.
We expect to complete the merger by the end of October 1998.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER?
A: The merger generally will be tax-free to both Manor Care and HCR
stockholders for federal income tax purposes. To review the tax consequences
to stockholders in greater detail, see page 42.
Q: WHAT OTHER MATTERS WILL BE VOTED ON AT THE SPECIAL MEETINGS?
A: In addition to the Transaction Proposal, HCR stockholders will also be asked
to consider and vote upon the Share Amendment Proposal, the Employee Option
Proposal, the Director Option Proposal and the Restricted Stock Proposal.
Manor Care stockholders will be asked to consider and vote only upon the
Merger Proposal. We do not expect to ask you to vote on any other matters at
the special meetings.
2
<PAGE> 11
WHO CAN HELP ANSWER YOUR QUESTIONS
If you have more questions about the merger you should contact:
HCR Stockholders:
Health Care and Retirement Corporation
One SeaGate
Toledo, Ohio 43604-2616
Attention: Investor Relations
Phone Number: (419) 252-5500
Manor Care Stockholders:
Manor Care, Inc.
11555 Darnestown Road
Gaithersburg, Maryland 20878-3200
Attention: Office of Investor Relations
Phone Number: (301) 979-4000
If you would like additional copies of the Joint Proxy Statement/Prospectus
or if you have questions about the merger, you should contact:
MACKENZIE PARTNERS, INC. LOGO
156 Fifth Avenue
New York, New York 10010
Bankers and Brokers Call Collect (212) 929-5500
or
All Others Call Toll Free (800) 322-2885
Fax (212) 929-0308
3
<PAGE> 12
SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the
merger fully and for a more complete description of the legal terms of the
merger, you should read carefully this entire document and the documents to
which we have referred you. See "Where You Can Find More Information" on page
88.
THE COMPANIES
HEALTH CARE AND RETIREMENT CORPORATION
One SeaGate
Toledo, Ohio 43604-2616
(419) 252-5500
Health Care and Retirement Corporation ("HCR", which, unless the context
indicates otherwise, includes all of HCR's subsidiaries), through its wholly
owned subsidiaries, provides a range of health care services, including
long-term care, subacute medical care, rehabilitation therapy, home health care,
pharmacy services and management services for subacute care, rehabilitation
therapy, vision care and eye surgery. HCR operates 124 skilled nursing centers
in 16 states with more than half located in Ohio, Michigan and Florida. HCR also
operates 5 assisted living centers and 116 medical specialty units providing
subacute care, intensive rehabilitation or Alzheimer's care. HCR provides
rehabilitation therapy in nursing centers of HCR and others and in 76 outpatient
therapy clinics in the midwestern and mid-Atlantic states, Texas and Florida.
The home health care business specializes in all levels of home health, hospice
care and rehabilitation therapy from 33 offices located in Ohio, Michigan,
Indiana, Illinois and Florida. HCR owns 50% of a pharmacy partnership that
provides pharmaceutical products to long-term care centers and pharmacies. HCR
provides management services to 53 subacute care and acute rehabilitation
programs in hospitals and skilled nursing centers. HCR has entered into
long-term agreements to provide capital and management services to physician
practices in the midwestern states specializing in vision care and refractive
eye surgery. HCR, a Delaware corporation, was incorporated in August 1991.
MANOR CARE, INC.
11555 Darnestown Road
Gaithersburg, Maryland 20878-3200
(301) 979-4000
Manor Care, Inc. ("Manor Care", which, unless the context indicates
otherwise, includes all of Manor Care's subsidiaries), through its subsidiary
ManorCare Health Services, Inc. ("MCHS"), develops, owns and manages skilled
nursing facilities and assisted living facilities. Manor Care, through MCHS and
its subsidiaries, owns, operates or manages 171 skilled nursing and
rehabilitation facilities and 42 assisted living facilities that provide high
acuity services, long-term skilled nursing care, Alzheimer's care services and
assisted living services, principally to patients 65 years of age and older.
Manor Care and its subsidiaries also own and operate an acute care hospital.
MCHS owns approximately 63% of the voting stock of In Home Health, Inc. ("IHH"),
a public company which specializes in providing comprehensive home health care
services to clients of all ages in 19 markets. MCHS also owns approximately 50%
of Vitalink Pharmacy Services, Inc. ("Vitalink"), a public company that owns and
operates 57 institutional pharmacies. On April 26, 1998, Vitalink entered into
an Agreement and Plan of Merger with Genesis Health Ventures, Inc. ("Genesis"),
a Pennsylvania corporation, and V Acquisition Corporation, a Delaware
corporation and a wholly owned subsidiary of Genesis, pursuant to which Vitalink
will merge with and into V Acquisition Corporation. The merger provides that all
holders of outstanding shares of Vitalink will be entitled to receive cash,
preferred stock of Genesis or a combination thereof. Manor Care has agreed to
receive preferred stock of Genesis as consideration for all of its shares of
Vitalink; however, due to certain election, proration and allocation procedures,
Manor Care may receive cash for some of its shares of Vitalink. Manor Care, a
Delaware corporation, was incorporated in August 1981.
4
<PAGE> 13
HCR MANOR CARE, INC.
Pursuant to the merger, Manor Care will at the effective time (the
"Effective Time") merge with a wholly owned subsidiary of HCR and become a
wholly owned subsidiary of HCR. HCR will change its name to HCR Manor Care, Inc.
immediately after the Effective Time and, unless its board of directors elects
otherwise, to Manor Care, Inc. on the one-year anniversary of the Effective
Time. In this Joint Proxy Statement/Prospectus we refer to HCR Manor Care, Inc.
and its subsidiaries, including Manor Care, as "HCR Manor Care" or the "Combined
Company."
OUR REASONS FOR THE MERGER
We believe that the combination of HCR and Manor Care will create the
country's premier long-term health care company in terms of facilities,
capabilities, profitability, market capitalization and financial strength. The
merger will bring together HCR's strong management capability, operating
expertise and record for creating stockholder value and Manor Care's outstanding
physical assets and development expertise, emphasis on the private pay sector of
the long-term care market and innovative health care service offerings. We
believe the combination will create opportunities for significant cost savings
and increased growth potential that will ultimately increase stockholder value.
HCR Manor Care will have 295 skilled nursing centers, 47 assisted living
facilities, 116 medical specialty units, 76 outpatient therapy clinics, 34 home
health offices, and a 50% interest in an institutional pharmacy with four
locations. HCR Manor Care will have operations in 32 states. On a pro forma
basis for the year ended December 31, 1997, the Combined Company would have had
revenues of approximately $2.2 billion and income from continuing operations of
approximately $155.3 million. HCR Manor Care would have the largest market
capitalization and be the most profitable company in the industry. The financial
strength of the Combined Company will be reflected in an equity market
capitalization of approximately $4 billion and less than $850 million of debt.
To review the reasons for the merger in greater detail, see pages 27
through 30.
THE STOCKHOLDERS' MEETINGS (SEE PAGES 22 AND 24)
The HCR Special Meeting will be held in the Auditorium at One SeaGate,
Toledo, Ohio, at 10:00 a.m. on September 24, 1998.
The Manor Care Special Meeting will be held in the Auditorium at 11555
Darnestown Road, Gaithersburg, Maryland at 9:00 a.m. on September 24, 1998.
OUR RECOMMENDATIONS TO STOCKHOLDERS
(SEE PAGES 27 AND 29)
TO HCR STOCKHOLDERS:
The HCR Board believes that the merger is in your best interest and
unanimously recommends that you vote FOR the proposals to:
(1) approve the issuance of up to 70,000,000 shares of HCR common stock,
par value $.01 per share (the "HCR Common Stock", which term shall
include the associated preferred stock purchase rights), in the merger
(the "Merger") contemplated by the Amended and Restated Agreement and
Plan of Merger (the "Merger Agreement") dated as of June 10, 1998 by
and among Manor Care, HCR and Catera Acquisition Corp. (the "Merger
Sub") and the amendment of the by-laws of HCR effective upon
consummation of the Merger to require the approval of at least 80% of
HCR's outstanding shares or at least 75% of the members of HCR's board
of directors to amend sections of the by-laws relating to corporate
governance (the "Transaction Proposal");
(2) approve the amendment to HCR's Certificate of Incorporation to increase
the number of authorized shares of HCR Common Stock from 160,000,000 to
300,000,000 (the "Share Amendment Proposal");
(3) approve the amendment to HCR's Amended Stock Option Plan for Key
Employees to increase the number of shares of HCR Common Stock
authorized for issuance under such plan by 3,000,000 shares (the
"Employee Option Proposal");
5
<PAGE> 14
(4) approve the amendment to the HCR Stock Option Plan for Outside
Directors to increase the number of shares of HCR Common Stock
authorized for issuance under such plan by 500,000 shares (the
"Director Option Proposal" and, together with the Employee Option
Proposal, the "Option Plan Proposals"); and
(5) approve the amendment to the HCR Amended Restricted Stock Plan to
increase the number of shares of HCR common stock authorized for
issuance under such plan by 500,000 shares (the "Restricted Stock
Proposal" and, together with the Transaction Proposal, the Share
Amendment Proposal and the Option Plan Proposals, the "HCR Voting
Proposals").
TO MANOR CARE STOCKHOLDERS:
The Manor Care Board believes that the merger is in your best interest and
unanimously recommends that you vote FOR the proposal (the "Merger Proposal") to
approve and adopt the Merger Agreement and to approve the Merger and the
transactions contemplated by the Merger Agreement.
VOTES REQUIRED
Approval of the Transaction Proposal is a condition to the Merger. Approval
of the Transaction Proposal, the Option Plan Proposals and the Restricted Stock
Proposal will require the affirmative vote of the holders of a majority of the
shares of HCR Common Stock present and entitled to vote at the HCR Special
Meeting, provided that the total number of votes cast at the HCR Special Meeting
on such proposals represents over 50% in interest of all securities entitled to
vote on the proposals. Approval of the Share Amendment Proposal will require the
affirmative vote of the holders of a majority of the outstanding shares of HCR
Common Stock.
Approval of the Merger Proposal is a condition to the Merger. In order to
approve the Merger Proposal, the holders of a majority of the outstanding shares
of common stock, par value $.10 per share, of Manor Care (the "Manor Care Common
Stock"), must vote in favor of approving and adopting the Merger Agreement and
approving the Merger and the transactions contemplated by the Merger Agreement.
Stewart Bainum, Stewart Bainum, Jr. and certain entities of which members of the
Bainum family are beneficiaries or beneficial owners, who collectively own
approximately 31% of the outstanding shares of Manor Care Common Stock, have
already agreed to vote their shares in favor of the Merger Proposal.
THE MERGER (SEE PAGE 26)
THE MERGER AGREEMENT IS ATTACHED AS ANNEX A TO THIS JOINT PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. WE ENCOURAGE YOU
TO READ THE MERGER AGREEMENT AS IT IS THE PRINCIPAL LEGAL DOCUMENT THAT GOVERNS
THE MERGER.
WHAT MANOR CARE STOCKHOLDERS WILL RECEIVE (SEE PAGE 49)
As a result of the Merger, Manor Care stockholders will have the right to
receive one share of common stock, par value $.01 per share, of HCR Manor Care
(the "HCR Manor Care Common Stock", which term shall include the associated
preferred stock purchase rights) for each share of Manor Care Common Stock that
they own.
Manor Care stockholders should not send in their stock certificates until
instructed to do so after the Merger is completed.
OWNERSHIP OF HCR MANOR CARE FOLLOWING THE MERGER
After the Merger, existing Manor Care stockholders will own approximately
58% and existing HCR stockholders will own approximately 42% of the outstanding
HCR Manor Care Common Stock.
BOARD OF DIRECTORS AND MANAGEMENT OF HCR MANOR CARE FOLLOWING THE MERGER (SEE
PAGE 47)
If the Merger is completed, Paul A. Ormond, the current Chairman, President
and Chief Executive Officer of HCR, will continue as President and Chief
Executive Officer of HCR Manor Care. Stewart Bainum, Jr., the current Chairman,
President and Chief Executive Officer of Manor Care, will become the Chairman of
the Board of HCR Manor Care.
The Board of Directors of HCR Manor Care initially will consist of ten
members, half of whom will be designated by HCR and half of whom will be
designated by Manor Care.
6
<PAGE> 15
OTHER INTERESTS OF OFFICERS AND DIRECTORS IN THE MERGER (SEE PAGE 37)
Certain officers and directors of HCR and Manor Care have interests in the
Merger that may be considered different from or in addition to your interests.
For example, some officers of HCR, including some officers who are also
directors, are entitled to compensation in connection with their agreement to
waive certain rights under their existing employment agreements and to remain
with HCR Manor Care for three years following the Merger. HCR currently
estimates that the aggregate amount to be paid, subject to a repayment
obligation under certain circumstances, to executive officers of HCR under such
retention agreements would be approximately $10.8 million. Also, certain
officers of Manor Care, including some officers who are also directors, are
entitled to compensation upon, or if they are terminated after, the Merger.
Manor Care currently estimates that the aggregate amount required to be paid
under agreements to executive officers of Manor Care, if all such persons named
were to be terminated after the Merger, would be approximately $2.1 million.
In addition, as a result of the Merger, stock options and restricted stock
held by certain HCR officers will vest or become unrestricted, as the case may
be, restricted stock held by certain Manor Care officers and directors will be
converted into an equal number of shares of restricted HCR Manor Care Common
Stock and all stock options of certain Manor Care officers and directors will be
exchanged for shares of HCR Manor Care Common Stock having a value equal to the
value of such options determined by a valuation under the Black-Scholes
methodology. The estimated aggregate value of stock options and restricted stock
which will vest or become unrestricted as a result of the Merger is
approximately $12.1 million for executive officers of HCR, and the estimated
aggregate value of the shares of HCR Manor Care Common Stock which will be
issued in the Merger in exchange for Manor Care Stock options held by executive
officers and directors of Manor Care is approximately $16.3 million. These
amounts are based on the prices of HCR Common Stock and Manor Care Common Stock
on August 10, 1998.
Please refer to pages 37 through 41 generally for more information
concerning employment arrangements, severance agreements, acceleration and
conversion of stock options and restricted stock grants and other arrangements
benefiting each company's executive officers and directors.
CONDITIONS TO THE MERGER (SEE PAGE 57)
The completion of the Merger depends upon meeting a number of conditions,
including the following:
(a) the approval of the Merger Proposal by the requisite votes of the Manor
Care Common Stock;
(b) the approval of the Transaction Proposal by the requisite votes of the
HCR Common Stock;
(c) there shall have been no law enacted or injunction entered which
effectively prohibits the Merger;
(d) the receipt of legal opinions regarding certain tax consequences of the
Merger;
(e)the receipt of letters from each of our independent accountants to the
effect that the Merger will qualify for pooling of interests accounting
treatment; and
(f) antitrust waiting periods shall have expired or been terminated and
certain other regulatory approvals shall have been obtained.
Certain of the conditions to the Merger may be waived by the party entitled
to assert the condition.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 58)
HCR and Manor Care may terminate the Merger Agreement without completing
the Merger if any of the following occurs:
(a) the parties agree in writing to terminate the Merger Agreement;
(b) the parties fail to consummate the Merger by December 31, 1998 (which
deadline may be extended to March 31, 1999 if certain regulatory
conditions to the Merger have not yet been satisfied but are reasonably
capable of being satisfied by March 31, 1999 and all other conditions
have been or are capable of being satisfied by December 31, 1998), and
such failure is not attributable to the party seeking to terminate;
7
<PAGE> 16
(c) the requisite stockholder approvals are not received by the other
party;
(d) a court or other governmental authority permanently prohibits the
Merger;
(e) the other party materially breaches or materially fails to comply with
any of its representations or warranties or obligations under the
Merger Agreement;
(f) the board of directors of the other party: (i) withdraws or modifies
its approval or recommendation in favor of the voting proposals
relating to the Merger, (ii) recommends to its stockholders an
alternative transaction with a third party or fails to reconfirm its
recommendations in favor of the Merger, (iii) recommends a tender or
exchange of shares in certain circumstances or (iv) fails to call a
special meeting by December 31, 1998; or
(g) the board of directors determines, after receipt of legal advice and
before the approval of the voting proposals relating to the Merger by
the other party's stockholders, that the board's fiduciary duties
require acceptance of an offer from a third party to enter into an
alternative and superior transaction.
TERMINATION FEES (SEE PAGE 60)
The Merger Agreement generally requires (a) HCR to pay to Manor Care a
termination fee of $70 million and (b) Manor Care to pay to HCR a termination
fee of $100 million, in each case, if the Merger Agreement terminates under
certain circumstances.
RECIPROCAL STOCK OPTION AGREEMENTS (SEE PAGES 63 AND 64)
We have both signed reciprocal stock option agreements under which we each
granted an option to the other party to purchase approximately 19.9% of our
outstanding common stock if certain events occur that entitle the party
exercising the option to receive a termination fee under the Merger Agreement.
The combined value of the termination fee and the stock option is limited to $70
million to Manor Care and $100 million to HCR. These stock option agreements may
make it more difficult and expensive for HCR or Manor Care to consummate an
alternative transaction.
ACCOUNTING TREATMENT (SEE PAGE 41)
We expect the Merger to qualify as a pooling of interests, which means that
we will treat our companies as if they had always been combined for accounting
and financial reporting purposes. A condition to the Merger is that HCR and
Manor Care each receive a letter from their respective independent auditors,
Ernst & Young LLP and Arthur Andersen LLP, regarding the auditors' concurrence
with the conclusions of the management of HCR or Manor Care, as applicable, that
the transactions contemplated by the Merger Agreement, if consummated, will
qualify for pooling of interests accounting treatment.
OPINIONS OF FINANCIAL ADVISORS (SEE PAGES 30 AND 34)
In deciding to approve the Merger, our boards considered opinions from our
respective financial advisors as to the fairness of the exchange ratio from a
financial point of view. HCR received an opinion from its financial advisor,
Chase Securities Inc. ("Chase"), and Manor Care received an opinion from its
financial advisor, Warburg Dillon Read LLC ("Warburg Dillon Read"). The
financial advisors performed several analyses in connection with delivering
their opinions. These analyses included comparing HCR and Manor Care historical
stock prices, comparing HCR and Manor Care to other publicly traded companies,
comparing the Merger to comparable transactions and estimating the relative
values of HCR and Manor Care and their contributions to HCR Manor Care based on
past and estimated future financial performance. These opinions are attached as
annexes to this Joint Proxy Statement/Prospectus and you are encouraged to read
them.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES (SEE PAGE 43)
We have structured the Merger so that no gain or loss generally should be
recognized for federal income tax purposes on the exchange of certificates
formerly representing shares of Manor Care Common Stock for certificates
representing shares of HCR Manor Care Common Stock. We have conditioned the
Merger on our receipt of legal opinions regarding certain tax consequences of
the Merger.
Tax matters are very complicated, and the tax consequences of the Merger to
you will depend on the facts of your own situation. You should consult
8
<PAGE> 17
your tax advisor for a full understanding of the tax
consequences of the Merger to you.
NO APPRAISAL RIGHTS (SEE PAGE 44)
Under Delaware law, neither HCR nor Manor Care stockholders have a right to
an appraisal of the value of their shares in connection with the Merger.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE (SEE PAGE 44)
We have each made forward-looking statements in this document (and in
documents that are incorporated by reference) that are subject to risks and
uncertainties. Forward-looking statements include the information concerning
possible or assumed future results of operations of HCR Manor Care, including
the anticipated synergies from the Merger. Also, when we use words such as
"believes," "expects," "anticipates" or similar expressions, we are making
forward-looking statements. Stockholders should note that many factors could
affect the future financial results of HCR Manor Care, and could cause these
results to differ materially from those expressed in our forward-looking
statements. These factors include, among others, the following:
- operating, legal and regulatory risks;
- economic, political and competitive forces affecting our businesses;
- legislative proposals for health care reform;
- the risk that we are unable to achieve the revenue growth and cost
savings in the amounts and in the time frames contemplated; and
- the risk that our analyses of these risks and forces could be incorrect
and/or that the strategies developed to address them could be
unsuccessful.
COMPARATIVE MARKET PRICE INFORMATION (SEE PAGE 67)
Shares of HCR and Manor Care are listed on the New York Stock Exchange (the
"NYSE"). On June 9, 1998, the last full trading day prior to the public
announcement of the proposed Merger, HCR Common Stock closed at $37.75 per share
and Manor Care Common Stock closed at $31.00 per share. In the 30 trading days
ending June 9, 1998, the average closing price of HCR Common Stock was $39.77
and the average closing price of Manor Care Common Stock was $31.84. On August
10, 1998, HCR Common Stock closed at $34.00 per share and Manor Care Common
Stock closed at $33.75 per share. On August 14, 1998, HCR Common Stock closed at
$31.31 per share and Manor Care Common Stock closed at $30.13 per share. We urge
you to obtain current market quotations.
LISTING OF HCR COMMON STOCK (SEE PAGE 44)
HCR will list the shares of HCR Manor Care Common Stock to be issued in the
Merger on the NYSE. The HCR Manor Care Common Stock will trade under the symbol
"HCR." From and after the completion of the Merger, Manor Care Common Stock will
be deregistered under the Securities and Exchange Act of 1934, as amended, and
delisted from the NYSE.
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<PAGE> 18
HCR SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
We are providing the following financial information to aid you in your
analysis of the financial aspects of the Merger. We derived the historical
information from audited financial statements of HCR for 1993 through 1997 and
unaudited financial statements for the six months ended June 30, 1998 and 1997.
The information is only a summary and you should read it in conjunction with
HCR's historical financial statements (and related notes) contained in the
annual reports and other information HCR has filed with the Securities and
Exchange Commission (the "SEC"). See "Where You Can Find More Information" on
page 88.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30, FOR THE YEARS ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues.............. $456,278 $434,268 $891,963 $782,023 $713,469 $615,103 $559,344
Income from continuing
operations.......... 39,719 33,543 70,121 59,443 50,603 42,033 34,069
Earnings per common
share -- income from
continuing
operations(1):
Basic............ $0.89 $0.75 $1.57 $1.30 $1.08 $0.88 $0.70
Diluted.......... $0.86 $0.72 $1.51 $1.24 $1.03 $0.84 $0.68
Shares used in
computing earnings
per common share(1):
Basic............ 44,386 44,617 44,548 45,708 46,833 48,023 48,491
Diluted.......... 46,213 46,523 46,515 47,835 48,963 50,061 49,972
FINANCIAL POSITION (AT
END OF PERIOD):
Total assets.......... $972,255 $900,570 $936,351 $802,784 $729,191 $671,430 $635,994
Long-term debt........ 282,497 262,367 292,951 202,295 159,082 149,028 155,500
Stockholders'
equity.............. 462,896 413,192 434,006 393,034 374,430 344,501 316,919
</TABLE>
- -------------------------
(1) The earnings per share amounts prior to 1997 have been restated as required
to comply with Statement of Financial Accounting Standards No. 128,
"Earnings Per Share." All per share data have been adjusted to reflect the
3-for-2 stock split effected in the form of a dividend in 1996.
10
<PAGE> 19
MANOR CARE SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
We are providing the following financial information to aid you in your
analysis of the financial aspects of the Merger. We derived the information from
audited financial statements of Manor Care for the fiscal years ended May 31,
1994 through 1998, restated to reflect the results of Vitalink as a discontinued
operation for all periods presented. On April 27, 1998, Genesis announced that
it had entered into a definitive agreement to acquire Vitalink. The information
is only a summary and you should read it in conjunction with Manor Care's
historical financial statements (and related notes) contained in the annual
reports and other information Manor Care has filed with the SEC. See "Where You
Can Find More Information" on page 88.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MAY 31,
--------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues..................................... $1,359,329 $1,294,574 $1,141,911 $ 946,761 $ 859,394
Income from continuing operations(1)......... 84,223 82,895 53,952 67,978 57,865
Earnings per common share -- income from
continuing operations(1)(2):
Basic.................................... $1.32 $1.31 $0.86 $1.09 $0.96
Diluted.................................. $1.30 $1.30 $0.85 $1.08 $0.94
Shares used in computing earnings per common
share(2):
Basic.................................... 63,794 63,257 62,628 62,480 60,524
Diluted.................................. 64,671 63,979 63,136 62,873 61,315
Dividend per common share.................... $0.09 $0.09 $0.09 $0.09 $0.09
FINANCIAL POSITION (AT END OF PERIOD):
Total assets................................. $1,741,277 $1,640,978 $1,656,927 $1,276,175 $1,073,487
Long-term debt............................... 533,729 491,600 490,575 315,271 223,892
Shareholders' equity(3)...................... 779,460 690,431 707,769 624,873 533,815
</TABLE>
- -------------------------
(1) Non-recurring items and their impact on income from continuing operations
consist of provisions for asset impairment and restructuring (negative
$8,100 and $15,898 net of tax) in 1998 and 1996 respectively, and impact of
change in tax rate (negative $3,436) in 1994.
(2) The earnings per share amounts have been restated as required to comply with
Statement of Financial Accounting Standards No. 128, "Earnings Per Share."
(3) Decrease in shareholders' equity in 1997 is the result of the $164.2 million
dividend of the discontinued lodging segment.
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<PAGE> 20
SUMMARY SELECTED UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL DATA
We expect that the Merger will be accounted for as a "pooling of
interests," which means that for accounting and financial reporting purposes we
will treat our companies as if they had always been combined. For a more
detailed description of pooling of interests accounting see "The Merger --
Accounting Treatment of the Merger" on page 41.
We have presented below unaudited pro forma condensed combined financial
information that reflects the pooling of interests method of accounting and is
intended to give you a better picture of what our businesses might have looked
like had they always been combined. We prepared the pro forma income statement
and summary balance sheet data by adding or combining the historical amounts of
each company, restated to reflect the results of Vitalink as a discontinued
operation for all periods presented. On April 27, 1998, Genesis announced that
it had entered into a definitive agreement to acquire Vitalink. We then
reclassified certain of the combined amounts to achieve a consistent
presentation. The companies may have performed differently if they were
combined. You should not rely on the pro forma information as being indicative
of the historical results that we would have had or the future results that we
will experience after the Merger. See "Unaudited Pro Forma Condensed Combined
Financial Information" on page 70.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30, FOR THE YEARS ENDED DECEMBER 31,
----------------------- ------------------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues........................... $1,150,085 $1,105,317 $2,228,534 $1,923,934 $1,660,230
Income from continuing
operations....................... 83,637 78,408 155,291 113,395 118,581
Earnings per common share -- income
from continuing operations:
Basic......................... $0.77 $0.73 $1.44 $1.05 $1.08
Diluted....................... $0.75 $0.71 $1.40 $1.02 $1.06
Shares used in computing earnings
per common share:
Basic......................... 108,227 108,090 108,159 108,336 109,313
Diluted....................... 111,082 110,802 110,881 110,971 111,836
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
1998
--------
<S> <C>
FINANCIAL POSITION:
Total assets........................ $2,713,532
Long-term debt...................... 816,226
Stockholders' equity................ 1,222,206
</TABLE>
12
<PAGE> 21
COMPARISON OF HISTORICAL AND EQUIVALENT PER SHARE DATA
(UNAUDITED)
The following table summarizes information on the income from continuing
operations, dividends declared and book value per common share for our
respective companies on a historical, pro forma combined and pro forma
equivalent basis. The pro forma equivalent amounts for Manor Care were
calculated by multiplying the pro forma combined per share amounts by 1.0, as
Manor Care stockholders will receive one share of HCR Manor Care Common Stock in
exchange for each share of Manor Care Common Stock. The companies may have
performed differently if they were combined. You should not rely on the pro
forma information as being indicative of the historical results that we would
have had or the future results that we will experience after the Merger.
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEARS ENDED
JUNE 30, DECEMBER 31,
-------------- ------------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
HCR COMMON STOCK:
Basic income from continuing operations per share:
Historical(1).................................... $0.89 $0.75 $1.57 $1.30 $1.08
Pro forma combined(2)............................ 0.77 0.73 1.44 1.05 1.08
Diluted income from continuing operations per
share:
Historical(1).................................... 0.86 0.72 1.51 1.24 1.03
Pro forma combined(2)............................ 0.75 0.71 1.40 1.02 1.06
Dividend per share(3):
Historical....................................... -- -- -- -- --
Pro forma combined............................... -- -- -- -- --
Book value per share(4):
Historical....................................... 10.34 9.28 9.81 8.76 8.06
Pro forma combined............................... 11.25 10.20 10.78 10.23 9.17
</TABLE>
<TABLE>
<CAPTION>
FOR THE
FOR THE SIX TWELVE
MONTHS ENDED MONTHS ENDED FOR THE YEARS
MAY 31, NOVEMBER 30, ENDED MAY 31,
-------------- ------------ --------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
MANOR CARE COMMON STOCK:
Basic income from continuing operations per share:
Historical(1).................................... $0.69 $0.71 $1.34 $0.86 $1.09
Equivalent pro forma combined(5)................. 0.77 0.73 1.44 1.05 1.08
Diluted income from continuing operations per
share:
Historical(1).................................... 0.68 0.70 1.32 0.85 1.08
Equivalent pro forma combined(5)................. 0.75 0.71 1.40 1.02 1.06
Dividend per share:
Historical....................................... 0.04 0.04 0.09 0.09 0.09
Equivalent pro forma combined(3)(5).............. -- -- -- -- --
Book value per share:
Historical(4).................................... 12.20 10.85 11.46 11.28 9.99
Equivalent pro forma combined(5)................. 11.25 10.20 10.78 10.23 9.17
</TABLE>
13
<PAGE> 22
- -------------------------
(1) All per share amounts of HCR are adjusted to reflect any stock splits during
the periods presented. All per share amounts of Manor Care are restated to
reflect the results of Vitalink as a discontinued operation for all periods
presented. On April 27, 1998, Genesis announced that it had entered into a
definitive agreement to acquire Vitalink.
(2) Pro forma combined income from continuing operations amounts per share of
HCR Common Stock represent the pro forma combined amounts of income from
continuing operations for HCR and Manor Care, divided by combined basic and
diluted weighted average common shares outstanding.
(3) HCR has not paid any cash dividends on HCR Common Stock during the periods
presented and HCR Manor Care does not expect to pay cash dividends on the
HCR Manor Care Common Stock in the foreseeable future.
(4) Historical book value per share information for HCR and Manor Care as of the
end of each period presented is computed by dividing historical
stockholders' equity for each company by the number of shares of HCR Common
Stock or Manor Care Common Stock as the case may be, outstanding at the end
of each period presented, excluding stock options and warrants. Pro forma
combined book value per share information as of the end of the period
presented is computed by dividing pro forma stockholders' equity for the
most recent interim period and historical stockholders' equity for the other
periods presented by the aggregate number of shares of HCR and Manor Care
Common Stock outstanding on such dates.
(5) Equivalent pro forma combined amounts per share of Manor Care Common Stock
represent the pro forma combined amounts per share of HCR Common Stock
multiplied by an assumed exchange ratio of 1.0.
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<PAGE> 23
RISK FACTORS
In addition to general investment risks and those factors set forth
elsewhere herein (including under the caption "The Merger -- Cautionary
Statement Concerning Forward-Looking Statements"), the following risks should be
considered by stockholders of HCR and Manor Care in deciding whether to approve
and adopt the proposals which are the subject of this Joint Proxy
Statement/Prospectus. Although the risks captioned "Competition," "Regulation,"
"Payment by Third-Party Payors," "Dependence on Key Personnel" and "Adequacy of
Certain Insurance" refer principally to HCR Manor Care, these risks also affect
the existing independent business and financial affairs of HCR and Manor Care.
RISKS ASSOCIATED WITH THE INTEGRATION OF THE TWO COMPANIES
The Merger involves the integration of two companies that have previously
operated independently. HCR Manor Care may not be able to integrate the
respective operations of HCR and Manor Care without encountering difficulties.
Difficulties could occur in integrating different business strategies with
respect to managing, owning and leasing long-term health care facilities and
related businesses and in integrating personnel with disparate business
backgrounds. We cannot assure you if or to what extent the integration and
consolidation will achieve cost savings and operating synergies.
RISKS ASSOCIATED WITH THE FIXED EXCHANGE RATIO
At the Effective Time, each share of Manor Care Common Stock will be
converted into the right to receive one share of HCR Manor Care Common Stock
(the "Exchange Ratio"). The Exchange Ratio is a fixed number and will not be
adjusted in the event of any increase or decrease in the price of Manor Care
Common Stock or HCR Common Stock. As a result, the relative value of the
consideration received by Manor Care stockholders in the Merger could vary
depending on fluctuations in the value of Manor Care Common Stock and HCR Common
Stock. Such fluctuations may be the result of changes in the business,
operations or prospects of Manor Care or HCR, market assessments of the
likelihood that the Merger will be consummated, the timing thereof, regulatory
considerations, industry developments, general market and economic conditions
and other factors. Accordingly, we cannot assure you that the value of the
merger consideration on the date of this Joint Proxy Statement/Prospectus will
be the same as that on the date of the special meetings of the stockholders of
HCR and Manor Care or the Effective Time.
COMPETITION
HCR Manor Care will operate in a highly competitive environment and compete
with a variety of other companies in providing assisted living services, skilled
nursing facility services, institutional pharmacy services and home health care
services, as well as with numerous other companies providing similar services
and care alternatives, such as congregate care facilities and retirement
communities. In particular, given the relatively low barriers to entry and
continuing health care cost containment pressures in the assisted living
industry, we expect that the assisted living industry will become increasingly
competitive in the future. Some of HCR Manor Care's present and potential
competitors may be more established in their respective communities than HCR
Manor Care. Consequently, increased competition in the future could limit HCR
Manor Care's ability to attract and retain residents, to maintain or increase
resident service fees or to expand its business. As a result, any increased
competition could have a material adverse effect on HCR Manor Care.
REGULATION
General. Health care is an area of extensive and frequent regulatory
change. Various aspects of HCR Manor Care's business will be subject to
regulation by the federal government and the states in which HCR Manor Care will
operate. Skilled nursing facilities and assisted living facilities and other
health care businesses, including institutional pharmacies and home health
agencies, are subject to annual licensure and other regulatory requirements. In
particular, the operation of nursing facilities and the provision of health care
services are subject to federal, state and local laws relating to the delivery
and adequacy of medical care, distribution of pharmaceuticals, equipment,
personnel, operating policies, fire prevention, rate-setting and
15
<PAGE> 24
compliance with building codes and environmental laws. Skilled nursing
facilities are subject to periodic inspection by governmental and other
authorities to assure continued compliance with various standards, their
continued licensing under state law, certification under the Medicare and
Medicaid programs and continued participation in the Veterans Administration
program (to the extent they participate) and the ability to participate in other
third party programs. HCR Manor Care will also be subject to inspection
regarding record keeping and inventory control. From time to time, HCR Manor
Care, like others in the health care industry, may receive notices from federal
and state regulatory agencies relating to alleged deficiencies for failure to
comply with applicable standards. Such notices may require HCR Manor Care to
take corrective action, and may impose civil money penalties and/or other
operating restrictions on HCR Manor Care. Failure of the skilled nursing
facilities to comply with such directives or otherwise to be in substantial
compliance with licensure and certification laws, rules and regulations could
result in loss of certification as a Medicare and Medicaid provider and/or a
loss of licensure. HCR Manor Care's assisted living facilities will be subject
to varying degrees of regulation and licensing by local and state health and
social service agencies and other regulatory authorities specific to their
location. While regulations and licensing requirements often vary significantly
from state to state, they typically address, among other things: personnel
education, training and records; facility services, including administration of
medication, assistance with supervision of medication management and limited
nursing services; physical plant specifications; furnishing of resident units;
food and housekeeping services; emergency evacuation plans; and resident rights
and responsibilities. Failure of the assisted living facilities to be in
compliance with licensing requirements could result in loss of licensure. In
most states, assisted living facilities also are subject to state or local
building codes, fire codes and food service licensure or certification
requirements. In addition, since the assisted living industry is relatively new,
the manner and extent to which it is regulated at the federal and state levels
are evolving. Changes in the laws or new interpretations of existing laws as
applied to the skilled nursing facilities, the assisted living facilities or
other components of HCR Manor Care's health care businesses may have a
significant impact on HCR Manor Care's methods and costs of doing business.
Licensing and Certification. HCR Manor Care's success will depend in part
upon its ability to satisfy applicable regulations and requirements and to
procure and maintain required licenses and Medicare and Medicaid certifications
in rapidly changing regulatory environments. Any failure to satisfy applicable
regulations or to procure or maintain a required license or certification could
have a material adverse effect on HCR Manor Care. In addition, certain
regulatory developments, such as revisions in the building code requirements for
assisted living or skilled nursing facilities, mandatory increases in the scope
and quality of care to be offered to residents and revisions in licensing and
certification standards, could have a material adverse effect on HCR Manor Care.
Health Care Reforms. In recent years, there have been numerous initiatives
on the federal and state levels for comprehensive reforms affecting the payment
for and availability of health care services. Aspects of certain of these health
care initiatives, such as reductions in funding of the Medicare and Medicaid
programs, potential changes in reimbursement regulations by the Health Care
Financing Administration ("HCFA"), enhanced pressure to contain health care
costs by Medicare, Medicaid and other payors and greater state flexibility in
the administration of Medicaid, could adversely affect HCR Manor Care. See "--
Medicare and Medicaid Reimbursement" and "Payment by Third-Party Payors."
Certificate of Need Laws. Many states have adopted Certificate of Need
("CON") or similar laws which generally require that the appropriate state
agency approve certain acquisitions and determine that a need exists for certain
bed additions, new services and capital expenditures or other changes prior to
beds and/or new services being added or capital expenditures being undertaken.
To the extent that CON or other similar approvals are required for the expansion
of HCR Manor Care's operations, either through facility acquisitions or
expansion or provision of new services or other changes, such expansion could be
adversely affected by the failure or inability to obtain the necessary
approvals, changes in the standards applicable to such approvals and possible
delays and expenses associated with obtaining such approvals. We cannot assure
you that HCR Manor Care will be able to obtain CON approval for all future
projects requiring such approval.
Medicare and Medicaid Reimbursement. On August 5, 1997, Congress enacted
the Balanced Budget Act of 1997 ("Budget Act"), which seeks to achieve a
balanced federal budget by, among other things, reducing
16
<PAGE> 25
federal spending on the Medicare and Medicaid programs. The law contains
numerous changes affecting Medicare payments to skilled nursing facilities, home
health agencies, hospices, and therapy providers, among others. Medicare
reimbursement for skilled nursing facilities currently operates on a
retrospective payment system in which each facility receives an interim payment
during the year, which is later adjusted to reflect actual allowable direct and
indirect costs of services based on the submission of a cost report at the end
of each year. The Budget Act will result in a shift to a prospective Medicare
payment system in which skilled nursing facilities will be reimbursed at a per
diem rate for specific covered services regardless of their actual cost.
Specifically, the Budget Act provides that, over three cost reporting periods
beginning on or after July 1, 1998, the Medicare program will phase in this
prospective payment system. During the first reporting period, skilled nursing
facilities will receive 75% of their reimbursement based on 1995 actual costs
and 25% based on a federally scheduled per diem rate. In the second reporting
period, reimbursement will be 50% cost-based and 50% rate-based, in the third,
25% cost-based and 75% rate-based. Thereafter, skilled nursing facilities will
be reimbursed by Medicare solely based on a prospective payment system. For HCR
Manor Care, the phase-in to prospective rates will begin in July 1998. A similar
prospective payment system is required to be established for home health
services beginning October 1, 1999. The Budget Act also reduces payments to many
providers and suppliers, including therapy providers and hospices and gives
states greater flexibility in the administration of their Medicaid programs by
repealing the requirement that payment be reasonable and adequate to cover the
costs of "efficiently and economically operated" nursing facilities. There can
be no assurance that additional federal, state or local laws or regulations will
not be imposed or expanded in a manner that would have a material adverse effect
on HCR Manor Care.
Anti-Remuneration Laws. HCR Manor Care will also be subject to federal and
state laws which govern financial and other arrangements between health care
providers. These laws prohibit certain direct and indirect payments or
fee-splitting arrangements between health care providers that are designed to
induce or encourage the referral of patients to, or the recommendation of, a
particular provider for medical products and services. These laws include the
federal "Stark Legislation" which prohibits, with limited exceptions, the
referral of patients for certain designated health services, including home
health services, physical therapy and occupational therapy, by a physician to an
entity in which the physician has a financial interest. The January 1998 notice
of proposed rulemaking to issue regulations implementing the Stark Legislation
makes clear that the restrictions apply to referrals for designated health
services provided in skilled nursing facilities. Certain exceptions are
available for employment agreements, leases, in-office ancillary services, and
certain other physician arrangements. Final implementing regulations have not
yet been issued, and we cannot assure you that HCR Manor Care's physician
arrangements will be found to be in compliance with the Stark Legislation, as
such law ultimately may be interpreted. In addition, HCR Manor Care will be
subject to the federal "anti-kickback law" which prohibits, among other things,
the offer, payment, solicitation or receipt of any form of remuneration in
return for the referral of patients, or the purchasing, leasing, ordering, or
arranging for any goods, services or items for which payment can be made under
Medicare, Medicaid or other federal health care programs. Possible sanctions for
violation of the anti-kickback law include criminal penalties, civil money
penalties and/or exclusion from participation in Medicare, Medicaid or other
federal health care programs.
The federal government, private insurers and various state enforcement
agencies have increased their scrutiny of providers, business practices and
claims in an effort to identify and prosecute fraudulent and abusive practices.
The federal government has issued recent fraud alerts concerning home health
services and the provision of medical services and supplies to skilled nursing
facilities; accordingly, these areas may come under closer scrutiny by the
government. In addition, in July 1995, federal officials announced a major anti-
fraud initiative called Operation Restore Trust. This program targets fraud
involving skilled nursing facilities, home health agencies, suppliers of medical
equipment and hospices and is currently operating in 17 states. In addition, the
Department of Health and Human Services Office of Inspector General and the
Department of Justice have from time to time established enforcement initiatives
focusing on specific billing practices or other suspected areas of abuse.
Current initiatives include the appropriateness of therapy services provided to
Medicare beneficiaries residing in skilled nursing facilities. The Health
Insurance Portability and Accountability Act of 1996 ("HIPPA"), which became
effective January 1, 1997, expands the scope of certain fraud and abuse laws to
include all health care services, whether or not they are reimbursed under a
federal health care program, and creates new enforcement mechanisms to combat
fraud and abuse, including an incentive
17
<PAGE> 26
program, under which individuals can receive up to $1,000 for providing
information on Medicare fraud and abuse that leads to the recovery of at least
$100 of Medicare funds. The Budget Act also expands numerous health care fraud
provisions. Furthermore, many states restrict certain business relationships
between physicians and other providers of health care services, and some have
enacted laws similar to the federal Stark Legislation and the anti-kickback law.
In addition, some states prohibit business corporations from providing, or
holding themselves out as a provider of, medical care. Possible sanctions for
violation of any of these restrictions or prohibitions include loss of licensure
or eligibility to participate in reimbursement programs and civil and criminal
penalties. These laws vary from state to state and have seldom been interpreted
by the courts or regulatory agencies. There can be no assurance that the federal
and state anti-remuneration laws will ultimately be interpreted in a manner
consistent with the practices of, and business transactions by, HCR Manor Care.
Failure to comply with such laws can result in civil money penalties, exclusion
from the Medicare, Medicaid and other federal health care programs, and criminal
convictions.
Medicaid Waiver Program. Certain states provide for Medicaid reimbursement
for assisted living services pursuant to Medicaid Waiver Programs permitted by
the federal government. In the event HCR Manor Care elects to provide services
in states with a Medicaid Waiver Program, HCR Manor Care may then elect to
become certified as a Medicaid provider in such states. As a provider of
services under the Medicaid Waiver Program, HCR Manor Care will be subject to
all of the requirements of such program, including the fraud and abuse laws,
violations of which may result in civil and criminal penalties and exclusion
from further participation in the Medicaid Waiver Program and other federal
health care programs. HCR Manor Care intends to comply with all applicable laws,
including the fraud and abuse laws; however, we cannot assure you that
administrative or judicial interpretation of existing laws or regulations will
not in the future have a material adverse impact on HCR Manor Care's business,
results of operations or financial condition.
Related Party Rule. Prior to implementation of the prospective payment
system for skilled nursing facilities (i.e., for cost reporting periods
beginning prior to July 1, 1998), the Medicare program limits certain allowable
costs for items and services provided by companies that are associated or
affiliated with, have control of, or are controlled by, a Medicare provider.
Many state Medicaid programs have adopted the same rule in determining costs
that will be included in the payment rates. The Medicare program may consider
Vitalink and In Home Health to be related parties with subsidiaries of Manor
Care which are Medicare providers, and may consider certain subsidiaries of HCR
to be related parties with other HCR subsidiaries which are Medicare providers.
Consequently, unless a provider qualifies for the exception to the related party
rule, the Medicare program will only reimburse the provider for the cost
incurred by the related party in providing products or services, rather than the
related party's charge. An organization can qualify for an exception from the
related party rule by meeting the following criteria: 1) the entities are
bona-fide separate organizations; 2) a substantial part of the supplying
organization's business activity is conducted with non-related organizations and
there is an open, competitive market for such services or products; 3) the
services or products are commonly obtained by a provider from other
organizations and are not a basic element of patient care ordinarily furnished
directly to patients by the providers; and 4) the charge to the provider is in
line with the charge for such services and products in the open market and no
more than the charge made under comparable circumstances to others. Each of HCR
and Manor Care believes that, to the extent the related party rule applies to it
and its subsidiaries, the operations of its subsidiaries would qualify for the
exception to the related party rule. We, however, cannot assure you that the
interpretation and application of the related party rule and the exception
thereto by governmental authorities will result in HCR and Manor Care qualifying
for the exception. The application of the Medicare related party rule could
materially affect allowable payments to HCR Manor Care's skilled nursing
facilities for pre-July 1, 1998 cost reports.
False Claim Regulation. False claims are prohibited pursuant to criminal
and civil statutes. Criminal provisions at 42 U.S.C. Section 1320a-7b prohibit
filing false claims or making false statements to receive payment or
certification under Medicare or Medicaid, or failing to refund overpayments or
improper payments; offenses for violation are felonies punishable by up to five
years imprisonment, and/or $25,000 fines. Criminal penalties may also be imposed
pursuant to the Federal False Claim Act, 18 U.S.C. Section 287. In addition,
under HIPPA, Congress enacted a criminal health care fraud statute for fraud
involving a health care benefit program, which is defined to include both public
and private payors. Civil provisions at 31 U.S.C.
18
<PAGE> 27
Section 3729 prohibit the knowing filing of a false claim or the knowing use of
false statements to obtain payment; penalties for violations are fines of not
less than $5,000 nor more than $10,000, plus treble damages, for each claim
filed. Also, the statute allows any individual to bring a suit, known as a qui
tam action, alleging false or fraudulent Medicare or Medicaid claims or other
violations of the statute and to potentially share in any amounts paid by the
entity to the government in fines or settlement. Failure to comply with such
laws could have a material adverse effect on HCR Manor Care.
PAYMENT BY THIRD-PARTY PAYORS
A significant portion of HCR Manor Care's revenues from the services it
provides will be dependent upon reimbursement from third-party payors, including
Medicare, state Medicaid programs and private insurers. For the pro forma year
ended December 31, 1997, HCR Manor Care derived 90% of its total pro forma
revenues from skilled nursing and assisted living facilities and rehabilitation
operations, of which 51% came from private pay sources, 22% from Medicare, and
27% from various state Medicaid agencies. As of December 31, 1997, all of the
patients at the assisted living facilities of HCR and Manor Care were private
pay. Both governmental and private third-party payors have employed cost
containment measures designed to limit payments made to health care providers.
Those measures include the adoption of initial and continuing recipient
eligibility criteria which may limit payment for services, the adoption of
coverage and duration criteria which limit the services which will be
reimbursed, and establishment of prospective payment systems and payment
ceilings which set the maximum reimbursement that a provider may receive for
services. Furthermore, government payment programs are subject to statutory and
regulatory changes, retroactive rate adjustments, administrative rulings and
government funding restrictions, all of which may materially increase or
decrease the rate of program payments to HCR Manor Care for its services. There
can be no assurance that payments under governmental and private third-party
programs will remain at levels comparable to present levels or will, in the
future, be sufficient to cover the costs required to serve patients eligible for
reimbursement pursuant to such programs. In addition, there can be no assurance
that HCR Manor Care's providers, or the provision of services and supplies by
such providers, now or in the future will initially meet or continue to meet the
requirements for participation in such programs. HCR Manor Care could be
adversely affected by the continuing efforts of governmental and private
third-party payors to contain the amount of reimbursement for health care
services. For example, the Budget Act will, over the next several years, alter
the manner in which Medicare reimburses skilled nursing facilities for cost
reporting periods from a retrospective to a prospective payment system. See "--
Regulation." In addition, certain state Medicaid programs have proposed or
enacted a case mix prospective payment system pursuant to which the payment to a
facility for a patient is based upon the patient's condition and need for
services. HCR and Manor Care cannot at this time predict whether any pending/new
proposals will be adopted or, if adopted and implemented, what effect, if any,
such proposals will have on HCR Manor Care. In addition, private payors,
including managed care payors, increasingly are demanding discounted fee
structures or the assumption by health care providers of all or a portion of the
financial risk through prepaid capitation arrangements. Efforts to impose
reduced allowances, greater discounts and more stringent cost controls by
government and other payors are expected to continue and could, depending on the
scope, have a material adverse effect on HCR Manor Care.
DEPENDENCE ON KEY PERSONNEL
HCR Manor Care's success will depend to a significant extent on the
management and other skills of its chief executive, chief operating and chief
financial officers, as well as its ability to retain other officers and key
employees and to attract skilled personnel in the future to manage the
integration of the companies and the future operation of HCR Manor Care.
Although HCR and Manor Care believe HCR Manor Care will have incentive and
compensation programs designed to retain key employees, there can be no
assurance that these key employees will remain with HCR Manor Care. There can be
no assurance that a suitable replacement could be found in the event of
termination of any key employee.
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<PAGE> 28
STAFFING AND LABOR COSTS
HCR Manor Care will compete with various health care providers, including
other assisted living and skilled nursing providers, with respect to attracting
and retaining qualified or skilled personnel. HCR Manor Care will also depend on
the available labor pool of low-wage employees. A shortage of nurses or other
trained personnel or general inflationary pressures may require HCR Manor Care
to enhance its wage and benefits package in order to compete. There can be no
assurance that HCR Manor Care's labor costs will not increase or, if they do,
that such costs can be matched by corresponding increases in revenues. Any
significant failure by HCR Manor Care to attract and retain qualified employees,
to control its labor costs or to match increases in its labor expenses with
corresponding increases in revenues could have a material adverse effect on HCR
Manor Care's business, operating results and financial condition.
THE YEAR 2000 ISSUE
Each of HCR and Manor Care has assessed and continues to assess the
potential impact of the situation commonly referred to as the "Year 2000 Issue."
The Year 2000 Issue, which affects most corporations, concerns the inability of
information systems, primarily computer software programs, to properly recognize
and process date sensitive information relating to the year 2000 and beyond.
Each of HCR and Manor Care has several information system improvement
initiatives underway to ensure that its computer systems will be Year 2000
compliant. The failure by third party payors, such as private insurers, managed
care organizations, health maintenance organizations, preferred provider
organizations and federal and state government agencies that administer Medicare
and/or Medicaid, to adequately address their Year 2000 Issues could adversely
affect HCR Manor Care.
ENVIRONMENTAL REGULATION
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property or an
entity that arranges for the disposal or treatment of hazardous or toxic
substances at a disposal site may be held jointly and severally liable for the
cost of removal or remediation of certain hazardous or toxic substances, that
could be located on, in or under such property. Such laws and regulations often
impose liability whether or not the owner, operator or otherwise responsible
party knew of, or caused, the presence of hazardous or toxic substances. The
costs of any required remediation or removal of these substances can be
substantial and the liability of a responsible party as to any property is
generally not limited under such laws and regulations and could exceed the
property's value and the aggregate assets of the liable party.
Certain federal and state laws govern the handling and disposal of medical,
infectious and hazardous waste. Failure to comply with such laws or the
regulations promulgated thereunder could subject an entity covered by these laws
to fines, criminal penalties and other enforcement actions. Each of HCR and
Manor Care has developed policies with respect to the handling and disposal of
medical, infectious and hazardous waste to ensure compliance with those laws and
regulations. HCR and Manor Care each believes that it is in material compliance
with applicable laws and regulations governing medical, infectious and hazardous
waste.
One or more subsidiaries or affiliates of Manor Care have been identified
as potentially responsible parties ("PRPs") in a variety of actions (the
"Actions") relating to waste disposal sites which allegedly are subject to
remedial action under the Comprehensive Environmental Response Compensation
Liability Act, as amended, 42 U.S.C. Sections 9601 et seq. ("CERCLA") and
similar state laws. CERCLA imposes retroactive, strict joint and several
liability on PRPs for the costs of hazardous waste clean-up. The Actions arise
out of the alleged activities of Cenco, Incorporated and its subsidiary and
affiliated companies ("Cenco"). Cenco was acquired in 1981 by a wholly owned
subsidiary of Manor Care. The Actions allege that Cenco transported and/or
generated hazardous substances that came to be located at the sites in question.
Manor Care believes the waste disposal activities at issue occurred prior to the
Manor Care subsidiary's acquisition of Cenco. Environmental proceedings such as
the Actions may involve owners and/or operators of the hazardous waste site,
multiple waste generators and multiple waste transportation disposal companies.
Such proceedings involve efforts by governmental entities and/or private parties
to allocate or recover site investigation and
20
<PAGE> 29
clean-up costs, which costs may be substantial. The potential liability exposure
for currently pending environmental claims and litigation, without regard to
insurance coverage, cannot be quantified with precision because of the inherent
uncertainties of litigation in the Actions and the fact that the ultimate cost
of the remedial actions for some of the waste disposal sites where Manor Care is
alleged to be a potentially responsible party has not yet been quantified. Manor
Care believes that the potential environmental liability exposure, after
consideration of insurance coverage, is approximately $3 million. Future
liabilities for the pending environmental claims and litigation, without regard
to insurance, currently are not expected to exceed approximately $46 million.
After the Merger, HCR Manor Care will retain liability for certain environmental
litigation, including the Actions.
ADEQUACY OF CERTAIN INSURANCE
HCR and Manor Care maintain liability insurance providing coverage which
they believe to be adequate. In addition, HCR and Manor Care maintain property,
business interruption, and workers' compensation insurance covering facilities
in amounts deemed adequate by HCR and Manor Care, respectively. There can be no
assurance that any future claims will not exceed applicable insurance coverage
or that HCR Manor Care will be able to continue the present insurance coverage
of HCR and Manor Care on satisfactory terms, if at all.
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THE HCR SPECIAL MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to stockholders of
HCR as part of the solicitation of proxies by the HCR Board of Directors for use
at the Special Meeting of Stockholders of HCR (the "HCR Special Meeting") to be
held on September 24, 1998 at 10:00 a.m. local time, in the Auditorium at One
SeaGate, Toledo, Ohio. This Joint Proxy Statement/Prospectus and the enclosed
form of proxy are first being mailed to stockholders of HCR on or about August
18, 1998.
At the HCR Special Meeting, the stockholders of HCR will be asked to
consider and vote upon (i) a proposal to approve the issuance of up to
70,000,000 shares of HCR Common Stock in the Merger and to amend HCR's by-laws
effective upon consummation of the Merger to require the approval of at least
80% of HCR's outstanding shares or at least 75% of the members of HCR's board of
directors to amend certain sections of the by-laws relating to corporate
governance; (ii) a proposal to amend HCR's Certificate of Incorporation to
increase the authorized number of shares of HCR Common Stock from 160,000,000 to
300,000,000; (iii) a proposal to approve the amendment to HCR's Amended Stock
Option Plan for Key Employees to increase the number of shares of HCR Common
Stock authorized for issuance by 3,000,000 shares; (iv) a proposal to approve
the amendment to HCR's Option Plan for Outside Directors to increase the number
of shares of HCR Common Stock authorized for issuance thereunder by 500,000
shares; (v) a proposal to approve the amendment to HCR's Amended Restricted
Stock Plan to increase the shares of HCR Common Stock authorized for issuance
thereunder by 500,000 shares; and (vi) such other business as may properly come
before the meeting and any and all adjournments thereof.
Each copy of this Joint Proxy Statement/Prospectus mailed to holders of HCR
Common Stock is accompanied by a form of proxy for use at the HCR Special
Meeting.
The Board of Directors of HCR unanimously recommends that stockholders vote
FOR the approval of the Transaction Proposal, the Share Amendment Proposal, the
Employee Option Proposal, the Director Option Proposal and the Restricted Stock
Proposal. Approval of the Transaction Proposal is a condition to consummation of
the Merger.
RECORD DATE AND VOTING
HCR has fixed the close of business on August 10, 1998 as the record date
for the determination of the HCR stockholders entitled to notice of and to vote
at the HCR Special Meeting. Accordingly, only holders of record of HCR Common
Stock on the record date will be entitled to notice of and to vote at the HCR
Special Meeting. As of August 10, 1998, there were outstanding and entitled to
vote 44,777,177 shares of HCR Common Stock (constituting all of the voting stock
of HCR), which shares were held by approximately 356 holders of record. Each
holder of record of shares of HCR Common Stock on the record date is entitled to
one vote per share, which may be cast either in person or by properly executed
proxy, at the HCR Special Meeting. The presence, in person or by properly
executed proxy, of the holders of a majority of the outstanding shares of HCR
Common Stock entitled to vote at the HCR Special Meeting is necessary to
constitute a quorum at the HCR Special Meeting.
The approval of each of the Transaction Proposal, the Option Plan Proposals
and the Restricted Stock Proposal will require the affirmative vote of the
holders of shares of HCR Common Stock representing a majority of the votes
present and entitled to vote thereon, provided, that the total votes cast on the
matter represent over 50% in interest of all shares entitled to vote on such
matter. The approval of the Share Amendment Proposal will require the
affirmative vote of the holders of a majority of the outstanding shares of HCR
Common Stock.
Shares of HCR Common Stock represented in person or by proxy will be
counted for the purposes of determining whether a quorum is present at the HCR
Special Meeting. Shares which abstain from voting as to a particular matter
(including shares held by a broker who lacks authority to vote on a particular
matter ("broker non-votes")) will be treated as shares that are present and
entitled to vote at the HCR Special
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<PAGE> 31
Meeting for purposes of determining whether a quorum exists. Abstentions and
broker non-votes will have the same effect as votes against approval of the
Share Amendment Proposal.
As of the record date for the HCR Special Meeting, directors and executive
officers of HCR and their affiliates may be deemed to be beneficial owners of
approximately 3% of the outstanding shares of HCR Common Stock and have
expressed their intent to vote their shares in favor of each of the Transaction
Proposal, the Share Amendment Proposal, the Option Plan Proposals and the
Restricted Stock Proposal.
VOTING AND REVOCATION OF PROXIES
All shares of HCR Common Stock which are entitled to vote and are
represented at the HCR Special Meeting by properly executed proxies received
prior to or at such meeting, and not revoked, will be voted at such meeting in
accordance with the instructions indicated on such proxies. If no instructions
are indicated (other than in the case of broker non-votes), such proxies will be
voted in favor of each of the HCR Voting Proposals.
The HCR Board of Directors does not know of any matters other than those
described in the notice of the HCR Special Meeting that are to come before such
meeting. If any other matters are properly presented at the HCR Special Meeting
for consideration, including, among other things, consideration of a motion to
adjourn such Meeting to another time and/or place (including, without
limitation, for the purposes of soliciting additional proxies or allowing
additional time for the satisfaction of conditions to the Merger), the persons
named in the enclosed forms of proxy and acting thereunder generally will have
discretion to vote on such matters in accordance with their best judgment.
Notwithstanding the foregoing, proxies voting against a specific proposal may
not be used by the persons named in the proxies to vote for adjournment of the
meeting for the purpose of providing HCR additional time to solicit votes to
approve such proposal.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Corporate Secretary of HCR, at or before the taking of the vote at the
HCR Special Meeting, a written notice of revocation bearing a later date than
the proxy, (ii) duly executing a later dated proxy relating to the same shares
and delivering it to the Corporate Secretary of HCR before the taking of the
vote at the HCR Special Meeting or (iii) attending the HCR Special Meeting and
voting in person (although attendance at the HCR Special Meeting will not in and
of itself constitute a revocation of a proxy). Any written notice of revocation
or subsequent proxy should be sent to Health Care and Retirement Corporation,
One SeaGate, Toledo, Ohio 43604-2616, Attention: Corporate Secretary; or hand
delivered to the Corporate Secretary of HCR at or before the taking of the vote
at the HCR Special Meeting.
All expenses of HCR's solicitation of proxies for the HCR Special Meeting
will be borne by HCR, except that the cost of preparing and mailing this Joint
Proxy Statement/Prospectus will be borne equally by HCR and Manor Care. In
addition to solicitation by use of the mails, proxies may be solicited from HCR
stockholders by directors, officers and employees of HCR in person or by
telephone, telegram or other means of communication. Such directors, officers
and employees will not be additionally compensated, but may be reimbursed for
reasonable out-of-pocket expenses in connection with such solicitation. HCR has
retained MacKenzie Partners, Inc., a proxy solicitation firm, for assistance in
connection with the solicitation of proxies for the HCR Special Meeting at a
cost of approximately $12,000 plus reimbursement of reasonable out of pocket
expenses. Arrangements will also be made with brokerage houses, custodians,
nominees and fiduciaries for forwarding of proxy solicitation materials to
beneficial owners of shares held of record by such brokerage houses, custodians,
nominees and fiduciaries, and HCR will reimburse such brokerage houses,
custodians, nominees and fiduciaries for their reasonable expenses incurred in
connection therewith.
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<PAGE> 32
THE MANOR CARE SPECIAL MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to stockholders of
Manor Care as part of the solicitation of proxies by the Manor Care Board of
Directors for use at a Special Meeting of Stockholders of Manor Care (the "Manor
Care Special Meeting") to be held on September 24, 1998 at 9:00 a.m. local time,
in the Auditorium at 11555 Darnestown Road, Gaithersburg, Maryland. This Joint
Proxy Statement/Prospectus and the enclosed form of proxy are first being mailed
to stockholders of Manor Care on or about August 18, 1998.
At the Manor Care Special Meeting, the stockholders of Manor Care will be
asked to consider and vote upon: (i) a proposal (the "Merger Proposal") to
approve and adopt the Merger Agreement and to approve the Merger and the
transactions contemplated by the Merger Agreement; and (ii) such other business
that may properly come before the Manor Care Special Meeting.
Each copy of this Joint Proxy Statement/Prospectus mailed to holders of
Manor Care Common Stock is accompanied by a form of proxy for use at the Manor
Care Special Meeting.
The Board of Directors of Manor Care unanimously recommends that
stockholders vote FOR the approval and adoption of the Merger Agreement and the
approval of the Merger and the transactions contemplated by the Merger
Agreement. Approval of the Merger Proposal is a condition to the consummation of
the Merger.
RECORD DATE AND VOTING
Manor Care has fixed the close of business on August 10, 1998 as the record
date for the determination of the Manor Care stockholders entitled to notice of
and to vote at the Manor Care Special Meeting. Accordingly, only holders of
record of Manor Care Common Stock on the record date will be entitled to notice
of and to vote at the Manor Care Special Meeting. As of August 10, 1998, there
were outstanding and entitled to vote 63,720,035 shares of Manor Care Common
Stock (constituting all of the voting stock of Manor Care), which shares were
held by approximately 4,976 holders of record. Each holder of record of shares
of Manor Care Common Stock on the record date is entitled to one vote per share,
which may be cast either in person or by properly executed proxy, at the Manor
Care Special Meeting. The presence, in person or by properly executed proxy, of
the holders of a majority of the outstanding shares of Manor Care Common Stock
entitled to vote at the Manor Care Special Meeting is necessary to constitute a
quorum at the Manor Care Special Meeting.
The approval and adoption of the Merger Agreement and the approval of the
Merger and the transactions contemplated by the Merger Agreement will require
the affirmative vote of the holders of a majority of the shares of Manor Care
Common Stock outstanding on the record date.
Shares of Manor Care Common Stock represented in person or by proxy will be
counted for the purposes of determining whether a quorum is present at the Manor
Care Special Meeting. Shares which abstain from voting as to a particular matter
and broker non-votes will be treated as shares that are present and entitled to
vote at the Manor Care Special Meeting for purposes of determining whether a
quorum exists and will have the same effect as votes against approval of the
Merger Proposal.
Stewart Bainum, Stewart Bainum, Jr. and certain entities of which members
of the Bainum family are beneficiaries or beneficial owners (the "Key
Stockholders"), representing 19,696,761 shares or approximately 31% of the
outstanding shares of Manor Care Common Stock as of the record date for the
Manor Care Special Meeting, have entered into a Voting Agreement (the "Voting
Agreement") with HCR pursuant to which such holders have agreed, among other
things, to vote their shares of Manor Care Common Stock in favor of the Merger
Proposal. See "Other Agreements -- Voting Agreement." As of the record date for
the Manor Care Special Meeting, directors and executive officers of Manor Care
and their affiliates may be deemed to be beneficial owners of an additional
approximately 1% of the outstanding shares of Manor Care
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<PAGE> 33
Common Stock (excluding shares covered by the Voting Agreement) and have
expressed their intent to vote their shares in favor of the Merger Proposal.
VOTING AND REVOCATION OF PROXIES
All shares of Manor Care Common Stock which are entitled to vote and are
represented at the Manor Care Special Meeting by properly executed proxies
received prior to or at such meeting, and not revoked, will be voted at such
meeting in accordance with the instructions indicated on such proxies. If no
instructions are indicated (other than in the case of broker non-votes), such
proxies will be voted in favor of the Merger Proposal.
The Manor Care Board of Directors does not know of any matters other than
those described in the notice of the Manor Care Special Meeting that are to come
before such meeting. If any other matters are properly presented at the Manor
Care Special Meeting for consideration, including, among other things,
consideration of a motion to adjourn such meeting to another time and/or place
(including, without limitation, for the purposes of soliciting additional
proxies or allowing additional time for the satisfaction of conditions to the
Merger), the persons named in the enclosed forms of proxy and acting thereunder
generally will have discretion to vote on such matters in accordance with their
best judgment. Notwithstanding the foregoing, proxies voting against a specific
proposal may not be used by the persons named in the proxies to vote for
adjournment of the meeting for the purpose of providing Manor Care additional
time to solicit votes to approve such proposal.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of Manor Care, at or before the taking of the vote at the
Manor Care Special Meeting, a written notice of revocation bearing a later date
than the proxy, (ii) duly executing a later dated proxy relating to the same
shares and delivering it to the Secretary of Manor Care before the taking of the
vote at the Manor Care Special Meeting or (iii) attending the Manor Care Special
Meeting and voting in person (although attendance at the Manor Care Special
Meeting will not in and of itself constitute a revocation of a proxy). Any
written notice of revocation or subsequent proxy should be sent to Manor Care,
Inc., 11555 Darnestown Road, Gaithersburg, Maryland 20878-3200, Attention:
Secretary, or hand delivered to the Secretary of Manor Care at or before the
taking of the vote at the Manor Care Special Meeting.
All expenses of Manor Care's solicitation of proxies for the Manor Care
Special Meeting will be borne by Manor Care, except that the cost of preparing
and mailing this Joint Proxy Statement/Prospectus will be borne equally by HCR
and Manor Care. In addition to solicitation by use of the mails, proxies may be
solicited from Manor Care stockholders by directors, officers and employees of
Manor Care in person or by telephone, telegram or other means of communication.
Such directors, officers and employees will not be additionally compensated, but
may be reimbursed for reasonable out-of-pocket expenses in connection with such
solicitation. Manor Care will make arrangements with brokerage houses,
custodians, nominees and fiduciaries for forwarding of proxy solicitation
materials to beneficial owners of shares held of record by such brokerage
houses, custodians, nominees and fiduciaries, and Manor Care will reimburse such
brokerage houses, custodians, nominees and fiduciaries for their reasonable
expenses incurred in connection therewith.
MANOR CARE STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR
PROXIES. MANOR CARE COMMON STOCK CERTIFICATES WILL BE EXCHANGED FOR CERTIFICATES
REPRESENTING SHARES OF HCR MANOR CARE COMMON STOCK FOLLOWING CONSUMMATION OF THE
MERGER IN ACCORDANCE WITH INSTRUCTIONS TO BE SENT BY HARRIS TRUST AND SAVINGS
BANK, AS EXCHANGE AGENT, AFTER THE EFFECTIVE TIME.
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THE MERGER
BACKGROUND OF THE MERGER
As part of the ongoing effort by both HCR and Manor Care to enhance their
strategic position in the marketplace and increase stockholder value, the
chairmen of HCR and Manor Care engaged in some general discussions during 1996
and 1997 regarding a strategic merger between HCR and Manor Care.
On May 14, 1996, Stewart Bainum, Jr. and Paul Ormond met at a health care
conference in Baltimore, Maryland, and had a general discussion of common issues
affecting their respective companies and exchanged thoughts about the
desirability of a business combination between the two companies. The
conversation was general in nature and the parties dropped the matter without
any plans to pursue the issue further. There were no further discussions until
Mr. Bainum, Jr. and Mr. Ormond met on March 4, 1997, in Gaithersburg, Maryland.
During this meeting, Mr. Bainum, Jr. and Mr. Ormond discussed general industry
issues and exchanged information and thoughts regarding the similarities between
the two companies, the respective corporate cultures and philosophies,
management personnel and general strategic initiatives and the desirability and
feasibility of a strategic combination between the two companies. At a
subsequent meeting, on May 7, 1997, when Mr. Bainum, Jr. and Mr. Ormond were
both attending the same health care conference in Baltimore, Maryland, Mr.
Bainum, Jr. informed Mr. Ormond that Manor Care was not interested in entering
into discussions with HCR regarding a business combination and that Manor Care
would pursue other strategic alternatives.
No further discussions were held between the parties until May 4, 1998,
when Manor Care received from HCR an unsolicited indication of interest in a
business combination. Over the next several days, representatives from HCR and
Manor Care proposed and discussed the summary terms under which a business
combination might be consummated. As a result of these discussions, both parties
decided that it would be appropriate to conduct due diligence to determine if
further discussions of the terms of a business combination were warranted.
During this period, HCR and Manor Care entered into an agreement which obligated
them to negotiate exclusively with each other for a limited amount of time with
respect to a potential business combination and to cease existing discussions,
if any, by which they might be acquired.
On May 13 and 14, 1998, Manor Care and its legal and financial advisors
conducted detailed due diligence on HCR at HCR's headquarters in Toledo, Ohio.
At that meeting, representatives from Manor Care, together with their advisors,
discussed certain matters relating to the business of HCR with HCR's management.
On May 18 and 19, 1998, HCR held a similar due diligence meeting with members of
Manor Care's management.
In the third week of May, Manor Care and HCR engaged in negotiations
towards further refining the terms of a business combination. In the last week
of May 1998 and the first week of June 1998, senior management of each of HCR
and Manor Care, together with representatives of Warburg Dillon Read, Chase and
legal counsel to each of HCR and Manor Care held numerous conference calls to
address various open issues with respect to the Merger and began documenting
certain terms of the Merger.
On June 8, 1998, the HCR Board of Directors met to discuss the status and
terms of HCR's proposal to combine with Manor Care. Chase made a detailed
presentation to the HCR Board of Directors regarding the principal economic
terms of the proposed combination and reviewed with the HCR Board of Directors
Chase's financial analysis of the proposed combination. Counsel to HCR reviewed
the principal terms of the Merger Agreement and other agreements related to the
proposed merger, and took questions from the HCR Board regarding those
agreements. The HCR Board then engaged in a discussion with management of HCR
regarding the strategic reasons for the proposed Merger, the business and
prospects of HCR and Manor Care and the advantages and disadvantages of the
proposed Merger.
On June 8, 1998, the Manor Care Board of Directors met to discuss HCR's
proposal to combine with Manor Care. The Manor Care Board received a
presentation of Warburg Dillon Read regarding the Merger. Warburg Dillon Read
summarized the terms of the Merger and the ancillary agreements thereto and
provided an overview of the business of HCR. In addition, Warburg Dillon Read
set forth certain financial forecasts regarding a potential combination of Manor
Care and HCR. The Manor Care Board of Directors further
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received the presentation of Manor Care's management detailing the strategic
reasoning behind its decision to support the Merger, including certain analyses
of HCR's business lines and prospects.
On June 9, 1998, Manor Care and HCR and their respective financial advisors
and legal counsel met in New York to continue to negotiate the Merger Agreement
and the ancillary documents. Negotiations continued through June 10, 1998.
On the evening of June 9, 1998, the HCR Board of Directors convened for a
telephonic meeting to vote upon the Merger Agreement and the transactions
contemplated thereby. Counsel to HCR reviewed the material changes to the
agreements governing the Merger which had occurred since the HCR Board last met,
and Chase delivered its oral opinion to the effect that, as of such date, the
Exchange Ratio was fair to HCR from a financial point of view. After discussions
with and questions to Chase and counsel, the HCR Board of Directors unanimously
approved the Merger Agreement and the transactions contemplated thereby.
On the morning of June 10, 1998, the Manor Care Board of Directors convened
for a special telephonic meeting to vote upon the Merger Agreement, the Merger
and the transactions contemplated thereby. Warburg Dillon Read delivered its
written opinion that as of such date, the Exchange Ratio was fair to holders of
Manor Care Common Stock from a financial perspective. The Manor Care Board of
Directors reviewed the material terms of the legal documents to be entered into
by Manor Care. After discussion, the Manor Care Board of Directors unanimously
approved the Merger Agreement, the Merger and the transactions contemplated
thereby.
Later in the morning of June 10, 1998, HCR and Manor Care executed the
Merger Agreement and the Stock Option Agreements, and parties to certain other
ancillary agreements executed those agreements. Shortly thereafter, HCR and
Manor Care issued a joint press release announcing that HCR and Manor Care had
entered into a definitive agreement to effect the merger of HCR and Manor Care.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS OF HCR AND MANOR CARE; REASONS FOR
THE MERGER
HCR. The HCR Board of Directors has determined and believes that the terms
of the Merger are in the best interests of HCR and its stockholders.
Accordingly, the HCR Board of Directors has unanimously approved and adopted the
Merger Agreement and approved the transactions contemplated thereby and
recommends the stockholders of HCR approve the HCR Voting Proposals.
In reaching its determination, the HCR Board of Directors consulted with
HCR's management, as well as its legal counsel and financial advisor, and
considered a number of factors, including:
(1) HCR's Business, Condition and Prospects. The HCR Board of
Directors considered information with respect to the financial condition,
results of operations and business prospects of HCR and current industry,
economic and market conditions. HCR's management and its legal and
financial representatives made presentations to and provided the HCR Board
of Directors with information concerning the impact of the Merger on HCR's
operating, legal and financial condition, respectively. The HCR Board
concluded that the Merger should be accretive to HCR Manor Care's earnings
in its first full fiscal year, excluding transaction costs. In making such
determination, the HCR Board relied primarily upon projections of future
per share earnings for HCR Manor Care that assume the realization of
certain anticipated synergies (and not on historical earnings per share
data).
(2) Manor Care's Business, Condition and Prospects. The HCR Board of
Directors considered information with respect to the financial condition,
results of operations and business prospects of Manor Care. In evaluating
Manor Care's prospects, the HCR Board of Directors considered, among other
things, the quality of facilities owned or operated by Manor Care, the
quality-mix of its revenue, the type of medical specialty and ancillary
services offered by Manor Care, its financial strength, Manor Care's
reputation as a provider of high quality care and the compatibility of
Manor Care's corporate culture with HCR's corporate culture.
(3) Opinion and Presentations of Chase. The HCR Board of Directors
considered the oral opinion delivered on June 9, 1998 by Chase (which was
subsequently confirmed in writing on June 10, 1998) to
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<PAGE> 36
the effect that as of such date, the Exchange Ratio was fair, from a
financial point of view, to HCR. The HCR Board also considered the oral and
written presentations made to it by Chase. See "The Merger -- Opinion of
Financial Advisor to HCR." A copy of Chase's written opinion, which sets
forth the assumptions made, matters considered and limitations on the
review undertaken, is attached as Annex B to this Joint Proxy
Statement/Prospectus.
(4) Exchange Ratio. With the assistance of its financial advisors, the
HCR Board of Directors compared the ratio of the total value of HCR Common
Stock to be issued in the Merger to the historical and projected earnings
of Manor Care and to the corresponding ratios from comparable transactions
and also to the expected contributions of each of HCR and Manor Care to the
pro forma Combined Company (excluding synergies). The HCR Board of
Directors also considered that the Exchange Ratio is a fixed number and
will not be adjusted in the event of any increases or decreases in the
price of either the HCR Common Stock or Manor Care Common Stock. The HCR
Board considered that the prices of HCR Common Stock and Manor Care Common
Stock at the closing of the Merger may vary from their respective prices at
the date of this Joint Proxy Statement/Prospectus and at the date of the
HCR Special Meeting and the Manor Care Special Meeting.
(5) Strategic Merger. The HCR Board of Directors considered the fact
that the Merger would combine HCR's management capabilities, operating
expertise and strong record for creating stockholder value with Manor
Care's excellent physical assets, high quality revenue mix and innovative
services. The HCR Board of Directors considered the likelihood that the
Merger would enhance HCR's ability to increase stockholder value by
creating significant opportunities to increase operating margins, expand
medical specialty units, pursue new construction and development activities
and make acquisitions in attractive markets.
(6) Financial Condition. The HCR Board of Directors considered the
likelihood that the Merger would further enhance the strong financial
positions of HCR and Manor Care and enable the Combined Company to take
advantage of greater expansion opportunities at the lowest cost of capital
in the industry.
(7) Terms of the Merger. The HCR Board of Directors considered the
terms and conditions of the Merger Agreement, the Voting Agreement, the
Stock Option Agreements and the Registration Rights Agreement, including
the terms of the Merger Agreement that allow HCR or Manor Care to terminate
the Merger Agreement under certain circumstances upon payment to the other
party of a termination fee of $70 million in the case of a payment to Manor
Care and $100 million in the case of a payment to HCR. The HCR Board of
Directors evaluated such termination fees in light of the range of fees
payable in comparable transactions. The HCR Board also considered that,
pursuant to the Voting Agreement, the holders of over 31% of the
outstanding shares of Manor Care Common Stock have agreed to vote their
shares of Manor Care Common Stock in favor of the Merger Proposal. The HCR
Board of Directors also considered the fact that the Merger is expected to
be accounted for as a pooling of interests transaction and is expected to
result in a tax-free exchange for Manor Care stockholders.
(8) Management and Ownership of HCR Manor Care. The HCR Board of
Directors considered that HCR Manor Care will have a Board of Directors
consisting of ten members, five of whom will be selected by HCR and five of
whom will be selected by Manor Care. The HCR Board also considered the fact
that HCR's current senior managers would lead HCR Manor Care, with Paul A.
Ormond serving as President and Chief Executive Officer, M. Keith Weikel
serving as Senior Executive Vice President and Chief Operating Officer and
Geoffrey G. Meyers serving as Executive Vice President, Chief Financial
Officer and Treasurer. The HCR Board of Directors discussed and took into
consideration the employment, severance and other arrangements benefiting
officers and directors of HCR and Manor Care in connection with the Merger,
as well as the agreement of Messrs. Ormond, Weikel and Meyers to waive
their contractual right to certain change of control benefits in connection
with the Merger. See "--Interests of Certain Persons in the Merger." The
HCR Board of Directors also considered the pro forma ownership of HCR Manor
Care, noting that existing HCR stockholders would own approximately
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42% of HCR Manor Care and existing Manor Care stockholders would own
approximately 58% of HCR Manor Care.
(9) Integration of Operations; Nonrealization of Synergies. As
described above, the HCR Board of Directors considered the extent to which
the Merger would provide opportunities for cost savings and increased
growth that might not otherwise be available. However, the HCR Board of
Directors also took into account that the Merger involves the integration
of two companies that have previously operated independently. The HCR Board
of Directors considered as a negative factor the possibility that HCR Manor
Care will not be able to integrate the respective operations of HCR and
Manor Care without encountering difficulties and the possibility that the
benefits, including anticipated synergies and cost reductions, expected
from such integration will not be realized.
The foregoing discussion of the information and factors considered by the
HCR Board of Directors is not intended to be exhaustive but is believed to
include all material factors considered by the Board of Directors of HCR. In
addition, in reaching the determination to approve and adopt the Merger
Agreement and recommend approval of the HCR Voting Proposals, in view of the
wide variety of factors considered in connection with its evaluation thereof,
the Board of Directors of HCR did not assign any relative or specific weights to
the foregoing factors, and individual directors may have given differing weights
to the different factors.
THE HCR BOARD OF DIRECTORS HAS APPROVED AND ADOPTED THE MERGER AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED THEREBY AND BELIEVES THAT THE TERMS OF THE
MERGER ARE IN THE BEST INTERESTS OF HCR AND ITS STOCKHOLDERS. THE HCR BOARD OF
DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE TRANSACTION PROPOSAL, AS WELL AS
FOR THE SHARE AMENDMENT PROPOSAL, THE OPTION PLAN PROPOSALS AND THE RESTRICTED
STOCK PROPOSAL.
Manor Care. The Manor Care Board of Directors believes that the Merger
constitutes a significant strategic opportunity for Manor Care's skilled nursing
facility and assisted living facility businesses. The Manor Care Board of
Directors has determined unanimously that the Merger Agreement, the Merger and
the transactions contemplated thereby are fair to and in the best interests of
Manor Care and its stockholders. The Manor Care Board of Directors recommends
that the stockholders of Manor Care vote in favor of the approval and adoption
of the Merger Agreement and the approval of the Merger and the transactions
contemplated by the Merger Agreement. In reaching this conclusion, the Manor
Care Board of Directors, with the assistance of its financial and legal
advisors, considered a number of factors, including, without limitation, the
following:
(1) HCR Manor Care is expected to achieve operating synergies since
both Manor Care and HCR are focused on the high-quality private-pay sector
of the skilled nursing industry and have highly compatible cultures;
(2) substantial operating synergies are expected due to the geographic
proximity of the operations of Manor Care and HCR; approximately 80% of
Manor Care's gross operating profits are derived from the 13 states in
which both Manor Care and HCR operate;
(3) HCR has demonstrated the ability to control costs while
maintaining a high quality of operations is increasingly critical to
continued success in the skilled nursing industry;
(4) the Combined Company intends to aggressively pursue Manor Care's
current development of assisted living facilities;
(5) the management of HCR has a strong record for creating stockholder
value;
(6) the high quality of the facilities owned by HCR and the
expectation that these facilities will generate strong cash flows for the
foreseeable future;
(7) HCR's strong record for maximizing revenues and profitability from
third-party payors, which is expected to optimize the performance of Manor
Care's facilities with respect to third-party payors;
(8) the Exchange Ratio provides for a premium of approximately 25%
over the market price of Manor Care Common Stock prior to announcement of
the Merger;
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(9) one-half of HCR Manor Care's initial directors will be designated
by Manor Care and Stewart Bainum, Jr. will be the chairman of HCR Manor
Care;
(10) HCR Manor Care will possess greater financial resources than
Manor Care alone and is expected to have enhanced access to capital on more
favorable terms than were previously available to Manor Care;
(11) the terms of the Merger Agreement and the other documents
executed in connection with the Merger;
(12) the written presentation of Warburg Dillon Read and its opinion
that, as of June 10, 1998, the Exchange Ratio is fair to the stockholders
of Manor Care from a financial point of view and the analyses forming the
bases for such opinions. See "-- Opinion of Financial Advisor to Manor
Care" for a discussion of the factors considered by Warburg Dillon Read in
rendering its opinion. Such opinion is subject to limitations,
qualifications and assumptions, and is included as Annex C hereto and
should be read in its entirety; and
(13) the transaction as structured will be tax-free to Manor Care's
stockholders.
The Manor Care Board of Directors also considered certain risks and
potential disadvantages associated with the Merger, including the disadvantage
that the planned spin-off of Manor Care's real estate assets will not be
completed, the risk that management's attention will be diverted by the
distractions associated with a business combination such as the Merger and the
potential business disruption to the business of Manor Care, the risks
associated with a fixed Exchange Ratio, the risk that the transaction might not
be consummated as a result of a failure to satisfy certain conditions precedent
to the Merger Agreement and the risk that expected synergies of the Combined
Company will not be achieved.
The foregoing discussion of information and factors considered by the Manor
Care Board of Directors is not intended to be exhaustive but is believed to
include all material factors considered by the Board of Directors of Manor Care.
In addition, in reaching the determination to approve and recommend approval and
adoption of the Merger Agreement, in view of the wide variety of factors
considered in connection with its evaluation thereof, the Board of Directors of
Manor Care did not assign any relative or specific weights to the foregoing
factors, and individual directors may have given differing weights to the
different factors.
THE MANOR CARE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS TO ITS
STOCKHOLDERS THAT THEY VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT
AND APPROVAL OF THE MERGER AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER
AGREEMENT.
OPINION OF FINANCIAL ADVISOR TO HCR
On June 9, 1998, Chase delivered its oral opinion, which opinion was
subsequently confirmed in a written opinion dated as of June 10, 1998 (the
"Chase Opinion"), to the HCR Board of Directors to the effect that, as of such
dates, and based upon the assumptions made, matters considered and limits of
review set forth in the Chase Opinion, the Exchange Ratio was fair to HCR from a
financial point of view.
A COPY OF THE CHASE OPINION, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS
CONSIDERED AND CERTAIN LIMITATIONS ON THE SCOPE OF REVIEW UNDERTAKEN BY CHASE,
IS ATTACHED AS ANNEX B TO THIS JOINT PROXY STATEMENT/ PROSPECTUS. STOCKHOLDERS
OF HCR ARE URGED TO READ SUCH OPINION IN ITS ENTIRETY. THE CHASE OPINION WAS
PROVIDED AT THE REQUEST OF AND FOR THE USE AND BENEFIT OF THE HCR BOARD OF
DIRECTORS IN ITS EVALUATION OF THE MERGER, WAS DIRECTED ONLY TO THE FAIRNESS TO
HCR OF THE EXCHANGE RATIO FROM A FINANCIAL POINT OF VIEW, AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER OF HCR AS TO HOW SUCH STOCKHOLDER
SHOULD VOTE WITH RESPECT TO THE HCR VOTING PROPOSALS. THE SUMMARY OF THE CHASE
OPINION SET FORTH IN
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THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE FULL TEXT OF THE CHASE OPINION ATTACHED AS ANNEX B HERETO.
In arriving at the Chase Opinion, Chase, among other things, (i) reviewed
the Merger Agreement; (ii) reviewed the Agreement and Plan of Merger (the
"Vitalink Agreement"), dated as of April 26, 1998, by and among Vitalink,
Genesis Health Ventures, Inc. ("Genesis") and V Acquisition Corporation, a
wholly owned subsidiary of Genesis; (iii) reviewed certain publicly available
business and financial information that Chase deemed relevant relating to HCR,
Manor Care and Vitalink and the industries in which they operate; (iv) reviewed
certain internal non-public financial and operating data and forecasts provided
to Chase by the management of HCR relating to the business of HCR, as well as
certain forecasts relating to the business of Manor Care, and analyses and
forecasts of certain cost savings, operating efficiencies and revenue effects
expected to result from the Merger (collectively, the "Synergies"); (v) reviewed
certain internal non-public financial and operating data and forecasts provided
to Chase by the management of Manor Care relating to the business of Manor Care;
(vi) discussed, with members of the senior managements of HCR and Manor Care,
HCR's and Manor Care's operations, historical financial statements and future
prospects, before and after giving effect to the Merger, as well as their views
of the business, operational and strategic benefits and other implications of
the Merger, including the Synergies; (vii) compared the financial and operating
performance of HCR and Manor Care with publicly available information concerning
certain other companies Chase deemed comparable and reviewed the relevant
historical stock prices and trading volumes of the HCR Common Stock, the Manor
Care Common Stock and certain publicly traded securities of such other
companies; (viii) reviewed the financial terms of certain recent business
combinations and acquisition transactions Chase deemed reasonably comparable to
the Merger and otherwise relevant to Chase's inquiry; and (ix) made such other
analyses and examinations as Chase deemed necessary or appropriate. In
connection with the preparation of the Chase Opinion, Chase has neither received
nor reviewed any non-public information prepared by or relating to Vitalink.
Chase assumed and relied upon, without assuming any responsibility for
verification, the accuracy and completeness of all of the financial and other
information provided to, discussed with, or reviewed by or for Chase, or
publicly available, for purposes of the Chase Opinion and further relied upon
the assurance of the managements of HCR and Manor Care that they are not aware
of any facts that would make such information inaccurate or misleading. Chase
neither made nor obtained any independent evaluations or appraisals of the
assets or liabilities of HCR or Manor Care, nor did Chase conduct a physical
inspection of the properties and facilities of HCR or Manor Care. Chase assumed
that the financial forecasts provided to it by HCR and Manor Care and the
Synergies provided to it by HCR were reasonably determined on bases reflecting
the best currently available estimates and judgments of the managements of HCR
and Manor Care as to the future financial performance of HCR or Manor Care, as
the case may be, and of the management of HCR as to the Synergies. Chase
expressed no view as to such forecast or projection information or the
assumptions on which they were based.
For purposes of rendering the Chase Opinion, Chase assumed that, in all
respects material to its analysis, the representations and warranties of each
party contained in the Merger Agreement were true and correct, that each party
would perform all of the covenants and agreements required to be performed by it
under the Merger Agreement and that all conditions to the consummation of the
Merger would be satisfied without waiver thereof. Chase further assumed that all
material governmental, regulatory or other consents and approvals would be
obtained and that, in the course of obtaining any necessary governmental,
regulatory or other consents and approvals, or any amendments, modifications or
waivers to any documents to which any of HCR or Manor Care was a party, as
contemplated by the Merger Agreement, no restrictions would be imposed or
amendments, modifications or waivers made that would have any material adverse
effect on the contemplated benefits to HCR of the Merger. Chase further assumed
that the Merger would be accounted for as a pooling of interests under generally
accepted accounting principles and that it would qualify as a tax-free
reorganization for United States Federal income tax purposes.
In connection with the preparation of the Chase Opinion, Chase was not
authorized by HCR or the HCR Board of Directors to solicit, nor did Chase
solicit, third-party indications of interest for the acquisition of all or any
part of HCR.
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The Chase Opinion was necessarily based on market, economic and other
conditions as they existed and could be evaluated, as of the date of the Chase
Opinion. Chase expressed no opinion as to the merits of the underlying decision
by HCR to engage in the Merger. In addition, Chase expressed no opinion as to
the prices at which the HCR Common Stock would trade following the announcement
or the consummation of the Merger.
The following is a summary of certain financial and comparative analyses
performed by Chase in arriving at the Chase Opinion.
Trading Ratio Analysis. Chase reviewed the per share daily closing market
price movements of HCR Common Stock and Manor Care Common Stock for the
eighteen-month period ending June 5, 1998. Chase also compared the per share
daily closing market prices of Manor Care Common Stock and HCR Common Stock
during such period to each other, the S & P 500 and an index composed of the
following companies in the long-term health care industry: Beverly Enterprises,
Inc. ("Beverly Enterprises"), Extendicare Health Services, Inc. ("Extendicare"),
Genesis Health Ventures, Inc. ("Genesis"), Integrated Health Services, Inc.
("Integrated Health"), Paragon Health Network, Inc. ("Paragon"), Sun Healthcare
Group, Inc. ("Sun") and Vencor, Inc. ("Vencor"), (collectively with Beverly
Enterprises, Extendicare, Genesis, Integrated Health, Paragon and Sun, the
"Comparable Companies").
Chase also reviewed the historical ratios implied by the daily closing
prices per share of Manor Care Common Stock to those of HCR Common Stock (the
"Historical Trading Ratios") for the eighteen-month period ending June 5, 1998,
and the average of such Historical Trading Ratios for the one-week, one-month,
three-month, six-month and one-year periods ending June 5, 1998, and compared
such Historical Trading Ratios to the proposed Exchange Ratio of 1.0. This
analysis showed that the average Historical Trading Ratios for the one-week,
one-month, three-month, six-month and one-year periods ending June 5, 1998 were
0.801, 0.787, 0.833, 0.852 and 0.885, respectively. This analysis also showed
that the average Historical Trading Ratio for the period beginning November 1,
1996, the date Manor Care completed the spin-off to its shareholders of its
lodging segment, and ending June 5, 1998, was 0.889.
Comparable Public Companies Analysis. Using publicly available information,
Chase compared certain financial and operating information and ratios (described
below) for Manor Care with corresponding financial and operating information and
ratios for the Comparable Companies. Such analysis assumed that Manor Care would
divest Vitalink in accordance with the terms of the Vitalink Agreement.
This analysis indicated that (i) calendarized price/earnings ratios for
1998 and 1999 ranged from 6.3x to 21.7x for estimated calendar year 1998 (with a
mean of 14.8x) compared to 16.5x for Manor Care and 21.2x for HCR, and ranged
from 5.4x to 17.7x for estimated calendar year 1999 (with a mean of 11.9x)
compared to 14.5x for Manor Care and 17.7x for HCR; (ii) enterprise value
(defined as the market value of the equity plus debt and minority interest minus
cash) expressed as a multiple of latest twelve months ("LTM") earnings before
interest, taxes, depreciation, amortization and rental expenses ("EBITDAR")
ranged from 6.5x to 12.4x (with a mean of 8.6x) compared to 10.1x for Manor Care
and 12.4x for HCR; and (iii) enterprise value expressed as a multiple of LTM
earnings before interest, taxes, depreciation and amortization (adjusted for
acquisitions and excluding non-recurring items) ("EBITDA") ranged from 6.4x to
12.8x (with a mean of 8.5x) compared to 9.5x for Manor Care and 12.8x for HCR.
Comparable Acquisition Analysis. Chase reviewed certain publicly available
information regarding selected business combinations in the long-term health
care industry announced since January 1997 (the "Comparable Acquisition
Transactions"). The Comparable Acquisition Transactions and the months in which
each transaction was announced were as follows: Paragon's acquisition of Mariner
Health Group, Inc. (April 1998); Integrated Health's acquisition of the
long-term care operations of Healthsouth Corporation ("Healthsouth") (November
1997); Extendicare's acquisition of Arbor Healthcare Company (September 1997);
Sun's acquisition of Regency Health Services, Inc. (July 1997); Genesis
ElderCare Corp.'s acquisition of The Multicare Companies, Inc. (June 1997);
Apollo Management L.P.'s recapitalization of Living Centers of America and
subsequent acquisition of GranCare, Inc. (May 1997); Healthsouth's acquisition
of Horizon/CMS Healthcare Corporation (February 1997); and Vencor's acquisition
of Hillhaven Corporation (January 1997).
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This analysis indicated that (i) the "purchase price" (defined as the offer
price per share multiplied by the sum of the number of shares outstanding and
the number of options outstanding) of each such transaction as a multiple of the
next fiscal year's estimated net income at the date of announcement ranged from
11.8x to 26.0x (with a mean of 19.3x), and (ii) the implied enterprise value in
such transactions as a multiple of LTM EBITDA ranged from 7.5x to 13.8x (with a
mean of 10.1x).
Relative Discounted Cash Flow Analysis. Chase performed a discounted cash
flow ("DCF") analysis for each of HCR and Manor Care using financial forecasts
for Manor Care provided by Manor Care (the "Manor Care Management Case") and
also provided by HCR (the "HCR Management Case"). The DCF was calculated for
Manor Care assuming discount rates ranging from 10.0% to 12.0%, and was
comprised of the sum of the present value of (i) the forecasted unlevered free
cash flows for fiscal years 1999 to 2002, and (ii) fiscal year 2002 terminal
value based upon a range of multiples from 9.0x to 11.0x projected EBITDA for
fiscal year 2002, and for HCR assuming discount rates ranging from 10.0% to
12.0%, and comprised of the sum of the present value of (i) the projected
unlevered free cash flows for fiscal years 1998 to 2002, and (ii) fiscal year
2002 terminal value based upon a range of multiples from 10.0x to 12.0x of
projected EBITDA for fiscal year 2002. Such analysis for Manor Care assumed that
Manor Care would divest Vitalink in accordance with the terms of the Vitalink
Agreement.
Based upon the estimated valuation ranges of Manor Care and HCR set forth
above, Chase calculated an implied exchange ratio of a share of Manor Care
Common Stock to a share of HCR Common Stock ranging from (i) 0.741 to 1.366 for
the Manor Care Management Case (obtained by comparing the lowest estimated
valuation of Manor Care Common Stock to the highest estimated valuation of HCR
Common Stock and the highest estimated valuation of Manor Care Common Stock to
the lowest estimated valuation of HCR Common Stock), (ii) 0.715 to 1.263 for the
HCR Management Case without Synergies (obtained by comparing the lowest
estimated valuation of Manor Care Common Stock to the highest estimated
valuation of HCR Common Stock and the highest estimated valuation of Manor Care
Common Stock to the lowest estimated valuation of HCR Common Stock), and (iii)
0.851 to 1.491 for the HCR Management Case with Synergies (obtained by comparing
the lowest estimated valuation of Manor Care Common Stock to the highest
estimated valuation of HCR Common Stock and the highest estimated valuation of
Manor Care Common Stock to the lowest estimated valuation of HCR Common Stock),
in each case compared to the proposed Exchange Ratio of 1.0.
Contribution Analysis. Chase estimated the contribution of each of HCR and
Manor Care to the pro forma combined company (excluding Synergies) with respect
to revenue, EBITDA and net income for fiscal years 1997 and 1998. The analysis
showed that HCR would contribute 40.1% of revenue in fiscal years 1997 and 1998,
and 40.2% and 38.6% of EBITDA in fiscal years 1997 and 1998, compared to HCR's
44.1% contribution to the enterprise value of the combined company. This
analysis also showed that HCR would contribute 41.8% and 42.1% of net income in
fiscal years 1997 and 1998, compared to the 41.7% pro forma ownership of the
combined company by HCR stockholders.
Pro Forma Analysis. Chase also analyzed certain pro forma effects resulting
from the Merger, including the potential impact of the Merger on projected
earnings per share ("EPS") of HCR following the Merger, based on publicly
available EPS forecasts as adjusted with guidance provided by HCR management.
This analysis indicated that (i) if $30 million or more of pre-tax Synergies
were realized, the Merger would be accretive to HCR stockholders in years 1998,
1999 and 2000; (ii) if $15 million of pre-tax Synergies were realized, the
Merger would be accretive to HCR stockholders in years 1998 and 1999 and
dilutive in year 2000; and (iii) if no Synergies were realized, the Merger would
be dilutive to HCR stockholders in years 1998, 1999 and 2000.
The summary set forth above does not purport to be a complete description
of the analyses performed by Chase in arriving at the Chase Opinion. Arriving at
a fairness opinion is a complex process not necessarily susceptible to partial
analysis or summary description. Chase believes that its analyses must be
considered as a whole and that selecting portions of analyses and of the factors
considered by it, without considering all such factors and analyses, could
create a misleading view of the processes underlying its opinion. Chase did not
assign relative weights to any of its analyses in preparing the Chase Opinion.
The matters considered by Chase
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in its analyses were based on numerous macroeconomic, operating and financial
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond HCR's and Manor Care's
control and involve the application of complex methodologies and educated
judgment. Any estimates incorporated in the analyses performed by Chase are not
necessarily indicative of actual past or future results or values, which may be
significantly more or less favorable than such estimates. Estimated values do
not purport to be appraisals and do not necessarily reflect the prices at which
businesses or companies may be sold in the future, and such estimates are
inherently subject to uncertainty. None of the Comparable Companies is identical
to Manor Care, and none of the Comparable Acquisition Transactions used as a
comparison is identical to the proposed Merger. Accordingly, an analysis of
publicly traded comparable companies and transactions is not mathematical;
rather it involves complex considerations and judgments concerning differences
in financial and operating characteristics of the comparable companies and other
factors that could affect the public trading value of the comparable companies
or company to which they are being compared.
The HCR Board of Directors selected Chase to act as its financial advisor
on the basis of Chase's reputation as an internationally recognized investment
banking firm with substantial expertise in transactions similar to the Merger
and because it is familiar with HCR and its business. As part of its financial
advisory business, Chase is continually engaged in the valuation of businesses
and their securities in connection with mergers and acquisitions and valuations
for estate, corporate and other purposes.
Pursuant to a letter agreement dated May 26, 1998, HCR has agreed to pay
Chase (i) a fee of $1,000,000 upon the execution of the Merger Agreement and
(ii) a fee of $6,000,000 payable upon consummation of the Merger (against which
the fee referred to in clause (i) above will be credited). HCR has also agreed
to pay Chase fifteen percent (15%) of any "break-up," "termination," "topping"
or similar fee paid to HCR on or before May 26, 1999 (net of HCR's out-of-pocket
expenses incurred in connection with the Merger) pursuant to, or in connection
with, the termination, abandonment or failure to occur, of the Merger, provided
that any such amount will not exceed $6,000,000 against which the fee referred
to in clause (i) above will be credited. In addition, HCR has also agreed to
reimburse Chase for its reasonable out-of-pocket expenses (including the
reasonable fees and disbursements of its legal counsel) and to indemnify Chase
and certain related persons from and against certain liabilities in connection
with its engagement, including certain liabilities under the federal securities
laws, arising out of its engagement.
The Chase Manhattan Corporation and its affiliates, including Chase, in the
ordinary course of business, have from time to time, provided commercial and
investment banking services to Manor Care and Vitalink, for which they received
usual and customary compensation, and in the future may continue to provide such
commercial and investment banking services. In the ordinary course of business,
Chase and its affiliates may trade in the debt and equity securities of HCR,
Manor Care and Vitalink for their own accounts and for the accounts of their
customers and, accordingly, may at any time hold a long or short position in
such securities.
OPINION OF FINANCIAL ADVISOR TO MANOR CARE
The Manor Care Board of Directors retained Warburg Dillon Read to act as
financial advisor in connection with the Merger. On June 10, 1998, Warburg
Dillon Read rendered its written opinion to the Board of Directors of Manor
Care, to the effect that, and based upon and subject to the limitations,
assumptions, qualifications set forth therein, as of the date thereof, the
Exchange Ratio is fair to the holders of Manor Care Common Stock from a
financial point of view. THE FULL TEXT OF WARBURG DILLON READ'S OPINION DATED
JUNE 10, 1998, WHICH SETS FORTH A DESCRIPTION OF THE ASSUMPTIONS MADE, GENERAL
PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW
UNDERTAKEN, IS SET OUT IN APPENDIX C AND IS INCORPORATED HEREIN BY REFERENCE.
Holders of Manor Care Common Stock are urged to read the opinion carefully in
its entirety, especially with regard to the assumptions made and matters
considered by Warburg Dillon Read. The summary of opinion set forth herein is
qualified in its entirety by reference to the full text of such opinion.
In arriving at its opinion, Warburg Dillon Read, among other things: (i)
reviewed certain publicly available business and historical financial
information relating to Manor Care and HCR, (ii) reviewed certain internal
non-public estimates and company financial forecasts prepared by the managements
of Manor Care
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and HCR, (iii) reviewed certain financial information and other data provided to
it by Manor Care that is not publicly available relating to the business and
prospects of Manor Care, (iv) reviewed certain financial information and other
data provided to it by HCR that is not publicly available relating to the
business and prospects of HCR, (v) conducted discussions with members of the
senior managements of Manor Care and HCR with respect to the operations,
financial condition, history and prospects of each company, (vi) reviewed
publicly available financial and stock market data with respect to certain other
companies in lines of business we believe to be generally comparable to those of
Manor Care and HCR, (vii) considered the pro forma effects of the Merger on
HCR's financial statements and reviewed certain estimates of synergies prepared
by the managements of Manor Care and HCR, (viii) reviewed the historical market
prices of the Manor Care Common Stock and the HCR Common Stock, (ix) compared
the financial terms of the Merger with the financial terms of certain other
transactions which it believed to be generally comparable to the Merger, (x)
reviewed the draft Merger Agreement, and (xi) conducted such other financial
studies, analyses, and investigations, and considered such other information as
it deemed necessary or appropriate, but none of which was individually material.
Warburg Dillon Read's opinion was necessarily based upon economic, monetary,
market and other conditions as in effect on, and the information made available
to Warburg Dillon Read, as of the date thereof.
In connection with its review, Warburg Dillon Read, with Manor Care's
consent, did not assume any responsibility for independent verification of any
of the foregoing information and, with Manor Care's consent, relied on such
information as being complete and accurate in all material respects. In
addition, with Manor Care's consent, Warburg Dillon Read did not make or receive
any evaluation or appraisal of any of the assets or liabilities (contingent or
otherwise) of Manor Care or HCR nor was Warburg Dillon Read furnished with such
appraisal or evaluations. With respect to the financial forecasts, pro forma
effects and estimates of synergies referred to above, Warburg Dillon Read
assumed, at Manor Care's direction, that the Manor Care and HCR financial
forecasts, pro forma information and estimates of synergies had been prepared
reasonably on a basis reflecting the best currently available estimates and
judgments of the respective managements as to the future financial performance
of their respective companies and would be realized in the amounts and at the
times contemplated thereby.
Warburg Dillon Read's opinion does not address Manor Care's underlying
business decision to effect the Merger. In rendering its opinion, Warburg Dillon
Read did not render any opinion as to the value of HCR or make any
recommendation to the holders of Manor Care Common Stock with respect to the
advisability of disposing of or retaining HCR Common Stock received in the
Merger. In addition, Warburg Dillon Read did not make any recommendation
regarding whether or not it is advisable for holders of Manor Care Common Stock
to vote in favor of the Merger.
In arriving at its opinion, Warburg Dillon Read did not assign any
particular weight to any analysis or factor considered by it, but rather made
qualitative judgments based on its experience in rendering such opinions and on
then existing economic, monetary and market conditions as to the significance
and relevance of each analysis and factor. Accordingly, Warburg Dillon Read
believes that its analyses must be considered as a whole and that selecting
portions of its analyses and the factors considered, without considering all
analyses and factors, could create a misleading or incomplete view of the
processes underlying such analyses and its opinion. In its analyses, Warburg
Dillon Read made numerous assumptions with respect to industry performance,
general business and economic conditions and other matters, many of which are
beyond Manor Care's or HCR's control. Any estimates contained in Warburg Dillon
Read's analyses are not necessarily indicative of actual values or predictive of
future results or values, which may be significantly more or less favorable than
as set forth therein. In addition, analyses relating to the value of a business
or securities do not purport to be appraisals or to reflect the actual prices at
which businesses or securities might be sold. The material valuation methods
used are summarized below.
Warburg Dillon Read is an internationally recognized investment banking
firm which, as a part of its investment banking business, regularly is engaged
in the evaluation of businesses and their securities in connection with mergers
and acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. In the past, Warburg Dillon
Read and its predecessors have provided investment banking services to Manor
Care
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and Vitalink and have received customary compensation for the rendering of such
services. In the ordinary course of business, Warburg Dillon Read, its
predecessors and affiliates, may have traded the securities of Manor Care and
HCR for their own accounts and, accordingly, may at any time hold a long or
short position in such securities.
Pursuant to the engagement letter between Manor Care and Warburg Dillon
Read, Manor Care has paid to Warburg Dillon Read a fee of $1,800,000 for the
rendering of its opinion and has agreed to pay Warburg Dillon Read an additional
$7,200,000 upon consummation of the Merger. Manor Care has also agreed to
reimburse Warburg Dillon Read for the expenses reasonably incurred by it in
connection with its engagement (including reasonable counsel fees) and to
indemnify Warburg Dillon Read and its officers, directors, employees, agents and
controlling persons against certain expenses, losses, claims, damages or
liabilities in connection with its services, including those arising under the
federal securities laws.
Analyses Related to Manor Care
Analysis of Selected Comparative Companies. Using publicly available
information, Warburg Dillon Read analyzed, based upon market trading values,
selected financial criteria of companies which, in Warburg Dillon Read's
judgment, were generally comparable to Manor Care and HCR for the purpose of
this analysis. The comparable companies were as follows: Genesis Health
Ventures, Inc. ("Genesis") and Paragon Health Network, Inc. ("Paragon") (the
"Manor Care Comparative Companies"). Warburg Dillon Read (i) calculated stock
price as a multiple of estimated calendar 1998 earnings per share ("EPS") based
on industry sources and compared this multiple with the estimated long-term EPS
growth rate based on industry sources; (ii) derived an "enterprise value"
(defined as equity market value plus the book value of debt and preferred stock
less cash and cash equivalents) and (iii) calculated enterprise value as a
multiple of latest twelve months ("LTM") revenue and LTM earnings before
interest, taxes, depreciation and amortization ("EBITDA").
The range for equity value as a multiple of each of the indicated
statistics for each of the Manor Care Comparative Companies were as follows:
estimated 1998 EPS of 13.2x for Genesis and 21.8x for Paragon; estimated 1999
EPS of 10.9x for Genesis and not available for Paragon, and estimated 1998 price
to earnings multiple to estimated long-term EPS growth rate of 0.65x for Genesis
and not meaningful for Paragon, compared to equity value multiples of 16.1x,
13.8x and 0.99x and 21.4x, 18.0x and 1.11x respectively, for Manor Care and HCR,
respectively using stock prices of $30.13 for Manor Care and $38.44 for HCR. The
range for enterprise value as a multiple of each of the indicated statistics for
each of the Manor Care Comparison Companies were as follows: LTM revenue of
1.57x, for Genesis and 1.28x for Paragon and LTM EBITDA of 9.7x for Genesis and
11.4x for Paragon, compared to enterprise value multiples of 1.45x and 9.0x for
Manor Care using a stock price of $30.13 for Manor Care and enterprise value
multiples of 2.22x and 12.9x for HCR using a stock price of $38.44 for HCR.
Contribution Analysis. Warburg Dillon Read analyzed the relative
contribution of EBITDA, EBIT and net income from Manor Care and HCR for each
company's latest twelve months statistics, which resulted in Manor Care's
contribution of 59%, 57% and 57%, respectively. In addition, Warburg Dillon Read
analyzed, based on the Exchange Ratio, the relative contribution of enterprise
value. This statistic resulted in Manor Care's contribution of 58%. Based on the
Exchange Ratio, the holders of Manor Care common stock will have pro forma
equity ownership of 59%.
Discounted Cash Flow Analysis. Warburg Dillon Read performed discounted
cash flow analyses based on HCR's projections (base case) and a downside
scenario developed by Manor Care management (downside case). Utilizing both of
these scenarios of HCR's projections, Warburg Dillon Read calculated the
theoretical discounted present value of equity for HCR by adding together the
present value of (i) the future stream of free cash flow through the year ended
December 31, 2001, (ii) the future value of HCR at the end of the year ended
December 31, 2002 (the "Terminal Value"), and (iii) the net debt at March 31,
1998. The Terminal Value was calculated based on terminal EBITDA multiples of
11.0x to 13.0x for the base case and 10.0x to 12.0x for the downside case. The
cash flow streams and terminal values were then discounted to present values
using a range of discount rates from 11.0% to 13.0%. These assumptions yielded
per share equity values of
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HCR from $37.89 to $48.39 under the base case projections, and $31.88 to $41.47
under the downside case projections.
Historical Exchange Ratio Analysis. Warburg Dillon Read prepared one day
and 30 day average exchange ratio analyses for Manor Care and HCR for the time
period beginning January 1, 1997 and ending June 3, 1998. The maximum exchange
ratio was 1.010 and 0.967 for the daily and monthly exchange ratios,
respectively. The minimum exchange ratio was 0.731 and 0.792 for the daily and
monthly exchange ratios, respectively, and the median was 0.885 and 0.883 for
the daily and monthly exchange ratios, respectively.
Pro Forma Merger Analysis. Warburg Dillon Read prepared a pro forma
analysis of the impact of the Merger using the projections provided by the
managements of Manor Care and HCR for the years ending December 31, 1998, 1999,
2000 and 2001. Assuming that projected synergies of $30 million per year, as
estimated by Manor Care and HCR managements, were achieved, and using prevailing
publicly available analyst forecasts for HCR, the impact on HCR's pro forma
earnings per share was mildly accretive in the year ending December 31, 1998 and
increasingly accretive in the years ending December 31, 1999, 2000 and 2001.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the Boards of Directors of HCR and
Manor Care with respect to the Merger, HCR and Manor Care stockholders should be
aware that certain members of management of HCR and Manor Care and of the HCR
Board of Directors and the Manor Care Board of Directors have interests in the
Merger that may be considered different from, or in addition to, the interests
of the stockholders of HCR and Manor Care generally. The Board of Directors of
each of HCR and Manor Care were aware of such interests and considered them,
among other matters, in approving the Merger Agreement and the transactions
contemplated thereby. Certain amounts payable to such persons which are set
forth below are estimated based upon stock prices and circumstances of
termination which may, and will likely, vary from those which will actually be
applied in making the calculations described below and/or the circumstances in
which such payments are actually due, if at all.
Board of Directors, Committees and Management of HCR Manor Care. The Merger
Agreement establishes terms affecting the role of certain directors and
executive officers of HCR and Manor Care following the Merger. See "The Combined
Company -- Governance" and "The Merger Agreement -- Additional Covenants."
Employment and Other Agreements
HCR. Under the terms of pre-existing Second Amended and Restated Employment
Agreements (the "Existing Employment Agreements") to which HCR and each of
Messrs. Ormond, Weikel, Meyers and Bixler (each, an "HCR Executive") are
parties, each of the HCR Executives is entitled to certain benefits should their
employment be terminated (in most circumstances) by HCR following the Merger or
should they subsequently elect to terminate their employment during the 180 day
period following the one year anniversary of the Merger. Those benefits include
a lump sum payment equal to three times the aggregate cash compensation (as
defined in the Existing Employment Agreements) of the individual plus medical,
dental and other specified benefits for a period of thirty-six months following
termination or resignation. In addition, pursuant to the Existing Employment
Agreements, stock options held by each HCR Executive which were not yet vested
by their terms will fully vest and restrictions and risks of forfeiture
associated with restricted stock held by the HCR Executives will lapse in
connection with the transactions contemplated by the Merger Agreement .
To mitigate certain of such consequences to HCR, Messrs. Ormond, Weikel,
Meyers and Bixler entered into Executive Retention Agreements with HCR (the
"Retention Agreements") pursuant to which each HCR Executive will remain in the
same position following the Merger as he held prior to the Merger and waives his
right (i) to receive a lump sum severance payment, (ii) to (a) continuation of
health benefits, office space and secretarial support for the three years
following such termination, (b) full funding (as of such termination date but
through such three year period) of any split dollar life insurance policy held
for the HCR Executive's benefit and (c) deferral of receipt of certain
retirement plan benefits until the end of such three
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year period (collectively, the "Non-Cash Severance Benefits") and (iii) to other
severance benefits that would otherwise be payable or due to him. The following
summary pertains to such agreements as amended by the Retention Agreements (as
so amended, the "HCR Employment Agreements").
Each HCR Employment Agreement provides for an initial employment term of
three years, with automatic one-year renewals unless the HCR Executive or HCR
Manor Care notifies the other of non-renewal at least 90 days before the
scheduled expiration of the term. Effective as of the time of the Merger, the
annual base salary payable will be $700,000, $450,000, $350,000 and $250,000 for
Messrs. Ormond, Weikel, Meyers and Bixler, respectively. If the HCR Executive is
employed by HCR Manor Care immediately prior to the Merger, he will be entitled
to a retention bonus (the "Retention Bonus") equal to three times the sum of (i)
his base pay in effect at December 31, 1998 and (ii) bonuses payable in respect
of 1998 under HCR Manor Care's Annual Incentive Plan and Performance Award Plan.
Such Retention Bonus will be paid to him in cash in a lump sum within five days
after the Board approves HCR Manor Care's 1998 financial statements. It is
estimated (based upon bonuses paid in 1997) that Messrs. Ormond, Weikel, Meyers
and Bixler will receive at such time Retention Bonuses (exclusive of HCR
Gross-Up Payments (as defined below), if any) of $4,965,000, $2,846,250,
$1,797,600 and $1,153,125, respectively, if they are employed by HCR immediately
prior to the Merger. If, however, the HCR Executive resigns or retires without
HCR Manor Care's consent (and other than by reason of his death or disability)
prior to the third anniversary of the completion of the Merger, the HCR
Executive is required to repay to HCR Manor Care a pro rata portion (based on
the portion of such three-year period that follows such termination) of the
Retention Bonus.
In addition to the provisions described above, the HCR Employment
Agreements provide varying severance benefits in the event of termination of the
HCR Executive's employment. If the HCR Executive's employment is terminated by
HCR Manor Care for Cause (as defined in the HCR Employment Agreements), the HCR
Executive shall not be entitled to any severance benefits. If his employment is
terminated by HCR Manor Care by reason of his death or disability or other than
for Cause, HCR Manor Care will continue to pay to him (or his beneficiaries) his
base salary for a period of three years; in the event the HCR Executive's
employment is terminated in such circumstances within three years of
consummation of the Merger, then the HCR Executive will also be entitled to the
Non-Cash Severance Benefits; and, in the event his employment is terminated in
such circumstances, within the three year period following a change in control
other than the Merger, the HCR Executive will be entitled to the Non-Cash
Severance Benefits as well as the lump sum severance payment described above as
waived in connection with the Merger. Additionally, if the HCR Executive's
employment is terminated by HCR Manor Care other than for Cause or disability
prior to his attainment of age 55 or the fifth anniversary of the Merger, the
HCR Executive's retirement benefits under the HCR Manor Care qualified and
non-qualified defined benefit plans will be determined as if the HCR Executive
retired at not younger than age 55 with not less than five years of post-Merger
service. If the HCR Executive has "good reason" to terminate his employment
within the three years following the Merger (which reasons include HCR Manor
Care's failure to maintain the HCR Executive in a position substantially
equivalent to his position prior to the Merger, a significant adverse change in
the nature or scope of the HCR Executive's authority and duties, a reduction in
his base pay or material reduction in other employee benefits, a breach by HCR
Manor Care of the HCR Employment Agreements, relocation of HCR Manor Care's
principal office or the HCR Executive's principal workplace or increase by more
than 20% the HCR Executive's business travel) he may elect to terminate
employment and become entitled to the Non-Cash Severance Benefits, but not to
any lump sum severance or other continuation of base salary; and in the event of
such a "good reason" termination following a change in control other than the
Merger or in the event of the HCR Executive's election to terminate employment
upon good reason or in the event he elects to terminate employment for any
reason within the 180-day period following the first anniversary of such other
change in control, he shall be entitled to the Non-Cash Severance Benefits as
well as the lump sum severance payment waived in connection with the Merger.
The HCR Employment Agreements provide that in the event any payment to
which an HCR Executive is entitled is subject to the provisions of Sections 280G
and 4999 of the Internal Revenue Code of 1986, as amended (the "Code") (which
impose excise taxes on, and deny the payor a deduction for, certain payments
made in connection with a change in control as defined therein), HCR Manor Care
will pay the HCR
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Executive, as additional compensation, a gross-up payment (the "HCR Gross Up
Payments") such that after payment of all taxes (including excise taxes on any
such additional payments), the HCR Executive retains an amount equal to the
initial excise tax imposed. The Merger may be deemed to constitute a change in
control under such Code provisions and the payments (including the Retention
Bonuses and the value of accelerated vesting of stock options and lapse of
restrictions on restricted stock) payable to HCR Executives in connection
therewith may exceed the amount that may be paid without application of such
provisions, such that the HCR Executive may be entitled to the HCR Gross Up
Payments.
If the employment of each of Messrs. Ormond, Weikel, Meyers and Bixler was
terminated immediately upon the Merger, the estimated value (exclusive of HCR
Gross Up Payments, if any) of their severance payments would be $2,100,000,
$1,350,000, $1,050,000 and $750,000, respectively.
Manor Care. As of August 10, 1998, 14 executive officers and non-employee
directors of Manor Care (as a group) beneficially owned an aggregate of
20,035,463 shares of Manor Care Common Stock (excluding shares subject to
outstanding stock options). All such shares will be treated in the Merger in the
same manner as shares of Manor Care Common Stock held by other stockholders of
Manor Care.
Certain officers (the "Manor Care Executives") of Manor Care, including
certain of its executive officers (including Joseph R. Buckley and James H.
Rempe) have entered into employment agreements with Manor Care and HCR (the
"Manor Care Employment Agreements") pursuant to which they are entitled to
receive their base salaries and to participate in Manor Care's annual bonus
program. Pursuant to the Manor Care Employment Agreements, a Manor Care
Executive is entitled to certain benefits if Manor Care terminates the Manor
Care Executive's employment without Cause or if the Manor Care Executive
terminates employment for Good Reason. Such benefits generally include a lump
sum payment of two times the sum of the Manor Care Executive's base salary,
maximum bonus opportunity and car allowance; a pro rata portion of the maximum
annual bonus for the year of termination of employment; benefits to reflect
continued coverage under certain Manor Care benefit programs for a period of
time; outplacement assistance; and, in the case of certain Manor Care Executives
(including one executive officer), subject to certain limitations, if any of
these benefits are subject to the federal excise tax on "excess parachute
payments", a gross-up payment designed to put the Manor Care Executive in the
same after-tax position as if the excise tax and any related interest and
penalties had not been imposed (a "Manor Care Gross-Up Payment"). "Cause" means
(i) a Manor Care Executive's willfully engaging in conduct which is materially
and demonstrably injurious to Manor Care or (ii) a Manor Care Executive's
willfully engaging in an act or acts of dishonesty resulting in material
personal gain at the expense of Manor Care. "Good Reason" means (i) a
significant reduction in the scope of a Manor Care Executive's authority,
position, title, functions, duties or responsibilities, (ii) the relocation of a
Manor Care Executive's office location to a location more than 25 miles away
from the principal place of his or her employment at the Effective Time, (iii)
any reduction in a Manor Care Executive's base salary, (iv) a significant change
in Manor Care's annual bonus program adversely affecting a Manor Care Executive
or (v) a significant reduction in the other Manor Care Executive benefits
provided to a Manor Care Executive. If a Manor Care Executive remains in
employment with Manor Care until December 31, 1998 (or is terminated without
Cause or terminates with Good Reason before that date), such Manor Care
Executive will be entitled to receive, as a stay bonus, within 30 days
thereafter, in a lump sum, a special bonus in an amount equal to the sum of (i)
his or her annual rate of base salary on December 31, 1998 (or at earlier
termination of employment), (ii) the maximum bonus that such Manor Care
Executive could receive under Manor Care's annual bonus program for Manor Care's
fiscal year ending May 31, 1999 (or the fiscal year of termination of
employment) and (iii) such Manor Care Executive's car allowance for the fiscal
year ending May 31, 1999 (or the fiscal year of termination of employment). One
of the executive officers has certain additional benefits under an employment
agreement previously entered into with Manor Care, including country or lunch
club dues, payment of his share of employment taxes on certain supplemental
retirement benefits (grossed up for taxes thereon), security for the payment of
nonqualified deferred compensation benefits upon termination of employment (plus
a gross-up payment for any accelerated taxes), and accelerated vesting of
restricted stock upon termination of employment (other than by Manor Care for
Cause or by him without Good Reason). If Messrs. Buckley and Rempe were each
terminated immediately upon the Merger, they would receive $999,930 and
$1,059,588, respectively, without giving effect to any Manor Care Gross-Up
Payments.
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Manor Care and HCR have entered into a Retention Agreement and a
Noncompetition Agreement with Stewart Bainum, Jr. dated as of June 10, 1998.
Pursuant to the Retention Agreement, Mr. Bainum, Jr. is entitled to a stay bonus
of $838,724 if he remains in employment with Manor Care until December 31, 1998
or if he is terminated without Cause or terminates for Good Reason before that
date. "Cause" and "Good Reason" are defined as described above, except that a
change in Mr. Bainum, Jr.'s position from Chairman of the Board, President, and
Chief Executive Officer to Special Consultant to HCR Manor Care effective as of
the Effective Time of the Merger will not constitute Good Reason. Under the
Retention Agreement, Mr. Bainum, Jr. is also entitled, upon termination of
employment by Manor Care without Cause or by Mr. Bainum, Jr. for Good Reason, to
a pro rata portion of the maximum annual bonus for the year of termination of
employment and additional benefits under Manor Care's supplemental executive
retirement plan and nonqualified retirement savings and investment plan designed
to reflect continued coverage under those plans for a period of two years (or,
if greater, the period from termination of employment until June 9, 2001).
Pursuant to the Noncompetition Agreement, Mr. Bainum, Jr. agrees not to accept a
position with a competitor in the skilled nursing, assisted living,
institutional pharmacy and/or home health care industry or induce employees of
Manor Care or HCR Manor Care to leave employment on behalf of a competitor for
the period beginning on June 10, 1998 and continuing for a period of two years
following termination of Mr. Bainum, Jr.'s employment (or, if later, until June
9, 2001). In exchange for Mr. Bainum, Jr.'s agreement to those terms, he will
receive pursuant to the Noncompetition Agreement a lump sum payment within 30
days after consummation of the Merger in an amount equal to two (or, if greater,
the number of years and portions thereof from termination of employment until
June 9, 2001) times the sum of $840,000. HCR has entered into a Chairman's
Service Agreement with Mr. Bainum, Jr., the Current Chairman, President, and
Chief Executive Officer of Manor Care, pursuant to which Mr. Bainum, Jr. will
serve as Chairman of the Board of HCR Manor Care for the period beginning as of
the Effective Time of the Merger and continuing until the third anniversary
thereof or until such earlier date as determined by the Board of Directors
consistent with their fiduciary duties. Under this agreement, Mr. Bainum, Jr.
will receive, commencing as of the Effective Time, fees at the same rate as
other directors of HCR Manor Care; certain insurance and other benefits; and
other benefits generally available to HCR Manor Care directors.
Stock Options and Restricted Stock
HCR. Other than pursuant to the Existing Employment Agreements, no other
stock options or other stock rights will be accelerated or modified as a result
of the Merger, except pursuant to the Stock Option Proposals. See "-- Employment
and Other Agreements" and "HCR Voting Proposals -- Employee Option Proposal" and
"-- Director Option Proposal."
HCR's Amended Restricted Stock Plan provides for restrictions and risks of
forfeiture associated with restricted stock grants to lapse upon a "change of
control." The Merger will constitute a change in control under such plan. As a
result, all of the currently outstanding restricted stock grants under such plan
will become free of such restrictions and risks of forfeiture upon consummation
of the Merger. No directors other than the HCR Executives are participants in
the Amended Restricted Stock Plan. The estimated value of the restricted stock
(based solely for such estimate upon the number of shares of such restricted
stock with respect to which such restrictions and risks of forfeiture will lapse
multiplied by the per share trading price of the HCR Common Stock on the HCR
record date) as to which such restrictions and risks will lapse upon the Merger
for executive officers of HCR other than the HCR Executives is $1,190,000 in the
aggregate.
The estimated value (exclusive of HCR Gross-Up Payments, if any) of
outstanding stock options (based, solely for such estimate, upon the number of
unvested stock options that become vested and exercisable as a result of the
Merger multiplied by the difference between the per share trading price of the
HCR Common Stock on August 10, 1998 and the exercise price per share for each
such option) and restricted stock (based, solely for such estimate, upon the
number of shares of such restricted stock with respect to which such
restrictions and risks of forfeiture will lapse multiplied by the per share
trading price of the HCR Common Stock on August 10, 1998) will be $6,787,500,
$1,922,500, $1,357,500 and $886,250 to each of Messrs. Ormond, Weikel, Meyers
and Bixler, respectively.
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Manor Care. As of August 10, 1998, the executive officers and non-employee
directors of Manor Care (as a group) also held options to purchase an aggregate
of 1,720,122 shares of Manor Care Common Stock pursuant to Manor Care's stock
option plans, 938,173 of which were not currently exercisable. The Merger
Agreement provides that, at the Effective Time, each outstanding stock option or
stock appreciation right granted by Manor Care or any of its subsidiaries (the
"Exchange Awards") will be exchanged for HCR Common Stock having a fair market
value at the Effective Time equal to the value of such Exchange Awards as
determined pursuant to a pricing formula set forth in the Merger Agreement that
would yield $159,463, $7,525,622, $187,442, $242,589, $159,463, $83,135,
$191,417, $5,539,169 and $2,235,871 to Stewart Bainum, Stewart Bainum, Jr.,
Regina E. Herzlinger, William H. Longfield, Frederic V. Malek, Jerry E.
Robertson, Kennett L. Simmons, Joseph R. Buckley and James H. Rempe,
respectively, in each case (solely for purposes of this estimate) based upon the
per share trading price of the Manor Care Common Stock on August 10, 1998. See
"The Merger Agreement -- Conversion of Securities."
The Merger Agreement provides that, at the Effective Time, each restricted
stock award with respect to Manor Care Common Stock, including the number of
shares of Manor Care Common Stock subject to each such award (a "Manor Care
Award"), will be assumed by HCR, except that each Manor Care Award will apply to
that number of whole shares of HCR Common Stock equal to the number of shares of
Manor Care Common Stock that were subject to such award immediately prior to the
Effective Time rounded to the next highest whole number. Pursuant to Manor
Care's 1996 Non-Employee Director Stock Compensation Plan, restricted stock held
by a non-employee director of Manor Care under said plan will vest if the
director fails to be re-elected as a director by the stockholders. Based upon
the expected composition of the HCR Manor Care Board of Directors after the
Effective Time, it is expected approximately 1,678 shares of Manor Care Common
Stock, together with noncash dividends declared upon such shares, held by
non-employee directors will vest.
Severance Arrangements. Manor Care adopted the Manor Care Severance Plan
for Selected Employees on June 1, 1998 covering certain designated employees not
covered by Manor Care Employment Agreements. Under this Plan, a covered employee
is entitled to certain benefits if Manor Care terminates the employee's
employment without Cause or if the employee terminates employment for Good
Reason. ("Cause" and "Good Reason" are defined in the same manner as in the
Manor Care Employment Agreements described above.) Such benefits include a lump
sum payment of one-half, one or two times the sum of the employee's base salary,
maximum bonus opportunity and car allowance; a pro rata portion of the maximum
annual bonus for the year of termination of employment; benefits to reflect
continued coverage under certain Manor Care benefit programs for a period of
time; outplacement assistance; and, in the case of one covered employee and
subject to certain limitations, if any of these benefits are subject to the
federal excise tax on "excess parachute payments," a gross-up payment designed
to put the employee in the same after-tax position as if the excise tax and
related interest and penalties had not been imposed.
Registration Rights. At the Effective Time, HCR will enter into a
registration rights agreement with certain stockholders of Manor Care, including
certain directors and parties affiliated with directors of Manor Care, providing
them with certain registration rights with respect to HCR Manor Care Common
Stock then owned by them. See "Other Agreements -- Registration Rights
Agreement."
Indemnification of Directors and Officers of HCR and Manor Care. The Merger
Agreement provides that (a) from and after the Effective Time, HCR will, and
will cause Manor Care to, indemnify and hold harmless each present and former
director, officer and employee of Manor Care against certain costs or expenses,
and (b) for a period of six years after the Effective Time, HCR will cause to be
maintained in effect certain policies of directors' and officers' liability
insurance. See "The Merger Agreement -- Additional Covenants -- Director and
Officer Indemnification."
ACCOUNTING TREATMENT OF THE MERGER
The Merger is intended to qualify as a pooling of interests for accounting
and financial reporting purposes. Under this method of accounting, the recorded
assets and liabilities of HCR and Manor Care will be carried forward to HCR
Manor Care at their recorded amounts, the operating results of HCR will include
the
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operating results of HCR and Manor Care for the entire fiscal year in which the
Merger occurs and the reported operating results of the separate companies for
prior periods will be combined and restated as the operating results of HCR
Manor Care. It is a condition to the consummation of the Merger that HCR and
Manor Care each receive a letter from their respective independent auditors,
Ernst & Young LLP and Arthur Andersen LLP, regarding their concurrence with the
conclusions of the management of HCR or Manor Care, as applicable, that the
transactions contemplated by the Merger Agreement, if consummated, will qualify
for pooling of interests accounting treatment. See "The Merger
Agreement -- Conditions to Obligations to Effect the Merger."
Pooling of interests accounting treatment requires the sharing of rights
and risks among the affiliates of each of the parties to a business combination
such that sales of stock by affiliates cannot occur in the period commencing 30
days prior to the consummation of the Merger and ending on the date on which HCR
Manor Care publicly announces financial results covering at least 30 days of
combined operations. To ensure that such pooling requirements are satisfied,
each of HCR and Manor Care agreed in the Merger Agreement to use all reasonable
efforts to obtain written agreements from their respective affiliates
containing, among other things, the restrictions described above. See "The
Merger Agreement -- Additional Covenants."
CERTAIN REGULATORY MATTERS
The Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act")
and the rules and regulations thereunder require that parties of a certain size
to a proposed merger or business combination exceeding a certain size file with
the Antitrust Division of the Department of Justice (the "Antitrust Division")
and the Federal Trade Commission (the "FTC") Notification and Report Forms
("Forms") with respect to such merger or business combination. The parties
thereafter are required to observe a waiting period before consummating the
reported transaction. In compliance with the HSR Act, HCR and Manor Care filed
Forms on July 16, 1998 with the Antitrust Division and the FTC with respect to
the Merger. The applicable waiting period with respect to the HCR and Manor Care
Forms expired on August 15, 1998. The HSR Act and the rules and regulations
thereunder also require that persons who acquire shares with an aggregate value
exceeding a certain amount, and the entity whose shares are acquired, file Forms
with the Antitrust Division and the FTC with respect to such acquisition of
shares. The acquiring persons and the entity whose shares were acquired are
required to observe a waiting period before consummating the reported
transaction. In compliance with the HSR Act, HCR, Stewart Bainum and Stewart
Bainum, Jr. also filed Forms on July 23, 1998 with the Antitrust Division and
the FTC with respect to the acquisition of HCR Common Stock by Stewart Bainum
and Stewart Bainum, Jr. pursuant to the consummation of the Merger. The
applicable waiting period with respect to the HCR, Stewart Bainum and Stewart
Bainum, Jr. Forms is anticipated to expire on August 22, 1998. At any time
before or after the Effective Time, the Antitrust Division, the FTC, state
antitrust authorities or a private person or entity could seek to enjoin the
Merger under the antitrust laws.
OTHER REGULATORY APPROVALS
The Merger Agreement is subject to the satisfaction or waiver of certain
standard terms and conditions, including obtainment of permits, consents, and
approvals of securities or "blue sky" commissions or agencies of any
jurisdiction and of other governmental bodies or agencies that may reasonably be
deemed necessary for the consummation of the Merger. Among other things, it will
be necessary for Manor Care to file notice of the Merger with certain
governmental bodies to seek exemption from certificate of need ("CON") or
similar review from certain other governmental bodies, and obtain new licenses
and/or approvals and new Medicaid provider agreements from a limited number of
governmental bodies. In addition, certain states have requested a description of
the Merger in order to determine whether relicensure or additional filings or
approvals are necessary. While there can be no assurance that any such consents
or approvals, where needed, will be obtained on a timely basis or will be
obtained without certain conditions, HCR and Manor Care believe that each of the
necessary consents or approvals ultimately will be obtained.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a general summary of certain federal income tax
consequences of the Merger. In connection with the mailing of this Joint Proxy
Statement/Prospectus, each of Latham & Watkins, counsel for HCR, and Cahill
Gordon & Reindel, counsel for Manor Care, has delivered an opinion to HCR and
Manor Care, respectively, which it expects to reaffirm at the Effective Time, to
the effect that, for federal income tax purposes, (i) the Merger will constitute
a "reorganization" within the meaning of Section 368(a) of the Code and (ii) no
gain or loss will be recognized by HCR, Merger Sub, Manor Care or Manor Care
stockholders as a result of the Merger (other than with respect to any cash
received in lieu of fractional shares of HCR Manor Care Common Stock). In
rendering such opinions, Latham & Watkins and Cahill Gordon & Reindel may
receive and rely upon representations contained in certificates of HCR and Manor
Care.
The discussion below and the opinions of Latham & Watkins and Cahill Gordon
& Reindel are based upon current provisions of the Code, currently applicable
Treasury regulations, and judicial and administrative decisions and rulings.
There can be no assurance that the Internal Revenue Service (the "Service") will
not take a contrary view, and no ruling from the Service has been or will be
sought. Future legislative, judicial or administrative changes or
interpretations could alter or modify the statements and conclusions set forth
herein, and any such changes or interpretations could be retroactive and could
affect the tax consequences discussed herein.
The discussion below and the opinions of Latham & Watkins and Cahill Gordon
& Reindel do not purport to deal with all aspects of federal income taxation
that may affect particular stockholders in light of their individual
circumstances, and is not intended for stockholders subject to special treatment
under the federal income tax law (including insurance companies, tax-exempt
organizations, financial institutions, broker-dealers, foreign persons,
stockholders who hold their stock as part of a hedge, appreciated financial
position, straddle or conversion transaction, stockholders who do not hold their
stock as capital assets and stockholders who have acquired their stock upon the
exercise of employee options or otherwise as compensation). In addition, the
discussion below and the opinions do not consider the effect of any applicable
state, local or foreign tax laws.
Tax Consequences of the Merger. Assuming that the Merger is treated as a
"reorganization" within the meaning of Section 368(a) of the Code, no gain or
loss will be recognized for federal income tax purposes by HCR, Merger Sub or
Manor Care as a result of the Merger. In addition, a Manor Care stockholder will
not recognize gain or loss upon receipt of shares of HCR Manor Care Common Stock
pursuant to the Merger (other than with respect to any cash received in lieu of
fractional shares of HCR Manor Care Common Stock). A Manor Care stockholder who
receives cash in lieu of fractional shares of HCR Manor Care Common Stock will
be treated as having received such fractional shares in the Merger and then as
having exchanged the fractional shares for such cash. Accordingly, such
shareholder will recognize gain or loss equal to the difference, if any, between
the amount of cash so received and the tax basis of the Manor Care Common Stock
allocable to such fractional share. Such gain or loss will be capital gain or
loss and will be long-term capital gain or loss if the stockholder has held the
Manor Care Common Stock as a capital asset for more than one year at the
Effective Time. A Manor Care stockholder will have a tax basis in the shares of
HCR Manor Care Common Stock received in the Merger equal to the tax basis of the
stockholder's Manor Care Common Stock (less the tax basis allocable to any
fractional share). The holding period for shares of HCR Manor Care Common Stock
received in the Merger will include the holding period of the stockholder's
Manor Care Common Stock.
Reporting Requirements and Backup Withholding. Each stockholder of Manor
Care receiving HCR Manor Care Common Stock as a result of the Merger will be
required to retain certain records and file with its federal income tax return a
statement setting forth certain facts relating to the Merger.
Backup withholding at the rate of 31% may apply with respect to certain
payments unless the recipient (i) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact or (ii) provides a
correct taxpayer identification number, certifies as to no loss of exemption
from backup withholding and otherwise complies with applicable requirements of
the backup withholding rules. A Manor Care stockholder who does not provide HCR
with its correct taxpayer identification number may be subject to
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penalties imposed by the Service. Any amounts withheld under the backup
withholding rules may be allowed as a refund or a credit against the
stockholder's federal income tax liability provided that certain required
information is furnished to the Service.
HCR will report to its stockholders and to the Service the amount of
"reportable payments" and any amount withheld with respect to HCR Manor Care
Common Stock during each calendar year.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION PURPOSES ONLY AND IS NOT TAX ADVICE. EACH STOCKHOLDER SHOULD
CONSULT ITS OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO IT OF THE
MERGER, INCLUDING THE APPLICATION OF FOREIGN, STATE, LOCAL AND OTHER TAX LAWS.
LISTING OF HCR COMMON STOCK; DELISTING AND DEREGISTRATION OF MANOR CARE COMMON
STOCK
The HCR Common Stock is currently listed on the New York Stock Exchange
(the "NYSE") under the symbol "HCR." The Manor Care Common Stock is currently
listed on the NYSE under the symbol "MNR." Upon consummation of the Merger, the
Manor Care Common Stock will be delisted from the NYSE and deregistered under
the Securities Exchange Act of 1934, as amended. Application will be made for
the listing on the NYSE of the shares of HCR Manor Care Common Stock to be
issued in the Merger. This listing on the NYSE is a condition to the
consummation of the Merger. See "The Merger Agreement -- Conditions to
Obligations to Effect the Merger." Following the Merger, Manor Care stockholders
will need to exchange their outstanding stock certificates for certificates
representing shares of HCR Manor Care Common Stock. See "The Merger Agreement --
Exchange Procedures."
MANOR CARE STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR
PROXIES. MANOR CARE COMMON STOCK CERTIFICATES WILL BE EXCHANGED FOR SHARES OF
HCR MANOR CARE COMMON STOCK FOLLOWING CONSUMMATION OF THE MERGER IN ACCORDANCE
WITH INSTRUCTIONS TO BE SENT TO HOLDERS OF MANOR CARE COMMON STOCK AFTER THE
MERGER.
NO APPRAISAL RIGHTS
Holders of Manor Care Common Stock are not entitled to dissenters' or
appraisal rights in connection with the Merger because (i) the Manor Care Common
Stock was listed on the NYSE on the record date for the Manor Care Special
Meeting, (ii) the HCR Common Stock was listed on the NYSE on the record date for
the HCR Special Meeting and (iii) the shares of HCR Common Stock that such
holders will be entitled to receive in the Merger will be listed on the NYSE as
of the Effective Time.
Holders of HCR Common Stock are not entitled to dissenters' or appraisal
rights because HCR is not a constituent corporation in the Merger and none of
the HCR Voting Proposals otherwise give rise to dissenters' or appraisal rights
under Delaware law.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
HCR and Manor Care have made forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995 both in this document
and the documents incorporated by reference herein that are subject to risks and
uncertainties. These statements are based on management's beliefs and
assumptions, based on information currently available to management.
Forward-looking statements include the information concerning possible or
assumed future results of operations of HCR and Manor Care set forth (i) under
"Summary," "Risk Factors," "-- Background of the Merger," "-- Recommendations of
the Boards of Directors of HCR and Manor Care; Reasons for the Merger," "--
Opinion of Financial Advisor to HCR," "-- Opinion of Financial Advisor to Manor
Care," and "Unaudited Pro Forma Condensed Combined Financial Information," (ii)
under "Business" and "Management's Discussion and Analysis" in each company's
Annual Report on Form 10-K and HCR's Quarterly Reports on Form 10-Q incorporated
by reference into this document, (iii) under "The Combined Company -- Business
and Strategy" and (iv) in
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this document and the documents incorporated herein by reference preceded by,
followed by or that include the words "believes," "expects," "anticipates,"
"intends," "plans," "estimates" or similar expressions.
Forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause the actual results, performance or achievements
of HCR or Manor Care or industry results to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
general economic and business conditions, both nationally and in the regions in
which HCR or Manor Care operates; industry capacity; demographic changes;
existing government regulations and changes in, or the failure to comply with,
governmental regulations; legislative proposals for health care reform; the
ability to enter into managed care provider arrangements on acceptable terms;
changes in Medicare and Medicaid reimbursement levels; liability and other
claims asserted against HCR or Manor Care; competition; changes in business
strategy or development plans, the ability to attract and retain qualified
personnel and other factors referenced in this Joint Proxy Statement/Prospectus
and in the documents incorporated herein by reference. Certain of these factors
are discussed in more detail elsewhere in this Joint Proxy Statement/Prospectus,
including without limitation under the captions "Summary" and "Unaudited Pro
Forma Condensed Combined Financial Information." The estimates of cost savings
and administrative efficiencies referenced herein have been developed by the
management of HCR and are based on HCR's and Manor Care's best judgments
together with HCR's and Manor Care's knowledge and experience in the long-term
health care industry and awareness of industry trends. Estimates of these
anticipated cost savings are necessarily based upon numerous assumptions and are
inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond the control of either
HCR or Manor Care, and upon assumptions with respect to future business
decisions that are subject to change. GIVEN THESE UNCERTAINTIES, THE
STOCKHOLDERS OF HCR AND MANOR CARE ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON
SUCH FORWARD-LOOKING STATEMENTS. All subsequent written and oral forward-looking
statements attributable to HCR and Manor Care or persons acting on their
respective behalf are expressly qualified in their entirety by the cautionary
statements set forth or referred to above in this paragraph. HCR and Manor Care
disclaim any obligation to update any such factors or to publicly announce the
result of any revisions to any of the forward-looking statements contained
herein to reflect future events or developments.
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THE COMBINED COMPANY
As a result of the Merger, Manor Care will become a wholly owned subsidiary
of HCR, which will be renamed HCR Manor Care, Inc. immediately after the
Effective Time and, unless its Board of Directors elects otherwise, Manor Care,
Inc. on the one-year anniversary of the Effective Time. The executive management
of HCR Manor Care will be composed of members of the existing executive
management of HCR, with Paul A. Ormond serving as President and Chief Executive
Officer, M. Keith Weikel serving as Senior Executive Vice President and Chief
Operating Officer and Geoffrey G. Meyers as Executive Vice President, Chief
Financial Officer and Treasurer. The Board of Directors of HCR Manor Care will
initially consist of ten persons with HCR and Manor Care each initially
selecting five members. Stewart Bainum, Jr. will become Chairman of the Board of
Directors.
BUSINESS AND STRATEGY
Management of HCR and Manor Care believe that the Merger will create the
premier long-term care company in the United States in terms of facilities,
capabilities, quality of care and financial strength. HCR Manor Care will have
295 skilled nursing centers, 47 assisted living facilities, 116 medical
specialty units, 76 outpatient therapy clinics, 34 home health offices, and a
50% interest in an institutional pharmacy with four locations. HCR Manor Care
will have operations in 32 states. On a pro forma basis for the year ended
December 31, 1997, the Combined Company would have had revenues of approximately
$2.2 billion and income from continuing operations of approximately $155.3
million. HCR Manor Care would have the largest market capitalization and be the
most profitable company in the industry. The financial strength of the Combined
Company will be reflected in an equity market capitalization of approximately $4
billion and less than $850 million of debt.
The principal business strategy of HCR Manor Care will be to provide high
quality, cost-effective services in its long-term care centers and medical
specialty units while pursuing growth opportunities through internal facility
development and future acquisitions. This strategy will include the following
elements:
- Increase Operating Margins in Skilled Nursing Centers. HCR Manor Care
will seek to steadily increase its operating margins in its core
long-term care business. Management expects margin increases to result
from aggressively managing costs in its skilled nursing centers while
maintaining high occupancy rates, increasing quality mix (the percentage
of revenue derived from private pay, Medicare and insured patients) and
integrating high value products and services into its nursing centers.
Management expects HCR Manor Care to achieve significant cost reductions
through the elimination of duplicative functions, consolidation of
certain staff activities and tighter control of expenditures. On a pro
forma basis, HCR Manor Care's occupancy rate is 89% and its quality mix
is approximately 73%. The Combined Company will seek to maintain or
improve its occupancy rate and quality mix by continually improving the
quality of care in its facilities and offering innovative products and
services.
- Expand Medical Specialty Programs. The Combined Company will continue the
focus of HCR and Manor Care on providing medical specialty programs.
These programs include subacute medical care, such as cardiac and
ventilator care, intensive rehabilitation and Alzheimer's patient care. A
key component of this effort will be the continued rapid development of
the Arden Courts assisted living facilities which provide highly
specialized care for individuals with Alzheimer's disease. After the
consummation of the Merger, the Combined Company will have 116 subacute
and rehabilitation units and 47 assisted living facilities. The financial
strength of the Combined Company will facilitate the continued growth and
development of the medical specialty programs, including the Arden
Courts.
- Make Strategic Acquisitions. Management believes that the financial
strength of the Combined Company will allow HCR Manor Care to make
strategic acquisitions of complementary health care facilities and
businesses at a cost of capital which will be among the lowest in the
industry. The acquisition strategy will focus on prudent opportunities to
broaden its base of skilled nursing centers and assisted living
facilities as well as opportunities to increase its integrated network of
ancillary products and services in such areas as home health care,
inpatient and outpatient rehabilitation, pharmaceutical supplies, vision
care and program management services.
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- Construct New Facilities in Profitable Markets. The combined entity will
have an experienced development and construction organization with a
strong history of building skilled nursing centers and assisted living
facilities. Immediately following the consummation of the Merger, HCR
Manor Care will have 3 nursing centers and 32 Arden Courts facilities
under construction, with another 78 facilities in the development phase.
The financial strength of the Combined Company will enable it to continue
developing and constructing new facilities in markets that have
attractive demographic and competitive characteristics.
GOVERNANCE
As provided in the Merger Agreement, at the Effective Time, the HCR Manor
Care Board of Directors will consist of ten directors, five of whom will be
designated by HCR (the "Initial HCR Directors") and five of whom will be
designated by Manor Care (the "Initial Manor Care Directors"). One, one and
three of the Initial HCR Directors will be Class I, II and III directors of HCR
Manor Care, respectively, and two, two and one of the Initial Manor Care
Directors will be Class I, II and III directors of HCR Manor Care, respectively.
The persons to serve on the Board of Directors of HCR Manor Care at the
Effective Time who are Manor Care Directors (and the classes to which they will
be appointed) will be Stewart Bainum, Jr. (Class I); William H. Longfield (Class
I); Stewart Bainum (Class II); Gail R. Wilensky (Class II); and Kennett L.
Simmons (Class III). The persons to serve on the Board of Directors of HCR Manor
Care at the Effective Time who are HCR Directors (and the classes in which they
will remain) will be Paul A. Ormond (Class I); Joseph H. Lemieux (Class II);
Thomas L. Young (Class III); Robert G. Siefers (Class III); and M. Keith Weikel
(Class III). The Merger Agreement also provides that from and after the
Effective Time until and including the second annual stockholder meeting of HCR
Manor Care held after the Effective Time (the "Second Meeting") (such period
being the "Governance Term"), (a) the size of the Board of Directors of HCR
Manor Care shall not be changed unless such change is approved by not less than
75% of the directors of HCR Manor Care and (b) (i) if any vacancy occurs as a
result of the death, resignation or removal of a HCR Director (as defined below)
or a Manor Care Director (as defined below), or (ii) if any seat held by a HCR
Director or a Manor Care Director is subject to nomination for election of a
director, then, in case of either (i) or (ii), subject to the fiduciary duties
of the directors of HCR Manor Care, the Board of Directors of HCR Manor Care
shall promptly take all necessary actions and appoint or nominate, as the case
may be, such person or persons requested by the remaining HCR Directors (in the
case of a vacancy or nomination concerning a HCR Director) or by the remaining
Manor Care Directors (in the case of a vacancy or nomination concerning a Manor
Care Director). The term "HCR Director" means (i) any Initial HCR Director and
(ii) any person who becomes a director of HCR Manor Care pursuant to the
preceding sentence and who is designated by the then HCR Directors. The term
"Manor Care Director" means (i) any Initial Manor Care Director and (ii) any
person who becomes a director of HCR Manor Care pursuant to the second preceding
sentence and who is designated by the then Manor Care Directors.
The By-laws amendments which are the subject of the Transaction Proposal
would provide that the foregoing terms may only be amended (a) during the period
prior to the second annual stockholders' meeting of HCR Manor Care following the
Effective Time of the Merger (the "Post-Merger Period"), (i) by the Board of
Directors of HCR Manor Care with the approval of not less than 75% of the
directors of HCR Manor Care or (ii) by the stockholders of HCR Manor Care with
the approval of holders of not less than 80% of the outstanding shares of HCR
Common Stock and (b) after the Post-Merger Period, by either (i) a majority of
the members of the then appointed Board of Directors of HCR Manor Care or (ii)
the holders of majority in voting power of the stock of HCR Manor Care issued
and outstanding and entitled to vote thereon. See "HCR Voting
Proposals -- Transaction Proposal."
The Board of Directors of HCR Manor Care will have an Audit Committee and a
Compensation Committee, each comprised of four members and each comprised
one-half of HCR Directors and one-half of Manor Care Directors. Any additional
committees formed during the Governance Term will be similarly constituted.
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For information regarding the business experience of Messrs. Lemieux,
Ormond, Siefers, Weikel and Young, see "Where You Can Find More Information."
For information regarding the business experience of Messrs. Bainum, Bainum
Jr., Longfield and Simmons, and Ms. Wilensky, see Annex I.
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THE MERGER AGREEMENT
The following is a summary of the material terms of the Merger Agreement, a
copy of which is attached as Annex A to this Joint Proxy Statement/Prospectus.
Such summary is qualified in its entirety by reference to the Merger Agreement.
Stockholders of HCR and Manor Care are urged to read the Merger Agreement in its
entirety for a more complete description of the terms and conditions of the
Merger.
THE MERGER
The Merger Agreement provides that, if the requisite approvals of (i) HCR's
stockholders with respect to the Transaction Proposal and (ii) Manor Care's
stockholders with respect to the Merger Proposal are obtained, and all other
conditions to the Merger are satisfied or waived, Merger Sub will merge with and
into Manor Care, with Manor Care being the surviving corporation (the "Surviving
Corporation") and a wholly owned Subsidiary of HCR.
The Closing will take place no more than five business days (the "Closing
Date") following the date on which the last of the conditions to the
consummation of the Merger is satisfied or waived, or at such other time and
date to which HCR and Manor Care mutually agree. As early as practicable on the
Closing Date, a certificate of merger shall be duly prepared, executed and
acknowledged by the surviving corporation and thereafter delivered to the
Secretary of State of the State of Delaware for filing, as provided in the
Delaware General Corporation Law ("DGCL"). The Merger will become effective upon
the filing of such certificate of merger with the Secretary of State of the
State of Delaware or at such later time as is specified therein. See "The Merger
Agreement -- Conditions to Obligations to Effect the Merger." Subject to the
satisfaction (or waiver) of the conditions to the obligations of HCR and Manor
Care to consummate the Merger, it is presently expected that the Merger will be
consummated by the end of October 1998.
CONVERSION OF SECURITIES
The Merger Agreement provides that Merger Sub will merge with and into
Manor Care, with Manor Care surviving the Merger and continuing its corporate
existence as a wholly owned Subsidiary of HCR.
At the Effective Time: (i) each issued and outstanding share of Manor Care
Common Stock (other than shares that are canceled as described below) will be
converted into the right to receive one (1.0) share of fully paid and
nonassessable HCR Common Stock; (ii) each issued and outstanding share of common
stock of Merger Sub will be converted into one fully paid and nonassessable
share of common stock of the Surviving Corporation in the Merger; (iii) each
share of Manor Care Common Stock that is owned by Manor Care as treasury stock
or is owned by HCR, Merger Sub or any other wholly owned Subsidiary of HCR will
be canceled and retired and will cease to exist and no stock of HCR or other
consideration shall be delivered in exchange therefor; and (iv) any outstanding
stock options or stock appreciation rights granted by Manor Care or any of its
Subsidiaries, whether or not vested, shall be exchanged (subject to withholding
or for other settlement of obligations concerning income taxes), for HCR Common
Stock having a fair market value equal to the value (determined pursuant to a
Black-Scholes formula) of such stock options or stock appreciation rights at the
Effective Time.
Consequently, as a result of the Merger, Manor Care will become a wholly
owned Subsidiary of HCR and the holders of Manor Care Common Stock will become
holders of HCR Common Stock. Based upon the number of shares of common stock of
HCR and Manor Care outstanding on the record date for the Manor Care Special
Meeting and the record date for the HCR Special Meeting, respectively, and the
Exchange Ratio described above, Manor Care's current stockholders will own
approximately 58% and HCR's current stockholders will own approximately 42% of
the HCR Manor Care Common Stock that will be outstanding upon completion of the
Merger.
EXCHANGE PROCEDURES
As soon as reasonably practicable after the Effective Time, the Exchange
Agent will mail to each holder of record of a certificate that immediately prior
to the Effective Time represented outstanding shares of Manor
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Care Common Stock (a "Manor Care Certificate"), a letter of transmittal and
instructions for use in effecting the surrender of such Manor Care Certificate
in exchange for shares of HCR Manor Care Common Stock. Upon surrender of a Manor
Care Certificate for cancellation to the Exchange Agent, together with such
letter of transmittal, duly executed, the holder of such Manor Care Certificate
will be entitled to receive in exchange therefor that number of whole shares of
HCR Manor Care Common Stock (and any cash payable in lieu of fractional shares)
equal to the whole number of shares of Manor Care Common Stock represented by
such surrendered Manor Care Certificate, and the surrendered certificate will
promptly be canceled. The shares of HCR Common Stock to be issued in exchange
for Manor Care Certificates will be held in book-entry form on the records of
HCR's Registrar and Transfer Agent, Harris Trust and Savings Bank.
No Further Ownership Rights in Manor Care Common Stock. All shares of HCR
Common Stock (and cash in lieu of fractional shares thereof) issued upon the
surrender for exchange of Manor Care Certificates will be deemed to have been
issued (and paid) in full satisfaction of all rights pertaining to the shares of
Manor Care Common Stock represented by such Manor Care Certificates, subject,
however, to the Surviving Corporation's obligation to pay any dividends or make
any other distributions with a record date prior to the Effective Time that have
been declared or made by Manor Care prior to the date of the Merger Agreement
and that remain unpaid at the Effective Time. From and after the Effective Time
there shall be no further registration of transfers on the stock transfer books
of the Surviving Corporation of the shares of Manor Care Common Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Manor Care Certificates are presented to the Surviving Corporation for any
reason, they will be canceled and exchanged in the manner described above.
No Fractional Shares. No fractional shares of HCR Common Stock will be
issued in the Merger. In lieu of any such fractional shares, each holder of
shares of Manor Care Common Stock converted pursuant to the Merger who would
otherwise have been entitled to receive a fraction of a share of HCR Common
Stock (after taking into account all Manor Care Certificates delivered by such
holder) will receive, in lieu thereof, cash (without interest) in an amount
equal to such fractional part of a share of HCR Common Stock multiplied by the
average of the last reported sales prices of HCR Common Stock, as reported on
the New York Stock Exchange, on each of the ten days immediately preceding the
date of the Effective Time.
Dividends and Distributions. No dividends or other distributions declared
or made after the Effective Time with respect to HCR Common Stock with a record
date after the Effective Time will be paid to the holder of any unsurrendered
Manor Care Certificate with respect to shares of HCR Common Stock issuable upon
surrender thereof and no cash payment in lieu of fractional shares will be paid
to any such holder until the holder of record of such Manor Care Certificate
shall surrender such Manor Care Certificate as described above. Subject to the
effect of applicable laws, following surrender of any such Manor Care
Certificate, there shall be paid to the record holder thereof, without interest,
(i) at the time of such surrender, the amount of any cash payable in lieu of a
fractional share of HCR Common Stock to which such holder is entitled under
"-- Fractional Shares" above and the amount of dividends or other distributions
with respect to such whole shares of HCR Common Stock with a record date after
the Effective Time and a payment date prior to their date of issuance to such
holder, and (ii) at the appropriate payment date, the amount of dividends or
other distributions with a record date after the Effective Time but prior to
surrender and a payment date subsequent to surrender payable with respect to
such whole shares of HCR Common Stock. Notwithstanding anything in the Merger
Agreement to the contrary, HCR agrees that from and after the Effective Time it
will treat the shares of HCR Common Stock issuable in connection with the Merger
as outstanding for purposes of notice, quorum and voting.
Failure to Exchange. Any shares of HCR Common Stock, and any portion of
monies from which cash payments in lieu of fractional shares of HCR Common Stock
and any dividends or distributions on shares of HCR Common Stock will be made,
which remain undistributed to the former stockholders of Manor Care for 180 days
after the Effective Time will be delivered to HCR upon demand, and any former
stockholders of Manor Care who have not previously exchanged Manor Care
Certificates will thereafter look only to HCR for payment of their claim for HCR
Common Stock, any cash in lieu of fractional shares of HCR Common Stock and any
dividends or distributions with respect to HCR Common Stock.
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No Liability. Neither HCR nor Manor Care will be liable to any former
holder of shares of Manor Care Common Stock or HCR Common Stock, as the case may
be, for such shares (or dividends or distributions with respect thereto)
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law. Each of HCR and the Surviving Corporation shall be
entitled to deduct and withhold from the consideration otherwise payable
pursuant to the Merger Agreement to any former holder of shares of Manor Care
Common Stock such amounts as it is required to deduct and withhold with respect
to the making of such payment under the Code, or any provision of state, local
or foreign tax law. To the extent that amounts are so withheld by the Surviving
Corporation or HCR, as the case may be, such withheld amounts shall be treated
as having been paid to the former holder of the shares of Manor Care Common
Stock, in respect of which such deduction and withholding was made by the
Surviving Corporation or HCR, as the case may be.
Lost Certificates. If any Manor Care Certificate is lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Manor Care Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting by such person of a bond in such
reasonable amount as the Surviving Corporation may direct as indemnity against
any claim that may be made against it with respect to such Manor Care
Certificate, the exchange agent (and following the termination of the Exchange
Fund, HCR) will issue in exchange for such lost, stolen or destroyed Manor Care
Certificate the shares of HCR Common Stock and any cash in lieu of fractional
shares and unpaid dividends and distributions on shares of HCR Common Stock
otherwise deliverable in respect thereof.
HOLDERS OF MANOR CARE COMMON STOCK SHOULD NOT SEND IN THEIR CERTIFICATES
UNTIL THEY RECEIVE A TRANSMITTAL FORM FROM HARRIS TRUST AND SAVINGS BANK, THE
EXCHANGE AGENT THEREFOR.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various customary representations and
warranties, subject to identified exceptions, relating to, among other things,
(a) the due organization, valid existence and good standing of each of Manor
Care, HCR and their respective Subsidiaries and certain similar corporate
matters; (b) the capital structure of each of HCR and Manor Care; (c) the
authorization, execution, delivery and enforceability of the Merger Agreement
and the agreements ancillary thereto (the "Ancillary Agreements"), the
consummation of the transactions contemplated by the Merger Agreement and the
Ancillary Agreements and related matters; (d) conflicts under charters or
by-laws, required consents or approvals and violations of any instruments or
law; (e) documents and financial statements filed by each of HCR and Manor Care
with the SEC and the accuracy of information contained therein; (f) the accuracy
of information supplied by each of HCR and Manor Care in connection with the
Registration Statement and this Joint Proxy Statement/Prospectus; (g) the
absence of certain material adverse events, changes or events; (h) taxes and tax
returns; (i) properties; (j) material agreements, contracts and commitments; (k)
intellectual property; (l) litigation; (m) compliance with laws and
authorizations; (n) the retention of brokers or finders; (o) retirement and
benefit plans; (p) environmental matters and hazardous materials; (q) insurance;
(r) labor matters; (s) the treatment of the transaction as a pooling of
interests; (t) the opinions of the financial advisors; (u) required stockholder
votes; (v) the absence of existing discussions with other parties; (w) the
inapplicability to the Merger of certain provisions of the DGCL; (x) the HCR and
Manor Care Rights Agreements; (y) the tax treatment of the transaction; (z) the
recommendation of the transaction by the board of directors of each of HCR and
Manor Care; (aa) Manor Care's cessation of efforts to effect its pending
restructuring (the "Restructuring Transactions"); and (bb) Merger Sub's lack of
prior business activity.
CONDUCT OF BUSINESS BEFORE EFFECTIVE TIME
Conduct of Manor Care. Pursuant to the Merger Agreement, Manor Care has
agreed that, until the earlier of the termination of the Merger Agreement or the
Effective Time, subject to the proviso that these certain covenants shall not be
violated by any action required or expressly contemplated by the Vitalink
Agreement and except as contemplated by the Merger Agreement or as otherwise
consented to in writing by HCR, each of Manor Care and its Subsidiaries will:
(a) conduct its business, cause the businesses of its subsidiaries (other than
Vitalink and IHH) and use its reasonable best efforts to cause the business of
Vitalink
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(until the consummation of the transactions contemplated by the Vitalink
Agreement) and IHH to be conducted in the ordinary course; (b) use all
reasonable best efforts to preserve substantially intact their business
organizations, to keep available all services of its present officers, employees
and consultants and to preserve their present relationships with customers,
suppliers and other persons with which it has significant business relations;
(c) not accelerate, amend or change the period of exercisability of options or
restricted stock granted under any employee stock plan or authorize cash
payments in exchange for any options granted under any employee stock plan,
except as required pursuant to such plan or any related agreement; (d) not
transfer or license to any person or entity or otherwise extend, amend, or
modify any rights to its proprietary rights, other than in the ordinary course
of business consistent with past practices; (e) not declare or pay any dividends
on or make other distributions in respect of any of its capital stock (except
that Manor Care may pay regular quarterly cash dividends on dates substantially
consistent with the dividend payments in 1997 at a rate not to exceed $.022 per
share, and wholly owned subsidiaries of Manor Care may declare and pay a
dividend to its parent), not effect certain other changes in its capitalization,
and not purchase or otherwise acquire, directly or indirectly, any shares of its
capital stock other than in connection with the administration of its employee
benefit plans in the ordinary course of business consistent with past practice;
(f) not issue or sell, or authorize or propose the issuance or sale of, any
shares of its capital stock or securities convertible into shares of its capital
stock, or any subscriptions, rights, warrants or options to acquire or other
agreements obligating it to issue any such shares or other convertible
securities (subject to certain exceptions, including the grant of options
consistent with past practices to employees and pursuant to currently existing
stock option plans, and the issuances of shares upon the exercise of options or
upon the exercise of any rights under the Manor Care Rights Agreement
outstanding as of the date of the Merger Agreement) or designate any class or
series of capital stock from its authorized but undesignated preferred stock;
(g) not make any material acquisitions; (h) not sell, lease, license or
otherwise dispose of material properties or assets outside the ordinary course
of business; (i) not increase the compensation payable to its officers or
employees (except for increases in compensation in the ordinary course of
business), enter into any employment or severance agreements with any person,
grant any severance or termination pay to, or enter into any employment or
severance agreement with, any employee (except pursuant to certain identified
agreements or policies), enter into any collective bargaining agreement,
establish, adopt, enter into or amend any plan for the benefit of its directors,
officers, or employees or establish any new executive employee position; (j) not
revalue any of its assets, including writing down the value of inventory or
writing off notes or accounts receivable, other than revaluations its auditors
require in accordance with generally accepted accounting principles ("GAAP") or
in the ordinary course of business, or change or modify in any material respect
any existing accounting method other than as required by GAAP; (k) other than
intercompany indebtedness, guaranties, or assumptions, not incur any
indebtedness for borrowed money (except borrowings for working capital purposes
or to fund capital expenditures pursuant to existing credit agreements or
borrowings to make capital expenditures in the ordinary course of business) or
guarantee or assume any such indebtedness or issue or sell any debt securities
or warrants or rights to acquire any debt securities of it or any of its
subsidiaries or guarantees any debt securities of others, or voluntarily prepay
any outstanding indebtedness; (l) not amend its Certificate of Incorporation or
By-laws; (m) not make any capital expenditure or commitment for which it is not
contractually bound as of the date of the Merger Agreement except expenditures
and commitments incurred in the ordinary course of business; (n) not enter into
any new material contract (other than in the ordinary course of business), or
modify in any respect materially adverse to it or any of its subsidiaries any
existing material contract which is not terminable by Manor Care upon 30 days'
or less notice without penalty or payment; (o) not maintain Manor Care's books
and records in a manner other than in the ordinary course of business consistent
with past practice; and (p) not take, or agree in writing or otherwise to take,
any of the actions described in subsections (c) through (n) above, or any action
that is reasonably likely to make any of its representations or warranties
contained in the Merger Agreement untrue or incorrect.
Conduct of HCR. Pursuant to the Merger Agreement, HCR has agreed that,
until the earlier of the termination of the Merger Agreement or the Effective
Time, except as expressly contemplated by the Merger Agreement or as otherwise
consented to in writing by Manor Care, each of HCR and its Subsidiaries will:
(a) conduct its business in the ordinary course; (b) use all reasonable best
efforts to preserve substantially intact its business organizations, to keep
available all services of its present officers, employees and consultants
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and to preserve their present relationships with customers, suppliers and other
persons with which it or any of its Subsidiaries has significant business
relations; (c) not declare, set aside, make or pay any dividend or other
distribution (whether in cash, stock or property or any combination thereof) in
respect of any of its capital stock, except that a wholly owned Subsidiary of
HCR may declare and pay a dividend to its parent; (d) not take or agree in
writing or otherwise to take any action described in this paragraph or any
action that is reasonably likely to make any of the representations or
warranties of HCR contained in the Merger Agreement untrue or incorrect; (e) not
amend or otherwise change the Certificate of Incorporation or By-laws of HCR;
(f) not issue, deliver, or sell or authorize or propose the issuance, delivery,
or sale of, or purchase or propose the purchase of, any shares of its capital
stock or securities convertible into shares of its capital stock, or
subscriptions, rights, warrants, or options to acquire, or other agreements or
commitments of any character obligating it to issue, any such shares or other
convertible securities (other than pursuant to issuance in connection with (i)
an acquisition or exchange offer permitted under clause (k) below, (ii) the
grant of options to employees in a manner consistent with past practices and
pursuant to existing stock option plans, and (iii) the exercise of options or
upon the exercise of any rights under the HCR Rights Agreement outstanding as of
the date of the Merger Agreement) or designate any class or series of capital
stock from its authorized but undesignated preferred stock; (g) not (i) revalue
any of its assets, including writing down the value of inventory or writing off
notes or accounts receivable, other than revaluations that its auditors require
in accordance with GAAP or in the ordinary course of business or (ii) change or
modify in any material respect any existing accounting method, principle, or
practice other than as required by GAAP; (h) not maintain HCR's books and
records in a manner other than in the ordinary course of business consistent
with past practice; (i) not accelerate, amend, or change the period of
exercisability of options or restricted stock granted under any employee stock
plan or authorize cash payments in exchange for any options granted under any of
those plans except as required by the terms of those plans or any related
agreements or other agreements in effect as of the date of the Merger Agreement;
(j) not transfer or license to any person or entity or otherwise extend, amend,
or modify any rights to its proprietary rights, other than in the ordinary
course of business consistent with past practices; (k) acquire by merging or
consolidating with, or by purchasing a substantial equity interest in or
substantial portion of the assets of, or by any other manner, any business or
any corporation, partnership, association, or other business organization or
division or otherwise acquire or agree to acquire any assets (an "Acquisition")
that are material, individually or in the aggregate, to the business of such
party and its Subsidiaries, taken as a whole; provided however, that HCR may
undertake any Acquisition in which the consideration payable by HCR does not
exceed $50 million so long as the consideration payable by HCR in all such
Acquisitions does not exceed $100 million after the date of the Merger
Agreement; (l) not (i) increase the compensation or benefits payable or to
become payable to its officers or employees, except for increases in
compensation in the ordinary course of business, (ii) enter into any employment
or severance agreements with any person, (iii) grant any severance or
termination pay to, or enter into any employment or severance agreement with,
any employee (except pursuant to certain identified agreements and policies),
(iv) enter into any collective bargaining agreement, (v) establish, adopt, enter
into, modify, or amend any bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance, or other plan, trust, fund, policy, or
arrangement for the benefit of any directors, officers, or employees except as
may be required by law, or (vi) establish any new executive employee position;
provided, however, that not withstanding the foregoing, HCR may take any action
with respect to the matters which are the subject of this clause (l) so long as
the aggregate cost thereof to HCR after the date of the Merger Agreement does
not exceed $40 million; (m) other than intercompany indebtedness, guaranties, or
assumptions, not incur any indebtedness for borrowed money (except borrowings
for working capital purposes or to fund capital expenditures pursuant to
existing credit agreements or borrowings to make capital expenditures permitted
by clause (n)), or guarantee or assume any such indebtedness or issue or sell
any debt securities or warrants or rights to acquire any debt securities of it
or any of its Subsidiaries or guarantee any debt securities of others, or
voluntarily prepay any outstanding indebtedness; and (n) not make any capital
expenditure or commitment for which it was not contractually bound as of the
date of the Merger Agreement except expenditures and commitments incurred in the
ordinary course of business.
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ADDITIONAL COVENANTS
No Solicitation. The Merger Agreement provides that neither Manor Care nor
HCR may, directly or indirectly, through any officer, director, employee,
representative, or agent thereof or of any of its Subsidiaries, other than, with
respect to Manor Care, as required or expressly contemplated by the Vitalink
Agreement, (i) seek, initiate, or solicit any inquiries, proposals, or offers
from any person or group to acquire (or which would result in the beneficial
ownership of) a majority of the shares of the capital stock (including by way of
a tender offer) of it or of its significant subsidiaries, to merge or
consolidate with it or any significant subsidiary or to otherwise acquire any
significant portion of the assets of it and/or its significant subsidiaries,
taken as a whole, or similar transaction involving Manor Care or any of its
significant subsidiaries or HCR or any of its significant subsidiaries, as the
case may be, or, in the case of Manor Care or its affiliates, seek to effect (1)
the acquisition of any shares of Manor Care Common Stock held by Key
Stockholders (as defined in the Merger Agreement) or (2) the Restructuring
Transactions (any of the foregoing restricted inquiries, proposals, or offers
being referred to as an "Acquisition Proposal"), except in each case as required
or expressly contemplated by the Vitalink Agreement, (ii) engage in negotiations
or discussions concerning an Acquisition Proposal with any person or group or
disclose or provide any non-public information relating to the business of such
party or any significant subsidiary, or afford access to the properties, books,
or records of the party or any significant subsidiary, to any person or group
that such party has reason to believe may be considering an Acquisition
Proposal, or (iii) agree to, approve, or recommend any Acquisition Proposal;
provided, however, that nothing contained in the Merger Agreement shall prevent
Manor Care or HCR, or their respective Board of Directors, from (A) furnishing
non-public information or access to, or entering into discussions or
negotiations with, any person or entity in connection with an unsolicited bona
fide Acquisition Proposal by such person or entity or recommending an
unsolicited bona fide written Acquisition Proposal to the stockholders, if and
only to the extent that (1) a third party has made a written proposal to the
Board of Directors of Manor Care or HCR, as applicable, to consummate an
Acquisition Proposal, which proposal identifies a price or range of values to be
paid for the outstanding securities or substantially all of the assets of Manor
Care or HCR, as applicable, (2) the Board of Directors of such party believes in
good faith, after consultation with its financial advisor, that such Acquisition
Proposal is reasonably capable of being completed on the terms proposed and
would, if consummated, result in a transaction more favorable to the
stockholders of such party than the transaction contemplated by the Merger
Agreement (a "Superior Proposal"), (3) the Board of Directors of such party
determines in good faith, following consultation with outside legal counsel,
that such action is required for such Board of Directors to comply with its
fiduciary duties to stockholders under applicable law and (4) prior to
furnishing such non-public information to, or entering into discussions or
negotiations with, such person or entity, the Board of Directors receives from
such person or entity an executed confidentiality agreement on terms no less
favorable to Manor Care or HCR, as the case may be, than those contained in the
respective confidentiality agreements between HCR and Manor Care dated May 12,
1998, or (B) complying with Rule 14e-2 promulgated under the Exchange Act with
regard to an Acquisition Proposal. Each of Manor Care and HCR shall immediately
cease and cause to be terminated any existing activities, discussions, or
negotiations with any party conducted heretofore with respect to any Acquisition
Proposal. Each of Manor Care and HCR agrees not to release any third party from,
or waive any provision of, any standstill agreement to which it is a party or
any confidentiality agreement between it and another person who has made, or who
may reasonably be considered likely to make, an Acquisition Proposal, unless the
Board of Directors of Manor Care or HCR, as applicable, determines in good
faith, following consultation with outside legal counsel, that such action is
required for such Board of Directors to comply with its fiduciary duties to
stockholders under applicable law.
The Merger Agreement requires each of Manor Care and HCR to promptly notify
the other (orally and in writing) upon receipt by it or its advisers of any
Acquisition Proposal or any request for non-public information in connection
with an Acquisition Proposal or for access to the properties, books, or records
thereof by any person or entity that informs Manor Care or HCR, as the case may
be, that it is considering making, or has made, an Acquisition Proposal. Such
notice shall indicate the identity of the offeror and in reasonable detail the
terms and conditions of such proposal, inquiry or contact. The notifying party
shall continue to keep the other party informed, on a current basis, of the
status of any such discussions or negotiations and the terms being discussed or
negotiated. Notwithstanding the foregoing, neither Manor Care nor HCR shall
accept or
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enter into any agreement concerning a Superior Proposal for a period of at least
five business days after the other party's receipt of the notification of the
terms thereof, during which period the other party shall be afforded the
opportunity to match the terms and conditions contained in such Superior
Proposal.
Stockholders' Meetings. The Merger Agreement provides that each of HCR and
Manor Care will call a special meeting of its stockholders as soon as
practicable for the purpose of voting, in the case of HCR, upon the approval of
the Transaction Proposal and, in the case of Manor Care, upon the approval of
the Merger Proposal. Subject to the discussion above under "-- No Solicitation,"
each of HCR and Manor Care agrees to recommend to its stockholders approval of
such matters, to coordinate and cooperate with respect to the timing of the
stockholders' meetings and to use its reasonable best efforts to hold its
stockholders' meetings on the same day as the other party's stockholders'
meeting and as soon as practicable after the date of the Merger Agreement. Each
party will use its reasonable best efforts to solicit from its stockholders
proxies in favor of such matters as long as the recommendation of its Board of
Directors remains in effect.
Post-Merger Corporate Governance. The Merger Agreement provides that,
immediately following the Effective Time, the current Chairman, President and
Chief Executive Officer of HCR shall continue as President and Chief Executive
Officer of HCR Manor Care and the current Chairman, President and Chief
Executive Officer of Manor Care shall become Chairman of the Board of HCR Manor
Care.
The Merger Agreement provides that at the Effective Time, the total number
of persons serving on the Board of Directors of HCR Manor Care shall be ten
(unless otherwise agreed to in writing by Manor Care and HCR prior to the
Effective Time), half of whom shall be Manor Care Directors and half of whom
shall be HCR Directors. The initial Board of Directors of HCR Manor Care at the
Effective Time shall include no more than two Manor Care Directors and no more
than two HCR Directors who, prior to the Effective Time, were employees of Manor
Care or HCR, respectively. In the event that, prior to the Effective Time, any
person so selected to serve on the Board of Directors of HCR Manor Care
effective at and immediately after the Effective Time is unable or unwilling to
serve in such position, the applicable Board of Directors that selected such
person shall designate another person to serve in such person's stead in
accordance with the provisions of the immediately preceding sentence.
From and after the Effective Time until and including HCR Manor Care's
second annual stockholders meeting following the Effective Time, the Board of
Directors of HCR Manor Care shall, subject to their fiduciary duties, promptly
take all necessary action to increase the size of each existing committee to
four members and take such action to ensure that such committee and any other
committee of the Board of Directors is comprised one-half of HCR Directors and
one-half of Manor Care Directors.
According to the Merger Agreement, each of Manor Care and HCR shall take
such action as shall reasonably be deemed by either thereof to be advisable to
give effect to the above-described post-merger governance provisions, including
without limitation incorporating such provisions in the By-laws of HCR Manor
Care to be effective at the Effective Time (which By-laws will provide that
during the Governance Term (i) the Board of Directors of HCR Manor Care may not
amend such provisions without the approval of not less than 75% of the members
thereof and (ii) the stockholders of HCR Manor Care may not amend such
provisions without the approval of holders of not less than 80% of the
outstanding shares of HCR Manor Care).
For additional discussion of post-Merger corporate governance, see "The
Combined Company -- Governance."
Director and Officer Indemnification. The Merger Agreement provides that
all rights to indemnification, expense advancement, and exculpation existing in
favor of any present or former director, officer, or employee of Manor Care or
any of its Subsidiaries as provided in the certificate of incorporation,
by-laws, or similar organizational documents of Manor Care or any of its
Subsidiaries or by law as in effect on the date of the Merger Agreement shall
survive the Merger with respect to matters occurring at or prior to the
Effective Time, and no action taken during such period shall be deemed to
diminish the obligations set forth in this paragraph. HCR has guaranteed,
effective at the Effective Time, all obligations of the Surviving Corporation
and the Subsidiaries in respect of such indemnification and expense advancement.
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For a period of at least six years after the Effective Time, HCR shall
cause the Surviving Corporation to maintain in effect either (i) the current
policy of directors' and officers' liability insurance maintained by Manor Care
(provided that HCR or the Surviving Corporation may substitute therefor policies
of at least the same coverage and amounts containing terms and conditions which
are no less advantageous in any material respect to the insured parties
thereunder) with respect to claims arising from facts or events that occurred at
or before the Effective Time (including consummation of the transactions
contemplated by the Merger Agreement), or (ii) a run-off (that is, "tail")
policy or endorsement with respect to the current policy of directors' and
officers' liability insurance covering claims asserted within four years after
the Effective Time arising from facts or events that occurred at or before the
Effective Time (including consummation of the transactions contemplated by the
Merger Agreement); provided, however, in no event shall HCR or the Surviving
Corporation be required to pay annual premiums in excess of 200% of the annual
premium currently paid by Manor Care; and if such premium would at any time
exceed 200% of such amount, HCR or the Surviving Corporation may maintain
policies that provide the best coverage available for 200% of such amount and
such policies or endorsements will name as insureds thereunder all present and
former directors and officers of Manor Care or any of its Subsidiaries.
Employee Matters. According to the Merger Agreement, HCR will or will cause
the Surviving Corporation to maintain in effect, for a period of one (1) year
after the Effective Time, employee benefit plans and arrangements which, with
respect to the employees of Manor Care and its Subsidiaries (for so long as they
are Subsidiaries) as a whole, provide benefits which are of substantially
comparable value, in the aggregate, to the benefits provided by Manor Care's
employee plans (not taking into account any benefits under any such plans which
are equity based).
For purposes of determining eligibility to participate and vesting, but not
accrual or entitlement to benefits other than severance benefit accrual where
length of service is relevant under any employee benefit plan or arrangement of
HCR or the Surviving Corporation, employees of Manor Care and its Subsidiaries
(for so long as they are Subsidiaries) as of the Effective Time will receive
service credit for service with Manor Care and any of its Subsidiaries (for so
long as they are Subsidiaries) to the same extent that such service was
recognized under Manor Care's employee plans and will waive any pre-existing
condition exclusions and actively-at-work requirements and provide that any
expenses incurred on or before the Effective Time by an employee of Manor Care
or its Subsidiaries (for so long as they are Subsidiaries) or such employee's
covered dependents will be taken into account for purposes of satisfying
applicable deductible, coinsurance and maximum out-of-pocket provisions.
Restricted Stock Plans. Pursuant to the Merger Agreement, at the Effective
Time, each outstanding award of Manor Care restricted stock will be assumed by
HCR, except that each Manor Care Award will apply to that number of whole shares
of HCR Common Stock equal to the number of shares of Manor Care Common Stock
that were subject to such award immediately prior to the Effective Time rounded
to the next highest whole number. See "The Merger -- Interests of Certain
Persons in the Merger."
Other Covenants. Pursuant to the Merger Agreement, each of HCR and Manor
Care has also agreed: (a) to cooperate with each other in the preparation of
this Joint Proxy Statement/Prospectus and to file this Joint Proxy
Statement/Prospectus and the Registration Statement, to make all necessary
filings with respect to the Merger under the Securities Act and Exchange Act,
and to obtain all necessary state securities laws permits or approvals; (b) to
give (and to cause their respective Subsidiaries to give) its representatives
reasonable access to all its personnel, properties, books, contracts,
commitments and records to the other party and its representatives, and to
furnish related information reasonably requested by the other party; (c) to use
its reasonable best efforts to comply promptly with all legal requirements that
may be imposed on it with respect to the Merger, to undertake its reasonable
best efforts to obtain any consent, authorization, order or approval of, or any
exemption by, any government entity or other third party, required in connection
with the Merger; (d) to not take any action, or knowingly fail to take any
action, that is reasonably likely to jeopardize the tax or accounting treatment
of the Merger; (e) to use all reasonable best efforts to obtain all necessary
consents, waivers, and approvals under any material agreements, contracts,
licenses, or leases in connection with the Merger; (f) to use its reasonable
best efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things necessary, proper, or advisable under applicable laws and
regulations to
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consummate and make effective the transactions contemplated by this Agreement,
subject to the vote of stockholders of HCR and Manor Care; (g) to comply with
the provisions of the confidentiality agreements between Manor Care and HCR
dated May 12, 1998 (the "Confidentiality Agreements"), which shall remain in
full force and effect until the later of the Effective Time or such date
specified therein; (h) to grant the option described in the applicable Stock
Option Agreements immediately upon execution of this Agreement and to perform
fully its obligations thereunder; and (i) to use all reasonable best efforts to
obtain customary "comfort" letters of such party's independent public
accountants with respect to appropriateness of pooling-of-interests accounting
for the Merger. In addition, Manor Care has agreed to give HCR a reasonable
opportunity to participate in the defense of any stockholder litigation against
Manor Care or its directors relating to the transactions contemplated by the
Merger Agreement or the Vitalink Transaction. HCR has agreed to cause the shares
of HCR Common Stock to be issued in the Merger to be approved for listing on the
NYSE before the Effective Time and to use its reasonable best efforts to file on
a timely basis all reports required to be filed by it pursuant to Section 13 or
15(d) of the Exchange Act, referred to in paragraph (c)(1) of Rule 144 under the
Securities Act, for so long as the filing of such reports is necessary to the
resale of HCR Common Stock by certain Manor Care affiliates.
CONDITIONS TO OBLIGATIONS TO EFFECT THE MERGER
The respective obligations of HCR and Manor Care to effect the Merger are
subject to the satisfaction (or waiver) of the following conditions: (a) the
Merger Agreement and the Merger shall have been approved and adopted by the
requisite vote of the stockholders of Manor Care as may be required by law, by
the rules of the NYSE, and by any applicable provisions of its Certificate of
Incorporation or By-laws, and the Transaction Proposal shall have been approved
by the requisite vote of the stockholders of HCR as may be required by law, by
the rules of the NYSE, and by any applicable provisions of its Certificate of
Incorporation or By-laws; (b) the waiting period applicable to the consummation
of the Merger under the HSR Act shall have expired or been terminated; (c) there
shall have been obtained permits, consents, and approvals of securities or "blue
sky" commissions or agencies of any jurisdiction and of other governmental
bodies or agencies that may reasonably be deemed necessary so that the
consummation of the Merger and the other transactions contemplated thereby will
be in compliance with applicable laws except where the failure to obtain such
permits, consents and approvals would not be reasonably expected to have a
Material Adverse Effect (as defined in the Merger Agreement) on Manor Care or
HCR; (d) the Registration Statement shall have become effective under the
Securities Act and shall not be the subject of any stop order or proceedings
seeking a stop order and this Joint Proxy Statement/Prospectus shall have been
delivered to the stockholders of Manor Care and HCR in accordance with the
requirements of the Securities Act and the Exchange Act; (e) no temporary
restraining order, preliminary or permanent injunction, or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger or materially limiting or
restricting HCR's conduct or operation of the business of HCR or Manor Care
after the Merger shall have been issued, nor shall any proceeding brought by a
governmental entity seeking any of the foregoing be pending which if adversely
determined would be reasonably likely to have a Material Adverse Effect on HCR
or Manor Care; nor shall there be any action taken, or any statute, rule,
regulation, or order enacted, entered, enforced, or deemed applicable to the
Merger which makes the consummation of the Merger illegal; (f) HCR and Manor
Care shall have received letters from Ernst & Young LLP and Arthur Andersen LLP,
respectively, addressed to HCR and Manor Care, respectively, regarding their
concurrence with the respective conclusions of management of HCR and Manor Care,
as to the appropriateness of the pooling of interests accounting for the Merger,
if it is closed and consummated in accordance with the Merger Agreement; (g) HCR
and Manor Care shall have received the opinion of their respective counsel, to
the effect that the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code and that none of
HCR, Merger Sub, Manor Care or Manor Care stockholders shall recognize gain or
loss for federal income tax purposes as a result of the Merger (other than with
respect to any cash received in lieu of fractional shares of HCR Common Stock);
and (h) the shares of HCR Common Stock to be issued in the Merger shall have
been approved for listing on the NYSE.
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The obligation of HCR and Merger Sub to effect the Merger are subject to
the satisfaction (or waiver) of the following conditions: (a) the
representations and warranties of Manor Care set forth in the Merger Agreement
(i) shall be true and correct in all respects as of the date of the Merger
Agreement and (ii) shall be true and correct immediately before the Effective
Time, with the same force and effect as if made on and as of the Effective Time,
except to the extent any inaccuracies in any such representations or warranties,
individually or in the aggregate, do not materially impair the ability of Manor
Care to consummate the transactions contemplated thereby and would not have a
Material Adverse Effect on Manor Care; (b) Manor Care shall have performed in
all material respects all obligations required to be performed by it under the
Merger Agreement at or before the Closing Date; (c) since the date of the Merger
Agreement, there shall not have occurred or arisen any event, circumstance or
condition in the business, operations, results of operations, properties, or
financial condition of Manor Care and its Subsidiaries, taken as a whole except
for (i) such changes that, individually or in the aggregate, would not have a
Material Adverse Effect on Manor Care or (ii) any anticipated change in health
care laws or regulations; (d) Manor Care shall have obtained all necessary
consents, waivers, and approvals required under any of its material agreements,
contracts, and licenses, except those consents the failure of which to obtain
would not have a Material Adverse Effect on Manor Care or materially impair the
ability of Manor Care to consummate the Merger; (e) no rights shall have become
exercisable under the Manor Care Rights Agreement; and (f) the Board of
Directors of IHH shall have been presented the Merger Agreement and the
Ancillary Agreements and provided such approvals as are sufficient to render the
restrictions of Section 302A.673 of the Minnesota Business Corporation Act (the
"MBCA") inapplicable to the Merger and the other transactions contemplated by
the Merger Agreement and by the Ancillary Agreements, and the articles or
by-laws of IHH shall have been amended to render Section 302A.671 of the MBCA
inapplicable to the Merger and the other transactions contemplated by the Merger
Agreement and by the Ancillary Agreements.
The obligation of Manor Care to effect the Merger are subject to the
satisfaction (or waiver) of the following conditions: (a) the representations
and warranties of HCR and Merger Sub contained in the Merger Agreement (i) shall
be true and correct in all respects as of the date of the Merger Agreement and
(ii) shall be true and correct immediately before the Effective Time, with the
same force and effect as if made on and as of the Effective Time, except to the
extent any inaccuracies in any such representations or warranties, individually
or in the aggregate, do not materially impair the ability of HCR or Merger Sub
to consummate the transactions contemplated thereby and would not have a
Material Adverse Effect on HCR; (b) HCR and Merger Sub shall have performed in
all material respects all obligations required to be performed by them under the
Merger Agreement at or before the Closing Date; (c) since the date of the Merger
Agreement, there shall not have occurred or arisen any event, circumstance or
condition in the business, operations, results of operations, properties, or
financial condition of HCR and its Subsidiaries, taken as a whole except for (i)
such changes that, individually or in the aggregate, would not have a Material
Adverse Effect on HCR or (ii) any anticipated change in health care laws or
regulations; (d) HCR shall have obtained all necessary consents, waivers, and
approvals required under any of its material agreements, contracts, and
licenses, except those consents the failure of which to obtain would not have a
Material Adverse Effect on HCR or materially impair the ability of HCR to
consummate the Merger; and (e) no rights shall have become exercisable under the
HCR Rights Agreement.
TERMINATION; TERMINATION FEES AND EXPENSES
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the matters presented in connection
with the Merger by the stockholders of HCR and Manor Care:
(a) by mutual written consent of Manor Care and HCR; or
(b) by either Manor Care or HCR if the Merger shall not have been
consummated by December 31, 1998; provided, however, such date shall
be extended to March 31, 1999 in the event all conditions to effect
the Merger other than those set forth relating to the attainment of
governmental approvals and absence of injunctions or restraining
orders have been or are capable of being satisfied at such time and
the conditions relating to the attainment of
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governmental approvals and absence of injunctions or restraining
orders have been or are reasonably capable of being satisfied on or
prior to March 31, 1999 (December 31, 1998, as it may be so
extended, shall be referred to herein as the "Outside Date"),
provided that the right to terminate the Merger Agreement under
this clause (b) shall not be available to any party whose failure
to fulfill any obligation under the Merger Agreement has been the
cause of or resulted in the failure of the Merger to occur on or
before such date; or
(c) by either Manor Care or HCR if a court of competent jurisdiction or
other governmental entity shall have issued a nonappealable final
order, decree or ruling or taken any other nonappealable final
action, in each case having the effect of permanently restraining,
enjoining or otherwise prohibiting the Merger; or
(d) by Manor Care, if, at the HCR Special Meeting (including any
adjournment or postponement thereof), the requisite vote of the
stockholders of HCR in favor of the HCR Transaction Proposal shall
not have been obtained; or by HCR if, at the Manor Care Special
Meeting (including any adjournment or postponement thereof), the
requisite vote of the stockholders of Manor Care in favor of the
Merger Proposal shall not have been obtained; or
(e) by Manor Care, if (i) the Board of Directors of HCR shall have
withdrawn or modified its recommendation of the issuance of HCR
Common Stock under the Transaction Proposal; (ii) after the receipt
by HCR of a proposal concerning an Alternative Transaction (as
defined in the Merger Agreement), Manor Care requests in writing
that the Board of Directors of HCR reconfirm its recommendation of
the Transaction Proposal, and the Board of Directors of HCR fails to
do so within 10 business days after its receipt of Manor Care's
request; (iii) the Board of Directors of HCR shall have recommended
to the stockholders of HCR an Alternative Transaction; (iv) a tender
offer or exchange offer that, if successful, would result in any
person or "group" becoming a "beneficial owner" (such terms having
the meaning in the Merger Agreement as is ascribed under Regulation
13D under the Exchange Act) of 35% or more of the outstanding shares
of HCR Common Stock is commenced (other than by Manor Care or an
affiliate of Manor Care) and the Board of Directors of HCR
recommends that the stockholders of HCR tender their shares in such
tender or exchange offer or (v) for any reason HCR fails to call and
hold the HCR Special Meeting by the Outside Date (provided that
Manor Care's right to terminate the Merger Agreement under such
clause (v) shall not be available if at such time HCR would be
entitled to terminate the Merger Agreement under clause (g) below);
or
(f) by HCR, if (i) the Board of Directors of Manor Care shall have
withdrawn or modified its recommendation of the Merger Agreement;
(ii) after the receipt by Manor Care of a proposal concerning an
Alternative Transaction, HCR requests in writing that the Board of
Directors of Manor Care reconfirm its recommendation of the Merger
Agreement and the Merger and the Board of Directors of Manor Care
fails to do so within 10 business days after its receipt of HCR's
request; (iii) the Board of Directors of Manor Care shall have
recommended to the stockholders of Manor Care an Alternative
Transaction; (iv) a tender offer or exchange offer that, if
successful, would result in any person or group becoming a
beneficial owner of 35% or more of the outstanding shares of Manor
Care Common Stock is commenced (other than by HCR or an affiliate of
HCR) and the Board of Directors of Manor Care recommends that the
stockholders of Manor Care tender their shares in such tender or
exchange offer; or (v) for any reason Manor Care fails to call and
hold the Manor Care Special Meeting by the Outside Date (provided
that HCR's right to terminate the Merger Agreement under such clause
(v) shall not be available if at such time Manor Care would be
entitled to terminate the Merger Agreement under clause (g) below);
or
(g) by Manor Care or HCR, if there has been a breach of any
representation, warranty, covenant or agreement on the part of the
other party set forth in the Merger Agreement, which breach (i)
causes the conditions described above in the third paragraph under
"-- Conditions to
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Obligations to Effect the Merger" (in the case of termination by
Manor Care) or described above in the second paragraph under "--
Conditions to Obligations to Effect the Merger" (in the case of
termination by HCR) not to be satisfied, and (ii) shall not have
been cured within 20 business days following receipt by the
breaching party of written notice of such breach from the other
party; or
(h) by Manor Care, prior to the approval by HCR's stockholders of the
Transaction Proposal, or by HCR, prior to approval by Manor Care's
stockholders of the Merger Proposal, if, as a result of a Superior
Proposal received by such party from a third party, the Board of
Directors of such party determines in good faith, following
consultation with outside legal counsel, that failing to accept such
Superior Proposal would constitute a breach by the Board of
Directors of such party of its fiduciary duties to its stockholders
under applicable law; provided, however, that no termination shall
be effective pursuant to this clause (h) under circumstances in
which a termination fee is payable by the terminating party pursuant
to the third or fourth succeeding paragraph, unless concurrently
with such termination, such fees are paid in full by the terminating
party in accordance with such clauses.
In the event of any termination of the Merger Agreement by either Manor
Care or HCR as provided above, the Merger Agreement will become void and there
will be no liability or obligation (with limited exceptions) on the part of
Manor Care, HCR, Merger Sub or their respective officers, directors,
stockholders or affiliates, except, in the case of Manor Care, HCR or Merger Sub
as provided below with respect to termination fees and except that such
termination will not limit liability for a willful breach of the Merger
Agreement or the Stock Option Agreements; provided that, the termination fee
provisions described below and the Confidentiality Agreements will remain in
full force and effect and survive any termination of the Merger Agreement.
Except as set forth below, whether or not the Merger is consummated, all
fees, costs and expenses incurred in connection with the Merger Agreement and
the transactions contemplated thereby will be paid by the party incurring such
expenses.
HCR will pay Manor Care a termination fee of $70 million (the "HCR
Termination Fee") concurrently upon the earliest to occur of the following
events: (i) the termination of the Merger Agreement by Manor Care under the
circumstances described in paragraph (d) above, if a proposal for an Alternative
Transaction involving HCR has been publicly announced prior to the HCR Special
Meeting and an Alternative Transaction with HCR is either entered into or
consummated, within eighteen months of such termination; (ii) the termination of
the Merger Agreement by Manor Care under the circumstances described in
paragraph (e) above; or (iii) the termination of the Merger Agreement by HCR
under the circumstances described in paragraph (h) above. HCR's payment of (i) a
termination fee and (ii) amounts, if any, payable pursuant to the HCR Stock
Option Agreement shall be the sole and exclusive remedy of Manor Care against
HCR and any of its Subsidiaries and their respective directors, officers,
employees, agents, advisors or other representatives with respect to the
occurrences giving rise to such payment; provided that this limitation shall not
apply in the event of a willful breach of the Merger Agreement by HCR.
Notwithstanding the foregoing, the amount of the Manor Care Termination Fee will
be reduced to the extent that the Manor Care Total Profit (as defined below
under "Other Agreements -- Manor Care Stock Option Agreement") exceeds $70
million.
Manor Care will pay HCR a termination fee of $100 million (the "Manor Care
Termination Fee") concurrently upon the earliest to occur of the following
events: (i) the termination of the Merger Agreement by HCR under the
circumstances described in paragraph (d) above, if a proposal for an Alternative
Transaction involving Manor Care has been publicly announced prior to the Manor
Care Special Meeting and an Alternative Transaction with Manor Care is either
entered into or consummated, within eighteen months of such termination (or in
the case of the Restructuring Transactions, or transactions in whole or in part
similar thereto, twelve months); (ii) the termination of the Merger Agreement by
HCR under the circumstances described in paragraph (f) above; or (iii) the
termination of the Merger Agreement by Manor Care under the circumstances
described in paragraph (h) above. Manor Care's payment of (i) a termination fee
and (ii) amounts, if any, payable pursuant to the Manor Care Stock Option
Agreement shall be the sole and
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exclusive remedy of HCR against Manor Care and any of its Subsidiaries and their
respective directors, officers, employees, agents, advisors or other
representatives with respect to the occurrences giving rise to such payment;
provided that this limitation shall not apply in the event of a willful breach
of the Merger Agreement by Manor Care. Notwithstanding the foregoing, the amount
of the Manor Care Termination Fee will be reduced to the extent that the Manor
Care Total Profit (as defined below under "Other Agreements -- Manor Care Stock
Option Agreement") exceeds $100 million.
AMENDMENT; WAIVER OF COMPLIANCE AND CONSENTS
To the extent permitted by applicable law, the Merger Agreement may be
amended, modified or supplemented at any time before the Effective Time with
respect to any of the terms contained therein only by written agreement of the
parties, except that after the Manor Care Special Meeting, the amount and form
of the merger consideration shall not be altered without the approval of the
stockholders of Manor Care.
Any failure of a party to comply with any obligation, covenant, agreement,
or condition in the Merger Agreement, to the extent legally allowed, may be
waived in writing by the other, 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 the Merger Agreement requires or permits consent by or on
behalf of any party thereto, such consent shall be given in writing in a manner
consistent with the requirements for a waiver of compliance as set forth in this
paragraph.
PRESS RELEASES AND PUBLIC ANNOUNCEMENTS
In addition to the foregoing, neither HCR nor Manor Care may issue any
press release or make any public disclosure relating to the subject matter of
the Merger Agreement without prior written approval of the other party;
provided, however, that each of Manor Care and HCR may make any public
disclosure it believes in good faith is required by applicable law, SEC
regulations or any listing or trading agreement concerning its publicly traded
securities after consultation with the other party regarding the form and
content of the disclosure before making such disclosure.
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OTHER AGREEMENTS
The following is a summary of the material terms of the Voting Agreement,
the HCR Stock Option Agreement, the Manor Care Stock Option Agreement and the
Registration Rights Agreement. Copies of the Voting Agreement and the HCR Stock
Option Agreement are filed as exhibits to HCR's Schedule 13D, dated June 19,
1998, as amended. A copy of the Manor Care Stock Option Agreement is filed as an
exhibit to Manor Care's Schedule 13D, dated June 19, 1998. These Agreements are
hereby incorporated herein by reference. Such summaries are qualified in their
entirety by reference to the Voting Agreement, the Stock Option Agreements and
the Registration Rights Agreement.
VOTING AGREEMENT
As a condition of HCR entering into the Merger Agreement, HCR entered into
a Voting Agreement (the "Voting Agreement") with Bainum Associates Limited
Partnership, MC Investments Limited Partnership, Mid Pines Associates Limited
Partnership, Realty Investment Company, Inc., The Stewart Bainum Declaration of
Trust and The Jane L. Bainum Declaration of Trust (the "Bainum Holders").
Collectively, the Bainum Holders hold approximately 31% of the combined voting
power of the outstanding capital stock of Manor Care, and therefore, together,
are able to significantly influence the vote on the approval and adoption of the
Merger Agreement and the transactions contemplated thereby by the Manor Care
stockholders.
According to the Voting Agreement, at every meeting of the stockholders of
Manor Care called with respect to any of the following, and at every adjournment
thereof, and on every action or approval by written consent of the stockholders
of Manor Care with respect to any of the following, each Bainum Holder,
severally and not jointly, agrees that it shall vote or execute a written
consent, with respect to all the Manor Care Common Stock for which each Bainum
Holder is the record and/or beneficial owner (together with any shares of Manor
Care Common Stock thereafter acquired, the "Subject Securities") as to which it
has power to vote in any such vote or consent: (i) in favor of the Merger, the
adoption of and execution and delivery of the Merger Agreement and the approval
of the terms thereof and each of the other transactions contemplated by the
Merger Agreement and (ii) against the following actions (other than the Merger
and the transactions contemplated by the Merger Agreement): (1) any
extraordinary corporate transaction, including, but not limited to a merger,
consolidation or other business combination involving Manor Care or any of its
subsidiaries (other than IHH); (2) a sale, lease or transfer of a material
amount of assets of Manor Care or any of its subsidiaries (other than IHH) or a
reorganization, recapitalization, dissolution or liquidation of Manor Care or
any of its subsidiaries (other than IHH); (3) (a) any change in the majority of
the board of directors of Manor Care except as contemplated by the Voting
Agreement; (b) any material change in the present capitalization of Manor Care
or any amendment of Manor Care's Certificate of Incorporation; (c) any other
material change in Manor Care's corporate structure or business; or (d) any
other action, which, in the case of each of the matters referred to in clauses
(a), (b) or (c) above, is intended, or could reasonably be expected, to impede,
interfere with, delay, postpone, discourage or materially adversely affect the
consummation of the Merger or the transactions contemplated by the Merger
Agreement or the Voting Agreement.
In the Voting Agreement, each Bainum Holder, severally and not jointly,
grants to, and appoints Merger Sub and the president of Merger Sub and the
treasurer of Merger Sub, in their respective capacities as officers of Merger
Sub, and any individual who shall thereafter succeed to any such office of
Merger Sub, and any other designee of Merger Sub, each of them individually,
such Bainum Holder's proxy and attorney-in-fact (with full power of
substitution) to vote or act by written consent with respect to such Bainum
Holder's Subject Securities in accordance with the above paragraph. The proxy is
coupled with an interest and shall be irrevocable, and each Bainum Holder will
take such further action or execute such other instruments as may reasonably be
necessary to effectuate the intent of this proxy and thereby revokes any proxy
previously granted by it with respect to the Subject Securities.
Pursuant to the terms of the Voting Agreement, each Bainum Holder agrees
not to, directly or indirectly, solicit (including by way of furnishing
information) or respond to any inquiries or the making of any proposal by any
person or entity (other than HCR or any affiliate of HCR) with respect to Manor
Care that constitutes or could reasonably be expected to lead to an Alternative
Transaction. If any Bainum Holder receives any such
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inquiry or proposal, then it shall promptly inform HCR of the terms and
conditions, if any, of such inquiry or proposal and the identity of the person
making it. Such Bainum Holder will immediately cease and cause to be terminated
any existing activities, discussions or negotiations with any parties conducted
theretofore with respect to any of the foregoing.
Each Bainum Holder also agrees not to, directly or indirectly: (i) except
pursuant to the terms of the Merger Agreement, offer for sale, sell, transfer
(whether by merger, operation of law or otherwise), tender, pledge, encumber,
assign or otherwise dispose of, or enter into any contract, option or other
arrangement or understanding with respect to or consent to the offer for sale,
sale, transfer, tender, pledge, encumbrance, assignment or other disposition of,
any or all of such Bainum Holder's Subject Securities; provided, however, that
such Bainum Holder may in connection with its estate planning objectives,
transfer or assign any or all of its Subject Securities to (a) Stewart Bainum or
his spouse or widow, their lineal descendants or their spouses or widows or
widowers (so long as they remain spouses) (each a "Member of the Bainum
Family"), or the estate of the foregoing persons (but only until such time as
such shares of the Common Stock are distributed therefrom), (b) any partnership,
trust, corporation or other entity (each, an "Entity"), but only if a Member or
Members of the Bainum Family or another Entity satisfying the requirements of
the Voting Agreement are the sole "Beneficial Owners" (as such term is defined
under the HCR Rights Plan (as defined in the Merger Agreement)) of the Manor
Care Common Stock held by such Entity, other than any officer, trustee,
director, or other managing person or managing partner or managing member of any
such Entity to the extent any such person is deemed to be the Beneficial Owner
of Manor Care Common Stock held by such Entity, provided such person is not the
Beneficial Owner, other than through an Entity described in this clause (b), of
in excess of 1% of the total outstanding Manor Care Common Stock; (ii) except as
contemplated by the Voting Agreement, grant any proxies or powers of attorney,
deposit any such Subject Securities into a voting trust or enter into a voting
agreement with respect to any of such Bainum Holder's Subject Securities; or
(iii) take any action that would make any representation or warranty contained
in the Voting Agreement untrue or incorrect or have the effect of preventing or
disabling such Bainum Holder from performing its obligations under the Voting
Agreement.
The Voting Agreement will terminate upon the earlier of (i) the Effective
Time of the Merger and (ii) the date of termination of the Merger Agreement,
unless the termination of the Merger Agreement gives rise to the obligation of
Manor Care to pay a termination fee, in which case the Voting Agreement shall
terminate on the date that is the six month anniversary of the date of
termination of the Merger Agreement. Upon any termination of the Voting
Agreement, the Voting Agreement will become void and of no further force and
effect, and there shall be no liability in respect of the Voting Agreement or of
any transactions contemplated thereby or by the Merger Agreement on the part of
any party to the Voting Agreement or any of its directors, officers, partners,
stockholders, employees, agents, advisors, representatives or affiliates;
provided, however, that nothing therein shall relieve any party from any
liability for such party's willful breach of the Voting Agreement; and provided
further that nothing therein shall limit, restrict, impair, amend or otherwise
modify the rights, remedies, obligations or liabilities of any person under any
other contract or agreement, including, without limitation, the Merger
Agreement.
HCR STOCK OPTION AGREEMENT
Pursuant to the HCR Stock Option Agreement, HCR has the right (the "HCR
Option"), under the circumstances described below, to acquire up to 12,675,421
shares of authorized but unissued Manor Care Common Stock (the "HCR Option
Shares") (or approximately 19.9% of the outstanding Manor Care Common Stock as
of June 10, 1998 prior to giving effect to the exercise of such option),
including the associated rights under the Manor Care Rights Plan, at a per share
cash purchase price of $31.00 (the "HCR Option Price"). The HCR Stock Option
Agreement could have the effect of making an acquisition of Manor Care by a
third party more costly because of the need to acquire in any such transaction
the HCR Option Shares issued under the HCR Stock Option Agreement, and could
jeopardize the ability of a third party to acquire Manor Care in a transaction
accounted for as a pooling of interests.
The Option may be exercised by HCR, in whole but not in part, at any time,
following the occurrence of an HCR Purchase Event (as defined below) and prior
to the termination of the HCR Option in accordance
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with the terms of the HCR Stock Option Agreement; provided that the HCR Option
may not be exercised if HCR is in material breach of any of its material
representations, warranties, covenants or agreement contained in the HCR Stock
Option Agreement or the Merger Agreement. An HCR Purchase Event shall be the
earliest of: (i) termination of the Merger Agreement by HCR under the
circumstances described in paragraph (d) under "-- Termination; Termination Fees
and Expenses," but only if a proposal for an Alternative Transaction involving
Manor Care shall have been made prior to the Manor Care Special Meeting and
either an Alternative Transaction with Manor Care is entered into, or an
Alternative Transaction with Manor Care is consummated, within eighteen months
of such termination (or twelve months in the case of the Restructuring
Transactions), (ii) the termination of the Merger Agreement by HCR under the
circumstances described in paragraph (f) under "The Merger Agreement --
Termination; Termination Fees and Expenses", or (iii) the termination of the
Merger Agreement by Manor Care under the circumstances described in paragraph
(h) under "The Merger Agreement -- Termination; Termination Fees and Expenses."
HCR may exercise the HCR Option by either (a) paying the HCR Option Price
in cash and receiving the HCR Option Shares or (b) electing, in lieu of the
payment of the HCR Option Price and the receipt of the HCR Option Shares, to
receive a cash payment from Manor Care in the amount of the excess of (i) the
higher of the price paid for the Manor Care Common Stock in an Alternative
Transaction or the then current market price of the Manor Care Common Stock over
(ii) the HCR Option Price.
In the event HCR exercises the HCR Option in whole and an Alternative
Transaction with respect to Manor Care has not occurred prior to the eighteen
month (twelve month in the case of the Restructuring Transactions) anniversary
of the date on which the Merger Agreement terminated pursuant to the terms
thereof, Manor Care will, subject to there being legally available funds
therefor, have the right, during the 90-day period beginning on such
anniversary, to purchase all (but not less than all) of the HCR Option Shares at
a purchase price equal to the greater of (i) the HCR Option Price or (ii) the
average of the closing sales prices for shares of Manor Care Common Stock on the
20 trading days ending five days prior to the date Manor Care gives written
notice of its intention to exercise such repurchase right.
The HCR Stock Option Agreement further provides that if HCR desires to sell
any of the HCR Option Shares within two years after the purchase of such shares
and such sale requires the registration of such shares under the Securities Act,
Manor Care will be required to prepare and file (subject to certain limitations)
a registration statement under the Securities Act for the purpose of permitting
such sale of HCR Option Shares by HCR. Manor Care will not be required to have
declared effective more than two such registration statements and may delay such
filings under certain circumstances.
Notwithstanding any other provisions of the HCR Stock Option Agreement, in
no event will the HCR Total Profit (as defined below) exceed $100 million. "HCR
Total Profit" means the aggregate amount (before taxes) of (i) the HCR
Termination Fee received by HCR, (ii) the amount received by HCR for the
repurchase of the HCR Option Shares by Manor Care pursuant to the second
preceding paragraph, less the purchase price paid by HCR for such shares, (iii)
the amount received by HCR in the sale of HCR Option Shares, less the purchase
price paid by HCR for such shares and (iv) the amount of any cash exercise
payment received by HCR.
The HCR Option will terminate upon the earlier of (i) the Effective Time,
(ii) the date on which HCR realizes a HCR Total Profit of $100 million, (iii)
the date on which the Merger Agreement is terminated, provided that the HCR
Option is not exercisable at such time and does not become exercisable
simultaneous with such termination, and (iv) 90 days after the date the HCR
Option becomes exercisable, provided that if the HCR Option cannot be exercised,
or the Manor Care Option Shares cannot be delivered to Manor Care upon such
exercise because of a preliminary or permanent injunction or other court order
or because the applicable waiting period under the HSR Act has not expired or
been terminated, the date referred to in clause (iv) above will be extended
until 30 days after such impediment to exercise has been removed.
MANOR CARE STOCK OPTION AGREEMENT
Pursuant to the Manor Care Stock Option Agreement, Manor Care has the right
(the "Manor Care Option"), under the circumstances described below, to acquire
up to 8,907,459 shares of authorized but
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unissued HCR Common Stock (the "Manor Care Option Shares") (or approximately
19.9% of the outstanding shares of HCR Common Stock as of June 10, 1998 prior to
giving effect to the exercise of such option), including the associated rights
under the HCR Rights Plan, at a per share cash purchase price of $36.65 (the
"Manor Care Option Price"). The Manor Care Stock Option Agreement could have the
effect of making an acquisition of HCR by a third party more costly because of
the need to acquire in any such transaction the Manor Care Option Shares issued
under the Manor Care Stock Option Agreement, and could also jeopardize the
ability of a third party to acquire HCR in a transaction accounted for as a
pooling of interests.
The Manor Care Option may be exercised by Manor Care, in whole but not in
part, at any time following the occurrence of a Manor Care Purchase Event and
prior to the termination of the Manor Care Option in accordance with the terms
of the Manor Care Stock Option Agreement; provided that the Manor Care Option
may not be exercised if Manor Care is in material breach of any of its material
representations, warranties, covenants or agreements contained in the Manor Care
Stock Option Agreement or in the Merger Agreement. A Manor Care Purchase Event
shall be the earliest of (i) termination of the Merger Agreement by Manor Care
under the circumstances described in paragraph (d) under "The Merger Agreement
- -- Termination; Termination Fees and Expenses", but only if a proposal for an
Alternative Transaction involving HCR shall have been made prior to the HCR
Special Meeting and either an Alternative Transaction with HCR is entered into,
or an Alternative Transaction with HCR is consummated, within eighteen months of
such termination, (ii) the termination of the Merger Agreement by Manor Care
under the circumstances described in paragraph (e) under "The Merger Agreement
- -- Termination; Termination Fees and Expenses", or (iii) the termination of the
Merger Agreement by HCR under the circumstances described in paragraph (h) under
"The Merger Agreement -- Termination; Termination Fees and Expenses."
Manor Care may exercise the Manor Care Option by either (a) paying the
Manor Care Option Price in cash and receiving the Manor Care Option Shares or
(b) electing, in lieu of the payment of the Manor Care Option Price and receipt
of the Manor Care Option Shares, to receive a cash payment (the "Cash Exercise
Payment") from HCR in the amount of the excess of (i) the higher of the price
paid for the HCR Common Stock in an Alternative Transaction or the then current
market price of the HCR Common Stock over (ii) the Manor Care Option Price.
In the event that Manor Care exercises the Manor Care Option in whole and
an Alternative Transaction with respect to HCR has not occurred prior to the
eighteen month anniversary of the date on which the Merger Agreement terminated
pursuant to the terms thereof, HCR will, subject to their being legally
available funds therefor, have the right, during the 90-day period beginning on
such anniversary, to purchase all (but not less than all) of the Manor Care
Option Shares at a purchase price equal to the greater of (i) the Manor Care
Option Price or (ii) the average of the closing sales prices for shares of HCR
Common Stock on the 20 trading days ending five days prior to the date HCR gives
notice of its intention to exercise such repurchase right.
The Manor Care Stock Option Agreement further provides that if Manor Care
desires to sell any of the Manor Care Option Shares within two years after the
purchase of such shares and such sale requires the registration of such shares
under the Securities Act, HCR will be required to prepare and file (subject to
certain limitations) a registration statement under the Securities Act for the
purpose of permitting such sale of shares by Manor Care. HCR will not be
required to have declared effective more than two such registration statements
and may delay such filings under certain circumstances.
Notwithstanding any other provisions of the Manor Care Stock Option
Agreement, in no event will the Manor Care Total Profit (as defined below)
exceed $70 million. "Manor Care Total Profit" means the aggregate amount (before
taxes) of (i) the Manor Care Termination Fee received by Manor Care, (ii) the
amount received by Manor Care for the repurchase of the Manor Care Option Shares
by HCR pursuant to the second preceding paragraph, less the purchase price paid
by Manor Care for such shares, (iii) the amount received by Manor Care in the
sale of Manor Care Option Shares, less the purchase price paid by Manor Care for
such shares and (iv) the amount of any cash exercise payment received by Manor
Care.
The Manor Care Option will terminate upon the earlier of (i) the Effective
Time, (ii) the date on which Manor Care realizes a Manor Care Total Profit of
$70 million, (iii) the date on which the Merger Agreement
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is terminated, provided that the Manor Care Option is not exercisable at such
time and does not become exercisable simultaneous with such termination, and
(iv) 90 days after the date the Manor Care Option becomes exercisable, provided
that if the Manor Care Option cannot be exercised, or the Manor Care Option
Shares cannot be delivered to HCR upon such exercise, because of a preliminary
or permanent injunction or other court order or because the applicable waiting
period under the HSR Act has not expired or been terminated, the date referred
to in clause (iv) above will be extended until 30 days after such impediment to
exercise has been removed.
REGISTRATION RIGHTS AGREEMENT
On the Closing Date, certain holders (the "Holders") of shares of HCR Manor
Care's Common Stock and HCR Manor Care will enter into a Registration Rights
Agreement with respect to the shares of HCR Manor Care Common Stock to be
received by such Holders in the Merger. The Registration Rights Agreement will
give Mr. Bainum, Jr. or any other person designated by the Holders of at least
50% of the Registrable Shares (as defined in the Registration Rights Agreement)
the right to demand that HCR Manor Care register all or any portion of HCR Manor
Care Common Stock held by them, provided that the minimum number of shares of
HCR Manor Care Common Stock requested to be registered pursuant to any demand
(including shares held by Registration Rights Holders not making such demand but
requesting to be included in such registration) shall be at least 2.5 million or
such lesser number of shares that would yield $100 million in any public
offering thereof. The Holders that receive shares of HCR Manor Care Common Stock
and certain of their transferees, as a group, will each be entitled to four such
demand registrations. Such demand registrations will be subject to certain
restrictions including postponement by HCR Manor Care for a limited period if
such registration would interfere with any proposed offering of shares, pending
financing, acquisition, corporate reorganization or other significant
transaction involving HCR Manor Care.
The Registration Rights Agreement will provide that demand registrations
will also be subject to customary underwriter "cutbacks," in which event the
amount of shares to be offered for the account of each Holder shall be reduced
pro rata on the basis of the number of shares to be registered by each Holder.
If HCR Manor Care seeks to register, in a proposed firm commitment
underwritten offering solely for cash for its own account (other than a
registration statement (a) on Form S-8 or any successor forms thereto, or (b)
filed solely in connection with a dividend reinvestment plan or employee benefit
plan of HCR Manor Care or its affiliates) or for the account of any Holder of
HCR Manor Care Common Stock, each other Holders also will have the right to
request that HCR Manor Care include any or all of their shares in the proposed
offering. The Registration Rights Agreement will limit the ability of each
Holder to effect a public sale or distribution of its shares of HCR Manor Care
Common Stock during certain periods if HCR Manor Care or an underwriter (in the
case of an underwritten public offering by HCR Manor Care), as the case may be,
determines that a public sale or distribution of such shares would have a
material adverse impact on an offering of HCR Manor Care Common Stock for which
HCR Manor Care has filed a registration statement.
In any registration effected pursuant to the Registration Rights Agreement,
each Holder will be required to pay all underwriting discounts, commissions or
fees and transfer taxes related to the offering and sale of its shares of HCR
Manor Care Common Stock as well as all other fees and expenses, including its
counsel, in connection with such registration. HCR Manor Care will be obligated
to pay all registration and filing fees, printing expenses, fees and
disbursements of counsel, independent certified public accountants, and other
persons retained by HCR Manor Care and other expenses incurred by HCR Manor Care
in connection with any such registration.
The Registration Rights Agreement also will contain certain customary
indemnification provisions whereby HCR Manor Care will indemnify the Holders,
the prospective underwriters and other securities industry personnel
participating in the distribution of shares of HCR Manor Care Common Stock for
liabilities arising out of actual or alleged material misstatements or omissions
in a registration statement that were not furnished by the Holders or
underwriters. Likewise, each Holder will indemnify HCR Manor Care for
liabilities arising out of actual or alleged material misstatements or omissions
made in the registration statement in reliance on information provided in
writing to HCR Manor Care by such Holder.
66
<PAGE> 75
COMPARATIVE MARKET PRICES AND DIVIDENDS
The following table sets forth, for the calendar quarters indicated, the
range of high and low sale prices of HCR Common Stock and Manor Care Common
Stock on the NYSE. For the years ended December 31, 1995 and 1996, the Manor
Care Common Stock prices are adjusted to reflect the spin-off of Manor Care's
lodging business in November 1996.
<TABLE>
<CAPTION>
HCR MANOR CARE
COMMON STOCK COMMON STOCK
--------------- ---------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
YEAR ENDING DECEMBER 31, 1998
3rd Quarter (through August 14, 1998)..................... $42.67 $31.31 $41.44 $30.13
2nd Quarter............................................... 45.06 35.94 38.63 29.25
1st Quarter............................................... 47.88 36.44 40.06 33.69
YEAR ENDED DECEMBER 31, 1997
4th Quarter............................................... 42.50 35.50 37.13 32.63
3rd Quarter............................................... 38.38 32.94 34.69 30.88
2nd Quarter............................................... 34.88 27.75 32.75 22.00
1st Quarter............................................... 30.75 25.00 28.00 24.38
YEAR ENDED DECEMBER 31, 1996
4th Quarter............................................... 29.25 23.88 28.00 23.97
3rd Quarter............................................... 26.00 21.75 24.91 20.34
2nd Quarter............................................... 26.63 23.25 25.53 23.25
1st Quarter............................................... 27.42 22.42 26.48 21.05
YEAR ENDED DECEMBER 31, 1995
4th Quarter............................................... 24.08 18.50 22.23 19.78
3rd Quarter............................................... 22.83 16.75 22.31 17.66
2nd Quarter............................................... 22.25 17.08 20.09 17.66
1st Quarter............................................... 21.83 18.25 19.78 17.50
</TABLE>
On June 9, 1998, the last trading date prior to the date on which HCR and
Manor Care publicly announced the signing of the Merger Agreement, the high and
low sales prices on the NYSE were $38.50 and $37.63 per share, respectively, for
HCR Common Stock, and were $31.94 and $30.88 per share, respectively, for Manor
Care Common Stock. The average closing price of HCR Common Stock and Manor Care
Common Stock for the 30 consecutive trading days ending June 9, 1998 were $39.77
and $31.84 per share, respectively. On August 10, 1998, the high and low sales
prices and last reported sales price on the NYSE were $35.50, $34.00 and $34.00
per share for HCR Common Stock, and were $35.13, $33.75 and $33.75 per share for
Manor Care Common Stock, respectively. On August 14, 1998, the high and low
sales prices and last reported sales price on the NYSE were $32.06, $31.00 and
$31.31 per share for HCR Common Stock, and were $31.69, $30.13 and $30.13 per
share for Manor Care Common Stock, respectively. STOCKHOLDERS OF BOTH HCR AND
MANOR CARE ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR HCR COMMON STOCK
AND MANOR CARE COMMON STOCK.
HCR has not declared or paid any cash dividends with respect to HCR Common
Stock and Manor Care has paid quarterly dividends of $.022 with respect to Manor
Care Common Stock. HCR Manor Care does not currently intend to declare or pay
any cash dividends on the HCR Manor Care Common Stock. Any determination to pay
dividends in the future will be at the discretion of HCR Manor Care's Board of
Directors and will be dependent upon HCR Manor Care's results of operations,
financial conditions, capital expenditures, working capital requirements, any
contractual restrictions and other factors deemed relevant by HCR Manor Care's
Board of Directors.
67
<PAGE> 76
PRO FORMA SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT OF THE COMBINED COMPANY
The following table sets forth certain pro forma information as to the
number of shares of HCR Common Stock that will be beneficially owned by (i) each
person known by HCR or Manor Care to be the beneficial owner of more than 5% of
any of HCR's or Manor Care's voting securities, (ii) each director of HCR Manor
Care, (iii) the Chief Executive Officer and the other highly compensated
executive officers of HCR Manor Care and (iv) HCR Manor Care's proposed
executive officers and directors as a group assuming the Merger had been
consummated on August 10, 1998. Except as indicated by the notes to the
following table (a) the holders listed below will have sole voting power and
investment power over the shares beneficially held by them and (b) their
beneficial ownership is direct.
<TABLE>
<CAPTION>
PRO FORMA BENEFICIAL OWNERSHIP
AS OF AUGUST 10, 1998(1)
------------------------------
NAME OF BENEFICIAL OWNER SHARES PERCENT
------------------------ ------ -------
<S> <C> <C>
5% BENEFICIAL HOLDERS:
Putnam Investments, Inc.(2)............................... 6,367,346 5.8%
Ronald Baron(3)........................................... 12,794,486 11.6
DIRECTORS AND NAMED EXECUTIVE OFFICERS:
Stewart Bainum(4)......................................... 10,174,503 9.2
Stewart Bainum, Jr.(5).................................... 15,346,903 13.9
R. Jeffrey Bixler......................................... 157,999 *
Joseph R. Buckley(6)...................................... 143,078 *
Joseph H. Lemieux......................................... 78,000 *
William H. Longfield(7)................................... 13,910 *
Geoffrey G. Meyers........................................ 514,758 *
Paul A. Ormond(8)......................................... 2,730,649 2.4
Paul G. Sieben............................................ 153,228 *
Robert G. Siefers......................................... 66,000 *
Kennett L. Simmons(9)..................................... 4,837 *
M. Keith Weikel........................................... 693,753 *
Thomas L. Young........................................... 60,000 *
James H. Rempe(10)........................................ 89,191 *
Gail R. Wilensky.......................................... 0 *
All Directors and Executive Officers as a group (19
individuals)(11)....................................... 30,441,164 26.7
----------
</TABLE>
- -------------------------
* Less than 1%
(1) Includes shares subject to options that will become exercisable, or which
will be exchanged for shares, of HCR Manor Care Common Stock, at the
Effective Time. All percentages assume that the options of the particular
person or group in question, and no others, have been exercised.
(2) The Schedule 13G received by HCR from Putnam Investments, Inc. ("PI")
indicates that the filing was made on behalf of PI, its parent company,
Marsh & McLennan Companies, Inc. ("MMC"), two subsidiaries of PI which are
registered investment advisers, Putnam Investment Management, Inc. ("PIM")
and the Putnam Advisory Company, Inc. ("PAC"), and Putnam New Opportunities
Fund ("Fund"), a business trust under Massachusetts law. The Schedule 13G
filing further stated that neither MMC nor PI have any power to vote or
dispose of, or direct the voting or disposition of, any of the securities
covered by the Schedule 13G. The Schedule 13G indicates that PIM had shared
dispositive power over 5,818,546 shares; that PAC had shared voting power
over 310,500 shares and shared dispositive power over 548,800 shares; and
that Fund had shared dispositive power over 2,356,200 shares.
(3) Includes 1,033,620 shares as to which Mr. Baron has sole voting and
dispositive power, and 11,760,866 shares as to which Mr. Baron has shared
voting and dispositive power; 880,000 shares as to which Baron Capital
Group, Inc. ("BCG") has sole voting and dispositive power, and 11,760,866
shares
68
<PAGE> 77
as to which BCG has shared voting and dispositive power; 880,000 shares as to
which Baron Capital Management, Inc., ("BCM"), a registered investment adviser,
has sole voting and dispositive power, and 1,305,866 shares as to which BCM has
shared voting and dispositive power; 10,455,000 shares as to which BAMCO,
Inc., a registered investment adviser, has shared voting and dispositive
power; and 9,730,000 shares as to which Baron Asset Fund, an investment
company registered under the Investment Company Act of 1940, has shared
voting and dispositive power. The business address of Mr. Baron and the
foregoing entities is 767 Fifth Avenue, 24th Floor, New York, New York
10153. All of the foregoing information was reported in Amendment No. 11 to
Schedule 13D dated February 24, 1998 filed by Mr. Baron and the foregoing
entities.
(4) Includes 3,717,542 shares held directly or indirectly by the Stewart Bainum
Declaration of Trust, the sole trustee of which is Mr. Bainum (the "SB
Trust"); his interest in 904,473 shares owned by Bainum Associates Limited
Partnership ("Bainum Associates"), and 1,099,190 shares owned by MC
Investments Limited Partnership ("MC Investments"), each of which is a
limited partnership in which the SB Trust is a limited partner and as such
has the right to acquire at any time a number of shares equal in value to
the liquidation preference of its limited partnership interest; 3,567,869
shares owned by Realty Investment Company, Inc. ("Realty Investment"), a
real estate investment and management company in which Mr. Bainum and his
wife have shared voting authority with other family members; and 79,305
shares held by the Commonweal Foundation of which Mr. Bainum is Chairman of
the Board of Directors and has shared voting authority; 798,711 shares held
by the Jane L. Bainum Declaration of Trust, the sole trustee of which is
Mr. Bainum's wife; and 5,999 shares which Mr. Bainum has the right to
acquire pursuant to stock options which are exercisable within 60 days
after August 10, 1998.
(5) Includes 5,417,761 shares owned by Bainum Associates and 4,415,250 shares
owned by MC Investments in both of which the Stewart Bainum, Jr.
Declaration of Trust, the sole trustee of which is Stewart Bainum, Jr. (the
"SB, Jr. Trust"), is managing general partner with the sole right to
dispose of the shares. Authority to vote such shares is held by the voting
general partner, Mr. B. Houston McCeney. Also includes 1,779,628 shares
owned by Mid-Pines Associates, L.P. ("Mid-Pines"), in which the SB, Jr.
Trust is managing general partner and has shared voting authority;
3,567,869 shares held by Realty Investment in which the SB, Jr. Trust has
shared voting authority; and 164,000 shares which Mr. Bainum, Jr. has the
right to acquire pursuant to stock options which are exercisable within 60
days after August 10, 1998.
(6) Includes 141,320 shares which Mr. Buckley has the right to acquire pursuant
to stock options which are exercisable within 60 days after August 10,
1998.
(7) Includes 9,487 shares which Mr. Longfield has the right to acquire pursuant
to stock options which are exercisable within 60 days after August 10,
1998.
(8) Includes 81,472 shares held by family members of Mr. Ormond and 89,286
shares held in trust for certain family members of Mr. Ormond. Mr. Ormond
disclaims any beneficial interest in the shares held by family members or
in trust.
(9) Includes 3,159 shares which Mr. Simmons has the right to acquire pursuant
to stock options which are exercisable within 60 days after August 10,
1998.
(10) Includes 38,082 shares which Mr. Rempe has the right to acquire pursuant to
stock options which are exercisable within 60 days after August 10, 1998.
(11) Includes a total of 2,592 shares and 3,220 shares, respectively, which such
directors and officers have the right to receive upon termination of their
employment with Manor Care pursuant to the terms of the 401(k) Plan and the
Nonqualified Savings Plan (based upon a report of each plan's trustee for
June 1997).
69
<PAGE> 78
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial statements
are presented assuming the Merger will be accounted for as a pooling of
interests. For a description of pooling of interests accounting with respect to
the Merger, see "The Merger -- Accounting Treatment of the Merger."
The unaudited pro forma condensed combined income statements reflect the
combination of the historical operating results of HCR for the years ended
December 31, 1997, 1996 and 1995, and for the six months ended June 30, 1998 and
1997 with the historical results of Manor Care for the twelve months ended
November 30, 1997 and historical operating results for the years ended May 31,
1996 and 1995 and for the six months ended May 31, 1998 and 1997, restated to
reflect the results of Vitalink as a discontinued operation for all periods
presented. On April 27, 1998, Genesis announced that it had entered into a
definitive agreement to acquire Vitalink. The unaudited pro forma condensed
combined balance sheet reflects the combination of the historical balance sheet
of HCR at June 30, 1998 with the historical balance sheet of Manor Care at May
31, 1998, which have been adjusted on a pro forma basis.
For all applicable periods in the unaudited pro forma condensed combined
income statements, shares used in the computation of basic and diluted earnings
per common share and equivalent shares assume a one for one exchange.
The unaudited pro forma condensed combined financial statements do not
reflect the restructuring charge expected to be incurred by HCR Manor Care in
connection with the Merger. The restructuring charge will include costs
associated with the merger of HCR and Manor Care including severance,
duplicative systems and other operations consolidation expenses. The unaudited
pro forma condensed combined financial statements also do not give effect to the
revenue enhancements and cost savings expected to be realized in connection with
the Merger. The unaudited pro forma condensed combined financial statements are
not necessarily indicative of the results or financial position that actually
would have occurred had the Merger been consummated on the dates indicated or
that may be obtained in the future. See "The Combined Company -- Business and
Strategy." These pro forma financial statements should be read in conjunction
with the related historical financial statements and notes thereto of HCR and
Manor Care incorporated by reference in this Joint Proxy Statement/Prospectus.
70
<PAGE> 79
HEALTH CARE AND RETIREMENT CORPORATION AND MANOR CARE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
HCR MANOR CARE
SIX MONTHS ENDED SIX MONTHS ENDED PRO FORMA PRO FORMA
JUNE 30, 1998 MAY 31, 1998 ADJUSTMENTS COMBINED
---------------- ---------------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues.................................... $456,278 $693,807 $1,150,085
Expenses
Operating................................. 354,864 529,666 884,530
General and administrative................ 18,855 32,513 51,368
Depreciation and amortization............. 19,642 40,516 60,158
Provisions for asset impairment and
restructuring.......................... 13,500 13,500
-------- -------- -------- ----------
393,361 616,195 1,009,556
-------- -------- -------- ----------
Income from continuing operations before
other income (expenses) and income
taxes..................................... 62,917 77,612 140,529
Other income (and expenses)
Interest expense.......................... (9,191) (12,901) (22,092)
Minority interest......................... (160) (160)
Interest income from advances to
discontinued lodging segment........... (901) (901)
Interest income and other................. 3,589 4,001 7,590
-------- -------- -------- ----------
Income from operations before income
taxes..................................... 57,315 67,651 124,966
Income taxes................................ 17,596 23,733 41,329
-------- -------- -------- ----------
Income from continuing operations........... $ 39,719 $ 43,918 $ 83,637
======== ======== ======== ==========
Earnings per common share -- income from
continuing operations
Basic.................................. $0.89 $0.69 $0.77
Diluted................................ $0.86 $0.68 $0.75
Shares used in computing earnings per common
share
Basic.................................. 44,386 63,841 108,227
Diluted................................ 46,213 64,869 111,082
</TABLE>
71
<PAGE> 80
HEALTH CARE AND RETIREMENT CORPORATION AND MANOR CARE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
HCR MANOR CARE
SIX MONTHS SIX MONTHS
ENDED ENDED PRO FORMA PRO FORMA
JUNE 30, 1997 MAY 31, 1997 ADJUSTMENTS COMBINED
------------- ------------ ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues................................ $434,268 $671,049 $1,105,317
Expenses
Operating............................. 344,923 521,039 865,962
General and administrative............ 16,358 36,690 53,048
Depreciation and amortization......... 17,855 36,569 54,424
-------- -------- -------- ----------
379,136 594,298 973,434
-------- -------- -------- ----------
Income from continuing operations before
other income (expenses) and income
taxes................................. 55,132 76,751 131,883
Other income (and expenses)
Interest expense...................... (8,460) (20,962) (29,422)
Minority interest..................... 1,025 1,025
Interest income from advances to
discontinued lodging segment....... 11,064 11,064
Interest income and other............. 1,731 3,889 5,620
-------- -------- -------- ----------
Income from operations before income
taxes................................. 48,403 71,767 120,170
Income taxes............................ 14,860 26,902 41,762
-------- -------- -------- ----------
Income from continuing operations....... $ 33,543 $ 44,865 $ 78,408
======== ======== ======== ==========
Earnings per common share -- income from
continuing operations
Basic................................. $ 0.75 $ 0.71 $ 0.73
Diluted............................... $ 0.72 $ 0.70 $ 0.71
Shares used in computing earnings per
common share
Basic................................. 44,617 63,473 108,090
Diluted............................... 46,523 64,279 110,802
</TABLE>
72
<PAGE> 81
HEALTH CARE AND RETIREMENT CORPORATION AND MANOR CARE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
MANOR CARE
HCR TWELVE MONTHS
YEAR ENDED ENDED PRO FORMA PRO FORMA
DECEMBER 31, 1997 NOVEMBER 30, 1997 ADJUSTMENTS COMBINED
----------------- ----------------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues.............................. $891,963 $1,336,571 $2,228,534
Expenses
Operating........................... 705,867 1,055,056 1,760,923
General and administrative.......... 34,983 64,898 99,881
Depreciation and amortization....... 37,395 75,328 112,723
-------- ---------- -------- ----------
778,245 1,195,282 1,973,527
-------- ---------- -------- ----------
Income from continuing operations
before other income (expenses) and
income taxes........................ 113,718 141,289 255,007
Other income (and expenses)
Interest expense.................... (17,203) (39,602) (56,805)
Minority interest................... 13,245 13,245
Interest income from advances to
discontinued lodging segment..... 16,058 16,058
Interest income and other........... 4,670 8,180 12,850
-------- ---------- -------- ----------
Income from operations before income
taxes............................... 101,185 139,170 240,355
Income taxes.......................... 31,064 54,000 85,064
-------- ---------- -------- ----------
Income from continuing operations..... $ 70,121 $ 85,170 $ 155,291
======== ========== ======== ==========
Earnings per common share -- income
from continuing operations
Basic............................... $1.57 $1.34 $1.44
Diluted............................. $1.51 $1.32 $1.40
Shares used in computing earnings per
common share
Basic............................... 44,548 63,611 108,159
Diluted............................. 46,515 64,366 110,881
</TABLE>
73
<PAGE> 82
HEALTH CARE AND RETIREMENT CORPORATION AND MANOR CARE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
HCR MANOR CARE
YEAR ENDED YEAR ENDED PRO FORMA PRO FORMA
DECEMBER 31, 1996 MAY 31, 1996 ADJUSTMENTS COMBINED
----------------- ------------ ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues..................................... $782,023 $1,141,911 $1,923,934
Expenses
Operating.................................. 625,331 883,459 1,508,790
General and administrative................. 32,182 72,322 104,504
Depreciation and amortization.............. 30,677 63,723 94,400
Provisions for asset impairment and
restructuring........................... 26,300 26,300
-------- ---------- -------- ----------
688,190 1,045,804 1,733,994
-------- ---------- -------- ----------
Income from continuing operations before
other income (expenses) and income taxes... 93,833 96,107 189,940
Other income (and expenses)
Interest expense........................... (11,798) (31,259) (43,057)
Minority interest.......................... 740 740
Interest income from advances to
discontinued lodging segment............ 19,673 19,673
Interest income and other.................. 2,883 5,385 8,268
-------- ---------- -------- ----------
Income from operations before income taxes... 84,918 90,646 175,564
Income taxes................................. 25,475 36,694 62,169
-------- ---------- -------- ----------
Income from continuing operations............ $ 59,443 $ 53,952 $ 113,395
======== ========== ======== ==========
Earnings per common share -- income from
continuing operations
Basic................................... $1.30 $0.86 $1.05
Diluted................................. $1.24 $0.85 $1.02
Shares used in computing earnings per common
share
Basic................................... 45,708 62,628 108,336
Diluted................................. 47,835 63,136 110,971
</TABLE>
74
<PAGE> 83
HEALTH CARE AND RETIREMENT CORPORATION AND MANOR CARE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
HCR MANOR CARE
YEAR ENDED YEAR ENDED PRO FORMA PRO FORMA
DECEMBER 31, 1995 MAY 31, 1995 ADJUSTMENTS COMBINED
----------------- ------------ ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues.................................. $713,469 $946,761 $1,660,230
Expenses
Operating............................... 575,462 719,780 1,295,242
General and administrative.............. 30,440 63,197 93,637
Depreciation and amortization........... 25,973 50,621 76,594
-------- -------- ----------
631,875 833,598 1,465,473
-------- -------- ----------
Income from continuing operations before
other income (expenses) and income
taxes................................... 81,594 113,163 194,757
Other income (and expenses)
Interest expense........................ (10,659) (23,534) (34,193)
Minority interest....................... (82) (82)
Interest income from advances to
discontinued lodging segment......... 15,492 15,492
Interest income and other............... 1,355 7,277 8,632
-------- -------- ----------
Income from operations before income
taxes................................... 72,290 112,316 184,606
Income taxes.............................. 21,687 44,338 66,025
-------- -------- ----------
Income from continuing operations......... $ 50,603 $ 67,978 $ 118,581
======== ======== ==========
Earnings per common share -- income from
continuing operations
Basic................................ $1.08 $1.09 $1.08
Diluted.............................. $1.03 $1.08 $1.06
Shares used in computing earnings per
common share
Basic................................ 46,833 62,480 109,313
Diluted.............................. 48,963 62,873 111,836
</TABLE>
75
<PAGE> 84
HEALTH CARE AND RETIREMENT CORPORATION AND MANOR CARE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 1998
<TABLE>
<CAPTION>
HCR MANOR CARE
JUNE 30, MAY 31, PRO FORMA PRO FORMA
1998 1998 ADJUSTMENTS COMBINED
-------- ---------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $ 8,461 $ 48,663 $ 57,124
Receivables, net of allowances.............. 144,110 167,222 311,332
Deferred income taxes....................... 19,839 41,619 61,458
Other current assets........................ 4,704 17,626 22,330
--------- ---------- ----------
Total current assets................... 177,114 275,130 452,244
Net property and equipment.................... 560,110 1,132,427 1,692,537
Net investment in discontinued pharmacy
operations.................................. 193,398 193,398
Intangible assets, net of amortization........ 141,215 28,777 169,992
Other assets.................................. 93,816 111,545 205,361
--------- ---------- ----------
Total assets........................... $ 972,255 $1,741,277 $2,713,532
========= ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................ $ 35,937 $ 55,599 $ 91,536
Accrued expenses............................ 101,521 96,395 20,150(a) 218,066
Long-term debt due within one year.......... 883 6,104 6,987
--------- ---------- -------- ----------
Total current liabilities.............. 138,341 158,098 20,150 316,589
Long-term debt................................ 282,497 533,729 816,226
Deferred income taxes......................... 67,276 198,132 265,408
Other liabilities............................. 21,245 67,860 89,105
Minority interest............................. 3,998 3,998
Stockholders' equity:
Common stock................................ 492 6,712 (6,051)(b) 1,153
Capital in excess of par.................... 274,303 201,895 (45,757)(b) 430,441
Retained earnings........................... 308,352 622,661 (20,150)(a) 910,863
Treasury stock, at cost..................... (120,251) (51,808) 51,808(b) (120,251)
--------- ---------- -------- ----------
Total stockholders' equity............. 462,896 779,460 (20,150) 1,222,206
--------- ---------- -------- ----------
Total liabilities and stockholders'
equity.............................. $ 972,255 $1,741,277 $ 0 $2,713,532
========= ========== ======== ==========
</TABLE>
76
<PAGE> 85
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Note 1 -- Basis of Presentation
For accounting purposes, the Merger will be treated as a pooling of
interests. Accordingly, the accompanying unaudited pro forma condensed combined
financial statements give retroactive effect to the Merger and include the
combined operations of HCR and Manor Care for all periods presented. Manor Care
revenues of $623.5 million and income from continuing operations of $38.0
million for the period June 1, 1996 to November 30, 1996 have been excluded from
the pro forma financial statements.
HCR's annual financial reporting period on December 31 will be adopted by
the combined entity.
Note 2 -- Pro Forma Adjustments
The adjustments to the pro forma financial statements are as follows:
(a) To record transaction costs in connection with the Merger, net of
income taxes based on an assumed tax rate of 35%.
(b) To adjust common shares outstanding to reflect the conversion of
Manor Care Common Stock and Manor Care outstanding stock options
into HCR Manor Care Common Stock based on an Exchange Ratio of one
to one. The outstanding stock options of Manor Care will be
converted into HCR Manor Care Common Stock using the Black-Scholes
method to determine the fair value of the options.
Note 3 -- Transaction Costs and Expenses
No provision has been reflected in the unaudited pro forma condensed
combined income statements for expenses expected to be incurred in connection
with the Merger. Estimated costs for the transaction are $31 million, including
financial advisory, legal, and accounting fees and expenses, printing and
mailing costs, and compensation expense incurred as a result of the acceleration
of vesting of certain employee benefits. The unaudited pro forma condensed
combined income statements do not give effect to any revenue enhancements and
cost savings which may be realized following the Merger. See "The Combined
Company -- Business and Strategy."
77
<PAGE> 86
DESCRIPTION OF HCR CAPITAL STOCK
The following summary description of the capital stock of HCR is qualified
in its entirety by the complete text of HCR's Certificate of Incorporation
(filed as Exhibit 4.1 to HCR's Registration Statement on Form S-1 filed on
August 30, 1991), which is incorporated by reference herein, and the proposed
Amended and Restated By-laws which are attached to this Joint Proxy
Statement/Prospectus as Annex E.
GENERAL
The authorized capital stock of HCR consists of 160,000,000 shares of HCR
Common Stock and 5,000,000 shares of preferred stock, par value $.01 per share,
of HCR ("HCR Preferred Stock"). If the Share Amendment Proposal is approved, the
authorized capital stock of HCR will consist of 300,000,000 shares of HCR Common
Stock and 5,000,000 shares of HCR Preferred Stock. Based upon the number of
shares of Manor Care Common Stock and HCR Common Stock outstanding on the record
date of the Manor Care Special Meeting and the record date of the HCR Special
Meeting, respectively, it is anticipated that approximately 112,008,639 shares
of HCR Common Stock and no shares of HCR Preferred Stock will be issued and
outstanding immediately after the consummation of the Merger.
HCR COMMON STOCK
Each share of HCR Common Stock entitles the holder to one vote on matters
submitted to a vote of the stockholders. HCR's Certificate of Incorporation
provides for a staggered Board of Directors, with one class being elected each
year for a term of three years and the number of directors in each class being
as nearly equal as the then-authorized number of directors constituting the
Board of Directors permits. The Board of Directors currently consists of seven
members but will be increased to ten members. See "The Combined Company --
Governance." The holders of HCR Common Stock will not be entitled to cumulate
votes for the election of directors.
The holders of HCR Common Stock are entitled to receive ratably a share of
dividends declared by the HCR Board of Directors. In the event of liquidation,
dissolution or winding up of HCR, holders of HCR Common Stock have the right to
a ratable portion of the assets of HCR remaining after the payment of
liabilities and any liquidation preferences of any outstanding shares of HCR
Preferred Stock. The holders of HCR Common Stock have no preemptive rights or
rights to convert their HCR Common Stock into other securities. All outstanding
shares of HCR Common Stock immediately following completion of the Merger will
be fully paid and nonassessable. The rights of the holders of HCR Common Stock
will be subject to, and may be adversely affected by, the rights of the holders
of HCR Preferred Stock, if any.
It is a condition to consummation of the Merger that the HCR Manor Care
Common Stock to be issued in the Merger be approved for listing on the NYSE,
subject to official notification of issuance.
PREFERRED STOCK
HCR's Certificate of Incorporation authorizes the issuance of up to
5,000,000 shares of HCR Preferred Stock, in one or more series and with such
rights, preferences, privileges and restrictions, including voting rights,
redemption provisions (including sinking fund provisions), dividend rights,
dividend rates, liquidation rates, liquidation preferences and conversion
rights, as the Board of Directors of HCR Manor Care may determine without
further action by the holders of HCR Common Stock. HCR has designated 800,000
shares of Preferred Stock as Series A Participating Preferred Stock in
connection with its Rights Agreement discussed below. HCR's Certificate of
Incorporation provides that HCR's Board of Directors may also from time to time
decrease the number of shares of any series of HCR Preferred Stock (but not
below the number thereof then outstanding). The HCR Preferred Stock heretofore
designated has no voting rights. No HCR Preferred Stock is outstanding, no HCR
Preferred Stock will be issued in connection with the Merger, and HCR has no
present plans to issue any shares of HCR Preferred Stock.
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PREFERRED SHARE PURCHASE RIGHTS
On May 2, 1995 the Board of Directors of HCR declared a dividend of one
Right for each share of HCR Common Stock, $.01 par value, of HCR outstanding at
the close of business on June 1, 1995 (the "Record Date"). As long as the Rights
are attached to the share of HCR Common Stock, HCR will issue one Right (subject
to adjustment) with each new share of HCR Common Stock so that all such shares
will have attached Rights. When exercisable, each Right will entitle the
registered holder to purchase from HCR one one-hundredth of a share of Series A
Junior Participating Preferred Stock (the "Series A Preferred Shares") at a
price of $150 per one one-hundredth of a Series A Preferred Share, subject to
adjustment (the "Purchase Price"). The description and terms of the Rights are
set forth in a Rights Agreement, dated as of May 2, 1995, and amended on June
10, 1998 (the "Rights Agreement"), between HCR and Harris Trust and Savings
Bank, as Rights Agent (the "Rights Agent").
Generally, the Rights will become exercisable only if a person or group
becomes an "Acquiring Person" by acquiring the beneficial ownership of 15% or
more of the issued and outstanding shares of HCR Common Stock or by commencing
or announcing an intention to make a tender offer or exchange offer the
consummation of which would result in the beneficial ownership by such person or
group of 15% or more of the shares of HCR's Common Stock; provided, however,
that Stewart Bainum, his spouse or widow, their lineal descendants and their
lineal descendant's spouses, widows or widowers (each a "Bainum Family Member"),
certain trusts, partnerships and corporations established for the benefit of a
Bainum Family Member (a "Bainum Family Entity"), and transferees of HCR Common
Stock from a Bainum Family Member or a Bainum Family Entity will not become an
"Acquiring Person" unless such person or entity (individually or as part of a
group) acquires beneficial ownership of, or commences or announces a tender
offer or exchange offer whose successful completion would cause such person or
entity (individually or as part of a group) to acquire beneficial ownership of,
20% or more of the accrued and outstanding shares of HCR Common Stock. Prior to
the acquisition by a person or group of 15% (or in the case of a Bainum Family
Member, a Bainum Family Entity or a permitted transferee thereof, 20%)
beneficial ownership of HCR Common Stock, the Rights are not exercisable.
Each Series A Preferred Share purchasable upon exercise of the Rights will
be entitled to a minimum preferential quarterly dividend payment of $1.00 per
share but will be entitled to an aggregate dividend of 100 times the dividend,
if any, declared per share of HCR Common Stock. In the event of liquidation, the
holders of the Series A Preferred Shares will be entitled to a minimum
preferential liquidation payment of $100 per share but will be entitled to an
aggregate payment of 100 times the payment made per share of HCR Common Stock.
Each Series A Preferred Share will have 100 votes and will vote together with
the shares of HCR Common Stock. Finally, in the event of any merger,
consolidation or other transaction in which shares of HCR Common Stock are
exchanged, each Series A Preferred Share will be entitled to receive 100 times
the amount received per share of HCR Common Stock. These rights are protected by
customary antidilution provisions. Because of the nature of the Series A
Preferred Share's dividend, liquidation and voting rights, the value of one
one-hundredth of a Series A Preferred Share purchasable upon exercise of each
Right should approximate the value of one share of HCR Common Stock.
In the event that a person or group becomes an Acquiring Person (except
pursuant to certain cash offers for all outstanding shares of HCR Common Stock
approved by the Board) or if HCR were the surviving corporation in a merger with
an Acquiring Person or any affiliate or associate of an Acquiring Person and the
shares of HCR Common Stock were not changed or exchanged, each holder of a
Right, other than Rights that are or were acquired or beneficially owned by the
Acquiring Person (which Rights will thereafter be void), will thereafter have
the right to receive upon exercise that number of shares of HCR Common Stock
having a market value of two times the then current Purchase Price of the Right.
With certain exceptions, in the event that HCR were acquired in a merger or
other business combination transaction or more than 50% of its assets or earning
power were sold, proper provision shall be made so that each holder of a Right
shall thereafter have the right to receive, upon the exercise thereof at the
then current Purchase Price of the Right, that number of shares of common stock
of the acquiring company which at the time of such transaction would have a
market value of two times the then current Purchase Price of the Right.
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At any time after a person or group becomes an Acquiring Person (except
pursuant to certain cash offers for all outstanding shares of HCR Common Stock
approved by the Board) and prior to the acquisition by such Acquiring Person of
50% or more of the outstanding shares of HCR Common Stock, HCR's Board of
Directors may cause HCR to acquire the Rights (other than Rights owned by an
Acquiring Person which have become void), in whole or in part, in exchange for
that number of shares of HCR Common Stock having an aggregate value equal to the
spread (excess of the value of the shares of HCR Common Stock issuable upon
exercise of a Right after a person or group becomes an Acquiring Person over the
Purchase Price) per Right (subject to adjustment).
The Rights may be redeemed in whole, but not in part, at a price of $.01
per Right by the Board of Directors at any time prior to the first date that a
person or group has become an Acquiring Person (except pursuant to certain cash
offers for all outstanding shares of HCR Common Stock approved by the Board).
The redemption of the Rights by the HCR Board of Directors may be made effective
at such time, on such basis and with such conditions as the HCR Board of
Directors in its sole discretion may establish. HCR may, at its option, pay the
$.01 to redeem the Rights in cash, HCR Common Stock (based on the current per
share market price at the time of the redemption) or any other form of
consideration deemed appropriate by the HCR Board of Directors. Immediately upon
the action of the HCR Board of Directors electing to redeem the Rights, HCR
shall make an announcement thereof, and upon such election, the right to
exercise the Rights will terminate and the only right of the holders of Rights
will be to receive the Redemption Price.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of HCR beyond those as an existing stockholder,
including, without limitation, the right to vote or to receive dividends. The
Rights will expire on May 2, 2005, subject to HCR's right to extend such date,
unless earlier redeemed or exchanged by HCR or terminated.
CERTAIN EFFECTS OF PREFERRED SHARE PURCHASE RIGHTS
The issuance of the Rights to purchase shares of HCR Preferred Stock will
have certain anti-takeover effects. The Rights will cause substantial dilution
to a person or group that attempts to acquire HCR on terms not approved by the
Board of Directors of HCR. The Rights should not interfere with any merger or
other business combination approved by the Board of Directors of HCR prior to
the first date that a person or group has acquired beneficial ownership of 15%
(or in the case of a Bainum Family Member, a Bainum Family Entity or a permitted
transferee thereof, 20%) or more of the HCR Common Stock, as the Rights will be
redeemable by HCR at $0.01 per Right prior to such time.
DELAWARE STATUTORY MATTERS
As a corporation organized under the laws of the State of Delaware, HCR is
subject to Section 203 of the DGCL, which restricts certain business
combinations between HCR and an "interested stockholder" (in general, a
stockholder owning 15% or more of the outstanding voting stock of HCR) or such
stockholder's affiliates or associates for a period of three years following the
date on which the stockholder becomes an "interested stockholder." The
restrictions do not apply if: (i) prior to an interested stockholder becoming
such, the HCR Board of Directors approves either the business combination or the
transaction by which such person became an interested stockholder; (ii) upon
consummation of the transaction, the interested stockholder owns at least 85% of
the voting stock of HCR outstanding at the time the transaction commenced
(excluding shares owned by certain employee stock plans and persons who are both
directors and officers of HCR); or (iii) at or subsequent to the time an
interested stockholder becomes such, the business combination is both approved
by the HCR Board of Directors and authorized at an annual or special meeting of
HCR's stockholders by the affirmative vote of at least two-thirds of the
outstanding voting stock of HCR not owned by the interested stockholder.
HCR's Certificate of Incorporation also prohibits business combinations
with "Interested Stockholders" and defines them to be anyone who is or intends
to become the beneficial owner of 10% or more of the voting stock of HCR. Unless
approved by a majority of Continuing Directors (as defined in HCR Certificate of
Incorporation) or the Interested Stockholder satisfies a number of criteria
relating to, among other things, the
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consideration to be received by HCR stockholders and the public disclosure of
the business combination, a proposed business combination with an Interested
Stockholder requires the affirmative vote of 75% of all the votes entitled to be
cast by holders of HCR voting stock and not less than a majority of votes
entitled to be cast by holders of HCR voting stock, excluding the votes of the
interested stockholder.
REGISTRAR AND TRANSFER AGENT
The Registrar and Transfer Agent of HCR is Harris Trust and Savings Bank.
COMPARISON OF RIGHTS OF HOLDERS OF HCR COMMON STOCK AND HOLDERS OF MANOR CARE
COMMON STOCK
As a consequence of the consummation of the Merger, stockholders of Manor
Care will become stockholders of HCR which will thereafter be renamed HCR Manor
Care, Inc. immediately after the Effective Time and, unless its Board of
Directors elects otherwise, Manor Care, Inc. on the one-year anniversary of the
Effective Time. The following is a summary of certain differences between the
rights of holders of Manor Care Common Stock and the rights of holders of HCR
Manor Care Common Stock after the Merger. As each of HCR, Manor Care and HCR
Manor Care is organized under the DGCL these differences arise solely from
various provisions of the certificate of incorporation, by-laws and rights
agreements of each of Manor Care and HCR, as amended and the amendments made to
the by-laws and rights agreement of HCR Manor Care in connection with the
Merger.
The following summary does not purport to be a complete statement of the
rights of Manor Care's stockholders under the Certificate of Incorporation, as
amended, of Manor Care (the "Manor Care Charter"), the by-laws of Manor Care
(the "Manor Care By-laws") and the amended Manor Care Rights Agreement (as
defined below) as compared with the rights of HCR's stockholders under the
Certificate of Incorporation, as amended, of HCR (the "HCR Charter"), the
amended by-laws of HCR (the "HCR By-laws") and the amended HCR Rights Agreement
(as defined below), or a complete description of the specific provisions
referred to therein. This summary is qualified in its entirety by reference to
the governing corporate instruments, including the aforementioned instruments,
of Manor Care and HCR, copies of which have been filed as exhibits hereto or to
documents incorporated herein by reference.
MEETINGS OF STOCKHOLDERS
The HCR By-laws provide that a special meeting of stockholders may be
called by a majority of the HCR Board of Directors or a committee of the HCR
Board which has been designated by the HCR Board and whose powers and authority,
as provided in a resolution of the HCR Board or the HCR By-laws, include the
power to call such meetings. The Manor Care By-laws provide that a special
meeting of stockholders may be called at the direction of the chairman, vice
chairman, or president or at the written request of the majority of the Manor
Care Board of Directors or of holders of a majority of the outstanding shares of
Manor Care permitted to vote.
In addition, as corporations organized under the laws of the State of
Delaware, HCR and Manor Care each hold an annual stockholders meeting at which
directors are elected and other matters are considered. The HCR By-laws allow an
HCR stockholder to bring before such an annual meeting only those matters for
which the stockholder has given timely notice to the Corporate Secretary.
Similarly, an HCR stockholder must give timely notice of any director
nominations to the Corporate Secretary. The Manor Care By-laws do not contain
such restrictions.
CERTAIN VOTING RIGHTS WITH RESPECT TO MERGERS
Under Delaware law, certain mergers and consolidations or the sale of all
or substantially all of the assets of a corporation require the approval of the
holders of a majority (unless the certificate of incorporation requires a higher
percentage) of the outstanding shares of such corporation entitled to vote
thereon. Neither the HCR Charter nor the Manor Care Charter requires a higher
percentage.
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CERTAIN VOTING RIGHTS WITH RESPECT TO TRANSACTIONS WITH INTERESTED STOCKHOLDERS
As corporations organized under the laws of the State of Delaware, HCR and
Manor Care are subject to Section 203 of the DGCL, which restricts, subject to
certain exceptions, certain business combinations between a corporation and an
"interested stockholder" (in general, a stockholder owning 15% or more of the
outstanding voting stock of such corporation) or such stockholder's affiliates
or associates for a period of three years following the date on which the
stockholder becomes an "interested stockholder."
STOCKHOLDER ACTION BY WRITTEN CONSENT
Under Delaware law, unless otherwise provided in the certificate of
incorporation, any action which may be taken at any annual or special meeting of
stockholders may be taken without a meeting and without prior notice if a
consent in writing, setting forth the action so taken, is signed by the holders
of outstanding shares having not less than the minimum number of votes that
would be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted. The Manor Care Charter
provides that any action required or permitted to be taken by Manor Care
stockholders at any annual or special meeting of the Manor Care stockholders may
be taken without a meeting, without prior notice and without a vote, if a
consent in writing, setting forth the actions so taken, shall be signed by the
holders of at least the minimum number of votes that would be necessary to
authorize such action at a meeting at which all shares entitled to vote thereon
were present and voted and if prompt notice of such action by written consent is
promptly given to any nonconsenting stockholder. The HCR Charter provides that
any action required or permitted to be taken by HCR stockholders may be taken by
HCR stockholders only at annual or special meetings of HCR stockholders and HCR
stockholders may not act by written consent.
NUMBER AND CLASSIFICATION OF DIRECTORS
Under Delaware law, the number of directors shall be fixed by or in the
manner provided in the by-laws, unless the certificate of incorporation provides
otherwise or fixes the number of directors, in which case a change in the number
of directors shall be made in accordance with the Certificate of Incorporation
or, in the case where the number of directors is fixed by the Certificate of
Incorporation, only by amendment to the certificate. The Manor Care By-laws
provide that the number of directors shall be determined by the Manor Care Board
of Directors, but in no event shall be less than three (3) nor more than eleven
(11). The HCR Charter provides that the number of directors shall be not less
than one (1) nor more than fifteen (15) with the number of directors being fixed
from time to time by a resolution passed by the HCR Board (exclusive of
directors who may be elected by holders of preferred stock of HCR which may be
outstanding). After the Merger, the HCR By-laws will provide for a ten (10)
person board for HCR Manor Care composed of five (5) HCR Designees and five (5)
Manor Care Designees.
Delaware law permits (but does not require) a certificate of incorporation
to provide that a board of directors be divided into classes, with each class
having a term of office longer than one year but not longer than three years.
The HCR Charter provides that the HCR Board shall have three classes, which
shall be as nearly equal in number as possible. The directors of each class
shall serve for a term ending at the third annual meeting following the annual
meeting at which they were elected. The Manor Care Charter does not provide for
a classified board and, accordingly, all directors are elected annually for a
term of one year or until a successor is duly qualified and elected.
CUMULATIVE VOTING
Under Delaware law, stockholders of a corporation are not entitled to
cumulate their votes in the election of directors unless the corporation's
certificate of incorporation so provides. Neither the HCR Charter nor the Manor
Care Charter provides for cumulative voting.
REMOVAL OF DIRECTORS; FILLING VACANCIES ON THE BOARD OF DIRECTORS
Under Delaware law, any or all directors of a corporation, such as Manor
Care, that does not have cumulative voting or a classified board may be removed,
with or without cause, by the holders of a majority of
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the shares entitled to vote at an election of directors. Unless such
corporation's certificate of incorporation provides otherwise, a director on a
classified board may only be removed only for cause. HCR has a classified board
and the HCR Charter provides that such directors may be removed only for cause.
The Manor Care By-laws provides that a director may be removed only for cause
upon the affirmative vote of a majority of all other directors present.
Under Delaware law, unless otherwise provided in the corporation's
certificate of incorporation or by-laws, vacancies and newly-created
directorships resulting from any increase in the authorized number of directors
may be filled by a majority of the directors then in office. The Manor Care
By-laws provide that any vacancy shall be filled by a majority vote of the
remaining directors of the class in which the vacancy occurs then in office.
After the Merger, the HCR By-laws will provide that should a vacancy in the HCR
Manor Care Board occur or be created (whether arising through death, retirement,
resignation, or removal), such vacancy shall be filled by the affirmative vote
of a majority of the remaining directors that are HCR Designees or Manor Care
Designees, as applicable, even though less than a quorum of the Board. The Manor
Care By-laws require that directors, other than the chairman or vice chairman
retire, as of the annual meeting of stockholders next following the date they
attain the age of 72 years. The HCR By-laws contain no such provision.
LIMITATION ON DIRECTORS' LIABILITY
Under the Delaware law, a corporation's charter may limit or eliminate the
personal liability of directors to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for a breach of a director's duty of loyalty to the corporation or
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the DGCL, as the same exists or as amended from time to time, or (iv) for any
transaction from which the director derived an improper personal benefit. Both
the HCR Charter and the Manor Care Charter limit the liability of directors to
the fullest extent permitted by the DGCL.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Both the Manor Care Charter and the HCR Charter generally provide for the
indemnification of persons serving as a director, officer, employee or agent of
the respective corporations or at the request of the respective corporations as
a director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, to the fullest extent
authorized by the DGCL.
AMENDMENT OF BY-LAWS
Under Delaware law, the power to adopt, amend or repeal by-laws is vested
in the stockholders unless the certificate of incorporation confers the power to
adopt, amend or repeal by-laws upon the directors as well. Both the HCR Charter
and the Manor Care Charter authorize the board of directors and stockholders to
amend their respective by-laws, although any subsequent amendment of the
governance provisions described in the proposed amendment to the HCR By-laws
would require the affirmative vote of 75% of the members of the board of
directors or 80% of the outstanding shares of HCR Manor Care.
RIGHTS AGREEMENTS
On February 24, 1998, the Manor Care Board declared a dividend distribution
of one preferred stock purchase right ("Manor Care Right") for each share of
Manor Care Common Stock outstanding on April 3, 1998 pursuant to the Rights
Agreement, dated February 24, 1998 between Manor Care and ChaseMellon
Shareholder Services, L.L.C. (as amended, the "Manor Care Rights Agreement").
Each Manor Care Right entitles the registered holder thereof to purchase
from Manor Care one one-hundredth of a share of Series A Junior Participating
Preferred Stock, at a price of $175 per one one-hundredth of a share (the
"Purchase Price"), subject to adjustment.
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Until the earlier to occur of (i) ten calendar days following the date (the
"Shares Acquisition Date") of public announcement that a person or group of
affiliated or associated persons, subject to certain exceptions (an "Acquiring
Person") acquired, or obtained the right to acquire, beneficial ownership of
Manor Care Common Stock or other voting securities ("Manor Care Voting Stock")
that have 20% or more of the voting power of the outstanding shares of Manor
Care Voting Stock or (ii) ten calendar days (or such later date as may be
determined by action of the Manor Care Board of Directors prior to the time any
person or group of affiliated persons becomes an Acquiring Person) following the
commencement or announcement of an intention to make a tender offer or exchange
offer, the consummation of which would result in such person or group acquiring,
or obtaining the right to acquire, beneficial ownership of Manor Care Voting
Stock having 20% or more of the voting power of the outstanding shares of Manor
Care Voting Stock (the earlier of such dates being called the "Distribution
Date"), the Manor Care Rights will be evidenced by such Manor Care Common Stock
certificates.
In the event that a person becomes an Acquiring Person, each holder of a
Manor Care Right will thereafter have the right to receive, upon exercise, Manor
Care Common Stock (or, in certain circumstances, cash, property or other
securities of Manor Care) having a value equal to two times the Purchase Price
of the Manor Care Right. Notwithstanding any of the foregoing, following the
occurrence of the event set forth in this paragraph, all Manor Care Rights that
are, or (under certain circumstances specified in the Manor Care Rights
Agreement) were, beneficially owned by any Acquiring Person will be null and
void.
In the event that, at any time following the Shares Acquisition Date, (i)
Manor Care is acquired in a merger or other business combination transaction, or
(ii) 50% or more of Manor Care's assets or earning power is sold or transferred,
each holder of a Manor Care Right (except Manor Care Rights which previously
have been voided as set forth above) shall thereafter have the right to receive,
upon exercise, common stock of the acquiring company having a value equal to two
times the Purchase Price of the Manor Care Right.
On June 10, 1998, Manor Care amended the Manor Care Rights Agreement to
exclude HCR from the definition of Acquiring Person and to add certain
statements clarifying that the Merger would not trigger provisions of the Manor
Care Rights Agreement.
The HCR Rights Agreement is described above in "Description of HCR Capital
Stock -- Preferred Share Purchase Rights."
HCR VOTING PROPOSALS
TRANSACTION PROPOSAL
One of the purposes of the HCR Special Meeting is to obtain approval of the
Transaction Proposal. The Transaction Proposal will (i) permit HCR to issue
shares of HCR Common Stock in exchange for shares of Manor Care Common Stock
pursuant to the Merger and (ii) amend HCR's by-laws effective upon consummation
of the Merger to require the approval of at least 80% of HCR's outstanding
shares or at least 75% of the members of HCR's Board of Directors to amend
certain sections of the by-laws relating to corporate governance, which sections
provide that from and after the Effective Time until and including the second
annual stockholder meeting of HCR Manor Care held after the Effective Time, (x)
the size of the board of directors cannot be changed without the approval of at
least 75% of its members, (y) the seats on the board of directors shall
initially be evenly allocated between Manor Care Designees and HCR Designees and
that the Manor Care Designees and HCR Designees shall each be entitled, subject
to their fiduciary duties, to appoint or nominate successor Manor Care Designees
and HCR Designees, respectively, and (z) each existing committee of HCR's Board
of Directors shall have four members, consisting of two Manor Care Designees and
two HCR Designees. The amended and restated by-laws, which will become effective
upon consummation of the Merger, and which include the terms previously adopted
by the Board of Directors of HCR, as well as the proposed amendment to Article
VI of the HCR By-laws for which stockholder approval is sought, are set forth in
Annex E. Approval of the issuance of HCR Common Stock in the Merger and such
amendment to the HCR's By-laws by the requisite vote of the stockholders of HCR
is a condition to the consummation of the Merger.
It is a condition to the consummation of the Merger that HCR list HCR
Common Stock to be issued in the Merger on the NYSE. In order to satisfy this
listing requirement, HCR must comply with certain rules promulgated by the NYSE.
These rules include the requirement that, with certain exceptions, issuers
obtain
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stockholder approval when common stock (or securities convertible into or
exercisable for common stock) are to be issued in a transaction or a series of
transactions, other than a public offering for cash, and such common stock has
upon issuance voting power equal to or in excess of 20% of the voting power
outstanding before the issuance of such stock (or securities convertible into or
exercisable for common stock).
The HCR Board of Directors unanimously recommends you vote FOR the
Transaction Proposal.
SHARE AMENDMENT PROPOSAL
At the HCR Special Meeting, the holders of HCR Common Stock will be asked
to consider and vote upon the Share Amendment Proposal. According to the Share
Amendment Proposal, the first paragraph of Article IV of HCR's Certificate of
Incorporation would be revised to read, in its entirety, as follows:
"The total number of shares of all classes of capital stock which the
Corporation shall have authority to issue is Three Hundred and Five Million
(305,000,000), consisting of Three Hundred Million (300,000,000) shares of
common stock, par value $.01 per share (hereinafter called the "Common
Stock"), and Five Million (5,000,000) shares of preferred stock, par value
$.01 per share (hereinafter called the "Preferred Stock")."
The increase in the number of authorized shares of HCR Common Stock will
provide additional shares for issuance, without the delay and expense of further
stockholder approval, at such time or times and for such proper corporate
purposes as the HCR Board of Directors may in the future deem advisable. Such
shares may be issued if and when the HCR Board of Directors decides it is in the
best interest of HCR to do so which may include, without limitation, issuances
(i) as part of an acquisition transaction (as in the case of the Merger); (ii)
to obtain funds through the sale of HCR Common Stock; (iii) to declare a stock
split or stock dividend; (iv) in respect of employee benefit or stock plans; or
(v) for other purposes. Unless required by applicable law, the rules of the
NYSE, the HCR Certificate of Incorporation or the HCR By-laws, it is not
anticipated that HCR will solicit the votes of stockholders prior to the
issuance of HCR Common Stock for any of the purposes described above. The Merger
is not conditioned upon approval of the Share Amendment Proposal.
The HCR Board of Directors unanimously recommends you vote FOR the Share
Amendment Proposal.
EMPLOYEE OPTION PROPOSAL
One of the purposes of the HCR Special Meeting is to obtain approval and
adoption of the Employee Option Proposal.
The Employee Option Proposal will increase the number of shares of HCR
Common Stock authorized for issuance pursuant to Health Care and Retirement
Corporation's Amended Stock Option Plan for Key Employees by 3,000,000 shares,
effective upon consummation of the Merger.
The HCR Board of Directors believes that the proposed increase in the
number of shares available for issuance under this plan is necessary in order to
accommodate the expanded workforce of the Combined Company, thus permitting HCR
Manor Care to continue to compete with other companies offering similar plans in
attracting and retaining the most experienced and able employees. This plan,
which covers a broad-based group of employees, is intended to tie a material
portion of employee compensation to increases in stockholder value.
Accordingly, on August 13, 1998, the HCR Board of Directors approved,
subject to stockholder approval, the amendment increasing the total number of
shares of HCR Common Stock currently authorized for issuance under the Health
Care and Retirement Corporation Amended Stock Option Plan for Key Employees by
3,000,000 shares (which would increase the total number of shares authorized for
issuance pursuant to the Health Care and Retirement Corporation Amended Stock
Option Plan for Key Employees from 8,199,000 to 11,199,000). Approval of the
Employee Option Proposal is not a condition to the consummation of the Merger.
The HCR Board of Directors unanimously recommends you vote FOR the Employee
Option Proposal.
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DIRECTOR OPTION PROPOSAL
One of the purposes of the HCR Special Meeting is to obtain approval and
adoption of the Director Option Proposal. The Director Option Proposal will
increase the number of shares of HCR Common Stock authorized for issuance
pursuant to the Health Care and Retirement Corporation Stock Option Plan for
Outside Directors by 500,000 shares, effective upon consummation of the Merger.
The HCR Board of Directors believes that the proposed increase in the
number of shares available for issuance under this plan is necessary in order to
accommodate the increased membership in the Board of Directors of HCR Manor
Care, thus permitting HCR Manor Care to continue to compete with other companies
offering similar plans in attracting and retaining the most experienced and able
directors.
Accordingly, on August 13, 1998, the HCR Board of Directors approved,
subject to stockholder approval, the amendment increasing the total number of
shares of HCR Common Stock currently authorized for issuance under the Health
Care and Retirement Corporation Stock Option Plan for Outside Directors by
500,000 shares (which would increase the total number of shares authorized for
issuance pursuant to the Health Care and Retirement Corporation Stock Option
Plan for Outside Directors from 300,000 to 800,000).
Under the terms of the Health Care and Retirement Corporation Stock Option
Plan for Outside Directors, each non-management director of HCR Manor Care
receives an option to purchase 9,000 shares of HCR Common Stock upon election to
the Board and, after completing one year of service, an additional option to
purchase 9,000 shares of HCR Common Stock on the business day immediately
following each annual stockholders' meeting for so long as such person continues
to serve as a director. The per share exercise price of each option is the fair
market value of a share of HCR Common Stock on the date of grant. Options
granted under this plan are immediately exercisable. Approval of the Director
Option Proposal is not a condition to the consummation of the Merger.
The HCR Board of Directors unanimously recommends you vote FOR the Director
Option Proposal.
RESTRICTED STOCK PROPOSAL
One of the purposes of the HCR Special Meeting is to obtain approval and
adoption of the Restricted Stock Proposal.
The Restricted Stock Proposal will increase the number of shares of HCR
Common Stock authorized for issuance pursuant to the Health Care and Retirement
Corporation Amended Restricted Stock Plan (the "Restricted Stock Plan") by
500,000 shares, effective upon consummation of the Merger.
The HCR Board of Directors believes that the proposed increase in the
number of shares available for issuance under the Restricted Stock Plan is
necessary in order to accommodate the expanded workforce of the Combined
Company, thus permitting HCR Manor Care to compete with other companies offering
similar plans in attracting and retaining the most experienced and able
employees. Awards of restricted stock provides employees with important
financial incentives which are directly linked to increases in stockholder
value.
On August 13, 1998, the HCR Board of Directors approved, subject to
stockholder approval, the amendment increasing the total number of shares of HCR
Common Stock currently authorized for issuance under the Restricted Stock Plan
by 500,000 shares (which would increase the total number of shares authorized
for issuance pursuant to the Restricted Stock Plan from 1,392,866 to 1,892,866).
Approval of the Restricted Stock Proposal is not a condition to the consummation
of the Merger.
The HCR Board of Directors unanimously recommends you vote FOR the
Restricted Stock Proposal.
THE MANOR CARE PROPOSAL
The purpose of the Manor Care Special Meeting is to obtain stockholder
approval and adoption of the Merger Agreement and approval of the Merger and the
transactions contemplated by the Merger Agreement. Such approval by a majority
of the outstanding stock of Manor Care entitled to vote is required by Section
251 of the DGCL and by the Merger Agreement. Approval and adoption of the Merger
Agreement and approval
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of the Merger and the transactions contemplated by the Merger Agreement by the
requisite vote of the stockholders of Manor Care is a condition to the
consummation of the Merger.
The Manor Care Board of Directors unanimously recommends you vote FOR the
approval and adoption of the Merger Agreement and the approval of the Merger and
the transactions contemplated by the Merger Agreement.
STOCKHOLDER PROPOSALS
If the Merger is consummated, the first annual meeting of the stockholders
of HCR Manor Care after such consummation is expected to be held on or about May
5, 1999. If the Merger is not consummated, the 1999 annual meeting of
stockholders of HCR is expected to be held on or about May 5, 1999 and the 1998
annual meeting of the stockholders of Manor Care is expected to be held in the
fourth quarter of calendar year 1998.
The HCR Manor Care By-laws require that to properly bring business before
an annual meeting, a stockholder must give timely written notice containing the
information required by the HCR Manor Care By-laws to HCR Manor Care's corporate
secretary. To be timely, a stockholder's notice containing the information
required by the HCR Manor Care By-laws must be delivered to or mailed and
received at the principal executive offices of HCR Manor Care not less than
sixty days nor more than ninety days prior to the meeting; provided, however,
that in the event that less than seventy days notice or prior public disclosure
of the date of the annual meeting is given or made to stockholders, notice by a
stockholder, to be timely, must be received no later than the close of business
on the tenth day following the day on which such notice of the date of the
annual meeting was mailed or such public disclosure was made, whichever occurs
first.
In the event the Merger is not consummated, the only stockholder proposals
eligible to be considered for inclusion in the proxy materials for the 1999
annual meetings of HCR and Manor Care will be those which were duly submitted to
the Secretary of HCR or Manor Care, as the case may be, by March 5, 1999 in the
case of HCR and by April 17, 1999 in the case of Manor Care or as provided in
the respective 1999 Annual Meeting Proxy Statements of HCR and Manor Care.
Notwithstanding the foregoing, proxies voting against a specific proposal may
not be used by the persons named in the proxies to vote for adjournment of the
meeting for the purpose of providing management additional time to solicit votes
to approve such proposal. In the case of any stockholder proposal made at the
1999 annual meetings of HCR or Manor Care that is not included in the respective
1999 Annual Meeting Proxy Statements and proxy of HCR or Manor Care, HCR or
Manor Care may exercise discretionary voting authority with respect to such
stockholder proposal unless notice of such proposal is received by March 5,
1999, in the case of HCR or July 1, 1999, in the case of Manor Care.
LEGAL MATTERS
The validity of the shares of HCR Manor Care Common Stock to be issued in
connection with the Merger will be passed upon by Latham & Watkins, Chicago,
Illinois.
EXPERTS
The consolidated financial statements of HCR as of December 31, 1997 and
1996 and for each of the three years in the period ended December 31, 1997
included in this Joint Proxy Statement/Prospectus of HCR, which is referred to
and made a part of the Registration Statement, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon included
herein. Such consolidated financial statements are incorporated by reference in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing. It is expected that a representative of Ernst & Young
LLP will be present at the HCR Special Meeting to respond to appropriate
questions of HCR stockholders and to make a statement if such representative
desires.
The consolidated financial statements of Manor Care, Inc. as of May 31,
1998 and 1997 and for each of the three years ended May 31, 1998 included or
incorporated by reference in this Joint Proxy Statement/
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Prospectus and elsewhere in the Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
OTHER MATTERS
As of the date of this Joint Proxy Statement/Prospectus, the HCR Board of
Directors and the Manor Care Board of Directors know of no matters that will be
presented for consideration at the HCR Special Meeting or the Manor Care Special
Meeting other than as described in this Joint Proxy Statement/ Prospectus. If
any other matters shall properly come before either stockholder meeting or any
adjournments or postponements thereof and be voted upon, the enclosed proxies
will be deemed to confer discretionary authority on the individuals named as
proxies therein to vote the shares represented by such proxies as to any such
matters. The persons named as proxies intend to vote or not to vote in
accordance with the recommendation of the respective managements of HCR and
Manor Care.
WHERE YOU CAN FIND MORE INFORMATION
HCR and Manor Care file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements or other information we file at the SEC's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call
the SEC at 1-800-SEC-0330 for further information on the public reference rooms.
Our SEC filings are also available to the public from commercial document
retrieval services and at the web site maintained by the SEC at
"http://www.sec.gov." You may inspect information we file with the NYSE at the
offices of the NYSE at 20 Broad Street, New York, New York 10005.
HCR filed a Registration Statement on Form S-4 to register with the SEC the
HCR Manor Care Common Stock to be issued to Manor Care stockholders in the
Merger. This Joint Proxy Statement/ Prospectus is a part of that Registration
Statement and constitutes a prospectus of HCR in addition to being a proxy
statement of HCR and Manor Care for the Special Meetings. As allowed by SEC
rules, this Joint Proxy Statement/Prospectus does not contain all the
information you can find in the Registration Statement or the exhibits to the
Registration Statement.
The SEC allows us to "incorporate by reference" information into this Joint
Proxy Statement/ Prospectus, which means that we can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is deemed to be part of this
Joint Proxy Statement/Prospectus, except for any information superseded by
information in this Joint Proxy Statement/Prospectus. This Joint Proxy
Statement/Prospectus incorporates by reference the
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documents set forth below that we have previously filed with the SEC. These
documents contain important information about our companies and their finances.
<TABLE>
<CAPTION>
HCR SEC FILINGS (FILE NO. 1-10858) PERIOD
---------------------------------- ------
<S> <C>
Annual Report on Form 10-K................... Year ended December 31, 1997 (as amended by
Form 10-K/A filed on March 30, 1998)
Quarterly Reports on Form 10-Q............... Quarters ended March 31, 1998 and June 30,
1998
Proxy Statement on Schedule 14-A............. Filed on March 24, 1998
Current Report on Form 8-K................... Filed on June 16, 1998
Registration Statement on Form 8-A........... Filed on May 18, 1995 (and all amendments
thereto)
Registration Statement on Form S-1........... Filed on August 30, 1991 (and all amendments
thereto)
</TABLE>
<TABLE>
<CAPTION>
MANOR CARE SEC FILINGS (FILE NO. 1-8195) PERIOD
---------------------------------------- ------
<S> <C>
Annual Report on Form 10-K................... Fiscal year ended May 31, 1998
Current Report on Form 8-K................... Filed on June 16, 1998
Proxy Statement on Schedule 14-A............. Filed on August 15, 1997
</TABLE>
We are also incorporating by reference additional documents that we may
file with the SEC between the date of this Joint Proxy Statement/Prospectus and
the dates of the Special Meetings of our stockholders.
HCR has supplied all information contained or incorporated by reference in
this Joint Proxy Statement/ Prospectus relating to HCR and Manor Care has
supplied all such information relating to Manor Care.
If you are a stockholder, we may have sent you some of the documents
incorporated by reference, but you can obtain any of them through us or the SEC.
Documents incorporated by reference are available from us without charge,
excluding all exhibits unless we have specifically incorporated by reference an
exhibit in this Joint Proxy Statement/Prospectus. Stockholders may obtain
documents incorporated by reference in this Joint Proxy Statement/Prospectus by
requesting them in writing or by telephone from the appropriate party at the
following addresses:
<TABLE>
<S> <C>
Health Care and Retirement Corporation Manor Care, Inc.
Attention: R. Jeffrey Bixler, Secretary Attention: James H. Rempe, Secretary
One SeaGate 11555 Darnestown Road
Toledo, Ohio 43604-2616 Gaithersburg, Maryland 20878-3200
Telephone: (419) 252-5500 Telephone: (301) 979-4000
</TABLE>
If you would like to request documents from us, please do so by September
17, 1998 to receive them before the Special Meetings.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS TO VOTE ON THE MERGER. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT
FROM WHAT IS CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS. THIS JOINT
PROXY STATEMENT/PROSPECTUS IS DATED AUGUST 18, 1998. YOU SHOULD NOT ASSUME THAT
THE INFORMATION CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS ACCURATE
AS OF ANY DATE OTHER THAN AUGUST 18, 1998, AND NEITHER THE MAILING OF THE JOINT
PROXY STATEMENT/PROSPECTUS TO STOCKHOLDERS NOR THE ISSUANCE OF HCR MANOR CARE
COMMON STOCK IN THE MERGER SHALL CREATE ANY IMPLICATION TO THE CONTRARY.
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ANNEX A
- --------------------------------------------------------------------------------
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
AMONG
MANOR CARE, INC.,
HEALTH CARE AND RETIREMENT CORPORATION
AND
CATERA ACQUISITION CORP.
DATED AS OF JUNE 10, 1998
- --------------------------------------------------------------------------------
A-1
<PAGE> 99
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I. THE MERGER....................................... A-4
1.1. Effective Time of the Merger...................... A-5
1.2. Effect of the Merger.............................. A-5
1.3. Certificate of Incorporation; Bylaws.............. A-5
1.4. Directors and Officers............................ A-5
ARTICLE II. CONVERSION OF SECURITIES........................ A-5
2.1. Conversion of Capital Stock....................... A-5
2.2. Exchange of Certificates.......................... A-6
ARTICLE III. CLOSING........................................ A-8
3.1. Generally......................................... A-8
3.2. Deliveries at the Closing......................... A-8
ARTICLE IV. REPRESENTATIONS AND WARRANTIES.................. A-8
4.1. Representations and Warranties of Manor Care...... A-8
4.2. Joint and Several Representations and Warranties
of HCR and Merger Sub................................. A-18
ARTICLE V. CONDUCT OF BUSINESS BEFORE THE EFFECTIVE TIME.... A-27
5.1. Conduct of Manor Care............................. A-27
5.2. Conduct of HCR.................................... A-29
5.3. Cooperation....................................... A-31
ARTICLE VI. ADDITIONAL COVENANTS............................ A-31
6.1. No Solicitation................................... A-31
6.2. Joint Proxy Statement; Registration Statement..... A-32
6.3. Access to Information............................. A-33
6.4. Stockholders' Meetings............................ A-33
6.5. Legal Conditions to Merger........................ A-33
6.6. Tax-Free Reorganization........................... A-34
6.7. Pooling Accounting................................ A-34
6.8. Affiliate Agreements.............................. A-34
6.9. NYSE Listing...................................... A-34
6.10. Restricted Stock Plans........................... A-34
6.11. Consents; Other Approvals........................ A-35
6.12. Reports.......................................... A-35
6.13. Additional Agreements; Reasonable Best Efforts... A-35
6.14. Confidentiality Agreement........................ A-35
6.15. Stock Option Agreements.......................... A-35
6.16. Stockholder Litigation........................... A-35
6.17. Pooling Letters.................................. A-35
6.18. Post-Merger HCR Corporate Governance............. A-36
6.19. Name Change...................................... A-36
</TABLE>
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<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE VII. CONDITIONS PRECEDENT........................... A-37
7.1. Conditions to Each Party's Obligation To Effect
the Merger............................................ A-37
7.2. Additional Conditions to Obligations of HCR and
Merger Sub............................................ A-38
7.3. Additional Conditions to Obligations of Manor
Care.................................................. A-38
ARTICLE VIII. CONDUCT AND TRANSACTIONS AFTER THE EFFECTIVE
TIME...................................................... A-39
8.1. Employee Matters.................................. A-39
8.2. Indemnification................................... A-40
8.3. Directors and Officers Liability Insurance........ A-40
ARTICLE IX. TERMINATION..................................... A-40
9.1. Termination....................................... A-40
9.2. Effect of Termination............................. A-41
9.3. Fees and Expenses................................. A-42
ARTICLE X. MISCELLANEOUS PROVISIONS......................... A-43
10.1. Termination of Representations and Warranties.... A-43
10.2. Amendment and Modification....................... A-43
10.3. Waiver of Compliance; Consents................... A-43
10.4. Press Releases and Public Announcements.......... A-44
10.5. Notices.......................................... A-44
10.6. Assignment....................................... A-44
10.7. Interpretation; Glossary......................... A-44
10.8. Governing Law.................................... A-47
10.9. Counterparts..................................... A-47
10.10. Headings; Internal References................... A-47
10.11. Entire Agreement................................ A-47
10.12. Severability.................................... A-47
10.13. Equitable Remedies.............................. A-47
10.14. Disclosure Schedules............................ A-48
EXHIBITS
A Form of Voting Agreement
B-1 Form of HCR Stock Option Agreement
B-2 Form of Manor Care Stock Option Agreement
C Form of Manor Care Affiliate Agreement
D Form of HCR Affiliate Agreement
E Form of Registration Rights Agreement
F Amendment to Manor Care Rights Agreement
G Amendment to HCR Rights Agreement
</TABLE>
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AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
This AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (the "Agreement") is
dated as of June 10, 1998, among MANOR CARE, INC., a Delaware corporation
("Manor Care"), HEALTH CARE AND RETIREMENT CORPORATION, a Delaware corporation
("HCR"), and CATERA ACQUISITION CORP., a Delaware corporation and wholly owned
subsidiary of HCR ("Merger Sub").
RECITALS
WHEREAS, the Board of Directors of each of the parties deems it desirable
and in the best interests of the respective corporations and its stockholders
that HCR and Manor Care combine to advance the long-term business interests of
Manor Care and HCR and has approved this Agreement and the transactions
contemplated hereby;
WHEREAS, the strategic combination of Manor Care and HCR shall be effected
by the terms of this Agreement through a transaction in which Merger Sub will
merge with and into Manor Care, Manor Care will become a wholly owned subsidiary
of HCR, and the stockholders of Manor Care will become stockholders of HCR (the
"Merger");
WHEREAS, it is intended that HCR will be renamed HCR Manor Care, Inc. upon
consummation of the Merger for a period of one year and, thereafter, Manor Care,
Inc. unless and until such name is changed by resolution of its Board of
Directors;
WHEREAS, for federal income tax purposes, it is intended that the Merger
qualify as a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code");
WHEREAS, for accounting purposes, it is intended that the Merger will be
accounted for as a pooling of interests;
WHEREAS, contemporaneous with the execution of this Agreement, certain of
the stockholders of Manor Care (the "Key Stockholders") have entered into an
agreement in substantially the form of Exhibit A hereto (the "Voting Agreement")
to vote all of their shares of Manor Care Common Stock in favor of the Merger;
WHEREAS, contemporaneous with the execution of this Agreement, Manor Care
and HCR are entering into Stock Option Agreements in substantially the form of
Exhibit B-1 and Exhibit B-2 hereto (the "Stock Option Agreements" and, together
with the Voting Agreement and the Registration Rights Agreement attached hereto
as Exhibit E, the "Ancillary Agreements"), pursuant to which each of Manor Care
and HCR will grant the other an option to purchase shares of Manor Care Common
Stock and HCR Common Stock, respectively, under certain circumstances; and
WHEREAS, the Board of Directors of each of HCR and Manor Care have approved
this Agreement and each of the Ancillary Agreements to which such company is a
party.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants, and agreements set forth herein and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, and intending to be legally bound, the parties hereby agree as
follows:
ARTICLE I.
THE MERGER
1.1. Effective Time of the Merger. Subject to the provisions of this
Agreement, a certificate of merger in such form as is required by the relevant
provisions of the Delaware General Corporation Law ("DGCL") (the "Certificate of
Merger") shall be duly prepared, executed and acknowledged by the Surviving
Corporation and thereafter delivered to the Secretary of State of the State of
Delaware for filing, as provided in the DGCL, as early as practicable on the
Closing Date. The Merger shall become effective upon the filing of the
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Certificate of Merger with the Secretary of State of the State of Delaware or
such later date and time as set forth in the Certificate of Merger (the
"Effective Time").
1.2. Effect of the Merger. As a result of the Merger, Merger Sub shall be
merged with and into Manor Care and the separate corporate existence of Merger
Sub shall cease and Manor Care shall continue as the surviving corporation (the
"Surviving Corporation"). Upon becoming effective, the Merger shall have the
effects set forth in the DGCL. Without limiting the generality of the foregoing,
and subject thereto, at the Effective Time, all properties, rights, privileges,
powers and franchises of Manor Care and Merger Sub shall vest in the Surviving
Corporation, and all debts, liabilities and duties of Manor Care and Merger Sub
shall become the debts, liabilities and duties of the Surviving Corporation.
1.3. Certificate of Incorporation; Bylaws. At the Effective Time, (i) the
Certificate of Incorporation of Manor Care shall be amended to read in its
entirety as the Certificate of Incorporation of Merger Sub, as in effect
immediately prior to the Effective Time, and shall be the Certificate of
Incorporation of the Surviving Corporation, and (ii) the Bylaws of Merger Sub,
as in effect immediately prior to the Effective Time, shall be the Bylaws of the
Surviving Corporation, in each case until duly amended in accordance with
applicable law.
1.4. Directors and Officers. The officers of Manor Care immediately prior
to the Effective Time shall be the initial officers of the Surviving
Corporation. The directors of Merger Sub immediately prior to the Effective Time
shall be the initial directors of the Surviving Corporation, each to hold office
in accordance with the Certificate of Incorporation and Bylaws of the Surviving
Corporation.
ARTICLE II.
CONVERSION OF SECURITIES
2.1. Conversion of Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of any of the parties hereto or the
holders of any shares of Manor Care Common Stock or capital stock of Merger Sub:
(a) Capital Stock of Merger Sub. Each issued and outstanding share of the
capital stock of Merger Sub shall be converted into and become one fully paid
and nonassessable share of common stock, par value $.01 per share, of the
Surviving Corporation.
(b) Cancellation of Treasury Stock and HCR-Owned Stock. All shares of
common stock, par value $.10 per share, of Manor Care ("Manor Care Common
Stock", which term shall include the associated Manor Care Rights) that are
owned by Manor Care as treasury stock and any shares of Manor Care Common Stock
owned by HCR, Merger Sub or any other wholly-owned Subsidiary of HCR shall be
canceled and retired and shall cease to exist and no stock of HCR or other
consideration shall be delivered in exchange therefor. All shares of common
stock, par value $.01 per share, of HCR ("HCR Common Stock", which term shall
include the associated HCR Rights) owned by Manor Care shall be unaffected by
the Merger.
(c) Exchange Ratio for Manor Care Common Stock. Subject to Section 2.2,
each issued and outstanding share of Manor Care Common Stock (other than shares
to be canceled in accordance with Section 2.1(b)) shall be converted into the
right to receive 1.0 share (the "Exchange Ratio") of HCR Common Stock. All such
shares of Manor Care Common Stock, when so converted, shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each holder of a certificate which, immediately prior to the
Effective Time, represented any such shares shall cease to have any rights with
respect thereto, except the right to receive the shares of HCR Common Stock and
any cash in lieu of fractional shares of HCR Common Stock to be issued or paid
in consideration therefor upon the surrender of such certificate in accordance
with Section 2.2, without interest.
(d) Exchange Of Options. As of the Effective Time, each holder of any
outstanding stock options or stock appreciation rights granted by Manor Care or
any of its subsidiaries (the "Exchange Awards"), whether or not vested, shall
receive (subject to withholding or for other settlement of obligations
concerning income taxes), in exchange for his other rights under such Exchange
Awards, HCR Common Stock having a fair market value equal to the fair market
value (as determined by Manor Care's outside auditor pursuant to a
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Black-Scholes based pricing formula using the risk free rate at the Effective
Time, 27 1/2% volatility and without giving consideration to the lack of
transferability and the risk of forfeiture, and otherwise consistent with the
methodology of the schedule provided by Manor Care to HCR on June 9, 1998 with
respect to such matters) of his other Exchange Awards on the Effective Time.
From and after the Effective Time, all such Exchange Awards shall be deemed
canceled pursuant to this subsection (d).
2.2. Exchange of Certificates. The procedures for exchanging certificates
which, immediately prior to the Effective Time, represented outstanding shares
of Manor Care Common Stock for HCR Common Stock pursuant to the Merger are as
follows:
(a) Exchange Agent. As of the Effective Time, HCR shall deposit with a bank
or trust company designated by HCR and Manor Care (the "Exchange Agent"), for
the benefit of the holders of shares of Manor Care Common Stock, for exchange in
accordance with this Section 2.2, through the Exchange Agent, certificates
representing the shares of HCR Common Stock and the cash payable under Section
2.2(e) (such shares of HCR Common Stock, together with any dividends or
distributions with respect thereto and any amounts to be paid pursuant to
Section 2.2(e), being hereinafter referred to as the "Exchange Fund") issuable
pursuant to Section 2.1 in exchange for outstanding shares of Manor Care Common
Stock.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Manor Care Common Stock (the "Certificates")
whose shares were converted pursuant to Section 2.1 into the right to receive
shares of HCR Common Stock (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to the Exchange Agent and shall be
in such form and have such other provisions as HCR and Manor Care may reasonably
specify) and (ii) instructions for effecting the surrender of the Certificates
in exchange for certificates representing shares of HCR Common Stock (plus cash
in lieu of fractional shares, if any, of HCR Common Stock as provided below).
Upon surrender of a Certificate for cancellation to the Exchange Agent, together
with such letter of transmittal, duly executed, the holder of such Certificate
shall be entitled to receive in exchange therefor a certificate representing
that number of whole shares of HCR Common Stock which such holder has the right
to receive pursuant to the provisions of this Article II (and cash in lieu of
fractional shares), and the Certificate so surrendered shall immediately be
canceled. In the event of a transfer of ownership of Manor Care Common Stock
which is not registered in the transfer records of Manor Care, a certificate
representing the proper number of shares of HCR Common Stock may be issued to a
transferee if the Certificate formerly representing such Manor Care Common Stock
is presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and by evidence that any applicable stock
transfer taxes have been paid. Until surrendered as contemplated by this Section
2.2, each Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the certificate
representing shares of HCR Common Stock and cash in lieu of any fractional
shares of HCR Common Stock as contemplated by this Section 2.2.
(c) Distributions With Respect to Unexchanged Shares. No dividends or other
distributions declared or made after the Effective Time with respect to HCR
Common Stock with a record date after the Effective Time shall be paid to the
holder of any unsurrendered Certificate with respect to the shares of HCR Common
Stock issuable upon surrender thereof and no cash payment in lieu of fractional
shares shall be paid to any such holder pursuant to subsection (e) below until
the holder of record of such Certificate shall surrender such Certificate.
Subject to the effect of applicable laws, following surrender of any such
Certificate, there shall be paid to the record holder of the certificates
representing whole shares of HCR Common Stock issued in exchange therefor,
without interest, (i) at the time of such surrender, the amount of any cash
payable in lieu of a fractional share of HCR Common Stock to which such holder
is entitled pursuant to subsection (e) below and the amount of dividends or
other distributions with respect to such whole shares of HCR Common Stock with a
record date after the Effective Time and a payment date prior to their date of
issuance to such holder, and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective Time but
prior to surrender and a payment date subsequent to surrender payable with
respect to such whole shares of HCR Common Stock. Notwithstanding anything in
this
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Agreement to the contrary, HCR agrees that from and after the Effective Time it
will treat the shares of HCR Common Stock issuable in connection with the Merger
as outstanding for purposes of notice, quorum and voting.
(d) No Further Ownership Rights in Manor Care Common Stock. All shares of
HCR Common Stock issued upon the surrender for exchange of Certificates in
accordance with the terms hereof (including any cash paid pursuant to subsection
(c) or (e) of this Section 2.2) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Manor Care Common Stock,
subject, however, to the Surviving Corporation's obligation to pay any dividends
or make any other distributions with a record date prior to the Effective Time
which may have been declared or made by Manor Care on such shares of Manor Care
Common Stock in accordance with the terms of this Agreement (to the extent
permitted under Section 5.1) prior to the date hereof and which remain unpaid at
the Effective Time, and from and after the Effective Time there shall be no
further registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of Manor Care Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Section 2.2.
(e) No Fractional Shares. No certificate or scrip representing fractional
shares of HCR Common Stock shall be issued upon the surrender for exchange of
Certificates, and such fractional share interests will not entitle the owner
thereof to vote or to any other rights of a stockholder of HCR. Notwithstanding
any other provision of this Agreement, each holder of shares of Manor Care
Common Stock converted pursuant to the Merger who would otherwise have been
entitled to receive a fraction of a share of HCR Common Stock (after taking into
account all Certificates delivered by such holder) shall receive, in lieu
thereof, cash (without interest) in an amount equal to such fractional part of a
share of HCR Common Stock multiplied by the average of the last reported sales
prices of HCR Common Stock, as reported on the New York Stock Exchange, on each
of the ten trading days immediately preceding the date of the Effective Time.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the former stockholders of Manor Care for 180 days
after the Effective Time shall be delivered to HCR, upon demand, and any
stockholders of Manor Care who have not previously complied with this Section
2.2 shall thereafter look only to HCR for payment of their claim for HCR Common
Stock, any cash in lieu of fractional shares of HCR Common Stock and any
dividends or distributions with respect to HCR Common Stock.
(g) No Liability. Neither HCR nor Manor Care shall be liable to any former
holder of shares of Manor Care Common Stock or HCR Common Stock, as the case may
be, for such shares (or dividends or distributions with respect thereto)
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
(h) Withholding Rights. Each of HCR and the Surviving Corporation shall be
entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any former holder of shares of Manor Care Common
Stock such amounts as it is required to deduct and withhold with respect to the
making of such payment under the Code, or any provision of state, local or
foreign tax law. To the extent that amounts are so withheld by Surviving
Corporation or HCR, as the case may be, such withheld amounts shall be treated
for all purposes of this Agreement as having been paid to the former holder of
the shares of Manor Care Common Stock in respect of which such deduction and
withholding was made by Surviving Corporation or HCR, as the case may be.
(i) Lost Certificates. If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such person of a bond in such reasonable
amount as the Surviving Corporation may direct as indemnity against any claim
that may be made against it with respect to such Certificate, the Exchange Agent
(and, following the termination of the Exchange Fund, HCR) will issue in
exchange for such lost, stolen or destroyed Certificate the shares of HCR Common
Stock and any cash in lieu of fractional shares, and unpaid dividends and
distributions on shares of HCR Common Stock deliverable in respect thereof
pursuant to this Agreement.
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(j) Affiliates. Notwithstanding anything herein to the contrary,
Certificates surrendered for exchange by any "affiliate" (as referenced in
Section 6.8) of Manor Care shall not be exchanged until HCR has received a Manor
Care Affiliate Agreement from such Affiliate.
ARTICLE III.
CLOSING
3.1 Generally. Subject to the conditions set forth in Article VII, the
closing (the "Closing") of the Merger and the other transactions contemplated
hereby shall occur as soon as practicable, but no more than five business days
(unless Manor Care and HCR shall otherwise mutually agree) following the
satisfaction or waiver (to the extent waivable under Article VII) of all
conditions to the consummation of the Merger set forth in Article VII (the
"Closing Date"). The Closing shall be held at the offices of Latham & Watkins in
Chicago, Illinois or at such other place as Manor Care and HCR may mutually
agree.
3.2. Deliveries at the Closing. Subject to the conditions set forth in
Article VII, at the Closing:
(a) There shall be delivered to HCR, Merger Sub, and Manor Care the
certificates and other documents and instruments the delivery of which is
required under Article VII; and
(b) Manor Care and Merger Sub shall cause the Certificate of Merger to be
filed as provided in Section 1.1 and shall take all other lawful actions
necessary to cause the Merger to become effective.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
4.1. Representations and Warranties of Manor Care. Except as qualified by
the disclosure schedule delivered by Manor Care to HCR concurrently with the
execution of this Agreement (the "Manor Care Disclosure Schedule") or as
disclosed with reasonable specificity in the Public Subsidiary SEC Reports ,
filed prior to the date hereof, Manor Care represents and warrants to HCR and
Merger Sub as set forth in this Section 4.1.
(a) Organization, Standing, Qualification. Each of Manor Care and its
Subsidiaries is a corporation duly incorporated, validly existing, and in good
standing under the laws of the jurisdiction of its incorporation and has the
requisite corporate power and corporate authority to own, lease, and operate its
properties and assets and to carry on its business as it is now being conducted.
Each of Manor Care and its Subsidiaries is duly qualified or licensed as a
foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of the properties owned, operated, or leased by
it, or the nature of its business, makes such qualification or licensing
necessary, except those jurisdictions where failure to be so qualified, licensed
or in good standing would not have a Material Adverse Effect on Manor Care.
Copies of the Certificate of Incorporation and Bylaws of Manor Care have been
made available to HCR and are complete and correct as of the date of this
Agreement. As used in this Agreement, the word "Subsidiary' means, with respect
to any party, any corporation or other organization, whether incorporated or
unincorporated, of which (i) such party or any other Subsidiary of such party is
a general partner (excluding partnerships the general partnership interests of
which held by such party or any Subsidiary of such party do not have at least
35% of the economic interests in such partnership) or (ii) at least 35% of the
securities or other interests having by their terms ordinary voting power to
elect directors or other persons performing similar functions with respect to
such corporation or other organization is directly or indirectly owned or
controlled by such party or by any one or more of its Subsidiaries, or by such
party and one or more of its Subsidiaries; provided further, that with respect
to Manor Care, but without limiting the foregoing, "Subsidiaries" shall include
Vitalink Pharmacy Services, Inc., a Delaware corporation ("Vitalink"), and In
Home Health, Inc., a Minnesota corporation ("IHH"). As used in this Agreement,
"Vitalink Transaction" means the transactions contemplated by the Agreement and
Plan of Merger by and among Vitalink, Genesis Health Ventures, Inc., a
Pennsylvania corporation ("Genesis"), and V Acquisition Corporation, a Delaware
corporation and wholly owned
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subsidiary of Genesis ("Acquisition Corporation"), dated as of April 26, 1998
(the "Vitalink Merger Agreement"), pursuant to which Vitalink will merge with
and into Acquisition Corporation.
(b) Capitalization. The authorized capital stock of Manor Care consists of
(i) 160,000,000 shares of Manor Care Common Stock, of which, as of the date of
this Agreement, 63,695,583 shares are issued and outstanding, and (ii) 5,000,000
shares of Preferred Stock, par value $1.00 per share, of which 1,000,000 shares
have been designated as Series A Junior Participating Preferred Stock ("Series A
Preferred Stock"), none of which, as of the date of this Agreement, is issued
and outstanding. All of the issued and outstanding shares of capital stock of
Manor Care and each of its Subsidiaries have been duly authorized and validly
issued, are fully paid and nonassessable and were not granted in violation of
any statutory preemptive rights. There are no outstanding subscriptions,
options, warrants, calls, or other agreements or commitments pursuant to which
Manor Care or any Subsidiary (other than the Public Subsidiaries) is or may
become obligated to issue, sell, transfer, or otherwise dispose of, or purchase,
redeem, or otherwise acquire, any shares of capital stock of, or other equity
interests in, Manor Care or any Subsidiary (other than the Public Subsidiaries),
and there are no outstanding securities convertible into or exchangeable for any
such capital stock or other equity interests, except for (i) options to purchase
up to an aggregate of 3,501,330 shares and restricted stock grants of 346,061
shares (as of the date of this Agreement) of Manor Care Common Stock at the
exercise prices set forth in the Manor Care Disclosure Schedule, and (ii) the
Rights Agreement dated as of February 25, 1998 between Manor Care and
ChaseMellon Shareholder Services, L.L.C. (the "Manor Care Rights Agreement")
pursuant to which each outstanding share of Manor Care Common Stock has
associated with it certain rights (the "Manor Care Rights"), including rights
under certain circumstances to purchase shares of Series A Preferred Stock at
$175 per one one-hundredth share, subject to adjustment. The Manor Care
Disclosure Schedule sets forth a true and complete list as of June 2, 1998 of
(i) all holders of options to purchase Manor Care Common Stock, including the
number of shares of Manor Care Common Stock subject to each such option (a
"Manor Care Option"), the exercise or vesting schedule of such option, the
exercise price per share and the term of each such option, and (ii) all holders
of restricted stock awards with respect to Manor Care Common Stock, including
the number of shares of Manor Care Common Stock subject to each such award (a
"Manor Care Award") and the vesting schedule of each such award. There are no
stock appreciation rights, phantom stock rights, or performance shares
outstanding with respect to Manor Care or any of its Subsidiaries (other than
the Public Subsidiaries). The Manor Care Disclosure Schedule sets forth for each
class of stock of each Subsidiary (other than the Public Subsidiaries) of Manor
Care, the number of shares authorized, the number of shares issued and
outstanding and the beneficial owners of the issued and outstanding shares, and
for the Public Subsidiaries, the same information, but only as to the stock
beneficially owned by Manor Care. Except as set forth in the Manor Care
Disclosure Schedule, Manor Care owns, directly or indirectly, all of the issued
and outstanding shares of capital stock of every class of each Subsidiary, free
and clear of all liens, security interests, pledges, charges, and other
encumbrances. There are no voting trusts or other agreements or understandings
to which Manor Care or any of its Subsidiaries (other than the Public
Subsidiaries) is a party or of which Manor Care otherwise has knowledge with
respect to the voting of its capital stock or that of any Subsidiary. As used in
this Agreement, "Public Subsidiaries" means Vitalink and IHH.
(c) Authorization and Execution. Manor Care has the corporate power and
authority to execute and deliver this Agreement and, subject to approval by the
holders of Manor Care Common Stock at the special meeting of stockholders
referred to in Section 6.4, to consummate the transactions contemplated hereby.
Manor Care has the corporate power and authority to execute, deliver and
consummate the transactions contemplated by each of the Ancillary Agreements to
which Manor Care is a party. The execution, delivery and performance of this
Agreement and the Ancillary Agreements by Manor Care have been duly authorized
by the Board of Directors of Manor Care, and no further corporate action of
Manor Care, other than the approval of its stockholders, is necessary to
consummate the transactions contemplated hereby and thereby. This Agreement and
each of the Ancillary Agreements have been duly executed and delivered by Manor
Care and, assuming the accuracy of the representations and warranties set forth
in the last sentence of Section 4.2(c) without giving effect to the assumption
therein, each such agreement constitutes the legal, valid, and binding
obligation of Manor Care, enforceable against Manor Care in accordance with such
agreement's terms.
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(d) No Conflicts. Neither the execution and delivery of this Agreement or
any of the Ancillary Agreements by Manor Care, nor the consummation by Manor
Care of the transactions contemplated hereby or thereby, will (i) subject to
approval by the holders of Manor Care Common Stock at the special meeting of
stockholders referred to in Section 6.4, conflict with or result in a breach of
the Certificate of Incorporation, Bylaws, or similar organizational documents,
as currently in effect, of Manor Care or any of its Subsidiaries, (ii) except
for the requirements under the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (the "HSR Act"), the filing of the Certificate of Merger with the Delaware
Secretary of State, and the filing of the Joint Proxy Statement with the
Securities and Exchange Commission (the "SEC") in accordance with the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and such filings,
licenses, permits, authorizations, consents, orders, registrations,
notifications and disclosures as are set forth on the Manor Care Disclosure
Schedule, require any filing with, or consent or approval of, any domestic
court, administrative agency, commission or other governmental authority or
institution (each, a "Government Entity") having jurisdiction over any of the
business or assets of Manor Care or any of its Subsidiaries, (iii) assuming that
all filings, permits, authorization, consents, disclosures and approvals so
listed in the Manor Care Disclosure Schedule have been duly made or obtained as
contemplated by clause (ii), violate any statute, law, ordinance, rule, or
regulation applicable to Manor Care or any of its Subsidiaries or any
injunction, judgment, order, writ, or decree to which Manor Care or any of its
Subsidiaries is subject, or (iv) result in a breach of, or constitute a default
or an event which, with the passage of time or the giving of notice, or both,
would constitute a default, give rise to a right of termination, cancellation,
or acceleration, create any entitlement of any third party to any material
payment or benefit, require the consent of any third party, or result in the
creation of any lien on the assets of Manor Care or any of its Subsidiaries
under, any Manor Care Material Contract , except, in the case of clauses (ii),
(iii) and (iv), where the violation, breach, default, termination, cancellation,
acceleration, payment, benefit, or lien, or the failure to make such filing or
obtain such consent or approval would neither materially impair the ability of
Manor Care to consummate the transactions contemplated by this Agreement nor
have a Material Adverse Effect on Manor Care.
(e) SEC Reports; Financial Statements; No Undisclosed Liabilities.
(i) Manor Care has made available to HCR, in the form filed with the
SEC, its (A) Annual Report on Form 10-K for each of the fiscal years ended
May 31, 1995 through May 31, 1997, (B) all proxy statements relating to
Manor Care's meetings of stockholders (whether annual or special) held
since January 1, 1996, and (C) all other forms and reports filed by Manor
Care with the SEC since June 1, 1994 (all such forms and reports, other
than the Joint Proxy Statement, being collectively called the "Manor Care
SEC Reports" and individually called a "Manor Care SEC Report"). No Manor
Care Group SEC Report (including any document incorporated by reference
therein), as of its filing date (or if amended or superseded by a filing
prior to the date of this Agreement, then on the date of such filing),
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary in order to make
the statements made therein, in the light of the circumstances under which
they were made, not misleading, and each Manor Care Group SEC Report at the
time of its filing complied as to form in all material respects with all
applicable requirements of the Securities Act of 1933, as amended (the
"Securities Act"), the Exchange Act, and the rules and regulations of the
SEC. Since June 1, 1994, Manor Care has filed in a timely manner all
reports that it was required to file with the SEC pursuant to the Exchange
Act and the rules and regulations of the SEC. As used in this Agreement,
"Public Subsidiary SEC Reports" means, in the case of Vitalink, its Annual
Report on Form 10-K for the fiscal year ended May 31, 1997, its proxy
statement dated November 20, 1997 and all forms and reports filed with the
SEC since June 1, 1994 and, in the case of IHH, its Annual Report on Form
10-K for the fiscal year ended September 30, 1997, its proxy statement
dated February 2, 1998 and all forms and reports filed with the SEC since
October 1, 1994. The Public Subsidiary SEC Reports together with the Manor
Care SEC Reports are collectively referred to as the "Manor Care Group SEC
Reports."
(ii) The consolidated financial statements contained in the Manor Care
Group SEC Reports were prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved ("GAAP") (except as may be indicated in the notes thereto or, in
the
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case of unaudited interim financial statements, as may be permitted by the
SEC on Form 10-Q under the Exchange Act) and fairly present, in all
material respects, the consolidated financial position of Manor Care and
its Subsidiaries or the applicable Public Subsidiary and its Subsidiaries,
as the case may be as at the respective dates thereof and the consolidated
results of operations and consolidated cash flows of Manor Care and its
Subsidiaries or the applicable Public Subsidiary and its Subsidiaries, as
the case may be for the periods indicated, subject, in the case of interim
financial statements, to normal year-end adjustments.
(iii) Except as disclosed in the Manor Care SEC Reports filed prior to
the date hereof, and except for normal or recurring liabilities incurred
since May 31, 1997 in the ordinary course of business consistent with past
practices, Manor Care and its Subsidiaries do not have any liabilities,
either accrued, contingent or otherwise (whether or not required to be
reflected in financial statements in accordance with generally accepted
accounting principles), and whether due or to become due, which
individually or in the aggregate are reasonably likely to have a Material
Adverse Effect on Manor Care.
(f) Joint Proxy Statement/Registration Statement. The information to be
supplied by Manor Care for inclusion (i) in the Registration Statement shall not
at the time the Registration Statement is declared effective by the SEC contain
any untrue statement of a material fact or omit to state any material fact
required to be stated in the Registration Statement or necessary in order to
make the statements in the Registration Statement, in light of the circumstances
under which they were made, not misleading, and (ii) in the Joint Proxy
Statement shall not, on the date the Joint Proxy Statement is first mailed to
stockholders of Manor Care or HCR, at the time of the Manor Care Stockholders'
Meeting and the HCR Stockholders' Meeting, or at the Effective Time, contain any
statement which, at such time and in the light of the circumstances under which
it shall be made, is false or misleading with respect to any material fact, or
omit to state any material fact necessary in order to make the statements made
in the Joint Proxy Statement not false or misleading. If at any time before the
Effective Time any event relating to Manor Care or any of its affiliates,
officers, or directors is discovered by Manor Care that should be set forth in
an amendment to the Registration Statement or a supplement to the Joint Proxy
Statement, Manor Care shall promptly so inform HCR.
(g) Absence of Certain Changes or Events. Except as expressly disclosed in
the Manor Care SEC Reports filed prior to the date hereof and Public
Subsidiaries SEC Reports filed prior to the date hereof or as expressly
contemplated by this Agreement, since May 31, 1997, Manor Care and its
Subsidiaries have conducted their respective businesses and operations in the
ordinary course and neither Manor Care nor any of its Subsidiaries (other than
the Public Subsidiaries) has (i) split, combined, or reclassified any shares of
its capital stock or made any other changes in its equity capital structure;
(ii) purchased, redeemed, or otherwise acquired, directly or indirectly, any
shares of capital stock of Manor Care or any of its Subsidiaries or any options,
rights, or warrants to purchase any such capital stock or any securities
convertible into or exchangeable for any such capital stock; (iii) declared, set
aside or paid any dividend or made any other distribution in respect of shares
of its capital stock, except for (A) quarterly cash dividends on Manor Care
Common Stock in the amount of $.022 per share, and (B) dividends or
distributions by any Subsidiary to Manor Care or another subsidiary; (iv) issued
any shares of its capital stock or granted any options, rights, or warrants to
purchase any such capital stock or any securities convertible into or
exchangeable for any such capital stock, except for (A) issuances of shares of
Manor Care Common Stock upon the exercise of options granted prior to the date
hereof and (B) grants of options for 767,850 shares of Manor Care Common Stock
and grants of 151,801 shares of restricted stock; (v) purchased any business,
purchased any stock of any corporation other than Manor Care, or merged or
consolidated with any person; (vi) sold, leased, or otherwise disposed of any
assets or properties that were material to Manor Care and its Subsidiaries,
taken as a whole, other than sales or other dispositions in the ordinary course
of business and the sale of Vitalink; (vii) incurred, assumed, or guaranteed any
indebtedness for money borrowed in excess of $75,000,000 in the aggregate other
than (A) borrowings incurred for working capital purposes under Manor Care's
existing revolving credit facilities and (B) intercompany indebtedness; (viii)
changed or modified in any material respect any existing accounting method,
principle, or practice; or (ix) except for this Agreement, entered into any
commitment to do any of the foregoing.
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Except as disclosed in the Manor Care Group SEC Reports filed prior to the
date hereof, since May 31, 1997, there has not been (i) any Material Adverse
Change in the financial condition, results of operations, business or properties
of Manor Care or any of its Subsidiaries (other than changes that are the effect
or result of economic factors affecting the economy as a whole or the industry
in which Manor Care competes), or any development or combination of developments
of which the management of Manor Care is aware that, individually or in the
aggregate, has had, or is reasonably likely to have, a Material Adverse Effect
on Manor Care; (ii) any damage, destruction or loss with respect to Manor Care
or any of its Subsidiaries having a Material Adverse Effect on Manor Care; (iii)
any material change by Manor Care or any of its Subsidiaries (other than the
Public Subsidiaries) in its accounting methods, principles or practices; (iv)
any revaluation by Manor Care or any of its Subsidiaries of any of its assets
having a Material Adverse Effect on Manor Care; or (v) any other action or event
that would have required the consent of HCR pursuant to Section 5.1 of this
Agreement had such action or event occurred after the date of this Agreement and
that, individually or in the aggregate, has had or is reasonably likely to have
a Material Adverse Effect on Manor Care.
(h) Tax Matters.
(i) Manor Care and its Subsidiaries have timely filed (or received
appropriate extensions for filing) all federal, state, local, and foreign
tax returns ("Tax Returns") required to be filed by them with respect to
income, gross receipts, withholding, social security, unemployment,
payroll, franchise, property, excise, sales, use, and other taxes of
whatever kind ("Taxes"), except for Tax Returns the non-filing of which
would not have a Material Adverse Effect on Manor Care, and have paid all
Taxes shown on such Tax Returns to the extent they have become due. Manor
Care's Tax Returns are accurate and complete, except to the extent that any
inaccuracies or incompleteness would not have a Material Adverse Effect on
Manor Care.
(ii) No Tax Returns filed by Manor Care or any of its Subsidiaries are
the subject of pending audits as of the date of this Agreement that could
be reasonably expected to have a Material Adverse Effect on Manor Care.
Neither Manor Care nor any of its Subsidiaries (other than the Public
Subsidiaries) has received, prior to the date of this Agreement, a notice
of deficiency or assessment of additional Taxes, which notice or assessment
remains unresolved. Neither Manor Care nor any of its Subsidiaries (other
than the Public Subsidiaries) has extended the period for assessment or
payment of any Tax, which extension has not since expired.
(iii) Manor Care and its Subsidiaries have withheld and paid over to
the appropriate governmental authorities all Taxes required by law to have
been withheld and paid in connection with amounts paid or owing to any
employee, except for any such Taxes that are immaterial in amount.
(iv) Neither Manor Care nor any of its Subsidiaries has been a member
of an affiliated group (as defined in Section 1504 of the Code) filing a
consolidated federal income tax return for any tax year since January 1,
1991 other than a group the common parent of which was Manor Care.
(v) Neither Manor Care nor any of its Subsidiaries (other than the
Public Subsidiaries) has filed a consent under Code Section 341(f)
concerning collapsible corporations.
(vi) Neither Manor Care nor any of its Subsidiaries (other than the
Public Subsidiaries) has been a United States real property holding
corporation within the meaning of Code Section 897(c)(2) during the
applicable period specified in Code Section 897(c)(1)(A)(ii).
(vii) Neither Manor Care nor any of its Subsidiaries (other than the
Public Subsidiaries) is a party to any Tax allocation or sharing agreement.
(viii) Manor Care has delivered or made available to HCR true and
complete copies of all requested federal, state, local, and foreign income
tax returns with respect to Manor Care and each of its Subsidiaries (other
than the Public Subsidiaries).
(i) Property. Except as would not, individually or in the aggregate have a
Material Adverse Effect on Manor Care: (a) Manor Care and each of its
Subsidiaries have good and clear record and marketable title to each of their
owned properties, insurable by a recognized national title insurance company at
standard rates,
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free and clear of any security interest, easement, covenant or other
restriction, except for recorded easements, covenants and other restrictions
which do not materially impair the current uses or occupancy of such property
(collectively, "liens"); (b) the improvements constructed on each such property
are in good condition, and all mechanical and utility systems servicing such
improvements are in good condition, free in each case of material defects; and
(c) each such property is properly zoned for its current use by Manor Care and
its Subsidiaries, and is not in violation of any zoning, subdivision, health,
safety, landmark preservation, wetlands preservation, building, land use or
other ordinances, laws, codes or regulations or any covenants, restrictions or
other documents of record; nor has any written notice of any claimed violation
of any such ordinances, laws, codes or regulations or any covenants,
restrictions or other documents of record been served on Manor Care or its
Subsidiaries (other than the Public Subsidiaries). All leases pursuant to which
Manor Care or any of its Subsidiaries lease from others material amounts of real
or personal property are in good standing, valid and effective in accordance
with their respective terms with respect to Manor Care and its Subsidiaries, as
the case may be, and, to Manor Care's knowledge, with respect to any other party
thereto, and there is not under any of such leases any existing material default
or event of default (or event which with notice or lapse of time, or both, would
constitute a material default), except where the lack of such good standing,
validity and effectiveness or the existence of such default or event of default
would not have a Material Adverse Effect on Manor Care. Manor Care or its
Subsidiaries, as the case may be, have valid leasehold interests in all
properties leased thereunder free and clear of all liens created by, through or
under Manor Care or its Subsidiaries, except as would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect on Manor
Care.
(j) Material Contracts
(i) Except as expressly disclosed in the Manor Care SEC Reports filed
prior to the date hereof, neither Manor Care nor any of its Subsidiaries
(other than the Public Subsidiaries) is a party to any oral or written (A)
agreement, contract, indenture or other instrument relating to Indebtedness
in an amount exceeding $2,000,000, (B) partnership, joint venture or
limited liability agreement or management with any person, (C) agreement,
contract, or other instrument relating to any merger, consolidation,
business combination, share exchange, business acquisition, or for the
purchase, acquisition, sale or disposition of any assets of Manor Care or
any of its Subsidiaries (other than the Public Subsidiaries) outside the
ordinary course of business, (D) other contract, agreement or commitment to
be performed after the date hereof which would be a material contract (as
defined in Item 601(b)(10) of Regulation S-K of the SEC), or (E) contract,
agreement or commitment which materially restricts the conduct of any line
of business by Manor Care or any of its Subsidiaries (other than the Public
Subsidiaries) (such contracts, agreements and commitments, plus all
contracts, commitments and agreements for each Public Subsidiary which
would be described in clauses (A)-(E) but for the exception "(other than
the Public Subsidiaries)" are collectively referred to as the "Manor Care
Material Contracts").
(ii) Except as expressly disclosed in the Manor Care SEC Reports filed
prior to the date hereof, (A) each of the Manor Care Material Contracts is
valid and binding in accordance with its terms and is in full force and
effect and (B) there is no material breach or violation of or default by
Manor Care or any of its Subsidiaries under any of the Manor Care Material
Contracts, whether or not such breach, violation or default has been
waived, and no event has occurred which, with notice or lapse of time or
both, would constitute a material breach, violation or default, or give
rise to a right of termination, modification, cancellation, foreclosure,
imposition of a lien, prepayment or acceleration under any of the Manor
Care Material Contracts, which breach, violation or default referred to in
clauses (A) or (B), alone or in the aggregate with other such breaches,
violations or defaults referred to in clauses (A) or (B), would be
reasonably likely to have a Material Adverse Effect on Manor Care or
materially impair the ability of Manor Care to consummate the Merger.
(k) Intellectual Property. Manor Care and its Subsidiaries own or possess
adequate licenses or other valid rights to use (without the making of any
payment to others, other than payments under agreements disclosed in the Manor
Care Disclosure Schedule) all material patents and applications therefore,
trademarks, trade names, service marks and copyrights (collectively,
"Proprietary Rights") necessary to the conduct of its business in the manner in
which it is presently being conducted, except for such lack of or defects in
ownership
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or possession as would not, individually or in the aggregate, be reasonably
likely to have a Material Adverse Effect on Manor Care. As of the date of this
Agreement, neither Manor Care nor any of its Subsidiaries (other than the Public
Subsidiaries) has received any written notice that any Proprietary Rights have
been declared unenforceable or otherwise invalid by any court or governmental
agency other than notices relating to Proprietary Rights whose loss would not,
individually or in the aggregate, be reasonably likely to have a Material
Adverse Effect on Manor Care. There is, to the knowledge of Manor Care, no
existing infringement, misuse, or misappropriation of any Proprietary Rights by
others that is, individually or in the aggregate, reasonably likely to have a
Material Adverse Effect on Manor Care. From January 1, 1996 to the date of this
Agreement, neither Manor Care nor any of its Subsidiaries (other than the Public
Subsidiaries) has received any written notice alleging that the operation of the
business of Manor Care or any of its Subsidiaries infringes in any material
respect upon the intellectual property rights of others other than allegations
that, if true, would not, individually or in the aggregate, be reasonably likely
to have a Material Adverse Effect on Manor Care. There is no license or other
rights to use Proprietary Rights whose loss would be reasonably likely to have a
Material Adverse Effect on Manor Care and that is scheduled to expire on or
before May 1, 2000.
(l) Litigation. Except as disclosed in the Manor Care SEC Reports filed
prior to the date hereof, no litigation, arbitration, or administrative
proceeding (i) is pending or, to the knowledge of Manor Care, threatened against
Manor Care or any Subsidiary or their respective properties, assets or
operations that, if decided adversely to such person, would, individually or in
the aggregate, have a Material Adverse Effect on Manor Care, or (ii) is pending
or, to the knowledge of Manor Care, threatened against Manor Care or any
Subsidiary as of the date of this Agreement that seeks to enjoin or otherwise
challenges the consummation of the transactions contemplated by this Agreement.
As of the date of this Agreement, neither Manor Care nor any of its Subsidiaries
(other than the Public Subsidiaries) is specifically identified as a party
subject to any material restrictions or limitations under any injunction, writ,
judgment, order, or decree of any court, administrative agency or commission or
other governmental authority.
(m) Compliance with Law; Authorizations.
(i) Manor Care and each of its Subsidiaries has complied in all
material respects and is currently in compliance with each law, license,
permit, certificate of need ("CON"), ordinance, or governmental or
regulatory rule ("Regulations") to which its business, operations, assets
or properties is subject, including any Regulations related to
reimbursement for services rendered or goods provided and including any
applicable federal or state health care program laws, rules, or
regulations, including, but not limited to, those pertaining to improper
inducements, gratuitous payments, fraudulent or abusive practices,
excessive or inadequate services, false claims and/or false statements,
civil money penalties, prohibited referrals, and/or financial
relationships, excluded individuals, controlled substances and licensure,
except where such noncompliance would not have a Material Adverse Effect on
Manor Care. Each Facility holds, possesses or lawfully uses in the
operation of its business the licenses, permits, CONs, provider agreements
and certifications under Titles XVIII and XIX of the Social Security Act
(the "Social Security Act," Titles XVIII and XIX of the Social Security Act
are hereinafter referred to collectively as the "Medicare and Medicaid
Programs"), which licenses, permits, CONs, provider agreements and
certifications are in substantial compliance with all Regulations, except
where such non-compliance or absence of a license, permit, CON, provider
agreement or certification would not have a Material Adverse Effect on
Manor Care. None of Manor Care or any of its Subsidiaries is in default
under any order of any court, governmental authority or arbitration board
or tribunal specifically applicable to Manor Care or any of its
Subsidiaries, except where such default would not have a Material Adverse
Effect on Manor Care. As of the date hereof, no action has been taken or
recommended by any governmental or regulatory official, body or authority,
either to: (i) revoke, withdraw or suspend any CON or any license, permit
or other authority to operate any of the Facilities; (ii) to terminate or
decertify any participation of any of the Facilities in the Medicare and
Medicaid Programs; or (iii) reduce or propose to reduce the number of
licensed beds in any category, nor, as of the date hereof, has there been
any decision not to renew any provider agreement related to any Facility.
In the event that any such action shall have been taken or recommended
subsequent to the date hereof, or if any decision shall have been made not
to renew any such provider agreements, Manor Care hereby agrees to provide
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notice to HCR of the same and to diligently and in good faith take prompt
corrective or remedial action to cure the same. As used in this Agreement,
"Facility" or "Facilities" refers to any nursing home, assisted living
facility, health care center, clinic or pharmacy or other facility or
owned, operated, leased or managed by Manor Care, HCR or any of their
respective Subsidiaries, as applicable in Sections 4.1(m) and 4.2(m).
(ii) All cost reports ("Cost Reports") required to be filed by Manor
Care or any Subsidiary with respect to the Facilities under the Medicare
and Medicaid Programs, or any other applicable governmental or private
provider regulations have been prepared and filed in accordance with
applicable laws, rules and regulations and Manor Care has or has caused a
Subsidiary to have paid or made provision to pay through proper recordation
of any net liability any material overpayments received from the Medicare
and Medicaid Programs and any similar obligations with respect to other
reimbursement programs in which Manor Care and its Subsidiaries
participate, except where such failure to file or make such payment would
not have a Material Adverse Effect on Manor Care. Section 4.1(m) of the
Manor Care Disclosure Schedules sets forth for each Facility the years for
which Cost Reports remain to be settled.
(n) No Brokers or Finders. Except for SBC Warburg Dillon Read Inc. ("SBC
Warburg Dillon Read"), Manor Care has not engaged any investment banker, broker,
or finder in connection with the transactions contemplated hereby.
(o) Retirement and Benefit Plans.
(i) Each employee pension benefit plan ("Pension Plan") as defined in
Section 3 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), each employee welfare benefit plan ("Welfare Plan") as
defined in Section 3 of ERISA, and each deferred compensation, bonus,
incentive, stock incentive, option, stock purchase, severance, or other
material employee benefit plan, agreement, commitment, or arrangement
("Benefit Plan") that is currently maintained by Manor Care or any of its
ERISA Affiliates or to which Manor Care or any of its ERISA Affiliates
currently contributes or is under any current obligation to contribute
(collectively, the "Manor Care Employee Plans" and individually, a "Manor
Care Employee Plan"), is listed in the Manor Care Disclosure Schedule. In
addition, Manor Care has delivered or made available to HCR copies of the
most recent determination letter issued by the Internal Revenue Service
with respect to each such Pension Plan, copies of the most recent actuarial
report for each such Pension Plan, where applicable, and copies of the
annual report (Form 5500 Series) required to be filed with any governmental
agency with respect to each such Pension Plan and each such Welfare Plan
for the most recent plan year of such plan for which reports have been
filed.
(ii) Each of Manor Care and its ERISA Affiliates has made on a timely
basis all contributions or payments required to be made by it pursuant to
the terms of the Manor Care Employee Plans, ERISA, the Code, or other
applicable laws, unless such contributions or payments that have not been
made are immaterial in amount and the failure to make such payments or
contributions will not materially and adversely affect the Manor Care
Employee Plans. All material amounts required to be reflected on the
financial statements of Manor Care and its ERISA Affiliates with respect to
each Manor Care Employee Plan are properly included in such financial
statements and Manor Care and its ERISA Affiliates have performed all
material obligations required to be performed by them under each Manor Care
Employee Plan. None of the Manor Care Employee Plans is a "multiemployer
plan," as defined in Section 3(37) or Section 4001(a)(3) of ERISA. No
Pension Plan required to be listed on the Manor Care Disclosure Schedule or
to which any of its ERISA Affiliates contributes or is obligated to
contribute and that is subject to Section 412 of the Code has incurred any
"accumulated funding deficiency" (as defined in that section), whether or
not material and whether or not subject to a waiver, as of the last day of
the most recent plan year of the plan. The funding method used in
connection with each Manor Care Employee Plan which is subject to the
minimum funding requirements of ERISA is acceptable and the actuarial
assumptions used in connection with funding each such plan are reasonable;
as of the last day of the last plan year of each such plan the "amount of
unfunded benefit liabilities" as defined in Section 4001(a)(18) of ERISA
did not and will not exceed zero.
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(iii) Each Manor Care Employee Plan (and any related trust or other
funding instrument) is being administered in all material respects in
compliance with its terms and in both form and operation, is in compliance
in all material respects with the applicable provisions of ERISA, the Code,
and other applicable laws and regulations (other than adoption of any plan
amendments for which the deadline has not yet expired), and all material
reports required to be filed with any governmental agency with respect to
each Pension Plan and each Welfare Plan required to be listed on the Manor
Care Disclosure Schedule have been timely filed.
(iv) There is no material litigation, arbitration, or administrative
proceeding pending or, to the knowledge of Manor Care, threatened against
Manor Care or any of its ERISA Affiliates or, to the knowledge of Manor
Care, any plan fiduciary by the Internal Revenue Service, the U.S.
Department of Labor, the Pension Benefit Guaranty Corporation or any
participant or beneficiary with respect to any Manor Care Employee Plan.
Neither Manor Care nor any of its ERISA Affiliates nor, to the knowledge of
Manor Care, any plan fiduciary of any Pension Plan or Welfare Plan required
to be listed on the Manor Care Disclosure Schedule has engaged in any
transaction in violation of Section 406(a) or (b) of ERISA for which no
exemption exists under Section 408 of ERISA or any "prohibited transaction"
(as defined in Section 4975(c)(1) of the Code) for which no exemption
exists under Section 4975(c)(2) or 4975(d) of the Code, or is subject to
any excise tax imposed by the Code or ERISA with respect to any Manor Care
Employee Plan.
(v) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (a) result in any
material payment becoming due, or materially increase the amount of
compensation due, any current or former employee of Manor Care or any of
its Subsidiaries under any Manor Care Employee Plan, (b) materially
increase any benefits otherwise payable under any Manor Care Employee Plan
or (c) result in the acceleration of the time of payment or vesting of any
such material benefits.
(vi) For purposes of this Section 4.1(o), the term "ERISA Affiliate"
means (A) any trade or business with which Manor Care is under common
control within the meaning of Section 4001(b) of ERISA, (B) any corporation
with which Manor Care is a member of a controlled group of corporations
within the meaning of Section 414(b) of the Code, (C) any entity with which
Manor Care is under common control within the meaning of Section 414(c) of
the Code, (D) any entity with which Manor Care is a member of an affiliated
service group within the meaning of Section 414(m) of the Code, and (E) any
entity with which Manor Care is aggregated under Section 414(o) of the
Code.
(p) Environmental Matters.
For purposes of this Agreement,
(A) "Environmental Law" means the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. sec.9601 et seq.
("CERCLA"), the Resource Conservation and Recovery Act, 42 U.S.C. sec.6901
et seq., the Federal Water Pollution Control Act, 33 U.S.C. sec.1251 et
seq., the Clean Air Act, 42 U.S.C. sec.7401 et seq., and any other federal,
state, local or other governmental statute, regulation, law or ordinance
relating to pollution or the protection of health, natural resources, or
the environment; and
(B) "Hazardous Substance" means any pollutant, contaminant, hazardous
substance or waste, petroleum or any fraction thereof, or any other
substance or material (whether solid, liquid or gas) regulated by any
Environmental Law.
Except as expressly disclosed in the Manor Care Group SEC Reports filed
prior to the date hereof and except for such matters that, individually and in
the aggregate are not reasonably likely to have a Material Adverse Effect on
Manor Care,
(i) No Hazardous Substances have been spilled, discharged, leaked,
emitted, injected, disposed of, released or threatened to be released on,
beneath, at, or into any real property currently or, during the period of
such ownership or lease, formerly owned or leased by Manor Care or any of
its Subsidiaries.
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Also, to the knowledge of Manor Care, no Hazardous Substances generated or
transported by Manor Care or its Subsidiaries have been spilled,
discharged, leaked, emitted, injected, disposed of, released or threatened
to be released at any location.
(ii) No underground storage tanks or other underground storage
receptacles (a) located on any of the real property currently owned by
Manor Care or any of its Subsidiaries (other than the Public Subsidiaries)
or (b) presently or formerly used by Manor Care or any of its Subsidiaries
on any real property currently leased by Manor Care or its Subsidiaries
(other than the Public Subsidiaries), in either case contain or previously
contained any Hazardous Substances, except as in compliance with
Environmental Laws.
(iii) Manor Care has made available to HCR true and complete copies of
environmental assessments as requested by HCR prepared since January 1,
1991 in Manor Care's possession, custody or control relating to any of its
(or its Subsidiaries, other than the Public Subsidiaries), currently owned
or leased real property.
(iv) There are no consent decrees, consent orders, judgments, judicial
or administrative orders, agreements with (other than permits) or liens by,
any governmental or quasi-governmental entity relating to any Environmental
Law which regulate, obligate or bind Manor Care or its Subsidiaries (other
than the Public Subsidiaries).
(v) Manor Care has not received written notice of any existing or
threatened notices of violation, liens, claims, demands, suits, CERCLA
sec.104 information requests, potentially responsible party notices ("PRP
Notices"), or causes of action for any damage, including, without
limitation, personal injury, property damage (including, without
limitation, any depreciation or diminution of property values), remediation
or response costs, lost use of property or consequential damages, arising
out of an Environmental Law against Manor Care or its Subsidiaries.
(vi) Manor Care and its Subsidiaries are and have been in the past
five years in compliance with all Environmental Laws.
(vii) As used in this Section 4.1(p), "Subsidiary" shall also include
any entity which previously was a Subsidiary of Manor Care.
(q) Insurance. All material fire and casualty, general liability, business
interruption and product liability insurance policies maintained by Manor Care
or any of its Subsidiaries are in character and amount at least equivalent to
that carried by persons engaged in similar businesses and subject to the same or
similar perils or hazards, except for any such failures to maintain insurance
policies that, individually or in the aggregate, are not reasonably likely to
have a Material Adverse Effect on Manor Care.
(r) Labor Matters. There are no pending claims against Manor Care or any of
its Subsidiaries under any workers compensation plan or policy or for long-term
disability that would have a Material Adverse Effect on Manor Care. Neither
Manor Care nor any of its Subsidiaries has any obligations under COBRA with
respect to any former employees or qualifying beneficiaries thereunder, except
for obligations that would not have a Material Adverse Effect on Manor Care.
There are no proceedings or claims pending or, to the knowledge of Manor Care or
any of its Subsidiaries, threatened, between Manor Care or any of its
Subsidiaries and any of their respective employees, which proceedings or claims
would have a Material Adverse Effect on Manor Care. Except as described in the
Manor Care SEC Reports filed prior to the date hereof, neither Manor Care nor
any of its Subsidiaries is (or has in the past been) a party to any collective
bargaining agreement or other labor union contract, nor does Manor Care nor any
of its Subsidiaries know of any activities or proceedings of any labor union to
organize any of its employees which would be reasonably likely to have a
Material Adverse Effect on Manor Care.
(s) Pooling of Interests. To the knowledge of Manor Care, after
consultation with its independent auditors, neither Manor Care nor any of its
Subsidiaries, nor any of their respective Affiliates has taken any action or
failed to take any action that would prevent HCR from accounting for the Merger
as a pooling of interests. Manor Care has received a letter from Arthur Andersen
LLP, dated as of June 9, 1998, advising it
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that, subject to the limitations set forth in its letter, Manor Care qualifies
as a "combining company" in accordance with the criteria set forth in paragraph
46 of APB 16 and has not violated the criteria set forth in Nos. 47c, 47d and
48c of APB 16 during the period extending from two years preceding the date of
initiation to the date of its letter.
(t) Opinion of Financial Adviser. SBC Warburg Dillon Read has delivered to
Manor Care a written opinion dated as of the date hereof to the effect that the
Exchange Ratio is fair from a financial point of view to Manor Care's
stockholders as of the date hereof.
(u) Vote Required. The affirmative vote of the holders of a majority of the
outstanding shares of Manor Care Common Stock entitled to vote at a Manor Care
stockholders' meeting is the only vote of the holders of any class or series of
capital stock of Manor Care necessary to adopt this Agreement, and the Merger
and to approve the transactions contemplated hereby.
(v) No Existing Discussions. As of the date hereof, Manor Care is not
engaged, directly or indirectly, in any discussions or negotiations with any
other party with respect to an Acquisition Proposal .
(w) Delaware State Takeover Statutes. The Board of Directors of Manor Care
has approved the terms of this Agreement and the Ancillary Agreements to which
Manor Care is a party and the consummation of the transactions contemplated by
this Agreement and by such Ancillary Agreements, and such approval is sufficient
to render inapplicable to the Merger and the other transactions contemplated by
this Agreement and by the Ancillary Agreements the restrictions of Section 203
of the DGCL. To Manor Care's knowledge, as to Manor Care and its affiliates,
except as set forth in Section 7.2(f), no other state takeover statute or
similar statute or regulation applies or purports to apply to the Merger, this
Agreement, the Ancillary Agreements or any of the transactions contemplated by
this Agreement or the Ancillary Agreements.
(x) Manor Care Rights Agreement. Under the terms of the Manor Care Rights
Agreement, as amended to the date hereof, neither the execution of this
Agreement or the Ancillary Agreements, nor the consummation of the transactions
contemplated hereby or thereby, will cause a "distribution date" to occur or
cause the rights issued pursuant to the Manor Care Rights Agreement to become
exercisable. As of the date hereof, the Manor Care Rights Agreement has been
amended in the manner set forth on Exhibit F hereof.
(y) Tax Treatment. Neither Manor Care nor, to Manor Care's knowledge, any
of its affiliates has taken or agreed to take any action that would prevent the
Merger from constituting a transaction qualifying as a reorganization under
Section 368(a) of the Code.
(z) Board Recommendation. The Board of Directors of Manor Care has, by a
unanimous vote at a meeting of such Board duly held, approved and adopted this
Agreement, the Ancillary Agreements, the Merger and the other transactions
contemplated hereby, and determined that this Agreement, the Ancillary
Agreements, the Merger and the other transactions contemplated hereby, taken
together, are in the best interest of Manor Care and of the stockholders of
Manor Care, and prior to the date hereof has resolved to recommend that the
holders of Manor Care Common Stock approve and adopt this Agreement, the Merger
and the other transactions contemplated hereby.
(aa) Pending Restructuring. Manor Care has terminated all efforts to effect
the restructuring transactions described as part of and including the
"Distribution" (as defined in Form S-3, No. 333-37599) (the "Restructuring
Transactions"); provided, however, Manor Care may continue to leave pending such
registration statement so long as it makes no material amendments thereto and
does not otherwise seek to advance such registration.
4.2. Joint and Several Representations and Warranties of HCR and Merger
Sub. Except as qualified by the disclosure schedule delivered by HCR to Manor
Care concurrently with the execution of this Agreement (the "HCR Disclosure
Schedule"), HCR and Merger Sub jointly and severally represent and warrant to
Manor Care as follows:
(a) Organization, Standing, Qualification. Each of HCR, Merger Sub, and
HCR's other Subsidiaries is a corporation duly incorporated, validly existing,
and in good standing under the laws of the jurisdiction of its incorporation,
and has the requisite corporate power and corporate authority to own, lease, and
operate its
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properties and assets and to carry on its business as it is now being conducted.
Each of HCR and its Subsidiaries is duly qualified or licensed as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of the properties owned, operated, or leased by it, or the nature
of its business, makes such qualification or licensing necessary, except those
jurisdictions where failure to be so qualified, licensed, or in good standing
would not have a Material Adverse Effect on HCR. Copies of the Certificate of
Incorporation and Bylaws of HCR and Merger Sub have been made available to Manor
Care and are complete and correct as of the date of this Agreement.
(b) Capitalization. The authorized capital stock of HCR consists of
160,000,000 shares of HCR Common Stock, of which, as of the date of this
Agreement, 44,761,102 shares are issued and outstanding and 5,000,000 shares of
Preferred Stock, par value $.01 per share, of which 800,000 shares have been
designated as Series A Junior Participating Preferred Stock, none of which, as
of the date of this Agreement, is issued and outstanding. The authorized capital
stock of Merger Sub consists of 1,000 of shares Common Stock. All of the issued
and outstanding shares of capital stock of HCR and Merger Sub and each of HCR's
other Subsidiaries have been duly authorized and validly issued, are fully paid
and nonassessable and were not granted in violation of any statutory preemptive
rights. There are no outstanding subscriptions, options, warrants, calls, or
other agreements or commitments pursuant to which HCR or any Subsidiary is or
may become obligated to issue, sell, transfer, or otherwise dispose of, or
purchase, redeem, or otherwise acquire, any shares of capital stock of, or other
equity interests in, HCR or any Subsidiary, and there are no outstanding
securities convertible into or exchangeable for any such capital stock or other
equity interests, except for (i) options to purchase up to an aggregate of
4,553,268 shares (as of the date of this Agreement) of HCR Common Stock at the
exercise prices set forth in the HCR Disclosure Schedule and (ii) the Rights
Agreement dated May 2, 1995 between HCR and Harris Trust and Savings Bank (the
"HCR Agreement"), pursuant to which each outstanding share of HCR Common Stock
has associated with it certain rights (the "HCR Rights") including rights under
certain circumstances to purchase shares of Series A Junior Participating
Preferred Stock at $100 per one one-hundredth share, subject to adjustment. The
HCR Disclosure Schedule sets forth a true and complete list as of June 8, 1998
of (i) all holders of options to purchase HCR Common Stock, including the number
of shares of HCR Common Stock subject to each such option (a "HCR Option"), the
exercise or vesting schedule of such option, the exercise price per share and
the term of each such option, and (ii) all holders of restricted stock awards
with respect to HCR Common Stock, including the number of shares of HCR Common
Stock subject to each such award (a "HCR Award") and the vesting schedule of
each such award. There are no stock appreciation rights, phantom stock rights,
or performance shares outstanding with respect to HCR or any of its
Subsidiaries. The HCR Disclosure Schedule sets forth for each class of stock of
each Subsidiary of HCR, the number of shares authorized, the number of shares
issued and outstanding and the beneficial owners of the issued and outstanding
shares. Except as set forth in the HCR Disclosure Schedule, HCR owns, directly
or indirectly, all of the issued and outstanding shares of capital stock of
every class of each Subsidiary, free and clear of all liens, security interests,
pledges, charges, and other encumbrances. There are no voting trusts or other
agreements or understandings to which HCR or any of its Subsidiaries is a party
or of which HCR otherwise has knowledge with respect to the voting of its
capital stock or that of any Subsidiary.
(c) Authorization and Execution. Each of HCR and Merger Sub has the
corporate power and authority to execute and deliver this Agreement and, subject
to approval by the holders of HCR Common Stock at the special meeting of
stockholders referred to in Section 6.4, to consummate the transactions
contemplated hereby. HCR has the corporate power and authority to execute,
deliver and consummate the transactions contemplated by each of the Ancillary
Agreements to which HCR is a party. The execution, delivery, and performance by
each of HCR and Merger Sub of this Agreement and the Ancillary Agreements to
which it is a party have been duly authorized by the Board of Directors of such
corporation and by HCR as sole stockholder of Merger Sub, and no further
corporate action of HCR or Merger Sub, other than the approval of HCR's
stockholders, is necessary to consummate the transactions contemplated hereby
and thereby. Each of HCR and Merger Sub have duly executed and delivered this
Agreement and the Ancillary Agreements to which it is a party and, assuming the
accuracy of the representations and warranties set forth in Section 4.1(c)
without giving effect to the assumption therein, each such agreement constitutes
the legal, valid, and binding obligation of such party enforceable against it in
accordance with such agreement's terms.
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(d) No Conflicts. Neither the execution and delivery of this Agreement nor
any of the Ancillary Agreements by HCR and Merger Sub, nor the consummation by
them of the transactions contemplated hereby or thereby, will (i) subject to
approval by the holders of HCR Common Stock at the special meeting of
stockholders referred to in Section 6.4, conflict with or result in a breach of
the Certificate of Incorporation, Bylaws or similar organizational documents, as
currently in effect, of HCR or any of its Subsidiaries, (ii) except for the
requirements under the HSR Act, the filing of the Certificate of Merger with the
Delaware Secretary of State, the filing of the Joint Proxy Statement with the
SEC in accordance with the Exchange Act, the filing of the Registration
Statement with the SEC, such filings, consents, and approvals as may be required
under applicable state securities or "blue sky" laws and regulations, and such
filings, licenses, permits, authorizations, consents, orders, registrations,
notifications and disclosures as are set forth on the HCR Disclosure Schedule,
require any filing with, or consent or approval of, any Governmental Entity
having jurisdiction over any of the business or assets of HCR or any of its
Subsidiaries, (iii) assuming that all filings, permits, authorization, consents,
disclosures and approvals so listed on the HCR Disclosure Schedule have been
duly made or obtained as contemplated by clause (ii), violate any statute, law,
ordinance, rule, or regulation applicable to HCR or any of its Subsidiaries or
any injunction, judgment, order, writ, or decree to which HCR or any of its
Subsidiaries is subject, or (iv) result in a breach of, or constitute a default
or an event which, with the passage of time or the giving of notice, or both,
would constitute a default, give rise to a right of termination, cancellation,
or acceleration, create any entitlement of any third party to any material
payment or benefit, require the consent of any third party, or result in the
creation of any lien on the assets of HCR or any of its Subsidiaries under, any
HCR Material Contract , except, in the case of clauses (ii), (iii) and (iv),
where the violation, breach, default, termination, cancellation, acceleration,
payment, benefit, or lien, or the failure to make such filing or obtain such
consent or approval would neither materially impair the ability of HCR or Merger
Sub to consummate the transactions contemplated by this Agreement nor have a
Material Adverse Effect on HCR.
(e) SEC Reports; Financial Statements; No Undisclosed Liabilities.
(i) HCR has made available to Manor Care, in the form filed with the
SEC, its (A) Annual Report on Form 10-K for each of the fiscal years ended
December 31, 1995 through December 31, 1997, (B) all proxy statements
relating to HCR's meetings of stockholders (whether annual or special) held
since January 1, 1995, and (C) all other forms and reports, filed by HCR
with the SEC since January 1, 1995 (all such forms and reports, other than
the Joint Proxy Statement, being collectively called the "HCR SEC Reports"
and individually called a "HCR SEC Report"). No HCR SEC Report (including
any document incorporated by reference therein), as of its filing date (or
if amended or superseded by a filing prior to the date of this Agreement,
then on the date of such filing), contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading, and
each HCR SEC Report at the time of its filing complied as to form in all
material respects with all applicable requirements of the Securities Act,
the Exchange Act, and the rules and regulations of the SEC. Since January
1, 1995, HCR has filed in a timely manner all reports that it was required
to file with the SEC pursuant to the Exchange Act and the rules and
regulations of the SEC.
(ii) The consolidated financial statements contained in the HCR SEC
Reports filed prior to the date hereof were prepared in accordance with
GAAP (except as may be indicated in the notes thereto or, in the case of
unaudited interim financial statements, as may be permitted by the SEC on
Form 10-Q under the Exchange Act) and fairly present, in all material
respects, the consolidated financial position of HCR and its Subsidiaries
as at the respective dates thereof and the consolidated results of
operations and consolidated cash flows of HCR and its Subsidiaries for the
periods indicated, subject, in the case of interim financial statements, to
normal year-end adjustments.
(iii) Except as disclosed in the HCR SEC Reports filed prior to the
date hereof, and except for normal or recurring liabilities incurred since
December 31, 1997 in the ordinary course of business consistent with past
practices, HCR and its Subsidiaries do not have any liabilities, either
accrued, contingent or otherwise (whether or not required to be reflected
in financial statements in accordance
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with generally accepted accounting principles), and whether due or to
become due, which individually or in the aggregate are reasonably likely to
have a Material Adverse Effect on HCR.
(f) Joint Proxy Statement/Registration Statement. The information to be
supplied by HCR for inclusion (i) in the Registration Statement shall not at the
time the Registration Statement is declared effective by the SEC contain any
untrue statement of a material fact or omit to state any material fact required
to be stated in the Registration Statement or necessary in order to make the
statements in the Registration Statement, in light of the circumstances under
which they were made, not misleading, and (ii) in the Joint Proxy Statement
shall not on the date the Joint Proxy Statement is first mailed to stockholders
of HCR or Manor Care, at the time of the HCR Stockholders' Meeting and Manor
Care Stockholders' Meeting, or at the Effective Time, contain any statement
that, at such time and in light of the circumstances under which it shall be
made, is false or misleading with respect to any material fact, or omit to state
any material fact necessary in order to make the statements made in the Joint
Proxy Statement not false or misleading. If at any time before the Effective
Time any event relating to HCR or any of its affiliates, officers, or directors
is discovered by HCR that should be set forth in an amendment to the
Registration Statement or a supplement to the Joint Proxy Statement, HCR shall
promptly so inform Manor Care.
(g) Absence of Certain Changes or Events. Except as expressly disclosed in
the HCR SEC Reports filed prior to the date of this Agreement or as expressly
contemplated by this Agreement, since December 31, 1997, HCR and its
Subsidiaries have conducted their respective businesses and operations in the
ordinary course and neither HCR nor any of its Subsidiaries has (i) split,
combined, or reclassified any shares of its capital stock or made any other
changes in its equity capital structure; (ii) purchased, redeemed, or otherwise
acquired, directly or indirectly, any shares of capital stock of HCR or any of
its Subsidiaries or any options, rights, or warrants to purchase any such
capital stock or any securities convertible into or exchangeable for any such
capital stock; (iii) declared, set aside, or paid any dividend or made any other
distribution in respect of shares of its capital stock, except for dividends or
distributions by any subsidiary to HCR or another subsidiary; (iv) issued any
shares of its capital stock or granted any options, rights or warrants to
purchase any such capital stock or any securities convertible into or
exchangeable for any such capital stock, except for (A) issuances of shares of
HCR Common Stock upon the exercise of options granted prior to the date hereof
and (B) grants of options for 284,595 shares of HCR Common Stock and grants of
339,500 shares of restricted stock; (v) purchased any business, purchased any
stock of any corporation other than HCR, or merged or consolidated with any
person; (vi) sold, leased, or otherwise disposed of any assets or properties
that were material to HCR and its Subsidiaries, taken as a whole, other than
sales or other dispositions in the ordinary course of business; (vii) incurred,
assumed, or guaranteed any indebtedness for money borrowed in excess of
$75,000,000 in the aggregate other than (A) borrowings incurred for working
capital purposes under HCR's existing revolving credit facilities and (B)
intercompany indebtedness; (viii) changed or modified in any material respect
any existing accounting method, principle, or practice; or (ix) except for this
Agreement, entered into any commitment to do any of the foregoing.
Except as disclosed on the HCR SEC Reports filed prior to the date hereof,
since December 31, 1997, there has not been (i) any Material Adverse Change in
the financial condition, results of operations, business or properties of HCR or
its Subsidiaries (other than changes that are the effect or result of economic
factors affecting the economy as a whole or the industry in which HCR competes),
or any development or combination of developments of which the management of HCR
is aware that, individually or in the aggregate, has had, or is reasonably
likely to have, a Material Adverse Effect on HCR; (ii) any damage, destruction
or loss with respect to HCR or any of its Subsidiaries having a Material Adverse
Effect on HCR or its Subsidiaries; (iii) any material change by HCR in its
accounting methods, principles or practices; (iv) any revaluation by HCR or its
Subsidiaries of any of its assets having a Material Adverse Effect on HCR; or
(v) any other action or event that would have required the consent of Manor Care
pursuant to Section 5.2 of this Agreement had such action or event occurred
after the date of this Agreement and that, individually or in the aggregate, has
had or is reasonably likely to have a Material Adverse Effect on HCR.
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(h) Tax Matters.
(i) HCR and its Subsidiaries have timely filed (or received
appropriate extensions for filing) all Tax Returns required to be filed by
them with respect to all Taxes, except for Tax Returns the non-filing of
which would not have a Material Adverse Effect on HCR, and have paid all
Taxes shown on such Tax Returns to the extent they have become due. HCR's
Tax Returns are accurate and complete, except to the extent that any
inaccuracies or incompleteness would not have a Material Adverse Effect on
HCR.
(ii) No Tax Returns filed by HCR or any of its Subsidiaries are the
subject of pending audits as of the date of this Agreement that could
reasonably be expected to have a Material Adverse Effect on HCR. Neither
HCR nor any of its Subsidiaries has received, prior to the date of this
Agreement, a notice of deficiency or assessment of additional Taxes, which
notice or assessment remains unresolved. Neither HCR nor any of its
Subsidiaries has extended the period for assessment or payment of any Tax,
which extension has not since expired.
(iii) HCR and its Subsidiaries have withheld and paid over to the
appropriate governmental authorities all Taxes required by law to have been
withheld and paid in connection with amounts paid or owing to any employee,
except for any such Taxes that are immaterial in amount.
(iv) Neither HCR nor any of its Subsidiaries has been a member of an
affiliated group (as defined in Section 1504 of the Code) filing a
consolidated federal income tax return for any tax year since January 1,
1991 other than a group the common parent of which was HCR.
(v) Neither HCR nor any of its Subsidiaries has filed a consent under
Code Section 341(f) concerning collapsible corporations.
(vi) Neither HCR nor any of its Subsidiaries has been a United States
real property holding corporation within the meaning of Code Section
897(c)(2) during the applicable period specified in Code Section
897(c)(1)(A)(ii).
(vii) Neither HCR nor any of its Subsidiaries is a party to any Tax
allocation or sharing agreement.
(viii) HCR has delivered or made available to Manor Care true and
complete copies of all requested federal, state, local, and foreign income
tax returns with respect to HCR and each of its Subsidiaries.
(i) Property. Except as would not, individually or in the aggregate have a
Material Adverse Effect on HCR: (a) HCR and each of its Subsidiaries have good
and clear record and marketable title to each of their owned properties,
insurable by a recognized national title insurance company at standard rates,
free and clear of any liens; and (b) the improvements constructed on each such
property are in good condition, and all mechanical and utility systems servicing
such improvements are in good condition, free in each case of material defects;
and (c) each such property is properly zoned for its current use by HCR and its
Subsidiaries, and is not in violation of any zoning, subdivision, health,
safety, landmark preservation, wetlands preservation, building, land use or
other ordinances, laws, codes or regulations or any covenants, restrictions or
other documents of record; nor has any written notice of any claimed violation
of any such ordinances, laws, codes or regulations or any covenants,
restrictions or other documents of record been served on HCR or its
Subsidiaries. All leases pursuant to which Manor Care or any of its Subsidiaries
lease from others material amounts of real or personal property are in good
standing, valid and effective in accordance with their respective terms with
respect to HCR and its Subsidiaries, as the case may be, and, to HCR's
knowledge, with respect to any other party thereto, and there is not under any
of such leases any existing material default or event of default (or event which
with notice or lapse of time, or both, would constitute a material default),
except where the lack of such good standing, validity and effectiveness or the
existence of such default or event of default would not have a Material Adverse
Effect on HCR. HCR or its Subsidiaries, as the case may be, have valid leasehold
interests in all properties leased thereunder free and clear of all liens
created by, through or under HCR or its Subsidiaries, except as would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on HCR.
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(j) Material Contracts
(i) Except as expressly disclosed in the HCR SEC Reports filed prior
to the date hereof, neither HCR nor any of its Subsidiaries is a party to
any oral or written (A) agreement, contract, indenture or other instrument
relating to Indebtedness in an amount exceeding $2,000,000, (B)
partnership, joint venture or limited liability agreement or management
with any person, (C) agreement, contract, or other instrument relating to
any merger, consolidation, business combination, share exchange, business
acquisition, or for the purchase, acquisition, sale or disposition of any
assets of HCR or any of its Subsidiaries outside the ordinary course of
business, (D) other contract, agreement or commitment to be performed after
the date hereof which would be a material contract (as defined in Item
601(b)(10) of Regulation S-K of the SEC), or (E) contract, agreement or
commitment which materially restricts the conduct of any line of business
by HCR or any of its Subsidiaries (collectively, the "HCR Material
Contracts").
(ii) Except as expressly disclosed in the HCR SEC Reports filed prior
to the date hereof, (A) each of the HCR Material Contracts is valid and
binding in accordance with its terms and is in full force and effect and
(B) there is no material breach or violation of or default by HCR or any of
its Subsidiaries under any of the HCR Material Contracts, whether or not
such breach, violation or default has been waived, and no event has
occurred which, with notice or lapse of time or both, would constitute a
material breach, violation or default, or give rise to a right of
termination, modification, cancellation, foreclosure, imposition of a lien,
prepayment or acceleration under any of the HCR Material Contracts, which
breach, violation or default referred to in clauses (A) or (B), alone or in
the aggregate with other such breaches, violations or defaults referred to
in clauses (A) or (B), would be reasonably likely to have a Material
Adverse Effect on HCR or materially impair the ability of HCR to consummate
the Merger.
(k) Intellectual Property. HCR and its Subsidiaries own or possess adequate
licenses or other valid rights to use (without the making of any payment to
others, other than payments under agreements disclosed in the HCR Disclosure
Schedule) all of the Proprietary Rights necessary to the conduct of its business
in the manner in which it is presently being conducted, except for such lack of
or defects in ownership or possession as would not, individually or in the
aggregate, be reasonably likely to have a Material Adverse Effect on HCR. As of
the date of this Agreement, neither HCR nor any of its Subsidiaries has received
any written notice that any Proprietary Rights have been declared unenforceable
or otherwise invalid by any court or governmental agency other than notices
relating to Proprietary Rights whose loss would not, individually or in the
aggregate, be reasonably likely to have a Material Adverse Effect on HCR. There
is, to the knowledge of HCR, no existing infringement, misuse, or
misappropriation of any Proprietary Rights by others that is, individually or in
the aggregate, reasonably likely to have a Material Adverse Effect on HCR. From
January 1, 1996 to the date of this Agreement, neither HCR nor any of its
Subsidiaries has received any written notice alleging that the operation of the
business of HCR or any of its Subsidiaries infringes in any material respect
upon the intellectual property rights of others other than allegations that, if
true, would not, individually or in the aggregate, be reasonably likely to have
a Material Adverse Effect on HCR. There is no license or other rights to use
Proprietary Rights whose loss would be reasonably likely to have a Material
Adverse Effect on HCR and that is scheduled to expire on or before May 1, 2000.
(l) Litigation. Except as expressly disclosed in the HCR SEC Reports filed
prior to the date hereof, no litigation, arbitration, or administrative
proceeding (i) is pending or, to the knowledge of HCR, threatened against HCR or
any Subsidiary or their respective properties, assets or operations that, if
decided adversely to such person, would individually or in the aggregate have a
Material Adverse Effect on HCR, or (ii) is pending or, to the knowledge of HCR,
threatened against HCR or any subsidiary as of the date of this Agreement that
seeks to enjoin or otherwise challenges the consummation of the transactions
contemplated by this Agreement. As of the date of this Agreement, neither HCR
nor any of its Subsidiaries is specifically identified as a party subject to any
material restrictions or limitations under any injunction, writ, judgment,
order, or decree of any court, administrative agency or commission, or other
governmental authority.
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(m) Compliance with Law; Authorizations.
(i) HCR and each of its Subsidiaries has complied in all material
respects and is currently in compliance with each Regulation to which its
business, operations, assets or properties is subject, including any
Regulations related to reimbursement for services rendered or goods
provided and including any applicable federal or state health care program
laws, rules, or regulations, including, but not limited to, those
pertaining to improper inducements, gratuitous payments, fraudulent or
abusive practices, excessive or inadequate services, false claims and/or
false statements, civil money penalties, prohibited referrals, and/or
financial relationships, excluded individuals, controlled substances and
licensure, except where such noncompliance would not have a Material
Adverse Effect on the business or operations of HCR. Each Facility holds,
possesses or lawfully uses in the operation of its business the licenses,
permits, CONs, provider agreements and certifications under Medicare and
Medicaid Programs which licenses, permits, CONs, provider agreements and
certifications are in substantial compliance with all Regulations, except
where such non-compliance or absence of a license, permit, CON, provider
agreement or certification would not have a Material Adverse Effect on HCR.
None of HCR or any of its Subsidiaries is in default in any material
respect under any order of any court, governmental authority or arbitration
board or tribunal specifically applicable to HCR or any of its
Subsidiaries, except where such default would not have a Material Adverse
Effect on HCR. As of the date hereof, no action has been taken or
recommended by any governmental or regulatory official, body or authority,
either to: (i) revoke, withdraw or suspend any CON or any license, permit
or other authority to operate any of the Facilities; (ii) to terminate or
decertify any participation of any of the Facilities in the Medicare and
Medicaid Programs; or (iii) reduce or propose to reduce the number of
licensed beds in any category, nor, as of the date hereof, has there been
any decision not to renew any provider agreement related to any Facility.
In the event that any such action shall have been taken or recommended
subsequent to the date hereof, or if any decision shall have been made not
to renew any such provider agreements, HCR hereby agrees to provide notice
to Manor Care of the same and to diligently and in good faith take prompt
corrective or remedial action to cure the same.
(ii) All Cost Reports required to be filed by HCR or any Subsidiary
with respect to the Facilities under the Medicare and Medicaid Programs, or
any other applicable governmental or private provider regulations have been
prepared and filed in all material respects in accordance with applicable
laws, rules and regulations and HCR has or has caused a Subsidiary to have
paid or made provision to pay through proper recordation of any net
liability any material overpayments received from the Medicare and Medicaid
Programs and any similar obligations with respect to other reimbursement
programs in which HCR and its Subsidiaries participate except where such
failure to file or make such payment would not have a Material Adverse
Effect on HCR. Section 4.2(m) of the HCR Disclosure Schedule sets forth for
each Facility the years for which Cost Reports remain to be settled.
(n) No Brokers or Finders. Except for Chase Securities Inc. ("Chase"),
neither HCR nor Merger Sub has engaged any investment banker, broker, or finder
in connection with the transactions contemplated hereby.
(o) Retirement and Benefit Plans.
(i) Each Pension Plan, Welfare Plan, and Benefit Plan that is
currently maintained by HCR or any of its ERISA Affiliates or to which HCR
or any of its ERISA Affiliates currently contributes or is under any
current obligation to contribute (collectively, the "HCR Employee Plans"
and individually, a "HCR Employee Plan"), is listed in the HCR Disclosure
Schedule. In addition, HCR has delivered or made available to Manor Care
copies of the most recent determination letter issued by the Internal
Revenue Service with respect to each such Pension Plan, copies of the most
recent actuarial report for each such Pension Plan, where applicable, and
copies of the annual report (Form 5500 Series) required to be filed with
any governmental agency with respect to each such Pension Plan and each
such Welfare Plan for the most recent plan year of such plan for which
reports have been filed.
(ii) Each of HCR and its ERISA Affiliates has made on a timely basis
all contributions or payments required to be made by it pursuant to the
terms of the HCR Employee Plans, ERISA, the Code, or other applicable laws,
unless such contributions or payments that have not been made are
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immaterial in amount and the failure to make such payments or contributions
will not materially and adversely affect the HCR Employee Plans. All
material amounts required to be reflected on the financial statements of
HCR and its ERISA Affiliates with respect to each HCR Employee Plan are
properly included in such financial statements and HCR and its ERISA
Affiliates have performed all material obligations required to be performed
by them under each HCR Employee Plan. None of the HCR Employee Plans is a
"multiemployer plan," as defined in Section 3(37) or Section 4001(a)(3) of
ERISA. No Pension Plan required to be listed on the HCR Disclosure Schedule
or to which any of its ERISA Affiliates, contributes or is obligated to
contribute and that is subject to Section 412 of the Code has incurred any
"accumulated funding deficiency" (as defined in that section), whether or
not material and whether or not subject to a waiver, as of the last day of
the most recent plan year of the plan. The funding method used in
connection with each HCR Employee Plan which is subject to the minimum
funding requirements of ERISA is acceptable and the actuarial assumptions
used in connection with funding each such plan are reasonable; as of the
last day of the last plan year of each such plan the "amount of unfunded
benefit liabilities" as defined in Section 4001(a)(18) of ERISA did not and
will not exceed zero.
(iii) Each HCR Employee Plan (and any related trust or other funding
instrument) is being administered in all material respects in compliance
with its terms and in both form and operation, is in compliance in all
material respects with the applicable provisions of ERISA, the Code, and
other applicable laws and regulations (other than adoption of any plan
amendments for which the deadline has not yet expired), and all material
reports required to be filed with any governmental agency with respect to
each Pension Plan and each Welfare Plan required to be listed on the HCR
Disclosure Schedule have been timely filed.
(iv) There is no material litigation, arbitration, or administrative
proceeding pending or, to the knowledge of HCR, threatened against HCR or
any of its ERISA Affiliates or, to the knowledge of HCR, any plan fiduciary
by the Internal Revenue Service, the U.S. Department of Labor, the Pension
Benefit Guaranty Corporation, or any participant or beneficiary with
respect to any HCR Employee Plan. Neither HCR nor any of its ERISA
Affiliates nor, to the knowledge of HCR, any plan fiduciary of any Pension
Plan or Welfare Plan required to be listed on the HCR Disclosure Schedule
has engaged in any transaction in violation of Section 406(a) or (b) of
ERISA for which no exemption exists under Section 408 of ERISA or any
"prohibited transaction" (as defined in Section 4975(c)(1) of the Code) for
which no exemption exists under Section 4975(c)(2) or 4975(d) of the Code,
or is subject to any excise tax imposed by the Code or ERISA with respect
to any HCR Employee Plan.
(v) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (a) result in any
material payment becoming due, or materially increase the amount of
compensation due, any current or former employee of HCR or any of its
Subsidiaries under any HCR Employee Plan, (b) materially increase any
benefits otherwise payable under any HCR Employee Plan or (c) result in the
acceleration of the time of payment or vesting of any such material
benefits.
(vi) For purposes of this Section 4.2(o), the term "ERISA Affiliate"
means (A) any trade or business with which HCR is under common control
within the meaning of Section 4001(b) of ERISA, (B) any corporation with
which HCR is a member of a controlled group of corporations within the
meaning of Section 414(b) of the Code, (C) any entity with which HCR is
under common control within the meaning of Section 414(c) of the Code, (D)
any entity with which HCR is a member of an affiliated service group within
the meaning of Section 414(m) of the Code, and (E) any entity with which
HCR is aggregated under Section 414(o) of the Code.
(p) Environmental Matters. Except as expressly disclosed in the HCR SEC
Reports filed prior to the date hereof and except for such matters that,
individually and in the aggregate are not reasonably likely to have a Material
Adverse Effect on HCR,
(i) No Hazardous Substances have been spilled, discharged, leaked,
emitted, injected, disposed of, released or threatened to be released on,
beneath, at, or into any real property currently or, during the
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period of such ownership or lease, formerly owned or leased by HCR or any
of its Subsidiaries. Also, to the knowledge of HCR, no Hazardous Substances
generated or transported by HCR or its Subsidiaries have been spilled,
discharged, leaked, emitted, injected, disposed of, released or threatened
to be released at any location.
(ii) No underground storage tanks or other underground storage
receptacles (a) located on any of the real property currently owned by HCR
or any of its Subsidiaries or (b) presently or formerly used by HCR on any
real property currently leased by HCR or any of its Subsidiaries, in either
case contain or previously contained any Hazardous Substances, except as in
compliance with Environmental Laws.
(iii) HCR has made available to Manor Care true and complete copies of
environmental assessments as requested by Manor Care prepared since January
1, 1991 in HCR's possession, custody or control relating to any of its (or
its Subsidiaries') currently owned or leased real property.
(iv) There are no consent decrees, consent orders, judgments, judicial
or administrative orders, agreements with (other than permits) or liens by,
any governmental or quasi-governmental entity relating to any Environmental
Law which regulate, obligate or bind HCR or its Subsidiaries.
(v) HCR has not received written notice of any existing or threatened
notices of violation, liens, claims, demands, suits, CERCLA sec.104
information requests, PRP Notices, or causes of action for any damage,
including, without limitation, personal injury, property damage (including,
without limitation, any depreciation or diminution of property values),
remediation or response costs, lost use of property or consequential
damages, arising out of an Environmental Law against HCR or its
Subsidiaries.
(vi) HCR and its Subsidiaries are and have been in the past five years
in compliance with all Environmental Laws.
(vii) As used in this Section 4.2(p), "Subsidiary" shall also include
any entity which previously was a Subsidiary of HCR.
(q) Insurance. All material fire and casualty, general liability, business
interruption and product liability insurance policies maintained by HCR or any
of its Subsidiaries are in character and amount at least equivalent to that
carried by persons engaged in similar businesses and subject to the same or
similar perils or hazards, except for any such failures to maintain insurance
policies that, individually or in the aggregate, are not reasonably likely to
have an Material Adverse Effect on HCR.
(r) Labor Matters. There are no pending claims against HCR or any of its
Subsidiaries under any workers compensation plan or policy or for long-term
disability that would have a Material Adverse Effect on HCR. Neither HCR nor any
of its Subsidiaries has any obligations under COBRA with respect to any former
employees or qualifying beneficiaries thereunder, except for obligations that
would not have a Material Adverse Effect on HCR. There are no proceedings or
claims pending or, to the knowledge of HCR threatened, between HCR or any of its
Subsidiaries and any of their respective employees, which proceedings or claims
would have a Material Adverse Effect on HCR. Except as described in the HCR SEC
Reports filed prior to the date hereof, neither HCR nor any of its Subsidiaries
is (or has in the past been) a party to any collective bargaining agreement or
other labor union contract, nor does HCR know of any activities or proceedings
of any labor union to organize any of its employees which would be reasonably
likely to have a Material Adverse Effect on HCR.
(s) Opinion of Financial Adviser. Chase has delivered to HCR a written
opinion dated as of the date hereof to the effect that the Exchange Ratio is
fair from a financial point of view to HCR as of the date hereof.
(t) Votes Required. The affirmative vote of the holders of a majority of
the shares of HCR Common Stock present and entitled to vote at a HCR
stockholders' meeting is the only vote of the holders of any class or series of
capital stock of HCR necessary to approve the HCR Stock Issuance and the HCR
Bylaw Amendment (provided, in the case of the HCR Stock Issuance, that the total
vote cast at that meeting on such proposal represents over 50% in interest of
all securities entitled to vote on the proposal) and approval of the HCR Stock
Issuance and the HCR Bylaw Amendment is the only vote of the holders of any
class or series of capital stock of HCR necessary for the consummation of the
Merger and the transactions contemplated hereby.
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(u) No Existing Discussions. As of the date hereof, HCR is not engaged,
directly or indirectly, in any discussions or negotiations with any other party
with respect to an Acquisition Proposal.
(v) Merger Sub. Merger Sub was formed solely for the purpose of effecting
the Merger and has not engaged in any business activities or conducted any
operations other than in connection with the Merger. Except for obligations or
liabilities incurred in connection with its incorporation or organization and
the transactions contemplated by this Agreement, and except for this Agreement
and any other agreements or arrangements contemplated by this Agreement, Merger
Sub has not incurred, directly or indirectly, through any subsidiary or
affiliate, any obligations or liabilities or entered into any agreement or
arrangements with any person.
(w) Delaware State Takeover Statutes. The Board of Directors of HCR has
approved the terms of this Agreement and the Ancillary Agreements to which HCR
is a party and the consummation of the transactions contemplated by this
Agreement and by such Ancillary Agreements, and such approval is sufficient to
render inapplicable to the Merger and the other transactions contemplated by
this Agreement and by the Ancillary Agreements the restrictions of Section 203
of the DGCL. To HCR's knowledge, as to HCR and its affiliates, no other state
takeover statute or similar statute or regulation applies or purports to apply
to the Merger, this Agreement, the Ancillary Agreements or any of the
transactions contemplated by this Agreement or the Ancillary Agreements and no
provision of the Certificate of Incorporation, bylaws or other governing
instrument of HCR or any of its Subsidiaries would, directly or indirectly,
restrict or impair the ability of HCR or any of its Subsidiaries to consummate
the transactions contemplated by this Agreement or the Ancillary Agreements.
(x) HCR Rights Agreement. Under the terms of the HCR Rights Agreement, as
amended to the date hereof, neither the execution of this Agreement or the
Ancillary Agreements, nor the consummation of the transactions as contemplated
hereby will cause a "distribution date" to occur or cause the rights issued
pursuant to the HCR Rights Agreement to become exercisable. As of the date
hereof, the HCR Rights Agreement has been amended in the manner set forth on
Exhibit G hereto.
(y) Tax Treatment. Neither HCR nor, to HCR's knowledge, any of its
affiliates has taken or agreed to take any action that would prevent the Merger
from constituting a transaction qualifying as a reorganization under Section
368(a) of the Code.
(z) Board Recommendation. The Board of Directors of HCR has, by a unanimous
vote at a meeting of such Board duly held, approved and adopted this Agreement,
the Ancillary Agreements, the Merger and the other transactions contemplated
hereby, and determined that this Agreement, the Ancillary Agreements, the Merger
and the other transactions contemplated hereby, taken together, are in the best
interest of HCR and of the stockholders of HCR, and prior to the date hereof has
resolved to recommend that the holders of HCR Common Stock approve the HCR
Voting Proposal.
(aa) Ownership of Stock of Manor Care. Neither HCR, nor any of HCR's
affiliates, owns or has owned within the five-year period ending at the
Effective Time any capital stock of Manor Care.
(bb) Pooling of Interests. To the knowledge of HCR, after consultation with
its independent auditors, neither HCR nor any of its Subsidiaries, nor any of
their respective affiliates has taken any action or failed to take any action
that would prevent Manor Care from accounting for the Merger as a pooling of
interests. HCR has received a letter from Ernst & Young, dated as of June 10,
1998, advising it that, subject to the limitations set forth in its letter,
Ernst & Young concurs with management's conclusion that, as of the date of its
letter, no conditions exist that would preclude HCR's accounting for the Merger
as a pooling of interests.
ARTICLE V.
CONDUCT OF BUSINESS BEFORE THE EFFECTIVE TIME
5.1 Conduct of Manor Care. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, Manor Care covenants and agrees that it will conduct its
business, cause the businesses of its Subsidiaries (other than the Public
Subsidiaries) and
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undertake its reasonable best efforts to cause the business of the Public
Subsidiaries (excluding Vitalink from and after consummation of the transactions
contemplated by the Vitalink Merger Agreement as in effect on the date hereof)
to be conducted, in the ordinary course, other than actions taken by Manor Care
and its Subsidiaries, as the case may be, as expressly contemplated or required
by this Agreement, and Manor Care shall use all reasonable best efforts to
preserve substantially intact its and its Subsidiaries' business organization,
to keep available all services of its present officers, employees and
consultants and to preserve its and its Subsidiaries' present relationships with
customers, suppliers and other persons with which it or any of its Subsidiaries
has significant business relations; provided, however, that this Section 5.1
shall not be violated by any action required or expressly contemplated by the
Vitalink Merger Agreement as in effect on the date hereof. By way of
amplification and not limitation, subject to the proviso contained in the
immediately preceding sentence, except as contemplated by this Agreement, Manor
Care and its Subsidiaries shall not, during the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, directly or indirectly do, or propose to do, any of the
following without the prior written consent of HCR:
(a) accelerate, amend, or change the period of exercisability of options or
restricted stock granted under any employee stock plan or authorize cash
payments in exchange for any options granted under any of those plans except as
required by the terms of those plans or any related agreements or other
agreements in effect as of the date of this Agreement;
(b) transfer or license to any person or entity or otherwise extend, amend,
or modify any rights to its Proprietary Rights, other than in the ordinary
course of business consistent with past practices;
(c) declare or pay any dividends on or make any other distributions
(whether in cash, stock, or property or any combination thereof) in respect of
any of its capital stock, except that Manor Care may pay regular quarterly cash
dividends on dates substantially consistent with the dates of the dividend
payments in 1997 at a rate not to exceed $.022 per share per quarter, or split,
combine, or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of, or in substitution
for shares of its capital stock, or purchase or otherwise acquire, directly or
indirectly, any shares of its capital stock and other than in connection with
the administration of its Employee Benefit Plans in the ordinary course of
business consistent with past practice and except that a wholly-owned subsidiary
of Manor Care may declare and pay a dividend to its parent;
(d) issue, deliver, or sell or authorize or propose the issuance, delivery,
or sale of, or purchase or propose the purchase of, any shares of its capital
stock or securities convertible into shares of its capital stock, or
subscriptions, rights, warrants, or options to acquire, or other agreements or
commitments of any character obligating it to issue, any such shares or other
convertible securities (other than the grant of options to employees in a manner
consistent with past practices and pursuant to currently existing stock option
plans, and the issuance of shares upon the exercise of options, or upon the
exercise of any Rights under the Manor Care Rights Agreement outstanding as of
the date hereof), or designate any class or series of capital stock from its
authorized but undesignated preferred stock;
(e) acquire by merging or consolidating with, or by purchasing a
substantial equity interest in or substantial portion of the assets of, or by
any other manner, any business or any corporation, partnership, association, or
other business organization or division or otherwise acquire or agree to acquire
any assets that are material, individually or in the aggregate, to the business
of such party and its Subsidiaries, taken as a whole;
(f) sell, lease, license, or otherwise dispose of any of its properties or
assets that are material, individually or in the aggregate, to the business of
such party and its Subsidiaries, taken as a whole, other than in the ordinary
course of business;
(g) (i) increase the compensation or benefits payable or to become payable
to its officers or employees, except for increases in compensation in the
ordinary course of business, (ii) enter into any employment or severance
agreements with any person, (iii) grant any severance or termination pay to,
except pursuant to agreements, or policies disclosed in the Disclosure Schedule
of such party, in effect as of the date of this
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Agreement, or enter into any employment or severance agreement with, any
employee, except severance agreements in accordance with the policies disclosed
in the Disclosure Schedule of such party, (iv) enter into any collective
bargaining agreement, (v) establish, adopt, enter into, modify, or amend any
bonus, profit sharing, thrift, compensation, stock option, restricted stock,
pension, retirement, deferred compensation, employment, termination, severance,
or other plan, trust, fund, policy, or arrangement for the benefit of any
directors, officers, or employees except as may be required by law, or (vi)
establish any new executive employee position;
(h) (i) revalue any of its assets, including writing down the value of
inventory or writing off notes or accounts receivable, other than revaluations
that it or its Subsidiaries' auditors require in accordance with generally
accepted accounting principles or in the ordinary course of business or (ii)
change or modify in any material respect any existing accounting method,
principal, or practice other than as required by generally accepted accounting
principles;
(i) incur, except borrowings for working capital purposes or to fund
capital expenditures pursuant to existing credit agreements or borrowings to
make capital expenditures permitted by clause (k), any indebtedness for borrowed
money or guarantee or assume any such indebtedness or issue or sell any debt
securities or warrants or rights to acquire any debt securities of the party or
any of its Subsidiaries or guarantee any debt securities of others, or
voluntarily prepay any outstanding indebtedness, provided that nothing herein
shall preclude intercompany indebtedness, guaranties, or assumptions;
(j) amend or propose to amend its charter documents or bylaws or similar
organizational documents;
(k) make any capital expenditure or commitment for which it is not
contractually bound as of the date hereof except expenditures and commitments
incurred in the ordinary course of business;
(l) enter into any new Manor Care Material Contract (other than in the
ordinary course of business), or modify in any respect materially adverse to
such party or any of its Subsidiaries any existing Material Contract which is
not terminable by Manor Care upon 30 days' or less notice without penalty or
payment; or
(m) maintain Manor Care's books and records in a manner other than in the
ordinary course of business consistent with past practice;
(n) take, or agree in writing or otherwise to take, any of the actions
described in subsections (a) through (l) above, or any action that is reasonably
likely to make any of its representations or warranties contained in this
Agreement untrue or incorrect such that the condition set forth in Section
7.2(a) shall not be satisfied.
5.2. Conduct of HCR. During the period from the date of this Agreement and
continuing until the earlier of the termination of this Agreement or the
Effective Time, HCR covenants and agrees that it will conduct its business, and
cause the businesses of its Subsidiaries to be conducted, in the ordinary
course, other than actions taken by HCR and its Subsidiaries as expressly
contemplated or required by this Agreement, and HCR shall use all reasonable
best efforts to preserve substantially intact its and its Subsidiaries' business
organization, to keep available all services of its present officers, employees
and consultants and to preserve its and its Subsidiaries' present relationships
with customers, suppliers and other persons with which it or any of its
Subsidiaries has significant business relations. By way of amplification and not
limitation, except as contemplated by this Agreement, HCR and its Subsidiaries
shall not, during the period from the date of this Agreement and continuing
until the earlier of the termination of this Agreement or the Effective Time,
directly or indirectly do, or propose to do, any of the following without the
prior written consent of Manor Care:
(a) declare, set aside, make or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
any of its capital stock, except that a wholly owned Subsidiary of HCR may
declare and pay a dividend to its parent;
(b) take or agree in writing or otherwise to take any action described in
this Section 5.2 or any action that is reasonably likely to make any of the
representations or warranties of HCR contained in this Agreement untrue or
incorrect such that the condition set forth in Section 7.3(a) shall not be
satisfied;
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(c) amend or otherwise change the Certificate of Incorporation or By-laws
of HCR;
(d) issue, deliver, or sell or authorize or propose the issuance, delivery,
or sale of, or purchase or propose the purchase of, any shares of its capital
stock or securities convertible into shares of its capital stock, or
subscriptions, rights, warrants, or options to acquire, or other agreements or
commitments of any character obligating it to issue, any such shares or other
convertible securities (other than pursuant to issuance in connection with (i)
an acquisition or exchange offer permitted under Section 5.2(i), (ii) the grant
of options to employees in a manner consistent with past practices and pursuant
to currently existing stock option plans, and (iii) the issuance of shares upon
the exercise of options or upon the exercise of any Rights under the HCR Rights
Agreement outstanding as of the date hereof) or designate any class or series of
capital stock from its authorized but undesignated preferred stock;
(e) (i) revalue any of its assets, including writing down the value of
inventory or writing off notes or accounts receivable, other than revaluations
that it or its Subsidiaries' auditors require in accordance with generally
accepted accounting principles or in the ordinary course of business or (ii)
change or modify in any material respect any existing accounting method,
principal, or practice other than as required by GAAP;
(f) maintain HCR's books and records in a manner other than in the ordinary
course of business consistent with past practice;
(g) accelerate, amend, or change the period of exercisability of options or
restricted stock granted under any employee stock plan or authorize cash
payments in exchange for any options granted under any of those plans except as
required by the terms of those plans or any related agreements or other
agreements in effect as of the date of this Agreement;
(h) transfer or license to any person or entity or otherwise extend, amend,
or modify any rights to its Proprietary Rights, other than in the ordinary
course of business consistent with past practices;
(i) acquire by merging or consolidating with, or by purchasing a
substantial equity interest in or substantial portion of the assets of, or by
any other manner, any business or any corporation, partnership, association, or
other business organization or division or otherwise acquire or agree to acquire
any assets (an "Acquisition") that are material, individually or in the
aggregate, to the business of such party and its Subsidiaries, taken as a whole;
provided, however, that HCR may undertake any Acquisition in which the
consideration payable by HCR does not exceed $50 million so long as the
consideration payable by HCR in all such Acquisitions does not exceed $100
million after the date hereof;
(j) (i) increase the compensation or benefits payable or to become payable
to its officers or employees, except for increases in compensation in the
ordinary course of business, (ii) enter into any employment or severance
agreements with any person, (iii) grant any severance or termination pay to,
except pursuant to agreements, or policies disclosed in the Disclosure Schedule
of such party, in effect as of the date of this Agreement, or enter into any
employment or severance agreement with, any employee, except severance
agreements in accordance with the policies disclosed in the Disclosure Schedule
of such party, (iv) enter into any collective bargaining agreement, (v)
establish, adopt, enter into, modify, or amend any bonus, profit sharing,
thrift, compensation, stock option, restricted stock, pension, retirement,
deferred compensation, employment, termination, severance, or other plan, trust,
fund, policy, or arrangement for the benefit of any directors, officers, or
employees except as may be required by law, or (vi) establish any new executive
employee position; provided, however, that not withstanding the foregoing, HCR
may take any action prohibited by this Section 5.2 with respect to the matters
which are the subject of this Section 5.2(j) so long as the aggregate cost
thereof to HCR after the date hereof does not exceed $40 million;
(k) incur, except borrowings for working capital purposes or to fund
capital expenditures pursuant to existing credit agreements or borrowings to
make capital expenditures permitted by Clause (l), any indebtedness for borrowed
money or guarantee or assume any such indebtedness or issue or sell any debt
securities or warrants or rights to acquire any debt securities of the party or
any of its Subsidiaries or guarantee any debt securities of others, or
voluntarily prepay any outstanding indebtedness, provided that nothing herein
shall preclude intercompany indebtedness, guaranties, or assumptions; and
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(l) make any capital expenditure or commitment for which it is not
contractually bound as of the date hereof except expenditures and commitments
incurred in the ordinary course of business.
5.3 Cooperation. Subject to compliance with applicable law, from the date
hereof until the Effective Time, each of HCR and Manor Care shall confer on a
regular and frequent basis with one or more representatives of the other party
to report operational matters of materiality and the general status of ongoing
operations and shall promptly provide the other party and its counsel with
copies of all filings made by the party with any Governmental Entity in
connection with this Agreement, the Merger, and the transactions contemplated
hereby.
ARTICLE VI.
ADDITIONAL COVENANTS
6.1. No Solicitation.
(a) Neither Manor Care nor HCR may, directly or indirectly, through any
officer, director, employee, representative, or agent thereof or of any of its
Subsidiaries, other than, with respect to Manor Care, as required or expressly
contemplated by the Vitalink Merger Agreement as in effect on the date hereof,
(i) seek, initiate, or solicit any inquiries, proposals, or offers from any
person or group to acquire (or which would result in the beneficial ownership
of) a majority of the shares of the capital stock (including by way of a tender
offer) of it or of its Significant Subsidiaries, to merge or consolidate with it
or any Significant Subsidiary or to otherwise acquire any significant portion of
the assets of it and/or its Significant Subsidiaries, taken as a whole, or
similar transaction involving Manor Care or any of its Significant Subsidiaries
or HCR or any of its Significant Subsidiaries, as the case may be, or, in the
case of Manor Care or its affiliates, seek to effect (1) the acquisition of any
shares of Manor Care Common Stock held by the Key Stockholders or (2) the
Restructuring Transactions (any of the foregoing restricted inquiries,
proposals, or offers being referred to as an "Acquisition Proposal"), except in
each case as required or expressly contemplated by the Vitalink Merger Agreement
as in effect on the date hereof (ii) engage in negotiations or discussions
concerning an Acquisition Proposal with any person or group or disclose or
provide any non-public information relating to the business of such party or any
Significant Subsidiary, or afford access to the properties, books, or records of
the party or any Significant Subsidiary, to any person or group that such party
has reason to believe may be considering an Acquisition Proposal, or (iii) agree
to, approve, or recommend any Acquisition Proposal; provided, however, that
nothing contained in this Agreement shall prevent Manor Care or HCR, or their
respective Board of Directors, from (A) furnishing non-public information or
access to, or entering into discussions or negotiations with, any person or
entity in connection with an unsolicited bona fide Acquisition Proposal by such
person or entity or recommending an unsolicited bona fide written Acquisition
Proposal to the stockholders, if and only to the extent that (1) a third party
has made a written proposal to the Board of Directors of Manor Care or HCR, as
applicable, to consummate an Acquisition Proposal, which proposal identifies a
price or range of values to be paid for the outstanding securities or
substantially all of the assets of Manor Care or HCR, as applicable, (2) the
Board of Directors of such party believes in good faith, after consultation with
its financial advisor, that such Acquisition Proposal is reasonably capable of
being completed on the terms proposed and would, if consummated, result in a
transaction more favorable to the stockholders of such party than the
transaction contemplated by this Agreement (a "Superior Proposal"), (3) the
Board of Directors of such party determines in good faith, following
consultation with outside legal counsel, that such action is required for such
Board of Directors to comply with its fiduciary duties to stockholders under
applicable law, and (4) prior to furnishing such non-public information to, or
entering into discussions or negotiations with, such person or entity, the Board
of Directors receives from such person or entity an executed confidentiality
agreement on terms no less favorable to Manor Care or HCR, as the case may be,
than those contained in the respective Confidentiality Agreements discussed in
Section 6.14 hereof, or (B) complying with Rule 14e-2 promulgated under the
Exchange Act with regard to an Acquisition Proposal. "Significant Subsidiary"
means any Subsidiary that would be a "significant subsidiary" as defined in
Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities
Act of 1993, as such Regulation is in effect on the date hereof. Each of Manor
Care and HCR shall immediately cease and cause to be terminated any existing
activities, discussions,
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or negotiations with any party conducted heretofore with respect to any
Acquisition Proposal. Each of Manor Care and HCR agrees not to release any third
party from, or waive any provision of, any standstill agreement to which it is a
party or any confidentiality agreement between it and another person who has
made, or who may reasonably be considered likely to make, an Acquisition
Proposal, unless the Board of Directors of Manor Care or HCR, as applicable,
determines in good faith, following consultation with outside legal counsel,
that such action is required for such Board of Directors to comply with its
fiduciary duties to stockholders under applicable law.
(b) Each of Manor Care or HCR shall immediately notify the other upon
receipt by it or its advisers of any Acquisition Proposal or any request for
non-public information in connection with an Acquisition Proposal or for access
to the properties, books, or records thereof by any person or entity that
informs Manor Care or HCR, as the case may be, that it is considering making, or
has made, an Acquisition Proposal. Such notice shall be made orally and in
writing and shall indicate the identity of the offeror and in reasonable detail
the terms and conditions of such proposal, inquiry or contact. The notifying
party shall continue to keep the other party hereto informed, on a current
basis, of the status of any such discussions or negotiations and the terms being
discussed or negotiated. Notwithstanding the foregoing, neither Manor Care nor
HCR shall accept or enter into any agreement concerning a Superior Proposal for
a period of at least five business days after the other party's receipt of the
notification of the terms thereof pursuant to the second preceding sentence (and
only in compliance with the terms of Article IX hereof), during which period the
other party shall be afforded the opportunity to match the terms and conditions
contained in such Superior Proposal.
6.2. Joint Proxy Statement; Registration Statement.
(a) As promptly as practicable after the execution of this Agreement, HCR
and Manor Care shall prepare and file with the SEC a joint proxy
statement/prospectus (the "Joint Proxy Statement") to be sent to the
stockholders of HCR and Manor Care in connection with the meeting of HCR's
stockholders (the "HCR Stockholders' Meeting") and of Manor Care's stockholders
(the "Manor Care Stockholders' Meeting") to consider the Merger Agreement and
the issuance of HCR Common Stock in connection therewith, and HCR shall prepare
and file with the SEC a registration statement on Form S-4 pursuant to which the
shares of HCR Common Stock to be issued in connection with the Merger will be
registered under the Securities Act (the "Registration Statement"), in which the
Joint Proxy Statement will be included as a prospectus. HCR may delay the filing
of the Registration Statement until after the Joint Proxy Statement has been
declared effective. HCR and Manor Care shall use all reasonable best efforts to
cause the Registration Statement to become effective as soon after filing as
practicable. HCR, Merger Sub and Manor Care shall cooperate with each other in
the preparation of the Joint Proxy Statement, and HCR shall notify Manor Care of
the receipt of any comments of the SEC with respect to the Joint Proxy Statement
and of any requests by the SEC of any amendment or supplement thereto or for
additional information and shall provide to Manor Care promptly copies of all
correspondence between HCR or any representative of HCR and the SEC. HCR shall
give Manor Care and its counsel the opportunity to review the Joint Proxy
Statement prior to its being filed with the SEC and shall give Manor Care and
its counsel the opportunity to review all amendments and supplements to the
Joint Proxy Statement and all responses to requests for additional information
and replies to comments prior to their being filed with, or sent to, the SEC.
Each of HCR, Manor Care and Merger Sub agrees to use all reasonable best
efforts, after consultation with the other parties hereto, to respond promptly
to all such comments of and requests by the SEC and to cause the Joint Proxy
Statement and all required amendments and supplements thereto to be mailed to
the holders of shares of HCR Common Stock and Manor Care Common Stock entitled
to vote at the special meetings at the earliest practicable time. The Joint
Proxy Statement shall include the recommendation of the Board of Directors of
Manor Care in favor of this Agreement and the Merger and the recommendation of
the Board of Directors of HCR in favor of the HCR Voting Proposal, provided that
the Board of Directors of either Manor Care or HCR may withdraw such
recommendation if it determines in good faith, after consultation with its
outside legal counsel, that the withdrawal of such recommendation is necessary
for such Board of Directors to comply with its fiduciary duties to stockholders
under applicable law. HCR and Manor Care shall make all other necessary filings
with respect to the Merger under the Securities Act and the Exchange Act and the
rules and regulations thereunder.
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(b) Manor Care shall take all action necessary to cause the representation
set forth in Section 4.1(f) to be true and correct at all applicable times with
respect to each of the Joint Proxy Statement and the Registration Statement.
(c) HCR shall take all action necessary to cause the representation set
forth in Section 4.2(f) to be true and correct at all applicable times with
respect to each of the Joint Proxy Statement and the Registration Statement.
(d) As soon as reasonably practicable, Manor Care and HCR shall take all
such actions as may be necessary to comply with state "blue sky" or securities
laws in connection with the transactions contemplated by this Agreement.
6.3. Access to Information. Upon reasonable notice and to the extent
permitted under applicable law and the provisions of agreements to which HCR or
Manor Care, as the case may be, is a party, including, without limitation, the
agreements relating to the Vitalink Transaction, Manor Care and HCR shall each
(and shall cause their respective Subsidiaries to) afford to the officers,
employees, accountants, counsel, and other representatives of the other,
reasonable access, during normal business hours during the period before the
Effective Time, to all its properties, books, contracts, commitments, and
records and will cause its, and its Subsidiaries', employees, counsel, financial
advisers, and auditors to cooperate with the other party and its officers,
employees, and representatives in its investigation of the business of such
party and its Subsidiaries and, during such period, each of Manor Care and HCR
shall (and shall cause their respective Subsidiaries to) furnish promptly to the
other (a) a copy of each report, schedule, registration statement, and other
document filed or received by it during such period pursuant to the requirements
of federal securities laws and (b) all other information concerning its
business, properties, and personnel as such other party or its representatives
may reasonably request. Such investigations shall be conducted in a manner as
not to unreasonably interfere with the operations of the other party and its
Subsidiaries and will take all necessary precautions (including obtaining the
written agreement of its respective employees or representatives involved in
such investigation) to protect the confidentiality of any information of the
other party and its Subsidiaries disclosed to such persons during such
investigation. No information or knowledge obtained in any investigation
pursuant to this Section 6.3 shall be deemed to modify a representation or
warranty contained in this Agreement or the conditions to the obligations of the
parties to consummate the Merger.
6.4. Stockholders' Meetings.
(a) Manor Care and HCR each shall call a special meeting of its respective
stockholders to be held as promptly as practicable for the purpose of voting, in
the case of Manor Care, upon adoption and approval of this Agreement, the Merger
and the other transactions contemplated hereby (the "Manor Care Voting
Proposal") and, in the case of HCR, upon the issuance of shares of HCR Common
Stock in the Merger (the "HCR Stock Issuance") and the approval of the bylaw
amendment described in the parenthetical of Section 6.18(d) which will, among
other things, require a supermajority vote of stockholders or directors to amend
certain of HCR's bylaw's corporate governance provisions after the Effective
Time (the "HCR Bylaw Amendment" and, together with the HCR Stock Issuance, the
"HCR Voting Proposal"). Subject to Section 6.2(a), Manor Care and HCR will,
through their respective Boards of Directors, recommend to their respective
stockholders approval of such matters and will coordinate and cooperate with
respect to the timing of the meetings and shall use reasonable best efforts to
hold the meetings on the same day and as soon as practicable after the date
hereof. Each party shall use reasonable best efforts to solicit from its
stockholders proxies in favor of such matters as long as the recommendation of
its Board of Directors remains in effect.
(b) To the extent not prohibited by Section 5.1 or 5.2, each of Manor Care
and HCR may also submit additional proposals to such party's stockholders at
such party's stockholder's meeting separate from the proposal referred to in
Section 6.4(a). The approval by HCR's stockholders or Manor Care's stockholders
of such additional proposals shall not be a condition to the closing of the
Merger under this Agreement.
6.5. Legal Conditions to Merger. (a) Each of HCR and Manor Care will
undertake its reasonable best efforts to comply promptly with all legal
requirements that may be imposed on it with respect to the Merger (including
furnishing all information required under the HSR Act and in connection with
approvals of or
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filings with any other Governmental Entity) and will promptly cooperate with and
furnish information to each other in connection with any such requirements
imposed upon either of them or any of their Subsidiaries in connection with the
Merger. Each of HCR and Manor Care will, and will cause its Subsidiaries to,
undertake its reasonable best efforts to obtain (and will cooperate with each
other in obtaining) any consent, authorization, order, or approval of, or any
exemption by, any Governmental Entity or other public third party, required to
be obtained or made by HCR, Manor Care, or any of their Subsidiaries in
connection with the Merger or the taking of any action contemplated thereby or
by this Agreement. Notwithstanding anything to the contrary in this Section 6.5,
neither Manor Care nor HCR nor any of their respective Subsidiaries shall be
required to sell, otherwise dispose of or hold separate (through the
establishment of a trust or otherwise) assets or Subsidiaries of Manor Care or
HCR or of any of their Subsidiaries having a fair market value of more than $150
million or to take any action that would reasonably be expected to substantially
impair the overall benefits expected, as of the date hereof, to be realized from
the consummation of the Merger.
(b) HCR and Manor Care shall promptly advise each other upon receiving
any communication from any Governmental Entity whose consent or approval is
required for consummation of the transactions contemplated by this Agreement
which causes such party to believe that there is a reasonable likelihood that
any approval needed from a Governmental Entity will not be obtained or that the
receipt of any such approval will be materially delayed.
6.6. Tax-Free Reorganization. HCR and Manor Care shall each use reasonable
best efforts to cause the Merger to be treated as a reorganization within the
meaning of Section 368(a) of the Code.
6.7. Pooling Accounting. HCR and Manor Care shall each use reasonable best
efforts to cause the Merger to be accounted for as a pooling of interests. Each
of HCR and Manor Care shall use reasonable best efforts to cause its respective
affiliates not to take any action that would adversely affect the ability of HCR
to account for the Merger as a pooling of interests.
6.8. Affiliate Agreements.
(a) Manor Care shall, within five business days of the date hereof,
deliver to HCR a list (reasonably satisfactory to counsel for HCR), setting
forth the names of all persons who are expected to be, at the time of the Manor
Care Stockholders' Meeting, in Manor Care's reasonable judgment, "affiliates"
of Manor Care for purposes of Rule 145 under the Securities Act or under
applicable SEC accounting releases with respect to pooling-of-interests
accounting treatment. Manor Care shall furnish such information and documents
as HCR may reasonably request for the purpose of reviewing the list. Manor Care
shall use reasonable best efforts to cause each person who is identified as an
affiliate in the list furnished pursuant to this Section 6.8(a) to execute a
written agreement, as soon as practicable after the date hereof, in
substantially the form of Exhibit C hereto (each a "Manor Care Affiliate
Agreement").
(b) HCR shall, within five business days of the date hereof, deliver to
Manor Care a list (reasonably satisfactory to counsel for Manor Care) setting
forth the names of all persons who are expected to be, at the time of the HCR
Stockholders' Meeting, in HCR's reasonable judgment, affiliates of HCR under
applicable SEC accounting releases with respect to pooling-of-interests
accounting treatment. HCR shall furnish such information and documents as Manor
Care may reasonably request for the purpose of reviewing the list. HCR shall use
reasonable best efforts to cause each person who is identified as an affiliate
in the list furnished pursuant to this Section 6.8(b) to execute a written
agreement as soon as practicable after the date hereof in substantially the form
of Exhibit D hereto (each, an "HCR Affiliate Agreement").
6.9. NYSE Listing. HCR shall cause the shares of HCR Common Stock to be
issued in connection with the Merger to be approved for listing on the NYSE,
subject to official notice of issuance, before the Closing Date.
6.10. Restricted Stock Plans. At the Effective Time, each outstanding Manor
Care Award, whether vested or unvested, shall be assumed by HCR, except that
each Manor Care Award shall apply to that number of whole shares of HCR Common
Stock equal to the product of the number of shares of Manor Care Common Stock
that were subject to such award immediately prior to the Effective Time
multiplied by the Exchange Ratio and rounded to the next highest whole number of
shares of HCR Common Stock.
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6.11. Consents; Other Approvals.
(a) Subject to the terms and conditions of this Agreement, each of HCR and
Manor Care shall use their reasonable best efforts to obtain all necessary
consents, waivers, and approvals under any of HCR's or Manor Care's material
agreements, contracts, licenses, or leases in connection with the Merger.
(b) Manor Care shall undertake its reasonable best efforts to cause IHH to
provide the approvals required under Section 7.2(f) including, without
limitation, by removal and replacement of directors, taking actions as
shareholders by consent or vote and causing the filing of all filings and other
materials with the SEC requisite or useful to the foregoing.
6.12. Reports. From and after the Effective Time and so long as necessary
in order to permit Manor Care's affiliates to sell the shares of HCR Common
Stock received by them as a result of the Merger pursuant to Rule 145 and, to
the extent applicable, Rule 144 under the Securities Act, HCR will use its
reasonable best efforts to file on a timely basis all reports required to be
filed by it pursuant to Section 13 or 15(d) of the Exchange Act, referred to in
paragraph (c)(1) of Rule 144 under the Securities Act.
6.13. Additional Agreements; Reasonable Best Efforts. Subject to the terms
and conditions of this Agreement, including Section 6.2(a), each of the parties
agrees to use its reasonable best efforts to take, or cause to be taken, all
action and to do, or cause to be done, all things necessary, proper, or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement, subject to the vote of
stockholders of HCR and Manor Care described in Section 6.4. In case at any time
after the Effective Time any further action is necessary or desirable to carry
out the purposes of this Agreement or to vest the Surviving Corporation with
full title to all properties, assets, rights, approvals, immunities, and
franchises of either of Manor Care and Merger Sub, the proper officers and
directors of each party to this Agreement shall take all such necessary action.
6.14. Confidentiality Agreement. The Confidentiality Agreements between
Manor Care and HCR dated May 12, 1998 shall remain in full force and effect
until the later of the Effective Time or such date specified in the
Confidentiality Agreement. Until the Effective Time, Manor Care and HCR shall
comply with the terms of such Confidentiality Agreements.
6.15. Stock Option Agreements. Each of Manor Care and HCR agrees to grant
the option described in the Stock Option Agreements immediately upon execution
of this Agreement and to fully perform its obligations under the Stock Option
Agreements.
6.16. Stockholder Litigation. Manor Care shall give HCR the reasonable
opportunity to participate in the defense of any stockholder litigation against
Manor Care or its directors relating to the transactions contemplated hereby or
the Vitalink Transaction.
6.17. Pooling Letters. (a) HCR shall use reasonable best efforts to cause
to be delivered to HCR and Manor Care a letter of Ernst & Young LLP, dated as of
a date within two business days before the date of the Joint Proxy Statement
shall be mailed, regarding its concurrence with HCR management's and Manor Care
management's conclusions, respectively, as to the appropriateness of
pooling-of-interests accounting for the Merger under Accounting Principles Board
Opinion No. 16 if closed and consummated in accordance with this Agreement.
(b) Manor Care shall use reasonable best efforts to cause to be delivered
to HCR and Manor Care a letter of Arthur Andersen LLP, dated as of a date within
two business days before the date of the Joint Proxy Statement shall be mailed,
regarding its concurrence with HCR management's and Manor Care management's
conclusions, respectively, as to the appropriateness of pooling-of-interests
accounting for the Merger under Accounting Principles Board Opinion No. 16 if
closed and consummated in accordance with this Agreement.
(c) Manor Care and HCR shall each provide reasonable cooperation to Arthur
Andersen LLP and Ernst & Young LLP to enable them to issue such letters.
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6.18. Post-Merger HCR Corporate Governance.
(a) At the Effective Time, the total number of persons serving on the
Board of Directors of HCR shall be ten (unless otherwise agreed in writing by
Manor Care and HCR prior to the Effective Time), half of whom shall be Manor
Care Directors and half of whom shall be HCR Directors (as such terms are
defined below). The persons to serve initially on the Board of Directors of HCR
effective at the Effective Time who are Manor Care Directors (and the classes
to which they will be appointed) shall be Stewart Bainum, Jr. (Class I);
William H. Longfield (Class I); Stewart Bainum (Class II); Gail R. Wilensky
(Class II); Kennett L. Simmons (Class III). The persons to serve initially on
the Board of Directors of HCR effective at the Effective Time who are HCR
Directors (and the classes in which they will remain) shall be Paul A. Ormond
(Class I); Joseph H. Lemieux (Class II); Thomas L. Young (Class III); Robert G.
Siefers (Class III); M. Keith Weikel (Class III). The initial Board of
Directors of HCR at the Effective Time shall include no more than two Manor
Care Directors and no more than two HCR Directors who, prior to the Effective
Time, were employees of Manor Care or HCR, respectively. In the event that,
prior to the Effective Time, any person so selected to serve on the Board of
Directors of HCR effective at and immediately after the Effective Time is
unable or unwilling to serve in such position, the Board of Directors which
selected such person shall designate another person to serve in such person's
stead in accordance with the provisions of the immediately preceding sentence.
From and after the Effective Time until and including the second annual meeting
of stockholders of HCR held after the Effective Time (the "Second Meeting"),
(i) the size of the Board of Directors of HCR shall not be increased or
decreased unless such increase or decrease is approved by not less than 75% of
the members thereof and (ii)(A) if any vacancy occurs as the result of the
death, resignation or removal of a Manor Care Director or an HCR Director or
(B) if any seat held by a Manor Care Director or HCR Director is subject to
nomination for election of a director, then, in the case of either (A) or (B),
subject to the fiduciary duties of the Directors of HCR, the Board of Directors
shall promptly take all necessary actions and appoint or nominate, as the case
may be, such person or persons as may be, requested by the remaining Manor Care
Directors (in the case of a vacancy or nomination concerning a Manor Care
Director) or by the remaining HCR Directors (in the case of a vacancy or
nomination concerning an HCR Director). The term "Manor Care Director" means
(i) any person who becomes a Director of HCR at the Effective Time pursuant to
the second or fifth sentences of this Section 6.18(a) and (ii) any person who
becomes a Director of HCR pursuant to the preceding sentence and who is
designated by the Manor Care Directors; and the term "HCR Director" means (i)
any person who continues or becomes a Director of HCR at the Effective Time
pursuant to the third or fifth sentences of this Section 6.18(a) and (ii) any
person who becomes a Director of HCR pursuant to the preceding sentence and who
is designated by the HCR Directors.
(b) Immediately following the Effective Time, the current Chief
Executive Officer of HCR shall continue as President and Chief Executive
Officer of HCR and the current President and Chief Executive Officer of Manor
Care shall be Chairman of the Board of HCR.
(c) From and after the Effective Time until and including the Second
Meeting, the Board of Directors of HCR shall, subject to their fiduciary duties,
promptly take all necessary action to increase the size of each existing
committee to four members and take such action to assure that such committee and
any other committee of the Board of Directors is comprised one-half of HCR
Directors and one-half of Manor Care Directors.
(d) Each of Manor Care and HCR shall take such action as shall
reasonably be deemed by either thereof to be advisable to give effect to the
provisions set forth in this Section 6.18, including without limitation
incorporating such provisions in the Bylaws of HCR to be effective at the
Effective Time (which Bylaws will provide that, during the period set forth
above, (i) the Board of Directors of HCR may not amend such provisions without
the approval of not less than 75% of the members of the Board of Directors of
HCR and (ii) the stockholders of HCR may not amend such Bylaws without the
approval of HCR stockholders owning not less than 80% of the outstanding shares
of HCR).
6.19. Name Change. Immediately following the Effective Time, a newly
established, wholly owned subsidiary of HCR shall merge into HCR with HCR
surviving, and HCR shall change its name to HCR Manor Care, Inc. pursuant to
Section 253(b) of the DGCL. On the one-year anniversary of the Effective
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Time, unless after the Effective Time the HCR Board of Directors resolves
otherwise, HCR shall change its name to Manor Care, Inc. pursuant to Section
253(b) of the DGCL or, if such section or a successor section is not available
for this purpose as then otherwise permitted under applicable law.
ARTICLE VII.
CONDITIONS PRECEDENT
7.1. Conditions to Each Party's Obligation To Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the satisfaction before the Closing Date of the following conditions, any of
which may be waived, to the extent legally allowed, in writing, by mutual
consent of Manor Care and HCR:
(a) Stockholder Approval. This Agreement and the Merger shall have been
approved and adopted by the requisite vote of the stockholders of Manor Care as
may be required by law, by the rules of the New York Stock Exchange, and by any
applicable provisions of its Certificate of Incorporation or Bylaws, and the HCR
Voting Proposal shall have been approved by the requisite vote of the
stockholders of HCR as may be required by law, by the rules of the New York
Stock Exchange, and by any applicable provisions of its Certificate of
Incorporation or Bylaws.
(b) HSR Act. The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated.
(c) Approvals. There shall have been obtained permits, consents, and
approvals of securities or "blue sky" commissions or agencies of any
jurisdiction and of other governmental bodies or agencies that may reasonably be
deemed necessary so that the consummation of the Merger and the other
transactions contemplated hereby will be in compliance with applicable laws
except where the failure to obtain such permits, consents and approvals would
not be reasonably expected to have a Material Adverse Effect on Manor Care or
HCR.
(d) Registration Statement. The Registration Statement shall have become
effective under the Securities Act and shall not be the subject of any stop
order or proceedings seeking a stop order. The Joint Proxy Statement shall have
been delivered to the stockholders of Manor Care and HCR in accordance with the
requirements of the Securities Act and the Exchange Act.
(e) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction, or other order issued by any court
of competent jurisdiction or other legal or regulatory restraint or prohibition
preventing the consummation of the Merger or materially limiting or restricting
HCR's conduct or operation of the business of HCR or Manor Care after the Merger
shall have been issued, nor shall any proceeding brought by a Governmental
Entity seeking any of the foregoing be pending which if adversely determined
would be reasonably likely to have a Material Adverse Effect on HCR or Manor
Care; nor shall there be any action taken, or any statute, rule, regulation, or
order enacted, entered, enforced, or deemed applicable to the Merger which makes
the consummation of the Merger illegal.
(f) Pooling Letters. Manor Care and HCR shall have received letters from
Arthur Andersen LLP and Ernst & Young LLP, respectively, addressed to Manor Care
and HCR, respectively, regarding their concurrence with the respective
conclusions of management of Manor Care and HCR, as to the appropriateness of
the pooling of interest accounting, under Accounting Principles and Board
Opinion No. 16 for the Merger, if closed and consummated in accordance with this
Agreement.
(g) Tax Opinions. HCR shall have received the opinion of Latham & Watkins
and Manor Care shall have received the opinion of Cahill Gordon & Reindel, which
opinions shall be dated on or about the date the Joint Proxy Statement is first
mailed to the stockholders of Manor Care and HCR and which shall be updated as
of the Closing Date, to the effect that the Merger will be treated for federal
income tax purposes as a reorganization within the meaning of Section 368(a) of
the Code and that none of HCR, Merger Sub, Manor Care or Manor Care stockholders
shall recognize gain or loss for federal income tax purposes as a result of the
Merger (other than with respect to any cash received in lieu of fractional
shares of HCR Common Stock),
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and substantially in the forms attached to HCR's and Manor Care's respective
Disclosure Schedules. In rendering such opinions, Latham & Watkins and Cahill
Gordon & Reindel may rely upon representation letters of HCR and Manor Care
substantially in the forms attached to HCR's and Manor Care's respective
Disclosure Schedules.
(h) NYSE. The shares of HCR Common Stock to be issued in the Merger shall
have been approved for listing on the NYSE.
7.2. Additional Conditions to Obligations of HCR and Merger Sub. The
obligations of HCR and Merger Sub to effect the Merger are subject to the
satisfaction of each of the following conditions, any of which may be waived in
writing by HCR and Merger Sub:
(a) Representations and Warranties. The representations and warranties of
Manor Care contained in Section 4.1 of this Agreement (i) shall be true and
correct in all respects as of the date of this Agreement and (ii) shall be true
and correct immediately before the Effective Time, with the same force and
effect as if made on and as of the Effective Time, except to the extent any
inaccuracies in any such representations or warranties, individually or in the
aggregate, do not materially impair the ability of Manor Care to consummate the
transactions contemplated hereby and would not have a Material Adverse Effect on
Manor Care (provided that, solely for purposes of clause (ii) of this Section
7.2(a), any representation or warranty in Section 4.1 that is qualified by
Material Adverse Effect language shall be read as if such language were not
present), and except that the accuracy of representations and warranties that by
their terms speak as of the date of this Agreement or some other date will be
determined as of such date; HCR shall have received a certificate signed on
behalf of Manor Care by the chief executive officer and chief financial officer
of Manor Care to that effect.
(b) Performance of Obligations of Manor Care. Manor Care shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or before the Closing Date, and HCR shall have
received a certificate signed on behalf of Manor Care by the chief executive
officer and the chief financial officer of Manor Care to that effect.
(c) No Material Adverse Change. Since the date of this Agreement, there
shall not have occurred or arisen any event, circumstance or condition in the
business, operations, results of operations, properties, or financial condition
of Manor Care and its Subsidiaries, taken as a whole except for (a) such changes
that, individually or in the aggregate, would not have a Material Adverse Effect
on Manor Care or (b) any Anticipated Change.
(d) Consents. Manor Care shall have obtained all necessary consents,
waivers, and approvals required under any of its material agreements, contracts,
and licenses, except those consents the failure of which to obtain would not
have a Material Adverse Effect on Manor Care or materially impair the ability of
Manor Care to consummate the Merger.
(e) Manor Care Rights Agreement. No Manor Care Rights shall have become
exercisable under the Manor Care Rights Agreement.
(f) IHH Matters. The Board of Directors of IHH shall have been presented
this Agreement and the Ancillary Agreements and provided such approvals as are
sufficient to render inapplicable, with respect to IHH, the Merger and the other
transactions contemplated by this Agreement and by the Ancillary Agreements the
restrictions of Section 302A.673 of the Minnesota Business Corporation Act (the
"MBCA"). The articles or bylaws of IHH shall have been amended to render Section
302A.671 of the MBCA inapplicable to the Merger and the other transactions
contemplated by this Agreement and by the Ancillary Agreements.
7.3 Additional Conditions to Obligations of Manor Care. The obligation of
Manor Care to effect the Merger is subject to the satisfaction of each of the
following conditions, any of which may be waived, in writing by Manor Care:
(a) Representations and Warranties. The representations and warranties of
HCR and Merger Sub contained in Section 4.2 of this Agreement (i) shall be true
and correct in all respects as of the date of this
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Agreement and (ii) shall be true and correct immediately before the Effective
Time, with the same force and effect as if made on and as of the Effective Time,
except to the extent any inaccuracies in any such representations or warranties,
individually or in the aggregate, do not materially impair the ability of HCR or
Merger Sub to consummate the transactions contemplated hereby and would not have
a Material Adverse Effect on HCR (provided that, solely for purposes of clause
(ii) of this Section 7.3(a), any representation or warranty in Section 4.2 that
is qualified by Material Adverse Effect language shall be read as if such
language were not present), and except that the accuracy of representations and
warranties that by their terms speak as of the date of this Agreement or some
other date will be determined as of such date; Manor Care shall have received a
certificate signed on behalf of HCR and Merger Sub by the chief executive
officer and chief financial officer of each of HCR and Merger Sub to that
effect.
(b) Performance of Obligations of HCR and Merger Sub. HCR and Merger Sub
shall have performed in all material respects all obligations required to be
performed by them under this Agreement at or before the Closing Date, and Manor
Care shall have received a certificate signed on behalf of HCR by the chief
executive officer and the chief financial officer of HCR to that effect.
(c) No Material Adverse Change. Since the date of this Agreement, there
shall not have occurred or arisen any event, circumstance or condition in the
business, operations, results of operations, properties, or financial condition
of HCR and its Subsidiaries, taken as a whole except for (a) such changes that,
individually or in the aggregate, would not have a Material Adverse Effect on
HCR or (b) any Anticipated Change.
(d) Consents. HCR shall have obtained all necessary consents, waivers, and
approvals required under any of its material agreements, contracts, and
licenses, except those consents the failure of which to obtain would not have a
Material Adverse Effect on HCR or materially impair the ability of HCR to
consummate the Merger.
(e) HCR Rights Agreement. No HCR Rights shall have become exercisable under
the HCR Rights Agreement.
ARTICLE VIII.
CONDUCT AND TRANSACTIONS AFTER THE EFFECTIVE TIME
8.1. Employee Matters
(a) HCR shall or shall cause the Surviving Corporation to maintain in
effect, for a period of one (1) year after the Effective Time, employee benefit
plans and arrangements which, with respect to the employees of Manor Care and
its Subsidiaries (for so long as they are Subsidiaries) as a whole, provide
benefits which are of substantially comparable value, in the aggregate, to the
benefits provided by the Manor Care Employee Plans (not taking into account any
benefits under any such plans which are equity based).
(b) For purposes of determining eligibility to participate and vesting, but
not accrual or entitlement to benefits other than severance benefit accrual
where length of service is relevant under any employee benefit plan or
arrangement of HCR or the Surviving Corporation, employees of Manor Care and its
Subsidiaries (for so long as they are Subsidiaries) as of the Effective Time
shall receive service credit for service with Manor Care and any of its
Subsidiaries (for so long as they are Subsidiaries) to the same extent that such
service was recognized under the Manor Care Employee Plans and shall waive any
pre-existing condition exclusions and actively-at-work requirements and provide
that any expenses incurred on or before the Effective Time by an employee of
Manor Care or its Subsidiaries (for so long as they are Subsidiaries) or such
employee's covered dependents shall be taken into account for purposes of
satisfying applicable deductible, coinsurance and maximum out-of-pocket
provisions.
(c) From and after the Effective Time, HCR shall cause Manor Care to abide
by the terms of the employment and severance agreements, arrangements and
policies in effect at the Effective Time.
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(d) This Section 8.1 is not intended to be for the benefit of and shall
not be enforceable by any employee or former employee of Manor Care or any of
its Subsidiaries or any dependent, beneficiary or collective bargaining
representative of any such employee or former employee.
8.2. Indemnification. All rights to indemnification, expense advancement,
and exculpation existing in favor of any present or former director, officer, or
employee of Manor Care or any of its Subsidiaries as provided in the Certificate
of Incorporation, Bylaws, or similar organizational documents of Manor Care or
any of its Subsidiaries or by law as in effect on the date hereof shall survive
the Merger with respect to matters occurring at or prior to the Effective Time,
and no action taken during such period shall be deemed to diminish the
obligations set forth in this Section 8.2. HCR hereby guarantees, effective at
the Effective Time, all obligations of the Surviving Corporation and the
Subsidiaries in respect of such indemnification and expense advancement.
8.3. Directors and Officers Liability Insurance. For a period of at least
six years after the Effective Time, HCR shall cause the Surviving Corporation to
maintain in effect either (i) the current policy of directors' and officers'
liability insurance maintained by Manor Care (provided that HCR or the Surviving
Corporation may substitute therefor policies of at least the same coverage and
amounts containing terms and conditions which are no less advantageous in any
material respect to the insured parties thereunder) with respect to claims
arising from facts or events that occurred at or before the Effective Time
(including consummation of the transactions contemplated by this Agreement), or
(ii) a run-off (that is, "tail") policy or endorsement with respect to the
current policy of directors' and officers' liability insurance covering claims
asserted within four years after the Effective Time arising from facts or events
that occurred at or before the Effective Time (including consummation of the
transactions contemplated by this Agreement); provided, however, in no event
shall HCR or the Surviving Corporation be required to pay annual premiums in
excess of 200% of the annual premium currently paid by Manor Care; and if such
premium would at any time exceed 200% of such amount, HCR or the Surviving
Corporation may maintain policies that provide the best coverage available for
200% of such amount, and such policies or endorsements shall name as insureds
thereunder all present and former directors and officers of Manor Care or any of
its Subsidiaries.
ARTICLE IX.
TERMINATION
9.1. Termination. This Agreement may be terminated at any time prior to the
Effective Time (with respect to Sections 9.1(b) through 9.1(h), by written
notice by the terminating party to the other party), whether before or after
approval of the matters presented in connection with the Merger by the
stockholders of HCR or Manor Care:
(a) by mutual written consent of Manor Care and HCR; or
(b) by either Manor Care or HCR if the Merger shall not have been
consummated by December 31, 1998; provided, however, such date shall be extended
to March 31, 1999 in the event all conditions to effect the Merger other than
those set forth in 7.1(c) or (e) have been or are capable of being satisfied at
such time and the conditions set forth in Section 7.1(c) and (e) have been or
are reasonably capable of being satisfied on or prior to March 31, 1999
(December 31, 1998, as it may be so extended, shall be referred to herein as the
"Outside Date"), provided that the right to terminate this Agreement under this
Section 9.1(b) shall not be available to any party whose failure to fulfill any
obligation under this Agreement has been the cause of or resulted in the failure
of the Merger to occur on or before such date; or
(c) by either Manor Care or HCR if a court of competent jurisdiction or
other Governmental Entity shall have issued a nonappealable final order, decree
or ruling or taken any other nonappealable final action, in each case having the
effect of permanently restraining, enjoining or otherwise prohibiting the
Merger; or
(d) by Manor Care, if, at the HCR Stockholders' Meeting (including any
adjournment or postponement thereof), the requisite vote of the stockholders of
HCR in favor of the HCR Voting Proposal shall not have been obtained; or by HCR
if, at the Manor Care Stockholders' Meeting (including any adjournment or
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postponement thereof), the requisite vote of the stockholders of Manor Care in
favor of the Manor Care Voting Proposal shall not have been obtained; or
(e) by Manor Care, if (i) the Board of Directors of HCR shall have
withdrawn or modified its recommendation of the HCR Voting Proposal; (ii) after
the receipt by HCR of a proposal concerning an Alternative Transaction, Manor
Care requests in writing that the Board of Directors of HCR reconfirm its
recommendation of the HCR Voting Proposal and the Board of Directors of HCR
fails to do so within 10 business days after its receipt of Manor Care's
request; (iii) the Board of Directors of HCR shall have recommended to the
stockholders of HCR an Alternative Transaction; (iv) a tender offer or exchange
offer that, if successful, would result in any person or "group" becoming a
"beneficial owner" (such terms having the meaning in this Agreement as is
ascribed under Regulation 13D under the Exchange Act) of 35% or more of the
outstanding shares of HCR Common Stock is commenced (other than by Manor Care or
an affiliate of Manor Care) and the Board of Directors of HCR recommends that
the stockholders of HCR tender their shares in such tender or exchange offer or
(v) for any reason HCR fails to call and hold the HCR Stockholders' Meeting by
the Outside Date (provided that Manor Care's right to terminate this Agreement
under such clause (v) shall not be available if at such time HCR would be
entitled to terminate this Agreement under Section 9.1(g)); or
(f) by HCR, if (i) the Board of Directors of Manor Care shall have
withdrawn or modified its recommendation of this Agreement; (ii) after the
receipt by Manor Care of a proposal concerning an Alternative Transaction, HCR
requests in writing that the Board of Directors of Manor Care reconfirm its
recommendation of this Agreement and the Merger and the Board of Directors of
Manor Care fails to do so within 10 business days after its receipt of HCR's
request; (iii) the Board of Directors of Manor Care shall have recommended to
the stockholders of Manor Care an Alternative Transaction; (iv) a tender offer
or exchange offer that, if successful, would result in any person or group
becoming a beneficial owner of 35% or more of the outstanding shares of Manor
Care Common Stock is commenced (other than by HCR or an affiliate of HCR) and
the Board of Directors of Manor Care recommends that the stockholders of Manor
Care tender their shares in such tender or exchange offer; or (v) for any reason
Manor Care fails to call and hold the Manor Care Stockholders' Meeting by the
Outside Date (provided that HCR's right to terminate this Agreement under such
clause (v) shall not be available if at such time Manor Care would be entitled
to terminate this Agreement under Section 9.1(g)); or
(g) by Manor Care or HCR, if there has been a breach of any representation,
warranty, covenant or agreement on the part of the other party set forth in this
Agreement, which breach (i) causes the conditions set forth in Section 7.3 (in
the case of termination by Manor Care) or in Section 7.2 (in the case of
termination by HCR) not to be satisfied, and (ii) shall not have been cured
within 20 business days following receipt by the breaching party of written
notice of such breach from the other party; or
(h) by Manor Care, prior to the approval by HCR's stockholders of the HCR
Voting Proposal, or by HCR, prior to approval by Manor Care's stockholders of
the Manor Care Voting Proposal, if, as a result of a Superior Proposal received
by such party from a Third Party, the Board of Directors of such party
determines in good faith, following consultation with outside legal counsel,
that failing to accept such Superior Proposal would constitute a breach by the
Board of Directors of such party of its fiduciary duties to its stockholders
under applicable law; provided, however, that no termination shall be effective
pursuant to this Section 9.1(h) under circumstances in which a termination fee
is payable by the terminating party pursuant to Sections 9.3(c) or (e), unless
concurrently with such termination, such fees are paid in full by the
terminating party in accordance with such Sections.
9.2. Effect of Termination. In the event of termination of this Agreement
as provided in Section 9.1, this Agreement shall immediately become void and
there shall be no liability or obligation on the part of Manor Care, HCR, Merger
Sub or their respective officers, directors, stockholders or affiliates, except,
in the case of HCR, Manor Care or Merger Sub, as set forth in Section 9.3 or in
the case of a willful breach of this Agreement or the Stock Option Agreements;
provided that, the provisions of Section 9.3 of this Agreement and the
Confidentiality Agreements shall remain in full force and effect and survive any
termination of this Agreement.
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9.3. Fees and Expenses.
(a) Except as set forth in this Section 9.3, 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) [OMITTED]
(c) HCR shall pay Manor Care a termination fee of $70 million concurrently
upon the earliest to occur of the following events:
(i) the termination of this Agreement by Manor Care pursuant to
Section 9.1(d), but only if a proposal for an Alternative Transaction
involving HCR shall have been made prior to the HCR Stockholders' Meeting
and either an Alternative Transaction with HCR is entered into, or an
Alternative Transaction with HCR is consummated, within eighteen months of
such termination ;
(ii) the termination of this Agreement by Manor Care pursuant to
Section 9.1(e); or
(iii) the termination of this Agreement by HCR pursuant to Section
9.1(h).
Notwithstanding the foregoing, if and to the extent that Manor Care has
purchased shares of HCR Common Stock pursuant to the HCR Stock Option Agreement
prior to the date of payment under this Section 9.3(c), the amount payable to
Manor Care under this Section 9.3(c), together with (i) (x) the amount received
by Manor Care pursuant to HCR's repurchase of shares (as defined in the HCR
Stock Option Agreement) pursuant to Section 7 of the HCR Stock Option Agreement,
less Manor Care's purchase price for such shares, and (ii) (x) the net cash
amounts received by Manor Care pursuant to the sale of shares (or any other
securities into which such shares are converted or exchanged) prior to the date
of payment under this Section 9.3(c) to any unaffiliated party, less (y) Manor
Care's purchase price for such shares, shall not exceed $70 million.
HCR's payment of (i) a termination fee and (ii) amounts, if any, payable
pursuant to the HCR Stock Option Agreement pursuant to this subsection shall be
the sole and exclusive remedy of Manor Care against HCR and any of its
Subsidiaries and their respective directors, officers, employees, agents,
advisors or other representatives with respect to the occurrences giving rise to
such payment; provided that this limitation shall not apply in the event of a
willful breach of this Agreement by HCR.
(d) [OMITTED]
(e) Manor Care shall pay HCR a termination fee of $100 million concurrently
upon the earliest to occur of the following events:
(i) the termination of this Agreement by HCR pursuant to Section
9.1(d), but only if a proposal for an Alternative Transaction involving
Manor Care shall have been made prior to the Manor Care Stockholders'
Meeting and either an Alternative Transaction with Manor Care is entered
into, or an Alternative Transaction with Manor Care is consummated, within
eighteen months of such termination (or in the case of the Restructuring
Transactions, or transactions in whole or in part similar thereto, twelve
months);
(ii) the termination of this Agreement by HCR pursuant to Section
9.1(f); or
(iii) the termination of this Agreement by Manor Care pursuant to
Section 9.1(h).
Notwithstanding the foregoing, if and to the extent that HCR has purchased
shares of Manor Care Common Stock pursuant to the Manor Care Stock Option
Agreement prior to the date of payment this under Section 9.3(e), the amount
payable to HCR under this Section 9.3(e), together with (i) (x) the amount
received by HCR pursuant to Manor Care's repurchase of shares (as defined in the
Manor Care Stock Option Agreement) pursuant to Section 7 of the Manor Care Stock
Option Agreement, less HCR's purchase price for such shares, and (ii) (x) the
net cash amounts received by HCR pursuant to the sale of shares (or any other
securities into which such shares are converted or exchanged) prior to the date
of payment under this
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Section 9.3(e) to any unaffiliated party, less (y) HCR's purchase price for such
shares, shall not exceed $100 million.
Manor Care's payment of (i) a termination fee and (ii) amounts, if any,
payable pursuant to the Manor Care Stock Option Agreement pursuant to this
subsection shall be the sole and exclusive remedy of HCR against Manor Care and
any of its Subsidiaries and their respective directors, officers, employees,
agents, advisors or other representatives with respect to the occurrences giving
rise to such payment; provided that this limitation shall not apply in the event
of a willful breach of this Agreement by Manor Care.
(f) [OMITTED]
(g) As used in this Agreement, "Alternative Transaction" means any of (i) a
transaction pursuant to which any person or group other than Manor Care or HCR
or their respective affiliates (a "Third Party"), acquires beneficial ownership
of more than 35% of the outstanding shares of HCR Common Stock or Manor Care
Common Stock, as the case may be, pursuant to a tender offer or exchange offer
or otherwise, (ii) a merger or other business combination involving Manor Care
or HCR pursuant to which any Third Party acquires beneficial ownership of more
than 35% of the outstanding shares of HCR Common Stock or Manor Care Common
Stock, as the case may be, or the entity surviving such merger or business
combination, (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 Manor Care or HCR, and the entity surviving any
merger or business combination including any of them) of Manor Care or HCR
having a fair market value (as determined by the Board of Directors of Manor
Care or HCR, as the case may be, in good faith) equal to more than a majority of
the fair market value of all the assets of Manor Care or HCR, as the case may
be, and their respective Subsidiaries, taken as a whole, immediately prior to
such transaction, (iv) Manor Care and/or its affiliates shall acquire in the
aggregate 35% or more of the Manor Care Common Stock held by the Key
Stockholders on the date hereof, (v) the Restructuring Transactions or
transactions in whole or substantial part similar thereto, (vi) any other
merger, share issuance, business combination, consolidation or other similar
transaction pursuant to which 40% or more of the directors of Manor Care or HCR
in office on the date hereof cease to be directors thereof or the directors
thereof on the date hereof shall cease to constitute at least 60% of the
directors thereof, or (vii) any public announcement of a proposal, plan or
intention to do any of the foregoing or any agreement to engage in any of the
foregoing.
ARTICLE X.
MISCELLANEOUS PROVISIONS
10.1. Termination of Representations and Warranties. The representations
and warranties set forth in this Agreement (including those set forth in the
Manor Care and HCR Disclosure Schedules) or in any certificate furnished under
this Agreement shall not survive the Effective Time.
10.2. Amendment and Modification. To the extent permitted by applicable
law, this Agreement may be amended, modified, or supplemented only by written
agreement of the parties at any time before the Effective Time with respect to
any of the terms contained herein, except that after the Manor Care
Stockholders' Meeting, the amount and form of the merger consideration shall not
be altered without the approval of the stockholders of Manor Care.
10.3. Waiver of Compliance; Consents. Any failure of a party to comply with
any obligation, covenant, agreement, or condition herein, to the extent legally
allowed, may be waived in writing by the other, 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 10.3.
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10.4. Press Releases and Public Announcements.
(a) HCR and Manor Care shall agree on the form and content of the initial
press release and Forms 8-K, if any, regarding the transactions contemplated
hereby.
(b) In addition to the foregoing, neither HCR nor Manor Care may issue any
press release or make any public disclosure relating to the subject matter of
this Agreement without prior written approval of the other party; provided,
however, that each of Manor Care and HCR may make any public disclosure it
believes in good faith is required by applicable law, SEC regulations or any
listing or trading agreement concerning its publicly traded securities after
consultation with the other party regarding the form and content of the
disclosure before making such disclosure.
10.5. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, effective when
delivered, or if delivered by express delivery service, effective when
delivered, or if mailed by registered or certified mail (return receipt
requested), effective three business days after mailing, 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 HCR or Merger Sub:
One SeaGate
Toledo, OH 43604-2616
Attention: R. Jeffrey Bixler
with a copy to:
Latham & Watkins
233 South Wacker Drive
Sears Tower, Suite 5800
Chicago, IL 60606
Attention: Mark D. Gerstein
(b) If to Manor Care, Inc.:
11555 Darnestown Road
Gaithersburg, MD 20878-3200
Attention: James H. Rempe
with a copy to:
Cahill Gordon & Reindel
80 Pine Street
New York, NY 10005
Attention: W. Leslie Duffy
10.6. Assignment. This Agreement and all of the provisions hereof shall be
binding upon and shall 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 may be assigned by any party
hereto without the prior written consent of the other parties. Except for the
provisions of Sections 8.2, 8.3, and 8.4, this Agreement is not intended to
confer upon any other person except the parties any rights or remedies
hereunder.
10.7. Interpretation; Glossary. As used in this Agreement, unless otherwise
defined, (i) the term "including" means "including without limitation"; (ii) the
term "person" means an individual, a partnership, a limited liability company, a
joint venture, a corporation, a trust, an incorporated organization and a
government or any department or agency thereof; (iii) the term "affiliate" has
the meaning set forth in Rule 12b-2 under the Exchange Act; (iv) the phrase
"business day" means any day other than a Saturday, Sunday or a day that is a
statutory holiday under the laws of the United States or the State of Delaware;
(v) all dollar amounts are expressed in United States funds; (vi) the phrase "to
the knowledge of a party" or
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any similar phrase means the actual knowledge of one or more of the executive
officers of the party; (vii) as used with respect to Manor Care or HCR, as the
case may be, the term "Material Adverse Effect" means any change or effect that,
individually or when taken together with all changes or effects that have
occurred before the determination of the occurrence of the Material Adverse
Effect, has had or is reasonably likely to have a material adverse effect on the
business, operations, results of operations, properties, or financial condition
of the party and its Subsidiaries taken as a whole; (viii) "Anticipated Change"
means the implementation of the prospective payment system as the principal
reimbursement method under the Medicare Program for skilled nursing homes.
Definitions of other terms used in this Agreement may be found as indicated
below:
<TABLE>
<CAPTION>
DEFINED TERM LOCATION OF DEFINITION
------------ ----------------------
<S> <C>
"Acquisition Corporation".............. Section 4.1(a)
"Acquisition Proposal"................. Section 6.1(a)
"Agreement"............................ Preamble
"Alternative Transaction".............. Section 9.3(g)
"Ancillary Agreements"................. Seventh Recital
"Anticipated Change"................... Section 10.7
"Benefit Plan"......................... Section 4.1(o)(i)
"CERCLA"............................... Section 4.1(p)(i)(A)
"Certificate of Merger"................ Section 1.1
"Certificates"......................... Section 2.2(b)
"Chase"................................ Section 4.2(n)
"Closing".............................. Section 3.1
"Closing Date"......................... Section 3.1
"Code"................................. Fourth Recital
"CON".................................. Section 4.1(m)(i)
"Cost Reports"......................... Section 4.1(m)(ii)
"DGCL"................................. Section 1.1
"Effective Time"....................... Section 1.1
"Environmental Law".................... Section 4.1(p)(i)(A)
"ERISA"................................ Section 4.1(o)(i)
"ERISA Affiliate"...................... Section 4.1(o)(vi) and Section
4.2(o)(vi), respectively
"Exchange Act"......................... Section 4.1(d)
"Exchange Agent"....................... Section 2.2(a)
"Exchange Fund"........................ Section 2.2(a)
"Exchange Ratio"....................... Section 2.1(c)
"Facility"............................. Section 4.1(m)(i)
"GAAP"................................. Section 4.1(e)(ii)
"Genesis".............................. Section 4.1(a)
"Government Entity".................... Section 4.1(d)
"Hazardous Substance".................. Section 4.1(p)(i)(B)
"HCR".................................. Preamble
"HCR Affiliate Agreement".............. Section 6.8(b)
"HCR Agreement"........................ Section 4.2(b)
"HCR Award"............................ Section 4.2(b)
"HCR Bylaw Amendment".................. Section 6.4
"HCR Common Stock"..................... Section 2.1(b)
"HCR Director"......................... Section 6.18(a)
"HCR Disclosure Schedule".............. Section 4.2
"HCR Employee Plan".................... Section 4.2(o)(i)
"HCR Material Contracts"............... Section 4.2(e)(i)
"HCR Option"........................... Section 4.2(b)
"HCR Rights"........................... Section 4.2(b)
</TABLE>
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<PAGE> 143
<TABLE>
<CAPTION>
DEFINED TERM LOCATION OF DEFINITION
------------ ----------------------
<S> <C>
"HCR SEC Report"....................... Section 4.2(e)(i)
"HCR Stock Issuance"................... Section 6.4(a)
"HCR Stockholders' Meeting"............ Section 6.2(a)
"HCR Voting Proposal".................. Section 6.4(a)
"HSR Act".............................. Section 4.1(d)
"IHH".................................. Section 4.1(a)
"Joint Proxy Statement"................ Section 6.2(a)
"Key Stockholders"..................... Sixth Recital
"liens"................................ Section 4.1(i)
"Manor Care"........................... Preamble
"Manor Care Affiliate Agreement"....... Section 6.8(a)
"Manor Care Award"..................... Section 4.1(b)
"Manor Care Common Stock".............. Section 2.1(b)
"Manor Care Director".................. Section 6.18(a)
"Manor Care Disclosure Schedule"....... Section 4.1
"Manor Care Employee Plan"............. Section 4.1(o)(i)
"Manor Care Incentive Plan"............ Section 6.10(d)
"Manor Care Material Contracts"........ Section 4.1(j)(i)
"Manor Care Option".................... Section 4.1(b)
"Manor Care Rights".................... Section 4.1(b)
"Manor Care Rights Agreement".......... Section 4.1(b)
"Manor Care SEC Report"................ Section 4.1(e)(i)
"Manor Care Stockholders' Meeting"..... Section 6.2(a)
"Material Adverse Effect".............. Section 10.7
"MBCA"................................. Section 7.2(g)
"Medicare and Medicaid Programs"....... Section 4.1(m)(i)
"Merger"............................... Second Recital
"Merger Sub"........................... Preamble
"Outside Date"......................... Section 9.1(b)
"Pension Plan"......................... Section 4.1(o)(i)
"Proprietary Rights"................... Section 4.1(k)
"PRP Notices".......................... Section 4.1(p)(v)
"Public Subsidiaries".................. Section 4.1(b)
"Public Subsidiary SEC Reports"........ Section 4.1(e)(i)
"Registration Statement"............... Section 6.2(a)
"Regulations".......................... Section 4.1(m)(i)
"Restructuring Transactions"........... Section 4.1(aa)
"SBC Warburg Dillon Read".............. Section 4.1(n)
"SEC".................................. Section 4.1(d)
"Second Meeting"....................... Section 6.18(a)
"Securities Act"....................... Section 4.1(e)(i)
"Seller SEC Reports"................... Section 4.1(e)(i)
"Series A Preferred Stock"............. Section 4.1(b)
"Significant Subsidiary"............... Section 6.1(a)
"Social Security Act".................. Section 4.1(m)(i)
"Stock Option Agreement"............... Seventh Recital
"Subsidiaries"......................... Section 4.1(a)
"Subsidiary"........................... Section 4.1(a)
"Superior Proposal".................... Section 6.1(a)
"Surviving Corporation"................ Section 1.2
"Tax Returns".......................... Section 4.1(h)(i)
</TABLE>
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<PAGE> 144
<TABLE>
<CAPTION>
DEFINED TERM LOCATION OF DEFINITION
------------ ----------------------
<S> <C>
"Taxes"................................ Section 4.1(h)(i)
"Third Party".......................... Section 9.3(g)
"Vitalink"............................. Section 4.1(a)
"Vitalink Merger Agreement"............ Section 4.1(a)
"Vitalink Transaction"................. Section 4.1(a)
"Voting Agreement"..................... Sixth Recital
"Welfare Plan"......................... Section 4.1(o)(i)
</TABLE>
10.8. Governing Law. The Laws of the State of Delaware shall govern the
interpretation, validity and performance of the terms of this Agreement,
regardless of the law that might be applied under principles of conflicts of
law. Any suit, action or proceeding by a party hereto with respect to this
Agreement, or any judgment entered by any court in respect of any thereof, may
be brought in any state or federal court of competent jurisdiction in the State
of Delaware, and each party hereto hereby submits to the exclusive jurisdiction
of such courts for the purpose of any such suit, action, proceeding or judgment.
By the execution and delivery of this Agreement, (i) HCR and Merger Sub each
appoints The Corporation Trust Company, at its office in Wilmington, Delaware,
as its agent upon which process may be served in any such suit, action or
proceeding and (ii) Manor Care appoints CSC/The United States Corporation
Company in Wilmington, Delaware as its agent upon which process may be served in
any such suit, action or proceeding. Service of process upon such agent,
together with notice of such service given to a party hereto in the manner
provided in Section 10.5 hereof, shall be deemed in every respect effective
service of process upon it in any suit, action or proceeding. Nothing herein
shall in any way be deemed to limit the ability of a party hereto to serve any
such writs, process or summonses in any other manner permitted by applicable
Law. Each party hereto hereby irrevocably waives any objections which it may now
or hereafter have to the laying of the venue of any suit, action or proceeding
arising out of or relating to this Agreement brought in any state or federal
court of competent jurisdiction in the State of Delaware, and hereby further
irrevocably waives any claim that any such suit, action or proceeding brought in
any such court has been brought in any inconvenient forum. No suit, action or
proceeding against a party hereto with respect to this Agreement may be brought
in any court, domestic or foreign, or before any similar domestic or foreign
authority other than in a court of competent jurisdiction in the State of
Delaware, and each party hereto hereby irrevocably waives any right which it may
otherwise have had to bring such an action in any other court, domestic or
foreign, or before any similar domestic or foreign authority.
10.9. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.10. Headings; Internal References. 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 affect the interpretation of
this Agreement.
10.11. Entire Agreement. This Agreement, including the Manor Care and HCR
Disclosure Schedules, the exhibits hereto, the Ancillary Agreements and the
Confidentiality Agreements described in Section 6.14, embody the entire
agreement and understanding of the parties in respect of the subject matter
contained herein, and supersede all prior agreements and understandings among
the parties with respect to such subject matter. There are no restrictions,
promises, representations, warranties (express or implied), covenants, or
undertakings of the parties, other than those expressly set forth or referred to
in this Agreement or the Confidentiality Agreements.
10.12. Severability. If any term, provision, covenant, agreement, or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, void, or unenforceable, the remainder of the terms, provisions,
covenants, agreements, and restrictions of this Agreement shall continue in full
force and effect and will in no way be affected, impaired, or invalidated.
10.13. Equitable Remedies. The parties agree that money damages or other
remedy at law would not be a sufficient or adequate remedy for any breach or
violation of, or default under, this Agreement by them and
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<PAGE> 145
that in addition to all other remedies available to them, each of them shall be
entitled, to the fullest extent permitted by law, to an injunction restraining
such breach, violation, or default or threatened breach, violation, or default
and to any other equitable relief, including specific performance, without bond
or other security being required.
10.14. Disclosure Schedules. The Manor Care Disclosure Schedule shall be
arranged in paragraphs corresponding to the numbered and lettered paragraphs
contained in Article IV hereof and the disclosure in any paragraph shall qualify
other paragraphs in Article IV hereof only to the extent that it is reasonably
apparent from a reading of such disclosure that it also qualifies or applies to
such other paragraphs. The HCR Disclosure Schedule shall be arranged in
paragraphs corresponding to the numbered and lettered paragraphs contained in
Article IV hereof and the disclosure in any paragraph shall qualify other
paragraphs in Article IV hereof only to the extent that it is reasonably
apparent from a reading of such disclosure that it also qualifies or applies to
such other paragraphs.
IN WITNESS WHEREOF, the parties execute and deliver this Agreement as of
the date first above written.
MANOR CARE, INC.
By: /s/ JAMES H. REMPE
------------------------------------
A duly authorized signatory
HEALTH CARE AND RETIREMENT
CORPORATION
By: /s/ R. JEFFREY BIXLER
------------------------------------
A duly authorized signatory
CATERA ACQUISITION CORP.
By: /s/ R. JEFFREY BIXLER
------------------------------------
A duly authorized signatory
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<PAGE> 146
ANNEX B
[CHASE LOGO]
June 10, 1998
Board of Directors
HEALTH CARE AND RETIREMENT CORPORATION
One Seagate Plaza
Toledo, OH 43604-2616
Members of the Board:
You have informed us that Health Care and Retirement Corporation ("HCR"),
Catera Acquisition Corp. ("Merger Sub"), a wholly-owned subsidiary of HCR, and
Manor Care, Inc. ("Manor Care") propose to enter into an Agreement and Plan of
Merger (the "Merger Agreement") which provides, among other things, that Merger
Sub will be merged with and into Manor Care (the "Merger") in a transaction in
which each outstanding share of common stock of Manor Care, par value $.10 per
share (the "Manor Care Common Stock"), other than shares of Manor Care Common
Stock that are owned by Manor Care as treasury stock, HCR, Merger Sub, or any
other wholly-owned subsidiary of HCR, all of which will be canceled, will be
converted into the right to receive 1.0 share (the "Exchange Ratio") of common
stock of HCR, par value $.01 per share (the "HCR Common Stock"). As a result of
the Merger, Manor Care will become a wholly-owned subsidiary of HCR.
You have requested that we render our opinion as to the fairness, from a
financial point of view, to HCR of the Exchange Ratio.
In arriving at the opinion set forth below, we have, among other things:
(a) reviewed the Merger Agreement dated June 10, 1998;
(b) reviewed the Agreement and Plan of Merger, dated as of April 26, 1998,
by and among Vitalink Pharmacy Services, Inc. ("Vitalink"), Genesis
Health Ventures, Inc. ("Genesis") and V Acquisition Corporation, a
wholly-owned subsidiary of Genesis;
(c) reviewed certain publicly available business and financial information
that we deemed relevant relating to HCR, Manor Care and Vitalink and
the industries in which they operate;
(d) reviewed certain internal non-public financial and operating data and
forecasts provided to us by the management of HCR relating to the
business of HCR, as well as certain forecasts relating to the business
of Manor Care, and analyses and forecasts of certain cost savings,
operating efficiencies and revenue effects expected to result from the
Merger (collectively, the "Synergies");
(e) reviewed certain internal non-public financial and operating data and
forecasts provided to us by the management of Manor Care relating to
the business of Manor Care;
(f) discussed, with members of the senior managements of HCR and Manor
Care, HCR's and Manor Care's operations, historical financial
statements and future prospects, before and after giving effect
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<PAGE> 147
to the Merger, as well as their views of the business, operational and
strategic benefits and other implications of the Merger, including the
Synergies;
(g) compared the financial and operating performance of HCR and Manor Care
with publicly available information concerning certain other companies
we deemed comparable and reviewed the relevant historical stock prices
and trading volumes of the HCR Common Stock, the Manor Care Common
Stock and certain publicly traded securities of such other companies;
(h) reviewed the financial terms of certain recent business combinations
and acquisition transactions we deemed reasonably comparable to the
Merger and otherwise relevant to our inquiry; and
(i) made such other analyses and examinations as we have deemed necessary
or appropriate.
In connection with the preparation of this opinion, we have neither
received nor reviewed any non-public information prepared by or relating to
Vitalink.
We have assumed and relied upon, without assuming any responsibility for
verification, the accuracy and completeness of all of the financial and other
information provided to, discussed with, or reviewed by or for us, or publicly
available, for purposes of this opinion and have further relied upon the
assurance of the managements of HCR and Manor Care that they are not aware of
any facts that would make such information inaccurate or misleading. We have
neither made nor obtained any independent evaluations or appraisals of the
assets or liabilities of HCR or Manor Care, nor have we conducted a physical
inspection of the properties and facilities of HCR or Manor Care. We have
assumed that the financial forecasts provided to us by HCR and Manor Care and
the Synergies provided to us by HCR have been reasonably determined on bases
reflecting the best currently available estimates and judgments of the
managements of HCR and Manor Care as to the future financial performance of HCR
or Manor Care, as the case may be, and of the management of HCR as to the
Synergies. We express no view as to such forecast or projection information or
the assumptions on which they were based.
For purposes of rendering our opinion, we have assumed that, in all
respects material to our analysis, the representations and warranties of each
party contained in the Merger Agreement are true and correct, that each party
will perform all of the covenants and agreements required to be performed by it
under the Merger Agreement and that all conditions to the consummation of the
Merger will be satisfied without waiver thereof. We have further assumed that
all material governmental, regulatory or other consents and approvals will be
obtained and that in the course of obtaining any necessary governmental,
regulatory or other consents and approvals, or any amendments, modifications or
waivers to any documents to which any of HCR or Manor Care are a party, as
contemplated by the Merger Agreement, no restrictions will be imposed or
amendments, modifications or waivers made that would have any material adverse
effect on the contemplated benefits to HCR of the Merger. We have further
assumed that the Merger will be accounted for as a pooling of interests under
generally accepted accounting principles and that it will qualify as a tax-free
reorganization for U.S. Federal income tax purposes.
In connection with the preparation of this opinion, we have not been
authorized by HCR or the Board of Directors to solicit, nor have we solicited,
third-party indications of interest for the acquisition of all or any part of
HCR.
Our opinion herein is necessarily based on market, economic and other
conditions as they exist and can be evaluated on the date of this letter. Our
opinion is limited to the fairness, from a financial point of view, to HCR of
the Exchange Ratio and we express no opinion as to the merits of the underlying
decision by HCR to engage in the Merger. This opinion does not constitute a
recommendation to any stockholder of HCR as to how such stockholder should vote
with respect to the Merger. In addition, we express no opinion as to the prices
at which the HCR Common Stock will trade following the announcement or the
consummation of the Merger.
Chase Securities Inc., as part of its financial advisory business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions and valuations for estate, corporate
and other purposes. We have acted as financial advisor to HCR in connection with
the Merger and will receive
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<PAGE> 148
a fee for our services, payment of a significant portion of which is contingent
upon the consummation of the Merger. In addition, HCR has agreed to indemnify us
for certain liabilities arising out of our engagement. As we have previously
advised you, The Chase Manhattan Corporation and its affiliates, including Chase
Securities Inc., in the ordinary course of business, have, from time to time,
provided commercial and investment banking services to Manor Care and Vitalink,
a subsidiary of Manor Care, for which we received usual and customary
compensation and in the future may continue to provide such commercial and
investment banking services. In the ordinary course of business, we or our
affiliates may trade in the debt and equity securities of HCR, Manor Care and
Vitalink for our own accounts and for the accounts of our customers and,
accordingly, may at any time hold a long or short position in such securities.
Based upon and subject to the foregoing, we are of the opinion that, as of
the date hereof, the Exchange Ratio is fair, from a financial point of view, to
HCR.
This opinion has been provided at the request of and is for the use and
benefit of the Board of Directors of HCR in its evaluation of the Merger and
shall not be used for any other purpose without the prior written consent of
Chase Securities Inc. Except as otherwise provided in our engagement letter with
HCR dated as of May 26, 1998, this opinion shall not be reproduced,
disseminated, quoted, summarized or referred to at any time, in any manner or
for any purpose, nor shall any public references to Chase Securities Inc. be
made by HCR, without the prior written consent of Chase Securities Inc.
Very truly yours,
/s/ CHASE SECURITIES, INC.
CHASE SECURITIES INC.
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<PAGE> 149
ANNEX C
SBC WARBURG DILLON READ LETTERHEAD
June 10, 1998
The Board of Directors
Manor Care, Inc.
Gentlemen:
We understand that Health Care and Retirement Corporation, a Delaware
corporation ("HCR") is contemplating a transaction whereby a wholly-owned
subsidiary of HCR will be merged with and into Manor Care, Inc., a Delaware
corporation ("MNR"), pursuant to the terms of a draft Agreement and Plan of
Merger and the exhibits thereto dated as of June 10, 1998 (the "Merger
Agreement"), such that MNR becomes a wholly owned subsidiary of HCR (the
"Transaction"). Pursuant to the Transaction, each outstanding share of MNR
Common Stock, $.10 par value (the "MNR Common Stock"), shall be converted into
1.0 share (the "Exchange Ratio") of HCR Common Stock, $0.01 par value (the "HCR
Common Stock"). The terms and conditions of the Transaction are more fully set
forth in the Merger Agreement, as of June 10, 1998.
You have requested our opinion as to whether the Exchange Ratio is fair to
the holders of MNR Common Stock (the "Holders"), from a financial point of view.
SBC Warburg Dillon Read Inc. ("SBCWDR") has acted as financial advisor to
the Board of Directors of MNR in connection with the Merger and will receive a
fee upon the consummation thereof. In the ordinary course of business, SBCWDR,
its successors and affiliates may have traded the securities of MNR and HCR for
their own account and for the accounts of their customers and, accordingly, may
at any time hold a long or short position in such securities.
In arriving at our opinion, we have, among other things: (i) reviewed
certain publicly available business and historical financial information
relating to MNR and HCR, (ii) reviewed certain management estimates and company
financial forecasts prepared by the managements of MNR and HCR, (iii) reviewed
certain financial information and other data provided to us by MNR that is not
publicly available relating to the business and prospects of MNR, (iv) reviewed
certain financial information and other data provided to us by HCR that is not
publicly available relating to the business and prospects of HCR, (v) conducted
discussions with members of the senior managements of MNR and HCR with respect
to the operations, financial condition, history and prospects of each company,
(vi) reviewed publicly available financial and stock market data with respect to
certain other companies in lines of business we believe to be generally
comparable to those of MNR and HCR, (vii) considered the pro forma effects of
the Transaction on HCR's financial statements and reviewed certain estimates of
synergies prepared by the managements of MNR and HCR, (viii) considered the
relative contributions of certain financial parameters of MNR and HCR with their
respective market values, (ix) reviewed the historical market prices of the MNR
Common Stock and the HCR Common Stock, (x) compared the financial terms of the
Transaction with the financial terms of certain other transactions which we
believe to be generally comparable to the Transaction, (xi) reviewed the draft
Merger Agreement, and (xii) conducted such other financial studies, analyses,
and investigations, and considered such other information as we deemed necessary
or appropriate.
In connection with our review, with your consent, we have not assumed any
responsibility for independent verification for any of the information reviewed
by us for the purpose of this opinion and have, with your consent, relied on its
being complete and accurate in all material respects. In addition, with your
consent, we
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SBC Warburg Dillon Read Letterhead
Manor Care, Inc.
June 10, 1998
Page 2
have not made or received any independent evaluation or appraisal of any of the
assets or liabilities (contingent or otherwise) of MNR or HCR, nor have we been
furnished with any such evaluation or appraisal. With respect to the financial
forecasts, estimates, projections, pro forma effects and calculations of
synergies referred to above, we have assumed, at your direction, that they have
been reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the management of each company as to the future
performance of their respective companies and that they will be met in the
amounts and at the times specified therein. Our opinion is necessarily based on
economic, monetary, market and other conditions as in effect on, and the
information made available to us as of June 10, 1998.
In rendering our opinion, we have assumed, with your consent, that the
Transaction will receive pooling-of-interests accounting treatment and will
qualify as a tax-free reorganization.
In rendering this opinion, we are not rendering any opinion as to the value
of HCR or making any recommendation to the Holders with respect to the
advisability of disposing of or retaining HCR Common Stock received in the
Transaction. Our opinion does not address MNR's underlying business decision to
effect the Transaction or constitute a recommendation to any shareholder as to
how such shareholder should vote with respect to the Transaction. Our opinion
does not imply any conclusion as to the likely trading range for the stock of
any company, which may vary depending upon numerous factors which generally
influence the price of such securities. With your consent, we have not been
asked to, nor do we, offer any opinion as to the material terms of the Merger
Agreement or the form of the Transaction. In rendering this opinion, we have
assumed, with your consent, that HCR and MNR will comply with all the material
terms of the Merger Agreement.
Our opinion may not be published or otherwise referred to, nor shall any
public reference to SBC Warburg Dillon Read Inc. be made, without our prior
written consent. This opinion is being rendered solely to the Board of Directors
of MNR for its use in evaluating the Transaction and is neither for the benefit
of nor being rendered to the Holders or any other person.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Exchange Ratio in which MNR Holders will convert their shares
pursuant to the Transaction is fair to such Holders from a financial point of
view.
Very truly yours,
SBC Warburg Dillon Read Inc.
Corporate Finance
<TABLE>
<S> <C>
/s/ ELISABETH S. BUCHAN /s/ J. RICHARD LEAMAN III
- ------------------------------ ------------------------------
Elisabeth S. Buchan J. Richard Leaman III
Director Managing Director
</TABLE>
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ANNEX D
FORM OF
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
HEALTH CARE AND RETIREMENT CORPORATION
PURSUANT TO SECTION 242
OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE
Health Care and Retirement Corporation, a corporation existing under the
laws of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation adopted resolutions
proposing and declaring advisable the following amendment to Article IV to the
Certificate of Incorporation of the Corporation:
RESOLVED, that the first paragraph of Article IV of the
Certificate of Incorporation shall be replaced in its
entirety by the following language:
"The total number of shares of all classes of capital
stock which the Corporation shall have authority to issue
is Three Hundred and Five Million (305,000,000),
consisting of Three Hundred Million (300,000,000) shares
of common stock, par value $.01 per share (hereinafter
called the "Common Stock"), and Five Million (5,000,000)
shares of preferred stock, par value $.01 per share
(hereinafter called the "Preferred Stock")."
SECOND: The Board of Directors of the Corporation approved the foregoing
amendment pursuant to the provision of Sections 141 and 242 of the General
Corporation Law of the State of Delaware and directed that the foregoing
amendment be considered by the stockholders of the Corporation at a special
meeting.
THIRD: The stockholders of the Corporation approved the foregoing
amendment pursuant to the provision of Section 242 of the General Corporation
Law of the State of Delaware.
FOURTH: The foregoing duly adopted in accordance with Section 242 of the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, Health Care and Retirement Corporation has caused this
Certificate of Amendment to be signed by
,
its , this day
of , 1998.
HEALTH CARE AND RETIREMENT CORPORATION
By:
--------------------------------------
Name:
Title:
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<PAGE> 152
ANNEX E
FORM OF
AMENDED AND RESTATED
BY-LAWS OF
HCR
DATED , 1998
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I. OFFICES.......................................... 1
Section 1. Registered Office.............................. 1
Section 2. Other Offices.................................. 1
ARTICLE II. MEETINGS OF STOCKHOLDERS........................ 1
Section 1. Place of Meetings.............................. 1
Section 2. Annual Meeting of Stockholders................. 1
Section 3. Quorum; Adjourned Meetings and Notice
Thereof................................................ 3
Section 4. Voting......................................... 3
Section 5. Special Meetings............................... 4
Section 6. Notice of Stockholders' Meetings............... 4
Section 7. Maintenance and Inspection of Stockholder
List................................................... 5
ARTICLE III. DIRECTORS...................................... 5
Section 1. Number of Directors; Qualifications............ 5
Section 2. Nomination of Directors........................ 6
Section 3. Vacancies...................................... 8
Section 4. Powers......................................... 9
Section 5. Place of Directors' Meetings................... 9
Section 6. Regular Meetings............................... 9
Section 7. Special Meeting................................ 9
Section 8. Quorum......................................... 9
Section 9. Action Without Meeting......................... 10
Section 10. Telephone Meetings............................ 10
Section 11. Committees of Directors....................... 10
Section 12. Minutes of Committee Meetings................. 11
Section 13. Compensation of Directors..................... 11
Section 14. Indemnification............................... 12
ARTICLE IV. OFFICERS........................................ 13
Section 1. Officers....................................... 13
Section 2. Election of Officers........................... 14
Section 3. Subordinate Officers........................... 14
Section 4. Compensation of Officers....................... 14
Section 5. Term of Office; Removal and Vacancies.......... 14
Section 6. Chairman of the Board.......................... 14
Section 7. President and Chief Executive Officer.......... 15
Section 8. Vice Presidents................................ 15
Section 9. Secretary...................................... 15
Section 10. Assistant Secretaries......................... 16
Section 11. Treasurer..................................... 16
Section 12. Assistant Treasurers.......................... 17
ARTICLE V. CERTIFICATES OF STOCK............................ 17
Section 1. Certificates................................... 17
Section 2. Signatures on Certificates..................... 17
Section 3. Statement of Stock Rights, Preferences,
Privileges............................................. 17
Section 4. Lost Certificates.............................. 18
Section 5. Transfers of Stock............................. 19
Section 6. Registered Stockholders........................ 19
ARTICLE VI. AMENDMENTS...................................... 19
</TABLE>
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ARTICLE I.
OFFICES
Section 1. Registered Office. The registered office shall be in the City of
Wilmington, County of New Castle, State of Delaware.
Section 2. Other Offices. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II.
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. All meetings of the stockholders shall be
held at any place within or without the State of Delaware as shall be designated
from time to time by the Board of Directors. In the absence of any such
designation, stockholders' meetings shall be held at the principal executive
office of the Corporation.
Section 2. Annual Meeting of Stockholders. An annual meeting of
stockholders shall be held each year on a date and at a time designated by the
Board of Directors and stated in the notice of such meeting, but no later than
June 1 of each such year unless otherwise determined by at least 75% of the then
appointed members of the Board of Directors of the Corporation. At each annual
meeting directors shall be elected.
To be properly brought before the annual meeting, business must be either
(i) specified in the notice of annual meeting (or any supplement or amendment
thereto) given by or at the direction of the Board of Directors, (ii) otherwise
brought before the annual meeting by or at the direction of the Board of
Directors, or (iii) otherwise properly brought before the annual meeting by a
stockholder. In addition to any other applicable requirements, for business to
be properly brought before an annual meeting by a stockholder, the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered to or mailed
and received at the principal executive offices of the Corporation not less than
sixty (60) days nor more than ninety (90) days prior to the meeting; provided,
however, that in the event that less than seventy (70) days notice or prior
public disclosure of the date of the annual meeting is given or made to
stockholders, notice by a stockholder, to be timely, must be received no later
than the close of business on the tenth (10th) day following the day on which
such notice of the date of the annual meeting was mailed or such public
disclosure was made, whichever first occurs. A stockholder's notice to the
Secretary shall set forth (a) as to each matter the stockholder proposes to
bring before the annual meeting (i) a brief description of the business desired
to be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (ii) any material interest of the stockholder
(or of the beneficial owner, if any, on whose behalf the business is being
brought) in such business, and (b) as to the stockholder giving the notice and
the beneficial owner, if any, on whose behalf the business is being brought (i)
the name and record address of the stockholder and of such beneficial owner and
(ii) the class, series and number of shares of capital stock of the Corporation
which are owned of record and beneficially by the stockholder and such
beneficial owner, (c) a representation that the stockholder giving notice is a
holder of record of stock of the Corporation entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting to propose such
business, and (d) a representation as to whether the proponent intends or is
part of a group which intends to solicit proxies from other stockholders in
support of such business. Notwithstanding anything in these By-laws to the
contrary, no business shall be conducted at the annual meeting except in
accordance with the procedures set forth in this Article II, Section 2.
Section 3. Quorum; Adjourned Meetings and Notice Thereof. A majority in
voting power of the stock issued and outstanding and entitled to vote at any
meeting of stockholders, the holders of which are present in person or
represented by proxy, shall constitute a quorum for the transaction of business
except as otherwise provided by law, by the Corporation's Certificate of
Incorporation (the "Certificate of Incorporation"), or by these By-laws. A
quorum, once established, shall not be broken by the withdrawal of enough votes
to leave less
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than a quorum, and the votes present may continue to transact business until
adjournment. If, however, such quorum shall not be present or represented at any
meeting of the stockholders, holders of a majority in voting power of the stock
issued and outstanding and entitled to vote at the meeting represented in person
or by proxy may adjourn the meeting from time to time, without notice other than
announcement at the meeting of the time and place to which the meeting has been
adjourned, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote thereat.
Section 4. Voting. When a quorum is present at any meeting, the vote of the
holders of a majority in voting power of the stock present in person or
represented by proxy and entitled to vote on the subject matter shall decide any
question brought before such meeting, unless the question is one upon which by
express provision of law, the Certificate of Incorporation, or these By-laws, a
different vote is required in which case such express provision shall govern and
control the decision of such question; provided, however, that directors shall
be elected by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors.
Section 5. Special Meetings. Special meetings of the stockholders, for any
purpose, or purposes, unless otherwise prescribed by law or by the Certificate
of Incorporation, may be called at any time by a majority of the members of the
Board of Directors, or by a committee of the Board of Directors that has been
duly designated by the Board of Directors and whose powers and authority as
provided in a resolution of the Board of Directors or these By-laws, include the
power to call such meetings. Special meetings of stockholders of the Corporation
may not be called by any other person or persons. Business transacted at any
special meeting of stockholders shall be limited to the purposes stated in the
notice of such meeting.
Section 6. Notice of Stockholders' Meetings. Whenever stockholders are
required or permitted to take any action at a meeting, a written notice of the
meeting shall be given, which notice shall state the place, date and hour of the
meeting, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called. The written notice of any meeting shall be given
not less than ten nor more than sixty days before the date of such meeting to
each stockholder entitled to vote at such meeting. If mailed, notice is given
when deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the Corporation.
Section 7. Maintenance and Inspection of Stockholder List. The officer who
has charge of the stock ledger of the Corporation shall prepare and make, at
least ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
ARTICLE III.
DIRECTORS
Section 1. Number of Directors; Qualifications. The Board of Directors
shall consist of ten (10) directors. Until and including the second annual
stockholders' meeting following the effective time (the "Effective Time") of the
merger of Catera Acquisition Corp., a Delaware corporation, with and into Manor
Care, Inc., a Delaware corporation ("Manor Care") (such period, the "Post-Merger
Period"), the number of directors shall not be changed unless at least 75% of
the then appointed directors approve such change; after the Post-Merger Period,
the number of directors may be changed from time to time, within a minimum of
one (1) and a maximum of fifteen (15) directors, by a majority of the directors
then in office. The directors need not be
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stockholders. The directors shall be elected at the annual meeting of the
stockholders, except as provided in Section 2 or 3 of this Article III, and each
director elected shall hold office until his successor is duly elected and
qualified or until his earlier death, retirement, resignation or removal. Except
as may otherwise be provided pursuant to Article IV of the Certificate of
Incorporation (including under any certificate of designation filed thereunder)
with respect to any rights of holders of preferred stock, no director may be
removed during his term except for cause.
Section 2. Nomination of Directors. Nominations of persons for election to
the Board of Directors of the Corporation at a meeting of stockholders of the
Corporation may be made at such meeting by or at the direction of the Board of
Directors, by any committee or persons appointed by the Board of Directors or by
any stockholder of the Corporation entitled to vote for the election of
directors at the meeting who complies with the notice procedures set forth in
the third paragraph of this Section 2 of Article III.
If, during the Post-Merger Period, any vacancy on the Board of Directors
occurs as the result of the death, resignation or removal of a Manor Care
Director or an HCR Director or if, during the Post-Merger Period, any seat on
the Board of Directors held by a Manor Care Director or HCR Director is subject
to nomination for election of a director, then, subject to the fiduciary duties
of its members, the Board of Directors shall promptly take all necessary actions
and appoint or nominate, as the case may be, such person or persons as may be
requested by the remaining Manor Care Directors (in the case of a vacancy or
nomination concerning a seat held by a Manor Care Director) or by the remaining
HCR Directors (in the case of a vacancy or nomination concerning a seat held by
an HCR Director). The term "Manor Care Director" means (i) any person who was
named as such in the joint proxy statement/prospectus dated August 18, 1998 (the
"Joint Proxy") or a person substituted therefor prior to the Effective Time in
the manner described in the Joint Proxy and (ii) any person who becomes a member
of the Board of Directors of the Corporation upon the request of the Manor Care
Directors pursuant to the preceding sentence; and the term "HCR Director" means
(i) any person who was named as such in the Joint Proxy or similarly substituted
and (ii) any person who becomes a member of the Board of Directors of the
Corporation upon the request of the HCR Directors pursuant to the preceding
sentence.
Nominations of persons for election to the Board of Directors of the
Corporation by any stockholder shall be made pursuant to timely notice in
writing to the Secretary of the Corporation. To be timely, a stockholder's
notice shall be delivered to or mailed and received at the principal executive
offices of the Corporation not fewer than sixty (60) days nor more than ninety
(90) days prior to the meeting; provided however, that in the event that fewer
than seventy (70) days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder, to be
timely, must be received no later than the close of business on the tenth (10th)
day following the day on which such notice of the date of the meeting was mailed
or such public disclosure was made, whichever first occurs. Such stockholder's
notice to the Secretary shall set forth (i) as to each person whom the
stockholder proposes to nominate for election or reelection as a director, (a)
the name, age, business address and residence address of the person, (b) the
principal occupation or employment of the person, (c) the class and number of
shares of capital stock of the Corporation which are beneficially owned by the
person, and (d) any other information relating to the person that is required to
be disclosed in solicitations for proxies for election of directors pursuant to
the Rules and Regulations of the Securities and Exchange Commission under
Section 14 of the Securities Exchange Act of 1934, as amended; and (ii) as to
the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination is being made, (a) the name and record address of the
stockholder and of such beneficial owner, (b) the class and number of shares of
capital stock of the Corporation which are owned of record and beneficially by
the stockholder and such beneficial holder, (c) a representation that the
stockholder giving notice is a holder of record of stock of the Corporation
entitled to vote at such meeting and intends to appear in person or by proxy at
the meeting to propose such nomination, and (d) a representation as to whether
the proponent intends or is part of a group which intends to solicit proxies
from other stockholders in support of such nomination. The Corporation may
require any proposed nominee to furnish such other information as may reasonably
be required by the Corporation to determine the eligibility of such proposed
nominee to serve as a director of the Corporation. No person shall be eligible
for election as a director of the Corporation unless nominated in accordance
with the procedures set forth herein.
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Section 3. Vacancies. Except as may otherwise be provided pursuant to
Article IV of the Certificate of Incorporation (including under any certificate
of designation issued thereunder) with respect to any rights of holders of
preferred stock to elect additional directors or Section 2 of Article III of
these By-laws with respect to vacancies arising during the Post-Merger Period,
should a vacancy in the Board of Directors occur or be created (whether arising
through death, retirement, resignation or removal or through an increase in the
number of authorized directors), such vacancy shall be filled by the affirmative
vote of a majority of the remaining directors, even though less than a quorum of
the Board of Directors. A director so elected to fill a vacancy shall serve for
the remainder of the term of the class to which he was elected and until his
successor shall be duly elected and qualified.
Section 4. Powers. The property and business of the Corporation shall be
managed by or under the direction of its Board of Directors. In addition to the
powers and authorities expressly conferred upon them by these By-laws, the Board
of Directors may exercise all such powers of the Corporation and do all such
lawful acts and things as are not by statute or by the Certificate of
Incorporation or by these By-laws directed or required to be exercised or done
by the stockholders.
Section 5. Place of Directors' Meetings. The directors may hold their
meetings at any location either within or outside of the State of Delaware.
Section 6. Regular Meetings. Regular meetings of the Board of Directors may
be held without notice at such time and place as shall from time to time be
determined by the board.
Section 7. Special Meeting. Special meetings of the Board of Directors
shall be called only on twenty-four hours' notice to each director, either
personally or by mail or by telegram, only upon the written request of two
directors, unless the Board of Directors consists of only one director, in which
case special meetings shall be called on the written request of the sole
director; in any case such notice to be sent by the president or secretary.
Section 8. Quorum. Except as may be otherwise specifically provided by law,
the Certificate of Incorporation or these By-laws, at all meetings of the Board
of Directors, a majority of the entire Board of Directors shall constitute a
quorum for the transaction of business and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors. If a quorum shall not be present at any meeting of the
Board of Directors, the directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present.
Section 9. Action Without Meeting. Unless otherwise restricted by the
Certificate of Incorporation or these By-laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
Section 10. Telephone Meetings. Unless otherwise restricted by the
Certificate of Incorporation or these By-laws, members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors, or any committee, by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at such meeting.
Section 11. Committees of Directors. The Board of Directors may, by
resolution passed by a majority of the then appointed directors, designate one
or more committees, each committee to consist of one or more directors of the
Corporation; provided that during the Post-Merger Period, each such committee
shall, subject to the Board of Directors' fiduciary duties, consist of exactly
two (2) Manor Care Directors and two (2) HCR Directors; thereafter, each such
committee shall consist of one or more of the directors of the Corporation. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee; provided, however, that during the Post-Merger Period, only a
Manor Care Director may act as an alternate for a Manor Care Director and only
an HCR Director may act as an alternate for an HCR Director. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from
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voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member; provided, however, that during the
Post-Merger Period, only a Manor Care Director may act in place of a Manor Care
Director and only an HCR Director may act in place of an HCR Director. Any
committee, to the extent allowed by law and provided in the resolution
establishing such committee, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation; provided, however, that during the Post-Merger
Period no committee other than one concerning audit and compensation shall be
formed without the approval of at least seventy five percent (75%) of the
members of the then appointed Board of Directors of the Corporation.
Section 12. Minutes of Committee Meetings. Each committee shall keep
regular minutes of its meetings and report the same to the Board of Directors
when required.
Section 13. Compensation of Directors. Unless otherwise restricted by the
Certificate of Incorporation or these By-laws, the Board of Directors shall have
the authority to fix the compensation of directors. The directors may be paid
their expenses, if any, of attendance at each meeting of the Board of Directors
and may be paid a fixed sum for attendance at each meeting of the Board of
Directors or a stated salary as director. No such payment shall preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be allowed
like compensation for attending committee meetings.
Section 14. Indemnification. The Corporation shall indemnify every person
who was or is a party or is or was threatened to be made a party to any action,
suit, or proceeding, whether civil, criminal, administrative or investigative,
by reason of the fact that he is or was a director or officer of the Corporation
or, while a director or officer of the Corporation, is or was serving at the
request of the Corporation as a director, officer, employee, agent or trustee of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, against expenses (including counsel fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding, to the full extent permitted by
applicable law. Expenses incurred by a person who is or was a director or
officer of the Corporation in appearing at, participating in or defending any
such action, suit or proceeding shall be paid by the Corporation at reasonable
intervals in advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of the director or officer to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the Corporation as authorized by this Section 14. If a
claim under this Section 14 is not paid in full by the Corporation within ninety
days after a written claim has been received by the Corporation, the claimant
may at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim and, if successful in whole or in part, the claimant
shall be paid also the expense of prosecuting such claim. It shall be a defense
to any such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the Delaware General Corporation Law or other applicable
law for the Corporation to indemnify the claimant for the amount claimed, but
the burden of proving such defense shall be on the Corporation. Neither the
failure of the Corporation (including its Board of Directors (or any committee
thereof), independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in the Delaware General Corporation Law or other
applicable law, nor an actual determination by the Corporation (including its
Board of Directors (or a committee thereof), independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
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ARTICLE IV.
OFFICERS
Section 1. Officers. The officers of the Corporation shall be chosen by the
Board of Directors and shall include a chairman of the board, a president and
chief executive officer, a vice president and a Secretary. The Corporation may
also have at the discretion of the Board of Directors such other officers as are
desired, including additional vice presidents, one or more assistant
secretaries, a treasurer, one or more assistant treasurers, and such other
officers as may be appointed in accordance with the provisions of Section 3 of
this Article IV. In the event there are two or more vice presidents, then one or
more may be designated as executive vice president, senior vice president, vice
president marketing, or other similar or dissimilar title. At the time of the
election of officers, the directors may by resolution determine the order of
their rank. Any number of offices may be held by the same person, unless the
Certificate of Incorporation or these By-laws otherwise provide.
Section 2. Election of Officers. The Board of Directors, at its first
meeting after each annual meeting of stockholders, shall choose the officers of
the Corporation.
Section 3. Subordinate Officers. The Board of Directors may appoint such
other officers and agents, as it shall deem necessary or appropriate, who shall
hold their offices for such terms and shall exercise such powers and perform
such duties as shall be determined from time to time by the Board of Directors.
Section 4. Compensation of Officers. The compensation of all officers and
agents of the Corporation shall be fixed by the Board of Directors.
Section 5. Term of Office; Removal and Vacancies. The officers of the
Corporation shall hold office until their successors are chosen and qualify in
their stead. Any officer elected or appointed by the Board of Directors may be
removed at any time, either with or without cause, by the Board of Directors. If
the office of any officer or officers becomes vacant for any reason, the vacancy
may be filled by the Board of Directors.
Section 6. Chairman of the Board. The Chairman of the Board shall, if
present, preside at all meetings of the Board of Directors and shall exercise
and perform such other powers and duties as may be from time to time assigned to
him by a vote of (i) not less than seventy-five percent (75%) of the then
appointed members of the Board of Directors of the Corporation during the
Post-Merger Period and (ii) thereafter, a majority of the then appointed members
of the Board of Directors.
Section 7. President and Chief Executive Officer. The president shall be
the chief executive officer of the Corporation (and shall carry such additional
title as well) and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
Corporation. In the absence or disability of the chairman of the Board of
Directors, or if there is none, the president shall preside at all meetings of
the Board of Directors. The president shall have such additional powers and
duties as may be prescribed by the Board of Directors or these By-laws.
Section 8. Vice Presidents. In the absence or disability of the president,
the vice presidents in order of their rank as fixed by the Board of Directors,
or if not ranked, the vice president designated by the Board of Directors, shall
perform all the duties of the president, and when so acting shall have all the
powers of and be subject to all the restrictions upon the president. The vice
presidents shall have such other duties as from time to time may be prescribed
for them, respectively, by the Board of Directors.
Section 9. Secretary. The Secretary shall record the proceedings of the
meetings of the stockholders and directors in a book to be kept for that
purpose; and shall perform like duties for the standing committees when required
by the Board of Directors. He shall give, or cause to be given, notice of all
meetings of the stockholders and of the Board of Directors, and shall perform
such other duties as may be prescribed by the Board of Directors or these
By-laws. He shall keep in safe custody the seal of the Corporation, and affix
the same to any instrument requiring it, and when so affixed it shall be
attested by his signature or by the signature of an assistant secretary. The
Board of Directors may give general authority to any other officer to affix the
seal of the Corporation and to attest the affixing by his signature.
E-8
<PAGE> 160
Section 10. Assistant Secretaries. The assistant secretary, or if there be
more than one, the assistant secretaries in the order determined by the Board of
Directors, or if there be no such determination, the assistant secretary
designated by the Board of Directors, shall, in the absence or disability of the
Secretary, perform the duties and exercise the powers of the Secretary and shall
perform such other duties and have such other powers as the Board of Directors
may from time to time prescribe.
Section 11. Treasurer. The treasurer, if such an officer is elected, shall
have the custody of the corporate funds and securities and shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
Corporation and shall deposit all moneys, and other valuable effects in the name
and to the credit of the Corporation, in such depositories as may be designated
by the Board of Directors. He shall disburse the funds of the Corporation as may
be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the Board of Directors, at its regular
meetings, or when the Board of Directors so requires, an account of all his
transactions as treasurer and of the financial condition of the Corporation. If
required by the Board of Directors, he shall give the Corporation a bond, in
such sum and with such surety or sureties as shall be satisfactory to the Board
of Directors, for the faithful performance of the duties of his office and for
the restoration to the Corporation, in case of his death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his control belonging
to the Corporation.
Section 12. Assistant Treasurers. The assistant treasurer, or if there
shall be more than one, the assistant treasurers in the order determined by the
Board of Directors, or if there be no such determination, the assistant
treasurer designated by the Board of Directors, shall, in the absence or
disability of the treasurer, perform the duties and exercise the powers of the
treasurer and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
ARTICLE V.
CERTIFICATES OF STOCK
Section 1. Certificates. Every holder of stock of the Corporation shall be
entitled to have a certificate signed by, or in the name of the Corporation by,
the chairman of the Board of Directors, or the president or a vice president,
and by the secretary or an assistant secretary, or the treasurer or an assistant
treasurer of the Corporation, certifying the number of shares represented by the
certificate owned by such stockholder in the Corporation.
Section 2. Signatures on Certificates. Any or all of the signatures on the
certificate may be a facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer, transfer agent, or registrar at the date
of issue.
Section 3. Statement of Stock Rights, Preferences, Privileges. If the
Corporation shall be authorized to issue more than one class of stock or more
than one series of any class, the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualification, limitations or restrictions of such
preferences and/or rights shall be set forth in full or summarized on the face
or back of the certificate which the Corporation shall issue to represent such
class or series of stock, provided that, except as otherwise provided in Section
202 of the General Corporation Law of Delaware, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate
which the Corporation shall issue to represent such class or series of stock, a
statement that the Corporation will furnish without charge to each stockholder
who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
Section 4. Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock
E-9
<PAGE> 161
to be lost, stolen or destroyed. When authorizing such issue of a new
certificate or certificates, the Board of Directors may, in its discretion and
as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificate or certificates, or his legal
representative, to give the Corporation a bond in such sum as the Board of
Directors deems sufficient to indemnify the Corporation against any claim that
may be made against it on account of the alleged loss, theft or destruction of
such certificates or the issuance of such new certificates.
Section 5. Transfers of Stock. Upon surrender to the Corporation, or the
transfer agent of the Corporation, of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 6. Registered Stockholders. The Corporation shall be entitled to
treat the holder of record of any share or shares of stock as the holder in fact
thereof and accordingly shall not be bound to recognize any equitable or other
claim or interest in such share on the part of any other person, whether or not
it shall have express or other notice thereof, save as expressly provided by the
laws of the State of Delaware.
ARTICLE VI.
AMENDMENTS
These By-laws may be altered, amended or repealed or new By-laws may be
adopted by the stockholders or by the Board of Directors at any regular meeting
of the stockholders or of the Board of Directors or at any special meeting of
the stockholders or of the Board of Directors if notice of such alteration,
amendment, repeal or adoption of new By-laws is contained in the notice of such
special meeting. The power to adopt, amend or repeal these By-laws by the Board
of Directors by the Certificate of Incorporation does not divest or limit the
power of the stockholders to adopt, amend or repeal these By-laws.
Notwithstanding the foregoing, none of Sections 1, 2, 3 or 11 of Article III of
these By-laws may be amended (whether through amendment, repeal or restatement
of these By-laws or adoption of new By-laws) (i) during the Post-Merger Period,
without the approval of either (A) at least 75% of the members of the then
appointed Board of Directors of the Corporation or the holders 80% in voting
power of the stock of the Corporation issued and outstanding and entitled to
vote thereon and (ii) after the Post-Merger Period, by either (A) a majority of
the members of the then appointed Board of Directors of the Corporation or (B)
the holders of majority in voting power of the stock of the Corporation issued
and outstanding and entitled to vote thereon.
E-10
<PAGE> 162
ANNEX F
THIRD AMENDMENT TO
HEALTH CARE AND RETIREMENT CORPORATION
AMENDED STOCK OPTION PLAN FOR KEY EMPLOYEES
THIS THIRD AMENDMENT TO HEALTH CARE AND RETIREMENT CORPORATION AMENDED
STOCK OPTION PLAN FOR KEY EMPLOYEES, dated as of , 1998, is
made and adopted by HEALTH CARE AND RETIREMENT CORPORATION, a Delaware
corporation (the "Company"). Capitalized terms used but not otherwise defined
herein shall have the respective meanings ascribed to such terms in the Plan (as
defined below).
WHEREAS, the Company has adopted the Health Care and Retirement Corporation
Amended Stock Option Plan for Key Employees (the "Plan") for the benefit of its
key employees;
WHEREAS, effective as of August 23, 1994, the Company amended the Plan
pursuant to that certain First Amendment to Health Care and Retirement
Corporation Amended Stock Option Plan for Key Employees, and effective as of
February 1, 1996, the Company further amended the Plan pursuant to that certain
Second Amendment to Health Care and Retirement Corporation Amended Stock Option
Plan for Key Employees;
WHEREAS, the Company desires to amend the Plan so as to increase the number
of shares reserved for issuance thereunder; and
WHEREAS, this Third Amendment was duly adopted by a resolution of the Board
of Directors of the Company dated as of August , 1998, subject to approval
thereof by the Company's shareholders.
NOW THEREFORE, in consideration of the foregoing, the Company hereby amends
the Plan as follows:
1. Section 2.1 of the Plan is hereby amended by deleting the second
sentence of such Section in its entirety and replacing it with the
following sentence:
"The aggregate number of such shares which may be issued upon exercise of
Options shall not exceed 11,199,000."
2. This Third Amendment shall be and is hereby incorporated in and forms
a part of the Plan.
3. This Third Amendment shall be effective as of the effective time of
the merger of Manor Care, Inc. ("Manor Care") with and into Catera
Acquisition Corp. ("Merger Sub"), a wholly owned subsidiary of the
Company, with Manor Care being the surviving corporation, pursuant to
that certain Amended and Restated Agreement and Plan of Merger dated as
of June 10, 1998 by and among Manor Care, Merger Sub and the Company.
4. Except as set forth herein, the Plan shall remain in full force and
effect.
IN WITNESS WHEREOF, the Company has caused this amendment to the Plan to be
executed by its duly authorized officer as of , 1998.
HEALTH CARE AND
RETIREMENT CORPORATION
By:
Title:
F-1
<PAGE> 163
I hereby certify that the foregoing amendment to the Plan was duly approved
by the shareholders of Health Care and Retirement Corporation on
, 1998.
Executed on this day of , 1998.
By:______________________________
Title:
F-2
<PAGE> 164
ANNEX G
THIRD AMENDMENT TO
HEALTH CARE AND RETIREMENT CORPORATION
STOCK OPTION PLAN FOR OUTSIDE DIRECTORS
THIS THIRD AMENDMENT TO THE HEALTH CARE AND RETIREMENT CORPORATION STOCK
OPTION PLAN FOR OUTSIDE DIRECTORS, dated as of , 1998, is
made and adopted by HEALTH CARE AND RETIREMENT CORPORATION, a Delaware
corporation (the "Company"). Capitalized terms used but not otherwise defined
herein shall have the respective meanings ascribed to such terms in the Plan (as
defined below).
WHEREAS, the Company has adopted the Amended Health Care and Retirement
Corporation Stock Option Plan for Outside Directors (the "Plan") for the benefit
of its outside directors;
WHEREAS, effective as of February 1, 1996, the Company amended the Plan
pursuant to that certain First Amendment to Health Care and Retirement
Corporation Stock Option Plan for Outside Directors, and effective as of
February 1, 1996, the Company further amended the Plan pursuant to that certain
Second Amendment to Health Care and Retirement Corporation Stock Option Plan for
Outside Directors;
WHEREAS, the Company desires to amend the Plan so as to increase the number
of shares reserved for issuance thereunder; and
WHEREAS, this Third Amendment was duly adopted by a resolution of the Board
of Directors of the Company dated as of August , 1998, subject to approval
thereof by the Company's shareholders.
NOW THEREFORE, in consideration of the foregoing, the Company hereby amends
the Plan as follows:
1. Section 2.1 of the Plan is hereby amended by deleting the second
sentence of such Section in its entirety and replacing it with the following
sentence:
"The aggregate number of such shares which may be issued upon exercise of
Options shall not exceed 800,000 shares."
2. This Third Amendment shall be and is hereby incorporated
in and forms a part of the Plan.
3. This Third Amendment shall be effective as of the effective time of
the merger of Manor Care, Inc. ("Manor Care") with and into
Catera Acquisition Corp. ("Merger Sub"), a wholly owned subsidiary
of the Company, with Manor Care being the surviving corporation,
pursuant to that certain Amended and Restated Agreement and Plan of
Merger dated as of June 10, 1998 by and among Manor Care, Merger Sub
and the Company.
4. Except as set forth herein, the Plan shall remain in full force and
effect.
IN WITNESS WHEREOF, the Company has caused this amendment to the Plan to be
executed by its duly authorized officer as of , 1998.
HEALTH CARE AND
RETIREMENT CORPORATION
By:____________________________
Title:
G-1
<PAGE> 165
I hereby certify that the foregoing amendment to the Plan was duly approved
by the shareholders of Health Care and Retirement Corporation on
, 1998.
Executed on this day of , 1998.
By:_____________________
G-2
<PAGE> 166
ANNEX H
FIRST AMENDMENT TO
HEALTH CARE AND RETIREMENT CORPORATION
AMENDED RESTRICTED STOCK PLAN
THIS FIRST AMENDMENT TO THE HEALTH CARE AND RETIREMENT CORPORATION AMENDED
RESTRICTED STOCK PLAN, dated as of , 1998, is made and
adopted by HEALTH CARE AND RETIREMENT CORPORATION, a Delaware corporation (the
"Company"). Capitalized terms used but not otherwise defined herein shall have
the respective meanings ascribed to such terms in the Plan (as defined below).
WHEREAS, the Company has adopted the Health Care and Retirement Corporation
Amended Restricted Stock Plan (the "Plan") for the benefit of its employees and
officers;
WHEREAS, effective October 14, 1991, the Company adopted the Health Care
and Retirement Corporation Restricted Stock Plan and, effective May 6, 1997, the
Company adopted the Health Care and Retirement Corporation Amended Restricted
Stock Plan;
WHEREAS, the Company desires to amend the Plan so as to increase the number
of shares reserved for issuance thereunder; and
WHEREAS, this First Amendment was duly adopted by a resolution of the Board
of Directors of the Company dated as of August , 1998, subject to approval
thereof by the Company's shareholders.
NOW THEREFORE, in consideration of the foregoing, the Company hereby amends
the Plan as follows:
1. Section 2.1 of the Plan is hereby amended by deleting the second
sentence of such Section in its entirety and replacing it with the
following sentence:
"The aggregate number of such shares which may be issued as Restricted
Stock shall not exceed 1,892,866."
2. This First Amendment shall be and is hereby incorporated in and forms
a part of the Plan.
3. This First Amendment shall be effective as of the effective time of
the merger of Manor Care, Inc. ("Manor Care") with and into Catera
Acquisition Corp. ("Merger Sub"), a wholly owned subsidiary of the
Company, with Manor Care being the surviving corporation, pursuant
to that certain Amended and Restated Agreement and Plan of Merger
dated as of June 10, 1998 by and among Manor Care, Merger Sub and
the Company.
4. Except as set forth herein, the Plan shall remain in full force and
effect.
IN WITNESS WHEREOF, the Company has caused this amendment to the Plan to be
executed by its duly authorized officer as of , 1998.
HEALTH CARE AND
RETIREMENT CORPORATION
By:____________________________
Title:
H-1
<PAGE> 167
I hereby certify that the foregoing amendment to the Plan was duly approved
by the shareholders of Health Care and Retirement Corporation on
, 1998.
Executed on this day of , 1998.
By:_____________________
Title:
H-2
<PAGE> 168
ANNEX I
BUSINESS EXPERIENCE OF MANOR CARE DIRECTORS
<TABLE>
<CAPTION>
SERVED AS POSITIONS WITH MANOR CARE; BUSINESS EXPERIENCE;
NAME AND AGE DIRECTOR SINCE OTHER DIRECTORSHIPS
------------ -------------- -----------------------------------------------
<S> <C> <C>
Stewart Bainum, Jr. (52) 1976 Chairman of the Board and Chief Executive Officer
since March 1987; also President since June 1989;
Vice Chairman from June 1982 to March 1987.
Director: Choice Hotels International, Inc. and
Vitalink Pharmacy Services, Inc.
Stewart Bainum (79) 1968 Vice Chairman of the Board since March 1987;
Chairman of the Board from 1968 to March 1987;
President from December 1980 through October 1981,
and May 1982 through July 1985; Chairman of the
Board of Realty Investment Company, Inc. (private
real estate investment company) since 1965.
Director: Sunburst Hospitality Corporation.
William H. Longfield (60) 1989 Chairman and Chief Executive Officer of C. R. Bard,
Inc. (Medical devices) since September 1995;
President and Chief Executive Officer from June 1994
to September 1995; President and Chief Operating
Officer of C. R. Bard, Inc. from September 1991 to
June 1994; Executive Vice President and Chief
Operating Officer of C. R. Bard, Inc. from February
1989 to September 1991. Director: C. R. Bard, Inc.,
Horizon Health Corporation (formerly Horizon Mental
Health Management, Inc.), United Dental Care, Inc.,
and The West Company.
Kennett L. Simmons (56) 1996 Chairman and Chief Executive Officer of the Metra
Health Companies from June 1994 to October 1995;
Senior Advisor to E. M. Warburg, Pincus & Co. from
1991 to 1994; Chairman and Chief Executive Officer
of United Healthcare Corporation from October 1987
to February 1991.
Gail R. Wilensky, Ph.D. (55) -- Health Economist. Senior Fellow at Project HOPE
since January 1993. Deputy Assistant to President
Bush for Policy Development, responsible for
advising the President on health and welfare issues,
from March 1992 to January 1993. Administrator of
the Health Care Financing Administration (HCFA) in
the Department of Health and Human Services, where
she directed the Medicare and Medicaid programs,
from January 1990 to March 1992. Vice President,
Division of Health Affairs at Project HOPE from
January 1990 to April 1993. An elected member of the
Institute of Medicine of the National Academy of
Sciences, is currently chairperson of the Medicare
Payment Advisory Commission and has also served as a
member and chairperson of the Physician Payment
Review Commission and the Health Advisory Committee
of the General Accounting Office. Director: Advanced
Tissue Sciences, Inc., Pharmerica, Inc. (formerly
Capstone Pharmacy), NeoPath, Inc., Quest Diagnostics
Incorporated, Ralin Medical, Inc., Shared Medical
Systems Corporation, St. Jude Medical, Inc., Syncor
International Corporation and United HealthCare
Corporation.
</TABLE>
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<PAGE> 169
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware ("GCL")
provides that a Delaware corporation has the power to indemnify its officers and
directors in certain circumstances. Subsection (a) of Section 145 of the GCL
empowers a corporation to indemnify any director or officer, or former director
or officer, who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation), against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
in connection with such action, suit or proceeding provided that such director
or officer acted in good faith and in a manner reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, provided that such director or officer had no
reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 of the GCL empowers a corporation to
indemnify any director or officer, or former director or officer, who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that such person acted in any of the
capacities set forth above, against expenses (including attorneys' fees)
actually and reasonably incurred in connection with the defense or settlement of
such action or suit provided that such director of officer acted in good faith
and in a manner reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification may be made in
respect of any claim, issue or matter as to which such director or officer shall
have been adjudged to be liable to the corporation unless and only to the extent
that the Court of Chancery or the court in which such action was brought shall
determine that despite the adjudication of liability such director of officer is
fairly and reasonably entitled to indemnity for such expenses which the court
shall deem proper.
Section 145 of the GCL further provides that to the extent a director or
officer of a corporation has been successful in the defense of any action, suit
or proceeding referred to in subsections (a) and (b) or in the defense of any
claim, issue or matter therein, he or she shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him or her in
connection therewith; that indemnification provided by Section 145 shall not be
deemed exclusive of any other rights to which the indemnified party may be
entitled; and empowers the corporation to purchase and maintain insurance on
behalf of a director or officer of the corporation against any liability
asserted against him or her or incurred by him or her in any such capacity or
arising out of his or her status as such whether or not the corporation would
have the power to indemnify him or her against such liabilities under Section
145.
Article Eighth of the Registrant's Certificate of Incorporation provides,
in detail, for the indemnification of directors, officers and employees of the
Registrant to the fullest extent permitted under the DGCL.
Section 102(b)(7) of the DGCL enables a Delaware corporation to provide in
its certificate of incorporation for the elimination or limitation of the
personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director. Any such provision
cannot eliminate or limit a director's liability (1) for any breach of the
director's duty of loyalty to the corporation or its stockholders; (2) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (3) under Section 174 of the DGCL (which imposes
liability on directors for unlawful payment of dividends or unlawful stock
purchase or redemption); or (4) for any transaction from which the director
derived an improper personal benefit. Article Eighth of the Certificate of
Incorporation of HCR eliminates the liability of a director of HCR to HCR or its
stockholders for monetary damages for breach of fiduciary duty as a director to
the full extent permitted by the DGCL.
Under the Merger Agreement, for a period of at least six years after the
Effective Time, HCR shall cause Manor Care to maintain in effect either (i) the
current policy of directors' and officers' liability insurance maintained by
Manor Care (provided that HCR or Manor Care may substitute therefor policies of
at least the same coverage and amounts containing terms and conditions which are
no less advantageous in any material respect to the insured parties thereunder)
with respect to claims arising from facts or events that occurred at
II-1
<PAGE> 170
or before the Effective Time (including consummation of the transactions
contemplated by the Merger Agreement), or (ii) a run-off policy or endorsement
with respect to the current policy of directors' and officers' liability
insurance covering claims asserted within four years after the Effective Time
arising from facts or events that occurred at or before the Effective Time
(including consummation of the transactions contemplated by the Merger
Agreement); provided, however, in no event shall HCR or Manor Care be required
to pay annual premiums in excess of 200% of the annual premium currently paid by
Manor Care, and if such premium would at any time exceed 200% of such amount,
HCR or Manor Care may maintain policies that provide the best coverage available
for 200% of such amount, and such policies or endorsements shall name as
insureds thereunder all present and former directors and officers of Manor Care
or any of its Subsidiaries. Additionally, the Merger Agreement requires that the
Registrant defend and hold harmless each person who prior to the Effective Time
was or became an officer or director of Manor Care or HCR against all
liabilities (and shall advance expenses related thereto) arising out of the fact
that such person was an officer or director of such entities to the full extent
that would have been permitted under Delaware law and the certificate of
incorporation or by-laws of such entities. See "The Merger Agreement -- Certain
Covenants -- Indemnification."
The Registrant carries policies of insurance which cover the individual
directors and officers of the Registrant for legal liability and which would pay
on behalf of the Registrant for expenses of indemnification of directors and
officers in accordance with the Certificate of Incorporation.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
List of Exhibits to Registration Statement on Form S-4
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
2.1 Amended and Restated Agreement and Plan of Merger, dated as
of June 10, 1998, by and among Manor Care, Inc. ("Manor
Care"), Catera Acquisition Corp. ("Merger Sub") and the
Registrant (filed as Annex A to the Joint Proxy
Statement/Prospectus included in this Registration
Statement). Exhibits and Schedules to the Amended and
Restated Agreement and Plan of Merger have not been filed,
but will be provided supplementally to the Commission upon
request.
3.1 Form of Certificate of Amendment of Certificate of
Incorporation of Registrant (filed as Annex D to the Joint
Proxy Statement/Prospectus included in this Registration
Statement).
3.2 Form of Amended and Restated By-laws of Registrant (filed as
Annex E to the Joint Proxy Statement/Prospectus included in
this Registration Statement).
4.1 Form of Registration Rights Agreement to be entered by the
Registrant and certain stockholders of the Registrant.
5.1 Opinion of Latham & Watkins as to the legality of the
securities being registered.
8.1 Opinion of Latham & Watkins regarding certain tax matters.
8.2 Opinion of Cahill Gordon & Reindel regarding certain tax
matters.
10.1 Form of Executive Retention Agreement among the Registrant,
HCRA and Paul A. Ormond.
10.2 Form of Executive Retention Agreement among the Registrant,
HCRA and M. Keith Weikel.
10.3 Form of Executive Retention Agreement among the Registrant,
HCRA and Geoffrey G. Meyers.
10.4 Form of Executive Retention Agreement among the Registrant,
HCRA and R. Jeffrey Bixler.
10.5 Form of Retention Agreement among the Registrant, Manor Care
and Stewart Bainum, Jr. (incorporated by reference to
Exhibit 10.13 to Manor Care, Inc.'s Annual Report on Form
10-K filed with the Commission on August 17, 1998).
</TABLE>
II-2
<PAGE> 171
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.6 Form of Noncompetition Agreement among the Registrant, Manor
Care and Stewart Bainum, Jr. (incorporated by reference to
Exhibit 10.12 to Manor Care, Inc.'s Annual Report on Form
10-K filed with the Commission on August 17, 1998).
10.7 Form of Chairman's Service Agreement between the Registrant
and Stewart Bainum, Jr.
10.8 Form of Employment Agreement among the Registrant, Manor
Care and Joseph R. Buckley (incorporated by reference to
Exhibit 10.16 to Manor Care, Inc.'s Annual Report on Form
10-K filed with the Commission on August 17, 1998).
10.9 Form of Employment Agreement among the Registrant, Manor
Care and James H. Rempe (incorporated by reference to
Exhibit 10.18 to Manor Care, Inc.'s Annual Report on Form
10-K filed with the Commission on August 17, 1998).
10.10 Form of Employment Agreement among the Registrant, Manor
Care and Leigh C. Comas (incorporated by reference to
Exhibit 10.15 to Manor Care, Inc.'s Annual Report on Form
10-K filed with the Commission on August 17, 1998).
10.11 Form of Employment Agreement among the Registrant, Manor
Care and Margarita A. Schoendorfer (incorporated by
reference to Exhibit 10.14 to Manor Care, Inc.'s Annual
Report on Form 10-K filed with the Commission on August 17,
1998).
21.1 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Latham & Watkins (included in the opinions filed
as Exhibit 5.1 and 8.1).
23.4 Consent of Cahill Gordon & Reindel (included in the opinion
filed as Exhibit 8.2).
23.5 Consent of Chase Securities Inc.
23.6 Consent of Warburg Dillon Read LLC.
24.1 Powers of Attorney (included in signature pages contained in
this Registration Statement).
99.1 Forms of proxy cards for special meetings of stockholders of
the Registrant and Manor Care.
99.2 Consent of Stewart Bainum.
99.3 Consent of Stewart Bainum, Jr.
99.4 Consent of William H. Longfield.
99.5 Consent of Kennett L. Simmons.
99.6 Consent of Gail R. Wilensky.
</TABLE>
(b) Financial Statement Schedules
None. Schedules are omitted because of the absence of the conditions under
which they are required or because the information required by such omitted
schedules is set forth in the financial statements or the notes thereto.
(c) Report, Opinion or Appraisal
The opinion of Chase Securities Inc., financial advisor to HCR, and the
opinion of Warburg Dillon Read LLC, financial advisor of Manor Care, are
attached as Annex B and Annex C, respectively, to the Joint Proxy
Statement/Prospectus included in this Registration Statement.
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in this Registration Statement shall be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-3
<PAGE> 172
(b) The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
(c) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
undersigned Registrant undertakes that such reoffering prospectus will contain
the information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
(d) The undersigned Registrant undertakes that every prospectus (i) that is
filed pursuant to paragraph (b) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to this Registration Statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(e) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act as is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(f) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of this Registration Statement through
the date of responding to the request.
(g) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this Registration Statement when it became effective.
II-4
<PAGE> 173
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Toledo, State of Ohio, on
August 17, 1998.
HEALTH CARE AND RETIREMENT CORPORATION
By: /s/ R. JEFFREY BIXLER
------------------------------------
R. Jeffrey Bixler
Vice President, General Counsel and
Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears on
the signature page to this Registration Statement constitutes and appoints R.
Jeffrey Bixler and Geoffrey G. Meyers, and each of them, his true and lawful
attorneys-in-fact and agents, and each of them, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, and grants unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or each of them, or his
substitute, may lawfully do or cause to be done by virtue hereof.
SIGNATURES
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below on the 17th day of August, 1998, by the
following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ JOHN J. CLAIR Director
- ------------------------------------------------
John J. Clair
/s/ JOSEPH H. LEMIEUX Director
- ------------------------------------------------
Joseph H. Lemieux
/s/ GEOFFREY G. MEYERS Executive Vice President, Chief Financial Officer
- ------------------------------------------------ and Treasurer, Director (Principal Financial
Geoffrey G. Meyers Officer)
/s/ SPENCER C. MOLER Vice President and Controller (Principal
- ------------------------------------------------ Accounting Officer)
Spencer C. Moler
/s/ PAUL A. ORMOND Chairman of the Board of Directors, President and
- ------------------------------------------------ Chief Executive Officer (Principal Executive
Paul A. Ormond Officer)
/s/ ROBERT G. SIEFERS Director
- ------------------------------------------------
Robert G. Siefers
/s/ M. KEITH WEIKEL Senior Executive Vice President and Chief
- ------------------------------------------------ Operating Officer; Director
M. Keith Weikel
/s/ THOMAS L. YOUNG Director
- ------------------------------------------------
Thomas L. Young
</TABLE>
S-1
<PAGE> 174
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
2.1 Amended and Restated Agreement and Plan of Merger, dated as
of June 10, 1998, by and among Manor Care, Inc. ("Manor
Care"), Catera Acquisition Corp. ("Merger Sub") and the
Registrant (filed as Annex A to the Joint Proxy
Statement/Prospectus included in this Registration
Statement). Exhibits and Schedules to the Amended and
Restated Agreement and Plan of Merger have not been filed,
but will be provided supplementally to the Commission upon
request.
3.1 Form of Certificate of Amendment of Certificate of
Incorporation of Registrant (filed as Annex D to the Joint
Proxy Statement/Prospectus included in this Registration
Statement).
3.2 Form of Amended and Restated By-laws of Registrant (filed as
Annex E to the Joint Proxy Statement/Prospectus included in
this Registration Statement).
4.1 Form of Registration Rights Agreement to be entered by the
Registrant and certain stockholders of the Registrant.
5.1 Opinion of Latham & Watkins as to the legality of the
securities being registered.
8.1 Opinion of Latham & Watkins regarding certain tax matters.
8.2 Opinion of Cahill Gordon & Reindel regarding certain tax
matters.
10.1 Form of Executive Retention Agreement among the Registrant,
HCRA and Paul A. Ormond.
10.2 Form of Executive Retention Agreement among the Registrant,
HCRA and M. Keith Weikel.
10.3 Form of Executive Retention Agreement among the Registrant,
HCRA and Geoffrey G. Meyers.
10.4 Form of Executive Retention Agreement among the Registrant,
HCRA and R. Jeffrey Bixler.
10.5 Form of Retention Agreement among the Registrant, Manor Care
and Stewart Bainum, Jr. (incorporated by reference to
Exhibit 10.13 to Manor Care, Inc.'s Annual Report on Form
10-K filed with the Commission on August 17, 1998).
10.6 Form of Noncompetition Agreement among the Registrant, Manor
Care and Stewart Bainum, Jr. (incorporated by reference to
Exhibit 10.12 to Manor Care, Inc.'s Annual Report on Form
10-K filed with the Commission on August 17, 1998).
10.7 Form of Chairman's Service Agreement between the Registrant
and Stewart Bainum, Jr.
10.8 Form of Employment Agreement among the Registrant, Manor
Care and Joseph R. Buckley (incorporated by reference to
Exhibit 10.16 to Manor Care, Inc.'s Annual Report on Form
10-K filed with the Commission on August 17, 1998).
10.9 Form of Employment Agreement among the Registrant, Manor
Care and James H. Rempe (incorporated by reference to
Exhibit 10.18 to Manor Care, Inc.'s Annual Report on Form
10-K filed with the Commission on August 17, 1998).
10.10 Form of Employment Agreement among the Registrant, Manor
Care and Leigh C. Comas (incorporated by reference to
Exhibit 10.15 to Manor Care, Inc.'s Annual Report on Form
10-K filed with the Commission on August 17, 1998).
10.11 Form of Employment Agreement among the Registrant, Manor
Care and Margarita A. Schoendorfer (incorporated by
reference to Exhibit 10.14 to Manor Care, Inc.'s Annual
Report on Form 10-K filed with the Commission on August 17,
1998).
21.1 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Latham & Watkins (included in the opinions filed
as Exhibit 5.1 and 8.1).
23.4 Consent of Cahill Gordon & Reindel (included in the opinion
filed as Exhibit 8.2).
23.5 Consent of Chase Securities Inc.
</TABLE>
<PAGE> 175
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
23.6 Consent of Warburg Dillon Read LLC.
24.1 Powers of Attorney (included in signature pages contained in
this Registration Statement).
99.1 Forms of proxy cards for special meetings of stockholders of
the Registrant and Manor Care.
99.2 Consent of Stewart Bainum.
99.3 Consent of Stewart Bainum, Jr.
99.4 Consent of William H. Longfield.
99.5 Consent of Kennett L. Simmons.
99.6 Consent of Gail R. Wilensky.
</TABLE>
<PAGE> 1
EXHIBIT 4.1
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement") by and between HCR
Manor Care, Inc. a Delaware corporation (the "Company"), and the persons listed
on the signature pages hereof (the "Stockholders"), dated _________, 1998.
Capitalized terms used without definition in this Agreement have the meanings
ascribed thereto in the Rights Agreement between the Company and Harris Trust
and Savings Bank, as amended as of June 10, 1998.
RECITALS
A. The Company and the Stockholders desire to enter into this
Agreement for the purpose of granting to the Stockholders certain rights with
respect to registering under the Securities Act of 1933, as amended, shares of
common stock, par value $.01 per share, of the Company.
B. Such common stock is being acquired by the Stockholders pursuant
to the transactions (the "Transactions") contemplated by the Agreement and Plan
of Merger, dated as of June 10, 1998, among Manor Care, Inc., a Delaware
corporation, Catera Acquisition Corp. and the Company (the "Merger Agreement").
AGREEMENT
In consideration of the recitals, covenants and mutual promises
contained herein, and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties, intending to be legally
bound, hereby agree as follows:
1. Definitions. As used in this Agreement, the following terms shall
have the following meanings:
"Advice" shall have the meaning set forth in Section 5 hereof.
"Affiliate" means, with respect to any specified person, any other
person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified person. For the purposes of this
definition, "control" when used with respect to any specified person, means the
power to direct the management and policies of such person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Business Day" means any day that is not a Saturday, a Sunday or a
legal holiday on which the New York Stock Exchange is not scheduled to be open
for trading.
<PAGE> 2
"Capital Stock" means, with respect to any person, any and all shares,
interests, participations or other equivalents (however designated) of corporate
stock issued by such person, including each class of common stock and preferred
stock of such person.
"Common Stock" means the common stock, par value $0.01 per share, of
the Company.
"Company" shall have the meaning set forth in the heading hereof.
"Company Offering" shall have the meaning set forth in Section 2(d).
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the SEC promulgated thereunder.
"Holder" means a person who owns Registrable Shares and is either (i) a
Stockholder or (ii) a Permitted Transferee.
"Maximum Number" means 10,000,000 Registrable Shares, subject to
equitable adjustment by the Board of Directors of the Company to reflect any
stock dividend or stock split or other change, conversion, exchange,
subdivision, combination, distribution, recapitalization or reclassification,
which limit may be waived by the Company in its sole discretion.
"Minimum Number" means the lesser of 2,500,000 Registrable Shares,
subject to equitable adjustment by the Board of Directors of the Company to
reflect any stock dividend or stock split or other change, conversion, exchange,
subdivision, combination, distribution, recapitalization or reclassification, or
that number of Registrable Shares which would yield $100 million or more in
aggregate gross proceeds in any public offering thereof, which minimum may be
waived by the Company in its sole discretion.
"Permitted Transferees" means (a) Stewart Bainum or his spouse or
widow, their lineal descendants or their spouses or widows or widowers (so long
as they remain spouses) (each a "Member of the Bainum Family"), or the estate of
the foregoing persons (but only until such time as the Common Stock are
distributed therefrom), and (b) any partnership, trust, corporation or other
entity (each, an "Entity"), but only if a Member or Members of the Bainum Family
or another Entity satisfying the requirements hereof are the sole "Beneficial
Owners" (as such term is defined in the HCR Rights Plan (as defined in the
Merger Agreement)) of the Common Stock held by such Entity, other than any
officer, trustee, director, or other managing person or managing partner or
managing member of any such Entity to the extent any such person is deemed to be
the Beneficial Owner of Common Stock held by such Entity, provided such person
is not the Beneficial Owner, other than through an Entity described in this
clause (b), of in excess of 1% of the total outstanding Common Stock.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
2
<PAGE> 3
"Piggyback Registration" shall have the meaning set forth in Section 3
hereof.
"Prospectus" means the prospectus included in any Registration
Statement (including a prospectus that discloses information previously omitted
from a prospectus filed as part of an effective registration statement in
reliance upon Rule 430A), as amended or supplemented by any prospectus
supplement, with respect to the terms of the offering of any portion of the
Registrable Shares covered by such Registration Statement and all other
amendments and supplements to such prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such prospectus.
"Registrable Shares" means any Common Stock issued to any Holder named
on the signature pages hereof in the Transactions or any other shares of capital
stock or other securities of the Company into which such shares of Common Stock
shall be reclassified, converted, exchanged or changed, including, without
limitation, by reason of a merger, consolidation, subdivision, stock
combination, exchange, reorganization or recapitalization. If the Common Stock
has been so reclassified or changed, or if the Company pays a dividend or makes
a distribution on the Common Stock in shares of capital stock or splits or
subdivides (or combines) its outstanding shares of Common Stock into a greater
(or smaller) number of shares of Common Stock, a share of Common Stock shall be
deemed to be such number of shares of stock and amount of other securities to
which a holder of a share of Common Stock outstanding immediately prior to such
change, conversion, reclassification, exchange, dividend, distribution,
subdivision, split or combination would be entitled. As to any particular
Registrable Shares, once issued such shares shall cease to be Registrable Shares
when (i) a Registration Statement with respect to the sale of such shares shall
have become effective under the Securities Act and such shares shall have been
disposed of in accordance with such Registration Statement, (ii) they shall have
been distributed to the public pursuant to Rule 144 (or any successor provision)
under the Securities Act, (iii) they shall have been otherwise transferred and
new certificates for them not bearing a legend restricting further transfer
shall have been delivered by the Company and subsequent disposition of them
shall not require registration or qualification of them under the Securities Act
or any state securities or blue sky law then in force, (iv) they shall have
ceased to be outstanding, (v) when sold, or otherwise transferred to, any Person
who is not a Holder or Permitted Transferee or (vi) there has occurred the first
date on which the number of Registrable Shares outstanding is less than five
percent (5%) of the then outstanding shares of Common Stock.
"Registration" means registration under the Securities Act of an
offering of Registrable Shares pursuant to a Demand Registration or a Piggyback
Registration.
"Registration Period" means, as to any Holder, the period beginning on
the date hereof and ending on the date which is the earlier of (i) the fourth
anniversary of the date hereof and (ii) the date when such Holder no longer owns
any Registrable Shares.
"Registration Statement" means any registration statement of the
Company under the Securities Act that covers any of the Registrable Shares
pursuant to the provisions of this Agreement, including the related Prospectus,
all amendments and supplements to such
3
<PAGE> 4
registration statement, including pre- and post-effective amendments, all
exhibits thereto and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.
"HCR Rights Plan Amendment" shall have the meaning ascribed to such
term in the Merger Agreement.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
"Underwritten Registration" or "Underwritten Offering" means a
registration under the Securities Act in which securities of the Company are
sold to an underwriter for reoffering to the public.
2. Demand Registration.
(a) Any person designated by the Holders of at least 50% of the
Registrable Shares shall have the right during the Registration Period, by
written notice (the "Demand Notice") given to the Company, to request the
Company to register under and in accordance with the provisions of the
Securities Act all or any portion of the Registrable Shares designated by such
Holders; provided, however, that the aggregate number of Registrable Shares
requested to be registered pursuant to any Demand Notice shall be at least the
Minimum Number. As of the date of this Agreement, until such time as the Holders
of at least 50% of the Registrable Shares shall have notified the Company of
another designee, the person designated to give the Demand Notice shall be
Stewart Bainum, Jr. Upon receipt of any such Demand Notice, the Company shall
promptly notify all other Holders of the receipt of such Demand Notice and allow
them the opportunity, subject to the other terms of this Section 2, to include
Registrable Shares held by them in the proposed registration by submitting their
own written notice to the Company requesting inclusion of a specified number of
such Holders' Registrable Shares (the "Inclusion Notice"). The Holders as a
group shall be entitled to four Demand Registrations pursuant to this Section 2;
if any such Demand Registration does not become effective or is not maintained
for the period (whether or not continuous) required by Section 2(c), the
affected Holders will be entitled to an additional Demand Registration pursuant
hereto. It is agreed that the registration of Registrable Shares pursuant to an
Inclusion Notice shall not be deemed to be a Demand Registration. Nothing in
this Section 2(a) shall limit any rights pursuant to Section 3 hereof.
(b) Subject to the other terms of this Section 2, the Company,
within 45 days of the date on which the Company receives a Demand Notice given
by Holders in accordance with Section 2(a) hereof, shall file with the SEC, and
the Company shall thereafter use commercially reasonable efforts to cause to be
declared effective, a Registration Statement on the appropriate form for the
registration and sale, in accordance with the intended method or methods of
distribution, of the total number of Registrable Shares specified by the Holders
in
4
<PAGE> 5
such Demand Notice, which may include a "shelf" registration (a "Shelf
Registration") pursuant to Rule 415 under the Securities Act (a "Demand
Registration").
(c) The Company shall use commercially reasonable efforts to
cause the Registration Statement to be declared effective and to keep each
Registration Statement filed pursuant to this Section 2 continuously effective
and usable for the resale of the Registrable Shares covered thereby (i) in the
case of a Registration that is not a Shelf Registration, for a period of 60 days
from the date on which the SEC declares such Registration Statement effective
and (ii) in the case of a Shelf Registration, for a period of 120 days from the
date on which the SEC declares such Registration Statement effective, except, in
either case, (x) if earlier, then only until the date all the Registrable Shares
covered by such Registration Statement have been sold pursuant to such
Registration Statement, and (y) if later, until such later date as may be
extended pursuant to this Section 2.
(d) Company's Ability to Postpone.
(i) If, upon receipt of a Demand Notice pursuant to this
Section 2, the Board of Directors of the Company determines in good
faith that a registration at the time and on the terms requested would
adversely affect any public offering of securities of the Company by
the Company (other than in connection with employee benefit and similar
plans) or by or on behalf of any stockholder of the Company exercising
a demand registration right (collectively, a "Company Offering") with
respect to which the Company has commenced preparations for a
registration or received notice of the exercise of such demand
registration right prior to the receipt of a Demand Notice and the
Company furnishes the Holders with a certificate signed by the chief
financial officer of the Company to such effect (the "Transaction Delay
Notice") promptly after such Demand Notice, the Company shall not be
required to file a Registration Statement pursuant to this Section 2
until the earliest of (A) 45 days after the completion of such Company
Offering, (B) promptly after the abandonment of such Company Offering
or (C) 90 days after the date of the Transaction Delay Notice;
provided, however, that in any event the Company shall not be required
to file any Registration Statement prior to the termination, waiver or
reduction of any "blackout period" or Holdback Period required by the
underwriters to be applicable to the Holders or the Company, if any, in
connection with any Company Offering or Section 4 hereof.
(ii) If upon receipt of a Demand Notice pursuant to this
Section 2 or while a registration requested pursuant to this Section 2
is pending, the Company determines in its good faith judgment after
consultation with the Company's principal securities counsel that the
filing of a Registration Statement would require disclosure of material
information which the Company has a bona fide business purpose for
preserving as confidential and the Company provides the Holders written
notice (the "Information Delay Notice" and, together with the
Transaction Delay Notice, the "Delay Notice") thereof promptly after
the Company makes such determination, which shall be made promptly
after the receipt of any Demand Notice, the Company shall not be
required to comply with its obligations under this Section 2 until the
earlier of (A) the
5
<PAGE> 6
date upon which such material information is disclosed to the public or
ceases to be material or (B) 90 days after the Holders' receipt of such
Delay Notice.
(iii) Notwithstanding the foregoing provisions of this
Section 2(d), the Company shall be entitled to serve only one Delay
Notice (i) within any period of 270 consecutive days or (ii) with
respect to any two consecutive registrations requested pursuant to this
Section 2.
(iv) At any time when a Registration Statement effected
pursuant to this Section 2 relating to Registrable Shares is effective,
and a Prospectus relating thereto is required to be delivered under the
Securities Act in connection therewith, and the Company becomes aware
that the Prospectus included in such Registration Statement, as then in
effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the
circumstances then existing, to the extent that the amendment or
supplement to such prospectus necessary to correct such untrue
statement of a material fact or omission to state a material fact would
require disclosure of material information which the Company has a bona
fide business purpose for preserving as confidential and the Company
provides the Holders written notice thereof promptly after the Company
makes such determination, the Holders shall suspend sales of
Registrable Shares pursuant to such Registration Statement and the
Company shall not be required to comply with its obligations under
Sections 5(e) or 5(h) until the earlier of (A) the date upon which such
material information is disclosed to the public or ceases to be
material or (B) 90 days after the Holders' receipt of such written
notice. If the Holders' disposition of Registrable Shares is
discontinued pursuant to the foregoing sentence, unless the Company
thereafter extends the effectiveness of the Registration Statement to
permit dispositions of Registrable Shares by the Holders for an
aggregate of 60 days, the Registration Statement shall not be counted
for purposes of determining the number of registrations permitted under
Section 2 hereof.
(e) Maximum Registration. In no event shall the Company be
required to effect the registration of Registrable Shares under either Section 2
or 3 hereof which would, when aggregated with prior registrations of Registrable
Shares, concern or result in the sale or resale of more than the Maximum Number
in any twelve month period.
(f) Company and Other Holders. Subject to Section 2(g), the
Company and other holders of Common Stock may include Common Stock in any Demand
Registration, provided that the Company and such holders of Common Stock pay a
pro rata portion of the costs incurred in the preparation and filing of
such Registration Statement based upon the number of shares of Common Stock
registered pursuant to the effective Registration Statement.
(g) Revocation. Holders of a majority in number of the
Registrable Shares to be included in a Registration Statement pursuant to this
Section 2 may, at any time prior to the effective date of the Registration
Statement relating to such Registration, revoke such request by providing a
written notice to the Company revoking such request. The Holders of
6
<PAGE> 7
Registrable Shares who revoke such request shall reimburse the Company for all
its out-of-pocket expenses incurred in the preparation, filing and processing of
the Registration Statement. In addition, if pursuant to the terms of this
Section 2(g), the Holders reimburse the Company for its out-of-pocket expenses
incurred in the preparation, filing and processing of any Registration Statement
requested and subsequently revoked by such Holder(s), such Holder(s)
registrations shall not count against the maximum number of Demand Registrations
to which the applicable Holder(s) are entitled under Section 2(a).
(h) Priority on Demand Registrations. Notwithstanding any other
term of this Section 2, if (i) a Registration pursuant to this Section 2
involves an Underwritten Offering and the managing underwriter or underwriters
of such proposed Underwritten Offering advises Company that the number of
securities requested to be included in such Demand Registration exceeds the
number which can be sold in the offering covered by such Demand Registration
without a significant adverse effect on the price, timing or distribution of the
securities offered, or (ii) the number of Registrable Shares requested to be
included in such Demand Registration exceeds the Maximum Number, then the
Company will include in such Registration (A) first, the number of Registrable
Shares that is the lesser of (x) the Maximum Number and (y) the number which, in
the opinion of such managing underwriter or underwriters, can be sold in the
offering without a significant adverse effect on the price, timing or
distribution of the securities offered, selected pro rata among the Holders
which have requested to be included in such Demand Registration based upon
[their relative proportionate total holdings of Common Stock on the date of this
Agreement], (B) second, the lesser of (x) the number of shares of Common Stock
which Company has requested be included in such Registration, which, in the
opinion of the managing underwriter or underwriters, can be sold without such
adverse effect referred to above and (y) if a cutback has been effected on the
basis of the Maximum Number under Clause (A), zero (0), and (C) third, the
lesser of (x) the number of shares of Common Stock which other holders have
requested be included in such Registration, which, in the opinion of the
managing underwriter or underwriters, can be sold without such adverse effect
referred to above, such amount to be allocated pro rata among such other holders
based upon their relative proportionate holdings of Common Stock and (y) if a
cutback has been effected on the basis of the Maximum Number, zero (0).
(i) Selection of Underwriters. If any offering pursuant to a
Demand Registration involves an Underwritten Offering, the Company and Manor
Care shall select a mutually acceptable managing underwriter or underwriters to
administer the offering, which managing underwriters shall be a firm of
nationally recognized standing and reasonably satisfactory to holders of a
majority of the Registrable Shares sought to be included in such Registration
Statement.
3. Piggyback Registration.
(a) Right to Piggyback. If at any time during the Registration
Period the Company proposes to file a registration statement under the
Securities Act with respect to a public offering of securities of the same type
as the Registrable Shares pursuant to a firm commitment underwritten offering
solely for cash for its own account (other than a registration
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<PAGE> 8
statement (i) on Form S-4 or S-8 or any successor forms thereto, or (ii) filed
solely in connection with a dividend reinvestment plan or employee benefit plan
of the Company or its Affiliates) or for the account of any holder of securities
of the same type as the Registrable Shares (to the extent that the Company has
the right to include Registrable Shares in any registration statement to be
filed by the Company on behalf of such holder), then the Company shall give
written notice of such proposed filing to the Holders at least 15 days before
the anticipated effective date. Such notice shall offer the Holders the
opportunity to register such amount of Registrable Shares as they may request (a
"Piggyback Registration"). Subject to Section 3(b) hereof, the Company shall
include in each such Piggyback Registration all Registrable Shares with respect
to which the Company has received written requests for inclusion therein within
10 days after notice has been given to the Holders. Each Holder shall be
permitted to withdraw all or any portion of the Registrable Shares of such
Holder from a Piggyback Registration at any time prior to the effective date of
such Piggyback Registration; provided, however, that if such withdrawal occurs
after the filing of the Registration Statement with respect to such Piggyback
Registration, the withdrawing Holders shall reimburse the Company for the
portion of the registration expenses payable with respect to the Registrable
Shares so withdrawn.
(b) Priority on Piggyback Registrations. Notwithstanding any other
term of this Section 3, if a Registration pursuant to this Section 3 involves an
Underwritten Offering and the managing underwriter or underwriters of such
proposed Underwritten Offering advises Company that in its opinion the number of
securities requested to be included in such Piggyback Registration exceeds the
number which can be sold in the offering covered by such Piggyback Registration
without a significant adverse effect on the price, timing or distribution of the
securities offered, then the Company will include in such Registration (i)
first, the number of Registrable Shares sought to be sold by the person(s) or
entities (including the Company) which initiated such Registration that, in the
opinion of such managing underwriter or underwriters, can be sold in the
offering without a significant adverse effect on the price, timing or
distribution of the securities offered, selected pro rata among the Company and
such holders based upon the relative proportionate shares they proposed to sell
in such Registration and (ii) the number of shares of Common Stock which other
holders (including the Holders) have requested be included in such Registration,
which, in the opinion of the managing underwriter or underwriters, can be sold
without such adverse effect referred to above, such amount to be allocated pro
rata among such Holders and other holders based upon the relative proportionate
shares they propose to sell in such Registration.
(c) Right to Suspend or Abandon. Nothing in this Section 3 or Section
5 hereof (with respect to an offering under this Section 3) shall create any
liability or obligation on the part of the Company to the Holders if the Company
in its sole discretion should decide (i) not to file a registration statement
proposed to be filed pursuant to Section 3(a) hereof, (ii) to withdraw such
registration statement subsequent to its filing and prior to the later of its
effectiveness or the release of the Registrable Shares for public offering by
the managing underwriter, in the case of an underwritten public offering or
(iii) to suspend or terminate any offering or the effectiveness of any
registration statement by the Company or at the request of any person, entity or
governmental authority, regardless of any action whatsoever that a Holder
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<PAGE> 9
may have taken, whether as a result of the issuance by the Company of any notice
hereunder or otherwise.
4. Holdback Agreement. If (i) the Company shall file a registration
statement with respect to the Common Stock or similar securities or securities
convertible into, or exchangeable or exercisable for, such securities and (ii)
the Company (in the case of a nonunderwritten public offering by the Company
pursuant to such registration statement) advises the Holders in writing that a
public sale or distribution of Registrable Shares would materially adversely
affect such offering or the managing underwriter or underwriters (in the case of
an underwritten public offering by the Company pursuant to such registration
statement) advises the Company in writing (in which case the Company shall
notify the Holders) that a public sale or distribution of Registrable Shares
would have a significant adverse effect on the price, timing or distribution of
such offering, then each Holder shall, to the extent not inconsistent with
applicable law, refrain from effecting any public sale or distribution of
Registrable Shares during the 7 days prior to the effective date of such
registration statement and until the earliest of (A) the abandonment of such
offering, (B) 120 days from the effective date of such registration statement
and (C) if such offering is an Underwritten Offering, the termination of any
"hold back" period obtained by the underwriter or underwriters in such offering
from the Company in connection therewith (each such period, a "Hold Back
Period").
5. Registration Procedures. In connection with the registration
obligations of the Company pursuant to and in accordance with Sections 2 and 3
hereof (and subject to Sections 2 and 3 hereof), the Company shall use its best
efforts to effect such registration to permit the sale of such Registrable
Shares in accordance with the intended method or methods of disposition thereof,
and pursuant thereto the Company shall as expeditiously as possible (but subject
to Sections 2 and 3 hereof):
(a) at least ten (10) business days before filing a Registration
Statement or Prospectus or any amendments or supplements thereto, furnish to the
Holders who are participating in such Registration Statement and the
underwriters, if any, copies of all such documents proposed to be filed, which
documents will be subject to the review of such Holders and such underwriters,
and one counsel selected by the Holders of a majority of the Registrable Shares
participating in such Registration Statement ("Holder Counsel") and the
underwriters' counsel, and, in the case of a Demand Registration, the Company
will not file any Registration Statement or amendment thereto or any Prospectus
or any supplement thereof to which the Holders of Registrable Shares
participating in such Registration Statement or the underwriters, if any, shall
reasonably object;
(b) prepare and file with the SEC a Registration Statement for
the sale of the Registrable Shares on any form for which the Company then
qualifies or which counsel for the Company shall deem appropriate in accordance
with such Holders' intended method or methods of distribution thereof, subject
to Section 2(b) hereof, and, subject to the Company's right to suspend,
terminate or abandon a registration pursuant to Section 3(c) hereof, use
commercially reasonable efforts to cause such Registration Statement to become
effective and remain effective as provided herein;
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<PAGE> 10
(c) prepare and file with the SEC such amendments (including
post-effective amendments) to such Registration Statement, and such supplements
to the related Prospectus, as may be required by the rules, regulations or
instructions applicable to the Securities Act during the applicable period in
accordance with the intended methods of disposition specified by the Holders of
the Registrable Shares covered by such Registration Statement, make generally
available earnings statements satisfying the provisions of Section 11(a) of the
Securities Act (provided that the Company shall be deemed to have complied with
this clause if it has complied with Rule 158 under the Securities Act), and
cause the related Prospectus as so supplemented to be filed pursuant to Rule 424
under the Securities Act; provided, however, that before filing a Registration
Statement or Prospectus, or any amendments or supplements thereto (other than
reports required to be filed by it under the Exchange Act), the Company shall
furnish to the Holders of Registrable Shares covered by such Registration
Statement and the Holder Counsel for review and comment, copies of all documents
required to be filed;
(d) notify the Holders of any Registrable Shares covered by such
Registration Statement promptly and (if requested) confirm such notice in
writing, (i) when a Prospectus or any Prospectus supplement or post-effective
amendment has been filed, and, with respect to such Registration Statement or
any post-effective amendment, when the same has become effective, (ii) of any
request by the SEC for amendments or supplements to such Registration Statement
or the related Prospectus or for additional information regarding such Holders,
(iii) of the issuance by the SEC of any stop order suspending the effectiveness
of such Registration Statement or the initiation of any proceedings for that
purpose, (iv) of the receipt by the Company of any notification with respect to
the suspension of the qualification or exemption from qualification of any of
the Registrable Shares for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, and (v) of the happening of any
event that requires the making of any changes in such Registration Statement,
Prospectus or documents incorporated or deemed to be incorporated therein by
reference so that they will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading;
(e) subject to Section 2(d), use its best efforts to obtain the
withdrawal of any order suspending the effectiveness of such Registration
Statement, or the lifting of any suspension of the qualification or exemption
from qualification of any Registrable Shares for sale in any jurisdiction in the
United States;
(f) furnish to the Holder of any Registrable Shares covered by
such Registration Statement, Holder Counsel for such Holders and counsel for
each managing underwriter, if any, without charge, one conformed copy of such
Registration Statement, as declared effective by the SEC, and of each
post-effective amendment thereto, in each case including financial statements
and schedules and all exhibits and reports incorporated or deemed to be
incorporated therein by reference; and deliver, without charge, such number of
copies of the preliminary prospectus, any amended preliminary prospectus, each
final Prospectus and any post-effective amendment or supplement thereto, as such
Holder may reasonably request in order
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<PAGE> 11
to facilitate the disposition of the Registrable Shares of such Holder covered
by such Registration Statement in conformity with the requirements of the
Securities Act;
(g) prior to any public offering of Registrable Shares covered
by such Registration Statement, use commercially reasonable efforts to register
or qualify such Registrable Shares for offer and sale under the securities or
Blue Sky laws of such jurisdictions as the Holders of such Registrable Shares
shall reasonably request in writing; provided, however, that the Company shall
in no event be required to qualify generally to do business as a foreign
corporation or as a dealer in any jurisdiction where it is not at the time so
qualified or to execute or file a general consent to service of process in any
such jurisdiction where it has not theretofore done so or to take any action
that would subject it to general service of process or taxation in any such
jurisdiction where it is not then subject;
(h) subject to Section 2(d), upon the occurrence of any event
contemplated by paragraph 5(d)(v) above, prepare a supplement or post-effective
amendment to such Registration Statement or the related Prospectus or any
document incorporated or deemed to be incorporated therein by reference and file
any other required document so that, as thereafter delivered to the purchasers
of the Registrable Shares being sold thereunder (including upon the termination
of any Delay Period), such Prospectus will not contain an untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading;
(i) use its best efforts to cause all Registrable Shares
covered by such Registration Statement to be listed on each securities exchange
or automated interdealer quotation system, if any, on which similar securities
issued by the Company are then listed or quoted;
(j) use its best efforts to comply with all applicable rules
and regulations of the SEC and any securities exchange or regulatory body;
(k) on or before the effective date of such Registration
Statement, provide the transfer agent of the Company for the Registrable Shares
with printed certificates for the Registrable Shares covered by such
Registration Statement which are in a form eligible for deposit with The
Depository Trust Company;
(l) if such offering is an Underwritten Offering, make
available for inspection by any Holder of Registrable Shares included in such
Registration Statement, any underwriter participating in any offering pursuant
to such Registration Statement, and any attorney, accountant or other agent
retained by any such Holder or underwriter (collectively, the "Inspectors"),
such financial and other records and other information, pertinent corporate
documents and properties of any of the Company and its subsidiaries and
affiliates (collectively, the "Records"), as shall be reasonably necessary to
enable them to exercise their due diligence responsibilities; provided, however,
that the Records that the Company determines, in good faith, to be confidential
and which it notifies the Inspector in writing are confidential shall not be
disclosed to any Inspector unless such Inspector signs a confidentiality
agreement reasonably satisfactory to the Company; and
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(m) if such offering is an Underwritten Offering, enter into
such agreements (including an underwriting agreement in form, scope and
substance as is customary in underwritten offerings) and take all such other
appropriate and reasonable actions requested by the Holders of a majority of the
Registrable Shares being sold in connection therewith (including those
reasonably requested by the managing underwriters) in order to expedite or
facilitate the disposition of such Registrable Shares, and in such connection,
(i) use commercially reasonable efforts to obtain opinions of counsel to the
Company and updates thereof (which counsel and opinions (in form, scope and
substance) shall be reasonably satisfactory to the managing underwriters and
Holder Counsel), addressed to each selling Holder of Registrable Shares covered
by such Registration Statement and each of the underwriters as to the matters
customarily covered in opinions requested in underwritten offerings and such
other matters may be reasonably requested by such counsel and underwriters, (ii)
use commercially reasonable efforts to obtain "cold comfort" letters and updates
thereof from the independent certified public accountants of the Company (and,
if necessary, any other independent certified public accountants of any
subsidiary of the Company or of any business acquired by the Company for which
financial statements and financial data are, or are required to be, included in
the Registration Statement), addressed to each selling Holder of Registrable
Shares covered by the Registration Statement (unless such accountants shall be
prohibited from so addressing such letters by applicable standards of the
accounting profession) and each of the underwriters, such letters to be in
customary form and covering matters of the type customarily covered in "cold
comfort" letters in connection with underwritten offerings and (iii) if
requested and if an underwriting agreement is entered into, provide
indemnification provisions and procedures substantially to the effect set forth
in Section 7 hereof with respect to all parties to be indemnified pursuant to
said Section 7. The above shall be done at each closing under such underwriting
or similar agreement, or as and to the extent required thereunder.
The Company may require each Holder of Registrable Shares covered
by a Registration Statement to furnish such information regarding such Holder
and such Holder's intended method of disposition of such Registrable Shares as
it may from time to time reasonably request in writing. If any such information
is not furnished within a reasonable period of time after receipt of such
request, the Company may exclude such Holder's Registrable Shares from such
Registration Statement.
Each Holder of Registrable Shares covered by a Registration
Statement agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 5(d)(ii), 5(d)(iii),
5(d)(iv) or 5(d)(v) hereof, that such Holder shall forthwith discontinue
disposition of any Registrable Shares covered by such Registration Statement or
the related Prospectus until receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 5(h) hereof, or until such Holder is
advised in writing (the "Advice") by the Company that the use of the applicable
Prospectus may be resumed, and has received copies of any amended or
supplemented Prospectus or any additional or supplemental filings which are
incorporated, or deemed to be incorporated, by reference in such Prospectus
(such period during which disposition is discontinued being an "Interruption
Period") and, if requested by the Company, the Holder shall deliver to the
Company (at the expense of the Company) all copies then in its possession, other
than permanent file copies then in such holder's
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possession, of the Prospectus covering such Registrable Shares at the time of
receipt of such request.
Each Holder of Registrable Shares covered by a Registration
Statement further agrees not to utilize any material other than the applicable
current preliminary prospectus or Prospectus in connection with the offering of
such Registrable Shares.
6. Registration Expenses. Whether or not any Registration Statement
is filed or becomes effective, the Company shall pay all costs, fees and
expenses incident to the Company's performance of or compliance with this
Agreement, including (i) all registration and filing fees, including NASD filing
fees, (ii) all fees and expenses of compliance with securities or Blue Sky laws,
including reasonable fees and disbursements of counsel in connection therewith,
(iii) printing expenses (including expenses of printing certificates for
Registrable Shares and of printing preliminary and final prospectuses if the
printing of prospectuses is requested by the Holders or the managing
underwriter, if any), (iv) messenger, telephone and delivery expenses, (v) fees
and disbursements of counsel for the Company and the Holder Counsel, (vi) fees
and disbursements of all independent certified public accountants of the Company
(including expense of any "cold comfort" letters required in connection with
this Agreement) and all other persons retained by the Company in connection with
such Registration Statement, and (vii) all other costs, fees and expenses
incident to the Company's performance or compliance with this Agreement.
Notwithstanding the foregoing, the fees and expenses of any persons retained by
any Holder, other than the Holder Counsel, and any discounts, commissions or
brokers' fees or fees of similar securities industry professionals and any
transfer taxes relating to the disposition of the Registrable Shares by a
Holder, will be payable by such Holder and the Company will have no obligation
to pay any such amounts.
7. Indemnification.
(a) Indemnification by the Company. The Company shall, without
limitation as to time, indemnify and hold harmless, to the full extent permitted
by law, each Holder of Registrable Shares whose Registrable Shares are covered
by a Registration Statement or Prospectus, each Affiliate of such Holder, the
officers, directors and agents and employees of each of them, each Person who
controls (within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act) each such Holder and the officers, directors, agents and
employees of each such controlling Person, to the fullest extent lawful, from
and against any and all losses, claims, damages, liabilities, judgments, costs
(including, without limitation, costs of preparation and reasonable attorneys'
fees) and expenses (collectively, "Losses"), as incurred, arising out of or
based upon any untrue or alleged untrue statement of a material fact contained
in such Registration Statement or Prospectus or in any amendment or supplement
thereto or in any preliminary prospectus, or arising out of or based upon any
omission or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as the
same are based upon information furnished in writing to the Company by or on
behalf of such Holder expressly for use therein or by any underwriter in a
Demand Registration; provided, however, that the Company shall not be liable to
any such
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<PAGE> 14
Holder to the extent that any such Losses arise out of or are based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in any preliminary prospectus if (i) having previously been furnished by or
on behalf of the Company with copies of the Prospectus, such Holder failed to
send or deliver a copy of the Prospectus with or prior to the delivery of
written confirmation of the sale of Registrable Shares by such Holder to the
person asserting the claim from which such Losses arise and (ii) the Prospectus
would have corrected in all material respects such untrue statement or alleged
untrue statement or such omission or alleged omission; and provided further,
however, that the Company shall not be liable in any such case to the extent
that any such Losses arise out of or are based upon an untrue statement or
alleged untrue statement or omission or alleged omission in the Prospectus, if
(x) such untrue statement or alleged untrue statement, omission or alleged
omission is corrected in all material respects in an amendment or supplement to
the Prospectus and (y) having previously been furnished by or on behalf of the
Company with copies of the Prospectus as so amended or supplemented, such Holder
thereafter fails to deliver such Prospectus as so amended or supplemented, prior
to or currently with the sale of Registrable Shares. In connection with any
Underwritten Offering, the Company will also indemnify underwriters, selling
brokers, dealer managers and similar securities industry professionals
participating in the distribution, their officers and directors and each Person
who controls (within the meaning of Section 15 of the Securities Act) such
persons to the same extent as provided above with respect to indemnification of
Holders of Registrable Shares, or on such other terms as are reasonable and
customary and requested by the managing underwriter.
(b) Indemnification by Holder of Registrable Shares. In
connection with any Registration Statement in which a Holder is participating,
such Holder shall furnish to the Company in writing such information as the
Company reasonably requests for use in connection with such Registration
Statement or the related Prospectus and agrees to indemnify, to the full extent
permitted by law, the Company, its directors, officers, agents and employees,
each Person who controls (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act) the Company and the directors, officers,
agents and employees of such controlling Persons, from and against all Losses
arising out of or based upon any untrue or alleged untrue statement of a
material fact contained in such Registration Statement or the related Prospectus
or any amendment or supplement thereto, or any preliminary prospectus, or
arising out of or based upon any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, to the extent, but only to the extent, that such untrue or alleged
untrue statement or omission or alleged omission is based upon any information
so furnished in writing by or on behalf of such Holder to the Company expressly
for use in such Registration Statement or Prospectus.
(c) If any Person shall be entitled to indemnity hereunder (an
"Indemnified Party"), the Indemnified Party shall give prompt notice to the
party from which such indemnity is sought (the "Indemnifying Party") of any
claim or of the commencement of any proceeding with respect to which the
Indemnified Party seeks indemnification or contribution pursuant hereto;
provided, however, that the delay or failure to so notify the Indemnifying Party
shall not relieve the Indemnifying Party from any obligation or liability except
to the extent that the Indemnifying Party has been prejudiced by such delay or
failure.
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The Indemnifying Party shall have the right, exercisable by giving written
notice to an Indemnified Party promptly after the receipt of written notice from
such Indemnified Party of such claim or proceeding, to assume, at the
Indemnifying Party's expense, the defense of any such claim or proceeding, with
counsel reasonably satisfactory to such Indemnified Party; provided, however,
that (i) an Indemnified Party shall have the right to employ separate counsel in
any such claim or proceeding and to participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of such Indemnified
Party unless: (1) the Indemnifying Party agrees to pay such fees and expenses;
(2) the Indemnifying Party fails promptly to assume the defense of such claim or
proceeding or fails to employ counsel reasonably satisfactory to such
Indemnified Party; or (3) the named parties to any proceeding (including
impleaded parties) include both such Indemnified Party and the Indemnifying
Party, and such Indemnifying Party shall have been advised by counsel that there
may be one or more legal defenses available to it that are inconsistent with
those available to the Indemnifying Party or that a conflict of interest is
likely to exist among such Indemnified Party and any other indemnified parties
(in which case the Indemnifying Party shall not have the right to assume the
defense of such action on behalf of such Indemnified Party); and (ii) subject to
clause (3) above, the Indemnifying Party shall not, in connection with any one
such claim or proceeding or separate but substantially similar or related claims
or proceedings in the same jurisdiction, arising out of the same general
allegations or circumstances, be liable for the fees and expenses of more than
one firm of attorneys (together with appropriate local counsel) at any time for
all of the indemnified parties, or for fees and expenses that are not
reasonable. Whether or not such defense is assumed by the Indemnifying Party,
such Indemnified Party shall not be subject to any liability for any settlement
made without its consent, which shall not be unreasonably withheld. The
Indemnifying Party shall not consent to entry of any judgment or enter into any
settlement that does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release, in form and
substance reasonably satisfactory to the Indemnified Party, from all liability
in respect of such claim or litigation for which such Indemnified Party would be
entitled to indemnification hereunder.
(d) Contribution. If the indemnification provided for in this
Section 7 is unavailable to an Indemnified Party in respect of any Losses (other
than in accordance with its terms), then each applicable Indemnifying Party, in
lieu of indemnifying such Indemnified Party, shall contribute to the amount paid
or payable by such Indemnified Party as a result of such Losses, in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party, on the one hand, and such Indemnified Party, on the other hand, in
connection with the actions, statements or omissions that resulted in such
Losses as well as any other relevant equitable considerations. The relative
fault of such Indemnifying Party, on the one hand, and Indemnified Party, on the
other hand, shall be determined by reference to, among other things, whether any
action in question, including any untrue statement of a material fact or
omission or alleged omission to state a material fact, has been taken by, or
relates to information supplied by, such Indemnifying Party or Indemnified
Party, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent any such action, statement or omission. The
amount paid or payable by a party as a result of any Losses shall be deemed to
include any legal or other fees or expenses incurred by such party in connection
with any investigation or proceeding. The parties hereto agree that it would not
be just and equitable if contribution
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pursuant to this Section 7(d) were determined by pro rata allocation or by any
other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph.
Notwithstanding the provision of this Section 7(d), an Indemnifying Party that
is a Holder shall not be required to contribute any amount which is in excess of
the amount by which the total proceeds received by such Holder from the sale of
the Registrable Shares sold by such Holder (net of all underwriting discounts
and commissions) exceeds the amount of any damages that such Indemnifying Party
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
8. Rule 144. If the Company shall have filed a registration statement
pursuant to the requirements of Section 12 of the Exchange Act or a registration
statement pursuant to the requirements of the Securities Act, the Company
covenants that it will timely file the reports required to be filed by it under
the Securities Act or the Exchange Act (including but not limited to the reports
under Sections 13 and 15(d) of the Exchange Act referred to in subparagraph
(c)(1) of Rule 144 adopted by the SEC under the Securities Act) and the rules
and regulations adopted by the SEC thereunder (or if the Company is not required
to file such reports, the Company will, upon the request of any Holder of
Registrable Shares, make publicly available other information), and will take
such further action as any Holder of Registrable Shares may reasonably request,
all to the extent required from time to time to enable such Holder of
Registrable Shares to sell Registrable Shares within the exemption provided by
(i) Rule 144 under the Securities Act, as such Rule 144 may be amended from time
to time, or (ii) any similar rule or regulation hereafter adopted by the SEC.
Upon the request of any Holder of Registrable Shares, the Company will deliver
to such Holder, a written statement as to whether it has complied with such
requirements.
9. Rights Plan Amendment. Prior to the Effective Time (as defined in
the Merger Agreement), the Company shall have adopted the HCR Rights Plan
Amendment and from and after the Effective Time, the Company shall not amend or
modify such Rights Plan Amendment without the consent of Stewart Bainum Jr. or
his designee or adopt any stockholder rights plan after the Effective Time
inconsistent with the purposes of the Rights Plan Amendment.
10. Miscellaneous.
(a) Termination. This Agreement and the obligations of the
Company and the Holders hereunder (other than Section 7 hereof) shall terminate
on the first date on which no Registrable Shares remain outstanding.
(b) Notices. All notices, requests, demands and other
communications which are required or may be given under this Agreement shall be
in writing and shall be deemed to have been duly given when received if
personally delivered; when transmitted if transmitted by telecopy, electronic or
digital transmission method; the day after it is sent, if sent for next day
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delivery to a domestic address by recognized overnight delivery service (e.g.,
Federal Express); and upon receipt, if sent by certified or registered mail,
return receipt requested. In each case notice shall be sent to the address for
such party set forth on the signature page hereto, as such address may be
changed by notice thereof conforming herewith.
(c) Interpretation. When a reference is made in this Agreement
to Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. Headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Whenever the word "include," "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation". This Agreement shall not be construed for or against either party
by reason of the authorship or alleged authorship of any provision hereof or by
reason of the status of the respective parties. All terms defined in this
Agreement in the singular shall have the same comparable meanings when used in
the plural and vice versa, unless otherwise specified.
(d) Entire Agreement; No Third-Party Beneficiaries. This
Agreement 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 is not intended to confer upon any person other than
the parties hereto any rights or remedies hereunder.
(e) Assignment. Neither this Agreement nor any of the rights,
interests, or obligations hereunder shall be assigned (whether by operation of
law or otherwise) by any Holder without the consent of the Company, or by the
Company without the consent of Holders of at least a majority in number of the
Registrable Shares then outstanding provided that any Holder can assign its
rights hereunder to a Permitted Transferee without the consent of the Company.
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. In no event shall any transferee of Common Stock be entitled,
solely as a result of such transfer, to any of the benefits of this Agreement or
to enforce the same.
(f) Governing Law. The Laws of the State of Delaware shall
govern the interpretation, validity and performance of the terms of this
Agreement, regardless of the law that might be applied under principles of
conflicts of law. Any suit, action or proceeding by a party hereto with respect
to this Agreement, or any judgment entered by any court in respect of any
thereof, may be brought in any state or federal court of competent jurisdiction
in the State of Delaware, and each party hereto hereby submits to the exclusive
jurisdiction of such courts for the purpose of any such suit, action, proceeding
or judgment. By the execution and delivery of this Agreement, (i) the Company
appoints The Corporation Trust Company, at its office in Wilmington, Delaware,
as its agent upon which process may be served in any such suit, action or
proceeding and (ii) each Stockholder appoints CSC/The United States Corporation
Company in Wilmington, Delaware, as its agent upon which process may be served
in any such suit, action or proceeding. Service of process upon such agent,
together with notice of such service given to a party hereto in the manner
provided in Section 9(b) hereof, shall be deemed in every respect effective
service of process upon it in any suit, action or proceeding. Nothing herein
shall in any way be deemed to limit the ability of a party hereto to serve any
such writs, process or
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<PAGE> 18
summonses in any other manner permitted by applicable Law. Each party hereto
hereby irrevocably waives any objections which it may now or hereafter have to
the laying of the venue of any suit, action or proceeding arising out of or
relating to this Agreement brought in any state or federal court of competent
jurisdiction in the State of Delaware, and hereby further irrevocably waives any
claim that any such suit, action or proceeding brought in any such court has
been brought in any inconvenient forum. No suit, action or proceeding against a
party hereto with respect to this Agreement may be brought in any court,
domestic or foreign, or before any similar domestic or foreign authority other
than in a court of competent jurisdiction in the State of Delaware, and each
party hereto hereby irrevocably waives any right which it may otherwise have had
to bring such an action in any other court, domestic or foreign, or before any
similar domestic or foreign authority.
(g) Severability. Each party agrees that, should any court or
other competent authority hold any provision of this Agreement or part hereof to
be null, void or unenforceable, or order any party to take any action
inconsistent herewith or not to take an action consistent herewith or required
hereby, the validity, legality and enforceability of the remaining provisions
and obligations contained or set forth herein shall not in any way be affected
or impaired thereby. Upon any such holding that any provision of this Agreement
is null, void or unenforceable, the parties will negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner to the end that the transactions
contemplated by this Agreement are consummated to the extent possible. Except as
otherwise contemplated by this Agreement, to the extent that a party hereto took
an action inconsistent herewith or failed to take action consistent herewith or
required hereby pursuant to an order or judgment of a court or other competent
authority, such party shall incur no liability or obligation unless such party
did not in good faith seek to resist or object to the imposition or entering of
such order or judgment.
(h) Injunctive Relief. The parties acknowledge that it will be
impossible to measure in money the damages that would be suffered if the parties
fail to comply with any of the obligations herein imposed on them and that in
the event of any such failure, an aggrieved person or entity will be irreparably
damaged and will not have an adequate remedy at law. Any such person or entity
shall, therefore, be entitled to injunctive relief, including specific
performance, to enforce such obligations, and if any action should be brought in
equity to enforce any of the provisions of this Agreement, none of the parties
shall raise the defense that there is an adequate remedy at law.
(i) Attorneys' Fees. If any party to this Agreement brings an
action to enforce its rights under this Agreement, the prevailing party shall be
entitled to recover its costs and expenses, including without limitation
reasonable attorneys' fees, incurred in connection with such action, including
any appeal of such action.
(j) Cumulative Remedies. All rights and remedies of either
party hereto are cumulative of each other and of every other right or remedy
such party may otherwise have at law or in equity, and the exercise of one or
more rights or remedies shall not prejudice or impair the concurrent or
subsequent exercise of other rights or remedies.
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(k) Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same instrument and
shall become effective when executed and delivered by each of the parties.
(l) Amendments and Waivers. Except as otherwise provided herein,
the provisions of this Agreement may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, except in writing, by the Company and by the Holders of at least a
majority in number of the Registrable Shares then outstanding.
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first above written.
HEALTH CARE AND RETIREMENT
CORPORATION
By:
-------------------------------
a duly authorized signatory
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<PAGE> 20
Holder Signature Page for Registration Rights Agreement
HOLDER:
--------------------------------
(entity)
By:
------------------------------------
Title/Authority:
-----------------
Address:
-------------------------
-------------------------
-------------------------
Facsimile:
--------------
HOLDER:
(individual)
----------------------------------------
Print Name:
---------------------
Address:
-------------------------
-------------------------
-------------------------
Facsimile:
--------------
<PAGE> 1
EXHIBIT 5.1
[LATHAM & WATKINS LETTERHEAD]
August 17, 1998
Health Care and Retirement Corporation
One SeaGate
Toledo, Ohio 43604-2616
Re: Registration Statement on Form S-4;
70,000,000 shares of Common Stock, par value $.01 per share.
Ladies and Gentlemen:
In connection with the registration by Health Care and Retirement
Corporation, a Delaware corporation (the "Company"), of up to 70,000,000 shares
of common stock of the Company, par value $.01 per share (the "Shares"), under
the Securities Act of 1933, as amended (the "Act"), on Form S-4 filed with the
Securities and Exchange Commission on August 17, 1998 (the "Registration
Statement"), you have requested our opinion with respect to the matters set
forth below. The Registration Statement relates to the proposed issuance by the
Company of the Shares pursuant to the Amended and Restated Agreement and Plan of
Merger dated as of June 10, 1998 (the "Merger Agreement") by and among the
Company, Manor Care, Inc. and Catera Acquisition Corp., a wholly owned
subsidiary of the Company.
In our capacity as your counsel in connection with such registration, we
are familiar with the proceedings taken and proposed to be taken by the Company
in connection with the authorization, issuance and sale of the Shares, and for
the purposes of this opinion, have assumed such proceedings will be timely
completed in the manner presently proposed. In addition, we have made such legal
and factual examinations and inquiries, including an examination of originals or
copies certified or otherwise identified to our satisfaction of such documents,
corporate records and instruments, as we have deemed necessary or appropriate
for purposes of this opinion.
In our examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, and the conformity
to authentic original documents of all documents submitted to us as copies.
We are opining herein as to the effect on the subject transaction only of
the internal laws of the State of Delaware, and we express no opinion with
respect to the applicability thereto, or the effect thereon, of the laws of any
other jurisdiction or as to any matters of municipal law or the laws of any
other local agencies within the state.
Subject to the foregoing, it is our opinion that the Shares, when issued in
accordance with the terms and conditions of the Merger Agreement, will be
validly issued, fully paid and nonassessable.
We consent to your filing this opinion as an exhibit to the Registration
Statement and to the reference to our firm contained under the heading "Legal
Matters."
Very truly yours,
/s/ LATHAM & WATKINS
<PAGE> 1
EXHIBIT 8.1
[LATHAM & WATKINS LETTERHEAD]
August 17, 1998
Health Care and Retirement Corporation
One SeaGate
Toledo, Ohio 43604
Re: Health Care and Retirement Corporation -- Manor Care, Inc. Merger
Ladies and Gentlemen:
You have requested our opinion as to the proper federal income tax
characterization of the proposed merger (the "Merger") of Catera Acquisition
Corp. ("Sub"), a Delaware corporation and a direct, wholly-owned subsidiary of
Health Care and Retirement Corporation ("HCR"), a Delaware corporation, into
Manor Care, Inc. ("Manor Care"), a Delaware corporation, as contemplated by the
Amended and Restated Agreement and Plan of Merger dated as of June 10, 1998,
among Manor Care, HCR and Sub (such agreement, including all schedules and
exhibits thereto, hereinafter referred to as the "Merger Agreement"). All
capitalized terms not defined herein shall have the meanings ascribed to them in
the Merger Agreement.
We have reviewed the Merger Agreement, the Joint Proxy Statement/Prospectus
of HCR and Manor Care (the "Proxy Statement") forming part of the Registration
Statement on Form S-4 under the Securities Act of 1933, as amended, as filed by
HCR and Manor Care with the Securities and Exchange Commission, dated August 17,
1998 (the "Registration Statement"), and the Officer's Certificates of HCR and
Sub, and Manor Care, dated as of the date hereof (the "Officer's Certificates"),
and such other documents and records
<PAGE> 2
LATHAM & WATKINS
Health Care and Retirement Corporation
August 17, 1998
Page 2
as we have deemed necessary and appropriate for the purpose of this opinion. In
rendering this opinion, we have (with your permission) relied upon, and assumed
as correct and complete, the information contained in the Proxy Statement and
the factual representations set forth in the Officer's Certificates (including
assuming that any representation in such Certificates made "to the best of the
knowledge" of such officer, or similarly qualified, will be correct and complete
as of the Effective Time without such qualification) attached as exhibits to
this opinion, and we have assumed the complete performance of the Merger
Agreement and the consummation of the Merger and all other transactions
contemplated thereby in accordance with the Merger Agreement.
Based on such facts and assumptions, it is our opinion that the Merger will
be treated for federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), and none of HCR, Sub, Manor Care or the Manor Care stockholders shall
recognize gain or loss for federal income tax purposes as a result of the Merger
(other than with respect to any cash received in lieu of fractional shares of
HCR Common Stock). You have not requested, and we do not express, an opinion
concerning any other tax consequences of the Merger or any other transactions
contemplated by the Merger Agreement.
This opinion expresses our views only as to federal income tax laws in
effect as of the date hereof. It represents our best legal judgment as to the
matters addressed herein, but is not binding on the Internal Revenue Service or
the courts. Accordingly, no assurance can be given that the opinion expressed
herein, if contested, would be sustained by a court. Furthermore, the
authorities upon which we rely are subject to change either prospectively or
retroactively, and any variation or difference in the facts as incorporated
herein might affect the conclusions stated herein.
This opinion is intended solely for your use and may be relied upon only by
HCR and the holders of HCR Common Stock. This opinion may not be relied upon,
circulated, quoted or otherwise used by any other person without our prior
express written consent. We consent to the filing of this opinion as an exhibit
to the Registration Statement and to the use of our name under the caption "The
Merger -- Certain Federal Income Tax Consequences" in the Registration
Statement.
Very truly yours,
/s/ LATHAM & WATKINS
<PAGE> 1
EXHIBIT 8.2
[CAHILL GORDON & REINDEL LETTERHEAD]
August 17, 1998
Manor Care, Inc.
11555 Darnestown Road
Gaithersburg, Maryland 20878
Ladies and Gentlemen:
You have requested our opinion as to whether the proposed merger (the
"Merger") of Catera Acquisition Corp. ("Subco"), a Delaware corporation that is
a direct, wholly-owned subsidiary of Health Care and Retirement Corporation, a
Delaware corporation ("Parent"), with and into Manor Care, Inc., a Delaware
corporation (the "Company"), will constitute a "reorganization" within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"). Any capitalized terms not defined herein have the meanings ascribed to
them in the Amended and Restated Agreement and Plan of Merger by and among
Parent, Subco and the Company dated as of June 10, 1998 (such agreement,
including all schedules and exhibits thereto, hereinafter referred to as the
"Merger Agreement").
In rendering this opinion, we have relied, with your consent, upon the
following assumptions:
1. The representations and undertakings of Parent set forth in the
Certificate attached hereto as Exhibit A, and the representations and
undertakings of the Company set forth in the Certificate attached hereto as
Exhibit B, are accurate and complete, and will be accurate and complete as
of the Effective Time, in each case without regard to any qualification as
to knowledge and belief;
2. The Merger will be consummated in accordance with the Agreement;
3. The Registration Statement on Form S-4 (the "Registration
Statement") covering the registration of HCR Common Stock under the
Securities Act of 1933, as amended (the "Act"), as filed by Parent with the
Securities and Exchange Commission ("SEC") on August 17, 1998, is accurate
and complete.
This opinion is based upon existing laws, regulations, Internal Revenue
Service positions, and judicial decisions, any of which may be changed at any
time with retroactive effect. We assume no obligation to modify or supplement
our opinion if, after the date hereof, any such laws, regulations, positions, or
decisions change or we become aware of any facts that might change our opinion.
Based on and subject to the foregoing assumptions, we are of the opinion
that, for federal income tax purposes:
a) the Merger will be treated as a reorganization within the meaning
of Section 368(a) of the Code; and
b) no gain or loss will be recognized by Parent, Subco, the Company or
any Company stockholder as a result of the Merger (except with respect to
any cash received in lieu of a fractional share of HCR Common Stock).
This opinion is intended only for the use of the Company in connection with
the Merger. This opinion may not be relied upon, or quoted in whole or in part,
by any other person or for any other purpose.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the Registration Statement
and in the Joint Proxy Statement/Prospectus included therein. Our consent to
such reference does not constitute a consent under Section 7 of the Act, as in
consenting to such reference we have not certified any part of such Registration
Statement and do not otherwise come within the categories of persons whose
consent is required under Section 7 or under the rules and regulations of the
SEC thereunder.
Very truly yours,
/s/ CAHILL GORDON & REINDEL
<PAGE> 1
EXHIBIT 10.1
EXECUTIVE RETENTION AGREEMENT
This EXECUTIVE RETENTION AGREEMENT ("Agreement"), effective as of June 9,
1998 (the "Effective Date"), is made by and among HEALTH CARE AND RETIREMENT
CORPORATION OF AMERICA, an Ohio corporation (the "Company"), HEALTH CARE AND
RETIREMENT CORPORATION, a Delaware corporation and sole stockholder of the
Company ("HCR) and Paul A. Ormond (the "Employee").
RECITALS
A. The Company, HCR and the Employee are parties to that certain
Second Amended Employment Agreement effective as of April 1, 1997
(the "SAEA").
B. HCR is presently negotiating the acquisition of Manor Care,
Inc. pursuant to a transaction (the "HCR-Manor Care Merger") in
which Manor Care, Inc. will merge with and into a wholly-owned
subsidiary of HCR, and which will constitute a Change in Control
under the SAEA.
C. In order to assure itself of the continuity of management
following the consummation of the HCR-Manor Care Merger, the Company
desires to retain the services of the Employee through such
consummation by establishing certain incentives for the Employee's
continued employment.
AGREEMENT
In consideration of the foregoing, and for other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, the
Employee and the Company hereby agree as follows:
1. CERTAIN DEFINED TERMS. The following terms have the meanings set
forth below. Each capitalized term used but not defined herein shall have the
meaning assigned to such term under the SAEA.
(a) "1998 Aggregate Cash Compensation" means the sum of: (i) the
Employee's Base Pay Rate effective as of the Transaction Date as set
forth on Schedule I hereto; and (ii) the aggregate cash bonuses payable
to the Employee in respect of calendar year 1998 pursuant to the
Company's Annual Incentive Plan and Performance Award Plan, as determined
by the Compensation Committee of the Board.
(b) "Lump Sum Severance" means the lump sum severance payment
specified at Section 8(b)(i) of the SAEA.
(c) "Option" means the option to purchase shares of common stock of
HCR granted to Manor Care, Inc. pursuant to the agreement governing the
HCR-Manor Care Merger.
<PAGE> 2
(d) "Other Severance Benefits" means, collectively, the payments
and benefits provided by Sections 8(b)(ii), (iii) and (v) of the SAEA.
(e) "Transaction Date" means the date of consummation of the
HCR-Manor Care Merger.
2. AMENDMENT TO SAEA. This Agreement shall constitute an amendment to the
SAEA, effective as of the Effective Date; provided, however, that the SAEA
shall survive the Effective Date and the Transaction Date and remain in full
force and effect to the extent not amended hereunder. In the event of any
conflict between this Agreement and the SAEA, the terms of this Agreement shall
control.
3. CONTINUED EMPLOYMENT; SEVERANCE PAYMENT.
(a) The Company hereby agrees to employ the Employee, and the Employee
agrees to serve the Company for the period set forth in this Section 3, in
the position(s) and at the initial Base Pay Rate set forth in Schedule I
attached hereto and upon the other terms and conditions provided herein and
in the SAEA. The initial term of employment under this Agreement (the
"Initial Term") shall be for the period beginning on the Effective Date and
ending on the third anniversary thereof, unless sooner terminated as
provided herein or in the SAEA.
(b) The employment term hereunder shall automatically be extended for
successive one year periods (collectively with the Initial Term, the
"Term") unless either party gives notice of non-extension to the other no
later than 90 days prior to the expiration of the then-applicable Term.
(c) The provisions of Sections 7(c) through (e) of the SAEA are hereby
amended to delete the phrase "for a period of two years after such
Termination Date" from each occurrence thereof and to insert in lieu
thereof the phrase "for a period of three years after such Termination
Date."
4. ENTIRE AGREEMENT. This Agreement, the SAEA and the agreements listed
in Schedule II attached hereto constitute the complete agreement between the
Employee and the Company regarding any and all aspects of their employment
relationship and supersede any and all prior written or oral agreements,
understandings or commitments. The Employee understands that no representative
of the Company has been authorized to enter into any agreement, understanding or
commitment with the Employee which is inconsistent in any way with the terms of
this Agreement.
5. PROHIBITION AGAINST AMENDMENT. No term set forth in this Agreement may
be modified in any way except by a written agreement signed by the Employee and
by an authorized representative of the Company which expressly states the
intention of the parties to modify the terms of this Agreement.
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<PAGE> 3
6. RETENTION BONUS.
(a) Subject to the Employee's employment with the Company immediately
prior to the Transaction Date and his compliance with the terms of this
Agreement, the Company shall pay the Employee, within five days following
the Board meeting in calendar year 1999 at which the Board approves the
Company's 1998 financial statements, a cash lump sum payment equal to three
times the 1998 Aggregate Cash Compensation (the "Retention Bonus"). Payment
of the Retention Bonus shall be subject to the provisions of Section 10 of
the SAEA.
(b) In the event the Employee's employment with the Company is
terminated as a result of the Employee's electing to resign or to retire
without the consent of the Company (other than by reason of his disability)
and other than pursuant to Section 7(d) hereof within the three-year period
ending on the third anniversary of the Transaction Date, the Employee shall
return to the Company, in cash in a lump sum within 5 days of such
Termination Date, that portion of the Retention Bonus and any additional
payments in respect thereof pursuant to Section 10 of the SAEA equal to the
product of: (i) the Retention Bonus; and (ii) a fraction, the numerator of
which is the excess of 1095 over the number of days elapsed during the
period beginning on the Transaction Date and ending on the Termination
Date, and the denominator of which is 1095. The provisions of Section 10 of
the SAEA shall apply to the pro rata return of the Retention Bonus pursuant
to this Section 6.
7. ELIGIBILITY FOR SEVERANCE BENEFITS.
(a) The Employee hereby agrees that notwithstanding the provisions of
Section 1(f)(iii) of the SAEA the filing by Manor Care, Inc. of a report on
Schedule 13D or Schedule 14D-1 in connection with its receipt or exercise
of the Option shall not constitute a Change in Control under the SAEA.
(b) Notwithstanding the consummation of the HCR-Manor Care Merger, the
Employee hereby waives his eligibility for all Severance Benefits provided
by Sections 8(b)(i) through (v) in connection with any termination of his
employment pursuant to Section 8(a)(iii) of the SAEA in connection with
such transaction. Notwithstanding the foregoing, nothing herein shall
constitute a waiver of eligibility for the Lump Sum Severance or the Other
Severance Benefits in connection with the employee's termination of
employment pursuant to Section 8(a)(iii) of the SAEA following any
transaction other than the HCR-Manor Care Merger that occurs after the
Transaction Date and that constitutes a Change in Control.
(c) Notwithstanding the occurrence as of the Transaction Date of any
event set forth in Sections (A) through (D) of Section 8(a)(ii) of the
SAEA, the Employee hereby waives his eligibility for the Lump Sum Severance
and the Other Severance Benefits in connection with any termination of his
employment pursuant to Section 8(a)(ii) of the SAEA in connection with the
HCR-Manor Care Merger.
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(d) Notwithstanding Sections 7(a) or (b) above, following the
Transaction Date the Employee may elect, within the 60-day period following
the occurrence of one of the following events, to terminate employment with
the Company and receive the Other Severance Benefits (pursuant to written
notice to the Board specifying the effective date of such termination which
shall not be earlier than the fifth day following the date of the Board's
receipt of such notice and shall not be later than the end of such 60-day
period):
(i) Failure to elect or reelect or otherwise to maintain the
Employee in the office or position, or a substantially equivalent
office or position, of or with the Company, which the Employee held
immediately following the Transaction Date, or the failure to elect or
reelect, or the removal of, the Employee as a Director if the Employee
shall have been a Director immediately following the Transaction Date;
(ii) The occurrence of any of the following:
(A) a significant adverse change in the nature or scope of
the authorities, powers, functions, responsibilities or duties
attached to the position with the Company which the Employee held
immediately following the Transaction Date;
(B) a reduction in the Employee's Base Pay as in effect
immediately following the Transaction Date;
(C) a material reduction in the scope or value of Employee
Benefits as in effect immediately following the Transaction Date;
or
(D) any material breach of this Agreement or the SAEA by
the Company or any successor thereto,
which situation is not remedied within 10 calendar days after written
notice to the Board (or the board of any successor) from the Employee;
(iii) The liquidation, dissolution, merger, consolidation or
reorganization of the Company or transfer of all or substantially all
of its business and/or assets, unless the surviving or successor
entity, if other than the Company (by liquidation, merger,
consolidation, reorganization, transfer or otherwise), to which all or
substantially all of such business and/or assets have been transferred
(directly or by operation of law) assumes all duties and obligations
of the Company under this Agreement and the SAEA pursuant to Section
12(a) hereof and Section 16(a) of the SAEA; or
(iv) The Company or any successor, as the case may be, by which
the Employee is employed relocates its principal executive offices, or
requires the Employee to have his principal location of work changed,
to any location which
4
<PAGE> 5
increases by more than 25 miles the Employee's commute to such
location immediately following the Transaction Date, or requires the
Employee to travel away from his office in the course of discharging
his responsibilities or duties hereunder and under the SAEA at least
20% more (in terms of aggregate days in any calendar year or in any
calendar quarter when annualized for purposes of comparison to any
prior year) than the average of such time that was required of the
Employee in the three full years immediately prior to the Transaction
Date without, in either case, his prior written consent.
(e) Nothing herein shall constitute a waiver of the Employee's
eligibility for the benefits provided by Section 14 of the SAEA in
connection with the HCR-Manor Care Merger.
(f) In the event the Employee's employment with the Company is
terminated by the Company other than for Cause or disability (pursuant to
Section 7(c) of the SAEA) during the three-year period ending on the third
anniversary of the Transaction Date, in addition to any payments and
benefits provided under the SAEA, the Employee will be entitled to the
Other Severance Benefits.
8. RETIREMENT BENEFIT. In the event the Employee's employment with the
Company is terminated for any reason other than by the Company for Cause
(pursuant to Section 7(a) or (c) through (e) of the SAEA), after the
Transaction Date and prior to the Employee's attainment of age 55 or prior to
the fifth anniversary of the Transaction Date, the Employee's qualified and
non-qualified defined benefit retirement plan benefits shall be calculated as
if on the Termination Date the Employee had attained at least age 55 and
completed at least five years of service from and after the Transaction Date.
Any additional benefit to which the Employee is entitled pursuant to this
Section 8 shall be paid either by the Company directly or pursuant to the terms
of the non-qualified plan.
9. TERMINATION OF THIS AGREEMENT. In the event the agreement governing
the HCR-Manor Care Merger is terminated: (i) this Agreement shall terminate as
of the date of such abandonment and thereafter shall be of no further force and
effect; and (ii) the provisions of the SAEA shall continue in effect without
amendment or modification by this Agreement.
10. LEGAL FEES AND EXPENSES. It is the intent of the Company that the
Employee not be required to incur legal fees and the related expenses associated
with the interpretation, enforcement or defense of the Employee's rights under
this Agreement by litigation or otherwise because the cost and expense thereof
would substantially detract from the benefits intended to be extended to the
Employee hereunder. Accordingly, if the Company fails to comply with any of its
obligations under this Agreement or in the event that the Company or any other
person takes any action to declare this Agreement void or unenforceable, or
institutes any litigation or other action or proceeding designed to deny, or to
recover from, the Employee the benefits provided or intended to be provided to
the Employee hereunder, the Company irrevocably authorizes the Employee from
time to time to retain counsel of the Employee's choice, at the expense of the
Company as hereafter provided, to advise and represent the Employee in
connection with any
5
<PAGE> 6
such interpretation, enforcement or defense, including, without limitation, the
initiation or defense of any litigation or other legal action, whether by or
against the Company or any Director, officer, stockholder or other person
affiliated with the Company, in any jurisdiction. Without respect to whether
the Employee prevails, in whole or in part, in connection with any of the
foregoing, the Company will pay and be solely financially responsible for any
and all reasonable attorneys' and related fees and expenses by the Employee in
connection with any of the foregoing.
11. WITHHOLDING OF TAXES. The Company may withhold from any amounts
payable under this Agreement all federal, state, city or other taxes as the
Company is required to withhold pursuant to any law or governmental regulation
or ruling.
12. SUCCESSORS AND BINDING AGREEMENT.
(a) The Company will require all successors (whether direct or
indirect, by purchase, merger, consolidation, reorganization or otherwise)
to any substantial portion of the business or assets of the Company, by
agreement in form and substance satisfactory to the Employee, jointly and
severally expressly to assume and agree to perform this Agreement in the
same manner and to the same extent the Company would be required to perform
if no such succession had taken place. This Agreement will be binding upon
and inure to the benefit of the Company and any successor to the Company,
including without limitation any persons acquiring directly or indirectly
all or substantially all of the business or assets of the Company whether
by purchase, merger, consolidation, reorganization or otherwise (and such
successor shall thereafter be deemed the "Company" for the purposes of this
Agreement), but will not otherwise be assignable, transferable or delegable
by the Company.
(b) This Agreement will inure to the benefit of and be enforceable by
the Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees and legatees.
(c) This Agreement is personal in nature and neither of the parties
hereto shall, without the consent of the other, assign, transfer or
delegate this Agreement or any rights or obligations hereunder except as
expressly provided in Sections 14(a) and 14(b) hereof. Without limiting
the generality or effect of the foregoing, the Employee's right to receive
payments hereunder will not be assignable, transferable or delegable,
whether by pledge, creation of a security interest, or otherwise, other
than by a transfer by the Employee's will or by the laws of descent and
distribution and, in the event of any attempted assignment or transfer
contrary to this Section 14(c), the Company shall have no liability to pay
any amount so attempted to be assigned, transferred or delegated.
13. Notices. Notices for all purposes of this Agreement shall be
subject to Section 17 of the SAEA.
6
<PAGE> 7
14. Governing Law. The validity, interpretation, construction and
performance of this Agreement will be governed by and construed in accordance
with the substantive laws of the State of Delaware, without giving effect to the
principles of conflict of laws of such State.
15. Validity. If any provision of this Agreement or the application of
any provision hereof to any person or circumstances is held invalid,
unenforceable or otherwise illegal, the remainder of this Agreement and the
application of such provision to any other person or circumstances will not be
affected, and the provision so held to be invalid, unenforceable or otherwise
illegal will be reformed to the extent (and only to the extent) necessary to
make it enforceable, valid or legal.
16. Miscellaneous. No waiver by either party hereto at any time of any
breach by the other party hereto or compliance with any condition or provision
of this Agreement to be performed by such other party will be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, expressed
or implied with respect to the subject matter hereof have been made by either
party which are not set forth expressly in this Agreement. References to
Sections are to references to Sections of this Agreement, except where expressly
provided to the contrary.
17. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original but all of which
together will constitute one and the same agreement.
18. Titles. Paragraph titles are provided herein for convenience only and
are not to serve as a basis for interpretation or construction of this
Agreement.
[signature page follows]
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
THE COMPANY:
HEALTH CARE AND RETIREMENT
CORPORATION OF AMERICA
By: _______________________________
Its: _______________________________
HEALTH CARE AND RETIREMENT
CORPORATION
By: _______________________________
Its: _______________________________
THE EMPLOYEE:
___________________________________
8
<PAGE> 9
SCHEDULE I
Employee: Paul A. Ormond
Current Base Pay Rate: $543,000
Current Job Titles: Chairman, President and Chief
Executive Officer
Base Pay Rate
effective as of the
Transaction Date: $700,000
Job Titles effective
as of the Transaction
Date: President and Chief Executive Officer
<PAGE> 10
SCHEDULE II
Annual Incentive Plan
Performance Award Plan
Stock Option Plan
Restricted Stock Plan
Salary Retirement Plan (prior to January 1, 1993)
Stock Purchase and Savings Program (prior to January 1, 1993)
Senior Executive Retirement Plans
Supplemental Offset Plan
Excess and Supplemental Benefit Plans
Corporate Officer and Senior Executive Life Insurance Program
Senior Management Savings Plan
Senior Management Savings Plan For Corporate Officers
Such other benefit plans and arrangements as the Company provides, from time to
time, to salaried employees generally participation in which is approved by the
President.
<PAGE> 1
EXHIBIT 10.2
EXECUTIVE RETENTION AGREEMENT
This EXECUTIVE RETENTION AGREEMENT ("Agreement"), effective as of June 9,
1998 (the "Effective Date"), is made by and among HEALTH CARE AND RETIREMENT
CORPORATION OF AMERICA, an Ohio corporation (the "Company"), HEALTH CARE AND
RETIREMENT CORPORATION, a Delaware corporation and sole stockholder of the
Company ("HCR) and M. Keith Weikel (the "Employee").
RECITALS
A. The Company, HCR and the Employee are parties to that certain Second
Amended Employment Agreement effective as of April 1, 1997 (the
"SAEA").
B. HCR is presently negotiating the acquisition of Manor Care, Inc.
pursuant to a transaction (the "HCR-Manor Care Merger") in which Manor
Care, Inc. will merge with and into a wholly-owned subsidiary of HCR,
and which will constitute a Change in Control under the SAEA.
C. In order to assure itself of the continuity of management following
the consummation of the HCR-Manor Care Merger, the Company desires to
retain the services of the Employee through such consummation by
establishing certain incentives for the Employee's continued
employment.
AGREEMENT
In consideration of the foregoing, and for other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, the
Employee and the Company hereby agree as follows:
1. CERTAIN DEFINED TERMS. The following terms have the meanings set
forth below. Each capitalized term used but not defined herein shall have the
meaning assigned to such term under the SAEA.
(a) "1998 Aggregate Cash Compensation" means the sum of: (i) the
Employee's Base Pay Rate effective as of the Transaction Date as set forth
on Schedule I hereto; and (ii) the aggregate cash bonuses payable to the
Employee in respect of calendar year 1998 pursuant to the Company's Annual
Incentive Plan and Performance Award Plan, as determined by the
Compensation Committee of the Board.
(b) "Lump Sum Severance" means the lump sum severance payment
specified at Section 8(b)(i) of the SAEA.
(c) "Option" means the option to purchase shares of common stock of
HCR granted to Manor Care, Inc. pursuant to the agreement governing the
HCR-Manor Care Merger.
<PAGE> 2
(d) "Other Severance Benefits" means, collectively, the payments and
benefits provided by Sections 8(b)(ii), (iii) and (v) of the SAEA.
(e) "Transaction Date" means the date of consummation of the
HCR-Manor Care Merger.
2. AMENDMENT TO SAEA. This Agreement shall constitute an amendment to
the SAEA, effective as of the Effective Date; provided, however, that the SAEA
shall survive the Effective Date and the Transaction Date and remain in full
force and effect to the extent not amended hereunder. In the event of any
conflict between this Agreement and the SAEA, the terms of this Agreement shall
control.
3. CONTINUED EMPLOYMENT; SEVERANCE PAYMENT.
(a) The Company hereby agrees to employ the Employee, and the
Employee agrees to serve the Company for the period set forth in this
Section 3, in the position(s) and at the initial Base Pay Rate set forth in
Schedule I attached hereto and upon the other terms and conditions provided
herein and in the SAEA. The initial term of employment under this
Agreement (the "Initial Term") shall be for the period beginning on the
Effective Date and ending on the third anniversary thereof, unless sooner
terminated as provided herein or in the SAEA.
(b) The employment term hereunder shall automatically be extended for
successive one year periods (collectively with the Initial Term, the
"Term") unless either party gives notice of non-extension to the other no
later than 90 days prior to the expiration of the then-applicable Term.
(c) The provisions of Sections 7(c) through (e) of the SAEA are
hereby amended to delete the phrase "for a period of one year after such
Termination Date" from each occurrence thereof and to insert in lieu
thereof the phrase "for a period of three years after such Termination
Date."
4. ENTIRE AGREEMENT. This Agreement, the SAEA and the agreements listed
in Schedule II attached hereto constitute the complete agreement between the
Employee and the Company regarding any and all aspects of their employment
relationship and supersede any and all prior written or oral agreements,
understandings or commitments. The Employee understands that no representative
of the Company has been authorized to enter into any agreement, understanding or
commitment with the Employee which is inconsistent in any way with the terms of
this Agreement.
5. PROHIBITION AGAINST AMENDMENT. No term set forth in this Agreement
may be modified in any way except by a written agreement signed by the Employee
and by an authorized representative of the Company which expressly states the
intention of the parties to modify the terms of this Agreement.
2
<PAGE> 3
6. RETENTION BONUS.
(a) Subject to the Employee's employment with the Company immediately
prior to the Transaction Date and his compliance with the terms of this
Agreement, the Company shall pay the Employee, within five days following
the Board meeting in calendar year 1999 at which the Board approves the
Company's 1998 financial statements, a cash lump sum payment equal to three
times the 1998 Aggregate Cash Compensation (the "Retention Bonus"). Payment
of the Retention Bonus shall be subject to the provisions of Section 10 of
the SAEA.
(b) In the event the Employee's employment with the Company is
terminated as a result of the Employee's electing to resign or to retire
without the consent of the Company (other than by reason of his disability)
and other than pursuant to Section 7(d) hereof within the three-year period
ending on the third anniversary of the Transaction Date, the Employee shall
return to the Company, in cash in a lump sum within 5 days of such
Termination Date, that portion of the Retention Bonus and any additional
payments in respect thereof pursuant to Section 10 of the SAEA equal to the
product of: (i) the Retention Bonus; and (ii) a fraction, the numerator of
which is the excess of 1095 over the number of days elapsed during the
period beginning on the Transaction Date and ending on the Termination
Date, and the denominator of which is 1095. The provisions of Section 10 of
the SAEA shall apply to the pro rata return of the Retention Bonus pursuant
to this Section 6.
7. ELIGIBILITY FOR SEVERANCE BENEFITS.
(a) The Employee hereby agrees that notwithstanding the provisions of
Section 1(f)(iii) of the SAEA the filing by Manor Care, Inc. of a report on
Schedule 13D or Schedule 14D-1 in connection with its receipt or exercise
of the Option shall not constitute a Change in Control under the SAEA.
(b) Notwithstanding the consummation of the HCR-Manor Care Merger,
the Employee hereby waives his eligibility for all Severance Benefits
provided by Sections 8(b)(i) through (v) in connection with any termination
of his employment pursuant to Section 8(a)(iii) of the SAEA in connection
with such transaction. Notwithstanding the foregoing, nothing herein shall
constitute a waiver of eligibility for the Lump Sum Severance or the Other
Severance Benefits in connection with the employee's termination of
employment pursuant to Section 8(a)(iii) of the SAEA following any
transaction other than the HCR-Manor Care Merger that occurs after the
Transaction Date and that constitutes a Change in Control.
(c) Notwithstanding the occurrence as of the Transaction Date of any
event set forth in Sections (A) through (D) of Section 8(a)(ii) of the
SAEA, the Employee hereby waives his eligibility for the Lump Sum Severance
and the Other Severance Benefits in connection with any termination of his
employment pursuant to Section 8(a)(ii) of the SAEA in connection with the
HCR-Manor Care Merger.
3
<PAGE> 4
(d) Notwithstanding Sections 7(a) or (b) above, following the Transaction
Date the Employee may elect, within the 60-day period following the occurrence
of one of the following events, to terminate employment with the Company and
receive the Other Severance Benefits (pursuant to written notice to the Board
specifying the effective date of such termination which shall not be earlier
than the fifth day following the date of the Board's receipt of such notice and
shall not be later than the end of such 60-day period):
(i) Failure to elect or reelect or otherwise to maintain the Employee
in the office or position, or a substantially equivalent office or
position, of or with the Company, which the Employee held immediately
following the Transaction Date, or the failure to elect or reelect, or the
removal of, the Employee as a Director if the Employee shall have been a
Director immediately following the Transaction Date;
(ii) The occurrence of any of the following:
(A) a significant adverse change in the nature or scope of the
authorities, powers, functions, responsibilities or duties attached to
the position with the Company which the Employee held immediately
following the Transaction Date;
(B) a reduction in the Employee's Base Pay as in effect
immediately following the Transaction Date;
(C) a material reduction in the scope or value of Employee
Benefits as in effect immediately following the Transaction Date; or
(D) any material breach of this Agreement or the SAEA by the
Company or any successor thereto,
which situation is not remedied within 10 calendar days after written
notice to the Board (or the board of any successor) from the Employee;
(iii) The liquidation, dissolution, merger, consolidation or
reorganization of the Company or transfer of all or substantially all of
its business and/or assets, unless the surviving or successor entity, if
other than the Company (by liquidation, merger, consolidation,
reorganization, transfer or otherwise), to which all or substantially all
of such business and/or assets have been transferred (directly or by
operation of law) assumes all duties and obligations of the Company under
this Agreement and the SAEA pursuant to Section 12(a) hereof and Section
16(a) of the SAEA; or
(iv) The Company or any successor, as the case may be, by which the
Employee is employed relocates its principal executive offices, or requires
the Employee to have his principal location of work changed, to any
location which
4
<PAGE> 5
increases by more than 25 miles the Employee's commute to such
location immediately following the Transaction Date, or requires the
Employee to travel away from his office in the course of discharging
his responsibilities or duties hereunder and under the SAEA at least
20% more (in terms of aggregate days in any calendar year or in any
calendar quarter when annualized for purposes of comparison to any
prior year) than the average of such time that was required of the
Employee in the three full years immediately prior to the Transaction
Date without, in either case, his prior written consent.
(e) Nothing herein shall constitute a waiver of the Employee's
eligibility for the benefits provided by Section 14 of the SAEA in
connection with the HCR-Manor Care Merger.
(f) In the event the Employee's employment with the Company is
terminated by the Company other than for Cause or disability (pursuant to
Section 7(c) of the SAEA) during the three-year period ending on the third
anniversary of the Transaction Date, in addition to any payments and
benefits provided under the SAEA, the Employee will be entitled to the
Other Severance Benefits.
8. RETIREMENT BENEFIT. In the event the Employee's employment with the
Company is terminated for any reason other than by the Company for Cause
(pursuant to Section 7(a) or (c) through (e) of the SAEA), after the Transaction
Date and prior to the Employee's attainment of age 55 or prior to the fifth
anniversary of the Transaction Date, the Employee's qualified and non-qualified
defined benefit retirement plan benefits shall be calculated as if on the
Termination Date the Employee had attained at least age 55 and completed at
least five years of service from and after the Transaction Date. Any additional
benefit to which the Employee is entitled pursuant to this Section 8 shall be
paid either by the Company directly or pursuant to the terms of the
non-qualified plan.
9. TERMINATION OF THIS AGREEMENT. In the event the agreement governing
the HCR-Manor Care Merger is terminated: (i) this Agreement shall terminate as
of the date of such abandonment and thereafter shall be of no further force and
effect; and (ii) the provisions of the SAEA shall continue in effect without
amendment or modification by this Agreement.
10. LEGAL FEES AND EXPENSES. It is the intent of the Company that the
Employee not be required to incur legal fees and the related expenses associated
with the interpretation, enforcement or defense of the Employee's rights under
this Agreement by litigation or otherwise because the cost and expense thereof
would substantially detract from the benefits intended to be extended to the
Employee hereunder. Accordingly, if the Company fails to comply with any of its
obligations under this Agreement or in the event that the Company or any other
person takes any action to declare this Agreement void or unenforceable, or
institutes any litigation or other action or proceeding designed to deny, or to
recover from, the Employee the benefits provided or intended to be provided to
the Employee hereunder, the Company irrevocably authorizes the Employee from
time to time to retain counsel of the Employee's choice, at the expense of the
Company as hereafter provided, to advise and represent the Employee in
connection with any
5
<PAGE> 6
such interpretation, enforcement or defense, including, without limitation, the
initiation or defense of any litigation or other legal action, whether by or
against the Company or any Director, officer, stockholder or other person
affiliated with the Company, in any jurisdiction. Without respect to whether
the Employee prevails, in whole or in part, in connection with any of the
foregoing, the Company will pay and be solely financially responsible for any
and all reasonable attorneys' and related fees and expenses by the Employee in
connection with any of the foregoing.
11. WITHHOLDING OF TAXES. The Company may withhold from any amounts
payable under this Agreement all federal, state, city or other taxes as the
Company is required to withhold pursuant to any law or governmental regulation
or ruling.
12. SUCCESSORS AND BINDING AGREEMENT.
(a) The Company will require all successors (whether direct or
indirect, by purchase, merger, consolidation, reorganization or otherwise)
to any substantial portion of the business or assets of the Company, by
agreement in form and substance satisfactory to the Employee, jointly and
severally expressly to assume and agree to perform this Agreement in the
same manner and to the same extent the Company would be required to perform
if no such succession had taken place. This Agreement will be binding upon
and inure to the benefit of the Company and any successor to the Company,
including without limitation any persons acquiring directly or indirectly
all or substantially all of the business or assets of the Company whether
by purchase, merger, consolidation, reorganization or otherwise (and such
successor shall thereafter be deemed the "Company" for the purposes of this
Agreement), but will not otherwise be assignable, transferable or delegable
by the Company.
(b) This Agreement will inure to the benefit of and be enforceable by
the Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees and legatees.
(c) This Agreement is personal in nature and neither of the parties
hereto shall, without the consent of the other, assign, transfer or
delegate this Agreement or any rights or obligations hereunder except as
expressly provided in Sections 14(a) and 14(b) hereof. Without limiting
the generality or effect of the foregoing, the Employee's right to receive
payments hereunder will not be assignable, transferable or delegable,
whether by pledge, creation of a security interest, or otherwise, other
than by a transfer by the Employee's will or by the laws of descent and
distribution and, in the event of any attempted assignment or transfer
contrary to this Section 14(c), the Company shall have no liability to pay
any amount so attempted to be assigned, transferred or delegated.
13. Notices. Notices for all purposes of this Agreement shall be subject
to Section 17 of the SAEA.
6
<PAGE> 7
14. Governing Law. The validity, interpretation, construction and
performance of this Agreement will be governed by and construed in accordance
with the substantive laws of the State of Delaware, without giving effect to the
principles of conflict of laws of such State.
15. Validity. If any provision of this Agreement or the application of
any provision hereof to any person or circumstances is held invalid,
unenforceable or otherwise illegal, the remainder of this Agreement and the
application of such provision to any other person or circumstances will not be
affected, and the provision so held to be invalid, unenforceable or otherwise
illegal will be reformed to the extent (and only to the extent) necessary to
make it enforceable, valid or legal.
16. Miscellaneous. No waiver by either party hereto at any time of any
breach by the other party hereto or compliance with any condition or provision
of this Agreement to be performed by such other party will be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, expressed
or implied with respect to the subject matter hereof have been made by either
party which are not set forth expressly in this Agreement. References to
Sections are to references to Sections of this Agreement, except where expressly
provided to the contrary.
16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original but all of which
together will constitute one and the same agreement.
17. Titles. Paragraph titles are provided herein for convenience only and
are not to serve as a basis for interpretation or construction of this
Agreement.
[signature page follows]
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
THE COMPANY:
HEALTH CARE AND RETIREMENT
CORPORATION OF AMERICA
By: _______________________________
Its: _______________________________
HEALTH CARE AND RETIREMENT
CORPORATION
By: _______________________________
Its: _______________________________
THE EMPLOYEE:
___________________________________
8
<PAGE> 9
SCHEDULE I
<TABLE>
<CAPTION>
<S> <C>
Employee: M. Keith Weikel
Current Base Pay Rate: $345,000
Current Job Titles: Executive Vice President and Chief Operating Officer
Base Pay Rate effective as of the Transaction
Date: $450,000
Job Titles effective as of the Transaction Date: Executive Vice President and Chief Operating Officer
</TABLE>
<PAGE> 10
SCHEDULE II
Annual Incentive Plan
Performance Award Plan
Stock Option Plan
Restricted Stock Plan
Salary Retirement Plan (prior to January 1, 1993)
Stock Purchase and Savings Program (prior to January 1, 1993)
Senior Executive Retirement Plans
Supplemental Offset Plan
Excess and Supplemental Benefit Plans
Corporate Officer and Senior Executive Life Insurance Program
Senior Management Savings Plan
Senior Management Savings Plan For Corporate Officers
Such other benefit plans and arrangements as the Company provides, from time to
time, to salaried employees generally participation in which is approved by the
President.
<PAGE> 1
EXHIBIT 10.3
EXECUTIVE RETENTION AGREEMENT
This EXECUTIVE RETENTION AGREEMENT ("Agreement"), effective as of June 9,
1998 (the "Effective Date"), is made by and among HEALTH CARE AND RETIREMENT
CORPORATION OF AMERICA, an Ohio corporation (the "Company"), HEALTH CARE AND
RETIREMENT CORPORATION, a Delaware corporation and sole stockholder of the
Company ("HCR) and Geoffrey G. Meyers (the "Employee").
RECITALS
A. The Company, HCR and the Employee are parties to that certain Second
Amended Employment Agreement effective as of April 1, 1997 (the
"SAEA").
B. HCR is presently negotiating the acquisition of Manor Care, Inc.
pursuant to a transaction (the "HCR-Manor Care Merger") in which Manor
Care, Inc. will merge with and into a wholly-owned subsidiary of HCR,
and which will constitute a Change in Control under the SAEA.
C. In order to assure itself of the continuity of management following
the consummation of the HCR-Manor Care Merger, the Company desires to
retain the services of the Employee through such consummation by
establishing certain incentives for the Employee's continued
employment.
AGREEMENT
In consideration of the foregoing, and for other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, the
Employee and the Company hereby agree as follows:
1. CERTAIN DEFINED TERMS. The following terms have the meanings set
forth below. Each capitalized term used but not defined herein shall have the
meaning assigned to such term under the SAEA.
(a) "1998 Aggregate Cash Compensation" means the sum of: (i) the
Employee's Base Pay Rate effective as of the Transaction Date as set forth
on Schedule I hereto; and (ii) the aggregate cash bonuses payable to the
Employee in respect of calendar year 1998 pursuant to the Company's Annual
Incentive Plan and Performance Award Plan, as determined by the
Compensation Committee of the Board.
(b) "Lump Sum Severance" means the lump sum severance payment
specified at Section 8(b)(i) of the SAEA.
(c) "Option" means the option to purchase shares of common stock of
HCR granted to Manor Care, Inc. pursuant to the agreement governing the
HCR-Manor Care Merger.
<PAGE> 2
(d) "Other Severance Benefits" means, collectively, the payments and
benefits provided by Sections 8(b)(ii), (iii) and (v) of the SAEA.
(e) "Transaction Date" means the date of consummation of the
HCR-Manor Care Merger.
2. AMENDMENT TO SAEA. This Agreement shall constitute an amendment to
the SAEA, effective as of the Effective Date; provided, however, that the SAEA
shall survive the Effective Date and the Transaction Date and remain in full
force and effect to the extent not amended hereunder. In the event of any
conflict between this Agreement and the SAEA, the terms of this Agreement shall
control.
3. CONTINUED EMPLOYMENT; SEVERANCE PAYMENT.
(a) The Company hereby agrees to employ the Employee, and the
Employee agrees to serve the Company for the period set forth in this
Section 3, in the position(s) and at the initial Base Pay Rate set forth in
Schedule I attached hereto and upon the other terms and conditions provided
herein and in the SAEA. The initial term of employment under this
Agreement (the "Initial Term") shall be for the period beginning on the
Effective Date and ending on the third anniversary thereof, unless sooner
terminated as provided herein or in the SAEA.
(b) The employment term hereunder shall automatically be extended for
successive one year periods (collectively with the Initial Term, the
"Term") unless either party gives notice of non-extension to the other no
later than 90 days prior to the expiration of the then-applicable Term.
(c) The provisions of Sections 7(c) through (e) of the SAEA are
hereby amended to delete the phrase "for a period of one year after such
Termination Date" from each occurrence thereof and to insert in lieu
thereof the phrase "for a period of three years after such Termination
Date."
4. ENTIRE AGREEMENT. This Agreement, the SAEA and the agreements listed
in Schedule II attached hereto constitute the complete agreement between the
Employee and the Company regarding any and all aspects of their employment
relationship and supersede any and all prior written or oral agreements,
understandings or commitments. The Employee understands that no representative
of the Company has been authorized to enter into any agreement, understanding or
commitment with the Employee which is inconsistent in any way with the terms of
this Agreement.
5. PROHIBITION AGAINST AMENDMENT. No term set forth in this Agreement
may be modified in any way except by a written agreement signed by the Employee
and by an authorized representative of the Company which expressly states the
intention of the parties to modify the terms of this Agreement.
2
<PAGE> 3
6. RETENTION BONUS.
(a) Subject to the Employee's employment with the Company immediately
prior to the Transaction Date and his compliance with the terms of this
Agreement, the Company shall pay the Employee, within five days following
the Board meeting in calendar year 1999 at which the Board approves the
Company's 1998 financial statements, a cash lump sum payment equal to three
times the 1998 Aggregate Cash Compensation (the "Retention Bonus"). Payment
of the Retention Bonus shall be subject to the provisions of Section 10 of
the SAEA.
(b) In the event the Employee's employment with the Company is
terminated as a result of the Employee's electing to resign or to retire
without the consent of the Company (other than by reason of his disability)
and other than pursuant to Section 7(d) hereof within the three-year period
ending on the third anniversary of the Transaction Date, the Employee shall
return to the Company, in cash in a lump sum within 5 days of such
Termination Date, that portion of the Retention Bonus and any additional
payments in respect thereof pursuant to Section 10 of the SAEA equal to the
product of: (i) the Retention Bonus; and (ii) a fraction, the numerator of
which is the excess of 1095 over the number of days elapsed during the
period beginning on the Transaction Date and ending on the Termination
Date, and the denominator of which is 1095. The provisions of Section 10 of
the SAEA shall apply to the pro rata return of the Retention Bonus pursuant
to this Section 6.
7. ELIGIBILITY FOR SEVERANCE BENEFITS.
(a) The Employee hereby agrees that notwithstanding the provisions of
Section 1(f)(iii) of the SAEA the filing by Manor Care, Inc. of a report on
Schedule 13D or Schedule 14D-1 in connection with its receipt or exercise
of the Option shall not constitute a Change in Control under the SAEA.
(b) Notwithstanding the consummation of the HCR-Manor Care Merger,
the Employee hereby waives his eligibility for all Severance Benefits
provided by Sections 8(b)(i) through (v) in connection with any termination
of his employment pursuant to Section 8(a)(iii) of the SAEA in connection
with such transaction. Notwithstanding the foregoing, nothing herein shall
constitute a waiver of eligibility for the Lump Sum Severance or the Other
Severance Benefits in connection with the employee's termination of
employment pursuant to Section 8(a)(iii) of the SAEA following any
transaction other than the HCR-Manor Care Merger that occurs after the
Transaction Date and that constitutes a Change in Control.
(c) Notwithstanding the occurrence as of the Transaction Date of any
event set forth in Sections (A) through (D) of Section 8(a)(ii) of the
SAEA, the Employee hereby waives his eligibility for the Lump Sum Severance
and the Other Severance Benefits in connection with any termination of his
employment pursuant to Section 8(a)(ii) of the SAEA in connection with the
HCR-Manor Care Merger.
3
<PAGE> 4
(d) Notwithstanding Sections 7(a) or (b) above, following the
Transaction Date the Employee may elect, within the 60-day period following
the occurrence of one of the following events, to terminate employment with
the Company and receive the Other Severance Benefits (pursuant to written
notice to the Board specifying the effective date of such termination which
shall not be earlier than the fifth day following the date of the Board's
receipt of such notice and shall not be later than the end of such 60-day
period):
(i) Failure to elect or reelect or otherwise to maintain the
Employee in the office or position, or a substantially equivalent
office or position, of or with the Company, which the Employee held
immediately following the Transaction Date, or the failure to elect or
reelect, or the removal of, the Employee as a Director if the Employee
shall have been a Director immediately following the Transaction Date;
(ii) The occurrence of any of the following:
(A) a significant adverse change in the nature or scope of
the authorities, powers, functions, responsibilities or duties
attached to the position with the Company which the Employee held
immediately following the Transaction Date;
(B) a reduction in the Employee's Base Pay as in effect
immediately following the Transaction Date;
(C) a material reduction in the scope or value of Employee
Benefits as in effect immediately following the Transaction Date;
or
(D) any material breach of this Agreement or the SAEA by
the Company or any successor thereto,
which situation is not remedied within 10 calendar days after written
notice to the Board (or the board of any successor) from the Employee;
(iii) The liquidation, dissolution, merger, consolidation or
reorganization of the Company or transfer of all or substantially all
of its business and/or assets, unless the surviving or successor
entity, if other than the Company (by liquidation, merger,
consolidation, reorganization, transfer or otherwise), to which all or
substantially all of such business and/or assets have been transferred
(directly or by operation of law) assumes all duties and obligations
of the Company under this Agreement and the SAEA pursuant to Section
12(a) hereof and Section 16(a) of the SAEA; or
(iv) The Company or any successor, as the case may be, by which
the Employee is employed relocates its principal executive offices, or
requires the Employee to have his principal location of work changed,
to any location which
4
<PAGE> 5
increases by more than 25 miles the Employee's commute to such
location immediately following the Transaction Date, or requires the
Employee to travel away from his office in the course of discharging
his responsibilities or duties hereunder and under the SAEA at least
20% more (in terms of aggregate days in any calendar year or in any
calendar quarter when annualized for purposes of comparison to any
prior year) than the average of such time that was required of the
Employee in the three full years immediately prior to the Transaction
Date without, in either case, his prior written consent.
(e) Nothing herein shall constitute a waiver of the Employee's
eligibility for the benefits provided by Section 14 of the SAEA in
connection with the HCR-Manor Care Merger.
(f) In the event the Employee's employment with the Company is
terminated by the Company other than for Cause or disability (pursuant to
Section 7(c) of the SAEA) during the three-year period ending on the third
anniversary of the Transaction Date, in addition to any payments and
benefits provided under the SAEA, the Employee will be entitled to the
Other Severance Benefits.
8. RETIREMENT BENEFIT. In the event the Employee's employment with the
Company is terminated for any reason other than by the Company for Cause
(pursuant to Section 7(a) or (c) through (e) of the SAEA), after the Transaction
Date and prior to the Employee's attainment of age 55 or prior to the fifth
anniversary of the Transaction Date, the Employee's qualified and non-qualified
defined benefit retirement plan benefits shall be calculated as if on the
Termination Date the Employee had attained at least age 55 and completed at
least five years of service from and after the Transaction Date. Any additional
benefit to which the Employee is entitled pursuant to this Section 8 shall be
paid either by the Company directly or pursuant to the terms of the
non-qualified plan.
9. TERMINATION OF THIS AGREEMENT. In the event the agreement governing
the HCR-Manor Care Merger is terminated: (i) this Agreement shall terminate as
of the date of such abandonment and thereafter shall be of no further force and
effect; and (ii) the provisions of the SAEA shall continue in effect without
amendment or modification by this Agreement.
10. LEGAL FEES AND EXPENSES. It is the intent of the Company that the
Employee not be required to incur legal fees and the related expenses associated
with the interpretation, enforcement or defense of the Employee's rights under
this Agreement by litigation or otherwise because the cost and expense thereof
would substantially detract from the benefits intended to be extended to the
Employee hereunder. Accordingly, if the Company fails to comply with any of its
obligations under this Agreement or in the event that the Company or any other
person takes any action to declare this Agreement void or unenforceable, or
institutes any litigation or other action or proceeding designed to deny, or to
recover from, the Employee the benefits provided or intended to be provided to
the Employee hereunder, the Company irrevocably authorizes the Employee from
time to time to retain counsel of the Employee's choice, at the expense of the
Company as hereafter provided, to advise and represent the Employee in
connection with any
5
<PAGE> 6
such interpretation, enforcement or defense, including, without limitation, the
initiation or defense of any litigation or other legal action, whether by or
against the Company or any Director, officer, stockholder or other person
affiliated with the Company, in any jurisdiction. Without respect to whether
the Employee prevails, in whole or in part, in connection with any of the
foregoing, the Company will pay and be solely financially responsible for any
and all reasonable attorneys' and related fees and expenses by the Employee in
connection with any of the foregoing.
11. WITHHOLDING OF TAXES. The Company may withhold from any amounts
payable under this Agreement all federal, state, city or other taxes as the
Company is required to withhold pursuant to any law or governmental regulation
or ruling.
12. SUCCESSORS AND BINDING AGREEMENT.
(a) The Company will require all successors (whether direct or
indirect, by purchase, merger, consolidation, reorganization or otherwise)
to any substantial portion of the business or assets of the Company, by
agreement in form and substance satisfactory to the Employee, jointly and
severally expressly to assume and agree to perform this Agreement in the
same manner and to the same extent the Company would be required to perform
if no such succession had taken place. This Agreement will be binding upon
and inure to the benefit of the Company and any successor to the Company,
including without limitation any persons acquiring directly or indirectly
all or substantially all of the business or assets of the Company whether
by purchase, merger, consolidation, reorganization or otherwise (and such
successor shall thereafter be deemed the "Company" for the purposes of this
Agreement), but will not otherwise be assignable, transferable or delegable
by the Company.
(b) This Agreement will inure to the benefit of and be enforceable by
the Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees and legatees.
(c) This Agreement is personal in nature and neither of the parties
hereto shall, without the consent of the other, assign, transfer or
delegate this Agreement or any rights or obligations hereunder except as
expressly provided in Sections 14(a) and 14(b) hereof. Without limiting
the generality or effect of the foregoing, the Employee's right to receive
payments hereunder will not be assignable, transferable or delegable,
whether by pledge, creation of a security interest, or otherwise, other
than by a transfer by the Employee's will or by the laws of descent and
distribution and, in the event of any attempted assignment or transfer
contrary to this Section 14(c), the Company shall have no liability to pay
any amount so attempted to be assigned, transferred or delegated.
13. Notices. Notices for all purposes of this Agreement shall be subject
to Section 17 of the SAEA.
6
<PAGE> 7
14. Governing Law. The validity, interpretation, construction and
performance of this Agreement will be governed by and construed in accordance
with the substantive laws of the State of Delaware, without giving effect to the
principles of conflict of laws of such State.
15. Validity. If any provision of this Agreement or the application of
any provision hereof to any person or circumstances is held invalid,
unenforceable or otherwise illegal, the remainder of this Agreement and the
application of such provision to any other person or circumstances will not be
affected, and the provision so held to be invalid, unenforceable or otherwise
illegal will be reformed to the extent (and only to the extent) necessary to
make it enforceable, valid or legal.
16. Miscellaneous. No waiver by either party hereto at any time of any
breach by the other party hereto or compliance with any condition or provision
of this Agreement to be performed by such other party will be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, expressed
or implied with respect to the subject matter hereof have been made by either
party which are not set forth expressly in this Agreement. References to
Sections are to references to Sections of this Agreement, except where expressly
provided to the contrary.
17. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original but all of which
together will constitute one and the same agreement.
18. Titles. Paragraph titles are provided herein for convenience only and
are not to serve as a basis for interpretation or construction of this
Agreement.
[signature page follows]
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
THE COMPANY:
HEALTH CARE AND RETIREMENT
CORPORATION OF AMERICA
By: _______________________________
Its: _______________________________
HEALTH CARE AND RETIREMENT
CORPORATION
By: _______________________________
Its: _______________________________
THE EMPLOYEE:
____________________________________
8
<PAGE> 9
SCHEDULE I
Employee: Geoffrey G. Meyers
Current Base Pay Rate: $248,000
Current Job Titles: Executive Vice President, Chief Financial
Officer and Treasurer
Base Pay Rate effective as of the
Transaction Date: $350,000
Job Titles effective as of the Executive Vice President, Chief Financial
Transaction Date: Officer and Treasurer
<PAGE> 10
SCHEDULE II
Annual Incentive Plan
Performance Award Plan
Stock Option Plan
Restricted Stock Plan
Salary Retirement Plan (prior to January 1, 1993)
Stock Purchase and Savings Program (prior to January 1, 1993)
Senior Executive Retirement Plans
Supplemental Offset Plan
Excess and Supplemental Benefit Plans
Corporate Officer and Senior Executive Life Insurance Program
Senior Management Savings Plan
Senior Management Savings Plan For Corporate Officers
Such other benefit plans and arrangements as the Company provides, from time to
time, to salaried employees generally participation in which is approved by the
President.
<PAGE> 1
EXHIBIT 10.4
EXECUTIVE RETENTION AGREEMENT
This EXECUTIVE RETENTION AGREEMENT ("Agreement"), effective as of June 9,
1998 (the "Effective Date"), is made by and among HEALTH CARE AND RETIREMENT
CORPORATION OF AMERICA, an Ohio corporation (the "Company"), HEALTH CARE AND
RETIREMENT CORPORATION, a Delaware corporation and sole stockholder of the
Company ("HCR") and R. Jeffrey Bixler (the "Employee").
RECITALS
A. The Company, HCR and the Employee are parties to that certain Second
Amended Employment Agreement effective as of April 1, 1997 (the
"SAEA").
B. HCR is presently negotiating the acquisition of Manor Care, Inc.
pursuant to a transaction (the "HCR-Manor Care Merger") in which Manor
Care, Inc. will merge with and into a wholly-owned subsidiary of HCR,
and which will constitute a Change in Control under the SAEA.
C. In order to assure itself of the continuity of management following
the consummation of the HCR-Manor Care Merger, the Company desires to
retain the services of the Employee through such consummation by
establishing certain incentives for the Employee's continued
employment.
AGREEMENT
In consideration of the foregoing, and for other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, the
Employee and the Company hereby agree as follows:
1. CERTAIN DEFINED TERMS. The following terms have the meanings set forth
below. Each capitalized term used but not defined herein shall have the
meaning assigned to such term under the SAEA.
(a) "1998 Aggregate Cash Compensation" means the sum of: (i) the
Employee's Base Pay Rate effective as of the Transaction Date as set forth
on Schedule I hereto; and (ii) the aggregate cash bonuses payable to the
Employee in respect of calendar year 1998 pursuant to the Company's Annual
Incentive Plan and Performance Award Plan, as determined by the
Compensation Committee of the Board.
(b) "Lump Sum Severance" means the lump sum severance payment
specified at Section 8(b)(i) of the SAEA.
(c) "Option" means the option to purchase shares of common stock of
HCR granted to Manor Care, Inc. pursuant to the agreement governing the
HCR-Manor Care Merger.
<PAGE> 2
(d) "Other Severance Benefits" means, collectively, the payments and
benefits provided by Sections 8(b)(ii), (iii) and (v) of the SAEA.
(e) "Transaction Date" means the date of consummation of the
HCR-Manor Care Merger.
2. AMENDMENT TO SAEA. This Agreement shall constitute an amendment to
the SAEA, effective as of the Effective Date; provided, however, that the SAEA
shall survive the Effective Date and the Transaction Date and remain in full
force and effect to the extent not amended hereunder. In the event of any
conflict between this Agreement and the SAEA, the terms of this Agreement shall
control.
3. CONTINUED EMPLOYMENT; SEVERANCE PAYMENT.
(a) The Company hereby agrees to employ the Employee, and the
Employee agrees to serve the Company for the period set forth in this
Section 3, in the position(s) and at the initial Base Pay Rate set forth in
Schedule I attached hereto and upon the other terms and conditions provided
herein and in the SAEA. The initial term of employment under this
Agreement (the "Initial Term") shall be for the period beginning on the
Effective Date and ending on the third anniversary thereof, unless sooner
terminated as provided herein or in the SAEA.
(b) The employment term hereunder shall automatically be extended for
successive one year periods (collectively with the Initial Term, the
"Term") unless either party gives notice of non-extension to the other no
later than 90 days prior to the expiration of the then-applicable Term.
(c) The provisions of Sections 7(c) through (e) of the SAEA are
hereby amended to delete the phrase "for a period of one year after such
Termination Date" from each occurrence thereof and to insert in lieu
thereof the phrase "for a period of three years after such Termination
Date."
4. ENTIRE AGREEMENT. This Agreement, the SAEA and the agreements listed
in Schedule II attached hereto constitute the complete agreement between the
Employee and the Company regarding any and all aspects of their employment
relationship and supersede any and all prior written or oral agreements,
understandings or commitments. The Employee understands that no representative
of the Company has been authorized to enter into any agreement, understanding or
commitment with the Employee which is inconsistent in any way with the terms of
this Agreement.
5. PROHIBITION AGAINST AMENDMENT. No term set forth in this Agreement may
be modified in any way except by a written agreement signed by the Employee and
by an authorized representative of the Company which expressly states the
intention of the parties to modify the terms of this Agreement.
2
<PAGE> 3
6. RETENTION BONUS.
(a) Subject to the Employee's employment with the Company immediately
prior to the Transaction Date and his compliance with the terms of this
Agreement, the Company shall pay the Employee, within five days following
the Board meeting in calendar year 1999 at which the Board approves the
Company's 1998 financial statements, a cash lump sum payment equal to three
times the 1998 Aggregate Cash Compensation (the "Retention Bonus"). Payment
of the Retention Bonus shall be subject to the provisions of Section 10 of
the SAEA.
(b) In the event the Employee's employment with the Company is
terminated as a result of the Employee's electing to resign or to retire
without the consent of the Company (other than by reason of his disability)
and other than pursuant to Section 7(d) hereof within the three-year period
ending on the third anniversary of the Transaction Date, the Employee shall
return to the Company, in cash in a lump sum within 5 days of such
Termination Date, that portion of the Retention Bonus and any additional
payments in respect thereof pursuant to Section 10 of the SAEA equal to the
product of: (i) the Retention Bonus; and (ii) a fraction, the numerator of
which is the excess of 1095 over the number of days elapsed during the
period beginning on the Transaction Date and ending on the Termination
Date, and the denominator of which is 1095. The provisions of Section 10 of
the SAEA shall apply to the pro rata return of the Retention Bonus pursuant
to this Section 6.
7. ELIGIBILITY FOR SEVERANCE BENEFITS.
(a) The Employee hereby agrees that notwithstanding the provisions of
Section 1(f)(iii) of the SAEA the filing by Manor Care, Inc. of a report on
Schedule 13D or Schedule 14D-1 in connection with its receipt or exercise
of the Option shall not constitute a Change in Control under the SAEA.
(b) Notwithstanding the consummation of the HCR-Manor Care Merger,
the Employee hereby waives his eligibility for all Severance Benefits
provided by Sections 8(b)(i) through (v) in connection with any termination
of his employment pursuant to Section 8(a)(iii) of the SAEA in connection
with such transaction. Notwithstanding the foregoing, nothing herein shall
constitute a waiver of eligibility for the Lump Sum Severance or the Other
Severance Benefits in connection with the employee's termination of
employment pursuant to Section 8(a)(iii) of the SAEA following any
transaction other than the HCR-Manor Care Merger that occurs after the
Transaction Date and that constitutes a Change in Control.
(c) Notwithstanding the occurrence as of the Transaction Date of any
event set forth in Sections (A) through (D) of Section 8(a)(ii) of the
SAEA, the Employee hereby waives his eligibility for the Lump Sum Severance
and the Other Severance Benefits in connection with any termination of his
employment pursuant to Section 8(a)(ii) of the SAEA in connection with the
HCR-Manor Care Merger.
3
<PAGE> 4
(d) Notwithstanding Sections 7(a) or (b) above, following the
Transaction Date the Employee may elect, within the 60-day period
following the occurrence of one of the following events, to terminate
employment with the Company and receive the Other Severance Benefits
(pursuant to written notice to the Board specifying the effective date of
such termination which shall not be earlier than the fifth day following
the date of the Board's receipt of such notice and shall not be later than
the end of such 60-day period):
(i) Failure to elect or reelect or otherwise to maintain the
Employee in the office or position, or a substantially equivalent
office or position, of or with the Company, which the Employee held
immediately following the Transaction Date, or the failure to elect or
reelect, or the removal of, the Employee as a Director if the Employee
shall have been a Director immediately following the Transaction Date;
(ii) The occurrence of any of the following:
(A) a significant adverse change in the nature or scope of
the authorities, powers, functions, responsibilities or duties
attached to the position with the Company which the Employee held
immediately following the Transaction Date;
(B) a reduction in the Employee's Base Pay as in effect
immediately following the Transaction Date;
(C) a material reduction in the scope or value of Employee
Benefits as in effect immediately following the Transaction Date;
or
(D) any material breach of this Agreement or the SAEA by the
Company or any successor thereto,
which situation is not remedied within 10 calendar days after written
notice to the Board (or the board of any successor) from the Employee;
(iii) The liquidation, dissolution, merger, consolidation or
reorganization of the Company or transfer of all or substantially all
of its business and/or assets, unless the surviving or successor
entity, if other than the Company (by liquidation, merger,
consolidation, reorganization, transfer or otherwise), to which all or
substantially all of such business and/or assets have been transferred
(directly or by operation of law) assumes all duties and obligations
of the Company under this Agreement and the SAEA pursuant to Section
12(a) hereof and Section 16(a) of the SAEA; or
(iv) The Company or any successor, as the case may be, by which
the Employee is employed relocates its principal executive offices, or
requires the Employee to have his principal location of work changed,
to any location which
4
<PAGE> 5
increases by more than 25 miles the Employee's commute to such
location immediately following the Transaction Date, or requires the
Employee to travel away from his office in the course of discharging
his responsibilities or duties hereunder and under the SAEA at least
20% more (in terms of aggregate days in any calendar year or in any
calendar quarter when annualized for purposes of comparison to any
prior year) than the average of such time that was required of the
Employee in the three full years immediately prior to the Transaction
Date without, in either case, his prior written consent.
(e) Nothing herein shall constitute a waiver of the Employee's
eligibility for the benefits provided by Section 14 of the SAEA in
connection with the HCR-Manor Care Merger.
(f) In the event the Employee's employment with the Company is
terminated by the Company other than for Cause or disability (pursuant to
Section 7(c) of the SAEA) during the three-year period ending on the third
anniversary of the Transaction Date, in addition to any payments and
benefits provided under the SAEA, the Employee will be entitled to the
Other Severance Benefits.
8. RETIREMENT BENEFIT. In the event the Employee's employment with the
Company is terminated for any reason other than by the Company for Cause
(pursuant to Section 7(a) or (c) through (e) of the SAEA), after the Transaction
Date and prior to the Employee's attainment of age 55 or prior to the fifth
anniversary of the Transaction Date, the Employee's qualified and non-qualified
defined benefit retirement plan benefits shall be calculated as if on the
Termination Date the Employee had attained at least age 55 and completed at
least five years of service from and after the Transaction Date. Any additional
benefit to which the Employee is entitled pursuant to this Section 8 shall be
paid either by the Company directly or pursuant to the terms of the
non-qualified plan.
9. TERMINATION OF THIS AGREEMENT. In the event the agreement governing
the HCR-Manor Care Merger is terminated: (i) this Agreement shall terminate as
of the date of such abandonment and thereafter shall be of no further force and
effect; and (ii) the provisions of the SAEA shall continue in effect without
amendment or modification by this Agreement.
10. LEGAL FEES AND EXPENSES. It is the intent of the Company that the
Employee not be required to incur legal fees and the related expenses associated
with the interpretation, enforcement or defense of the Employee's rights under
this Agreement by litigation or otherwise because the cost and expense thereof
would substantially detract from the benefits intended to be extended to the
Employee hereunder. Accordingly, if the Company fails to comply with any of its
obligations under this Agreement or in the event that the Company or any other
person takes any action to declare this Agreement void or unenforceable, or
institutes any litigation or other action or proceeding designed to deny, or to
recover from, the Employee the benefits provided or intended to be provided to
the Employee hereunder, the Company irrevocably authorizes the Employee from
time to time to retain counsel of the Employee's choice, at the expense of the
Company as hereafter provided, to advise and represent the Employee in
connection with any
5
<PAGE> 6
such interpretation, enforcement or defense, including, without limitation, the
initiation or defense of any litigation or other legal action, whether by or
against the Company or any Director, officer, stockholder or other person
affiliated with the Company, in any jurisdiction. Without respect to whether
the Employee prevails, in whole or in part, in connection with any of the
foregoing, the Company will pay and be solely financially responsible for any
and all reasonable attorneys' and related fees and expenses by the Employee in
connection with any of the foregoing.
11. WITHHOLDING OF TAXES. The Company may withhold from any amounts
payable under this Agreement all federal, state, city or other taxes as the
Company is required to withhold pursuant to any law or governmental regulation
or ruling.
12. SUCCESSORS AND BINDING AGREEMENT.
(a) The Company will require all successors (whether direct or
indirect, by purchase, merger, consolidation, reorganization or otherwise)
to any substantial portion of the business or assets of the Company, by
agreement in form and substance satisfactory to the Employee, jointly and
severally expressly to assume and agree to perform this Agreement in the
same manner and to the same extent the Company would be required to perform
if no such succession had taken place. This Agreement will be binding upon
and inure to the benefit of the Company and any successor to the Company,
including without limitation any persons acquiring directly or indirectly
all or substantially all of the business or assets of the Company whether
by purchase, merger, consolidation, reorganization or otherwise (and such
successor shall thereafter be deemed the "Company" for the purposes of this
Agreement), but will not otherwise be assignable, transferable or delegable
by the Company.
(b) This Agreement will inure to the benefit of and be enforceable by
the Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees and legatees.
(c) This Agreement is personal in nature and neither of the parties
hereto shall, without the consent of the other, assign, transfer or
delegate this Agreement or any rights or obligations hereunder except as
expressly provided in Sections 14(a) and 14(b) hereof. Without limiting
the generality or effect of the foregoing, the Employee's right to receive
payments hereunder will not be assignable, transferable or delegable,
whether by pledge, creation of a security interest, or otherwise, other
than by a transfer by the Employee's will or by the laws of descent and
distribution and, in the event of any attempted assignment or transfer
contrary to this Section 14(c), the Company shall have no liability to pay
any amount so attempted to be assigned, transferred or delegated.
13. Notices. Notices for all purposes of this Agreement shall be subject
to Section 17 of the SAEA.
6
<PAGE> 7
14. Governing Law. The validity, interpretation, construction and
performance of this Agreement will be governed by and construed in accordance
with the substantive laws of the State of Delaware, without giving effect to the
principles of conflict of laws of such State.
15. Validity. If any provision of this Agreement or the application of
any provision hereof to any person or circumstances is held invalid,
unenforceable or otherwise illegal, the remainder of this Agreement and the
application of such provision to any other person or circumstances will not be
affected, and the provision so held to be invalid, unenforceable or otherwise
illegal will be reformed to the extent (and only to the extent) necessary to
make it enforceable, valid or legal.
16. Miscellaneous. No waiver by either party hereto at any time of any
breach by the other party hereto or compliance with any condition or provision
of this Agreement to be performed by such other party will be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, expressed
or implied with respect to the subject matter hereof have been made by either
party which are not set forth expressly in this Agreement. References to
Sections are to references to Sections of this Agreement, except where expressly
provided to the contrary.
17. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original but all of which
together will constitute one and the same agreement.
18. Titles. Paragraph titles are provided herein for convenience only and
are not to serve as a basis for interpretation or construction of this
Agreement.
[signature page follows]
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
THE COMPANY:
HEALTH CARE AND RETIREMENT
CORPORATION OF AMERICA
By: _______________________________
Its: _______________________________
HEALTH CARE AND RETIREMENT
CORPORATION
By: _______________________________
Its: _______________________________
THE EMPLOYEE:
___________________________________
8
<PAGE> 9
SCHEDULE I
Employee: R. Jeffrey Bixler
Current Base Pay Rate: $183,000
Current Job Titles: Vice President, General Counsel and
Secretary
Base Pay Rate effective as of the
Transaction Date: $250,000
Job Titles effective as of the Vice President, General Counsel and
Transaction Date: Secretary
<PAGE> 10
SCHEDULE II
Annual Incentive Plan
Performance Award Plan
Stock Option Plan
Restricted Stock Plan
Salary Retirement Plan (prior to January 1, 1993)
Stock Purchase and Savings Program (prior to January 1, 1993)
Senior Executive Retirement Plans
Supplemental Offset Plan
Excess and Supplemental Benefit Plans
Corporate Officer and Senior Executive Life Insurance Program
Senior Management Savings Plan
Senior Management Savings Plan For Corporate Officers
Such other benefit plans and arrangements as the Company provides, from time to
time, to salaried employees generally participation in which is approved by the
President.
<PAGE> 1
EXHIBIT 10.7
CHAIRMAN'S SERVICE AGREEMENT
AGREEMENT, made as of this 10th day of June, 1998, by and between
HEALTH CARE AND RETIREMENT CORPORATION, a Delaware corporation (the "Company"),
and STEWART BAINUM, JR. ("Mr. Bainum").
W I T N E S S E T H
WHEREAS, the Company and Manor Care, Inc. ("Manor Care") have
entered into an Agreement and Plan of Merger (the "Merger Agreement")
pursuant to which Manor Care will become a wholly-owned subsidiary of the
Company; and
WHEREAS, the Company wishes to retain the services of Mr. Bainum as
Chairman of the Board of Directors of the Company, effective as of the
"Effective Time" as defined in the Merger Agreement (the "Effective Time"); and
WHEREAS, Mr. Bainum is willing, for the consideration provided, to
serve as Chairman of the Board of Directors of the Company;
NOW, THEREFORE, the parties, intending to be legally bound, agree as
follows:
1. Service as Chairman. The Company hereby agrees to appoint
Mr. Bainum as Chairman of the Board of Directors of the Company effective as of
the Effective Time, and Mr. Bainum hereby accepts such position, upon the
terms and conditions set forth in
<PAGE> 2
this Agreement. This Agreement shall become effective if and only if the
transactions contemplated by the Merger Agreement are consummated.
2. Term. The term (the "Term") of Mr. Bainum's service under this
Agreement shall be the period commencing at the Effective Time and shall
continue until the third anniversary of the Effective Time or until such
earlier date as determined by the Board of Directors of the Company consistent
with their fiduciary duties.
3. Compensation. The Company shall provide Mr. Bainum with the
following compensation and other benefits:
(a) Chairman's Fees. The Company shall pay to Mr. Bainum compensation
for his services hereunder during the Term at the same rate as other directors
of the Company and in accordance with the standard payment practices of
the Company relating to payment of directors' fees.
(b) Welfare Benefits. For the six-year period commencing at the
Effective Time (including the portion of such six-year period following the end
of the Term of this Agreement), the Company shall provide Mr. Bainum with
medical, dental, life insurance, and long-term disability benefits that
are at least substantially equivalent to the benefits provided by the Company
to its executive officers.
(c) Other Benefits. In addition to the compensation and
<PAGE> 3
benefits otherwise specified in this Agreement, Mr. Bainum shall be
entitled during the Term to participate in, and to receive benefits under, the
Company's benefit plans and programs that are or may be available to directors
generally and on terms and conditions that are no less favorable than those
generally applicable to other directors of the Company.
(d) Expenses. Mr. Bainum shall be entitled to prompt reimbursement of
all reasonable expenses incurred by him in performing services hereunder,
provided he properly accounts therefor in accordance with the Company's
policies.
(e) Office and Services Furnished. The Company shall furnish to
Mr. Bainum, in a place selected by Mr. Bainum, suitable office space and
secretarial assistance, together with access to a telephone, computer, printer,
fax machine, and other necessary office equipment for the six-year period
commencing at the Effective Time (including the portion of such six-year period
following the end of the Term of this Agreement).
4. Termination of Service By Death. In the event of the death of
Mr. Bainum during the Term, Mr. Bainum's estate shall be entitled to receive
the compensation pursuant to Section 3(a) and any other compensation and
benefits to the extent actually earned by Mr. Bainum pursuant to this
Agreement or any other benefit plan or program of the Company as of the date of
such termination at the normal time for payment of such compensation or
benefits,
<PAGE> 4
and any amounts owing under Section 3(d), and Mr. Bainum's spouse shall be
entitled to medical and dental benefits described in Section 3(b) for the
balance of the six-year period described in Section 3(b).
5. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall, if Mr. Bainum so elects, be settled by
arbitration, conducted before a panel of three arbitrators in Washington, D.C.
in accordance with the applicable rules and procedures of the American
Arbitration Association then in effect. Judgment upon the award rendered by
the arbitrators may be entered in any court having jurisdiction. Such
arbitration shall be final and binding on the parties. The panel of arbitrators
shall be selected as follows: Mr. Bainum and the Company shall each designate
an individual to act as arbitrator; the two arbitrators shall then jointly
designate a third arbitrator.
6. Legal Expenses. If any dispute or controversy arises under or in
connection with this Agreement, the Company shall promptly pay all legal fees
and expenses, including, without limitation, reasonable attorneys' fees,
incurred by Mr. Bainum in seeking to obtain or enforce any right or benefit
under this Agreement, provided, however, that this obligation of the Company
shall not apply unless Mr. Bainum prevails in whole or in part.
7. Successors. This Agreement shall be binding upon and inure to the
benefit of Mr. Bainum and his estate and the Company
<PAGE> 5
and any successor of the Company, but neither this Agreement nor any rights
arising hereunder may be assigned or pledged by Mr. Bainum.
8. Severability. Any provision in this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective only to the extent of such prohibition or unenforceability without
invalidating or affecting the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
9. Notices. All notices required or permitted to be given under this
Agreement shall be given in writing and shall be deemed sufficiently given if
delivered by hand or mailed by registered mail, return receipt requested, to
his residence in the case of Mr. Bainum and to its principal executive
offices in the case of the Company. Either party may by giving written notice
to the other party in accordance with this Section 9 change the address at
which it is to receive notices hereunder.
10. Controlling Law. This Agreement shall in all respects be governed
by and construed in accordance with the laws of the State of Delaware
(without giving effect to principles of conflict of laws).
11. Changes to Agreement. This Agreement may not be changed orally but
only in a writing, signed by the party against
<PAGE> 6
whom enforcement is sought.
12. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed an original but
all of which together shall constitute one and the same instrument.
13. Entire Agreement. This Agreement constitutes the entire Agreement
between the parties with respect to its subject matter and supersedes all
prior agreements, drafts, and written or oral representations of either party.
<PAGE> 7
IN WITNESS WHEREOF, the parties have entered into this Agreement as of
the date first above written.
HEALTH CARE AND RETIREMENT CORPORATION
- ----------------------- By:
Stewart Bainum, Jr.
ATTEST:
BY:
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
SUBSIDIARIES OF HEALTH CARE AND RETIREMENT CORPORATION
<TABLE>
<CAPTION>
STATE OF
SUBSIDIARY INCORPORATION DOING BUSINESS AS
---------- ------------- -----------------
<S> <C> <C>
HCRC Inc.............................. Delaware Same
Ancillary Services Management, Inc.... Ohio Same
HCR Acquisition Corp.................. Ohio Same
MileStone Healthcare, Inc............. Delaware Same
HCR Information Corporation........... Ohio Same
Heartland CarePartners, Inc........... Ohio Same
RVA Management Services, Inc.......... Ohio Same
Vision Management Services, Inc.
(majority owned).................... Ohio Same
HCR Home Health Care and Hospice,
Inc................................. Ohio Same
Heartland Home Health Care Services,
Inc................................. Ohio Same
Heartland Home Health Care
Heartland Home Health Care and Hospice
Heartland Hospice Services, Inc....... Ohio Same
Heartland Home Health Care
Heartland Home Health Care and Hospice
Heartland Services Corp............... Ohio Same
- -- Heartland Healthcare Services (50%
owned partnership).................. Ohio Same
HCR Rehabilitation Corp............... Ohio Same
Heartland Rehabilitation Services,
Inc................................. Ohio Same
Heartland Home Care, Inc.............. Ohio Same
Heartland Home Health Care
Heartland Home Health Care and Hospice
MileStone Health Systems, Inc......... Texas Same
MileStone Rehabilitation Services,
Inc................................. Texas Same
MileStone Therapy Services, Inc....... Texas Same
Health Care and Retirement Corporation
of America.......................... Ohio Same
Heartland -- Beavercreek
Heartland of Bellefontaine
Heartland of Browning
Heartland of Bucyrus
Heartland of Centerburg
Heartland of Chillicothe
Heartland of Eaton
Heartland -- Fairfield
Heartland of Greenville
Heartland of Hillsboro
Heartland -- Holly Glen
Heartland of Indian Lake N.C.
Heartland of Jackson
Heartland of Kettering
Heartland -- Lansing
Heartland of Marietta
Heartland of Marysville
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
STATE OF
SUBSIDIARY INCORPORATION DOING BUSINESS AS
---------- ------------- -----------------
<S> <C> <C>
Oak Pavilion Nursing Home
Heartland of Oak Ridge
Heartland of Perrysburg
Perrysburg Commons
Heartland of Piqua
Heartland of Portsmouth
Heartland of Riverview
Heartland of Springfield
Heartland of Urbana
Heartland -- Victorian Village
Heartland of Wauseon
The Village at Westerville NC
The Village at Westerville RC
Christopher East Health Care Center
Heartland Health Care Center --
Prestwick
Glenside Nursing Center
Hampton House
Heartland Health Care Center
(Pittsburgh)
Shadyside Nursing & Rehab. Center
Sky Vue Terrace
Twinbrook Medical Center
Wallingford Nursing & Rehab. Center
Heartland of Beckley
Heartland of Charleston
Heartland of Clarksburg
Heartland of Keyser
Heartland of Preston County
Heartland of Rainelle
Heartland Health Care Center -- Allen
Park
Heartland Health Care Center --
Crestview
Heartland Health Care Ctr -- Dearborn
Heights
Heartland Health Care Center -- Dorvin
Heartland Health Care Center --
Georgian East
Heartland Health Care Center -- Grand
Rapids
Heartland Health Care Ctr -- Plymouth
Court
Heartland Health Care
Center -- University
Marvin and Betty Danto Family, Health
Care Center, a Health Care and
Retirement Corporation facility
Dulaney--Towson Health Care Center
Heartland Health Care Center --
Hyattsville
Heartland Health Care Center --
Adelphi
Heartland Health Care
Center -- Charleston
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
STATE OF
SUBSIDIARY INCORPORATION DOING BUSINESS AS
---------- ------------- -----------------
<S> <C> <C>
Oakmont East
Oakmont of Union
Oakmont West
Rosewood Manor Health Care Center
Heartland of Willow Lane
Medical Care Center
Oak Meadow Nursing Center
Heartland Health Care Center (Canton)
Heartland Health Care
Center -- Galesburg
Heartland Health Care Center (Henry)
Heartland Health Care Center
(Homewood)
Heartland Health Care Center -- Macomb
Heartland Health Care Center -- Moline
Heartland Health Care Center (Paxton)
Heartland Health Care and Retirement
Center of Boca Raton
Heartland Health Care Ctr -- Boynton
Beach
Heartland of Brooksville
Community Convalescent Center
Heartland Health Care Center -- Ft.
Myers
Jacaranda Manor
Heartland Health Care Ctr --
Jacksonville
Heartland Health Care Center --
Kendall
Heartland Health Care
Center -- Lauderhill
Heartland Health Care Ctr -- Miami
Lakes
Heartland Health Care Ctr -- Orange
Park
Pasadena Manor
Heartland Health Care Ctr --
Prosperity Oaks
Regents Park of Jacksonville
Deerwood Place
Regents Park of Winter Park
The Westchester of Winter Park
Rosedale Manor
Heartland of St. Petersburg
Heartland Health Care and
Rehabilitation Center -- Sunrise
The Westchester of Sunrise
Heartland of Tamarac
Heartland of Zephyrhills
Care Corporation...................... Michigan Inactive
Georgian Bloomfield, Inc.............. Michigan Heartland Health Care Center --
Georgian Bloomfield
Heartland of Indian Lake.............. Ohio Heartland of Indian Lake
Rehab. Center, Inc.................... Rehab. Center
Heartland of Martinsburg, Inc......... Ohio Heartland of Martinsburg
HGCC of Allentown, Inc................ Tennessee Liberty Nursing & Rehab. Center
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
STATE OF
SUBSIDIARY INCORPORATION DOING BUSINESS AS
---------- ------------- -----------------
<S> <C> <C>
Lincoln Health Care, Inc.............. Ohio Heartland of Mentor
Washtenaw Hills Manor, Inc............ Michigan Same
Heartland Health Care
Center -- Ann Arbor
HCRA of Texas, Inc.................... Texas Same
Heartland Health Care Center (Austin)
Heartland Health Care Center (Bedford)
Heartland of Corpus Christi
Holiday Nursing Center
Heartland of San Antonio
Heartland Health Care Center (Temple)
Heartland Health Care Center at
Willowbrook
Heartland Health Care Ctr (West
Houston)
Care Corporation Holdings, Inc........ Michigan Same
Care Real Estate, Inc................. Michigan Same
Canterbury Village, Inc............... Michigan Heartland Village Square
Care Manors, Inc...................... Michigan Same
Birchwood Manor, Inc.................. Michigan Holland Health Care Center
Donahoe Manor, Inc.................... Pennsylvania Donahoe Manor
East Michigan Care Corporation........ Michigan Heartland Health Care
Center -- Briarwood
Heartland Health Care
Center -- Briarwood
Heartland Health Care Center --
Fostrian
Heartland Health Care Center --
Hampton
Heartland Health Care Center -- Marlin
Heartland Health Care
Center -- Greenview
Heartland Health Care Center -- Ionia
Greenview Manor, Inc.................. Michigan
Ionia Manor, Inc...................... Michigan
Knollview Manor, Inc.................. Michigan Heartland Health Care Center --
Knollview
Marina View Manor, Inc................ Wisconsin Marina View Manor
Heartland of Milwaukee
Parview Terrace
Heartland of Shawano
Washington Manor
Ridgeview Manor, Inc.................. Michigan Heartland Health Care
Center -- Kalamazoo
Springhill Manor, Inc................. Michigan Heartland Health Care Center -- Battle
Creek
Sun Valley Manor, Inc................. Michigan Heartland Health Care Center --
Saginaw
Three Rivers Manor, Inc............... Michigan Heartland Health Care Center -- Three
Rivers
Whitehall Manor, Inc.................. Michigan Heartland Health Care Center --
Whitehall
Care Manors of New England, Inc....... Delaware Same
Crescent Hill Manor, Inc.............. Mass. Inactive
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
STATE OF
SUBSIDIARY INCORPORATION DOING BUSINESS AS
---------- ------------- -----------------
<S> <C> <C>
Kensington Manor, Inc................. Florida Kensington Manor
Heartland Health Care and
Rehabilitation Center (Sarasota)
Mapleview Nursing Home, Inc........... Mass. Inactive
Meadows Manor, Inc.................... Conn. Inactive
Spruce Manor Nursing Home, Inc........ Mass. Inactive
Union Square Nursing Center, Inc...... Mass. Inactive
Valley View Manor, Inc................ Mass. Inactive
Waterbury Manor, Inc.................. Conn. Inactive
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Prospectus of Health Care and
Retirement Corporation for the registration of up to 70,000,000 shares of its
common stock and to the incorporation by reference therein of our report dated
January 27, 1998, with respect to the consolidated financial statements and
schedules of Health Care and Retirement Corporation included in its Annual
Report (Form 10-K) for the year ended December 31, 1997, filed with the
Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Toledo, Ohio
August 14, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accounts, we hereby consent to the incorporation by
reference in this registration statement of our report dated July 3, 1998
included in Manor Care, Inc.'s Form 10-K for the year ended May 31, 1998 and to
all references to our Firm included in this registration statement.
/s/ ARTHUR ANDERSEN LLP
Washington D.C.
August 14, 1998
<PAGE> 1
EXHIBIT 23.5
CONSENT OF CHASE SECURITIES INC.
August 17, 1998
Board of Directors
HEALTH CARE AND RETIREMENT CORPORATION
One Seagate Plaza
Toledo, Ohio 43604-2616
Dear Members of the Board:
We hereby consent to the use of our opinion letter dated June 10, 1998 to
the Board of Directors of Health Care and Retirement Corporation ("HCR"),
included as Annex B to the Joint Proxy Statement/ Prospectus which forms a part
of the Registration Statement on Form S-4 relating to the proposed merger of
Catera Acquisition Corp., a wholly owned subsidiary of HCR, with and into Manor
Care, Inc., and to the references therein to such opinion in the sections
entitled "Summary--Opinions of Financial Advisors" and "The Merger--Opinion of
Financial Advisor to HCR."
In giving such consent, we do not admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder, nor do we thereby admit that we are experts with respect
to any part of such Registration Statement within the meaning of the term
"experts" as used in the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder.
CHASE SECURITIES INC.
By: /s/ DOUGLAS BRAUNSTEIN
------------------------------------
Name: Douglas Braunstein
Title: Managing Director
<PAGE> 1
EXHIBIT 23.6
CONSENT OF WARBURG DILLON READ LLC
We consent to the use of Annex C, containing our opinion dated June 10,
1998 to the Board of Directors of Manor Care, Inc. ("Manor Care") in the Joint
Proxy Statement/Prospectus constituting a part of the Registration Statement on
Form S-4 relating to the combination of Manor Care and Health Care and
Retirement Corporation and to the reference to our firm name under the headings
"Summary" and "The Merger" in the Join Proxy Statement/Prospectus. In giving
this consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended
(the "Act"), or the rules and regulations of the Securities and Exchange
Commission (the "Commission") promulgated thereunder, nor do we admit that we
are experts with respect to any part of the Registration Statement within the
meaning of the term "experts" as used in the Act or the rules and regulations of
the Commission promulgated thereunder.
/s/ Warburg Dillon Read LLC
New York, New York
August 17, 1998
<PAGE> 1
PROXY
HEALTH CARE AND RETIREMENT CORPORATION
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Paul A. Ormond, Geoffrey G. Meyers and
R. Jeffrey Bixler and each of them, as Proxies with full power of substitution,
and hereby authorize(s) them to represent and to vote, as designated herein,
all shares of common stock of Health Care and Retirement Corporation held of
record by the undersigned on August 10, 1998, at the Special Meeting of
Stockholders to be held on September 24, 1998, or at any adjournment thereof.
This proxy when properly executed will be voted in the manner directed
by the undersigned stockholder. If no direction is made, this proxy will be
voted FOR Items 1, 2, 3, 4 and 5. Items 1, 2, 3, 4 and 5 have been proposed by
the registrant.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2, 3, 4 AND 5.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
(Continued and to be signed on reverse side.)
- --------------------------------------------------------------------------------
<PAGE> 2
HEALTH CARE AND RETIREMENT CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [x]
<TABLE>
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR ITEMS 1, 2, 3, 4 AND 5
<S> <C>
For Against Abstain For Against Abstain
1. Approval of the transaction proposal, [ ] [ ] [ ] 3. Approval to amend Stock Option Plan [ ] [ ] [ ]
including the issuance of HCR common for Key Employees.
stock to holders of Manor Care, Inc. For Against Abstain
and, effective upon the consummation 4. Approval to amend Stock Option Plan [ ] [ ] [ ]
of the Merger, the amendment and for Outside Directors.
restatement of the HCR By-laws. For Against Abstain
For Against Abstain 5. Approval to amend Restricted Stock [ ] [ ] [ ]
2. Approval of increase in authorized [ ] [ ] [ ] Plan.
shares of common stock.
6. In their discretion, the Proxies are
authorized to vote upon such other
business as may properly come before
the Special Meeting.
Please sign exactly as name appears hereon. When shares are held
by joint tenants, both should sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full corporation
name by President or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
Dated: _______________________, 1998
_________________________________________________________________
Signature
_________________________________________________________________
Signature, if held jointly
YOUR VOTE IS IMPORTANT,
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
FOLD AND DETACH HERE
<PAGE> 3
MANOR CARE, INC.
11555 Darnestown Road, Gaithersburg, Maryland 20878
This Proxy is Solicited on Behalf of the Board of Directors
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS ON
SEPTEMBER 24, 1998
The undersigned hereby appoints KENNETT L. SIMMON and FREDERIC V. MALEK,
and each of them, the true and lawful attorneys and proxies, with full power of
substitution, to attend the Special Meeting of Stockholders of MANOR CARE, INC.
to be held in the Auditorium of the Manor Care Corporate Offices, 11555
Darnestown Road, Gaithersburg, Maryland, on Thursday, September 24, 1998 at 9:00
a.m. and at any adjournment thereof, and to vote all shares of common stock held
of record which the undersigned could vote, with all the powers the undersigned
would possess if personally present at such meeting, as designated on the
reverse side.
THIS PROXY, WHEN PROPERLY EXECUTED AND RETURNED, WILL BE USED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NOT OTHERWISE SPECIFIED, THE
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED FOR ITEM (1), AND FOR AND IN
ACCORDANCE WITH THE DISCRETION OF THE PERSONS NAMED AS PROXIES AS TO SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING, OR AT ANY AND ALL ADJOURNMENTS
THEREOF.
(Continued and to be signed on the reverse side)
(UP ARROW) FOLD AND DETACH HERE (UP ARROW)
Please mark as
indicated as
this example: [X]
THE BOARD OF DIRECTORS OF MANOR CARE RECOMMENDS A VOTE FOR ITEM (1)
<TABLE>
<S> <C> <C> <C> <C>
1. To approve and adopt the Amended and Restated Agreement and For Against Abstain
Plan of Merger dated as of June 10, 1998 (the "Merger [ ] [ ] [ ]
Agreement") by and among Manor Care, Health Care and
Retirement Corporation ("HCR") and Catera Acquisition Corp.,
a wholly owned subsidiary of HCR ("Merger Sub"), pursuant to
which, among other things, Merger Sub will merge with and
into Manor Care (the "Merger"), with Manor Care surviving
and becoming a wholly owned subsidiary of HCR, and to
approve the Merger and the transactions contemplated by the
Merger Agreement, as fully described in the Joint
Proxy/Prospectus relating thereto.
2. In their discretion, upon such other business as may
properly come before the meeting.
</TABLE>
If you plan to attend the Special Meeting of Stockholders, please mark the
following box and promptly return this Proxy Card. [ ]
SIGNATURE
- ----------------------- SIGNATURE
- ----------------------- DATE
- ---------------------
(Signature should agree exactly with the name or names appearing above. Joint
owners should both sign. In signing as attorney, administrator, executor,
guardian or trustee, please set forth your full title. If the signer is a
corporation, please sign the full corporate name by a duly authorized officer).
(UP ARROW) FOLD AND DETACH HERE (UP ARROW)
<PAGE> 1
EXHIBIT 99.2
CONSENT OF STEWART BAINUM
The undersigned hereby consents, pursuant to Rule 438 under the Securities
Act of 1933, as amended, to the reference to him/her under the captions "The
Combined Company -- Governance" and "Pro Forma Security Ownership of Certain
Beneficial Owners and Management of the Combined Company" contained in the
Registration Statement on Form S-4 of Health Care and Retirement Corporation and
in Annex I to such Registration Statement.
August 17, 1998 /s/ STEWART BAINUM
--------------------------------------
Stewart Bainum
<PAGE> 1
EXHIBIT 99.3
CONSENT OF STEWART BAINUM, JR.
The undersigned hereby consents, pursuant to Rule 438 under the Securities
Act of 1933, as amended, to the reference to him/her under the captions "The
Combined Company -- Governance" and "Pro Forma Security Ownership of Certain
Beneficial Owners and Management of the Combined Company" contained in the
Registration Statement on Form S-4 of Health Care and Retirement Corporation and
in Annex I to such Registration Statement.
August 17, 1998 /s/ STEWART BAINUM, JR.
--------------------------------------
Stewart Bainum, Jr.
<PAGE> 1
EXHIBIT 99.4
CONSENT OF WILLIAM H. LONGFIELD
The undersigned hereby consents, pursuant to Rule 438 under the Securities
Act of 1933, as amended, to the reference to him/her under the captions "The
Combined Company -- Governance" and "Pro Forma Security Ownership of Certain
Beneficial Owners and Management of the Combined Company" contained in the
Registration Statement on Form S-4 of Health Care and Retirement Corporation and
in Annex I to such Registration Statement.
August 17, 1998 /s/ WILLIAM H. LONGFIELD
--------------------------------------
William H. Longfield
<PAGE> 1
EXHIBIT 99.5
CONSENT OF KENNETT L. SIMMONS
The undersigned hereby consents, pursuant to Rule 438 under the Securities
Act of 1933, as amended, to the reference to him/her under the captions "The
Combined Company -- Governance" and "Pro Forma Security Ownership of Certain
Beneficial Owners and Management of the Combined Company" contained in the
Registration Statement on Form S-4 of Health Care and Retirement Corporation and
in Annex I to such Registration Statement.
August 17, 1998 /s/ KENNETT L. SIMMONS
--------------------------------------
Kennett L. Simmons
<PAGE> 1
EXHIBIT 99.6
CONSENT OF GAIL R. WILENSKY
The undersigned hereby consents, pursuant to Rule 438 under the Securities
Act of 1933, as amended, to the reference to him/her under the captions "The
Combined Company -- Governance" and "Pro Forma Security Ownership of Certain
Beneficial Owners and Management of the Combined Company" contained in the
Registration Statement on Form S-4 of Health Care and Retirement Corporation and
in Annex I to such Registration Statement.
August 17, 1998
/s/ GAIL R. WILENSKY
--------------------------------------
Gail R. Wilensky
