<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 2, 1995.
REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
GRANCARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
CALIFORNIA 8051 95-4299210
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
ONE RAVINIA DRIVE, SUITE 1500
ATLANTA, GEORGIA 30346
(404) 393-0199
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
GENE E. BURLESON, CHIEF EXECUTIVE OFFICER
GRANCARE, INC.
ONE RAVINIA DRIVE, SUITE 1500
ATLANTA, GEORGIA 30346
(404) 393-0199
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES OF ALL COMMUNICATIONS, INCLUDING ALL COMMUNICATIONS SENT TO THE AGENT FOR
SERVICE, SHOULD BE SENT TO:
<TABLE>
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MITCHELL L. EDWARDS ALAN C. LEET
BROBECK, PHLEGER & HARRISON ROGERS & HARDIN
550 S. HOPE STREET 2700 CAIN TOWER, PEACHTREE CENTER
LOS ANGELES, CA 90071-2604 229 PEACHTREE STREET, N.E.
(213) 489-4060 ATLANTA, GA 30303
(404) 522-4700
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
UPON CONSUMMATION OF THE MERGER DESCRIBED HEREIN AND AFTER THE EFFECTIVE DATE OF
THIS REGISTRATION STATEMENT.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED(1) REGISTERED(2) PER SECURITY PRICE(3) FEE(3)
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<S> <C> <C> <C> <C>
Common Stock, no par value......... 9,941,975 Not applicable $155,543,804 $53,636
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</TABLE>
(1) This Registration Statement relates to the shares of Common Stock of the
Registrant to be issued to holders of shares of common stock of Evergreen
Healthcare, Inc. ("Evergreen") in connection with the Merger (as herein
described).
(2) Represents the maximum number of shares of the Registrant's Common Stock
issuable upon consummation of the Merger.
(3) Pursuant to Rule 457(f)(1) under the Securities Act of 1933, as amended, the
registration fee was computed in accordance with Rule 457(c) on the basis of
the market value of 12,828,355 shares of Evergreen Common Stock, the maximum
amount to be exchanged pursuant to the Merger. The average of the high and
low price of Evergreen Common Stock as quoted on the New York Stock Exchange
on May 31, 1995, the latest practicable date prior to the filing of this
Registration Statement, was $12.125.
------------------------
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 OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
GRANCARE, INC.
------------------------
CROSS-REFERENCE SHEET SHOWING LOCATION IN
PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF FORM S-4
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FORM S-4 REGISTRATION STATEMENT ITEM AND HEADING LOCATION IN PROSPECTUS
- ------------------------------------------------------ -------------------------------------
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A. INFORMATION ABOUT TRANSACTION
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus.................... Facing Page; Cross-Reference Sheet;
Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus........................................ Inside Front and Outside Back Cover
Pages
3. Risk Factors, Ratio of Earnings to Fixed Charges
and Other Information............................. Summary; Risk Factors; Selected
Historical Financial Data;
Comparative Per Share Data;
Comparative Market Data; Unaudited
Summary Pro Forma Condensed Combined
Financial Data; The Merger; Terms of
the Merger Agreement and Related
Transactions
4. Terms of the Transaction.......................... Summary; The Merger; Terms of the
Merger Agreement and Related
Transactions; Description of GranCare
Capital Stock; Comparison of Rights
of Holders of GranCare and Evergreen
Common Stock
5. Pro Forma Financial Information................... Unaudited Pro Forma Condensed
Combined Financial Data
6. Material Contacts with the Company Being
Acquired.......................................... The Merger
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters..... *
8. Interests of Named Experts and Counsel............ Experts; Legal Matters
9. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities.... *
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 Registrants....... Summary; Risk Factors; The Merger;
Terms of the Merger Agreement and
Related Transactions; Description of
GranCare Capital Stock
11. Incorporation of Certain Information by
Reference......................................... Incorporation of Certain Information
by Reference
12. Information with Respect to S-2 or S-3
Registrants....................................... *
13. Incorporation of Certain Information by
Reference......................................... *
14. Information with Respect to Registrants Other Than
S-2 or S-3 Registrants............................ *
</TABLE>
<PAGE> 3
<TABLE>
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FORM S-4 REGISTRATION STATEMENT ITEM AND HEADING LOCATION IN PROSPECTUS
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<S> <C>
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3 Companies......... Incorporation of Certain Information
by Reference; Summary; Risk Factors;
The Merger; Terms of the Merger
Agreement and Related Transactions
16. Information with Respect to S-2 or S-3
Companies......................................... *
17. Information with Respect to Companies other than
S-2 or S-3 Companies.............................. *
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Comments or Authorizations
are to be Solicited............................... Summary; The Meetings, Voting and
Proxies; The Merger; Terms of the
Merger Agreement and Related
Transactions; Management and
Operations of the Combined Companies
Following the Merger
19. Information if Proxies, Consents or Authorizations
are Not to be Solicited or in an Exchange Offer... *
</TABLE>
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* Not Applicable.
<PAGE> 4
GRANCARE, INC.
ONE RAVINIA DRIVE, SUITE 1500
ATLANTA, GA 30346
July , 1995
Dear Shareholder:
A Special Meeting of Shareholders (the "Special Meeting") of GranCare, Inc.
("GranCare") will be held on Monday, July 31, 1995, at 10:00 a.m., local time,
at GranCare, Inc., One Ravinia Drive, Suite 1500, Atlanta, Georgia.
At this Special Meeting, you will be asked to consider and vote upon the
following: (1) the approval and adoption of an Agreement and Plan of Merger,
dated as of May 2, 1995 (the "Merger Agreement"), by and among GranCare, GW
Acquisition Corp., a wholly-owned subsidiary of GranCare ("GWAC"), and Evergreen
Healthcare, Inc. ("Evergreen") pursuant to which, among other things: (i) GWAC
will be merged with and into Evergreen (the "Merger"), and Evergreen will become
a wholly-owned subsidiary of GranCare, (ii) each share of Evergreen common
stock, par value $0.01 per share (the "Evergreen Common Stock"), will be
converted into the right to receive 0.775 of a share of GranCare common stock,
no par value (the "GranCare Common Stock"), and (iii) GranCare will assume the
Evergreen 1993 Incentive Compensation Plan, the 1994 Non-Employee Director Stock
Option Plan, and the 1987 National Heritage, Inc. Stock Option Plan (the
"Evergreen Option Plans") and all outstanding options under such plans (the
"Options") and all outstanding Evergreen warrants (the "Warrants," together with
the Options, collectively referred to as the "Evergreen Options") will be
converted into the right to acquire 0.775 of a share of GranCare Common Stock
for each share of Evergreen Common Stock underlying the Evergreen Options (the
"Merger Options"); and (2) such other business as may properly come before the
Special Meeting.
The Merger Agreement provides for the issuance of 9,672,806 shares of
GranCare Common Stock (the "Merger Shares") in exchange for all outstanding
shares of Evergreen Common Stock. In addition, all Evergreen Option Plans and
the outstanding Evergreen Options are being assumed by GranCare as of the
effective time of the Merger, and converted into 269,169 Merger Options. The
number of Merger Shares to be issued in the Merger has been determined according
to an exchange ratio of 0.775 (the "Exchange Ratio") of a share of GranCare
Common Stock for each outstanding share of Evergreen Common Stock. The Merger is
structured to be a tax free reorganization in which neither GranCare nor
Evergreen or its shareholders will recognize taxable gain, and will be accounted
for as a "pooling of interests" business combination.
The GranCare Board of Directors has unanimously approved the Merger
Agreement described in the attached material and the transactions contemplated
thereby and has determined that the Merger is fair to and in the best interests
of GranCare and its shareholders. The Board of Directors recommends that the
shareholders of GranCare vote in favor of the Merger Agreement. However, you are
urged to carefully consider all aspects of the proposed Merger discussed in the
attached Joint Proxy Statement/Prospectus, as the proposed Merger will result in
the issuance of up to approximately 40.7% of the total shares of GranCare Common
Stock to be outstanding after the Merger.
In the material accompanying this letter, you will find a Notice of Special
Meeting of Shareholders, a Joint Proxy Statement/Prospectus relating to, among
other things, the actions to be taken by GranCare shareholders at the Special
Meeting and a proxy card. The Joint Proxy Statement/Prospectus more fully
describes the proposed Merger and includes information about GranCare and
Evergreen and also serves as a Prospectus for GranCare with respect to the
Merger Shares.
All shareholders are cordially invited to attend the Special Meeting in
person. However, whether or not you plan to attend the Special Meeting, please
complete, sign, date and return your proxy in the enclosed postage paid
envelope. If you attend the Special Meeting, you may vote in person if you wish,
even though you have previously returned your proxy. It is important that your
shares be represented and voted at the Special Meeting.
Sincerely,
Gene E. Burleson
Chairman of the Board of Directors,
President and Chief Executive Officer
<PAGE> 5
EVERGREEN HEALTHCARE, INC.
11350 NORTH MERIDIAN, SUITE 200
CARMEL, INDIANA 46032
July , 1995
Dear Shareholder:
A Special Meeting of Shareholders of Evergreen, Inc. ("Evergreen") will be
held on Monday, July 31, 1995, at 10:00 a.m., local time, at Evergreen's offices
located at 11350 North Meridian, Suite 200, Carmel, Indiana.
At this Special Meeting, you will be asked to vote upon the approval and
adoption of an Agreement and Plan of Merger dated as of May 2, 1995 (the "Merger
Agreement"), pursuant to which GranCare, Inc., a California corporation
("GranCare"), and Evergreen will be combined through a merger of a wholly-owned
subsidiary of GranCare with and into Evergreen (the "Merger"). Pursuant to the
Merger, all of the outstanding capital stock of Evergreen will be converted into
the right to receive shares of GranCare Common Stock, and Evergreen will become
a wholly-owned subsidiary of GranCare.
The Merger Agreement provides for the issuance of 9,672,806 shares of
GranCare Common Stock (the "Merger Shares") in exchange for all outstanding
shares of Evergreen common stock (the "Evergreen Common Stock"). In addition,
the Evergreen 1993 Incentive Compensation Plan, the 1994 Non-Employee Director
Stock Option Plan, and the National Heritage, Inc. 1987 Stock Option Plan (the
"Evergreen Option Plans") and the outstanding options to purchase Evergreen
Common Stock (the "Options") pursuant to such plans and outstanding Evergreen
warrants (the "Warrants," together with the Options, collectively referred to as
the "Evergreen Options") are being assumed by GranCare as of the effective time
of the Merger, and converted into options and warrants to acquire 269,169 shares
of GranCare Common Stock (the "Merger Options"). The number of Merger Shares to
be issued in the Merger has been determined according to an exchange ratio of
0.775 (the "Exchange Ratio") of a share of GranCare Common Stock for each
outstanding share of Evergreen Common Stock.
The Merger is structured to be a tax free reorganization in which neither
GranCare nor Evergreen or its shareholders will recognize taxable gain, and will
be accounted for as a "pooling of interests" business combination.
The Evergreen Board of Directors has unanimously approved the Merger
Agreement described in the attached material and the transactions contemplated
thereby and has determined that the Merger is fair to and in the best interests
of Evergreen and its shareholders. After careful consideration, the Board of
Directors recommends that the shareholders of Evergreen vote in favor of the
Merger Agreement.
In the material accompanying this letter, you will find a Notice of Special
Meeting of Shareholders, a Joint Proxy Statement/Prospectus relating to, among
other things, the actions to be taken by Evergreen shareholders at the Special
Meeting and a proxy card. The Joint Proxy Statement/Prospectus more fully
describes the proposed Merger and includes information about GranCare and
Evergreen.
All shareholders are cordially invited to attend the Special Meeting in
person. However, whether or not you plan to attend the Special Meeting, please
complete, sign, date and return your proxy in the enclosed postage paid
envelope. If you attend the Special Meeting, you may vote in person if you wish,
even though you have previously returned your proxy. It is important that your
shares be represented and voted at the Special Meeting.
Sincerely,
William G. Petty, Jr.
Chairman of the Board of Directors,
President and Chief Executive Officer
<PAGE> 6
GRANCARE, INC.
ONE RAVINIA DRIVE, SUITE 1500
ATLANTA, GEORGIA 30346
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 31, 1995
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the "Special
Meeting") of GranCare, Inc., a California corporation ("GranCare"), will be held
on Monday, July 31, 1995, at 10:00 a.m., local time, at GranCare, Inc., One
Ravinia Drive, Suite 1500, Atlanta, Georgia, to consider and vote upon the
following matters described in the accompanying Proxy Statement/Prospectus:
1. The approval and adoption of an Agreement and Plan of Merger, dated as
of May 2, 1995 (the "Merger Agreement"), by and among GranCare, GW
Acquisition Corp., a wholly-owned subsidiary of GranCare ("GWAC"), and
Evergreen Healthcare, Inc. ("Evergreen"), pursuant to which, among other
things: (i) GWAC will be merged with and into Evergreen, and Evergreen
will become a wholly-owned subsidiary of GranCare; (ii) each share of
Evergreen common stock, par value $0.01 per share ("Evergreen Common
Stock"), will be converted into 0.775 of a share of GranCare common
stock, no par value ("GranCare Common Stock"); and (iii) GranCare will
assume the Evergreen 1993 Incentive Compensation Plan, the 1994
Non-Employee Director Stock Option Plan, and the National Heritage, Inc.
1987 Stock Option Plan (the "Evergreen Option Plans") and all
outstanding options under such plans (the "Options) and all outstanding
Evergreen warrants (the "Warrants," together with the Options,
collectively referred to as the "Evergreen Options"); and
2. The transaction of such other business as may properly come before the
Special Meeting or any adjournment or postponement thereof.
Only GranCare shareholders of record at the close of business on June 30,
1995 are entitled to notice of, and to vote at, the Special Meeting, or at any
adjournment or postponement thereof.
By order of the Board of Directors,
Evrett W. Benton
Executive Vice President, General Counsel
and Secretary
APPROVAL OF THE ISSUANCE OF GRANCARE COMMON STOCK IN CONNECTION WITH THE
MERGER REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE
OUTSTANDING SHARES OF GRANCARE COMMON STOCK. WHETHER OR NOT YOU PLAN TO ATTEND
THE SPECIAL MEETING, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND
MAIL IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE, WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE IN
PERSON IF YOU WISH TO DO SO EVEN IF YOU HAVE PREVIOUSLY SENT IN YOUR PROXY.
<PAGE> 7
EVERGREEN HEALTHCARE, INC.
11350 NORTH MERIDIAN, SUITE 200
CARMEL, INDIANA 46032
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 31, 1995
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Evergreen
Healthcare, Inc., a Georgia corporation ("Evergreen"), will be held on July 31,
1995, at 10:00 a.m., local time, at Evergreen's offices located at 11350 North
Meridian, Suite 200, Carmel, Indiana 46032, to consider and vote upon the
following matters described in the accompanying Joint Proxy
Statement/Prospectus:
1. The approval and adoption of the Agreement and Plan of Merger dated as
of May 2, 1995 (the "Merger Agreement") by and among Evergreen,
GranCare, Inc., a California corporation ("GranCare"), and GW
Acquisition Corp., a wholly-owned subsidiary of GranCare ("GWAC"),
pursuant to which GWAC will merge with and into Evergreen (the
"Merger"). As a result of the Merger, (i) each outstanding share of
Evergreen will be converted into 0.775 of a share (the "Exchange Ratio")
of GranCare Common Stock, (ii) GranCare will assume the Evergreen 1993
Incentive Compensation Plan, the 1994 Non-Employee Director Stock Option
Plan, and the National Heritage, Inc. 1987 Stock Option Plan (the
"Evergreen Option Plans") and each outstanding option to purchase
Evergreen Common Stock under the Evergreen Option Plans (the "Options")
and all outstanding Evergreen warrants (the "Warrants," together with
the Options, collectively referred to as the "Evergreen Options") and
each Evergreen Option will be converted into an option or warrant to
acquire a number of shares of GranCare Common Stock equal to the product
of the Exchange Ratio and the number of shares of Evergreen Common Stock
subject to such option and warrant, and (iii) Evergreen will become a
wholly-owned subsidiary of GranCare; and
2. The transaction of such other business as may properly come before the
Special Meeting or any adjournment or postponement thereof.
Only Evergreen shareholders of record at the close of business on June 30,
1995 are entitled to notice of, and to vote at, the Special Meeting, or at any
adjournment or postponement thereof.
By order of the Board of Directors,
Keith J. Yoder
Vice President, Chief Financial
Officer,
Treasurer and Secretary
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT REQUIRES THE AFFIRMATIVE VOTE
OF THE HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF EVERGREEN COMMON
STOCK. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE,
SIGN AND DATE THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE ENCLOSED
RETURN ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF
YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH TO DO SO EVEN
IF YOU HAVE PREVIOUSLY SENT IN YOUR PROXY.
<PAGE> 8
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE 2, 1995
GRANCARE, INC.
AND
EVERGREEN HEALTHCARE, INC.
JOINT PROXY STATEMENT
------------------------
GRANCARE, INC.
PROSPECTUS
------------------------
This Joint Proxy Statement/Prospectus relates to the proposed merger
(the "Merger") of GW Acquisition Corp. ("GWAC"), a wholly-owned subsidiary of
GranCare, Inc. ("GranCare"), with and into Evergreen Healthcare, Inc.
("Evergreen") and the issuance of up to 9,941,975 shares of GranCare common
stock, no par value (the "GranCare Common Stock"), in connection therewith. As
a result of the Merger, Evergreen will become a wholly-owned subsidiary of
GranCare. In connection with the Merger, GranCare has filed a Registration
Statement on Form S-4 (the "Registration Statement") with the Securities and
Exchange Commission (the "Commission") pursuant to the Securities Act of 1933,
as amended (the "Securities Act"), covering an aggregate of up to 9,941,975
shares of the GranCare Common Stock, issuable in the Merger to holders of
shares of Evergreen common stock, $0.01 par value per share (the "Evergreen
Common Stock"). In connection with the Merger, (i) each outstanding share of
Evergreen Common Stock will be exchanged for 0.775 of a share (the "Exchange
Ratio") of GranCare Common Stock (the "Merger Shares") and (ii) the Evergreen
1993 Incentive Compensation Plan, the 1994 Non-Employee Director Stock Option
Plan, and the National Heritage, Inc. 1987 Stock Option Plan (the "Evergreen
Option Plans") and the outstanding options to purchase Evergreen Common Stock
under such plans (the "Options") and all outstanding Evergreen warrants, as
described herein (the "Warrants," together with the Options, collectively
referred to as the "Evergreen Options"), will be assumed by GranCare and will
constitute options or warrants to acquire a number of shares of GranCare Common
Stock (the "Merger Options") equal to the product of the Exchange Ratio and the
number of shares of Evergreen Common Stock issuable upon the exercise of such
Evergreen Options. As of the date hereof, there are 12,481,040 shares of
Evergreen Common Stock outstanding and 347,315 shares of Evergreen Common Stock
issuable upon the exercise of Evergreen Options outstanding.
This Joint Proxy Statement/Prospectus is being furnished to holders of
GranCare Common Stock in connection with the solicitation of proxies by
GranCare's Board of Directors for use at the Special Meeting of Shareholders of
GranCare (the "GranCare Special Meeting") to be held on Monday, July 31, 1995 at
GranCare's offices located at One Ravinia Drive, Suite 1500, Atlanta, Georgia,
commencing at 10:00 a.m., local time, and at any adjournment or postponement
thereof.
This Joint Proxy Statement/Prospectus is also being furnished to holders of
Evergreen Common Stock in connection with the solicitation of proxies by
Evergreen's Board of Directors for use at the Special Meeting of Shareholders of
Evergreen (the "Evergreen Special Meeting") to be held on Monday, July 31, 1995
at Evergreen's offices located at 11350 North Meridian, Suite 200, Carmel,
Indiana, commencing at 10:00 a.m., local time, and at any adjournment or
postponement thereof.
This Joint Proxy Statement/Prospectus also constitutes the prospectus of
GranCare filed as part of the Registration Statement relating to the GranCare
Common Stock issuable to the holders of all outstanding shares of Evergreen
Common Stock as of the effective time of the Merger. All information herein with
respect to GranCare has been furnished by GranCare, and all information herein
with respect to Evergreen has been furnished by Evergreen. This Joint Proxy
Statement/Prospectus is first being mailed to shareholders of GranCare and
Evergreen on or about July 3, 1995.
The GranCare Common Stock is traded on the New York Stock Exchange ("NYSE")
under the symbol "GC." On May 2, 1995, the last trading date prior to the public
announcement of the signing of the Merger Agreement, the closing sales price of
the GranCare Common Stock was $16 5/8 per share.
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY GRANCARE AND EVERGREEN SHAREHOLDERS BEFORE VOTING ON THE MATTERS
MORE FULLY DESCRIBED HEREIN.
------------------------
THE SECURITIES TO BE ISSUED PURSUANT TO THIS JOINT PROXY STATEMENT/ PROSPECTUS
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS JULY , 1995
<PAGE> 9
TABLE OF CONTENTS
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AVAILABLE INFORMATION................................................................. 4
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE..................................... 4
SUMMARY............................................................................... 6
General............................................................................. 6
The Companies....................................................................... 6
The Meetings........................................................................ 7
The Merger.......................................................................... 8
SELECTED HISTORICAL FINANCIAL DATA.................................................... 14
GranCare Selected Historical Consolidated Financial Data............................ 14
Evergreen Selected Historical Consolidated Financial Data........................... 16
UNAUDITED SUMMARY PRO FORMA COMBINED FINANCIAL DATA................................... 17
COMPARATIVE PER SHARE DATA............................................................ 19
COMPARATIVE MARKET DATA............................................................... 20
CAPITALIZATION........................................................................ 22
RISK FACTORS.......................................................................... 23
Uncertainties Related to the Merger................................................. 23
Rapid Expansion..................................................................... 23
Significant Debt and Lease Obligations.............................................. 23
Dependence Upon Reimbursement by Third Party Payors; Limitations on Reimbursement... 24
Government Regulation............................................................... 24
Healthcare Reform................................................................... 26
Geographic Payor Concentration...................................................... 26
Certain Lease Terms................................................................. 26
Competition......................................................................... 27
Professional Liability and Availability of Insurance................................ 27
Shares Eligible for Future Sale..................................................... 27
THE MEETINGS, VOTING AND PROXIES...................................................... 28
Special Meeting of Shareholders of GranCare......................................... 28
Special Meeting of Shareholders of Evergreen........................................ 29
THE MERGER............................................................................ 31
Background of the Merger; Material Contacts......................................... 31
Reasons for the Merger; Recommendations of the Boards of Directors.................. 34
Opinions of Financial Advisors...................................................... 37
Interests of Certain Persons in the Merger.......................................... 50
Accounting Treatment................................................................ 52
Certain Federal Tax Considerations.................................................. 52
Governmental and Regulatory Approvals............................................... 54
Resales of GranCare Common Stock; Affiliates........................................ 54
No Dissenters' Rights............................................................... 55
MANAGEMENT AND OPERATIONS OF THE COMBINED COMPANIES FOLLOWING THE MERGER.............. 55
General............................................................................. 55
Board of Directors after the Merger................................................. 56
Certain Relationships............................................................... 57
</TABLE>
2
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TERMS OF THE MERGER AGREEMENT AND RELATED TRANSACTIONS................................ 58
Effective Time of the Merger........................................................ 58
Manner and Basis of Converting Shares, Options and Warrants......................... 58
Employee Benefit Plans.............................................................. 60
Conduct of Evergreen's and GranCare's Business Prior to the Merger; No
Solicitation..................................................................... 60
Conditions to the Merger............................................................ 62
Termination or Amendment of the Merger Agreement.................................... 63
DESCRIPTION OF GRANCARE CAPITAL STOCK................................................. 66
General............................................................................. 66
GranCare Common Stock............................................................... 66
GranCare Preferred Stock............................................................ 66
Options and Warrants................................................................ 66
Registration Rights................................................................. 66
Limitation of Director Liability.................................................... 67
GRANCARE DIVIDEND POLICY.............................................................. 67
COMPARISON OF RIGHTS OF HOLDERS OF GRANCARE AND EVERGREEN COMMON STOCK................ 67
LEGAL MATTERS......................................................................... 74
EXPERTS............................................................................... 74
OTHER MATTERS......................................................................... 75
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA................................. 76
APPENDIX A: AGREEMENT AND PLAN OF MERGER.............................................. A-1
APPENDIX B: OPINION OF SALOMON BROTHERS INC........................................... B-1
APPENDIX C: OPINION OF SMITH BARNEY INC............................................... C-1
APPENDIX D: FORM OF OPINION OF THE CHICAGO DEARBORN COMPANY........................... D-1
APPENDIX E: FORM OF OPINION OF McDONALD & COMPANY SECURITIES, INC..................... E-1
</TABLE>
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AVAILABLE INFORMATION
Each of GranCare and Evergreen is subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by GranCare and Evergreen and the
Registration Statement of which this Joint Proxy Statement/Prospectus is a part
and exhibits and schedules thereto can be inspected and copied (at prescribed
rates) at the Public Reference section of the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
regional offices located at 7 World Trade Center, 13th Floor, New York, New York
10048, and the Citicorp Center, 500 West Madison, Suite 1400, Chicago, Illinois
60661-2511. GranCare's Common Stock and Evergreen's Common Stock are listed on
the NYSE and certain reports, proxy statements and other information concerning
GranCare and Evergreen can also be inspected at the offices of the NYSE at 20
Broad Street, New York, New York 10005.
GranCare has filed with the Commission a Registration Statement on Form S-4
(together with any amendments or supplements thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Merger Shares (as defined herein) offered hereby. This Joint
Proxy Statement/Prospectus omits certain information contained in the
Registration Statement and reference is made to the Registration Statement and
the exhibits and schedules thereto for further information with respect to
GranCare, Evergreen and the Merger. Statements contained herein concerning the
provisions of any documents are not necessarily complete, and in each instance
reference is made to the copy of such document filed as an exhibit to the
Registration Statement or incorporated herein by reference. Each such statement
is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents or portions thereof, filed by GranCare with the
Commission under the Exchange Act and the Securities Act, are incorporated
herein by reference:
(a) GranCare's Annual Report on Form 10-K for the year ended December
31, 1994;
(b) GranCare's Quarterly Reports on Form 10-Q for the quarter ended
June 30, 1994 as amended by Amendment No. 1 on Form 10-Q/A filed with the
Commission on June 2, 1995 and for the quarter ended March 31, 1995;
(c) GranCare's Current Report on Form 8-K, filed with the Commission
on April 18, 1995 as amended by Amendment No. 1 on Form 8-K/A filed with
the Commission on June 2, 1995;
(d) GranCare's Proxy Statement for the Annual Meeting of Shareholders
held on May 23, 1995; and
(e) GranCare's Registration Statement on Form 8-A, declared effective
by the Commission on October 30, 1991.
The following documents filed by Evergreen with the Commission in
accordance with the provisions of the Exchange Act are incorporated herein by
reference and made a part hereof:
(a) Evergreen's Annual Report on Form 10-K for the year ended June 30,
1994, as amended by Amendment No. 1 on Form 10-K/A filed with the
Commission on December 7, 1994; and
(b) Evergreen's Quarterly Reports on Form 10-Q for the quarters ended
September 30, 1994, December 31, 1994 and March 31, 1995.
All documents filed by GranCare and Evergreen pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior to the
date of the GranCare Special Meeting and the Evergreen Special Meeting shall be
deemed to be incorporated by reference in this Joint Proxy Statement/Prospectus
and to be a part of this Joint Proxy Statement/Prospectus from the date of
filing thereof. Any statement contained in a document incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this Joint
Proxy Statement/Prospectus to the extent that a statement contained herein or in
any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies
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or supersedes such statement. Any such statements so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Joint Proxy Statement/Prospectus.
GranCare and Evergreen hereby undertake to provide without charge to each
person to whom a copy of this Joint Proxy Statement/Prospectus has been
delivered, upon the written or oral request of such person, a copy of any or all
of the documents referred to above which have been or may be incorporated by
reference in this Joint Proxy Statement/Prospectus (other than exhibits).
Requests for such copies should be directed to GranCare, Inc., One Ravinia
Drive, Suite 1500, Atlanta, Georgia 30346, telephone (404) 393-0199, attention:
General Counsel, or to Evergreen Healthcare, Inc., at 11350 North Meridian
Street, Suite 200, Carmel, Indiana 46032, telephone (317) 580-8585, attention:
Keith J. Yoder, Corporate Secretary. In order to ensure delivery of the
documents prior to the GranCare Special Meeting and the Evergreen Special
Meeting, any request should be made prior to July 24, 1995.
No person has been authorized to give any information or to make any
representation other than as contained herein in connection with the Merger,
and, if given or made, such information or representation must not be relied
upon as having been authorized by GranCare or Evergreen. Neither the delivery
hereof nor any distribution of securities made hereunder shall, under any
circumstances, create an implication that there has been no change in the facts
herein set forth since the date hereof. This Joint Proxy Statement/Prospectus
does not constitute an offer to sell or a solicitation of an offer to buy the
shares of GranCare Common Stock offered by this Joint Proxy Statement/Prospectus
or a solicitation of a proxy in any jurisdiction where, or to any person to
whom, it is unlawful to make such an offer or solicitation.
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<PAGE> 13
JOINT PROXY STATEMENT/PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes appearing elsewhere in this Joint
Proxy Statement/Prospectus and in the documents incorporated in this Joint Proxy
Statement/Prospectus by reference. Shareholders of GranCare, Inc. and Evergreen
Healthcare, Inc. should carefully review the matters set forth under "Risk
Factors" before voting upon or consenting to the matters to be considered by
such shareholders.
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to shareholders of
GranCare, Inc., a California corporation ("GranCare"), in connection with the
solicitation of proxies by the Board of Directors of GranCare for use at the
Special Meeting of Shareholders of GranCare (the "GranCare Special Meeting")
which is scheduled to be held on July 31, 1995. This Joint Proxy
Statement/Prospectus is also being furnished to shareholders of Evergreen
Healthcare, Inc., a Georgia corporation ("Evergreen"), in connection with the
solicitation of proxies by the Board of Directors of Evergreen, for use at the
Special Meeting of Shareholders of Evergreen (the "Evergreen Special Meeting")
which is scheduled to be held on July 31, 1995. At the GranCare Special Meeting
and at the Evergreen Special Meeting, the shareholders of GranCare and the
shareholders of Evergreen will be asked to consider and vote upon the proposed
merger (the "Merger") of GW Acquisition Corp. ("GWAC"), a California corporation
and a wholly-owned subsidiary of GranCare, with and into Evergreen pursuant to
the terms of the Agreement and Plan of Merger dated as of May 2, 1995, by and
among GranCare, GWAC and Evergreen (the "Merger Agreement"). As a result of the
Merger, Evergreen will become a wholly-owned subsidiary of GranCare. The Merger
Agreement is included in this Joint Proxy Statement/Prospectus as Appendix A and
is incorporated herein by this reference. In connection with the Merger, each
share of common stock of Evergreen (the "Evergreen Common Stock") will be
converted into the right to receive, and become exchangeable for, 0.775 (the
"Exchange Ratio") of a share (in the aggregate, the "Merger Shares") of common
stock of GranCare (the "GranCare Common Stock") and the Evergreen 1993 Incentive
Compensation Plan, the 1994 Non-Employee Director Stock Option Plan, and the
National Heritage, Inc. Stock Option Plan (the "Evergreen Option Plans") will be
assumed by GranCare and all outstanding options to acquire Evergreen Common
Stock (the "Options") under such plans and all outstanding Evergreen warrants,
as described herein (the "Warrants," together with the Options, collectively
referred to as the "Evergreen Options"), will be converted into options or
warrants to purchase shares of GranCare Common Stock (the "Merger Options").
Pursuant to the Merger Agreement, 9,672,806 shares of GranCare Common Stock will
be issued in exchange for all outstanding shares of Evergreen Common Stock and
up to 269,169 shares of GranCare Common Stock will be issuable upon exercise of
the Merger Options. This Joint Proxy Statement/Prospectus constitutes the
prospectus of GranCare with respect to the Merger Shares. The information in
this Joint Proxy Statement/Prospectus concerning GranCare and Evergreen has been
furnished by each of such entities, respectively.
THE COMPANIES
GRANCARE
GranCare provides a comprehensive array of routine, specialty medical and
rehabilitative services in a long-term care environment through 78 skilled
nursing facilities with an aggregate of approximately 10,400 beds located in six
states. GranCare also provides pharmacy services through its institutional
pharmacies to patients in certain of its long-term healthcare facilities, to
patients in facilities operated by others and to patients receiving home
healthcare. GranCare's 23 institutional pharmacies and three satellite pharmacy
locations serve approximately 750 long-term healthcare facilities with
approximately 77,100 beds, 18 correctional institutions serving approximately
4,700 inmates and 9 community clinics serving approximately 30,000 outpatients
and operate in seventeen states.
GranCare's acquisition of Cornerstone Health Management Company
("Cornerstone") in April, 1995 substantially expands GranCare's third party
medical program management operations. Cornerstone manages, on a contract basis,
over 100 subacute, geriatric, psychiatric and primary care programs for acute
care hospitals in twenty states.
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GranCare is headquartered in Atlanta, Georgia. Its executive offices are
located at One Ravinia Drive, Suite 1500, Atlanta, Georgia 30346. Its telephone
number at that address is (404) 393-0199.
EVERGREEN
Evergreen provides an array of healthcare services, including basic and
specialized skilled nursing care, subacute care and rehabilitation services,
primarily in long-term care facilities. Evergreen operates 64 facilities (16
owned, 41 leased and seven managed) with approximately 7,600 available beds in
nine states located in the Midwest and Southeast. Specialized care services are
provided through five dedicated units for the treatment of conditions such as
Alzheimer's disease and Huntington's disease. Subacute care services are
provided through two dedicated units to patients who have been discharged from
acute care hospitals but still require complex medical treatment, such as
infection control and intravenous therapy. Rehabilitation services include
intensive respiratory, physical, occupational and speech therapy and are
provided by independent contractors or directly by Evergreen. Through its
pharmacy operation, Gericare Medical Services, Evergreen provides medications
and medical supplies to residents of 48 of its facilities and to residents of 12
facilities operated by unaffiliated third parties.
Evergreen's principal executive offices are located at 11350 North Meridian
Street, Suite 200, Carmel, Indiana 46032. Its telephone number at that address
is (317) 580-8585.
GWAC
GWAC is a California corporation recently organized by GranCare for the
purpose of effecting the Merger. It has no material assets and has not engaged
in any activities except in connection with the Merger. GWAC's executive offices
are located at One Ravinia Drive, Suite 1500, Atlanta, Georgia 30346. Its
telephone number at that address is (404) 393-0199.
RECENT DEVELOPMENTS
In December 1993, Evergreen acquired a majority interest in Alternative
Living Services, Inc. ("ALS"), an operator and manager of 15 assisted living
facilities in five states. On May 26, 1995, ALS consummated a financing
transaction pursuant to which an investor group purchased ALS common stock
representing approximately 64% of the outstanding ALS common stock for $20
million. The proceeds of the financing have been or will be used by ALS, among
other things, to repay approximately $4.1 million of advances to Evergreen and
to fund ALS's future growth and expansion. As a result of the financing
transaction, Evergreen's percentage ownership of ALS decreased from 53.8% to
28.1%. Accordingly, for all periods subsequent to May 26, 1995, the financial
results of ALS will no longer be consolidated by Evergreen, and Evergreen's
investment in ALS will be reflected on the equity method of accounting.
THE MEETINGS
SPECIAL MEETING OF SHAREHOLDERS OF GRANCARE
The GranCare Special Meeting will be held on Monday, July 31, 1995 at 10:00
a.m. local time at GranCare's offices located at One Ravinia Drive, Suite 1500,
Atlanta, Georgia. The purpose of the meeting is to consider and vote upon: (1)
the approval and adoption of the Merger Agreement pursuant to which, among other
things (i) GWAC will be merged with and into Evergreen, and Evergreen will
become a wholly-owned subsidiary of GranCare, (ii) each share of Evergreen
Common Stock will be converted into the right to receive 0.775 of a share of
GranCare Common Stock and (iii) GranCare will assume the Evergreen Option Plans
and the Evergreen Options will be converted into the Merger Options; and (2) the
transaction of such other business as may properly come before the GranCare
Special Meeting (collectively, the "GranCare Proposal").
Only shareholders of record at the close of business on June 30, 1995 (the
"GranCare Record Date") are entitled to notice of, and to vote at, the GranCare
Special Meeting, or at any adjournment or postponement thereof. Approval of the
GranCare Proposal requires the affirmative vote of the holders of a majority of
the outstanding shares of GranCare Common Stock. The presence, either in person
or by properly executed proxy, of the holders of a majority of the outstanding
shares of GranCare Common Stock is necessary to constitute a
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quorum at the GranCare Special Meeting. If, however, a majority of shares of
GranCare Common Stock is not present or represented at the GranCare Special
Meeting, the shareholders entitled to vote thereat, present in person or by
proxy, can adjourn the meeting from time to time, until a quorum of voting
shares is present. Because the GranCare Proposal must be approved by holders of
a majority of outstanding shares entitled to vote on such matter, abstentions
will have the effect of a negative vote. See "THE MEETINGS, VOTING AND
PROXIES."
Directors of GranCare holding an aggregate of 853,114 shares of GranCare
Common Stock have agreed to vote their shares in favor of the GranCare Proposal.
See "TERM OF THE MERGER AGREEMENT AND RELATED TRANSACTIONS -- GranCare Voting
Agreements."
SPECIAL MEETING OF SHAREHOLDERS OF EVERGREEN HEALTHCARE, INC.
The Evergreen Special Meeting will be held on July 31, 1995 at 10:00 a.m.
local time at Evergreen's offices located at 11350 North, Meridian, Suite 200,
Carmel, Indiana. The purpose of the meeting is to consider and vote upon: (1)
the approval and adoption of the Merger and the Merger Agreement; and (2) the
transaction of such other business as may properly come before the Evergreen
Special Meeting (collectively, the "Evergreen Proposal").
Only shareholders of record at the close of business on June 30, 1995 (the
"Evergreen Record Date") are entitled to notice of, and to vote at, the
Evergreen Special Meeting, or at any adjournment or postponement thereof.
Approval of the Evergreen Proposal requires the affirmative vote of the holders
of a majority of the outstanding shares of Evergreen Common Stock. The presence,
either in person or by properly executed proxy, of the holders of a majority of
the outstanding shares of Evergreen Common Stock is necessary to constitute a
quorum at the Evergreen Special Meeting. If, however, a majority of shares of
Evergreen Common Stock is not present or represented at the Evergreen Special
Meeting, the shareholders entitled to vote thereat, present in person or by
proxy, can adjourn the meeting from time to time, until a quorum of voting
shares is present. Because the Evergreen Proposal must be approved by a majority
of outstanding shares entitled to vote on such matter, abstentions will have the
effect of a negative vote. See "THE MEETINGS, VOTING AND PROXIES -- Vote
Required."
The holders of Evergreen Common Stock do not have dissenters' rights under
the Georgia Business Corporation Code (the "GBCC"). See "THE MERGER -- No
Dissenters' Rights."
Certain directors, officers and affiliates of Evergreen holding an
aggregate of [ ] shares of Evergreen Common Stock have agreed to vote their
shares in favor of the Evergreen Proposal. See "TERMS OF THE MERGER AGREEMENT
AND RELATED TRANSACTIONS -- Evergreen Voting Agreements."
THE MERGER
TERMS OF THE MERGER
At the time the Merger becomes effective, GWAC will merge with and into
Evergreen, with Evergreen remaining as the surviving corporation (the "Surviving
Corporation") and a wholly-owned subsidiary of GranCare, and all outstanding
shares of Evergreen Common Stock will be converted into an aggregate of
9,672,806 shares of GranCare Common Stock. The Evergreen Option Plans and the
Evergreen Options will be assumed by GranCare at the time the Merger becomes
effective and converted into the Merger Options exercisable for an aggregate for
269,169 shares of GranCare Common Stock. No fractional shares will be issued by
GranCare in the Merger. See "-- Evergreen Options" below.
CONVERSION OF EVERGREEN COMMON STOCK INTO GRANCARE COMMON STOCK
Each outstanding share of Evergreen Common Stock on the date of
consummation of the Merger will be converted into 0.775 of a share of GranCare
Common Stock. Based upon the number of shares of GranCare Common Stock and
Evergreen Common Stock outstanding as of June 1, 1995, there will be 23,791,343
shares of GranCare Common Stock outstanding immediately after the Effective
Date, of which approximately 40.7% will be held by the former holders of
Evergreen Common Stock.
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Upon consummation of the Merger, Evergreen, as a wholly-owned subsidiary of
GranCare, will, for the foreseeable future, continue to operate as a separate
company and use its corporate name.
MARKET PRICE DATA
GranCare Common Stock is traded on the NYSE under the symbol "GC." The
Evergreen Common Stock is listed on the NYSE under the symbol "EHI."
On May 2, 1995, the last trading day prior to the public announcement of
the signing of the Merger Agreement, the last sales price of GranCare Common
Stock and Evergreen Common Stock as reported on the NYSE were $16 5/8 and
$13 1/8 per share, respectively. Following the Merger, GranCare Common Stock
will continue to be traded on the NYSE under the symbol "GC." Evergreen
shareholders are urged to obtain current price information for GranCare Common
Stock in connection with their consideration of the Merger Agreement and the
transactions contemplated thereby. See "COMPARATIVE PER SHARE DATA,"
"COMPARATIVE MARKET DATA" and "DESCRIPTION OF GRANCARE CAPITAL STOCK."
GranCare has never paid cash dividends on the GranCare Common Stock.
Evergreen has not paid cash dividends since 1989. Following the Merger, it is
expected that the Board of Directors of GranCare will continue the policy of not
paying cash dividends in order to retain earnings for reinvestment in the
business of the combined companies.
REASONS FOR THE MERGER
In discussions that led to the signing of the Merger Agreement, the
respective managements of GranCare and Evergreen identified a number of
potential joint benefits resulting from the Merger, including diversification,
expansion of services, broader geographic coverage, the existence of
complimentary services in each other's market areas, the achievement of
administrative efficiencies and greater management, operational and financial
resources. In addition, the GranCare Board of Directors believes that the Merger
will provide the following additional benefits: new business for GranCare's
pharmacy operations, further vertical integration of GranCare's pharmacy,
therapy contract management and home health operations and Cornerstone's
contract management services in new markets, the integration of managerial and
clinical expertise, cost savings and efficiencies from combined administration,
the opportunity to expand its specialty medical programs, added management depth
gained from Evergreen management's strengths and the potential for greater
liquidity for GranCare's shareholders. The Evergreen Board of Directors also
believes that the Merger will provide Evergreen with the benefits of GranCare's
expertise and competitive position in the subacute and ancillary care segments
of the long-term care business and will allow the combined company to benefit
from the immediate opportunity afforded GranCare's pharmacy operations to serve
Evergreen's long-term care facilities. See "THE MERGER -- Reasons for the
Merger; Recommendations of the Boards of Directors."
Recommendation of the GranCare Board of Directors. The Board of Directors
of GranCare has unanimously approved the Merger Agreement and the transactions
contemplated thereby and has determined that the Exchange Ratio is fair and in
the best interests of GranCare and its shareholders. The GranCare Board of
Directors recommends that the shareholders of GranCare vote in favor of the
GranCare Proposal. See "THE MERGER -- Reasons for the Merger; Recommendation of
the Boards of Directors" and "-- Opinions of Financial Advisors."
Opinions of GranCare's Financial Advisors. Each of Salomon Brothers Inc
("Salomon") and Smith Barney Inc. ("Smith Barney") has acted as a financial
advisor to GranCare in connection with the Merger and has delivered its
respective written opinion, dated May 2, 1995, to the Board of Directors of
GranCare to the effect that, as of the date of such opinion and based upon and
subject to certain matters stated therein, the Exchange Ratio was fair, from a
financial point of view, to GranCare. The full text of the respective written
opinions of Salomon and Smith Barney, which set forth the assumptions made,
matters considered and limitations on the review undertaken, are attached as
Appendices B and C, respectively, to this Joint Proxy Statement/Prospectus and
should be read carefully in their entirety. See "THE MERGER -- Opinions of
Financial Advisors."
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Recommendation of the Evergreen Board of Directors. The Board of Directors
of Evergreen has unanimously approved the Merger Agreement and the transactions
contemplated thereby and has determined that the Merger is fair and in the best
interests of Evergreen and its shareholders. The Evergreen Board of Directors
recommends that the shareholders of Evergreen vote in favor of the Evergreen
Proposal. See "THE MERGER -- Reasons for the Merger; Recommendation of the
Boards of Directors."
Opinions of Evergreen's Financial Advisors. On May 2, 1995, The Chicago
Dearborn Company ("Chicago Dearborn") and McDonald & Company Securities, Inc.
("McDonald") delivered their respective oral opinions to the Evergreen Board of
Directors each to the effect that the Exchange Ratio was fair, from a financial
point of view, to Evergreen and the Evergreen shareholders. [Each of Chicago
Dearborn and McDonald subsequently confirmed its respective May 2, 1995 oral
opinion by delivery of its respective written opinion dated as of the date of
this Joint Proxy Statement/Prospectus.] For information on the assumptions made,
matters considered and limits on the review undertaken by each of Chicago
Dearborn and McDonald, see "THE MERGER -- Opinions of Financial Advisors."
Holders of Evergreen Common Stock are urged to read carefully and in their
entirety the opinions of Chicago Dearborn and McDonald, each dated the date of
this Joint Proxy Statement/Prospectus, copies of which appear as Appendices D
and E, respectively, to this Joint Proxy Statement/Prospectus.
EFFECTIVE TIME
The Merger will become effective upon the filing of the Certificate of
Merger contemplated by the Merger Agreement with the Secretary of State of the
State of California (the "Effective Time"). Assuming all conditions to the
Merger are met or waived prior thereto, it is anticipated that the Effective
Time will occur on or about August 1, 1995 (the "Effective Date"), following the
GranCare Special Meeting and the Evergreen Special Meeting.
MANNER AND BASIS OF CONVERTING SHARES
Promptly after the Effective Time, GranCare will mail to all holders of
record of Evergreen Common Stock a letter of transmittal with instructions for
use by such holders in surrendering certificates representing shares of
Evergreen Common Stock in exchange for certificates representing Merger Shares.
No fractional shares will be issued by GranCare in the Merger. In lieu of any
such fractional shares, each holder of Evergreen Common Stock who would
otherwise have been entitled to a fractional share of GranCare Common Stock upon
surrender of certificates for exchange will be paid an amount in cash (without
interest) equal to such holder's proportionate interest in the net proceeds from
the sale or sales in the open market by GranCare's exchange agent, on behalf of
all such holders, of the aggregate fractional shares of the GranCare Common
Stock issued pursuant to the Merger Agreement. See "TERMS OF THE MERGER
AGREEMENT AND RELATED TRANSACTIONS -- Manner and Basis of Converting Shares,
Options and Warrants."
EVERGREEN OPTIONS
Pursuant to the Merger Agreement, the Evergreen Options will be assumed by
GranCare and converted into the right to acquire 0.775 of a share of GranCare
Common Stock for each share of Evergreen Common Stock underlying the Evergreen
Options. Otherwise each Merger Option shall continue to have, and be subject to,
the same terms and conditions set forth in the Evergreen Options. The per share
exercise price for the shares of GranCare Common Stock issuable upon exercise of
each Merger Option will be equal to the quotient determined by dividing the
exercise price per share at which such Evergreen Option was exercisable
immediately prior to the Effective Date by 0.775. See "TERMS OF THE MERGER
AGREEMENT AND RELATED TRANSACTIONS -- Manner and Basis of Converting Shares,
Options and Warrants."
CONDITIONS TO THE MERGER, TERMINATION OR AMENDMENT OF THE MERGER AGREEMENT
Consummation of the Merger is subject to the satisfaction or waiver of
various conditions which, if not fulfilled or waived, permit termination of the
Merger Agreement. If the average last sales price of GranCare
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<PAGE> 18
Common Stock on the NYSE for any consecutive twenty business days preceding the
fifth trading day prior to the Effective Time of the Merger as reported in The
Wall Street Journal (the "GCI Stock Value"), is less than or equal to $14.50,
the Merger Agreement permits either Evergreen or GranCare to terminate the
Merger Agreement. The Merger Agreement may also be terminated under certain
other circumstances, including (i) termination by mutual consent of GranCare and
Evergreen and (ii) termination by either GranCare or Evergreen if the Merger is
not consummated on or before September 30, 1995. See "TERMS OF THE MERGER
AGREEMENT AND RELATED TRANSACTIONS -- Conditions to the Merger" and
" -- Termination or Amendment of the Merger Agreement."
EFFECTS OF TERMINATION
Under the terms of the Merger Agreement, if the Merger Agreement is
terminated under certain circumstances, either GranCare or Evergreen will be
entitled to a termination fee of $500,000 or $4.0 million depending upon the
circumstances of the termination. In addition, concurrently with the execution
of the Merger Agreement, GranCare, GWAC, and Evergreen entered into a Cross
Option Agreement pursuant to which Evergreen granted to GranCare an irrevocable
option to purchase newly issued shares of Evergreen Common Stock in an amount
equal to 19.9% of the shares of Evergreen Common Stock outstanding immediately
prior to the exercise of such option, and GranCare granted to Evergreen an
irrevocable option to purchase newly issued shares of GranCare Common Stock in
an amount equal to 19.9% of the shares of GranCare Common Stock outstanding
immediately prior to the exercise of such option. The respective options only
may be exercised by GranCare or Evergreen, respectively, if the Merger Agreement
becomes terminable or is terminated by GranCare or Evergreen under circumstances
which would entitle GranCare or Evergreen, respectively, to certain termination
fees under the Merger Agreement. See "TERMS OF THE MERGER AGREEMENT AND RELATED
TRANSACTIONS -- Termination or Amendment of the Merger Agreement."
The Merger Agreement may be amended by the parties thereto, provided such
amendment is in writing, at any time before or after the approval and adoption
of the Merger Agreement by the shareholders of Evergreen and GranCare. After
such shareholder approval and adoption has been obtained, no amendment of any of
the agreements executed in connection with the Merger may be made which by law
requires the further approval of the shareholders, without obtaining such
further approval. See "TERMS OF THE MERGER AGREEMENT AND RELATED
TRANSACTIONS -- Termination or Amendment of the Merger Agreement."
COMPARISON OF RIGHTS UNDER APPLICABLE LAW
The rights of shareholders of Evergreen are currently governed by
applicable Georgia law, the Evergreen Restated Articles of Incorporation (the
"Evergreen Restated Articles of Incorporation") and the Evergreen Bylaws.
Holders of Evergreen Common Stock immediately prior to the Effective Time will
become shareholders of GranCare, and from and after the Effective Time, their
rights as shareholders of GranCare will be governed by applicable California
law, the GranCare Restated Articles of Incorporation (the "GranCare Articles of
Incorporation") and the Amended and Restated Bylaws of GranCare (the "GranCare
Bylaws"). There are certain differences between the rights of shareholders of
GranCare and Evergreen under California and Georgia law and under the Evergreen
Restated Articles of Incorporation and Bylaws and the GranCare Articles of
Incorporation and Bylaws. See "COMPARISON OF RIGHTS OF HOLDERS OF GRANCARE AND
EVERGREEN COMMON STOCK."
MANAGEMENT AND OPERATIONS AFTER THE MERGER
At the Effective Time, the GranCare Board of Directors will be comprised of
the following nine individuals: Gene E. Burleson, Charles M. Blalack, Robert L.
Parker, Antoinette Hubenette, Joel S. Kanter, Ronald G. Kenny, William G. Petty,
Jr., Edward B. Regan and Gary U. Rolle. If any of Robert L. Parker, Ronald G.
Kenny or William G. Petty, Jr. (the "Evergreen Representatives") are unable or
unwilling to serve as a director of GranCare at the Effective Time, such
individual or individuals shall be replaced by an individual or individuals
designated by the Board of Directors of Evergreen provided that such nominees
are
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approved by the Board of Directors of GranCare. Following the Effective Time and
continuing through the 1997 Annual Meeting of Shareholders of GranCare, if any
vacancy on the Board of Directors of GranCare arises with respect to any
Evergreen Representative (or any other individual or individuals selected by the
Board of Directors of Evergreen or by such individuals or their successors as a
replacement director), any nominee selected to fill such vacancy shall be
nominated on behalf of the GranCare Board of Directors by a majority vote of the
remaining Evergreen Representatives provided that such nominees are approved by
the Board of Directors of GranCare. At the 1996 and 1997 Annual Meetings of
Shareholders of GranCare, the Board of Directors of GranCare shall use good
faith efforts to cause the GranCare Board of Directors to consist of no more
than eight members, including three Evergreen Representatives.
Following the consummation of the Merger, William G. Petty, Jr.,
Evergreen's President and Chief Executive Officer, will be elected as Vice
Chairman of GranCare and most of the other members of Evergreen senior
management are expected to join the GranCare management team. GranCare's
executive officers and management will otherwise remain unchanged following the
Merger. See "MANAGEMENT AND OPERATIONS OF THE COMBINED COMPANIES FOLLOWING THE
MERGER."
ACCOUNTING TREATMENT
The Merger is intended to qualify as a "pooling of interests" business
combination for financial reporting purposes. See "THE MERGER -- Accounting
Treatment."
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
Subject to the limitations and qualifications described in the discussion
of the Merger below, including the rendering of certain opinions by Brobeck,
Phleger & Harrison, counsel to GranCare, and Rogers & Hardin, counsel to
Evergreen, treatment of the Merger 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"), will generally have the following consequences
for federal income tax purposes: (a) no gain or loss will be recognized by
holders of Evergreen Common Stock upon their receipt in the Merger solely of
GranCare Common Stock in exchange therefor; (b) the aggregate basis for tax
purposes of the GranCare Common Stock received in the Merger by holders of
Evergreen Common Stock will be the same as the aggregate basis of the Evergreen
Common Stock surrendered in exchange therefor; and (c) the holding period of the
GranCare Common Stock received in the Merger by holders of Evergreen Common
Stock will include the period for which the Evergreen Common Stock surrendered
in exchange therefor was held, provided that the Evergreen Common Stock is held
as a capital asset as of the Effective Date. The conversion of the Evergreen
Options granted in connection with the performance of services into the Merger
Options will not result in the recognition of income, gain or loss for federal
income tax purposes by the holders of the Evergreen Options.
GOVERNMENTAL AND REGULATORY APPROVALS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), and the rules promulgated thereunder by the Federal Trade
Commission (the "FTC"), the Merger cannot be consummated until notifications
have been given and certain information has been furnished to the FTC and the
Antitrust Division of the Department of Justice (the "Antitrust Division") and
the applicable waiting period has expired. GranCare and Evergreen have filed
appropriate notification and report forms under the HSR Act with the FTC and
the Antitrust Division.
Under applicable law, Evergreen may be required to give notification of the
Merger to various state and federal governmental entities and apply for new
licenses and permits. Evergreen believes that it will be able to obtain any such
licenses upon application therefor in the ordinary course. GranCare and
Evergreen are aware of no other governmental or regulatory approvals required
for consummation of the Merger, other than compliance with applicable federal
and state securities laws.
12
<PAGE> 20
DISSENTERS' RIGHTS
Under the GBCC, holders of the Evergreen Common Stock are not entitled to
dissenters' rights in connection with the Merger.
RISK FACTORS
In considering whether to approve the Merger Agreement and the transactions
contemplated thereby, GranCare and Evergreen shareholders should consider the
following: (i) uncertainties related to the Merger; (ii) the significant demands
on GranCare's financial and management resources as a result of GranCare's
history of rapid expansion; (iii) the significant debt and lease obligations of
the combined company; (iv) the dependence of the combined company on
reimbursement by third party payors; (v) the uncertainty of government
regulation; and (vi) the fact that a significant percentage of the combined
company's total operating revenues will be derived from operations in several
states and will therefore be subject to any adverse regulatory environments in
such areas. See "RISK FACTORS."
13
<PAGE> 21
SELECTED HISTORICAL FINANCIAL DATA
GRANCARE SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following historical consolidated financial data of GranCare have been
derived from historical financial statements of GranCare and should be read in
conjunction with such financial statements and notes thereto. GranCare data for
the three months ended March 31, 1994 and 1995 have been derived from unaudited
consolidated financial statements. The following data should be read in
conjunction with the respective consolidated financial statements incorporated
by reference in this Joint Proxy Statement/ Prospectus.
GRANCARE SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND STATISTICAL DATA)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------------------------------- --------------------
1990(1) 1991(2) 1992(3) 1993(3) 1994(3) 1994 1995
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(4):
Net revenues.............................. $ 92,628 $239,018 $373,317 $507,970 $549,220 $130,953 $144,051
Expenses:
Operating expenses...................... 91,052 216,243 336,997 453,824 484,615 116,044 129,706
Depreciation and amortization........... 1,769 4,185 5,937 10,340 12,222 2,789 3,187
Interest expense and finance charges.... 3,053 6,568 7,402 18,920 20,090 4,583 5,172
Nonrecurring costs -- merger (1993);
Other (1992).......................... -- -- 1,114 4,573 -- -- --
Losses on divestitures (1990);
restructuring costs (1994)............ 7,812 -- -- -- 8,200 -- --
-------- -------- -------- -------- -------- -------- --------
Total expenses........................ 103,686 226,996 351,450 487,657 525,127 123,416 138,065
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes and
extraordinary charges................... (11,058) 12,022 21,867 20,313 24,093 7,537 5,986
Income taxes............................ -- 3,950 8,701 8,144 8,914 2,977 2,275
-------- -------- -------- -------- -------- -------- --------
Income (loss) before extraordinary
charge.................................. (11,058) 8,072 13,166 12,169 15,179 4,560 3,711
Extraordinary charge -- loss on early
extinguishment of debt, net of income
taxes of $856........................... -- -- -- 1,285 -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)......................... $(11,058) $ 8,072 $ 13,166 $ 10,884 $ 15,179 $ 4,560 $ 3,711
======== ======== ======== ======== ======== ======== ========
Net income per common share and common
equivalent share(5)
Primary:
Income before extraordinary charge.... -- $ 1.11 $ 1.21 $ 1.00 $ 1.08 $ 0.34 $ 0.26
Extraordinary charge.................. -- -- -- (0.10) -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income............................ -- $ 1.11 $ 1.21 $ 0.90 $ 1.08 $ 0.34 $ 0.26
======== ======== ======== ======== ======== ======== ========
Fully diluted:
Income before extraordinary charge.... -- $ 0.96 $ 1.09 $ 0.93 $ 1.08 $ 0.33 $ 0.26
Extraordinary charge.................. -- -- -- (0.10) -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income............................ -- $ 0.96 $ 1.09 $ 0.83 $ 1.08 $ 0.33 $ 0.26
======== ======== ======== ======== ======== ======== ========
Weighted average shares outstanding
Primary................................. -- 7,068 10,802 12,088 14,047 13,496 14,449
Fully diluted........................... -- 8,267 12,012 13,124 16,382 15,909 14,500
STATISTICAL DATA:
Average number of beds.................... 1,575 5,757 8,923 11,298 9,975 10,745 9,586
Average occupancy percentage.............. 81.4% 87.2% 87.8% 88.0% 88.3% 87.5% 89.7%
</TABLE>
14
<PAGE> 22
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------- MARCH 31,
1990(1) 1991(2) 1992(3) 1993(3) 1994(3) 1995(9)
-------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA(4):
Working capital......................................... $ 9,075 $ 22,760 $ 27,866 $ 62,480 $ 84,194 $ 92,351
Total assets............................................ 78,483 100,796 226,506 336,352 409,191 418,467
Short-term debt(6)...................................... 3,105 6,688 3,025 8,707 5,228 5,447
Long-term debt (excluding current portion)(6)........... 53,730 41,975 89,771 176,757 205,216 209,225
Redeemable Securities(7)................................ 500 5,563 0 0 0 0
Exchangeable Securities(8).............................. 0 0 9,079 0 0 0
Shareholders' equity (capital deficiency)............... (16,698) 12,760 54,230 70,757 106,614 111,566
</TABLE>
- ---------------
(1) American Medical Services, Inc. ("AMS") was acquired on December 27, 1990
and, therefore, (i) the operating results of AMS are included in the
historical operating results of the Company for the last four days of 1990
and (ii) the assets and liabilities of AMS are first included in the balance
sheet of GranCare as of December 31, 1990.
(2) The acquisition of ARA Services, Inc. ("ARA") occurred on September 27, 1991
and, therefore, (i) the operating results of the ARA facilities are included
in the historical operating results of GranCare for the fourth quarter of
1991 and (ii) the assets and liabilities of the ARA facilities, as adjusted
for related financing transactions, are first included in the balance sheet
data of GranCare as of December 31, 1991.
(3) All acquisitions which occurred in 1992, 1993 and 1994, except for the
CompuPharm, Inc. ("CompuPharm") acquisition, are reflected from the date of
each acquisition in the historical operating results of GranCare and the
assets and liabilities relating to these acquisitions are included in the
balance sheet of GranCare since that time.
(4) All years prior to 1994 have been restated for the December 28, 1993 merger
with CompuPharm which was accounted for as a pooling of interests business
combination.
(5) Earnings per share information is not presented for 1990 because such
information is not indicative of the operations of GranCare for that year
due to the significant change to GranCare resulting from the acquisition of
AMS which occurred on December 27, 1990.
(6) Short term debt includes current portion of long-term debt.
(7) Consists of (i) Series B exchangeable preferred stock (the "Series B
Preferred Stock") issued in connection with the acquisition of Professional
HealthCare Management, Inc. and (ii) 200,000 shares of GranCare Common Stock
issued to Westlake Hospital Corporation.
(8) Consists of the Series B Preferred Stock.
(9) Does not reflect the acquisition of Cornerstone which was closed on April 5,
1995.
15
<PAGE> 23
EVERGREEN SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following historical consolidated financial data of Evergreen have been
derived from Evergreen's historical financial statements and should be read in
conjunction with such financial statements and notes thereto. The following data
should be read in conjunction with the respective consolidated financial
statements incorporated by reference in this Joint Proxy Statement/Prospectus.
EVERGREEN SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND STATISTICAL DATA)
<TABLE>
<CAPTION>
PREDECESSOR TO EVERGREEN(1)
------------------------------------------------- EVERGREEN
---------------------------------------
FISCAL YEARS ENDED NINE MONTHS NINE MONTHS
SEPTEMBER 30, ENDED YEAR ENDED ENDED MARCH 31,
------------------------------- JUNE 30, JUNE 30, ---------------------
1990 1991 1992 1993 1994 1994 1995
------- ------- ------- ------------- ------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA(1):
Net revenues................ $46,685 $51,940 $61,321 $51,565 $ 143,201 $104,509 $140,674
Expenses:
Operating expenses........ 46,538 50,098 56,190 47,173 131,082 95,891 122,556
Depreciation and
amortization............ 843 879 985 949 2,932 2,029 4,165
Interest expense and
finance charge.......... 783 688 506 435 615 470 1,520
------- ------- ------- ------------- ------------- -------- --------
Total expenses............ 48,164 51,665 57,681 48,557 134,629 98,390 128,241
------- ------- ------- ------------- ------------- -------- --------
Income (loss) before income
taxes, extraordinary
charge and minority
interest.................. (1,479) 275 3,640 3,008 8,572 6,119 12,433
Income taxes(2)............. -- -- -- -- 3,007 2,759 5,030
------- ------- ------- ------------- ------------- -------- --------
Income (loss) before
extraordinary charge and
minority interest......... (1,479) 275 3,640 3,008 5,565 3,360 7,403
Extraordinary charge -- gain
on settlement of debt..... -- 2,928 -- -- -- -- --
------- ------- ------- ------------- ------------- -------- --------
Income before minority
interest.................. (1,479) 3,203 3,640 3,008 5,565 3,360 7,403
Minority interest........... -- -- -- -- 63 37 398
------- ------- ------- ------------- ------------- -------- --------
Net income (loss)........... $(1,479) $ 3,203 $ 3,640 $ 3,008 $ 5,628 $ 3,397 $ 7,801
======= ======= ======= ============ ============ ======== ========
Net income per common share
Primary(3)................ -- -- -- -- $ 0.59 $ 0.37 $ 0.63
Weighted average shares
outstanding............... -- -- -- -- 9,459 9,256 12,481
STATISTICAL DATA:
Average number of beds........ 2,211 2,435 2,435 4,105 6,815 5,255 6,827
Average occupancy
percentage.................. 75.1% 75.9% 75.3% 86.4% 88.7% 85.4% 83.4%
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR TO EVERGREEN(1) EVERGREEN
------------------------------------ -------------------------------------
SEPTEMBER 30, JUNE 30,
------------------------------------ -------------------- MARCH 31,
1990 1991 1992 1993 1994 1995
------- ------------ ------- ------- -------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA(1):
Working Capital.......................... $ 1,708 $ 61 $ 3,617 $ 2,747 $ 3,540 $ 9,096
Total assets............................. 9,532 14,641 16,150 49,810 105,192 128,610
Short-term debt.......................... 368 583 763 5,689 1,936 5,670
Long-term debt (excluding current
portion)............................... 9,802 4,285 3,974 11,052 27,488 42,554
Stockholders' equity..................... -- -- -- 14,754 49,370 57,177
Partners' equity (deficit)............... (4,632) 320 4,988 -- -- --
</TABLE>
- ---------------
(1) Evergreen's Balance Sheet Data at September 30, 1990, 1991 and 1992 and
Evergreen's Statement of Operations Data for the fiscal years ended
September 30, 1990, 1991 and 1992 and the nine months ended June 30, 1993
include only the combined operations of Evergreen Healthcare Ltd., L.P. and
Omega/Indiana Pharmacy, L.P., collectively referred to as "EHL," predecessor
to Evergreen.
(2) For the fiscal years presented prior to July 1, 1993, the taxable income of
EHL was includable in the income tax returns of their partners and,
accordingly, income tax provisions are not reflected in their historical
financial statements.
(3) Prior to June 30, 1993, the predecessor of Evergreen was comprised of two
partnerships and accordingly no shares were outstanding for earnings per
share purposes.
16
<PAGE> 24
UNAUDITED SUMMARY PRO FORMA COMBINED FINANCIAL DATA
GRANCARE SUMMARY PRO FORMA COMBINED FINANCIAL INFORMATION
The following Summary Pro Forma Combined Financial Information is derived
from the Unaudited Pro Forma Condensed Combined Financial Data of GranCare
included elsewhere in this Joint Proxy Statement/Prospectus, and should be read
in conjunction therewith. The following pro forma information shows the pro
forma effect of the Cornerstone acquisition consummated by GranCare on April 5,
1995 and the pro forma effect of the Merger on GranCare's historical financial
data, as if the acquisition and the Merger had occurred at the beginning of such
periods or on such date.
The Summary Pro Forma Consolidated Financial Information does not purport
to present the financial position and results of operations of GranCare had the
various transactions reflected therein actually been completed as of the dates
indicated. In addition, the pro forma combined financial information is not
necessarily indicative of the future results of operations of GranCare and
should be read in conjunction with the historical financial statements of
GranCare and Evergreen and the notes thereto, incorporated herein by reference.
GRANCARE SUMMARY PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 1995
(UNAUDITED, IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
GRANCARE AND EVERGREEN GRANCARE AND
GRANCARE CORNERSTONE EVERGREEN PRO FORMA EVERGREEN
HISTORICAL PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA
---------- ------------ --------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Current assets............................ $163,080 $167,974 $ 35,674 $ -- $203,648
Property and equipment, net............... 150,959 151,238 67,434 -- 218,672
Other assets.............................. 104,428 154,062 25,502 -- 179,564
-------- ------ ------- --- --------
Total assets.............................. $418,467 $473,274 $ 128,610 $ -- $601,884
======== ====== ======= === ========
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
GRANCARE AND EVERGREEN GRANCARE AND
GRANCARE CORNERSTONE EVERGREEN PRO FORMA EVERGREEN
HISTORICAL PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA
---------- ------------ --------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Current liabilities....................... $ 70,729 $ 72,073 $ 26,578 $ 10,000 $108,651
Long-term debt............................ 209,225 262,688 42,554 -- 305,242
Other..................................... 26,947 26,947 2,301 -- 29,248
Shareholders' equity...................... 111,566 111,566 57,177 (10,000) 158,743
-------- -------- ------- -------- --------
Total liabilities and shareholders'
equity.............................. $418,467 $473,274 $ 128,610 -- $601,884
======== ======== ======= ======== ========
</TABLE>
17
<PAGE> 25
GRANCARE, INC.
SUMMARY PRO FORMA COMBINED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31,(1) ENDED
---------------------------------- MARCH 31,
1992 1993 1994 1995
-------- -------- -------- ------------
<S> <C> <C> <C> <C>
Net revenue.................................. $437,799 $611,689 $773,492 $202,562
Expenses:
Operating expenses......................... 395,382 548,988 679,340 179,753
Depreciation and amortization.............. 6,996 12,349 19,210 5,234
Interest expense and financing charges..... 7,876 19,601 26,573 7,136
Other(2)................................... 1,114 4,573 8,200 --
-------- -------- --------
Total expenses..................... 411,368 585,511 733,323 192,123
-------- -------- --------
Income before income taxes................... 26,431 26,178 40,169 10,439
Income taxes................................. 10,526 10,874 14,459 3,992
-------- -------- --------
Net income................................... $ 15,905 $ 15,304 $ 25,710 $ 6,447
======== ======== ========
Net income per common and
common equivalent share:
Primary.................................... $ 1.00 $ 0.84 $ 1.11 $ 0.27
======== ======== ========
Fully diluted.............................. $ 0.93 $ 0.80 $ 1.11 $ 0.27
======== ======== ========
</TABLE>
- ---------------
(1) Evergreen historical data has been restated to a calendar year basis.
(2) Merger costs in 1992, non-recurring CompuPharm merger costs in 1993 and
restructuring costs in 1994.
18
<PAGE> 26
COMPARATIVE PER SHARE DATA
The following table sets forth (1) the historical net income per common
share and the historical book value per common share data of the GranCare Common
Stock; (2) the historical net income per common share and the historical book
value per common share data of the Evergreen Common Stock; (3) the unaudited pro
forma net income per share and the unaudited pro forma book value per share of
GranCare Common Stock after giving effect to the Merger on a pooling of interest
basis; and (4) the unaudited pro forma net income per equivalent share, and the
unaudited pro forma book value per equivalent share of Evergreen Common Stock
based on the Exchange Ratio of 0.775 of a share of GranCare Common Stock for
each share of Evergreen Common Stock at the Effective Time of the Merger. See
"TERMS OF THE MERGER AGREEMENT AND RELATED TRANSACTIONS -- Manner and Basis of
Converting Shares, Options and Warrants." GranCare has never declared or paid a
dividend on the GranCare Common Stock in any of the periods presented below.
Evergreen has not paid or declared a dividend on the Evergreen Common Stock
since 1989. The information presented in the following table should be read in
conjunction with the separate historical consolidated financial statements and
the interim unaudited consolidated condensed financial statements of GranCare
and Evergreen and the notes thereto and in conjunction with the unaudited pro
forma condensed combined financial data incorporated by reference or appearing
elsewhere herein.
<TABLE>
<CAPTION>
PRO FORMA
EQUIVALENT
HISTORICAL GRANCARE FOR ONE
---------------------- AND EVERGREEN EVERGREEN
GRANCARE EVERGREEN PRO FORMA SHARE
-------- --------- ------------- ----------
<S> <C> <C> <C> <C>
Net income per share fully diluted:
First quarter of fiscal 1995.......... $ 0.26 $0.19 $0.25 $ 0.19
Fiscal 1994........................... 1.08 0.82 1.07 0.83
Fiscal 1993(1)........................ 0.83(2) N/A 0.73 0.57
Fiscal 1992(1)........................ 1.09 N/A 0.93 0.72
Book value per share:
End of first quarter of fiscal 1995... 8.12 4.58 7.21 5.59
Fiscal year ended 1994................ 7.90 4.39 6.97 5.40
</TABLE>
- ---------------
(1) As a result of a business combination consummated on June 30, 1993 (the
"Evergreen Business Combination"), Evergreen's business and operations now
include the business and operations of National Heritage, Inc. and the
business and operations of EHL. The Evergreen Business Combination resulted
in the owners of EHL owning a majority of the outstanding shares of the
Evergreen Common Stock; accordingly, the Evergreen Business Combination has
been treated, for financial reporting purposes, as a reverse acquisition of
Evergreen by EHL. Unless otherwise indicated, the financial data relating to
Evergreen contained in this Joint Proxy Statement/Prospectus for periods
prior to June 30, 1993 relate only to the operations of EHL. Thus, no
Evergreen historical net income per share data is presented for such
periods. For purposes of the pro forma combined presentation, however, the
number of shares of Evergreen Common Stock issued to the owners of EHL in
the Evergreen Business Combination is assumed to be the number of shares of
Evergreen Common Stock outstanding in Fiscal 1992 and Fiscal 1993.
(2) Includes a $0.10 per share extraordinary charge.
19
<PAGE> 27
COMPARATIVE MARKET DATA
The GranCare Common Stock is traded on the NYSE under the symbol "GC."
After GranCare began public trading on October 31, 1991, and until July 12,
1993, GranCare's Common Stock was traded in the over-the-counter market and was
quoted on the NASDAQ National Market System under the symbol "GRNC." Prior to
October 31, 1991, there was no public trading market for GranCare's Common
Stock. The following table sets forth for each period indicated the high and low
last sales prices for GranCare Common Stock as reported by the NASDAQ National
Market System, or the high and low last sales price of GranCare Common Stock on
the NYSE Composite Tape.
<TABLE>
<CAPTION>
PRICE
-----------------
HIGH LOW
---- ----
<S> <C> <C>
CALENDAR YEAR 1992
Quarter Ended March 31, 1992......................... $18 2/3 $12 3/4
Quarter Ended June 30, 1992.......................... 18 3/4 12 3/4
Quarter Ended September 30, 1992..................... 14 7/8 10 1/4
Quarter Ended December 31, 1992...................... 14 7/8 10 1/4
CALENDAR YEAR 1993
Quarter Ended March 31, 1993......................... 24 14 3/4
Quarter Ended June 30, 1993.......................... 20 1/2 16
Quarter Ended September 30, 1993..................... 19 3/4 15 1/2
Quarter Ended December 31, 1993...................... 17 3/4 14
CALENDAR YEAR 1994
Quarter Ended March 31, 1994......................... 22 16 1/2
Quarter Ended June 30, 1994.......................... 21 1/4 17 5/8
Quarter Ended September 30, 1994..................... 21 7/8 18 1/8
Quarter Ended December 31, 1994...................... 18 1/4 15 1/2
CALENDAR YEAR 1995
Quarter Ended March 31, 1995......................... 18 5/8 14 7/8
Quarter Ended June 30, 1995 (through May 31, 1995)... 17 1/4 15 7/8
</TABLE>
20
<PAGE> 28
The Evergreen Common Stock is traded on the NYSE under the symbol "EHI."
Prior to June 30, 1993, the Evergreen Common Stock was traded on the NYSE under
the symbol "NHI." The following table sets forth for the periods indicated the
high and low last sales prices per share of Evergreen Common Stock, as reported
on the NYSE Composite Tape, as adjusted to give effect to the one-for-five
reverse stock split effected by Evergreen on June 30, 1993.
<TABLE>
<CAPTION>
PRICE
----------------
HIGH LOW
---- ---
<S> <C> <C>
FISCAL 1993
Quarter Ended September 30, 1992...................... $ 5 $ 3 1/8
Quarter Ended December 31, 1992....................... 8 3/4 4 3/8
Quarter Ended March 31, 1993.......................... 11 7/8 8 1/8
Quarter Ended June 30, 1993........................... 11 1/4 8 1/8
FISCAL 1994
Quarter Ended September 30, 1993...................... 9 7/8 7 3/8
Quarter Ended December 31, 1993....................... 10 1/8 8 7/8
Quarter Ended March 31, 1994.......................... 16 7/8 8 1/8
Quarter Ended June 30, 1994........................... 14 1/2 9 5/8
FISCAL 1995
Quarter Ended September 30, 1994...................... 12 7/8 9 5/8
Quarter Ended December 31, 1994....................... 11 1/4 9 1/4
Quarter Ended March 31, 1995.......................... 13 7/8 9 3/4
Quarter Ended June 30, 1995 (through May 31, 1995).... 13 1/8 11 5/8
</TABLE>
On May 2, 1995, the last trading day prior to the public announcement of
the signing of the Merger Agreement, the last sales price of the GranCare Common
Stock and the Evergreen Common Stock on the NYSE were $16 5/8 and $13 1/8,
respectively. As of May 31, 1995, there were approximately 337 and approximately
460 shareholders of record of the GranCare Common Stock and the Evergreen Common
Stock, respectively.
21
<PAGE> 29
CAPITALIZATION
The following table sets forth as of March 31, 1995 the consolidated
short-term debt and capitalization of GranCare (i) on an historical basis, (ii)
on a pro forma basis giving effect to the Cornerstone acquisition, and (iii) on
a pro forma basis giving effect to the Merger and the Cornerstone acquisition.
<TABLE>
<CAPTION>
GRANCARE GRANCARE EVERGREEN PRO FORMA COMBINED
HISTORICAL PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA
---------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Short-term debt:
Notes payable and current
portion of long-term debt... $ 5,447 $ 5,447 $ 5,670 $ -- $ 11,117
======== ======== ======= ======== ========
Long-term debt (less current
portion):
Senior debt.................... 149,015 202,478(1) 42,554 -- 245,032
6 1/2% Convertible Subordinated
Debentures Due 2003......... 60,000 60,000 -- -- 60,000
Other subordinated debt........ 210 210 -- -- 210
-------- -------- ------- -------- --------
Total long-term debt........ 209,225 262,688 42,554 -- 305,242
-------- -------- ------- -------- --------
Shareholders' equity:
Common Stock, no par value;
(50,000,000 shares
authorized; 13,742,877
(actual) 23,415,683
(pro forma) shares issued at
March 31, 1995)............. 88,740 88,740 43,748 -- 132,488
Treasury Stock (200,000 shares
at March 31, 1995).......... (5,030) (5,030) -- -- (5,030)
Equity component of minimum
pension liability........... (364) (364) -- -- (364)
Unrealized gain on investments,
net of income taxes......... 4,275 4,275 -- -- 4,275
Retained earnings.............. 23,945 23,945 13,429 (10,000)(2) 27,374
-------- -------- ------- -------- --------
Total shareholders'
equity.................... 111,566 111,566 57,177 (10,000) 158,743
-------- -------- ------- -------- --------
Total capitalization............. $ 320,791 $ 374,254 $99,731 $ (10,000) $ 463,985
======== ======== ======= ======== ========
</TABLE>
- ------------
(1) Includes $53,463 of debt incurred in the Cornerstone acquisition.
(2) Represents estimated costs of the Merger.
22
<PAGE> 30
RISK FACTORS
In addition to other information in this Joint Proxy Statement/Prospectus,
the following factors should be considered carefully by GranCare and Evergreen
shareholders before voting on the matters described herein.
UNCERTAINTIES RELATED TO THE MERGER
The Merger involves the integration of two companies that have previously
operated independently. Among the factors considered by the Boards of Directors
of GranCare and Evergreen in connection with their approval of the Merger
Agreement were the opportunities for operating efficiencies that should result
from the Merger. While GranCare and Evergreen expect to achieve savings in
operating costs as a result of the Merger, no assurance can be given that
difficulties will not be encountered in integrating the operations of GranCare
and Evergreen or that the benefits expected from such integration will be
realized. Any delays or unexpected costs incurred in connection with such
integration could have a material adverse effect on the business, results of
operations or financial condition of the combined company.
RAPID EXPANSION
GranCare began its operations in January 1988 and has grown from eight
skilled nursing facilities in 1990 to its present 78 facilities. GranCare's
acquisition strategy is to acquire long-term healthcare facilities in its
existing markets and in other targeted geographic areas in which regulatory and
reimbursement policies are favorable as well as facilities, pharmacies and other
specialty medical service providers where opportunities exist to improve
operational efficiencies. GranCare has acquired 24 institutional pharmacies
since 1990 and, after consolidating two of such pharmacies, now operates 23
institutional pharmacies with three satellite facilities. In keeping with
GranCare's strategy of focusing on specialty and subacute care service, on April
5, 1995 GranCare completed its acquisition of Cornerstone. Cornerstone
specializes in the implementation and management of geriatric specialty programs
for acute care hospitals and currently manages over 100 programs in 20 different
states. Due to its rapid growth through acquisitions, GranCare is subject to the
uncertainties and risks associated with any expanding business. GranCare's
growth has placed significant demands on GranCare's financial resources and
management. Most of GranCare's facilities were acquired in groups including some
which have not met GranCare's strategic or performance objectives which has led
to the divestiture of several facilities in recent years.
If the Merger is consummated, GranCare will operate 142 facilities and 23
institutional pharmacies, which represents a substantial increase in the
magnitude of GranCare's operations and will place further demands on its
financial and management resources.
SIGNIFICANT DEBT AND LEASE OBLIGATIONS
As of March 31, 1995, GranCare had total indebtedness (including total
short-term and long-term debt) of approximately $214.7 million. On a pro forma
basis to reflect the acquisition of Cornerstone, on March 31, 1995 GranCare's
total indebtedness was $268.1 million. GranCare also has significant lease
obligations with respect to the facilities operated pursuant to long-term
leases. For the year ended December 31, 1994 and the three months ended March
31, 1995, GranCare's interest expense, and rent and property expenses were
approximately $45.0 million and approximately $12.1 million, respectively. On a
pro forma basis giving effect to the Merger and the Cornerstone acquisition as
if they had occurred as of January 1, 1994, GranCare's total indebtedness as of
March 31, 1995 would have been $316.4 million, and its interest expense and rent
and property expenses would have been $26.6 million and $69.6 million,
respectively, for the year ended December 31, 1994 and $7.1 million and $18.7
million, respectively, for the three months ended March 31, 1995.
After the Merger, GranCare's ability to service its debt and lease
obligations and to comply with the financial covenants contained in its
agreements with its creditors and lessors will be largely dependent upon the
future financial performance of the combined company, which, in turn, will be
dependent upon prevailing regulatory, economic and competitive conditions, and
upon the timeliness of Medicare, Medicaid and other third party reimbursement.
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DEPENDENCE UPON REIMBURSEMENT BY THIRD PARTY PAYORS; LIMITATIONS ON
REIMBURSEMENT
For the year ended December 31, 1994 and for the three months ended March
31, 1995, GranCare derived approximately 77.0% and 78.8% of its net facilities
revenues from Medicare and Medicaid, respectively. On a pro forma basis giving
effect to the Merger as if it had been effective as of January 1, 1994, GranCare
would have derived for the year ended December 31, 1994 and the three months
ended March 31, 1995, approximately 78.4% and 78.7% of its net patient revenues
from Medicare and Medicaid, respectively. There can be no assurance that the
combined company will achieve or improve this pro forma payor revenue mix. Both
governmental and private pay sources have instituted cost-containment measures
designed to limit payments made to long-term care providers, and there can be no
assurance that future measures will not adversely affect reimbursement to
GranCare. Furthermore, government reimbursement programs are subject to
statutory and regulatory changes, retroactive rate adjustments, administrative
rulings and government funding restrictions, all of which could materially
decrease the rates paid to GranCare for its services or the services for which
GranCare is able to seek reimbursement. There have been, and GranCare expects
that under the current Administration there will continue to be a number of
proposals to limit Medicare and Medicaid reimbursement for long-term healthcare
services. GranCare cannot predict at this time whether any of these proposals
will be adopted or, if adopted and implemented, what effect such proposals would
have on GranCare. There can be no assurance that payments under state or federal
governmental programs will remain at levels comparable to present levels or will
be sufficient to cover the costs allocable to patients eligible for
reimbursement pursuant to such programs, particularly with respect to the
Medicaid programs, which generally provide lower reimbursement rates than does
the Medicare program. In addition, there can be no assurance that GranCare's or
Evergreen's facilities and the services and supplies provided by GranCare or
Evergreen will meet or continue to meet the requirements for participation in
such programs.
While federal regulations do not provide states with grounds to curtail
funding of their Medicaid cost reimbursement programs due to state budget
deficiencies, states have nevertheless curtailed funding in such circumstances
in the past. Due to such unknown circumstances, there can be no assurance that
states in which GranCare operates will continue to meet their Medicaid
obligations on a timely basis. Any failure by such states to meet their Medicaid
obligations on a timely basis could materially adversely affect GranCare and the
combined company.
In August 1994, the state of Indiana adopted regulations which reclassify
and reduce reimbursement rates for basic skilled nursing facility services and
nonroutine billable supplies (primarily medical supplies and oxygen supply
services). Although Evergreen has renegotiated prices with vendors, adjusted
staffing levels, reduced other operating expenses and made certain operational
changes to mitigate the impact of these regulatory changes on Evergreen's
operating results, there can be no assurance that Evergreen will be able to
completely offset the full impact of these new regulations on its revenues. As
such, Evergreen's and GranCare's (assuming the Merger is consummated) net
revenues are likely to be less than they otherwise would have been in the
absence of such new regulations. For the year ended June 30, 1994 and for the
nine months ended March 31, 1995, Evergreen derived approximately 30% and 20%,
respectively, of its net patient revenues from the Indiana Medicaid Program. On
a pro forma basis giving effect to the Merger as if it had been effective as of
January 1, 1994, GranCare would have derived for the year ended December 31,
1994 and the three months ended March 31, 1995, approximately 8% and 8%,
respectively, of its net revenues from the Indiana Medicaid Program.
The state of Indiana implemented regulations in February, 1995 which allow
for additional reimbursement for patients with certain higher acuity
("subacute") conditions pursuant to an "extensive care rate." Evergreen is in
the process of evaluating which Indiana facilities will be eligible to receive
the extensive care rate. If eligible, Evergreen revenues would be higher for
such subacute patients than they otherwise would be under the new regulations,
although Evergreen is unable to reliably quantify any such effect on its
revenues.
GOVERNMENT REGULATION
The federal government and all states in which GranCare and Evergreen
operate regulate various aspects of their respective businesses. In particular,
the operation of long-term care facilities and the provision of
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specialty medical services are subject to federal, state and local laws relating
to the adequacy of medical care, distribution of pharmaceuticals, equipment,
personnel, operating policies, fire prevention, rate-setting and compliance with
building codes and environmental and other laws. GranCare's and Evergreen's
facilities are subject to periodic inspection by governmental and other
authorities to assure continued compliance with various standards, their
continued licensing under state law and certification under the Medicare and
Medicaid programs. The failure to obtain or renew any required regulatory
approvals or licenses could adversely affect GranCare's and Evergreen's
operations.
Effective October 1, 1990, the Omnibus Budget Reconciliation Act of 1993
("OBRA") increased the enforcement powers of state and federal certification
agencies. Additional sanctions have been authorized to correct noncompliance
with regulatory requirements, including fines, temporary suspension of admission
of new patients to nursing centers and, in extreme circumstances,
decertification or suspension from participation in the Medicare or Medicaid
programs. To date, notices of deficiencies and citations have not had any
material adverse effect on GranCare or Evergreen.
GranCare's and Evergreen's facilities are licensed either on an annual or
bi-annual basis and are certified annually for participation in Medicare and/or
Medicaid by the respective states through various regulatory agencies that
determine compliance with federal, state and local laws. These legal
requirements relate to the quality of the care provided, the qualifications of
the administrative personnel and nursing staff, the adequacy of the physical
plant and equipment and continuing compliance with the laws and regulations
governing the operation of healthcare facilities. From time to time GranCare's
and Evergreen's facilities may receive statements of deficiencies from
regulatory agencies. In response, GranCare and Evergreen implement plans of
correction with respect to these facilities to address the alleged deficiencies.
Although each of GranCare and Evergreen endeavor to comply with federal, state
and local regulatory requirements for the maintenance and operation of its
facilities, there can be no assurance that all facilities are always in
compliance.
In certain circumstances, federal law mandates that being convicted of
certain abusive or fraudulent behavior with respect to one healthcare facility
may subject other facilities under common control or ownership to
disqualification from participation in Medicare and Medicaid programs. In
addition, some state regulations provide that all facilities under common
control or ownership within a state are subject to delicensure if any one or
more of such facilities is delicensed. Neither GranCare nor Evergreen is subject
to any such delicensure proceedings at this time, or is aware of any conditions
that could reasonably lead to such proceedings.
Pharmaceutical operations are subject to regulation by the federal
government and by the various states in which GranCare and Evergreen conduct
business. Institutional pharmacies are regulated under the Food, Drug and
Cosmetic Act and the Prescription Drug Marketing Act, which are administered by
the United States Food and Drug Administration. Under the Comprehensive Drug
Abuse Prevention and Control Act of 1970, which is administered by the United
States Drug Enforcement Administration ("DEA"), dispensers of controlled
substances must register with the DEA, file reports of inventories and
transactions and provide adequate security measures. Failure to comply with such
requirements could result in civil or criminal penalties. Neither GranCare nor
Evergreen is aware of any conditions relating to its pharmacy operations that
could result in such sanctions.
Each of GranCare and Evergreen is also subject to federal and state laws
that govern financial and other arrangements between healthcare providers. These
laws often prohibit certain direct and indirect payments or fee-splitting
arrangements between healthcare 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. Such laws include the anti-kickback
provisions of the federal Medicare and Medicaid Patients and Program Protection
Act of 1987. These provisions prohibit, among other things, the offer, payment,
solicitation or receipt of any form of remuneration in return for the referral
of Medicare and Medicaid patients. In addition, some states restrict certain
business relationships between physicians and pharmacies, and many 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 as well as civil and criminal penalties.
These laws vary from state to state and have
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seldom been interpreted by the courts or regulatory agencies. Additionally, OBRA
contains provisions that will expand the list of healthcare services subject to
existing federal referral prohibitions. This expanded referral ban became
effective on January 1, 1995.
HEALTHCARE REFORM
While neither the Clinton Administration's healthcare reform proposals nor
alternative healthcare reform proposals introduced by certain members of
Congress have been adopted in 1994, healthcare reform remains an issue for
healthcare providers. Current federal deficit reduction initiatives include
proposals that would limit growth in Medicare and Medicaid expenditures. Many
states are currently evaluating various proposals to restructure the healthcare
delivery system within their jurisdictions. It is uncertain at this time what
legislation on healthcare reform will ultimately be implemented or whether other
changes in the administration or interpretation of governmental healthcare
programs will occur. GranCare anticipates that federal and state legislatures
will continue to review and assess various healthcare reform proposals and
alternative healthcare systems and payment methodologies. GranCare is unable to
predict the ultimate impact of any federal or state restructuring of the
healthcare system, but such changes could have a material adverse impact on the
operations, financial condition and prospects of GranCare.
GEOGRAPHIC PAYOR CONCENTRATION
A significant portion of GranCare's total operating revenues are derived
from operations in California, Michigan and Wisconsin and, in particular, from
the California, Michigan and Wisconsin Medicaid programs. Total operating
revenues attributable to GranCare's business in California, Michigan and
Wisconsin accounted for approximately 36.9%, 14.3% and 16.1%, respectively, of
net revenues for the year ended December 31, 1994, and approximately 29.9%,
12.8% and 16.2%, respectively, of net revenues for the three months ended March
31, 1995. A significant portion of Evergreen's total revenues are attributable
to its operations in Indiana and Illinois. Evergreen's net patient revenues
attributable to its business in Indiana accounted for approximately 44.6% of its
net patient revenues for the year ended June 30, 1994 and approximately 31.7% of
its net patient revenues for the nine-month period ended March 31, 1995.
Evergreen's net patient revenues attributable to its business in Illinois
accounted for approximately 10.4% of its net patient revenues for the year ended
June 30, 1994 and approximately 28.5% of its net patient revenues for the nine-
month period ended March 31, 1995. If the Merger is consummated, less than 10%
of GranCare's revenues would be attributable to either Indiana's or Illinois'
Medicaid programs. Although GranCare and Evergreen believe that this
concentration provides operational advantages and efficiencies, the business
prospects of the combined company will continue to be significantly affected by
general economic factors affecting the California, Michigan, Wisconsin, Indiana
and Illinois healthcare industry and by the laws and regulatory environment in
these states, including Medicaid reimbursement rates. Any adverse change in the
regulatory environment, contracts with governmental entities or the
reimbursement rates paid under the Medicaid programs in these states could
materially adversely affect the combined company.
CERTAIN LEASE TERMS
Sixteen of Evergreen's facilities in Indiana, Illinois and West Virginia
are leased from a common lessor. These leases are scheduled to terminate in
1999, but Evergreen is negotiating with the lessor to extend the term of the
leases of all 16 facilities. The leases for 14 of these facilities grant to the
lessor the right, upon termination of the lease, to purchase the operating
assets owned by Evergreen in the operation of the facility at a price equal to
their book value. Evergreen does not anticipate that the lessor will exercise
this purchase right because it believes that the Medicaid reimbursement
available to those facilities would be markedly reduced in the event of any such
purchase. Although Evergreen believes that its relationship with the lessor is
satisfactory and that it will be able to extend or enter into new leases for
such properties upon favorable terms, there can be no assurance that it will be
able to do so or that the lessor will not exercise its purchase right.
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COMPETITION
The long-term care industry is highly competitive. Each of GranCare and
Evergreen competes with other providers on the basis of the breadth and quality
of its services, the quality of its facilities and, to a limited extent, price.
GranCare and Evergreen also compete with other providers in the acquisition and
development of additional facilities. GranCare's and Evergreen's current and
potential competitors include national, regional and local operators of
long-term care facilities, acute care hospitals and rehabilitation hospitals,
extended care centers, retirement centers and community home health agencies,
and similar institutions, many of which have significantly greater financial and
other resources than either GranCare or Evergreen. In addition, GranCare and
Evergreen compete with a number of tax-exempt nonprofit organizations which can
finance acquisitions and capital expenditures on a tax-exempt basis or receive
charitable contributions unavailable to either GranCare or Evergreen. There can
be no assurance that, if the Merger is consummated, the combined company will
not encounter increased competition which could adversely affect its business,
results of operations or financial condition.
PROFESSIONAL LIABILITY AND AVAILABILITY OF INSURANCE
Providing health care services entails an inherent risk of professional
liability and similar claims. Each of GranCare and Evergreen expects that its
long-term care facilities will be caring for patients with a higher complexity
of medical conditions in the future than they generally have in the past. This
may increase risk of incurring professional liability. Although each of GranCare
and Evergreen believes that it observes sound operating policies and procedures
and has adequate liability insurance, there can be no assurance, however, that
claims in excess of such insurance coverage will not be asserted against
GranCare or Evergreen. In addition, GranCare's and Evergreen's insurance
policies must be renewed annually. Although GranCare and Evergreen have obtained
insurance coverage at reasonable costs in the past, there can be no assurance
that they will be able to do so in the future.
GranCare carries property and general liability insurance, professional
liability insurance, and workers' compensation reinsurance in coverages and
amounts deemed adequate by management. However, there can be no assurance that
any future claims will not exceed applicable insurance coverage. GranCare also
requires that physicians practicing at its long-term health care facilities
carry professional insurance to cover their individual practice. GranCare
maintains its own captive insurance company for the purposes of paying workers'
compensation claims. The insurance subsidiary maintains adequate reinsurance
contracts to minimize its underwriting exposure. Although GranCare has obtained
various types and levels of insurance and reinsurance coverage at a reasonable
cost in the past, there can be no assurance that it will be able to do so in the
future. Although GranCare maintains extensive insurance coverage, certain types
of claims, such as punitive damages, are uninsurable. However, GranCare has not
experienced any material uninsured loss and is not aware of any material
uninsured claim.
Evergreen insures, below certain claim thresholds, the healthcare costs of
employees who have elected coverage under the Evergreen-sponsored plan. Workers'
compensation coverage is effected through either a guaranteed premium program or
a state specific fund in which the facilities in that state are required to
participate. The costs of paying for healthcare and workers' compensation claims
can fluctuate depending on the type and number of claims in any particular
period. There can be no assurance that the amounts Evergreen will be required to
pay for these types of claims will not increase. However, Evergreen maintains
insurance policies which limit Evergreen's potential exposure.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of GranCare Common Stock in the public market
following the Merger could adversely affect prevailing market prices of the
GranCare Common Stock. Approximately 7% of the outstanding shares of GranCare
Common Stock were offered and sold in reliance upon exemptions from registration
under the Securities Act and, accordingly, such shares are "restricted shares"
for purposes of Rule 144 adopted under the Securities Act ("Restricted Shares").
GranCare has previously registered on behalf of certain selling shareholders, in
registration statements on Form S-3 pursuant to Rule 415 adopted
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under the Securities Act, shares previously issued in connection with financings
and acquisitions or reserved for issuance upon the exercise from time to time of
GranCare's warrants. GranCare believes that approximately 2,116,337 shares of
GranCare Common Stock are eligible for sale in the public market pursuant to
these registration statements. Holders of shares of GranCare Common Stock have
registration rights that require GranCare to register an aggregate of 134,629
shares of GranCare Common Stock under certain circumstances. See "DESCRIPTION OF
GRANCARE CAPITAL STOCK -- Registration Rights."
In connection with the Merger, GranCare will issue approximately 9,672,806
shares of GranCare Common Stock to holders of Evergreen Common Stock, plus the
Merger Options exercisable for approximately 269,169 shares of GranCare Common
Stock to holders of Evergreen Options. Up to 38.2% percent of such shares will
be available for sale by the holders thereof pursuant to Rule 145 adopted by the
Securities Act upon the publication by GranCare of financial results covering at
least 30 days of post-Merger combined operations, and the remainder of such
shares will be available for immediate resale by the holders thereof after the
Effective Date. See "TERMS OF THE MERGER AGREEMENT AND RELATED TRANSACTIONS --
Resales of GranCare Common Stock; Affiliates."
THE MEETINGS, VOTING AND PROXIES
SPECIAL MEETING OF SHAREHOLDERS OF GRANCARE
DATE, TIME AND PLACE OF SPECIAL MEETING
The GranCare Special Meeting of Shareholders will be held at GranCare's
offices located at One Ravinia Drive, Suite 1500, Atlanta, Georgia, at 10:00
a.m., local time, on Monday, July 31, 1995.
PURPOSE OF THE MEETING
The purpose of the GranCare Special Meeting is to consider and vote upon
the approval of the Merger, pursuant to the Merger Agreement, pursuant to which,
among other things: (i) GWAC will be merged with and into Evergreen, and
Evergreen will become a wholly-owned subsidiary of GranCare; (ii) each share of
Evergreen Common Stock will be converted into the right to receive 0.775 of a
share of GranCare Common Stock; and (iii) GranCare will assume the Evergreen
Option Plans and the Evergreen Options will be converted into the right to
receive the Merger Options.
RECORD DATE AND OUTSTANDING SHARES
Shareholders of record at the close of business on the GranCare Record Date
are entitled to notice of, and to vote at, the GranCare Special Meeting, or at
any adjournment or postponement thereof. As of the GranCare Record Date, there
were approximately 3,500 holders of GranCare Common Stock, and approximately
14,118,537 shares of GranCare Common Stock issued and outstanding. Except for
the shareholders identified in GranCare's December 31, 1994 Annual Report on
Form 10-K, incorporated herein by reference, there were no other persons known
to the management of GranCare to be the beneficial owners of more than 5% of the
outstanding GranCare Common Stock.
VOTING OF PROXIES
All properly executed proxies that are not revoked will be voted at the
GranCare Special Meeting in accordance with the instructions contained therein.
Proxies returned and containing no instructions regarding the GranCare Proposal
will be voted "for" the GranCare Proposal in accordance with the recommendation
of the GranCare Board of Directors. A GranCare shareholder who has executed and
returned a proxy may revoke it at any time before it is voted at the GranCare
Special Meeting by executing and returning a proxy bearing a later date, by
filing written notice of such revocation with the Secretary of GranCare stating
that the proxy is revoked or by attending the GranCare Special Meeting and
voting in person.
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VOTE REQUIRED
The GranCare Board of Directors is soliciting the affirmative vote of the
holders of a majority of the outstanding shares of GranCare Common Stock for
approval of the GranCare Proposal. The presence, either in person or by properly
executed proxy, of the holders of a majority of the outstanding shares of
GranCare Common Stock is necessary to constitute a quorum at the GranCare
Special Meeting. Abstentions will be counted for purposes of determining whether
a quorum is present at the GranCare Special Meeting and will have the effect of
a negative vote.
Abstentions and broker non-votes (i.e., shares of GranCare Common Stock
held in record name by brokers or nominees as to which (i) instructions have not
been received from the beneficial owners or persons entitled to vote, (ii) the
broker or nominee does not have discretionary voting power under applicable
Commission rules or the instrument under which it serves in such capacity, or
(iii) the record holder has indicated on the proxy card or otherwise notified
GranCare that such record holder does not have authority to vote on that matter)
are counted for purposes of determining the presence or absence of a quorum for
the transaction of business. In accordance with California state law and the
GranCare Articles of Incorporation and the GranCare Bylaws, abstentions and
broker non-votes will have the effect of a vote against a proposal.
As of the GranCare Record Date, the directors of GranCare holding an
aggregate of 853,114 shares of GranCare Common Stock, representing approximately
6.0% of the outstanding shares of GranCare Common Stock, have agreed to vote in
favor of the GranCare Proposal and have granted Evergreen proxies to vote their
shares in favor of the GranCare Proposal.
EXPENSES; SOLICITATION OF PROXIES
In addition to solicitation by use of the mails, proxies may be solicited
by directors, officers and employees of GranCare in person or by telephone or
other means of communication. Such directors, officers and employees will not be
additionally compensated, but may be reimbursed for out-of-pocket expenses
incurred in connection with such solicitation. Arrangements also will be made
with custodians, nominees and fiduciaries for the forwarding of proxy
solicitation materials to beneficial owners of shares held of record by such
custodians, nominees and fiduciaries, and GranCare will reimburse such
custodians, nominees and fiduciaries for reasonable expenses incurred in
connection therewith. In addition, Morrow & Co., Inc., 909 Third Avenue, New
York, N.Y. 10022 ("Morrow") will assist in the solicitation of proxies by
GranCare for a fee of $5,500, plus reimbursement of reasonable out-of-pocket
expenses.
SPECIAL MEETING OF SHAREHOLDERS OF EVERGREEN
DATE, TIME AND PLACE OF EVERGREEN SPECIAL MEETING
The Evergreen Special Meeting will be held at Evergreen's offices located
at 11350 North Meridian, Suite 200, Carmel, Indiana 46032 at 10:00 a.m., local
time, on Monday, July 31, 1995.
PURPOSE OF THE EVERGREEN SPECIAL MEETING
The purpose of the Evergreen Special Meeting is to consider and vote upon
the approval and adoption of the Merger Agreement.
EVERGREEN RECORD DATE AND OUTSTANDING SHARES
Shareholders of record at the close of business on the Evergreen Record
Date are entitled to notice of, and to vote at, the Evergreen Special Meeting,
or at any adjournment or postponement thereof. On the Evergreen Record Date,
there were approximately 457 holders of record of Evergreen Common Stock, with
12,481,040 shares of Evergreen Common Stock issued and outstanding. Except for
the shareholders identified in Evergreen's June 30, 1994 Annual Report on Form
10-K incorporated herein by reference, there were no other persons known to the
management of Evergreen to be the beneficial owners of more than 5% of the
outstanding Evergreen Common Stock.
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VOTING OF PROXIES
All properly executed proxies that are not revoked will be voted at the
Evergreen Special Meeting in accordance with the instructions contained therein.
Proxies returned and containing no instructions regarding the Evergreen Proposal
will be voted "for" the Evergreen Proposal in accordance with the recommendation
of the Evergreen Board of Directors. An Evergreen shareholder who has executed
and returned a proxy may revoke it at any time before it is voted at the
Evergreen Special Meeting by executing and returning a proxy bearing a later
date, by filing written notice of such revocation with the Secretary of
Evergreen stating that the proxy is revoked or by attending the Evergreen
Special Meeting, revoking the proxy and voting in person.
VOTE REQUIRED
Under the GBCC, approval and adoption of the Evergreen Proposal requires
the affirmative vote of the holders of a majority of the outstanding shares of
Evergreen Common Stock. The presence, either in person or by properly executed
proxy, of the holders of a majority of the outstanding shares of Evergreen
Common Stock is necessary to constitute a quorum at the Evergreen Special
Meeting. Because the Evergreen Proposal must be approved by a majority of
outstanding Evergreen shares entitled to vote, abstentions will have the effect
of a negative vote.
Abstentions and broker non-votes (i.e., shares of Evergreen Common Stock
held in record name by brokers or nominees as to which (i) instructions have not
been received from the beneficial owners or persons entitled to vote, (ii) the
broker or nominee does not have discretionary voting power under applicable
Commission rules or the instrument under which it serves in such capacity, or
(iii) the record holder has indicated on the proxy card or otherwise notified
Evergreen that such record holder does not have authority to vote on that
matter) are counted for purposes of determining the presence or absence of a
quorum for the transaction of business. In accordance with Georgia state law and
the Evergreen Restated Articles of Incorporation and the Evergreen Bylaws,
abstentions and broker non-votes will have the effect of a vote against a
proposal.
As of the Evergreen Record Date, certain directors, officers and affiliates
of Evergreen holding an aggregate of shares of Evergreen Common Stock,
representing % of the outstanding Evergreen Common Stock have agreed to vote
in favor of the Evergreen Proposal and have granted GranCare proxies to vote
their shares in favor of the Evergreen Proposal.
EXPENSES; SOLICITATION OF PROXIES
In addition to solicitation by use of the mails, proxies may be solicited
by directors, officers and employees of Evergreen in person or by telephone or
other means of communication. Such directors, officers and employees will not be
additionally compensated, but may be reimbursed for out-of-pocket expenses
incurred in connection with such solicitation. Arrangements also will be made
with custodians, nominees and fiduciaries for the forwarding of proxy
solicitation materials to beneficial owners of shares held of record by such
custodians, nominees and fiduciaries, and Evergreen will reimburse such
custodians, nominees and fiduciaries for reasonable expenses incurred in
connection therewith. In addition, Kissel-Blake Inc., 25 Broadway, New York, New
York 10004, will assist in the solicitation of proxies by Evergreen for a fee of
$6,000, plus reimbursement of reasonable out-of-pocket expenses.
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THE MERGER
Pursuant to the Merger Agreement, Evergreen will become a wholly-owned
subsidiary of GranCare. At the Effective Time, as a result of the Merger,
shareholders of Evergreen will be granted the right to receive 0.775 of a share
of GranCare Common Stock for each share of Evergreen Common Stock outstanding
immediately prior to the Merger (other than shares owned by GranCare or any of
its subsidiaries, held in the treasury of Evergreen or owned by any subsidiary
of Evergreen). Fractional shares of GranCare Common Stock will not be issued in
connection with the Merger, and Evergreen shareholders otherwise entitled to a
fractional share will be paid the net proceeds of such fractional share in cash,
in the manner described under "TERMS OF THE MERGER AGREEMENT AND RELATED
TRANSACTIONS -- Manner and Bases for Converting Shares, Options and Warrants."
BACKGROUND OF THE MERGER; MATERIAL CONTACTS
In recent years, Evergreen has adopted a strategy of enhancing the quality
of patient care while increasing occupancy rates and revenues, controlling
expenses and growing through acquisitions. In implementing this strategy,
Evergreen has opened specialized and subacute care units to increase Medicare
and private payor revenues and operating profits, has considered various options
to expand its pharmacy and rehabilitation services, has sought to reduce its
operating and general administrative costs as it integrated the combined
operations resulting from its 1993 business combination and acquired additional
long-term care facilities in Evergreen's existing geographic markets and
contiguous areas.
Although Evergreen has experienced success in implementing these
strategies, competition from a variety of healthcare providers and changes in
the reimbursement environment in which many of Evergreen's healthcare facilities
operate led Evergreen management in late 1994 to begin considering financial and
strategic alternatives available to Evergreen and to review its options for
strategic combinations of the type contemplated by the Merger. At a special
meeting the Board of Directors of Evergreen held on December 20, 1994, the
Evergreen Board of Directors approved a resolution authorizing William G. Petty,
Jr., Evergreen's President and Chief Executive Officer, to initiate
conversations with selected publicly-traded long-term care companies (the
"Selected Companies") to determine their interest in engaging in preliminary
discussions with Evergreen regarding a possible business combination or other
strategic transaction. The Selected Companies were selected by Evergreen
management, with the assistance of its financial advisors, on the basis of
strategic and financial considerations. At the December 20, 1994 Evergreen Board
meeting, the Evergreen Board also formed a special committee of the Evergreen
Board (the "Evergreen Committee") comprised of Essel W. Bailey, Ronald G. Kenny
and Mr. Petty to assist and supervise this process. Mr. Petty was authorized to
engage Chicago Dearborn and McDonald to serve as Evergreen's financial advisors
in connection with these matters, on terms approved by the Evergreen Committee.
Following the December 20, 1994 Evergreen Board meeting, the Evergreen
Committee engaged Chicago Dearborn and McDonald to contact the Selected
Companies on a confidential basis and to serve as financial advisors to
Evergreen in connection with any potential business combination, discussions or
transactions that might result from such contacts. During January 1995,
Evergreen's financial advisors confidentially contacted the Selected Companies
to determine whether such companies were interested in considering a possible
business combination with Evergreen. Most of the companies contacted (including
GranCare) executed a preliminary confidentiality agreement and received a
package of materials regarding Evergreen assembled by Evergreen's financial
advisors. Thereafter, several of these companies (including GranCare) expressed
interest in further discussions and executed a more comprehensive
confidentiality agreement, whereupon these companies were provided with certain
non-public information concerning Evergreen. In January and February 1995,
Evergreen and its financial advisors discussed with certain of these companies
the possibility of some form of business combination, but with the exception of
GranCare, these discussions did not advance beyond a preliminary stage. The
Evergreen Committee was regularly kept apprised of these discussions by Mr.
Petty.
On January 10, 1995, representatives of Evergreen's financial advisors met
with Gene E. Burleson and Evrett W. Benton of GranCare in Atlanta to exchange
information regarding Evergreen and GranCare and to
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discuss generally the businesses of the two companies and the possibility of a
strategic combination. GranCare indicated an interest in pursuing further
discussions at this meeting.
At a regularly scheduled meeting of the Board of Directors of GranCare held
on January 27, 1995, Mr. Burleson and Mr. Benton informed the GranCare Board of
Directors that they had been contacted by Chicago Dearborn regarding Evergreen
and described Evergreen and the potential opportunities it might present. The
GranCare Board of Directors authorized Mr. Burleson and Mr. Benton to continue
discussions with Evergreen.
On February 7, 1995 and February 23, 1995, representatives of Evergreen's
financial advisors and Mr. Petty (accompanied by Keith J. Yoder on February 23,
1995) of Evergreen met in Atlanta with Messrs. Burleson, Benton and Schneider of
GranCare. At these meetings, Mr. Petty explained Evergreen's rationale for
considering a possible business combination with GranCare and the parties
exchanged information concerning their respective businesses and operations. As
agreed at the February 7, 1995 meeting, GranCare and Evergreen conducted a
series of conference calls and due diligence meetings during the following weeks
to allow Evergreen and GranCare to become more informed with respect to the
business, operations, financial condition and strategic direction of the other.
At a regularly scheduled meeting of the Board of Directors of Evergreen
held on February 16, 1995, Mr. Petty and Evergreen's financial advisors updated
the Evergreen Board with respect to the status of contacts made and
conversations held with the Selected Companies. Evergreen's financial advisors
also provided the Evergreen Board with information regarding the parties
expressing interest in further conversations with Evergreen as well as
information regarding comparable public companies and recent business
combination and acquisition transactions involving long-term care companies.
At a special meeting of the Evergreen Board of Directors held on March 14,
1995, Evergreen's management and the Evergreen financial advisors provided an
update to the Evergreen Board with respect to discussions with GranCare.
On March 20 and 21, 1995, due diligence meetings were conducted in Atlanta
in which members of senior management of both GranCare and Evergreen
participated. At these meetings, GranCare suggested that a business combination,
whereby GranCare and Evergreen would combine in a share-for-share merger
qualifying as a tax free reorganization for federal income tax purposes and as a
pooling-of-interests transaction for accounting purposes, might be mutually
beneficial. Initial discussions regarding the appropriate exchange ratio for
such a transaction were discussed, but no agreement or understanding was reached
in this regard.
On March 27, 1995, Mr. Burleson provided the GranCare Board of Directors
with an update of the discussions between the managements of GranCare and
Evergreen, and Mr. Benton presented a detailed description of Evergreen, its key
operational and financial statistics, an assessment of Evergreen's management
and strategy and described opportunities and risks faced by Evergreen. After
consideration of these facts, the GranCare Board of Directors authorized
GranCare's officers to continue discussions with Evergreen. Mr. Benton committed
to send complete informational materials to the GranCare Board of Directors in
advance of its scheduled April 7, 1995 retreat. During the week of March 27,
1995, representatives of Evergreen and GranCare each conducted site visits of
operating facilities operated by the other.
At a meeting of the GranCare Board of Directors on April 7, 1995, GranCare
management reviewed with the GranCare Board of Directors the public and
non-public materials regarding Evergreen provided by Evergreen's financial
advisors, other information regarding Evergreen and its operations, financial
condition and valuation, and management's overall assessment of Evergreen based
on preliminary due diligence. The GranCare Board of Directors also received an
update regarding the substance and context of discussions and negotiations that
had taken place to that date. GranCare management presented the key issues and
terms that it would pursue in future negotiations and indicated that the
exchange of shares likely would be based on a fixed exchange ratio as opposed to
a specific price, although no specific exchange ratio was discussed. The
GranCare Board of Directors authorized the GranCare officers to continue
negotiations with Evergreen but did not extend approval to the transaction or
any specific element of a potential transaction. The GranCare Board of Directors
also authorized the engagement of financial advisors to advise and represent
GranCare.
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On April 12 and 13, 1995, Messrs. Burleson, Benton and Schneider of
GranCare met in Chicago with Messrs. Petty, Finney and Yoder of Evergreen along
with representatives of Evergreen's financial advisors to continue due diligence
discussions and to commence negotiations regarding a possible business
combination. The parties discussed various exchange ratios and other business
issues, including the composition of the board of directors of the combined
company, various conditions to the consummation of the merger and the
consequences of termination of any resulting merger agreement. Although
Evergreen and GranCare did not reach agreement on the exchange ratio or on other
material terms, the parties agreed to continue their negotiations and to conduct
additional site visits as well as further legal and operational due diligence
during the weeks of April 17 and April 24, 1995, and to begin the preparation of
a merger agreement.
On April 13 and 14, 1995, Mr. Benton and Mr. Schneider contacted
representatives of Smith Barney and Salomon with the purpose of retaining the
services of both firms. The following Monday and Tuesday, April 17 and 18,
several teleconferences and a meeting in Atlanta with Evergreen and its
financial advisors were held among members of GranCare's senior management and
corporate finance staff and representatives of Smith Barney and Salomon to
prepare for upcoming due diligence and negotiations and to review GranCare's
historical operating and financial performance, information that had been
exchanged between GranCare and Evergreen, and the status of negotiations.
On April 19, 1995, the Evergreen Board held a special meeting to review the
status of ongoing discussions with GranCare and to meet with Evergreen's
financial advisors and receive their preliminary report with respect to a
possible business combination with GranCare, including an analysis of various
exchange ratios. Evergreen management presented their reasons for a business
combination with GranCare and discussed the principal advantages and
disadvantages of such a transaction. At this meeting, the Evergreen Board
authorized Mr. Petty to engage in negotiations with respect to a possible
business combination with GranCare, including negotiation of a merger agreement
between Evergreen and GranCare, subject to the supervision of the Evergreen
Committee and subject to the proviso that neither Mr. Petty nor the Evergreen
Committee was authorized to execute or approve the terms of a business
combination or merger agreement with GranCare, such determination to be reserved
to and to be made by the Evergreen Board.
Following the April 19, 1995 meeting, representatives of Evergreen and
GranCare as well as their legal and financial advisors continued to negotiate
the terms of a possible business combination and worked together on the
preparation of a draft merger agreement. On April 20, GranCare's financial
advisors met with Mr. Petty and Mr. Yoder in Chicago to begin their due
diligence review of Evergreen and tour Evergreen facilities in the Chicago area.
A representative from GranCare's lead commercial bank joined these meetings. In
late April 1995, four additional due diligence meetings were conducted in
Chicago, Milwaukee and Atlanta, at which representatives of senior management of
Evergreen and GranCare and their respective financial advisors participated.
Each of GranCare and Evergreen also permitted legal counsel to the other to
conduct legal due diligence during the last two weeks of April 1995.
On April 27, 1995, senior management of Evergreen and GranCare, accompanied
by their respective financial and legal advisors, met in Chicago to discuss and
negotiate the exchange ratio for the Merger as well as several other material
terms of the proposed merger agreement and related issues, including the right
of the parties to terminate the merger agreement, the consequences of
termination of the merger agreement, the conduct of the businesses of the
respective companies prior to the merger and the composition of the board of
directors of the combined company. Although no agreement was reached with
respect to the exchange ratio and with respect to several other issues,
differences in the respective parties' positions were narrowed and certain terms
of the proposed merger agreement were agreed upon, including, among other
things, that each of Evergreen and GranCare would have similar rights to receive
a termination fee and to exercise an option to acquire shares of the other party
in the event that the proposed merger was not completed as a consequence of the
other party entertaining or pursuing a competing transaction. See "TERMS OF THE
MERGER AGREEMENT AND RELATED TRANSACTIONS -- Termination or Amendment of the
Merger Agreement."
On May 1, 1995, the Evergreen Committee met with Evergreen management and
the Evergreen financial advisors via conference call to discuss the status of
negotiations with GranCare of the terms of the merger as
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well as the exchange ratio. Thereafter, representatives of Evergreen and
representatives of GranCare conducted further negotiations by telephone and
agreed to present to their respective Boards of Directors a merger at the
exchange ratio of 0.775 of a share of GranCare Common Stock for each share of
Evergreen Common Stock.
On May 2, 1995, the Evergreen Board of Directors met at length and received
the reports of Chicago Dearborn and of McDonald with respect to the proposed
merger at the Exchange Ratio. At this meeting, senior management of Evergreen
and its financial and legal advisors made detailed presentations concerning all
material aspects of the proposed transaction, and discussed several terms of the
proposed merger that had not yet been resolved. Evergreen management outlined
its position on these remaining open items and secured the approval of the
Evergreen Board to resolve these matters through negotiations with GranCare
within prescribed limits. Subject to Evergreen management's ability to
successfully resolve these open matters with GranCare, the Evergreen Committee
recommended the Merger and the Evergreen Board unanimously approved the Merger,
the Merger Agreement and the transactions contemplated thereby.
The GranCare Board of Directors convened a special meeting in New Orleans
on May 2, 1995 with the purpose of considering and, if warranted, approving the
Merger. The GranCare Board of Directors heard reports on the key elements of the
transaction, including operational, financial, legal and regulatory due
diligence conducted by GranCare management and its advisors, the level and
advisability of the fixed exchange ratio, the ramifications of a "pooling of
interests" transaction, details of the break-up fees, cross-option agreements
and voting agreements, costs of completing the Merger and the organizational and
governance issues that would result from the Merger. The GranCare financial
advisors presented their respective financial analyses and rendered their
respective opinions as to the fairness of the Exchange Ratio from a financial
point of view to GranCare. Legal counsel advised the GranCare Board as to
specific aspects of the Merger Agreement and its responsibilities to various
constituencies, and gave the GranCare Board of Directors procedural guidance.
After extensive discussions, the GranCare Board of Directors authorized
GranCare's officers, subject to certain considerations, to continue
negotiations, execute the Merger Agreement and take all necessary actions to
consummate the Merger.
Following their respective Board approvals, GranCare and Evergreen resolved
the remaining open items on terms authorized by their respective Boards of
Directors and on the evening of May 2, 1995 executed the Merger Agreement.
Subsequent thereto, (i) GranCare and holders of approximately [ ]% of the
outstanding shares of Evergreen Common Stock entered into voting agreements
pursuant to which each of such shareholders agreed to vote all shares of
Evergreen Common Stock beneficially owned by him or it in favor of the
transactions contemplated by the Merger Agreement and (ii) Evergreen and holders
of 6.0% of the outstanding shares of GranCare Common Stock entered into voting
agreements pursuant to which each such holder agreed to vote all shares of
GranCare Common Stock owned by him or it in favor of the transactions
contemplated by the Merger Agreement. See "TERMS OF THE MERGER AGREEMENT AND
RELATED TRANSACTIONS -- GranCare Voting Agreements" and "-- Evergreen Voting
Agreements."
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
Joint Reasons for the Merger. The Boards of Directors and management of
each of GranCare and Evergreen independently concluded that a business
combination would be in the best interest of their respective shareholders and
would further their respective strategic objectives. Upon consummation of the
Merger, the combined company will provide a broad spectrum of post acute care
services, including skilled nursing, subacute and intermediate care in 142
facilities with over 17,000 beds in 15 states, will manage 100 geriatric
specialty programs for acute care hospitals in twenty states, will operate 23
institutional pharmacies serving nearly 100,000 beds in 17 states and will
operate 8 home health operations providing 90,000 annual visits in three states.
Following the Merger, the combined company will continue to implement strategies
shared by GranCare and Evergreen, including the goal of expanding its long-term
care, institutional pharmacy and specialty medical service operations. By
providing a continuum of comprehensive clinical care services to patients in its
own facilities and within facilities operated by others, the combined company
will be better positioned, in the view of management of GranCare and Evergreen,
to address and respond to cost
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containment initiatives, the changing needs of the individual patients and
changes in the healthcare environment driven by regulatory reform and market
forces.
In approving the Merger Agreement, each Board of Directors considered the
following factors:
- The combined company will possess larger scale and greater geographic and
revenue source diversification.
- The combined company will possess greater management, operational and
financial resources.
- The combined company is expected to achieve certain administrative
efficiencies and to eliminate certain duplicate functions.
- The combined company also may be able to achieve longer term revenue
enhancements and facility expense efficiencies as a result of the
combination of management resources and operating assets as well as
efforts to integrate and streamline certain management, administrative
and purchasing functions.
- The combined financial resources of the two companies should permit an
acceleration of the development and expansion of new products and
services.
- The market capitalization and public stock distribution of the combined
company will be larger than either company's current capitalization,
which is expected to provide shareholders of the combined company with
increased liquidity and to enhance the market visibility of the combined
company.
- The Merger is intended to be treated as a "pooling of interests"
transaction for accounting purposes and as a tax-free reorganization
under the Code.
GranCare's Reasons for the Merger. In addition to the anticipated joint
benefits described above, the Board of Directors of GranCare believes that the
Merger is a significant strategic opportunity for GranCare and believes that the
following are additional reasons for shareholders of GranCare to vote FOR
approval of the Merger:
- The Merger fits GranCare's strategy of providing a broad range of
healthcare services in a variety of settings, including skilled nursing
facilities, hospitals, assisted living facilities and patients' homes.
GranCare anticipates using Evergreen's facilities as a basis to build
vertically integrated networks of healthcare in Evergreen's market areas,
similar to those GranCare has built in its markets.
- GranCare's pharmacy operations will be able to service approximately
7,600 additional beds currently operated by Evergreen, thereby increasing
the combined company's flexibility and economic power in connection with
the purchasing of pharmaceutical inventories. GranCare expects to deliver
pharmacy services to Evergreen's facilities in a more efficient manner
than they are currently served and to receive enhanced reimbursement for
these services.
- Evergreen's current presence in the Midwest and Southeast regional
markets will enable the combined company to secure a substantial presence
in these regions by complementing and expanding GranCare's current
clusters of specialized skilled nursing facilities.
- The strength of Evergreen's management team was considered by GranCare as
an important component of the value of Evergreen to GranCare.
In approving the Merger Agreement and the transactions contemplated
thereby, and in recommending that GranCare's shareholders approve the Merger,
the GranCare Board of Directors consulted with GranCare management, as well as
financial and legal advisors, and also considered, among other things: (i)
GranCare's and Evergreen's business, management expertise, business strategy,
prospects and competitive position in the healthcare industry; (ii) historical,
current and projected financial condition and results of operations of GranCare
(without giving effect to the Merger) and of the combined company (after giving
effect to the Merger); (iii) the proposed structure of the Merger and provisions
relating to corporate governance of the combined company; (iv) the Exchange
Ratio and other terms of the Merger Agreement; (v) the financial presentations
and the opinions of Smith Barney and Salomon, as GranCare's financial advisors,
described
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below under "-- Opinions of GranCare's Financial Advisors;" and (vi) general
economic and stock market conditions.
The GranCare Board of Directors considered a number of potentially negative
factors in its deliberations concerning the Merger, including the potential for
post-Merger dilution of earnings per share for the combined company.
GranCare Board Recommendation. The Board of Directors of GranCare has
unanimously approved the Merger Agreement and the transactions contemplated
thereby and has determined that the Merger is in the best interests of GranCare
and its shareholders. After careful consideration, the Board of Directors of
GranCare recommends that the shareholders of GranCare vote in favor of the
Merger Agreement and the transactions contemplated thereby.
Evergreen's Reasons for the Merger. In addition to the anticipated joint
benefits described above, the Board of Directors of Evergreen believes that the
following are additional reasons for shareholders of Evergreen to vote FOR
approval of the Merger.
The Board of Directors of Evergreen believes that the terms of the Merger
Agreement are in the best interest of Evergreen and its shareholders, and has
unanimously approved the Merger and the Merger Agreement and recommends approval
thereof by the shareholders of Evergreen. In arriving at its recommendation to
the Evergreen shareholders, the Board of Directors of Evergreen considered a
number of factors, including the following:
- In light of the representation on the GranCare Board of Directors to be
afforded to three appointees of the Evergreen Board of Directors and the
anticipated participation of most members of senior Evergreen management
in the management of the combined company, Evergreen shareholders will
continue to benefit from the strategic and operational management talents
of its current management team.
- GranCare has expertise and a competitive position in the subacute and
ancillary care segments of the long-term care business that Evergreen, in
implementing its long-term strategy, would need to either acquire or
develop on its own.
- The combined company should benefit from the immediate opportunity
afforded GranCare's pharmacy operations to serve Evergreen's long-term
care beds located in several of Evergreen's primary markets.
- The business combination will result in the Evergreen shareholders owning
a significant percentage of the outstanding GranCare Common Stock upon
the Effective Time of the Merger, which should provide Evergreen's
shareholders with a meaningful voice in the election of directors and
other matters brought to a vote of the shareholders of the combined
company.
- As the GranCare Common Stock has recently traded at price/earnings
multiples below the industry averages, there is the possibility that
Evergreen shareholders can benefit from a price/earnings multiple
expansion in the GranCare Common Stock should the strategic direction and
financial results of the combined company result in the GranCare Common
Stock trading at price/earnings multiples more in line with industry
averages.
In approving the Merger Agreement and the transactions contemplated
thereby, and in recommending that Evergreen's shareholders approve the Merger,
the Evergreen Board of Directors consulted with Evergreen management, as well as
financial and legal advisors, and also considered, among other things: (i)
Evergreen's and GranCare's business, management expertise, business strategy,
prospects and competitive position in the healthcare industry; (ii) historical,
current and projected financial condition and results of operations of Evergreen
(without giving effect to the Merger) and of the combined company (after giving
effect to the Merger); (iii) the proposed structure of the Merger and provisions
relating to corporate governance of the combined company; (iv) the Exchange
Ratio and other terms of the Merger Agreement; (v) presentations by Chicago
Dearborn and McDonald, as Evergreen's financial advisors, with respect to
Evergreen and GranCare; (vi) the opinions of Chicago Dearborn and McDonald
described below under "Opinions of Evergreen's Financial Advisors;" and (vii)
general economic and stock market conditions. The Evergreen Board of
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Directors also considered that the Evergreen financial advisors had contacted
and had discussions with certain of the Selected Companies regarding the
possibility of a business combination or other strategic transaction with
Evergreen and that, with the exception of GranCare, these discussions did not
advance beyond the preliminary stage.
The Evergreen Board of Directors considered a number of potentially
negative factors in its deliberations concerning the Merger, including: (i) the
irreversible nature of the decision and the consequent loss of independence;
(ii) the possible change in certain existing Evergreen corporate policies and
strategies following the Merger; (iii) the potential for post-Merger dilution of
earnings per share for the combined company; and (iv) the possibility that the
combined company will trade at price/earnings multiples which are historically
below those at which the Evergreen Common Stock has traded. In the view of the
Board of Directors of Evergreen, these considerations did not outweigh,
individually or collectively, the advantages of the Merger to Evergreen.
Due to the wide variety of factors considered in connection with the
evaluation of the Merger, the Evergreen Board of Directors did not find it
practicable to and did not quantify or otherwise attempt to assign relative
weights to the specific factors considered in reaching its determination. In
addition, individual members of the Evergreen Board of Directors may have given
different weights to different factors.
Evergreen Board Recommendation. The Board of Directors of Evergreen has
unanimously approved the Merger Agreement and the transactions contemplated
thereby and determined that the Merger is in the best interest of Evergreen and
its shareholders. After careful consideration, the Board of Directors of
Evergreen recommends that the shareholders of Evergreen vote in favor of the
Merger Agreement and the transactions contemplated thereby.
OPINIONS OF FINANCIAL ADVISORS
OPINIONS OF GRANCARE'S FINANCIAL ADVISORS
Salomon. Salomon has acted as a financial advisor to GranCare in connection
with the Merger. In connection with such engagement, Salomon delivered to the
GranCare Board of Directors the written opinion of Salomon to the effect that,
based upon and subject to various considerations set forth in such opinion, as
of May 2, 1995, the Exchange Ratio was fair to GranCare from a financial point
of view. No limitations were imposed by the GranCare Board of Directors upon
Salomon with respect to the investigations made or the procedures followed by
Salomon in rendering its opinion.
THE FULL TEXT OF THE OPINION OF SALOMON DATED MAY 2, 1995, WHICH SETS FORTH
THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN, IS
ATTACHED AS APPENDIX B TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS
INCORPORATED HEREIN BY REFERENCE. GRANCARE SHAREHOLDERS ARE URGED TO READ SUCH
OPINION CAREFULLY AND IN ITS ENTIRETY. SALOMON'S OPINION IS DIRECTED ONLY TO THE
FAIRNESS OF THE EXCHANGE RATIO FROM A FINANCIAL POINT OF VIEW AND HAS BEEN
PROVIDED SOLELY FOR THE USE OF THE GRANCARE BOARD OF DIRECTORS IN ITS EVALUATION
OF THE MERGER, DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER OR RELATED
TRANSACTIONS AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY GRANCARE
SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE. THE SUMMARY OF THE OPINION
OF SALOMON SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In arriving at its opinion, Salomon reviewed certain publicly available
business and financial information relating to GranCare and Evergreen, as well
as certain other information, including financial projections, provided to
Salomon by GranCare and Evergreen. Salomon discussed the past and current
operations and financial condition and prospects of GranCare and Evergreen with
members of senior management of such companies. Salomon also considered such
other information, financial studies, analyses, investigations and financial,
economic, market and trading criteria as it deemed relevant.
Salomon assumed and relied on the accuracy and completeness of the
information reviewed by it for the purpose of its opinion and Salomon did not
assume any responsibility for independent verification of such information or
for any independent evaluation or appraisal of the assets of GranCare or
Evergreen. With respect to GranCare's and Evergreen's financial projections,
Salomon assumed that they had been reasonably
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prepared on bases reflecting the best currently available estimates and
judgments of GranCare's and Evergreen's management and Salomon expressed no
opinion with respect to such forecasts or the assumptions on which they were
based. Salomon's opinion was necessarily based upon business, market, economic
and other conditions as they existed on, and could be evaluated, as of the date
of its opinion and did not address GranCare's underlying business decision to
effect the Merger or constitute a recommendation to any holder of GranCare
Common Stock as to how such holder should vote with respect to the Merger.
Salomon's opinion does not imply any conclusion as to the likely trading range
for the GranCare Common Stock following the consummation of the Merger, which
may vary depending on, among other factors, changes in interest rates, dividend
rates, market conditions, general economic conditions and other factors that
generally influence the price of securities.
The following is a summary of the report (the "Salomon Report") presented
by Salomon to the GranCare Board of Directors on May 2, 1995, in connection with
the delivery of the Salomon fairness opinion.
Discounted Cash Flow Analysis. Using a discounted cash flow analysis,
Salomon estimated the present value of the future cash flows that Evergreen
could produce over a five-year period from 1995 through 1999, if Evergreen were
to perform on a stand-alone basis (without giving effect to any operating or
other efficiencies pursuant to the Merger) in accordance with forecasts
developed by Evergreen management and certain variants thereof. Salomon
determined certain equity market value reference ranges for Evergreen based upon
the sum of (i) the aggregate discounted value (using various discount rates
ranging from 12.5% to 16.5%) of the five-year unleveraged free cash flows of
Evergreen plus (ii) the discounted value (using various discount rates ranging
from 12.5% to 16.5%) of the product of (a) the final year's projected earnings
before interest, taxes, depreciation and amortization ("EBITDA") multiplied by
(b) numbers representing various terminal or exit multiples (ranging from 6.0x
to 10.0x). This analysis resulted in an equity value reference range per share
of Evergreen Common Stock of $12.50 to $17.50. Salomon also reviewed the pre-tax
value of the synergies that GranCare management expects to achieve following the
Merger and performed a second discounted cash flow analysis incorporating such
expected synergies. This analysis resulted in an equity value reference range
per share of Evergreen Common Stock of $14.50 to $20.00.
Comparable Public Company Analysis. Salomon reviewed and compared the
financial and market performance of the following group of five publicly traded
long-term care companies with those of Evergreen and GranCare: Arbor Healthcare
Company, Beverly Enterprises, Inc., The Hillhaven Corporation, Living Centers of
America, Inc. and Retirement Care Associates, Inc. (collectively, the
"Comparable Group"). Salomon examined certain publicly available financial data
of the Comparable Group for the latest twelve months and estimates for the
twelve months ending June 30, 1995 (and in the case of net income, June 30,
1996). The projected results were based on published research reports of certain
analysts covering the Comparable Group. Utilizing this data, Salomon selected
the following ranges of multiples of closing stock prices at April 28, 1995, to
total revenues (selected range of 100% to 120%), EBITDA (selected range of 8.3x
to 9.7x), earnings before interest and taxes ("EBIT") (selected range of 11.5x
to 12.8x) and net income (selected range of 13.0x to 21.0x). Salomon applied
these multiples to estimates of Evergreen's total revenues, EBITDA, EBIT and net
income for the corresponding periods. This analysis resulted in an equity value
reference range per share of Evergreen Common Stock of $12.00 to $14.00.
Comparable Acquisition Analysis. Salomon also reviewed the consideration
paid or proposed to be paid in other recent acquisitions of long-term healthcare
companies. Specifically, Salomon reviewed the following acquiror/target
transactions: Vencor, Inc./The Hillhaven Corporation (1995); The Hillhaven
Corporation/ Nationwide Care, Inc. (1995); Mariner Health Group,
Inc./Convalescent Services Inc. (1995); Mariner Health Group, Inc./Legend
Medical Services, Inc. (1994); Horizon Healthcare Corp./PeopleCARE Heritage
Group (1994); The Multicare Companies, Inc./Providence Healthcare, Inc. (1994);
Mariner Health Group, Inc./Pinnacle Care Corporation (1994); Sun Healthcare
Group, Inc./The Mediplex Group, Inc. (1994); Regency Health Services, Inc./Care
Enterprises, Inc. (1993); Integrated Health Services, Inc./ Central Park Lodges,
Inc. (1993); Genesis Health Ventures, Inc./Meridian Healthcare, Inc. (1993); and
Living Centers of America, Inc./Vari-Care, Inc. (1993). Based on these
transactions, Salomon selected the following ranges of multiples of the
aggregate value of each such transaction (prior to the announcement thereof) to
total revenues (selected range of 96% to 113%), EBITDA (selected range of 7.6x
to 10.1x), EBIT
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(selected range of 11.0x to 14.0x) and net income (selected range of 18.0x to
20.0x), in each case for the latest twelve months and the twelve months ending
June 30, 1995. Salomon applied these multiples to estimates of Evergreen's total
revenues, EBITDA, EBIT and net income for the corresponding periods. This
analysis resulted in an equity value reference range per share of Evergreen
Common Stock of $11.00 to $15.00.
Pro Forma Merger Consequences Analysis. Salomon analyzed certain pro forma
effects on GranCare resulting from the Merger for the projected twelve-month
periods ending December 31, 1995 and 1996. This analysis, based upon the
assumptions described above and estimates provided by GranCare management of
GranCare's 1995 and 1996 stand-alone earnings per share, showed dilution to the
stockholders of GranCare in earnings per share for the period ending December
31, 1995, of (i) 11.5% without giving effect to the synergies projected by
management of GranCare to be realized in the Merger and (ii) 6.9% giving effect
to such synergies. For the period ending December 31, 1996, the analysis
determined that the transaction would result in (a) dilution to the shareholders
of GranCare of 7.3% without giving effect to the Merger synergies and (b)
accretion to the shareholders of GranCare of 0.4% giving effect to such Merger
synergies. The actual results achieved by the combined company may vary from
projected results and the variations may be material.
Contribution Analysis. Salomon analyzed the pro forma contributions from
each of GranCare and Evergreen to the combined company, assuming the Merger is
consummated as set forth in the Merger Agreement. Salomon analyzed, among other
things, in each case for the estimated results in calendar 1995 and 1996 (based
on projections provided by GranCare and Evergreen management), the relative
contribution to the combined company from each of GranCare's and Evergreen's
total revenues, earnings before interest, taxes, depreciation, amortization and
rents ("EBITDAR"), EBITDA, EBIT, net income and total assets. The analysis did
not assume the realization of any synergies in connection with the Merger. For
1995, the relative contribution analysis determined that GranCare would
contribute approximately 77.9% of total revenues, 70.9% of EBITDAR, 75.1% of
EBITDA, 75.7% of EBIT, 69.0% of net income, 79.6% of total assets and 66.8% of
stockholders' equity, with Evergreen contributing the remainder in each case.
This analysis showed that, for 1996, GranCare would contribute approximately
78.2% of total revenues, 69.7% of EBITDAR, 73.0% of EBITDA, 73.6% of EBIT, 66.1%
of net income, 78.8% of total assets and 66.7% of stockholder's equity, with
Evergreen contributing the remainder in each case. Upon consummation of the
Merger, holders of GranCare Common Stock will own 63.7% of the combined company
and holders of Evergreen Common Stock will own the remaining 36.7%.
Exchange Ratio Analysis. Salomon reviewed and analyzed the historical ratio
of the daily closing prices of GranCare Common Stock to Evergreen Common Stock
based on various averages during the one-year period preceding the public
announcement of the Merger. The exchange ratios of the daily closing price of
one share of GranCare Common Stock to one share of Evergreen Common Stock ranged
from a low of 0.467 to a high of 0.833 over the period analyzed, as compared to
the Exchange Ratio of 0.775 of a share.
Other Factors and Comparative Analysis. In rendering its opinion, Salomon
considered certain other factors and conducted certain other comparative
analyses, including, among other things, a review of (i) the historical and
projected financial results of GranCare and Evergreen; (ii) the history of
trading prices for the GranCare Common Stock and the Evergreen Common Stock; and
(iii) the pro forma ownership of the combined company.
In arriving at its opinion and in preparing the Salomon Report, Salomon
performed a variety of financial analyses, the material portions of which are
summarized above. The summary set forth above does not purport to be a complete
description of the analyses performed by Salomon. In addition, Salomon believes
that its analyses must be considered as a whole and that selecting portions of
such analyses and the factors considered by it, without considering all such
analyses and factors, could create an incomplete view of the process underlying
its analyses set forth in the opinion and the Salomon Report. The preparation of
a fairness opinion is a complex process and is not necessarily susceptible to
partial analysis or summary description. With regard to the comparable public
company analysis and the comparable acquisition analysis summarized above,
Salomon selected comparable public companies on the basis of various factors,
including the size of the public
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company and similarity of the line of business; however, no public company or
transaction utilized as a comparison is identical to GranCare, Evergreen or the
Merger. Accordingly, an analysis of the foregoing 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 acquisition or public trading value of the
comparable companies and transactions to which GranCare, Evergreen and the
Merger are being compared.
In performing its analyses, Salomon made numerous assumptions with respect
to industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of GranCare
and Evergreen. Any estimates contained in such analyses are not necessarily
indicative of actual past or future results or values, which may be
significantly more or less than such estimates. Actual values will depend upon
several factors, including events affecting the long-term care industry, general
economic, market and interest rate conditions and other factors which generally
influence the price of securities.
Salomon is an internationally recognized investment banking firm and
regularly engages in the valuation of businesses and their securities in
connection with mergers and acquisitions and for other purposes. The GranCare
Board of Directors selected Salomon to act as its financial advisor on the basis
of Salomon's international reputation and Salomon's familiarity with GranCare,
Evergreen and the long-term care industry. In the ordinary course of its
business, Salomon actively trades the securities of GranCare and Evergreen for
Salomon's own account and for the accounts of customers and, accordingly, may at
any time hold a long or short position in such securities.
Pursuant to a letter agreement dated May 1, 1995, between GranCare and
Salomon, Salomon agreed to act as financial advisor to GranCare in connection
with the Merger. GranCare paid Salomon $100,000 upon the execution of such
letter agreement and $400,000 upon the delivery of the fairness opinion.
GranCare has agreed to also pay Salomon an amount equal to 0.50% of the total
proceeds and other consideration paid or received or to be paid or received
(including liabilities assumed) in connection with the Merger. GranCare also
agreed to reimburse Salomon for its out-of-pocket expenses, including fees and
disbursements of counsel, and to indemnify Salomon and its affiliates, their
respective directors, officers, partners, agents and employees and each person,
if any, controlling Salomon or any of its affiliates against certain
liabilities, including liabilities under the federal securities laws, relating
to, or arising out of, its engagement.
As noted under the caption "THE MERGER -- Reasons for the Merger;
Recommendations of the Boards of Directors", the fairness opinion of Salomon was
only one of many factors considered by the GranCare Board of Directors in
determining to approve the Merger Agreement.
Smith Barney. Smith Barney has acted as a financial advisor to GranCare in
connection with the Merger. In connection with such engagement, GranCare
requested that Smith Barney evaluate the fairness, from a financial point of
view, to GranCare of the consideration to be paid by GranCare in the Merger. On
May 2, 1995, at a meeting of the Board of Directors of GranCare held to evaluate
the proposed Merger, Smith Barney rendered an oral opinion (subsequently
confirmed by delivery of a written opinion dated such date) to the Board of
Directors of GranCare to the effect that, as of such date and based upon and
subject to certain matters stated in such opinion, the Exchange Ratio was fair,
from a financial point of view, to GranCare.
In arriving at its opinion, Smith Barney reviewed the Merger Agreement and
held discussions with certain senior officers, directors and other
representatives and advisors of GranCare and certain senior officers and other
representatives and advisors of Evergreen concerning the businesses, operations
and prospects of GranCare and Evergreen. Smith Barney examined certain publicly
available business and financial information relating to GranCare and Evergreen
as well as certain financial forecasts and other data for GranCare and Evergreen
which were provided to Smith Barney by the respective managements of GranCare
and Evergreen, including information relating to certain strategic implications
and operational benefits anticipated from the Merger. Smith Barney reviewed the
financial terms of the Merger as set forth in the Merger Agreement in relation
to, among other things: current and historical market prices and trading volumes
of the GranCare Common Stock and Evergreen Common Stock; the historical and
projected earnings of GranCare and Evergreen; and the capitalization and
financial condition of GranCare and Evergreen. Smith Barney
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considered, to the extent publicly available, the financial terms of certain
other similar transactions recently effected that Smith Barney considered
comparable to the Merger and analyzed certain financial, stock market and other
publicly available information relating to the businesses of other companies
whose businesses Smith Barney considered comparable to those of GranCare and
Evergreen. Smith Barney also evaluated the potential pro forma financial impact
of the Merger on GranCare. In addition to the foregoing, Smith Barney conducted
such other analyses and examinations and considered such other financial,
economic and market criteria as Smith Barney deemed appropriate to arrive at its
opinion. Smith Barney noted that its opinion was necessarily based upon
information available, and financial, stock market and other conditions and
circumstances existing and disclosed, to Smith Barney as of the date of its
opinion.
In rendering its opinion, Smith Barney assumed and relied, without
independent verification, upon the accuracy and completeness of all financial
and other information publicly available or furnished to or otherwise reviewed
by or discussed with Smith Barney. With respect to financial forecasts and other
information provided to or otherwise reviewed by or discussed with Smith Barney,
the managements of GranCare and Evergreen advised Smith Barney that such
forecasts and other information were reasonably prepared on bases reflecting the
best currently available estimates and judgments of the respective managements
of GranCare and Evergreen as to the future financial performance of GranCare and
Evergreen and the strategic implications and operational benefits anticipated
from the Merger. Smith Barney assumed, with the consent of the Board of
Directors of GranCare, that the Merger will be treated as a "pooling of
interests" in accordance with generally accepted accounting principles and as a
tax-free reorganization for federal income tax purposes. Smith Barney's opinion
relates to the relative values of GranCare and Evergreen. Smith Barney did not
express any opinion as to what the value of the GranCare Common Stock actually
will be when issued pursuant to the Merger or the price at which the GranCare
Common Stock will trade subsequent to the Merger. In addition, Smith Barney did
not make or obtain an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of GranCare or Evergreen nor did Smith
Barney make any physical inspection of the properties or assets of GranCare or
Evergreen. Smith Barney was not asked to consider, and its opinion does not
address, the relative merits of the Merger as compared to any alternative
business strategies that might exist for GranCare or the effect of any other
transaction in which GranCare might engage. In addition, although Smith Barney
evaluated the Exchange Ratio from a financial point of view, Smith Barney was
not asked to and did not recommend the specific consideration payable in the
Merger. No other limitations were imposed by GranCare on Smith Barney with
respect to the investigations made or procedures followed by Smith Barney in
rendering its opinion.
THE FULL TEXT OF THE WRITTEN OPINION OF SMITH BARNEY DATED MAY 2, 1995,
WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN, IS ATTACHED HERETO AS APPENDIX C AND IS INCORPORATED HEREIN
BY REFERENCE. GRANCARE SHAREHOLDERS ARE URGED TO READ THIS OPINION CAREFULLY IN
ITS ENTIRETY. SMITH BARNEY'S OPINION IS DIRECTED ONLY TO THE FAIRNESS OF THE
EXCHANGE RATIO FROM A FINANCIAL POINT OF VIEW AND HAS BEEN PROVIDED SOLELY FOR
THE USE OF THE BOARD OF DIRECTORS OF GRANCARE IN ITS EVALUATION OF THE MERGER,
DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER OR RELATED TRANSACTIONS AND DOES
NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER AS TO HOW SUCH SHAREHOLDER
SHOULD VOTE AT THE SPECIAL MEETING. THE SUMMARY OF THE OPINION OF SMITH BARNEY
SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In preparing its opinion to the Board of Directors of GranCare, Smith
Barney performed a variety of financial and comparative analyses, including
those described below. The summary of such analyses does not purport to be a
complete description of the analyses underlying Smith Barney's opinion. The
preparation of a fairness opinion is a complex analytic process involving
various determinations as to the most appropriate and relevant methods of
financial analyses and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. In arriving at its opinion, Smith Barney did not attribute
any particular weight to any analyses or factor considered by it, but rather
made qualitative judgments as to the significance and relevance of each analysis
and factor. Accordingly, Smith Barney believes that its analyses must be
considered as a whole and that selecting portions of its analyses and factors,
without considering all analyses and factors, could create a misleading or
incomplete view of the processes underlying such analyses and its opinion. In
its analyses, Smith Barney made numerous
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assumptions with respect to GranCare, Evergreen, industry performance, general
business, economic, market and financial conditions and other matters, many of
which are beyond the control of GranCare and Evergreen. The estimates contained
in such analyses are not necessarily indicative of actual values or predictive
of future results or values, which may be significantly more or less favorable
than those suggested by such analyses. In addition, analyses relating to the
value of businesses or securities do not purport to be appraisals or to reflect
the prices at which businesses or securities actually may be sold. Accordingly,
such analyses and estimates are inherently subject to substantial uncertainty.
Comparable Company Analysis. Using publicly available information, Smith
Barney analyzed, among other things, the market values and trading multiples of
GranCare, Evergreen and the following selected companies in the long-term care
industry which Smith Barney considered to be most comparable to GranCare and
Evergreen: Advocat, Inc.; Beverly Enterprises, Inc.; The Hillhaven Corporation;
Living Centers of America, Inc.; National Healthcare L.P.; and Regency Health
Services, Inc. (the "Group I Companies"). Smith Barney compared market values as
multiples of latest 12 months and estimated calendar 1995 and 1996 net income,
and adjusted market values as multiples of latest 12 months EBITDAR. The range
of multiples of latest 12 months net income, estimated calendar 1995 and 1996
net income and latest 12 months net revenue and EBITDAR of the Group I Companies
were as follows: (i) latest 12 months net income: 15.7x to 27.2x (with a mean of
20.1x and a median of 19.7x); (ii) estimated calendar 1995 and 1996 net income:
11.3x to 20.4x (with a mean of 15.4x and a median of 14.4x) and 9.7x to 16.9x
(with a mean of 13.0x and a median of 12.4x), respectively; (iii) latest 12
months net revenue: 1.1x to 1.5x (with a mean of 1.3x and a median of 1.2x); and
(iv) latest 12 months EBITDAR: 7.6x to 8.7x (with a mean of 8.2x and a median of
8.4x). The multiples of latest 12 months net income, estimated calendar 1995 and
1996 net income and latest 12 months net revenue and EBITDAR of GranCare were
11.6x, 11.5x, 10.0x, 1.0x and 8.0x, respectively. The multiples of latest 12
months net income, estimated calendar 1995 and 1996 net income and latest 12
months net revenue and EBITDAR of Evergreen were 32.2x, 15.4x, 12.7x, 1.9x and
9.6x, respectively.
Smith Barney analyzed similar market values and trading multiples of
GranCare, Evergreen, the Group I Companies and the following additional selected
companies in the long-term care industry: Arbor Healthcare Company; Concord
Health Group, Inc.; Genesis Health Ventures, Inc.; Healthcare Retirement Corp.;
Horizon Healthcare Corporation; Integrated Health Services, Inc.; Manor Care
Inc.; Mariner Health Group, Inc.; Multicare Companies, Inc.; Summit Care
Corporation; Sun Healthcare Group, Inc.; and Vencor, Inc. (the "Group II
Companies" and, together with the Group I Companies, the "Comparable
Companies"). The range of multiples of latest 12 months net income, estimated
calendar 1995 and 1996 net income and latest 12 months net revenue and EBITDAR
of the Comparable Companies were as follows: (i) latest 12 months net income:
11.6x to 32.2x (with a mean of 21.2x and a median of 20.3x); (ii) estimated
calendar 1995 and 1996 net income: 11.3x to 22.0x (with a mean of 16.0x and a
median of 15.5x) and 9.7x to 17.7x (with a mean of 13.3x and a median of 12.7x),
respectively; (iii) latest 12 months net revenue: 1.0x to 2.8x (with a mean of
1.7x and a median of 1.6x); and (iv) latest 12 months EBITDAR: 7.6x to 13.5x
(with a mean of 9.4x and a median of 8.8x).
Smith Barney also compared debt to capitalization ratios, profit margins,
historical revenue growth and projected earnings per share ("EPS") growth of the
Comparable Companies with those of GranCare and Evergreen. Net income and EPS
projections for the Comparable Companies were analyzed based on estimates of
selected investment banking firms, and net income and EPS projections for
GranCare and Evergreen were based on internal estimates of the respective
managements of GranCare and Evergreen. All multiples were based on closing stock
prices on May 1, 1995.
Comparable Merger and Acquisition Analysis. Using publicly available
information, Smith Barney analyzed, among other things, the implied equity and
adjusted transaction multiples paid in the following selected merger and
acquisition transactions in the long-term care industry: Vencor, Inc./
The Hillhaven Corporation; Living Centers of America, Inc./The Brian Center
Corporation; The Hillhaven Corporation/Nationwide Care, Inc.; Horizon Healthcare
Corporation/PeopleCARE Heritage Centers; TheraTX, Inc./PersonaCare, Inc.;
Regency Health Services, Inc./Care Enterprises, Inc.; The Multicare Companies,
Inc./Providence Healthcare Inc.; Mariner Health Group, Inc./Pinnacle Care
Corporation; Sun Healthcare Group, Inc./The Mediplex Group, Inc.; Integrated
Health Services, Inc./Central Park Lodges,
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Inc.; Genesis Health Ventures, Inc./Meridian Healthcare Group; Horizon
Healthcare Corporation/Greenery Rehabilitation Group, Inc.; and Living Centers
of America, Inc./Vari-Care, Inc. (collectively, the "Comparable Transactions").
Smith Barney compared equity values as multiples of, among other things, latest
12 months net income, and adjusted transaction values (equity value, plus total
debt, less cash, plus rents capitalized at 12.5%) as multiples of latest 12
months revenue and EBITDAR. All multiples for the Comparable Transactions were
based on information available at the time of announcement of such transaction.
The mean and median multiples of latest 12 months net income, revenue and
EBITDAR for the Comparable Transactions were as follows: (i) net income: a mean
of 19.98x and a median of 17.23x; (ii) revenue: a mean of 1.59x and a median of
1.41x; and (iii) EBITDAR: a mean of 9.20x and a median of 9.62x.
No company, transaction or business used in the comparable company and
comparable merger and acquisition transactions analyses as a comparison is
identical to GranCare, Evergreen or the Merger. Accordingly, an analysis of the
results of the foregoing is not entirely mathematical; rather, it involves
complex considerations and judgments concerning differences in financial and
operating characteristics and other factors that could affect the acquisition or
public trading value of the comparable companies or the business segment or
company to which they are being compared.
Discounted Cash Flow Analysis. Smith Barney performed a discounted cash
flow analysis of the projected free cash flow of Evergreen for the fiscal years
ended June 30, 1996 through 2000, based upon certain operating and financial
assumptions, forecasts and other information provided by the management of
Evergreen and, assuming, among other things, discount rates of 13%, 15% and 17%
and terminal multiples of EBITDAR of 7.0x to 10.0x. This analysis resulted in
equity valuation reference ranges for Evergreen of approximately $141 million to
$292 million, or approximately $11.22 to $23.24 per share, assuming no cost
savings anticipated from the Merger were achieved, and approximately $167
million to $330 million, or approximately $13.28 to $26.27 per share, assuming
cost savings anticipated from the Merger were achieved.
Contribution Analysis. Smith Barney analyzed the respective contributions
of GranCare and Evergreen to, among other things, the revenue, EBITDAR, EBITDA
and net income of the combined company for the fiscal years 1995 through 1997,
based on projections provided by the respective managements of GranCare and
Evergreen. This analysis indicated that (i) in fiscal year 1995, GranCare would
contribute approximately 77.9% of revenue, 70.9% of EBITDAR, 75.1% of EBITDA and
68.9% of net income, and Evergreen would contribute approximately 22.1% of
revenue, 29.1% of EBITDAR, 24.9% of EBITDA and 31.1% of net income; (ii) in
fiscal year 1996, GranCare would contribute approximately 78.1% of revenue,
70.2% of EBITDAR, 73.6% of EBITDA and 66.1% of net income, and Evergreen would
contribute approximately 21.9% of revenue, 29.8% of EBITDAR, 26.4% of EBITDA and
33.9% of net income; and (iii) in fiscal year 1997, GranCare would contribute
approximately 77.8% of revenue, 70.0% of EBITDAR, 73.1% of EBITDA and 64.0% of
net income, and Evergreen would contribute approximately 22.2% of revenue, 30.0%
of EBITDAR, 26.9% of EBITDA and 36.0% of net income. Based on a closing sale
price of GranCare Common Stock on May 1, 1995, Evergreen would constitute
approximately 29.4% of the total enterprise value of the combined company.
Immediately following consummation of the Merger, shareholders of GranCare and
Evergreen would own approximately 63.3% and 36.7%, respectively, of the combined
company.
Pro Forma Merger Analysis. Smith Barney analyzed certain pro forma effects
resulting from the Merger, including, among other things, the impact of the
Merger on the projected EPS of GranCare for the fiscal years ended 1995 through
1999. Based on projections provided by the managements of GranCare and
Evergreen, the results of the pro forma merger analysis suggested that the
Merger would be dilutive to GranCare's EPS in fiscal year 1995 and accretive in
fiscal years 1996 through 1999, assuming cost savings anticipated from the
Merger were achieved. The actual results achieved by the combined company may
vary from projected results and the variations may be material.
Exchange Ratio Analysis. Smith Barney reviewed and analyzed the historical
ratio of the daily closing prices of GranCare Common Stock to Evergreen Common
Stock based on various averages during the one-year and two-year periods
preceding the public announcement of the Merger. The exchange ratios of the
daily closing price of one share of GranCare Common Stock to one share of
Evergreen Common Stock ranged from
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a low of 0.393 to a high of 0.865 over the periods analyzed, as compared to the
Exchange Ratio of 0.775 of a share.
Other Factors and Comparative Analysis. In rendering its opinion, Smith
Barney considered certain other factors and conducted certain other comparative
analyses, including, among other things, a review of: (i) the historical and
projected financial results of GranCare and Evergreen; (ii) the history of
trading prices for the GranCare Common Stock and the Evergreen Common Stock; and
(iii) the pro forma ownership of the combined company.
Pursuant to the terms of Smith Barney's engagement, GranCare has agreed to
pay Smith Barney for its services in connection with the Merger an aggregate
financial advisory fee equal to 0.50% of the total consideration (including
liabilities assumed) payable in connection with the Merger. GranCare also has
agreed to reimburse Smith Barney for travel and other out-of-pocket expenses
incurred by Smith Barney in performing its services, including the fees and
expenses of its legal counsel, and to indemnify Smith Barney and related persons
against certain liabilities, including liabilities under the federal securities
laws, arising out of Smith Barney's engagement.
Smith Barney has advised GranCare that, in the ordinary course of business,
it may actively trade the securities of GranCare and Evergreen for its own
account or for the account of its customers and, accordingly, may at any time
hold a long or short position in such securities.
Smith Barney is a nationally recognized investment banking firm and was
selected by GranCare based on Smith Barney's experience and expertise. Smith
Barney regularly engages in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
bids, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes.
OPINIONS OF EVERGREEN'S FINANCIAL ADVISORS
In December 1994, Evergreen retained Chicago Dearborn and McDonald to serve
as its exclusive financial advisors to provide financial advisory and investment
banking services in connection with any transaction or series of transactions
whereby, directly or indirectly, control or a material interest in the stock or
assets of Evergreen were transferred for consideration. Pursuant to an
engagement letter with Chicago Dearborn and McDonald, Evergreen agreed to pay to
each of Chicago Dearborn and McDonald a financial advisory fee of 0.45% of the
"transaction value" of the Merger, as defined in the engagement letter, which is
payable upon consummation of the Merger. Evergreen has paid $100,000 to each of
Chicago Dearborn and McDonald for rendering the opinions described below, which
payments will be credited against the financial advisory fee payable to these
firms upon consummation of the Merger. Evergreen has also agreed to reimburse
Chicago Dearborn and McDonald for reasonable out-of-pocket expenses and to
indemnify Chicago Dearborn and McDonald for certain liabilities relating to or
arising out of services provided as financial advisors to Evergreen.
Chicago Dearborn. Chicago Dearborn was retained by Evergreen to evaluate
the fairness, from a financial point of view, of the Exchange Ratio to the
shareholders of Evergreen. At the May 2, 1995 meeting of Evergreen's Board of
Directors, Chicago Dearborn delivered to the Board its oral opinion to the
effect that, as of such date and based on the matters described therein, the
Exchange Ratio was fair to the shareholders of Evergreen from a financial point
of view. [Chicago Dearborn subsequently confirmed its May 2, 1995 oral opinion
by delivery of its written opinion dated as of the date of this Joint Proxy
Statement/Prospectus.]
In connection with its opinion, Chicago Dearborn, among other things, (i)
reviewed certain publicly available financial statements and other information
of Evergreen and GranCare; (ii) reviewed certain internal financial statements
and other financial and operating data concerning Evergreen and GranCare
prepared by the managements of Evergreen and GranCare, respectively; (iii)
reviewed certain financial projections prepared by the managements of Evergreen
and GranCare, respectively; (iv) discussed with management of Evergreen and
GranCare the businesses, operations and prospects of both companies,
independently and combined; (v) reviewed the stock prices and trading histories
of Evergreen and GranCare; (vi) reviewed the
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exchange ratio implied by historical stock prices of Evergreen and GranCare;
(vii) reviewed the contribution by Evergreen and GranCare to pro forma combined
revenue, operating profit, pretax income and net income; (viii) reviewed the
valuations of publicly traded companies which it deemed comparable to Evergreen
and GranCare; (ix) compared the financial terms of the Merger and other
transactions which it deemed relevant; (x) prepared discounted cash flow
analyses of Evergreen and GranCare; (xi) reviewed the Merger Agreement and
certain related documents; and (xii) performed such other analyses as it deemed
appropriate.
In connection with its opinion, Chicago Dearborn relied without independent
verification on the accuracy and completeness of all financial and other
information that was publicly available or provided to it by Evergreen and
GranCare and assumed no responsibility to independently verify any of such
financial and other information. Furthermore, Chicago Dearborn did not obtain
any independent evaluation or appraisal of the properties or assets of Evergreen
or GranCare, nor was Chicago Dearborn furnished with any such evaluations or
appraisals, nor did Chicago Dearborn assume any responsibility to make or obtain
any such evaluations or appraisals. With respect to the financial forecasts of
Evergreen and GranCare that Chicago Dearborn reviewed, Chicago Dearborn assumed
that such forecasts were reasonably prepared by management of Evergreen and
GranCare based upon the best estimates and judgments of Evergreen and GranCare
management as to the future financial performance of their respective companies.
Chicago Dearborn also assumed that the Merger will be treated as a "pooling of
interests" in accordance with generally accepted accounting principles and as a
tax free reorganization for federal income tax purposes. Chicago Dearborn
analyzed the relative values of Evergreen and GranCare, and Chicago Dearborn
expressed no opinion as to the value of the common stock of Evergreen or
GranCare or as to what the value of the GranCare Common Stock will be when
issued to Evergreen shareholders in the Merger or as to the price at which
GranCare Common Stock will trade subsequent to the Merger. The opinion is
necessarily based upon market, economic, and other conditions that existed and
could be evaluated as of the date of the opinion, and on information available
to Chicago Dearborn as of such date. This includes the process which was
undertaken whereby Chicago Dearborn and McDonald contacted other strategic
entities with which Evergreen might have considered a transaction. In its
analysis, Chicago Dearborn noted that following the Merger the shareholders of
Evergreen would own, in the aggregate, approximately 41% of the stock of the
Surviving Entity and that in this sense the transaction represents a merger
between equals.
The following paragraphs summarize the most significant quantitative and
qualitative analyses performed by Chicago Dearborn in arriving at its opinion
and reviewed with the Evergreen Board of Directors, but does not purport to be a
complete description of the analyses performed by Chicago Dearborn. The
information presented below is based on the financial condition of Evergreen and
GranCare as of a date or dates shortly before the Merger Agreement was executed
on May 2, 1995, and stock price information through the close of the market on
April 28, 1995.
Stock Price and Trading History. Chicago Dearborn reviewed the daily
trading activity, including price and volume statistics, of Evergreen and
GranCare for the most recent twelve months since April 28, 1994. With respect to
Evergreen, it was noted that, since April 28, 1994, the daily closing prices of
the Evergreen Common Stock ranged from a high of $14.50 on May 6, 1994 to a low
of $9.38 on November 29, 1994. With respect to GranCare, it was noted that,
since April 28, 1994, the daily closing prices of the GranCare Common Stock
ranged from a high of $21.88 on September 1, 1994, to a low of $14.88 on March
21, 1995. Additionally, Chicago Dearborn reviewed selected commentary of
research analysts at different points in the trading histories of Evergreen
Common Stock and GranCare Common Stock.
Exchange Ratio Analysis. Chicago Dearborn reviewed the exchange ratio of
shares of GranCare Common Stock per share of Evergreen Common Stock implied by
the daily closing prices of Evergreen and GranCare Common Stock within the last
twelve months since April 28, 1994. It was noted that the average implied
exchange ratio within the last three months since January 30, 1995 was 0.774
with a high of 0.833 on March 20, 1995 and a low of 0.699 on March 28, 1995. It
was also noted that the average implied exchange ratio within the last six
months since October 31, 1994 was 0.687, with a high of 0.833 on March 20, 1995
and a low of 0.540 on November 29, 1994. It was further noted that the average
implied exchange ratio within the last twelve months since April 28, 1994 was
0.634, with a high of 0.833 on March 20, 1995 and a low of 0.467 on June 29,
1994.
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Chicago Dearborn reviewed the premium represented by the Exchange Ratio
compared to the exchange ratios implied by the closing prices as of April 28,
1995 and four weeks prior on March 28, 1995. Such premiums were 0.5% and 10.8%,
respectively. Additionally, Chicago Dearborn reviewed the premium represented by
the Exchange Ratio compared to exchange ratios implied by the historical closing
prices for the latest one, three, six and twelve months since April 28, 1994 and
on April 28, 1995. Such premiums ranged between 0.2% and 22.3%.
Comparable Companies Analysis. Chicago Dearborn compared certain financial
data and multiples of income statement parameters accorded to other
publicly-traded companies deemed to be comparable to Evergreen. Financial data
compared included market capitalization, total capitalization (adjusted to
capitalize operating leases), revenues, operating income, net income, earnings
per share, operating margin, net margin and projected earnings per share growth
rate. Multiples compared included total capitalization to EBITDAR, total
capitalization to EBITR, price per share to (i) latest twelve months EPS, (ii)
estimated 1995 calendarized EPS, and (iii) estimated 1996 calendarized EPS.
Companies deemed to be comparable to Evergreen include Advocat, Inc., Beverly
Enterprises, Inc., GranCare, Inc., The Hillhaven Corporation, Living Centers of
America, Inc., Manor Care, Inc., National HealthCorp L.P., Regency Health
Services, Inc. and Retirement Care Associates, Inc. (the "Comparable
Companies"). Chicago Dearborn also reviewed similar public market valuation
parameters for companies providing skilled nursing and subacute care, including
Arbor Healthcare Company, Genesis Health Ventures, Inc., Healthcare & Retirement
Corporation, Horizon Healthcare Corporation, Integrated Health Services, Inc.,
Mariner Health Group, Inc., Multicare Companies, Inc., Summit Care Corporation
and Sun Healthcare Group, Inc. Chicago Dearborn believed the Comparable
Companies to be more representative of Evergreen's business than these skilled
nursing and subacute care providers.
Based on the average and median total capitalization to LTM EBITDAR
multiples of 8.5x for the Comparable Companies, the implied Evergreen equity
value per share was $11.87. Based on the average and median market
capitalization to estimated 1995 calendarized EPS of 15.4x and 15.2x,
respectively, for the Comparable Companies, Evergreen's implied equity value per
share was $12.63 and $12.46, respectively. Based on the average and median
market capitalization to estimated 1996 calendarized EPS of 13.1x and 12.8x,
respectively, for the Comparable Companies, Evergreen's implied equity value per
share was $12.18 and $11.90, respectively.
Comparable Transactions Analysis. Chicago Dearborn analyzed publicly
available information for thirteen pending or completed transactions within the
long-term care industry which it deemed comparable to the Merger (the
"Comparable Transactions"). In examining these transactions, Chicago Dearborn
analyzed each transaction's total capitalization (adjusted to capitalize
operating leases) relative to latest twelve month revenues, EBITR, EBITDAR, as
well as total assets and total owned/leased beds. Further, each transaction's
market capitalization was analyzed relative to the target's latest twelve month
net income and cash flow, as well as to its then-current book value.
Based on the average and median total capitalization to LTM EBITDAR
multiples of 10.3x and 10.4x, respectively, for the Comparable Transactions, the
implied Evergreen equity value per share was $17.21 and $17.50, respectively.
Based on the average and median market capitalization to latest twelve months
EPS of 19.7x and 19.1x, respectively, for the Comparable Transactions,
Evergreen's implied equity value per share was $14.58 and $14.13, respectively.
Based on the average and median market capitalization to owned/leased beds of
48.5x and 41.8x (000s omitted), respectively, for the Comparable Transactions,
Evergreen's implied equity value per share was $11.98 and $8.51, respectively.
Discounted Cash Flow Analysis. Chicago Dearborn conducted a discounted cash
flow analysis to estimate the present value of the stand-alone unlevered free
cash flows that GranCare and Evergreen are expected to generate in accordance
with scenarios developed based upon financial projections prepared by the
managements of GranCare and Evergreen and certain variants thereof. To arrive at
valuations of GranCare and Evergreen, Chicago Dearborn discounted the unlevered
(before interest expenses) after-tax cash flows that resulted from the
aforementioned assumptions using a range of discount rates of 11.0% to 14.0%.
This range was based on the weighted average cost of capital for certain
companies in the long-term care industry.
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Evergreen's unlevered after-tax cash flows were calculated as the after-tax
operating earnings of Evergreen's base business plus after-tax earnings (on a
pro forma basis) from its minority equity interests in Alternative Living
Services ("ALS"), plus projected depreciation and amortization, plus or minus
net changes in non-cash working capital, minus projected capital expenditures.
The present value of these cash flows was added to the terminal value of
Evergreen in the year 1999, discounted back at the same discount rates. The
terminal value was computed by multiplying (i) Evergreen's projected EBIT from
its base business case in the calendar year 1999 by terminal multiples ranging
from 6.0x to 9.0x, and (ii) Evergreen's projected after-tax earnings from its
minority investment in ALS by terminal multiples ranging from 12.0 to 15.0x.
Chicago Dearborn used corresponding formulas to arrive at calculations for
GranCare's unlevered after-tax cash flows and terminal value. The discounted
cash flow valuation indicated a reference range for Evergreen of between $15.93
and $18.42 per share and for GranCare of between $17.83 and $23.15 per share,
before considering the value of free cash flows resulting from expected cost
savings and other potential synergies.
Contribution Analysis. Chicago Dearborn compared the relative contribution
of Evergreen and GranCare to pro forma combined revenue, operating income and
net income for the latest twelve month period ended March 31, 1995 on an
historical basis and for the calendar years 1995 and 1996 on a projected basis.
It was noted that: (i) Evergreen would have contributed approximately 25.1% of
revenue, 24.9% of operating income and 37.9% of net income for the latest twelve
months ended March 31, 1995 while GranCare would have contributed approximately
74.9% of revenue, 75.1% of operating income and 62.1% of net income for the
latest twelve months ended March 31, 1995; (ii) Evergreen would contribute 22.5%
of revenue, 23.5% of operating income and 30.6% of net income for calendar year
1995 while GranCare would contribute 77.5% of revenue, 76.5% of operating income
and 69.4% of net income for calendar year 1995; and (iii) Evergreen would
contribute 21.3% of revenue, 22.5% of operating income and 29.4% of net income
for calendar year 1996 while GranCare would contribute 78.7% of revenue, 77.5%
of operating income and 70.6% of net income for calendar year 1996.
Pro Forma Merger Analysis. Chicago Dearborn analyzed certain pro forma
effects resulting from the Merger, including the effect of the consummation of
the Merger, assuming the Exchange Ratio, on the earnings per share of GranCare
Common Stock following the Merger. It was noted that, in addition to other
factors, the value of these synergies was an important consideration in arriving
at its opinion that the Exchange Ratio pursuant to the Merger was fair from a
financial point of view to the holders of Evergreen Common Stock. The actual
operating results or financial position achieved by the combined company may
vary from the projected results, and the variations may be material.
The preparation of fairness opinions involves various determinations as to
the most appropriate and relevant quantitative and qualitative methods of
financial analyses and the application of those methods to the particular
circumstances, and, therefore, such opinions are not readily susceptible to
summary description. In arriving at its opinion, Chicago Dearborn did not
attribute any particular weight to any analysis or factor considered by it, but
rather made qualitative judgments as to the significance and relevance of each
analysis and factor. Accordingly, Chicago Dearborn believes its analyses must be
considered as a whole and that considering any portion of such analyses and
current factors could create a misleading or incomplete view of the process
underlying its opinion. In its analysis, Chicago Dearborn made numerous
assumptions with respect to industry performance, general business and other
conditions and matters, many of which are beyond the control of Evergreen and
GranCare. Any estimates contained in these 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. No company or
transaction used in the above analyses is directly comparable to Evergreen,
GranCare or the Merger. Accordingly, an analysis of the results of the foregoing
is not mathematical; rather, it involves complex considerations and judgments
concerning differences in the financial and operating characteristics of the
companies and other factors that could affect the public trading values of the
companies or companies to which they are being compared.
Chicago Dearborn was retained based on its experience as a financial
advisor in connection with mergers and acquisitions, as well as its investment
banking relationship and familiarity with Evergreen. In October of 1992, Chicago
Dearborn acted as financial advisor to Evergreen Healthcare Ltd. in connection
with its acquisition of a controlling interest in National Heritage, Inc. In
June of 1993, Chicago Dearborn acted as
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financial advisor to Evergreen in connection with the capitalization of
Healthcare Resources I, L.P., a limited partnership formed by Evergreen to
invest in Forum Group, Inc. Also, Chicago Dearborn acted as a co-manager in
Evergreen's public offering of 3.3 million shares of Evergreen Common Stock in
June of 1994.
Chicago Dearborn is an investment banking firm that is frequently engaged
in the valuation of businesses and their securities in connection with mergers
and acquisitions, negotiated underwritings, secondary distributions of
securities and other purposes.
McDonald. McDonald was retained by Evergreen to evaluate the fairness, from
a financial point of view, of the Exchange Ratio to the shareholders of
Evergreen. On May 2, 1995, McDonald delivered to the Board of Directors of
Evergreen its oral opinion to the effect that, as of that date and based upon
and subject to certain matters stated therein, the Exchange Ratio was fair, from
a financial point of view, to the shareholders of Evergreen. [McDonald
subsequently confirmed its May 2, 1995 oral opinion by delivery of a written
opinion dated as of the date of this Joint Proxy Statement/Prospectus.]
In arriving at its opinion, McDonald reviewed the financial terms of the
Merger Agreement and met with certain senior officers, directors and other
representatives and advisors of Evergreen and certain senior officers and other
representatives and advisors of GranCare to discuss the business, operations and
prospects of Evergreen and GranCare. McDonald examined certain publicly
available business and financial information relating to Evergreen and GranCare
as well as certain financial forecasts and other data for Evergreen and GranCare
which were provided to McDonald by Evergreen and GranCare. McDonald reviewed the
financial terms of the Merger as set forth in the Merger Agreement in relation
to, among other things, current and historical market prices and trading volumes
of Evergreen Common Stock; the earnings and book value per share of Evergreen
and GranCare; and the capitalization and financial condition of Evergreen and
GranCare. McDonald also considered, to the extent publicly available, the
financial terms of certain other similar transactions recently effected which
McDonald considered comparable to the Merger and analyzed certain financial,
stock market and other publicly available information relating to the businesses
of other companies whose operations McDonald considered comparable to the
operations of Evergreen and GranCare. In addition to the foregoing, McDonald
conducted such other analyses and examinations and considered such other
financial, economic and market criteria as McDonald deemed necessary to arrive
at its opinion. McDonald noted that its opinion was necessarily based upon
financial, stock market and other conditions and circumstances existing and
disclosed to McDonald as of the date of its opinion.
In rendering its opinion, McDonald assumed and relied, without independent
verification, upon the accuracy and completeness of the financial and other
information publicly available or furnished to or otherwise discussed with
McDonald. With respect to financial forecasts and other information provided to
or otherwise discussed with McDonald, McDonald assumed that such forecasts and
other information were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the respective managements of
Evergreen and GranCare as to the expected future financial performance of
Evergreen and GranCare. McDonald's opinion relates to the relative values of
Evergreen and GranCare. McDonald did not express any opinion as to what the
value of the GranCare Common Stock will be when issued to Evergreen shareholders
pursuant to the Merger or the price at which the GranCare Common Stock will
trade or otherwise be transferable subsequent to the Merger. In addition,
McDonald did not make or obtain any independent evaluation or appraisal of the
assets or liabilities (contingent or otherwise) of Evergreen or GranCare nor did
McDonald make any physical inspection of the properties or assets of Evergreen
or GranCare nor did McDonald assume any responsibility to make or obtain any of
the foregoing. In addition, although McDonald evaluated the financial terms of
the Merger, McDonald was not asked to and did not recommend the specific
consideration to be paid by GranCare in the Merger.
In preparing its opinion to the Board of Directors of Evergreen, McDonald
performed a variety of financial and comparative analyses, including those
described below. The summary of such analyses does not purport to be a complete
description of the analyses underlying McDonald's opinion. The preparation of a
fairness opinion is a complex analytic process involving various determinations
as to the most appropriate and relevant methods of financial analyses and the
application of those methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to summary description. In arriving
at its opinion,
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McDonald did not attribute any particular weight to any analysis or factor
considered by it, but rather made qualitative judgments as to the significance
and relevance of each analysis and factor. Accordingly, McDonald believes that
its analyses must be considered as a whole and selecting portions of its
analyses and factors, without considering all analyses and factors, could create
a misleading or incomplete view of the processes underlying such analyses and
its opinion. In its analyses, McDonald made numerous assumptions with respect to
Evergreen and GranCare, industry performance, general business, economic, market
and financial conditions and other matters, many of which are beyond the control
of Evergreen and GranCare. The estimates contained in such analyses are not
necessarily indicative of actual values or predicative of future results or
values, which may be significantly more or less favorable than those suggested
by such analyses. In addition, analyses relating to the value of businesses or
securities do not purport to be appraisals or to reflect the prices at which
businesses or securities actually may be sold. Accordingly, such analyses and
estimates are inherently subject to substantial uncertainty.
Selected Companies Analysis. McDonald reviewed and compared selected
actual and estimated financial, operating and stock market information for
Evergreen and GranCare in comparison with Arbor Health Care Company, Advocat
Inc, Beverly Enterprises, Genesis Health Ventures Inc., Integrated Health
Services, Inc., Living Centers of America, Inc., Multicare Co., Inc., Mariner
Health Group Inc., and Sun Healthcare Group, Inc. (collectively, the "Selected
Comparable Companies"). Such analysis indicated that (A) leveraged market
capitalization as a multiple of latest twelve-month ("LTM") revenues, earnings
before interest, taxes, depreciation and amortization ("EBITDA") and earnings
before interest and taxes ("EBIT") ranged from 0.6x to 1.9x, 7.1x to 22.5x, and
9.3x to 26.0x, respectively, with medians of 1.2x, 10.2x and 13.7x, for the
Selected Comparable Companies (i) as compared to corresponding multiples for
Evergreen of 1.2x, 11.1x and 14.7x, and (ii) as compared to corresponding
multiples for Grancare of 0.8x, 7.5x and 9.4x; (B) market price as a multiple of
LTM earnings, estimates of 1995 earnings and estimates of 1996 earnings ranged
from 15.3x to 37.5x, 12.1x to 17.1x and 10.2x to 14.1x, respectively, with
medians of 20.3x, 15.6x and 12.8x, for the Selected Comparable Companies (based
on consensus analysts' earnings estimates) (i) as compared to corresponding
multiples for Evergreen of 18.1x, 15.7x and 12.3x (based on analysts' estimates
of fully-taxed calendarized 1995 and 1996 earnings and the closing price of
Evergreen Common Stock on May 1, 1995 of $13.00) and (ii) as compared to
corresponding multiples for GranCare of 15.4x, 11.7x and 9.9x (based on
analysts' estimates and the closing price of GranCare Common Stock on May 1,
1995 of $16.625); and (C) market capitalization as a multiple of book value as
of the latest available balance sheet data ranged from 1.5x to 11.5x with a
median of 3.3x for the Selected Comparable Companies (i) as compared to the
corresponding multiple of 3.3x for Evergreen and (ii) as compared to the
corresponding multiple of 3.1 for Grancare.
No company, transaction or business used in the selected company and
selected transactions analyses as a comparison is identical to Evergreen,
GranCare or the Merger. Accordingly, an analysis of the results of the foregoing
is not entirely mathematical; rather, it involves complex considerations and
judgments concerning differences in financial and operating characteristics and
the factors that could affect the acquisition or public trading value of the
comparable companies or the business segment or company to which they are being
compared.
Selected Transactions Analysis. McDonald reviewed and analyzed selected
financial and operating information relating to transactions involving long-term
health care companies since 1993. Such analyses indicated that based on the
closing prices of Evergreen Common Stock and GranCare Common Stock of $13.00 and
$16.625 as of May 1, 1995, respectively, aggregate levered consideration of
these transactions as a multiple of LTM sales, EBITDA and EBIT ranged from 1.4x
to 3.6x, 12.6x to 27.0x and 5.0x to 34.9x, respectively, with medians of 1.7x,
14.5x and 25.8x, respectively, and averages of 2.0x, 17.1x and 18.3x,
respectively, as compared to corresponding multiples of (i) 1.1x, 11.0x and
9.6x, respectively, based on Evergreen's calendarized 1994 financial results,
(ii) 1.0x, 7.7x and 9.6x, respectively, based on management's estimates of
Evergreen's calendarized 1995 financial results and (iii) 1.0x, 6.6x and 8.0x,
respectively, based on management's estimates of Evergreen's 1996 calendarized
financial performance.
Pro Forma Merger Analysis. McDonald reviewed certain financial information
(including estimates of potential synergies and cost savings) for the pro forma
combined entity resulting from the Merger based on
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internal financial analyses and forecasts for Evergreen and GranCare prepared by
their respective managements. Such analysis indicated that, based on the
Exchange Ratio and based on management's earnings estimates, the Merger would be
accretive to GranCare's earnings per share in 1995, 1996 and 1997 so long as the
estimated cost savings and synergies were realized in the amounts and at the
times estimated.
Contribution Analysis. McDonald reviewed certain historical and estimated
future operating and financial information (including, among other things,
sales, EBITDA and pretax income) for Evergreen, GranCare and the pro forma
combined entity resulting from the Merger. Such analysis indicated that
Evergreen's contribution to sales, EBITDA and pretax income of the pro forma
combined entity resulting from the Merger (i) would have been 23.2%, 21.1% and
35.9%, based on calendarized 1994 financial results for each of Evergreen and
GranCare, (ii) would be 22.1%, 24.9% and 30.8% based on calendarized 1995
estimates of financial performance for each of Evergreen and GranCare prepared
by their respective managements and (iii) would be 22.1%, 26.0% and 32.0% based
on calendarized 1996 estimates of financial performance for each of Evergreen
and GranCare prepared by their respective managements. In addition, based on the
respective prices of Evergreen and GranCare Common Stock of $13 and $16 5/8
respectively, at May 1, 1995, Evergreen's market capitalization and levered
market capitalization represented 40.2% and 29.8%, respectively, of the combined
market capitalization and levered market capitalization of Evergreen and
GranCare.
Historical Stock Trading Analysis. McDonald reviewed and compared the
historical stock price performance of each of Evergreen and GranCare. This
analysis showed that during the period from November 6, 1992 through May 1,
1995, Evergreen Common Stock traded at a low price of $4.69 and a high price of
$15.38 and that for the same time period, GranCare Common Stock traded at a low
price of $14.65 and a high price of $23.25.
Other Analysis. McDonald analyzed available information regarding current
institutional holdings of Evergreen and GranCare and pro forma institutional
holdings of common stock of the pro forma combined entity resulting from the
Merger.
McDonald has advised Evergreen that, in the ordinary course of business, it
may actively trade the equity securities of Evergreen for its own account or for
the account of its customers, and accordingly, may at any time hold a long or
short position in such securities.
McDonald is a nationally recognized investment banking firm and was
selected by Evergreen based on McDonald's experience and expertise. In June of
1993, McDonald acted as financial advisor to Evergreen in connection with the
capitalization of Healthcare Resources I, L.P., a limited partnership formed by
Evergreen to invest in Forum Group, Inc. McDonald also acted as a co-manager in
Evergreen's public offering of 3.3 million shares of Evergreen Common Stock in
June of 1994. McDonald regularly engages in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, competitive bids, secondary distributions of listed and unlisted
securities, private placement and valuations for estate, corporate and other
purposes.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the Boards of Directors of GranCare
and Evergreen with respect to the Merger Agreement and the transactions
contemplated thereby, shareholders should be aware that certain members of
management of GranCare and Evergreen and the Boards of Directors of GranCare and
Evergreen have interests in the Merger that are in addition to the interests of
shareholders of GranCare and Evergreen generally.
Payments Pursuant to Severance Agreements. On February 1, 1994, Evergreen
entered into Severance Protection and Non-Competition Agreements ("Severance
Agreements") with each of William G. Petty, Jr., Donald D. Finney, Keith J.
Yoder and John W. Kneen, each of whom is an Evergreen executive officer.
Pursuant to the Severance Agreements, these Evergreen executive officers are
entitled to certain payments if their employment is terminated in connection
with a "change in control" as defined in the Severance Agreements. GranCare has
agreed to pay each of Messrs. Petty, Finney, Yoder and Kneen the payment
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contemplated by their respective Severance Agreement following the Effective
Time. In addition, pursuant to the Severance Agreements, Evergreen Options held
by these four Evergreen executive officers will vest and become immediately
exercisable at the Effective Time and GranCare will be obligated to continue for
a period of twelve months, at its expense, the medical, disability and life
insurance benefits enjoyed by these Evergreen executives prior to the Effective
Time.
Employment Agreements. It is anticipated that following the Merger,
GranCare and each of Mr. Finney and Mr. Yoder will enter into employment
agreements providing for a base salary, bonus and other benefits as mutually
agreed to by such individuals and GranCare.
Evergreen Option Plans. As provided in the Merger Agreement, by virtue of
the Merger, all Evergreen Options outstanding at the Effective Time, whether or
not then exercisable, will be assumed by GranCare and become exercisable for
shares of GranCare Common Stock. Each Evergreen Option assumed by GranCare will
be exercisable upon the same terms and conditions as under the applicable
Evergreen Option Plan (with appropriate adjustments to the number of shares and
the exercise price to reflect the Exchange Ratio) and applicable option
agreements issued thereunder, and GranCare will assume the Evergreen Option
Plans for such purposes. Pursuant to the Merger Agreement, at and after the
Effective Time: (i) each Evergreen Option assumed by GranCare may be exercised
solely for GranCare Common Stock; (ii) the number of shares of GranCare Common
Stock subject to each Evergreen Option will be equal to the product of (A) the
number of shares of Evergreen Common Stock subject to the original Evergreen
Option immediately prior to the Effective Time times (B) the Exchange Ratio; and
(iii) the per share exercise price for such Evergreen Option will be equal to
(C) the per share exercise price under such Evergreen Option immediately prior
to the Effective Time divided by (D) the Exchange Ratio.
As of June 1, 1995, employees (or former employees) of Evergreen held
Evergreen Options to purchase an aggregate of 287,315 shares of Evergreen Common
Stock at a weighted average price of $8.43 per share (at exercise prices ranging
from $1.25 to $10.00 per share). Approval of the Merger Agreement by the
shareholders of GranCare will constitute shareholder approval of the assumption
by GranCare of the rights and obligations of Evergreen under the Evergreen
Option Plans and of the amendment of such plans to provide for, among other
things, the conversion at the Effective Time of each outstanding Evergreen
Option into an option to purchase shares of GranCare. See "Terms of the Merger
Agreement and Related Transactions -- Manner and Basis of Converting Shares,
Options and Warrants."
Board of Directors of the Combined Company. Pursuant to the Merger
Agreement, GranCare has agreed, as of the Effective Time, to cause the Board of
Directors of GranCare to consist of the following nine members: Gene E.
Burleson, Charles M. Blalack, Robert L. Parker, Antoinette Hubenette, Joel S.
Kanter, Ronald G. Kenny, William G. Petty, Jr., Edward B. Regan and Gary U.
Rolle. If any of Robert L. Parker, Ronald G. Kenny or William G. Petty, Jr. (the
"Evergreen Representatives") are unable or unwilling to serve as a director of
GranCare at the Effective Time, such individual or individuals shall be replaced
by an individual or individuals designated by the Board of Directors of
Evergreen provided that such nominees are approved by the Board of Directors of
GranCare. Following the Effective Time and continuing through the 1997 Annual
Meeting of Shareholders of GranCare, if any vacancy on the Board of Directors of
GranCare arises with respect to any Evergreen Representative (or any other
individual or individuals selected by the Board of Directors of Evergreen or by
such individuals or their successors as a replacement director), any nominee
selected to fill such vacancy shall be nominated on behalf of the GranCare Board
of Directors by a majority vote of the remaining Evergreen Representatives
provided that such nominees are approved by the Board of Directors of GranCare.
At the 1996 and 1997 Annual Meetings of Shareholders of GranCare, the Board of
Directors of GranCare shall use good faith efforts to cause the GranCare Board
of Directors to consist of no more than eight members, including three Evergreen
Representatives. See "MANAGEMENT AND OPERATIONS OF THE COMBINED COMPANIES
FOLLOWING THE MERGER."
Indemnification. Under the terms of the Merger Agreement, GranCare and
Evergreen, jointly and severally, shall insure and guarantee that the provisions
with respect to indemnification by Evergreen and its subsidiaries with respect
to present and former directors, officers, employees or agents (the "Indemnified
Parties"), as set forth in the respective Articles of Incorporation or Bylaws of
Evergreen and its subsidiaries or
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pursuant to other agreements (including any insurance policies), shall survive
the Merger, shall not be amended, repealed or modified in any manner as to
adversely affect the rights of such Indemnified Parties and shall continue in
full force and effect for a period of at least six years from the Effective
Time.
Employee Benefit Plans. Under the terms of the Merger Agreement, the
Evergreen employee benefit plans which are in effect at the date of the Merger
Agreement shall remain in effect immediately following the Effective Time.
GranCare and Evergreen have agreed to cooperate in coordinating their respective
employee benefit plans and have agreed that any Evergreen employee benefit plan
may be terminated after the Effective Time, to the extent reasonably comparable
benefits, considered in the aggregate, are made available to employees of
Evergreen under one or more employee benefit plans of GranCare or its
subsidiaries.
Evergreen's Financial Advisors. Evergreen has paid fees and incurred
contingent obligations to Chicago Dearborn and McDonald in connection with the
Merger. In addition, Chicago Dearborn and McDonald served as the managing
underwriters to Evergreen in connection with its 1994 public offering of 3.3
million shares of Evergreen Common Stock. Chicago Dearborn served as financial
advisor to Evergreen Healthcare Ltd. in connection with its acquisition of
approximately 58% of the outstanding Evergreen Common Stock in October 1992. In
addition, Chicago Dearborn and McDonald acted as financial advisors to Evergreen
in connection with the capitalization of a limited partnership formed in 1993 to
invest in Forum Group, Inc. See "THE MERGER -- Opinions of Financial Advisors."
GranCare's Financial Advisors. GranCare has paid fees and incurred
contingent obligations to Salomon and Smith Barney in connection with the
Merger. See "THE MERGER -- Opinions of Financial Advisors."
ACCOUNTING TREATMENT
The Merger is intended to qualify as a "pooling of interests" business
combination for financial reporting purposes. Consummation of the Merger is
contingent upon GranCare and Evergreen receiving an opinion from each of
GranCare's independent auditors, Ernst & Young LLP, and Evergreen's independent
auditors, KPMG Peat Marwick LLP, that the Merger, if consummated in accordance
with the terms of the Merger Agreement, will qualify as a "pooling of interests"
for financial reporting purposes in accordance with generally accepted
accounting principles. Under the "pooling of interests" accounting method, (i)
the recorded historical cost basis of the assets, liabilities and shareholders'
equity of both GranCare and Evergreen will be carried forward and combined to
become the reported values of the merged company and (ii) financial statements
of GranCare issued subsequent to the consummation of the Merger will be restated
to include the combined financial position, results of operations and cash flows
for GranCare and Evergreen for all periods presented therein, using historical
balances. Certain events, including certain transactions with respect to
GranCare Common Stock or Evergreen Common Stock by affiliates of GranCare or
Evergreen, respectively, may prevent the Merger from qualifying as a pooling of
interests for accounting and financial presentation purposes. See "THE
MERGER -- Resales of GranCare Common Stock; Affiliates." See "TERMS OF THE
MERGER AGREEMENT AND RELATED TRANSACTIONS -- Conditions to the Merger."
CERTAIN FEDERAL TAX CONSIDERATIONS
The following discussion summarizes the material federal income tax
considerations relevant to the exchange of shares of Evergreen Common Stock for
Merger Shares and the assumption by GranCare of the Evergreen Option Plans and
of each outstanding option and warrant to acquire Evergreen Common Stock and the
conversion thereof into Merger Options. In particular, this discussion addresses
the tax consequences of the Merger generally applicable to holders of Evergreen
Common Stock and to the holders of Evergreen Options. This discussion does not
deal with all federal income tax considerations that may be relevant to
particular holders of Evergreen Common Stock and to holders of each outstanding
option and warrant to acquire Evergreen Common Stock in light of their
particular circumstances, such as holders who do not hold their shares of
Evergreen Common Stock as capital assets, foreign persons or persons who
acquired their shares in compensatory transactions. In addition, the following
discussion does not address the tax consequences of transactions effectuated
prior or subsequent to, or concurrently with, the Merger (whether or not such
transactions are undertaken in connection with the Merger), including, without
limitation, any
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transaction in which shares of Evergreen Common Stock are acquired or any shares
of GranCare Common Stock are disposed of. Further, no foreign, state or local
tax considerations are addressed herein. ACCORDINGLY, HOLDERS OF EVERGREEN
COMMON STOCK AND HOLDERS OF EACH OUTSTANDING OPTION AND WARRANT TO ACQUIRE
EVERGREEN COMMON STOCK ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICABLE FEDERAL,
STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF THE MERGER.
This discussion reflects, and is supported by, opinions of Brobeck, Phleger
& Harrison, counsel to GranCare, and Rogers & Hardin, counsel to Evergreen,
which will be delivered at the closing (collectively, the "Exhibit Opinions").
The Exhibit Opinions, the forms of which are attached as Exhibit 8.1 and 8.2,
respectively, to the Registration Statement of which this Joint Proxy
Statement/Prospectus is a part, were based on and are subject to certain
qualifications and assumptions as noted therein. Evergreen shareholders should
be aware that this discussion and the Exhibit Opinions are based upon counsel's
interpretation of the Code, applicable Treasury regulations, judicial authority
and administrative rulings and practices, all as of the date hereof. There can
be no assurance that future legislative, judicial or administrative changes or
interpretations will not adversely affect the accuracy of the statements and
conclusions set forth herein. Any such changes or interpretations could be
applied retroactively and could affect the tax consequences of the Merger.
The Exhibit Opinions include opinions that the Merger will be treated for
federal income tax purposes as a reorganization within the meaning of Section
368(a) of the Code, that each of GranCare, GWAC, and Evergreen will be a party
to the reorganization within the meaning of Section 368(b) of the Code and that
no gain or loss will be recognized by a shareholder of Evergreen as a result of
the Merger with respect to the Evergreen Common Stock converted solely into
GranCare Common Stock. Subject to the limitations and qualifications referred to
herein, the Merger's treatment for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code will generally
have the following consequences for federal income tax purposes:
(a) no gain or loss will be recognized by holders of Evergreen Common
Stock upon their receipt in the Merger solely of GranCare Common Stock in
exchange therefor;
(b) the aggregate basis for tax purposes of the GranCare Common Stock
received in the Merger will be the same as the aggregate basis of the
Evergreen Common Stock surrendered in exchange therefor; and
(c) the holding period of the GranCare Common Stock received in the
Merger will include the period for which the Evergreen Common Stock
surrendered in exchange therefor was held, provided that the Evergreen
Common Stock is held as a capital asset as of the Effective Date.
Even if the Merger is treated for federal income tax purposes as a tax-free
reorganization, a recipient of GranCare Common Stock could recognize gain to the
extent that such common stock was considered by the Internal Revenue Service
("IRS") to be received in exchange for property or services (other than solely
Evergreen Common Stock). All or a portion of such gain may be taxable as
ordinary income. Gain could also have to be recognized to the extent that an
Evergreen Common Stock holder was treated by the IRS as receiving (directly or
indirectly) consideration in addition to GranCare Common Stock in exchange for
his or her Evergreen Common Stock. Cash received by a holder of Evergreen Common
Stock in lieu of a fractional interest in GranCare Common Stock will result in
the recognition of gain or loss for federal income tax purposes, measured by the
difference between the amount of cash received and the portion of the holder's
basis allocable to such fractional share interest. Such gain or loss will be
capital gain or loss if Evergreen Common Stock is held by the holder as a
capital asset as of the Effective Time.
Evergreen Common Stock holders should be aware that the Exhibit Opinions
will not bind the IRS and that the IRS is therefore not precluded from
successfully asserting a contrary opinion. In addition, as noted earlier, all of
the tax opinions are subject to certain assumptions, including but not limited
to the accuracy of certain representations made by GranCare and Evergreen and
their affiliates.
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Pursuant to Treasury Regulations promulgated under Section 368 of the Code,
a reorganization under Section 368 requires a continuing interest in the
enterprise on the part of the persons who, directly or indirectly, were the
owners of the enterprise prior to the reorganization. To satisfy the continuity
of interest requirement, Evergreen shareholders must not, pursuant to a plan or
intent existing on or prior to the Effective Date, dispose of or transfer so
much of either (i) their Evergreen Common Stock in anticipation of the Merger or
(ii) the GranCare Common Stock to be received in the Merger (collectively
"Planned Dispositions"), such that Evergreen shareholders, as a group, would no
longer have a significant equity interests in the Evergreen business being
conducted by GranCare after the Merger. Evergreen shareholders will generally be
regarded as having a significant equity interest as long as the number of shares
of GranCare Common Stock received in the Merger less the number of shares
subject to Planned Dispositions (if any) represents, in the aggregate, a
substantial portion of the entire consideration received by the Evergreen
shareholders in the Merger. Based on the terms of the Affiliate Letters (as
defined herein) and certain assumptions contained in the Exhibit Opinions, the
continuity of interest requirement should be satisfied.
The conversion incident to the Merger of the Evergreen Options granted in
connection with the performance of services into the Merger Options will not
result in the recognition of income, gain or loss for federal income tax
purposes by the holders of the Evergreen options and warrants.
A successful IRS challenge to the tax-free reorganization treatment of the
Merger (as a result of a failure of the continuity of interest or otherwise)
would result in the Evergreen shareholders recognizing taxable gain or loss with
respect to each share of Evergreen Common Stock surrendered equal to the
difference between the shareholder's basis in such share and the fair market
value, as of the Effective Date, of the GranCare Common Stock received in
exchange therefor. In such event, a shareholder's basis in the GranCare Common
Stock so received would equal its fair market value and the holding period for
such stock would begin the day after the Effective Date.
GOVERNMENTAL AND REGULATORY APPROVALS
Under the HSR Act and the rules promulgated thereunder by the FTC, the
Merger cannot be consummated until notifications have been given and certain
information has been furnished to the FTC and the Antitrust Division and
specified waiting period requirements have been satisfied. On June 2, 1995,
GranCare and Evergreen each filed notification and report forms under the HSR
Act with the FTC and the Antitrust Division. Even if the FTC grants early
termination of the HSR Act waiting period at any time before or after
consummation of the Merger, the Antitrust Division or the FTC could take such
action under the antitrust laws that it deems necessary or desirable in the
public interest, including seeking to enjoin the consummation of the Merger or
seeking divestiture of substantial assets of GranCare or Evergreen. At any time
before or after the Effective Time, and notwithstanding the termination of the
HSR Act waiting period, any state could take such action it deems necessary or
desirable under applicable state antitrust laws. Such action could include (i)
seeking to enjoin the consummation of the Merger, (ii) seeking divestiture of
Evergreen by GranCare or (iii) seeking the divestiture of certain businesses of
GranCare or Evergreen by GranCare. Private parties may also seek to take legal
action under the antitrust laws under certain circumstances.
Under applicable law, Evergreen may be required to give notification to
various state and federal governmental entities of the Merger and apply for new
licenses and permits. Evergreen believes that it will be able to obtain any such
licenses upon application therefor in the ordinary course of business. GranCare
and Evergreen are aware of no other governmental or regulatory approvals
required for consummation of the Merger, other than compliance with applicable
federal and state securities laws.
GranCare and Evergreen are aware of no other governmental or regulatory
approvals required for consummation of the Merger, other than compliance with
applicable federal and state securities laws.
RESALES OF GRANCARE COMMON STOCK; AFFILIATES
The GranCare Common Stock to be issued to the Evergreen shareholders
pursuant to the Merger Agreement will be freely transferable under the
Securities Act, except for shares issued to any person who
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may be deemed to be an "affiliate" of Evergreen within the meaning of Rule 145
under the Securities Act. Shares of GranCare Common Stock received by persons
who are deemed to be Evergreen affiliates may be resold by such persons only in
transactions permitted by the resale provisions of Rule 145 (permitting limited
sales under certain circumstances) or as otherwise permitted under the
Securities Act. Persons who may be deemed to be affiliates of Evergreen
generally include individuals or entities that, directly or indirectly through
one or more intermediaries, control, are controlled by or are under common
control with Evergreen and may include certain officers, directors and principal
shareholders of Evergreen. All Evergreen shareholders who may be deemed to be
affiliates of Evergreen will be so advised prior to the Effective Date of the
Merger.
It is a condition to GranCare's obligation to consummate the Merger that
GranCare receive a letter from each affiliate of Evergreen prior to the
Effective Time (each, an "Affiliate Letter"), pursuant to which Affiliate Letter
each such Evergreen affiliate shall undertake not to make any sale of GranCare
Common Stock received upon consummation of the Merger in violation of the
Securities Act or the rules and regulations promulgated thereunder. Generally
this will require that such sales be made in accordance with Rule 145(d) under
the Securities Act, which in turn requires that, for specified periods, such
sales be made in compliance with the volume limitations, manner of sale
provisions and current information requirements of Rule 144 under the Securities
Act. The volume limitations should not pose any material limitations on any
Evergreen shareholder who owns less than one percent of GranCare's outstanding
Common Stock after the Merger unless, pursuant to Rule 144, such shareholder's
shares are required to be aggregated with those of another shareholder.
In addition, the Affiliate Letter will require each affiliate of Evergreen
not to sell, exchange, transfer, pledge, dispose of or otherwise reduce his risk
relative to shares of GranCare Common Stock (except under certain limited
circumstances) until such time as financial results covering at least 30 days of
combined operations of GranCare and Evergreen after the Effective Date of the
Merger have been filed or published by GranCare. The certificates evidencing
GranCare Common Stock issued to affiliates pursuant to the Merger Agreement will
bear a legend summarizing the foregoing restrictions unless the affiliate has
furnished to GranCare an affidavit to the effect that such affiliate meets
certain exemptive provisions of Rule 145 of the Act.
Persons who are not affiliates of Evergreen may sell their GranCare Common
Stock without restrictions and without the necessity to deliver this Joint Proxy
Statement/Prospectus.
NO DISSENTERS' RIGHTS
Under the GBCC, dissenters' rights are not available (unless otherwise
provided in a corporation's articles of incorporation, and Evergreen's Restated
Articles of Incorporation do not so provide): (i) if the shares of the
corporation are listed on a national securities exchange or held of record by
more than 2,000 shareholders, and shareholders by the terms of the merger or
consolidation are not required to accept in exchange for their shares anything
other than shares of stock of the surviving or resulting corporation, or shares
of stock of any other corporation listed on a national securities exchange or
held of record by more than 2,000 stockholders, other than cash in lieu of
fractional shares of stock; or (ii) in a merger if the corporation is the
surviving corporation and no vote of its shareholders thereon is required. Under
the GBCC, the Evergreen shareholders are not entitled to dissenters' rights with
respect to the Merger.
MANAGEMENT AND OPERATIONS OF THE COMBINED COMPANIES
FOLLOWING THE MERGER
GENERAL
After the consummation of the Merger, Evergreen will be a wholly-owned
subsidiary of GranCare. It is intended that, upon consummation of the Merger,
substantially all of the employees of Evergreen will continue as employees of
Evergreen. The integration of GranCare and Evergreen effected by the Merger may
result in the consolidation of certain facilities or changes in the operations
of the companies following the Effective Time, although there are no specific
plans to effect any such changes at the present time.
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Once the Merger is consummated, GWAC will cease to exist as a corporation,
and all of the business, assets, liabilities and obligations of GWAC will be
merged into Evergreen with Evergreen remaining as the surviving corporation.
Pursuant to the Merger Agreement, the Articles of Incorporation and the Bylaws
of GWAC as in effect immediately prior to the Effective Time will become the
Articles of Incorporation and Bylaws of Evergreen, the surviving corporation.
The directors of GWAC in office immediately prior to the Effective Time will be
the directors of Evergreen. The officers of GWAC in office immediately prior to
the Effective Time will be the officers of Evergreen.
BOARD OF DIRECTORS AFTER THE MERGER
Prior to the Effective Time, the Board of Directors of GranCare will take
all action necessary to cause the full Board of Directors of GranCare, at and
immediately after the Effective Time, to consist of the following nine
directors: Gene E. Burleson, Charles M. Blalack, Robert L. Parker, Antoinette
Hubenette, M.D., Joel S. Kanter, Ronald G. Kenny, William G. Petty, Jr., Edward
V. Regan and Gary U. Rolle. Gene E. Burleson will continue to serve as Chairman
of the GranCare Board of Directors and the Board of Directors of GranCare will
take all necessary action to cause William G. Petty, Jr. to be elected as Vice
Chairman of the GranCare Board of Directors.
Immediately prior to the Effective Time, the GranCare Board of Directors
shall take all action necessary to cause Mr. Petty to be elected as a member of
the Nominating Committee of the GranCare Board, Mr. Kenny to be elected as a
member of the Audit Committee of the GranCare Board of Directors and Mr. Parker
to be elected as a member of the Compensation Committee of the GranCare Board of
Directors. All other members of the various committees of the GranCare Board of
Directors will remain the same.
Following the Effective Time and continuing through the 1997 Annual Meeting
of Shareholders of GranCare, any vacancy on the Board of Directors of GranCare
arising among Messrs. Parker, Kenny or Petty and any nominee selected to fill a
director position occupied by any of the foregoing individuals (the "Evergreen
Representatives") will be nominated on behalf of the GranCare Board of
Directors, filled or selected by a majority vote of the remaining Evergreen
Representatives and approved by the Board of Directors of GranCare. At the 1996
and 1997 Annual Meetings of Shareholders of GranCare the Board of Directors of
GranCare will use good faith efforts to cause the Board of Directors to consist
of no more than eight members.
Biographical information with respect to the current and proposed
additional directors of GranCare is set forth below.
Charles M. Blalack, age 68, became a Director of GranCare in March 1989.
From March 1993 to the present, Mr. Blalack has been Chairman and Chief
Executive Officer of Blalack & Company, a member of the National Association of
Securities Dealers ("NASD"). From September 1969 to March 1993, Mr. Blalack was
Chairman of the Board and Chief Executive Officer of Blalack-Loop, Incorporated,
a member of the NASD and a registered investment advisor. Mr. Blalack was a
director of Beverly Enterprises from 1964 to 1975 and he currently serves on the
board of directors of Advanced Micro Devices, Inc., which is a publicly held
company.
Gene E. Burleson, age 54, became Chairman of the Board of GranCare in
January 1994 and has served as Chief Executive Officer of GranCare since
December 1990. Previously, Mr. Burleson served as President and Director of
GranCare since October 1989. From 1974 to September 1989, Mr. Burleson was
employed by American Medical International, Inc., a provider of healthcare
services, where from early 1988 to March 1989 he served as President while
continuing his role as Chief Operating Officer, a position he assumed in 1986.
Prior to serving as President of the parent company, Mr. Burleson served for
nine years as President and Chief Executive Officer of American Medical
International -- European Operations. Mr. Burleson currently serves on the board
of directors of Deckers Outdoor Corporation, a publicly held company, and
Integrated Voice Solutions, Inc.
Antoinette Hubenette, M.D., age 46, became a Director of GranCare in April
1992. Dr. Hubenette is a medical doctor who specializes in internal medicine and
geriatric care. Since 1982, Dr. Hubenette has been a partner with the Medical
Group of Beverly Hills.
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Joel S. Kanter, age 38, became a Director of GranCare in December 1990.
From 1986 to the present, Mr. Kanter has been the President of Windy City, Inc.,
and from 1988 to February 27, 1995 he served as a consultant to Walnut Capital
Corporation, a closely held investment management and advisory firm. From
February 27, 1995 to the present, Mr. Kanter has served as the President of
Walnut Capital Corporation and Walnut Financial Services. Prior to 1986, Mr.
Kanter was Managing Director of the Investors' Washington Service, an investment
advisory company specializing in providing advice to institutional clients about
the impact of federal legislative and regulatory decisions on debt and equity
markets. Mr. Kanter serves on the board of directors of six other publicly held
companies, I-Flow Corp., Alamar BioSciences, Inc., MEDCROSS, Inc., Concept
Technologies, Inc., Walnut Financial Services and Clean America Corporation and
several privately held companies.
Ronald G. Kenny, age 39, has served as a Director of Evergreen since June
1993 and as Vice President -- Finance for Huizenga Capital Management, Inc., a
privately held investment management company, since 1990. From 1989 to 1990, Mr.
Kenny served as Manager -- Financial Operations of Datronic Rental Corporation,
a public syndicator of partnerships. Mr. Kenny was a Director of National
Heritage Inc. ("NHI") from October 1992 to June 1993.
Robert L. Parker, age 61, has served as Chairman of the Board of Directors
of Omega Healthcare Investors, Inc. since March 1992 and was a Managing Director
of Omega Capital, Ltd., a private health care investment fund ("Omega Capital"),
from 1986 to 1992. From 1972 through 1983, Mr. Parker was a senior officer of
Beverly Enterprises, the largest operator of long-term care facilities in the
United States. At the time of his retirement in 1983, Mr. Parker was Executive
Vice President of Beverly Enterprises. Mr. Parker is a registered architect,
licensed in California and Oklahoma.
William G. Petty, age 49, has served as Chairman of the Board of Directors,
President and Chief Executive Officer of Evergreen, since June 30, 1993. He
served as Chairman of the Board, Chief Executive Officer and President of NHI
from October 1992 to June 1993. He has served as President and Chief Executive
Officer of EHL, an affiliate of Evergreen that operates 16 long-term care
facilities, since 1988, and has been a Managing Director of Omega Capital since
1986.
Edward V. Regan, age 65, became a Director of GranCare in January 1994.
From 1979 to 1993, Mr. Regan served as New York State Comptroller. From 1992 to
the present, Mr. Regan has been associated with the Jerome Levy Economics
Institute, a non-partisan research center generating public policy alternatives
through the study of economics. Mr. Regan is a member of the U.S.
Competitiveness Policy Council. From 1988 to 1992, Mr. Regan was an adjunct
professor at New York University's Stern Graduate School of Business. Mr. Regan
currently serves on the board of directors of the Oppenheimer Fund.
Gary U. Rolle, age 53, became a Director of GranCare in February 1994. From
1983 to the present, Mr. Rolle has been the Executive Vice President and Chief
Investment Officer of Transamerica Investment Services, a subsidiary of
Transamerica, a financial services company. Mr. Rolle is currently the Chairman
and President of Transamerica Income Shares, Chief Investment Officer of
Transamerica Occidental Life and Transamerica Insurance & Annuity and Vice
President of Transamerica California Tax Free Fund and Transamerica High Yield
Tax Free Fund. Mr. Rolle currently serves on the board of directors of
Transamerica Occidental Life, Transamerica Life Insurance & Annuity,
Transamerica Assurance, Transamerica Cash Reserve, Transamerica Realty Services,
Arbor Life Insurance and Separate Account Funds B & C.
CERTAIN RELATIONSHIPS
Robert L. Parker, who as an Evergreen Representative will be elected to the
GranCare Board of Directors at the Effective Time of the Merger, is currently
Chairman of the Board of Directors of Omega Healthcare Investors, Inc.
("Omega"), a creditor of GranCare. Omega is the mortgagee under mortgages with
respect to GranCare's facilities located in the state of Michigan. GranCare's
indebtedness to Omega as of the date of this Joint Proxy Statement/Prospectus
was approximately $58.8 million. During the year ended December 31, 1994,
GranCare made payments to Omega totalling approximately $8.0 million.
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TERMS OF THE MERGER AGREEMENT AND RELATED TRANSACTIONS
EFFECTIVE TIME OF THE MERGER
The Merger Agreement provides that the Merger will become effective upon
the filing of a Certificate of Merger with the Secretary of State of the State
of California in accordance with the CGCL. It is anticipated that if the Merger
Agreement is approved and adopted at the GranCare Special Meeting and the
Evergreen Special Meeting and all other conditions of the Merger have been
fulfilled or waived, the Effective Time will occur at the time of filing the
Certificate of Merger with the Secretary of State of the State of California or
at such other time as GranCare and Evergreen shall have agreed upon and
designated in such filing as the Effective Time.
Upon consummation of the Merger, Evergreen, as a wholly-owned subsidiary of
GranCare, will for the foreseeable future continue to operate as a separate
company using "Evergreen Healthcare, Inc." as its corporate name.
MANNER AND BASIS OF CONVERTING SHARES, OPTIONS AND WARRANTS
CONVERSION OF EVERGREEN COMMON STOCK INTO GRANCARE COMMON STOCK
At the Effective Time, all outstanding shares of Evergreen Common Stock
will be converted into the right to receive an aggregate of approximately
9,672,806 shares of GranCare Common Stock (or 0.775 of a share of GranCare
Common Stock for each share of Evergreen Common Stock).
Based upon the number of shares of GranCare Common Stock outstanding as of
May 2, 1995 and assuming that an aggregate of 9,672,806 Merger Shares are issued
to Evergreen shareholders in the Merger, 23,791,343 shares of GranCare Common
Stock (assuming none of the Evergreen Options are exercised) will be outstanding
immediately after the Effective Time, of which approximately 40.7% will be held
by the former holders of Evergreen Common Stock.
No fractional shares will be issued by GranCare in the Merger. In lieu of
any such fractional shares, each holder of Evergreen Common Stock who would
otherwise have been entitled to a fractional share of GranCare Common Stock upon
surrender of certificates for exchange will be paid an amount in cash (without
interest) equal to such holder's proportionate interests in the net proceeds
from the sale or sales in the open market by American Stock Transfer and Trust
Company, as registrar and transfer agent (the "Exchange Agent"), on behalf of
all such holders, of aggregate fractional shares of the GranCare Common Stock
issued pursuant to the Merger Agreement. As soon as practicable following the
Effective Time, the Exchange Agent shall determine the excess of (i) the number
of full shares of GranCare Common Stock delivered to the Exchange Agent by
GranCare over (ii) the aggregate number of full shares of GranCare Common Stock
to be distributed to holders of Evergreen Common Stock (such excess being herein
called the "Excess Shares"), and the Exchange Agent, as agent for the former
holders of Evergreen Common Stock, shall sell the Excess Shares at the
prevailing prices on the NYSE. The sale of the Excess Shares by the Exchange
Agent shall be executed on the NYSE through one or more member firms of the NYSE
and shall be executed in round lots to the extent practicable. GranCare shall
pay all commissions, transfer taxes and other out-of-pocket transaction costs,
including the expenses and compensation of the Exchange Agent, incurred in
connection with such sale of Excess Shares. Until the net proceeds of such sale
have been distributed to the former shareholders of Evergreen, the Exchange
Agent will hold such proceeds in trust for such former shareholders (the
"Fractional Securities Fund"). As soon as practicable after the determination of
the amount of cash to be paid to former shareholders of Evergreen in lieu of any
fractional interests, the Exchange Agent shall make available in accordance with
the Merger Agreement such amounts to such former shareholders.
In lieu of establishing the Fractional Securities Fund, the Exchange Agent
may, at the direction of GranCare, pay any cash amounts due to the former
shareholders of Evergreen directly from cash made available to the Exchange
Agent by GranCare for such purpose.
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EVERGREEN OPTIONS
As of May 2, 1995, employees (or former employees) and directors of
Evergreen held Evergreen Options to purchase an aggregate of 287,315 shares of
Evergreen Common Stock at various exercise prices and subject to various vesting
schedules. In addition, Evergreen has granted to a former executive officer of
Evergreen, in connection with the settlement of litigation, warrants to purchase
60,000 shares of Evergreen Common Stock at an exercise price of $5.00 per share.
The Evergreen Warrants may be exercised by the holder thereof at any time prior
to June 30, 1996.
Pursuant to the Merger Agreement, each Evergreen Option (including the
Evergreen Warrants), whether or not vested or exercisable, shall be assumed by
GranCare and converted into Merger Options. As soon as practicable after the
Effective Time, GranCare shall enter into an assumption agreement with respect
to the Evergreen Option Plans, which will convert the outstanding Evergreen
Options into the right to acquire shares of GranCare Common Stock on the same
terms and conditions as contained in the outstanding Evergreen Options (subject
to any adjustments required by the Merger Agreement). Pursuant to the Merger
Agreement, each such Evergreen Option will be exercisable for 0.775 of a share
of GranCare Common Stock for each share of Evergreen Common Stock underlying
such Evergreen Option, at a price per share equal to the aggregate exercise
price for the shares of Evergreen Common Stock subject to such Evergreen Option
divided by the number of full shares of GranCare Common Stock deemed to be
purchasable thereunder. After the Effective Time, GranCare does not intend to
grant any options under any of the Evergreen Option Plans. The shares of
GranCare Common Stock that may be purchased upon exercise of such Evergreen
Option shall not include any fractional shares and, upon the last such exercise
of such Evergreen Option, a cash payment shall be made for any fractional shares
based upon the per share average of the highest and lowest sale price of the
GranCare Common Stock as reported on the NYSE on the date of such exercise. In
the case of any Evergreen Option to which Section 421 of the Code applies by
reason of its qualification under Section 422 or Section 423 of the Code, the
option price, the number of shares purchasable pursuant to such Evergreen Option
and the terms and conditions of exercise of such Evergreen Option shall be in a
manner that complies with Section 424 of the Code. GranCare shall comply with
the terms of the Evergreen Option Plans as they apply to the Evergreen Options
assumed as set forth above including, but not limited to, provisions regarding
changes of control that may apply with respect to the Merger.
In the Merger, GranCare will assume both (i) the outstanding Evergreen
Options, which cover an aggregate of 287,315 shares of Evergreen Common Stock
(excluding the Evergreen Warrants) with a weighted average exercise price of
$8.43 per share and which are held by employees, former employees or non-
employee directors of Evergreen, and (ii) the Evergreen Option Plans under which
those options were granted. There are three Evergreen Option Plans to be so
assumed: the Evergreen 1993 Incentive Compensation Plan, under which there are
currently outstanding options for 276,115 shares of Evergreen Common Stock, the
1994 Non-Employee Director Stock Option Plan under which there are outstanding
options for 7,000 shares of Evergreen Common Stock, and the 1987 National
Heritage, Inc. Stock Option Plan under which there are currently outstanding
options for 4,200 shares of Evergreen Common Stock. Except with respect to
options for 49,429 of the shares of Evergreen Common Stock outstanding under the
Evergreen 1993 Incentive Compensation Plan, all options granted under the
Evergreen Option Plans have an exercise price equal to the fair market value per
share of Evergreen Common Stock on the grant date and have a maximum term
ranging from 5 to 10 years measured from such grant date, subject to earlier
termination following the optionee's cessation of service. The exercise price
may be paid in cash, in shares of common stock or through a cashless-exercise
program involving a same-day sale of the purchased shares. The options are
non-assignable except upon death and generally become exercisable in
installments over the optionee's period of service with Evergreen. Outstanding
options under the 1993 Incentive Compensation Plan and the 1987 National
Heritage Stock Option Plan may be either incentive stock options under the
federal tax laws or non-statutory options, and all options under the 1994
Non-Employee Directors Stock Option Plan are non-statutory options. Although
stock appreciation rights are authorized for issuance under the 1993 Incentive
Compensation Plan, no such rights are currently outstanding.
The 1993 Incentive Compensation Plan and the 1987 National Heritage Stock
Option Plan are currently administered by the compensation committee of the
Evergreen Board of Directors. After the Merger, those
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plans will be administered by the compensation committee of the GranCare Board
of Directors, with full power to interpret and administer the outstanding
options assumed by GranCare thereunder; however, no additional option grants
will be made under either of those plans. Option grants under the 1994 Non-
Employee Director Stock Option Plan were made in accordance with the express
terms of the plan document, and no further option grants will be made under that
plan after the Merger.
The 1993 Incentive Compensation Plan expressly provides that in the event
Evergreen is merged or consolidated or effects a share exchange with another
corporation (whether or not Evergreen is the surviving corporation) or in the
event substantially all the assets or all of the outstanding Evergreen Common
Stock is acquired by another corporation or in the event of a separation,
reorganization or liquidation of Evergreen, the outstanding options under that
plan will terminate unless assumed by the successor corporation.
EXCHANGE OF CERTIFICATES
At the Effective Time, by virtue of the Merger and without any action on
the part of any party, each share of Evergreen Common Stock outstanding
immediately prior to the Effective Time (other than the treasury shares) shall
be converted into the right to receive and become exchangeable for, the number
of shares of GranCare Common Stock equal to the Exchange Ratio.
Promptly after the Effective Time, the Exchange Agent shall cause to be
mailed to all holders of record of Evergreen Common Stock at the closing
contemplated by the Merger Agreement (the "Closing") a letter of transmittal
with instructions to be used by the shareholders in surrendering certificates
which, prior to the Merger, represented shares of Evergreen Common Stock in
exchange for certificates representing Merger Shares.
Upon the surrender of a certificate or instrument representing shares of
Evergreen Common Stock to the Exchange Agent together with a duly executed
letter of transmittal, the holder of such certificate will be entitled to
receive in exchange therefor the whole number of Merger Shares and cash in lieu
of any fractional Merger Shares to which the holders of the Evergreen Common
Stock are entitled pursuant to the provisions of the Merger Agreement. In the
event of a transfer of ownership of shares of Evergreen Common Stock that are
not registered on the transfer records of Evergreen, the appropriate number of
Merger Shares may be delivered to a transferee if the certificate is presented
to the Exchange Agent, together with the related letter of transmittal, and
accompanied by all documents required to evidence and effect such transfer and
to evidence that any applicable transfer taxes have been paid.
Until a certificate representing shares of Evergreen Common Stock has been
surrendered to GranCare, each such certificate will be deemed at any time after
the Effective Time to represent only the right to receive upon surrender the
number of Merger Shares to which the securityholder is entitled under the Merger
Agreement.
EMPLOYEE BENEFIT PLANS
The Evergreen employee benefit plans that were in effect as of the date of
the Merger Agreement shall remain in effect immediately following the Effective
Time. GranCare and Evergreen will cooperate in coordinating their respective
benefit plans. Any Evergreen employee benefit plan may be terminated after the
Effective Time to the extent reasonably comparable benefits, considered in the
aggregate, are made available to employees of Evergreen under one or more
employee benefits plan of GranCare or any of its subsidiaries.
CONDUCT OF EVERGREEN'S AND GRANCARE'S BUSINESS PRIOR TO THE MERGER; NO
SOLICITATION
Evergreen and GranCare have agreed that until the Closing of the Merger, or
the earlier termination of the Merger Agreement pursuant to the terms thereof,
they will conduct their respective operations in the ordinary course of business
and consistent in all material respects with past practice and will use
reasonable efforts to preserve substantially intact its respective business
organizations, and to keep available the services of their present officers,
employees and consultants and to preserve their present relationships with
customers, suppliers, payors and other persons with whom they have a significant
business relationship.
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Among other limitations relating to the conduct of their business,
Evergreen and GranCare have each agreed that without the other's prior written
consent, or except as expressly contemplated by the Merger Agreement, neither
Evergreen nor GranCare will, or will commit to: (a) amend its respective charter
or bylaws; (b) declare, set aside or pay any dividend or other distribution or
payment in cash, securities or property in respect of shares of their common
stock; (c) make any direct or indirect redemption, retirement, purchase or other
acquisition of any of their capital stock (except if required by written
agreement existing as of the date of the Merger Agreement); (d) reclassify,
combine, split, subdivide or redeem, purchase or otherwise acquire, directly or
indirectly, any of their outstanding shares of capital stock; (e) issue, grant,
sell or pledge or agree or propose to issue, grant, sell or pledge any shares
of, or rights or securities of any kind to acquire any shares of, their capital
stock or the capital stock of their subsidiaries, except that either may grant
stock options to employees and consultants under its existing option plans and
may issue shares of common stock upon the exercise of stock options outstanding
on the date of the Merger Agreement pursuant to the terms thereof existing as of
the date of the Merger Agreement or issued thereafter in accordance therewith;
(f) other than in the ordinary course of business and consistent with past
practices incur any material indebtedness for borrowed money, except under
credit facilities existing as of the date of the Merger Agreement and as they
may be amended from time to time or pursuant to a substitute credit facility on
terms comparable to such existing credit facilities; (g) waive, release, grant
or transfer any rights of material value, except in the ordinary course of
business; (h) except as otherwise provided in the Merger Agreement, merge or
consolidate with any person or adopt a plan of liquidation or dissolution; (i)
acquire (or enter into an agreement to acquire) any assets, stock or other
interests of a third-party except for cash transactions involving total cash
consideration in any individual transaction not in excess of $25 million or
taking all such acquisitions in the aggregate, involving consideration not in
excess of $25 million, and which are of a nature so as not to require a merger
or consolidation with Evergreen or GranCare, respectively, or to cause the
Registration Statement or the Joint Proxy Statement/Prospectus to need to be
amended by GranCare; (j) transfer, lease, license, sell or dispose of a material
portion of assets or any material assets, other than in the ordinary course of
business and consistent with past practices; (k) change any accounting
principles or methods except insofar as may be required by changes in generally
accepted accounting principles; and (l) mortgage or pledge any of their assets
or properties or subject any of their assets or properties to any material
liens, charges, encumbrances, imperfections of title, security interests,
options or rights or claims of others with respect thereto.
Evergreen and GranCare have each covenanted to use all reasonable efforts
(a) to give notice to third parties of the Merger, obtain required third-party
consents, file notices of the Merger and obtain any authorizations, consents and
approvals of governments and governmental agencies required for the consummation
of the Merger, (b) to permit representatives of GranCare and Evergreen,
respectively, access to their respective premises, properties, personnel, books,
records, contracts and documents, and (c) to give prompt written notice to the
other of any adverse development causing a breach of any of their respective
representations and warranties in the Merger Agreement.
GranCare and Evergreen have agreed not to solicit, initiate or knowingly
encourage the submission of any proposal or offer from any person or entity
relating to (i) the sale of or tender offer for 20% or more of the outstanding
shares of any capital stock of such entity, (ii) any sale, exchange, transfer or
other disposition of 20% or more of the assets of such entity; (iii) any merger,
consolidation, share exchange, business combination or similar transaction
involving such entity (these transactions described in (i), (ii) and (iii) above
referred to as a "Third Party Transaction"); (iv) any person, or any group
formed for the purpose of affecting a Third Party Transaction, acquiring
beneficial ownership or the right to acquire beneficial ownership of 20% or more
of the then outstanding capital stock of such entity; or (v) any public
announcement by such entity of a proposal, plan or intention to do any of the
foregoing or any agreement to engage in any of the foregoing with respect to
such entity. Each party has agreed to notify the other party immediately of any
proposal, offer, inquiry or contact relating to either of the foregoing, and to
keep confidential any information it obtains relating to the other party and
such other parties affiliates' businesses, or the negotiations surrounding the
Merger, which information is not available to the public.
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GranCare, GWAC and Evergreen have agreed not to take any actions or omit to
take any actions which would prevent the Merger from qualifying as a tax free
reorganization pursuant to Section 368(a) of the Code or a business combination
that may be accounted for as a "pooling of interests" for financial reporting
purposes.
Pursuant to the Merger Agreement, GranCare, GWAC and Evergreen have also
agreed to use all reasonable efforts to satisfy the conditions to closing
described in the Merger Agreement, and to take all action and to do all things
necessary or desirable to consummate and make effective the Merger.
CONDITIONS TO THE MERGER
The respective obligations of GranCare, GWAC and Evergreen to consummate
the Merger are subject to the satisfaction or mutual waiver of a number of
conditions, including, but not limited to the following: (a) the Registration
Statement of which this Joint Proxy Statement/Prospectus is a part shall have
been declared effective by the Commission; (b) all state securities laws or
"blue sky" permits and authorizations necessary to issue the Merger Shares
consideration and other securities of GranCare pursuant to the Merger and the
transactions contemplated thereby; (c) the shareholders of each of GranCare and
Evergreen shall have approved the Merger; (d) no governmental authority or other
agency, commission or court of competent jurisdiction shall have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
injunction or other order which is in effect and has the effect of making the
Merger illegal or otherwise prohibiting consummation of the transactions
contemplated by the Merger Agreement; (e) the statutory waiting period with
respect to the consummation of Merger under the HSR Act shall have expired or
been earlier terminated; (f) the shares of GranCare Common Stock issuable to
Evergreen's shareholders in the Merger shall have been authorized for listing on
the NYSE; (g) all material federal, state, local and foreign governmental
consents, approvals and filings required to permit the Merger shall have been
received and any applicable waiting period shall have expired or been terminated
without the imposition of conditions that are or would become applicable to
Evergreen or its subsidiaries or GranCare or its subsidiaries and which would
reasonably be anticipated to have a material adverse effect on the financial
condition, results of operations, properties, business or immediate prospects of
either Evergreen or GranCare; (h) the absence of any action or proceeding by or
before any court or governmental authority, or determination by any government
or governmental authority, which would require either GranCare or Evergreen to
dispose of all or a material portion of the business or assets of GranCare and
its subsidiaries, or Evergreen and its subsidiaries; and (i) GranCare and
Evergreen shall have received written confirmation from each of Ernst & Young
LLP and KPMG Peat Marwick LLP that "pooling of interests" accounting is
available to GranCare with respect to the Merger. As of the date of this Joint
Proxy Statement/Prospectus, the conditions set forth in clauses , and have
been satisfied.
In addition, the obligation of Evergreen to consummate the Merger is
further subject to the satisfaction or waiver of a number of conditions,
including: (a) GranCare's performance of all of its obligations under the Merger
Agreement; (b) the continued truth and accuracy in all material respects of the
representations or warranties of GranCare set forth in the Merger Agreement; (c)
absence of any material adverse change (or development involving a prospective
change) in the financial condition, results of operations, properties, business,
or prospects of GranCare; (d) Evergreen's receipt of an officer's certificate
certifying the fulfillment (or the waiver thereof by Evergreen) of the certain
conditions set forth in the Merger Agreement; (e) GranCare's procurement of all
material third party consents; (f) Evergreen's receipt of opinions of counsel to
GranCare relating to certain corporate matters; (g) Evergreen's receipt of
opinions of its counsel relating to certain tax matters; and (h) Evergreen's
receipt of certain shareholder voting agreements from certain GranCare
shareholders (see "GranCare Voting Agreements" below).
The obligation of GranCare and GWAC to consummate the Merger is also
subject to the satisfaction or waiver of a number of conditions, including: (a)
Evergreen's performance of all of its obligations under the Merger Agreement;
(b) the continued truth and accuracy in all material respects of the
representations or warranties of Evergreen set forth in the Merger Agreement;
(c) Evergreen's procurement of all material third party consents; (d) absence of
any material adverse change (or development involving a prospective change) in
the financial condition, results of operations, properties, business, or
prospects of Evergreen; (e) GranCare's
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receipt of an officer's certificate certifying the fulfillment of the certain
conditions set forth in the Merger Agreement (or the waiver thereof by
GranCare); (f) Evergreen's receipt of resignations, effective as of the
Effective Time, of each director of Evergreen's Board of Directors; (g)
GranCare's receipt of opinions of counsel to Evergreen relating to certain
corporate matters; (h) GranCare's receipt of opinions of its counsel relating to
certain tax matters; (i) GranCare's receipt of certain shareholder voting
agreements from certain Evergreen shareholders holding in the aggregate in
excess of 25% of the outstanding Evergreen Common Stock (see "Evergreen Voting
Agreements" below); and (j) GranCare's receipt of Affiliate Letters from each of
the Rule 145 affiliates of Evergreen.
GRANCARE VOTING AGREEMENTS
Certain shareholders of GranCare, including each director of GranCare and
certain of GranCare's affiliates have entered into an agreement with Evergreen
(the "GranCare Voting Agreements") to vote such person's shares in favor of the
GranCare Proposal. The shares of GranCare Common Stock subject to the
GranCare Voting Agreements represent approximately % of the outstanding
shares of GranCare Common Stock as of the GranCare Record Date.
EVERGREEN VOTING AGREEMENTS
Certain shareholders of Evergreen, including certain directors of Evergreen
and certain of Evergreen's affiliates holding in the aggregate in excess of %
of the outstanding Evergreen Common Stock, have entered into an agreement with
GranCare and GWAC (the "Evergreen Voting Agreements") to vote such person's
shares in favor of the Evergreen Proposal. The shares of Evergreen Common
Stock subject to the Evergreen Voting Agreements represent approximately %
of the outstanding shares of Evergreen Common Stock as of the Evergreen Record
Date.
TERMINATION OR AMENDMENT OF THE MERGER AGREEMENT
Termination. The Merger Agreement provides that it may be terminated at any
time prior to the Effective Time, whether before or after approval of the Merger
by the shareholders of Evergreen and GranCare, by either GranCare or Evergreen
(a) by mutual consent, (b) if the Merger is not consummated by September 30,
1995, (c) if approval by GranCare's shareholders shall not have been obtained at
the GranCare Special Meeting or any adjournment thereof, (d) if approval by
Evergreen's shareholders shall not have been obtained at the Evergreen Special
Meeting or any adjournment thereof, or (e) a United States federal or state
court or governmental, regulatory or administrative agency or commission shall
have issued an order, decree or ruling or taken action permanently restraining,
enjoining or otherwise prohibiting the Merger and such order, decree, ruling or
other action shall have become final and non-appealable.
The Merger Agreement provides that it may be terminated at any time prior
to the Effective Time, whether before or after approval of the Merger by the
shareholders of GranCare, by GranCare, if (a) a proposal for a Third Party
Transaction involving GranCare has been made or received and GranCare's Board of
Directors determines, in the exercise of its good faith judgment, that such
termination is required for such Board of Directors to comply with its fiduciary
duties to the GranCare shareholders, (b) there has been a breach by Evergreen of
any representation or warranty contained in the Merger Agreement which would
have or would be reasonably likely to have a material adverse effect on
Evergreen, (c) there has been a material breach of any of the covenants or
agreements set forth in the Merger Agreement on the part of Evergreen, which
breach is not curable or, if curable, is not cured within 15 days after written
notice of such breach is given by GranCare to Evergreen, (d) following the
receipt of a proposal of a Third Party Transaction by Evergreen, the Board of
Directors of Evergreen shall have altered its determination to recommend that
the shareholders of Evergreen approve the Merger Agreement, (e) following the
receipt of a proposal for a Third Party Transaction by Evergreen, Evergreen
shall have failed to proceed to hold the Evergreen Special Meeting, provided
GranCare gives Evergreen twenty-four hours' prior written notice of its election
to terminate the Merger Agreement, (f) the conditions to GranCare's obligations
to effect the Merger shall not have been satisfied by Evergreen or waived by
GranCare on or before September 30, 1995 or (g) the GCI Stock Value is less than
$14.50 per share.
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The Merger Agreement provides that it may be terminated at any time prior
to the Effective Time, whether before or after approval of the Merger by the
shareholders of Evergreen, by Evergreen, if (a) a proposal for a Third Party
Transaction involving Evergreen has been made or received and Evergreen's Board
of Directors determines, in the exercise of its good faith judgment that such
termination is required for such Board of Directors to comply with its fiduciary
duties to the Evergreen shareholders, (b) there has been a breach by GranCare of
any representation or warranty contained in the Merger Agreement which would
have or would be reasonably likely to have a material adverse effect on
GranCare, (c) there has been a material breach of any of the covenants or
agreements set forth in the Merger Agreement on the part of GranCare, which
breach is not curable or, if curable, is not cured within 15 days after written
notice of such breach is given by Evergreen to GranCare, (d) following the
receipt of a proposal of a Third Party Transaction by GranCare, the Board of
Directors of GranCare shall have altered its determination to recommend that the
shareholders of GranCare approve the Merger Agreement, (e) following the receipt
of a proposal for a Third Party Transaction by GranCare, GranCare shall have
failed to proceed to hold the GranCare Special Meeting, provided Evergreen gives
GranCare 24 hours' prior written notice of its election to terminate the Merger
Agreement, (f) the conditions to Evergreen's obligations to effect the Merger
shall not have been satisfied by GranCare or waived by Evergreen on or before
September 30, 1995 or (g) the GCI Stock Value is less than $14.50 per share.
Effects of Termination. If the Merger Agreement is terminated by GranCare
or Evergreen because GranCare's shareholders have not approved the Merger, other
than in circumstances involving a Third Party Transaction, then within two
business days of such termination, GranCare shall pay Evergreen by wire transfer
in immediately available funds a fee of $500,000. If the Merger Agreement is
terminated by Evergreen or GranCare because Evergreen's shareholders have not
approved the Merger, other than in circumstances involving a Third Party
Transaction, then, within two business days of such termination, Evergreen shall
pay GranCare by wire transfer in immediately available funds a fee of $500,000.
In addition, the Merger Agreement provides that if either GranCare or
Evergreen terminates the Merger Agreement, under certain circumstances involving
the receipt by GranCare or Evergreen of a proposal for a Third Party
Transaction, then such other party may be entitled to receive from the other
party a termination fee of $4.0 million.
Except as otherwise provided in the Merger Agreement, in the event of the
termination of the Merger Agreement, the Merger Agreement will be void, there
will be no liability on the part of the parties or any of their respective
officers or directors to the other and all rights and obligations of any party
to the Merger Agreement will cease.
Cross Option Agreement. Concurrently with the execution of the Merger
Agreement, GranCare, GWAC and Evergreen entered into a Cross Option Agreement,
pursuant to which, among other things, Evergreen granted to GranCare an
irrevocable option (the "Evergreen Cross Stock Option") to purchase newly issued
shares of Evergreen Common Stock in an amount equal to 19.9% of the outstanding
shares of Evergreen Common Stock immediately prior to the exercise of the
Evergreen Cross Stock Option (the "Evergreen Option Shares") at a purchase price
of $13 1/8 per Evergreen Option Share. GranCare may exercise the Evergreen Cross
Stock Option in whole, but not in part, at any time or from time to time after
the Merger Agreement becomes terminable or is terminated by GranCare or
Evergreen under circumstances which could entitle GranCare to the $4 million
termination fee in accordance with the Merger Agreement (regardless of whether
the Merger Agreement is actually terminated or whether there occurs a closing of
any Third Party Transaction).
Pursuant to the Cross Option Agreement, GranCare granted to Evergreen an
irrevocable option (the "GranCare Cross Stock Option") to purchase newly issued
shares of GranCare Common Stock in an amount equal to 19.9% of the outstanding
shares of GranCare Common Stock immediately prior to the exercise of the
GranCare Cross Stock Option (the "GranCare Option Shares") at a purchase price
of $16 5/8 per GranCare Option Share. Evergreen may exercise the GranCare Cross
Stock Option in whole, but not in part, at any time or from time to time after
the Merger Agreement becomes terminable or is terminated by GranCare or
Evergreen under circumstances which could entitle Evergreen to the $4 million
fee in accordance with the
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Merger Agreement (regardless of whether the Merger Agreement is actually
terminated or whether there occurs a closing of any Third Party Transaction).
Under the terms of the Cross Option Agreement, Evergreen, and GranCare have
agreed to register the Evergreen Option Shares or the GranCare Option Shares, as
the case may be, under the Securities Act, upon the occurrence of certain
circumstances. None of such shares are being registered pursuant to the Merger.
Amendments. The Merger Agreement may be further amended by the parties
thereto, provided such amendment is in writing, at any time before or after the
approval and adoption of the Merger Agreement by the shareholders of Evergreen
and GranCare. After such shareholder approval and adoption has been obtained, no
amendment of any of the agreements executed in connection with the Merger may be
made which by law requires the further approval of the shareholders, without
obtaining such further approval.
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DESCRIPTION OF GRANCARE CAPITAL STOCK
GENERAL
GranCare is authorized to issue up to 50,000,000 shares of GranCare Common
Stock, no par value, 14,118,537 shares of which were issued and outstanding at
May 31, 1995 and held of record by approximately 337 shareholders. In addition,
GranCare is authorized to issue up to 2,000,000 shares of preferred stock,
without par value ("Preferred Stock"), no shares of which were issued and
outstanding at May 31, 1995.
GRANCARE COMMON STOCK
Holders of GranCare Common Stock are entitled to one vote per share on all
matters to be voted upon by the shareholders and they may cumulate their votes
in the election of directors. Subject to the rights of holders of Preferred
Stock, the holders of GranCare Common Stock are entitled to receive such
dividends as may be declared from time to time by the Board of Directors out of
funds legally available therefor and in the event of the liquidation,
dissolution or winding-up of GranCare, to share ratably in all assets remaining
after payment of all liabilities. The holders of GranCare Common Stock have no
preemptive or conversion rights and are not subject to further calls or
assessments by GranCare. There are no redemption or sinking fund provisions
applicable to the GranCare Common Stock.
GRANCARE PREFERRED STOCK
The GranCare Articles of Incorporation provide that the Board of Directors
may issue an aggregate of 2,000,000 shares of Preferred Stock from time to time
in one or more series. As of May 31, 1995, there were no shares of Preferred
Stock outstanding.
The Board of Directors is authorized to determine, among other things, with
respect to each additional series of Preferred Stock that may be issued: (i) the
dividend rate, conditions and preferences, if any; (ii) whether dividends will
be cumulative and, if so, the date from which dividends will accumulate; (iii)
whether, and to what extent, the holders of a series will enjoy voting rights,
if any, in addition to those prescribed by law; (iv) whether, and upon what
terms, a series will be convertible into or exchangeable for shares of any other
class of capital stock or other series of Preferred Stock; (v) whether, and upon
what terms, a series would be redeemable; (vi) whether a sinking fund will be
provided for the redemption of a series and, if so, the terms and conditions of
the sinking fund, and (vii) the preference, if any, to which a series will be
entitled on voluntary or involuntary liquidation, dissolution or winding up of
GranCare. With regard to dividends, redemption and liquidation preference, any
particular series of Preferred Stock may rank junior to, on a parity with, or
senior to any other series of Preferred Stock and GranCare Common Stock. The
Board of Directors, without shareholder approval, can issue Preferred Stock with
voting and conversion rights which could adversely affect the voting power of
the holders of GranCare Common Stock. The issuance of Preferred Stock under
certain circumstances could have the effect of delaying or preventing a change
of control of GranCare or other corporate action.
OPTIONS AND WARRANTS
At May 31, 1995, options covering an aggregate of 1,950,776 shares of
GranCare Common Stock and warrants covering an aggregate of 355,873 shares of
GranCare Common Stock were outstanding. The warrants have exercise prices
ranging from $0.001 per share to $6.77 per share, with a weighted average
exercise price of $5.19 per share, and expiration dates ranging from June 1996
to September 2001.
REGISTRATION RIGHTS
Certain shareholders of GranCare possess registration rights with respect
to GranCare Common Stock. Cyrus Samrad is entitled to demand registration rights
with respect to 10,000 shares of GranCare Common Stock. Holders of 30,400 shares
of GranCare Common Stock received upon conversion of the shares of Series A
Convertible Preferred Stock of GranCare in October 1991 have piggyback
registration rights with respect to such shares. Charles F. Cooper ("Cooper") is
entitled to demand registration rights and piggy back
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rights with respect to 119,581 shares that may be issued if Cooper exercises
certain rights under the terms of a convertible note issuable by GranCare in the
aggregate principal amount of $2.4 million in connection with the acquisition of
certain institutional pharmacies from Cooper (the "Winyah Acquisition"). In
addition, J.G. Wentworth & Co. is entitled to the same rights as Cooper, with
respect to the 5,048 shares received in connection with the conversion of a
promissory note received in the Winyah Acquisition.
LIMITATION ON DIRECTOR LIABILITY
The GranCare Articles of Incorporation contain a provision that limits the
personal liability of GranCare's directors for monetary damages in an action
brought by or in the right of GranCare for breach of a director's duties to
GranCare and its shareholders. Such provision does not limit the liability of
GranCare's directors for acts or omissions that involve intentional misconduct
or a knowing culpable violation of law; for acts or omissions that a director
believes to be contrary to the best interests of GranCare or its shareholders or
that involve the absence of good faith on the part of the director; for any
transaction from which a director derived an improper personal benefit; for acts
or omissions that show a reckless disregard for the director's duty to the
corporation or its shareholders in circumstances under which the director was
aware, or should have been aware, in the ordinary course of performing a
director's duty, of a risk of serious injury to the corporation or its
shareholders; for acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty to GranCare or
its shareholders; under Section 310 of the CGCL (which involves liability for a
director having a material financial interests in a corporate transaction); or
under Section 316 of the CGCL (which imposes liability on directors who approve
certain improper distributions to shareholders or approve certain improper loans
or guarantees to any director or officer).
GRANCARE DIVIDEND POLICY
The present policy of GranCare is to retain earnings to provide funds for
the operation and expansion of its business. GranCare has never paid cash
dividends on the GranCare Common Stock and does not anticipate paying cash
dividends in the foreseeable future. Moreover, GranCare was prohibited by Health
and Retirement Properties Trust ("HRPT") from paying cash dividends until
December 1993; from that date GranCare may pay dividends only if (i) GranCare is
not in default under a Master Lease Agreement with HRPT with respect to 18
leased facilities or under either of two mortgages to HRPT, and (ii) after
giving effect to such dividend, the sum of all dividends paid by GranCare since
December 28, 1990 does not exceed GranCare's consolidated net income accumulated
since December 28, 1990.
COMPARISON OF RIGHTS OF HOLDERS OF GRANCARE
AND EVERGREEN COMMON STOCK
The following is a summary of material differences between the rights of
holders of GranCare Common Stock and the rights of holders of Evergreen Common
Stock. Since GranCare is organized under the laws of the State of California and
Evergreen is organized under the laws of the State of Georgia, these differences
arise from variations among state laws, as well as differences between the
respective articles of incorporation and bylaws of each of GranCare and
Evergreen. This summary is qualified in its entirety by the description of
GranCare Common Stock under "DESCRIPTION OF THE GRANCARE CAPITAL STOCK."
SHAREHOLDER VOTE REQUIRED FOR CERTAIN TRANSACTIONS
SHAREHOLDER APPROVAL OF MERGERS, REORGANIZATIONS AND CERTAIN BUSINESS
COMBINATIONS
Evergreen Common Stock. Under the GBCC, a merger (other than a merger of a
subsidiary in which the parent owns at least 90% of each class of outstanding
stock), a disposition of all or substantially all of a corporation's property
and a share exchange generally must be approved by a majority of the outstanding
shares entitled to vote, unless the articles of incorporation or bylaws requires
otherwise. Neither the Evergreen Restated Articles of Incorporation nor the
Evergreen Bylaws impose any such requirement.
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GranCare Common Stock. The CGCL generally requires that a majority of the
shareholders of both the acquiring and target corporations approve statutory
mergers. The CGCL contains an exception to its voting requirements for
reorganizations of corporations whose shareholders immediately prior to the
reorganization, or the corporation itself, or both, will, immediately after the
reorganization, own equity securities constituting more than five-sixths of the
voting power of the surviving or acquiring corporation or its parent entity. The
CGCL also requires that a sale of all or substantially all of the assets of a
corporation be approved by a majority of the voting shares of the corporation
transferring such assets. With certain exceptions, the CGCL requires that
mergers, reorganizations, certain sales of assets and similar transactions be
approved by a majority vote of each class of shares outstanding.
Section 1203 of the CGCL also provides that, except in certain
circumstances, when a tender offer or a proposal for a reorganization or for a
sale of assets is made by an interested party (generally a controlling or
managing party of the target corporation), an affirmative opinion in writing as
to the fairness of the consideration to be paid to the shareholders must be
delivered to shareholders. This fairness opinion requirement does not apply to a
corporation which does not have shares held of record by a least 100 persons, or
to a transaction which has been qualified under California state securities
laws. Furthermore, if a tender of shares or vote is sought pursuant to an
interested party's proposal and a later proposal is made by another party at
least ten days prior to the date of acceptance of the interested party proposal,
the shareholder must be informed of the later offer and be afforded a reasonable
opportunity to withdraw any vote, consent or proxy, or to withdraw any tendered
shares. While the management of GranCare does not believe that Section 1203
applies to the Merger, it has nevertheless obtained a written opinion from
Salomon and Smith Barney as to the fairness to GranCare, from a financial point
of view, of the Merger Agreement.
The CGCL also requires that holders of nonredeemable common stock receive
nonredeemable common stock in a merger of the corporation with the holder of
more than 50% but less than 90% of such common stock or its affiliate unless all
of the holders of such common stock consent to the transaction. This provision
of the CGCL may have the effect of making a "cash-out" merger by a majority
shareholder more difficult to accomplish.
REMOVAL OF DIRECTORS
Evergreen Common Stock. Under the GBCC, shareholders may remove one or more
of the directors of a corporation with or without cause unless the articles of
incorporation or a bylaw adopted by the shareholders provides that directors may
be removed only for cause. In addition, a director may be removed by the
shareholders only at a meeting called for the purpose of removing him, and the
meeting notice must state that the purpose, or one of the purposes, is removal
of the director. Neither the Evergreen Restated Articles of Incorporation nor
the Evergreen Bylaws require that directors be removed only for cause.
GranCare Common Stock. Sections 303 and 304 of the CGCL provide that (i)
directors may be removed by the remainder of the board, without cause, upon
approval by the holders of a majority of the outstanding shares of common stock
entitled to vote (subject to certain limitations which prevent any such removal
where the removal is opposed by a number of votes sufficient to elect a
director, if the corporation's board were elected by a cumulative vote) and (ii)
directors may be removed for fraudulent or dishonest acts or gross abuses of
authority or discretion following a suit brought by shareholders holding at
least 10% of the outstanding shares of any class of capital stock. In addition,
Section 302 of the CGCL permits a corporation's board to remove directors
declared of unsound mind by a court or convicted of a felony. The GranCare
Bylaws are governed by the provisions of the CGCL.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
Evergreen Common Stock. Under the GBCC, unless the articles of
incorporation or a bylaw approved by the shareholders provides otherwise, if a
vacancy occurs on a board of directors (including a vacancy resulting from an
increase in the number of directors), then (i) the shareholders may fill the
vacancy, (ii) the board of directors may fill the vacancy, or (iii) if the
directors remaining in office constitute fewer than a quorum of the board, they
may fill the vacancy by the affirmative vote of the majority of all the
directors remaining in office.
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<PAGE> 76
Neither the Evergreen Restated Articles of Incorporation nor the Evergreen
Bylaws modify the provisions of the GBCC.
GranCare Common Stock. Vacancies in the GranCare Board may be filled at a
meeting by a majority of the remaining directors, through less than a quorum, by
the unanimous written consent of the directors then in office or by a sole
remaining director, except that a vacancy created by the removal of a director
by the vote or written consent of the holders or by court order may be filled
only by (i) the vote of a majority of the shares entitled to vote represented at
a duly held meeting at which a quorum is present, or (ii) the written consent of
holders of a majority of the outstanding shares entitled to vote. Each director
so elected shall hold office until the next annual meeting of the shareholders
and until a successor has been elected and qualified.
AMENDMENTS TO CERTIFICATE OF INCORPORATION
Evergreen Common Stock. The Evergreen Restated Articles of Incorporation
may be amended with the approval of the Evergreen Board of Directors and the
approval of the holders of a majority of the outstanding shares of Evergreen
Common Stock entitled to vote on any such amendment unless the Evergreen Board
of Directors requires a greater vote in connection with any such amendment.
GranCare Common Stock. Neither the GranCare Articles of Incorporation nor
the GranCare Bylaws contain any provisions relating to amendments to the
GranCare Articles of Incorporation. The CGCL provides that, generally, the
GranCare Articles of Incorporation may be amended with the approval of the
GranCare Board of Directors and the approval of the holders of a majority (or,
in certain instances, a supermajority) of the outstanding shares entitled to
vote.
AMENDMENTS TO BYLAWS
Evergreen Common Stock. The Evergreen Bylaws provide that, except for
sections relating to the number, election and term of office of directors, the
removal of directors and amendments to the Bylaws, all of which may only be
amended or repealed by the shareholders upon an affirmative vote of two-thirds
(2/3) of all the shares of Evergreen Common Stock entitled to elect Evergreen
directors, the Evergreen Board of Directors shall have the power to alter, amend
or repeal the Evergreen Bylaws or adopt new bylaws. In all such other cases, the
shareholders may amend or repeal the Evergreen Bylaws upon the affirmative vote
of a majority of the shares of Evergreen Common Stock entitled to elect
directors. In addition, the Evergreen shareholders may prescribe that any bylaw
or bylaws adopted by them shall not be altered, amended or repealed by the Board
of Directors.
GranCare Common Stock. The GranCare Bylaws may be amended or repealed or
new bylaws may be adopted by either the GranCare Board of Directors or by the
holders of GranCare Common Stock entitled to exercise a majority of the voting
power, provided that (i) any change to the bylaws relating to the authorized
number of directors must be approved by the holders of at least 85% of the
outstanding shares of all classes of GranCare capital stock and (ii) the
authority of the GranCare Board of Directors to amended or repeal bylaws or
adopt new bylaws is subject to the authority of the GranCare shareholders.
CUMULATIVE VOTING
Evergreen Common Stock. Although permitted by the GBCC, neither the
Evergreen Restated Articles of Incorporation nor the Evergreen Bylaws provide
for cumulative voting.
GranCare Common Stock. Both the CGCL and the GranCare Bylaws provide for
the cumulative voting of shares by any shareholder in any election of directors
provided that (i) the name of the candidate for whom the shareholder wishes to
cumulate votes has been placed in nomination prior to the relevant meeting and
(ii) the shareholder has given notice at the meeting of his, her or its intent
to cumulate votes. If any shareholder has given the notice set forth in clause
(ii) above, all shareholders are entitled to cumulate votes.
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SPECIAL MEETINGS OF SHAREHOLDERS; SHAREHOLDER ACTION BY WRITTEN CONSENT
Evergreen Common Stock. Special meetings of the Evergreen shareholders may
be called at any time by Evergreen's Chairman of the Board, Vice Chairman of the
Board, President, Secretary or a majority of the directors of Evergreen. Special
meetings of the Evergreen shareholders also shall be called upon the written
request of the holders of 25% or more of all shares of capital stock of
Evergreen entitled to vote in an election of directors. The Evergreen Restated
Articles of Incorporation permit the Evergreen shareholders to act by written
consent in lieu of a meeting if the action is taken by persons who would be
entitled to vote at a meeting shares having voting power to cast not less than
the minimum number of votes necessary to authorize or take the action at a
meeting at which all Evergreen shareholders entitled to vote were present and
voting.
GranCare Common Stock. Pursuant to the GranCare Bylaws, special meetings of
GranCare shareholders may be called at any time by the GranCare Board of
Directors, the Chairman, the President, the Secretary, any two directors or
shareholders holding at least 10% of the voting power of the corporation. The
CGCL does not provide for a right of any other person or entity to call such a
special meeting. The GranCare Bylaws permit the GranCare shareholders to act by
the written consent of all holders entitled to vote at a meeting, provided that
in acting to fill a vacancy on the GranCare Board of Directors not filled by the
remaining directors, the GranCare Bylaws permit shareholders to fill such
vacancy by written consent of holders of a majority of the shares entitled to
vote for the election of directors.
VOTING RIGHTS WITH RESPECT TO MATTERS OTHER THAN ELECTION OF DIRECTORS
Evergreen Common Stock. Each share of Evergreen Common Stock has the right
to cast one vote on all matters voted upon by the Evergreen shareholders. Under
the GBCC, a majority of the outstanding shares entitled to vote must approve any
dissolution or liquidation of a corporation, unless the articles of
incorporation or bylaws require a greater vote. Neither the Evergreen Restated
Articles of Incorporation nor the Evergreen Bylaws impose any such requirement.
GranCare Common Stock. Both the CGCL and the GranCare Articles of
Incorporation provide that holders of GranCare Common Stock are entitled to one
vote per share on all matters to be voted on by shareholders.
LIQUIDITY AND MARKETABILITY
Evergreen Common Stock. All of the 12,481,040 shares of Evergreen Common
Stock issued and outstanding are freely tradeable except for the 4,763,014
shares held by "affiliates" of Evergreen, as such term is defined in Rule 144
under the Securities Act, which shares may only be sold pursuant to an effective
registration statement under the Securities Act or in compliance with Rule 144
or another applicable exemption from the registration requirements of the
Securities Act.
GranCare Common Stock. All of the 14,118,537 shares of GranCare Common
Stock issued and outstanding are freely tradeable except for the 1,231,401
shares issued in connection with the CompuPharm, Inc. merger, and the 5,843,691
shares held by "affiliates" of GranCare, as such term is defined in Rule 144
under the Securities Act, which shares may only be sold pursuant to an effective
registration statement under the Securities Act or in compliance with Rule 144
or another applicable exemption from the registration requirements of the
Securities Act.
REPORTING REQUIREMENTS
Evergreen Common Stock. Evergreen is a reporting company under the Exchange
Act and files annual and quarterly financial reports with the Commission and the
NYSE.
GranCare Common Stock. GranCare is a reporting company under the Exchange
Act and files annual and quarterly financial reports with the Commission and the
NYSE.
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DISSENTERS' RIGHTS
Evergreen Common Stock. Under the GBCC, a shareholder of a corporation
participating in certain transactions may, under certain circumstances, receive
the fair value of his shares in cash, in lieu of the consideration he would
otherwise have received in the transaction. The GBCC recognizes dissenters'
rights in connection with mergers, share exchanges, sales of all or
substantially all of the corporation's property and certain amendments to the
articles of incorporation that materially and adversely affect a shareholder's
rights. Dissenters' rights are not available (unless otherwise provided in the
corporation's articles of incorporation, and the Evergreen Restated Articles of
Incorporation do not so provide): (i) if the shares of the corporation are
listed on a national securities exchange or held of record by more than 2,000
shareholders, and shareholders by the terms of the merger or consolidation are
not required to accept in exchange for their shares anything other than shares
of stock of the surviving or resulting corporation, or shares of stock of any
other corporation listed on a national securities exchange or held of record by
more than 2,000 shareholders, other than cash in lieu of fractional shares of
stock; or (ii) in a merger if the corporation is the surviving corporation and
no vote of its shareholders thereon is required. Under the GBCC, the Evergreen
shareholders are not entitled to dissenters' rights with respect to the Merger.
GranCare Common Stock. Pursuant to the CGCL, a shareholder of a corporation
participating in certain transactions may, under certain circumstances, receive
the fair value of his shares in cash, in lieu of the consideration he would
otherwise have received in the transaction. The CGCL recognizes dissenters'
rights in connection with certain reorganizations, including without limitation
merger reorganizations, exchange reorganizations (for the acquiring
corporation), sale-of-assets reorganizations, and share exchange tender offers
(for the acquiring corporation) for which those shareholders of the corporation
immediately prior to the reorganization subsequently hold five-sixths or less of
the voting power of the surviving or acquiring corporation or parent party after
the reorganization. Appraisal rights are only available, among other things: (i)
if the shares of the corporation are not either (A) listed on any national
securities exchange or (B) listed on the list of OTC margin stocks issued by the
Board of Governors of the Federal Reserve System, and proper notice is given to
shareholders; provided that this provision (i) does not apply to the transfer of
restricted shares; and provided further that this provision does not apply to
any class of shares described above in (A) or (B) if demands for payment are
filed with respect to 5% or more of the outstanding shares of that class; and
(ii) if the shares were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (x) were not voted in
favor of the reorganization or, (y) if described in subpart (A) or (B) of
provision (i) above (without regard to the provisos therein), were voted against
the reorganization, or were held of record on the effective date of a short form
merger; provided however, that subpart (A) rather than subpart (B) of this
subsection (ii) applies in any case in which approval was sought by written
consent rather than at a meeting.
TAXATION
Evergreen Common Stock. Evergreen is a taxable entity under the Code and is
taxed on its income and entitled to the deductions allowed under the Code. A
sale of shares of Evergreen Common Stock will normally result in a capital gain
or loss for federal income tax purposes. Shareholders of Evergreen who receive
dividends are expected to receive a copy of Form 1099 filed with the Internal
Revenue Service prior to January 31 of the following year.
GranCare Common Stock. GranCare is a taxable entity under the Code and is
taxed on its income and entitled to the deductions allowed under the Code. A
sale of shares of GranCare Common Stock will normally result in a capital gain
or loss for federal income tax purposes. Shareholders of GranCare who receive
dividends are expected to receive a copy of Form 1099 filed with the Internal
Revenue Service prior to January 31 of the following year.
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<PAGE> 79
DISTRIBUTIONS
Evergreen Common Stock. Whether dividends are paid in the future will
depend upon Evergreen's earnings, financial position, restrictive covenants that
may be imposed under any loan agreement and any other relevant factors.
Evergreen has not paid any cash dividends since 1989, and has no present plans
to do so.
GranCare Common Stock. Whether dividends are paid in the future will depend
upon GranCare's earnings, financial position, restrictions in connection with
other classes or series of capital stock of GranCare, restrictive covenants that
may be imposed under any loan agreement and any other relevant factors. GranCare
has never paid cash dividends on the GranCare Common Stock, and has no present
plans to do so.
LIABILITY
Evergreen Common Stock. Evergreen shareholders are not personally liable
for the obligations of Evergreen.
GranCare Common Stock. GranCare shareholders are not personally liable for
the obligations of GranCare.
ASSESSMENTS
Evergreen Common Stock. All shares of Evergreen Common Stock are fully paid
and nonassessable.
GranCare Common Stock. All shares of GranCare Common Stock are fully paid
and nonassessable.
FIDUCIARY DUTIES
Evergreen Common Stock. The Evergreens Restated Articles of Incorporation
provide that, with certain exceptions mandated by the GBCC, officers and
directors are not liable to Evergreen or its shareholders for monetary damages
for breach of their fiduciary duty of care.
GranCare Common Stock. The GranCare Articles of Incorporation provide that
the liability of directors of GranCare for monetary damages are eliminated to
the fullest extent permissible under California law.
MANAGEMENT
Evergreen Common Stock. The business and affairs of Evergreen are managed
by or under the direction of the Evergreen Board of Directors. Each director is
elected annually by the Evergreen shareholders and may be removed and replaced,
with or without cause, by a majority vote of Evergreen shareholders at any
meeting of such holders.
GranCare Common Stock. The business and affairs of GranCare are managed by
or under the direction of the GranCare Board of Directors. Each director is
elected annually by the GranCare shareholders and may be removed and replaced,
with or without cause, by a majority vote of the holders of each series or class
of capital stock of GranCare entitled to vote on such action, pursuant to the
requirements of the CGCL. In addition, in accordance with the CGCL, the superior
court of the proper county may, at the suit of shareholders holding at least 10%
of the number of outstanding shares of any class, remove from office any
director in case of fraudulent or dishonest acts or gross abuse of authority or
discretion with reference to GranCare and may bar from reelection any director
so removed for a period proscribed by the court.
RIGHT TO COMPEL DISSOLUTION
Evergreen Common Stock. Under the GBCC, Evergreen shareholders may not
compel the dissolution of Evergreen without prior action by the Evergreen Board
of Directors proposing such dissolution.
GranCare Common Stock. Pursuant to the CGCL, the holders of 50 percent or
more of the voting power of GranCare may elect voluntarily to wind up and
dissolve GranCare. No prerequisite action by the GranCare Board of Directors is
required.
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CONTINUITY OF EXISTENCE
Evergreen Common Stock. The Evergreen Restated Articles of Incorporation
provide for perpetual existence, subject to termination or dissolution as
provided by the GBCC.
GranCare Common Stock. The CGCL provides for the perpetual existence of
GranCare as a corporation, subject to termination or dissolution as provided by
law or in the GranCare Articles of Incorporation. The perpetual corporate
existence of GranCare is not limited in the GranCare Articles of Incorporation.
CERTAIN LEGAL RIGHTS
Evergreen Common Stock. The GBCC affords the Evergreen shareholders the
right to bring a legal action on behalf of Evergreen (a shareholder derivative
action) to recover damages from a third party or an officer or director of
Evergreen, if the Evergreen shareholder was a shareholder of Evergreen at the
time of the act or omission complained of or became a shareholder through
transfer by operation of law from one who was a shareholder at that time and the
shareholder fairly and adequately represents the interest of Evergreen in
enforcing its rights. In addition, a shareholder may not commence a derivative
proceeding until a written demand has been made upon the corporation to take
suitable action and 90 days have expired from the date the demand was made
(unless the demand has been rejected by the corporation or irreparable injury to
the corporation would result by waiting for the expiration of that 90-day
period). In addition, the Evergreen shareholders may bring class actions to
recover damages from directors for violations of their fiduciary duties, subject
to the limitations described above.
GranCare Common Stock. In accordance with the CGCL, no action may be
instituted or maintained in right of GranCare (a shareholder derivative action)
by any holder of GranCare shares unless the plaintiff alleges in the complaint
(1) that the plaintiff was (a) a GranCare shareholder, of record or
beneficially, at the time of the transaction or any part thereof of which the
plaintiff complains, or that the plaintiff's shares thereafter devolved upon
plaintiff by operation of law from a holder who was a holder at the time of the
transaction or any part thereof complained of, or (b) a shareholder who does not
meet the aforementioned requirements, upon a determination by a court pursuant
to the CGCL, and (2) plaintiff's efforts, with particularity, to secure from the
GranCare Board of Directors such action as plaintiff desires, or the reasons for
not making such effort, and alleges further that plaintiff has either informed
GranCare or the GranCare Board of Directors in writing of the ultimate facts of
each cause of action against each defendant or delivered to GranCare or the
GranCare Board of Directors a true copy of the complaint which plaintiff
proposes to file. In connection with the foregoing, a plaintiff may be required
to post a bond, in the determination of the court, in an aggregate amount not to
exceed $50,000.
RIGHT TO LIST OF HOLDERS AND INSPECTION OF BOOKS AND RECORDS
Evergreen Common Stock. Under the GBCC and the Evergreen Bylaws, the
Evergreen shareholders are generally entitled to inspect and copy the Evergreen
Restated Articles of Incorporation, the Evergreen Bylaws, shareholder
resolutions, board resolutions, lists of names and addresses of the members of
the Evergreen Board of Directors, all written communications to shareholders,
lists of names and business addresses of current directors and officers and the
annual registration filed with the Secretary of State of the State of Georgia.
An Evergreen shareholder must make a written request at least five business days
in advance of such inspection, which must occur during regular business hours at
Evergreen's principal office. Other Evergreen records are generally available to
an Evergreen shareholder for inspection and copying during regular business
hours at a reasonable location specified by Evergreen upon written demand at
least five business days in advance, if the shareholder makes a demand in good
faith and for proper purpose that is reasonably relevant to legitimate interests
as a shareholder, describes with reasonable particularity the purpose and the
records desired to be inspected, and the records requested are directly
connected with a stated purpose and are to be used only for that stated purpose.
A Georgia corporation may limit these latter inspection rights to shareholders
owning more than 2% of the outstanding stock of the corporation. The Evergreen
Restated Articles of Incorporation do not contain any such limitation.
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GranCare Common Stock. Pursuant to the GranCare Bylaws and the CGCL, the
record of shareholders, the accounting books and records, and minutes of
proceedings of the shareholders and the GranCare Board of Directors and
committees of the GranCare Board of Directors, are open to inspection upon
written demand to GranCare by a shareholder of GranCare at any reasonable time
during usual business hours, for a purpose reasonably related to such holder's
interest as a shareholder. In addition, a shareholder or shareholders holding at
least five percent in the aggregate of the outstanding voting shares of
GranCare, or who hold at least one percent of such voting shares and have filed
a Schedule 14B with the Commission relating to the election of directors of
GranCare have an absolute right to (1) inspect and copy the record of
shareholders during usual business hours upon five business days prior written
demand to GranCare, and/or (2) receive from GranCare's transfer agent (at normal
costs) the record of shareholders on or before five business days after written
demand for such is received by such agent.
LEGAL MATTERS
Certain legal matters with respect to the legality of the issuance of the
shares of GranCare Common Stock offered hereby will be passed upon for GranCare
by Brobeck, Phleger & Harrison, Los Angeles, California.
EXPERTS
The consolidated financial statements of GranCare appearing in GranCare's
Annual Report (Form 10-K) for the year ended December 31, 1994 have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report thereon
included therein and incorporated herein by reference which, as to the year
1992, is based in part on the report of Arthur Andersen LLP, independent
auditors. Such financial statements are incorporated herein by reference in
reliance upon such reports given upon the authority of such firms as experts in
accounting and auditing.
The financial statements of (a) Long-Term Care Pharmaceutical Service
Corporations I and III as of December 31, 1993 and 1992 and for the years then
ended included in the GranCare, Inc. Form 10-Q for the quarter ended June 30,
1994, and (b) Cornerstone Health Management Company as of March 31, 1995 and for
the eleven-month period then ended, included in the Current Reports on Form
8-K/A dated June 2, 1995, both incorporated herein by reference, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon included therein and incorporated herein by reference. Such
financial statements are incorporated herein by reference in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements and schedules of Evergreen and
subsidiaries as of June 30, 1994 and 1993 and for the year ended June 30, 1994
and the combined statements of operations, partners' equity and cash flows and
related schedules of EHL, predecessor to Evergreen, for the nine-month period
ended June 30, 1993 appearing in the Evergreen Annual Report (Form 10-K) for the
year ended June 30, 1994, have been incorporated by reference herein and in the
registration statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein and
in the registration statement upon the authority of said firm as experts in
accounting and auditing.
The combined statements of operations, partners' equity and cash flows and
schedules of Evergreen for the year ended September 30, 1992 appearing in the
Evergreen Healthcare, Inc. Annual Report (Form 10-K) for the year ended June 30,
1994, have been incorporated by reference herein and in the registration
statement in reliance upon the reports of KPMG Peat Marwick LLP and Ernst &
Young LLP, independent certified public accountants, incorporated by reference
herein and in the registration statement upon the authority of said firms as
experts in accounting and auditing.
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OTHER MATTERS
SHAREHOLDER PROPOSALS
Individual shareholders of GranCare may be entitled to submit proposals
which they believe should be voted upon by the shareholders. The SEC has adopted
regulations which govern the inclusion of such proposals in annual proxy
materials. All such proposals must be submitted to the Secretary of GranCare no
later than November 21, 1995 in order to be considered for inclusion in
GranCare's 1996 proxy materials.
As described in Evergreen's proxy statement relating to its 1994 Annual
Meeting of Shareholders, for shareholder proposals to be considered for
inclusion in the proxy statement for the 1995 Annual Meeting of Shareholders of
Evergreen (if the Merger is not consummated), such proposals must be received by
the Corporate Secretary of Evergreen on or before September 1, 1995.
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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The following pro forma financial information gives effect to the proposed
Merger, and to two recent material acquisitions by GranCare. The following Pro
Forma Condensed Combined Financial Statements have been prepared by GranCare
based on certain pro forma adjustments to the historical financial statements of
GranCare. GranCare's historical financial statements have been prepared in
accordance with generally accepted accounting principles.
The accompanying Pro Forma Condensed Combined Balance Sheet as of March 31,
1995 has been prepared to give pro forma effect to the Merger and the April 1995
acquisition of Cornerstone as if such transactions had occurred on March 31,
1995.
The accompanying Pro Forma Condensed Combined Statements of Income for the
years ended December 31, 1992 and 1993 have been prepared to give pro forma
effect to the Merger as if the Merger had occurred on January 1, 1992 and 1993,
respectively. The accompanying Pro Forma Condensed Combined Statement of Income
for the year ended December 31, 1994 has been prepared to give pro forma effect
to the following transactions as if each transaction had occurred January 1,
1994: (a) the 1994 acquisition of LTC and the 1995 acquisition of Cornerstone
and (b) the Merger. The accompanying Pro Forma Condensed Combined Statement of
Income for the three months ended March 31, 1995 has been prepared to give pro
forma effect to the April 1995 acquisition of Cornerstone and to the Merger as
if such acquisition and Merger had occurred January 1, 1995.
The anticipated costs to be incurred in connection with the Merger have not
been included in the Pro Forma Condensed Combined Statements of Income because
they do not reflect continuing operations.
Evergreen historical amounts were derived from the unaudited quarterly
financial statements of Evergreen for the applicable period to conform to the
GranCare periods presented, including all adjustments (consisting only of normal
accruals) that Evergreen considers necessary for a fair presentation of the
financial position and results of operations for these periods. Evergreen
information is combined with GranCare's using the pooling of interests
accounting method. For a description of pooling of interests accounting with
respect to the Merger, see "The Merger -- Accounting Treatment."
The Pro Forma Condensed Combined Financial Statements do not purport to
present the financial position and results of GranCare had the various
transactions indicated above actually been completed as of the dates indicated.
In addition, the Pro Forma Condensed Combined Financial Statements are not
necessarily indicative of the future results of operations of GranCare and
should be read in conjunction with the historical financial statements of
GranCare, Evergreen, Cornerstone and LTC and the notes thereto, appearing in
reports previously filed under the Exchange Act and incorporated herein by
reference.
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GRANCARE, INC.
GRANCARE PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 1995
(UNAUDITED IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
CORNERSTONE EVERGREEN GRANCARE AND
GRANCARE CORNERSTONE PRO FORMA GRANCARE EVERGREEN PRO FORMA EVERGREEN
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------- --------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents........... $ 20,029 $ 1 $ -- $ 20,030 $ 4,982 $-- $ 25,012
Accounts receivable,
less allowances for
doubtful accounts..... 113,774 4,814 -- 118,588 26,643 -- 145,231
Inventories............. 10,688 66 -- 10,754 1,557 -- 12,311
Prepaid expenses and
other current
assets................ 11,656 13 -- 11,669 1,856 -- 13,525
Deferred income taxes... 6,933 -- -- 6,933 636 -- 7,569
-------- -------- -------- ------ ------- --- --------
Total current
assets.............. 163,080 4,894 -- 167,974 35,674 -- 203,648
Net property and
equipment............... 150,959 279 -- 151,238 67,434 -- 218,672
Other assets:
Investments, at fair
value................. 23,929 -- -- 23,929 -- -- 23,929
Goodwill................ 57,319 -- 49,518(1) 106,837 2,135 -- 108,972
Other intangibles....... 4,457 -- -- 4,457 4,483 -- 8,940
Other................... 18,723 116 -- 18,839 18,884 -- 37,723
-------- -------- -------- ------ ------- --- --------
Total assets.............. $418,467 $ 5,289 $49,518 $473,274 $ 128,610 $-- $601,884
======== ======== ======== ====== ======= === ========
</TABLE>
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<PAGE> 85
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CORNERSTONE EVERGREEN GRANCARE AND
GRANCARE CORNERSTONE PRO FORMA GRANCARE EVERGREEN PRO FORMA EVERGREEN
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------- --------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Current liabilities:
Accounts payable
and accrued
expenses........ $ 61,414 $ 844 $ 500(1) $ 62,758 $ 18,902 $ 10,000(3) $ 91,660
Interest
payable......... 3,637 -- -- 3,637 324 -- 3,961
Income taxes
payable......... 231 -- -- 231 1,682 -- 1,913
Notes payable and
current
maturities of
long-term debt.. 5,447 -- -- 5,447 5,670 -- 11,117
-------- -------- ------ ------- -------- --------
Total current
liabilities... 70,729 844 500 72,073 26,578 10,000 108,651
Long-term debt...... 209,225 -- 53,463(2) 262,688 42,554 -- 305,242
Deferred income
taxes............. 17,894 -- -- 17,894 -- -- 17,894
Other............... 9,053 -- -- 9,053 2,301 -- 11,354
Shareholders'
equity:
Common stock...... 88,740 -- -- 88,740 43,748 -- 132,488
Treasury stock.... (5,030) -- -- (5,030 ) -- -- (5,030)
Equity component
of minimum
pension
liability....... (364) -- -- (364 ) -- -- (364)
Unrealized gain on
investments, net
of income
taxes........... 4,275 -- -- 4,275 -- -- 4,275
Retained
earnings........ 23,945 4,445 (4,445)(1) 23,945 13,429 (10,000)(3) 27,374
-------- -------- ------ ------- -------- --------
111,566 4,445 (4,445) 111,566 57,177 (10,000) 158,743
-------- -------- ------ ------- -------- --------
Total
liabilities
and
shareholders'
equity........ $418,467 $ 5,289 $49,518 $473,274 $ 128,610 $ -- $601,884
======== ======== ====== ======= ======== ========
</TABLE>
- ---------------
Pro Forma Adjustments:
(1) Recognition of acquisition-related costs, elimination of shareholders'
equity for goodwill purposes, and allocation of purchase price in excess of
net assets to goodwill.
(2) Acquisition debt incurred -- Cornerstone acquisition.
(3) Accrual of estimated pooling costs -- Evergreen Merger.
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<PAGE> 86
GRANCARE, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1992
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED, EXCEPT AS NOTED)
<TABLE>
<CAPTION>
GRANCARE AND
GRANCARE EVERGREEN PRO FORMA EVERGREEN
HISTORICAL HISTORICAL(1) ADJUSTMENTS PRO FORMA
---------- ---------- -------------- ------------
(AUDITED)
<S> <C> <C> <C> <C>
Net revenues............................... $ 373,317 $ 64,482 $ -- $437,799
Expenses:
Operating expenses (excluding items shown
below)................................ 311,362 48,502 -- 359,864
Rent and property expenses............... 25,635 9,883 -- 35,518
Depreciation and amortization............ 5,937 1,059 -- 6,996
Interest expense and financing charges... 7,402 474 -- 7,876
Nonrecurring costs -- other.............. 1,114 -- -- 1,114
-------- ------- -------- --------
Total expenses................... 351,450 59,918 -- 411,368
-------- ------- -------- --------
Income before income taxes................. 21,867 4,564 -- 26,431
Income taxes............................... 8,701 -- 1,825(2) 10,526
-------- ------- -------- --------
Net income................................. $ 13,166 $ 4,564 $ (1,825) $ 15,905
======== ======= ======== ========
Net income per common and common equivalent
share:
Primary.................................. $ 1.21 $ 1.00(3)
======== ========
Fully diluted............................ $ 1.09 $ 0.93(3)
======== ========
Weighted average number of common and
common equivalent shares outstanding:
Primary.................................. 10,802 15,834(3)(4)
======== ========
Fully diluted............................ 12,012 17,044(3)(4)
======== ========
</TABLE>
- ---------------
(1) Evergreen historical information has been restated to a calendar year basis.
(2) Prior to June 30, 1993, the taxable income of EHL was includable in the
income tax returns of its partners. Pro forma income taxes assume a 40%
corporate rate.
(3) The GranCare and Evergreen pro forma income per share amounts are based on
the combined historical weighted average shares adjusted for the 0.775
Exchange Ratio.
(4) Assumes EHL partnership units which were exchanged for Evergreen Common
Stock were exchanged on January 1, 1992.
79
<PAGE> 87
GRANCARE, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED, EXCEPT AS NOTED)
<TABLE>
<CAPTION>
EVERGREEN GRANCARE AND
GRANCARE EVERGREEN PRO FORMA EVERGREEN
HISTORICAL(1) HISTORICAL(2) ADJUSTMENTS PRO FORMA
------------- ------------- -------------- ------------
(AUDITED)
<S> <C> <C> <C> <C>
Net revenues............................... $ 507,970 $ 103,719 $ -- $611,689
Expenses:
Operating expenses (excluding items shown
below)................................ 425,495 82,251 -- 507,746
Rent and property........................ 28,329 12,913 -- 41,242
Depreciation and amortization............ 10,340 2,009 -- 12,349
Interest expense and financing charges... 18,920 681 -- 19,601
Nonrecurring costs -- CompuPharm
merger................................ 4,573 -- -- 4,573
-------- -------- -------- --------
Total expenses................... 487,657 97,854 -- 585,511
-------- -------- -------- --------
Income before income taxes................. 20,313 5,865 -- 26,178
Income taxes............................... 8,144 1,945 785(3) 10,874
-------- -------- -------- --------
Net income................................. $ 12,169 $ 3,920 $ (785) $ 15,304
======== ======== ======== ========
Net income per common and common equivalent
share:
Primary.................................. $ 1.00 $ 0.84(4)
======== ========
Fully diluted............................ $ 0.93 $ 0.80(4)
======== ========
Weighted average number of common and
common equivalent shares outstanding:
Primary.................................. 12,088 18,205(4)(5)
======== ========
Fully diluted............................ 13,124 19,241(4)(5)
======== ========
</TABLE>
- ---------------
(1) Excludes extraordinary charge of $1,285 ($0.10 per share).
(2) Evergreen historical information has been restated to a calendar year basis.
(3) Prior to June 30, 1993, the taxable income of Evergreen was includable in
the income tax returns of the partners of EHL, the predecessor of Evergreen.
Pro forma taxes assume a 40% corporate rate.
(4) The GranCare and Evergreen pro forma income per share amounts are based on
the combined historical weighted average shares adjusted for the 0.775
Exchange Ratio.
(5) Assumes EHL partnership units which were exchanged for Evergreen Common
Stock were exchanged on January 1, 1993.
80
<PAGE> 88
GRANCARE INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED, EXCEPT AS NOTED)
<TABLE>
<CAPTION>
GRANCARE AND
GRANCARE CORNERSTONE LTC PRO FORMA GRANCARE EVERGREEN EVERGREEN
HISTORICAL HISTORICAL(1) HISTORICAL(2) ADJUSTMENTS PRO FORMA HISTORICAL PRO FORMA(8)
-------- ----------- ------------- ----------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
(AUDITED) (AUDITED)
Net revenues.................. $549,220 $35,698 $20,323 $ -- $605,241 $168,251 $773,492
Expenses:
Operating expenses
(excluding) items shown
below).................... 459,696 28,550 17,855 (1,545)(3) 504,556 131,802 636,358
Rent and property........... 24,919 690 254 -- 25,863 17,119 42,982
Depreciation and
amortization.............. 12,222 144 296 2,330(4) 14,992 4,218 19,210
Interest expense and
financing charges......... 20,090 77 5 5,010(5) 25,182 1,391 26,573
Restructuring costs........... 8,200 -- -- -- 8,200 -- 8,200
-------- ------- ------- ------- -------- -------- --------
Total expenses........ 525,127 29,461 18,410 5,795 578,793 154,530 733,323
-------- ------- ------- ------- -------- -------- --------
Income before income taxes.... 24,093 6,237 1,913 (5,795) 26,448 13,721 40,169
-------- ------- ------- ------- -------- -------- --------
Income taxes.................. 8,914 -- -- 935(6) 9,849 4,610 14,459
-------- ------- ------- ------- -------- -------- --------
Net income.................... $15,179 $ 6,237 $ 1,913 $(6,730) $ 16,599 $ 9,111 $ 25,710
======== ======= ======= ======= ======== ======== ========
Net income per common and
common equivalent share:
Primary..................... $ 1.08 $ 1.14 (7) $ 1.11(9)
======== ======== ========
Fully diluted............... $ 1.08 $ 1.13 (7) $ 1.11(9)
======== ======== ========
Weighted average number of
common and common equivalent
shares outstanding:
Primary..................... 14,047 14,547 (7) 23,171(9)
======== ======== ========
Fully diluted............... 16,382 16,882 (7) 25,506(9)
======== ======== ========
</TABLE>
Pro Forma Adjustments:
<TABLE>
<S> <C> <C>
(1) Represents eleven month period ended March 31, 1995.
(2) LTC was acquired effective July 1, 1994. The information presented is for the January 1 to June 30, 1994
period. Historical results for the period July 1, 1994 through December 31, 1994 are included in GranCare
historical results.
(3) Operating expenses -- Pro Forma adjustments for operating expenses are as follows:
Eliminate Cornerstone management fees paid to an affiliated entity................................... $ (863)
Eliminate LTC management fees paid to an affiliated entity........................................... (682)
--------
$ (1,545)
========
The services related to such management fees will be assumed by GranCare without material incremental costs to
GranCare.
(4) Depreciation and amortization -- Pro Forma adjustments for depreciation and amortization are as
follows:
Amortization of Cornerstone goodwill over 25 years................................................... $ 1,980
Eliminate LTC pre-acquisition intangible amortization expense........................................ (48)
Amortization of LTC noncompete agreement over one year............................................... 5
Amortization of LTC goodwill over 35 years........................................................... 393
--------
$ 2,330
========
(5) Interest expense -- Pro Forma adjustments for interest expense are as follows:
Eliminate Cornerstone interest expense............................................................... $ (76)
Interest expense on Cornerstone acquisition borrowings @8.25%........................................ 4,410
Eliminate LTC pre-acquisition interest expense....................................................... (5)
Interest expense on LTC acquisition borrowings @8.25% for period 1/1/94 through 6/30/94.............. 681
--------
$ 5,010
========
</TABLE>
(6) Income taxes are adjusted to reflect a tax provision for Cornerstone and LTC
and other pro forma adjustments.
(7) The GranCare pro forma net income per share amounts are adjusted to reflect
the 1,000 shares issued in the LTC acquisition as if such shares had been
issued on January 1, 1994.
(8) Excludes $10,000 of estimated pooling costs related to the Merger.
(9) The GranCare and Evergreen pro forma income per share amounts are based on
the combined historical weighted average shares adjusted for the 0.775
Exchange Ratio.
81
<PAGE> 89
GRANCARE, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
GRANCARE
AND
GRANCARE CORNERSTONE PRO FORMA GRANCARE EVERGREEN EVERGREEN
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL PRO FORMA
-------- ----------- ------------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net revenues................................. $144,051 $10,538 $ -- $154,589 $ 47,973 $202,562
Expenses:
Operating expenses (excluding items shown
below)................................... 122,732 8,351 (242)(1) 130,841 37,397 168,238
Rent and property.......................... 6,974 206 -- 7,180 4,335 11,515
Depreciation and amortization.............. 3,187 22 495(2) 3,704 1,530 5,234
Interest expense and financing charges..... 5,172 -- 1,103(3) 6,275 861 7,136
-------- ------- -------- ------- -------- --------
Total expenses....................... 138,065 8,579 1,356 148,000 44,123 192,123
Income before income taxes................... 5,986 1,959 (1,356) 6,589 3,850 10,439
Income taxes................................. 2,275 -- 235(4) 2,510 1,482 3,992
-------- ------- -------- ------- -------- --------
Net income................................... $ 3,711 $ 1,959 $(1,591) $ 4,079 $ 2,368 $ 6,447
======== ======= ======== ======= ======== ========
Net income per common and
common equivalent share:
Primary.................................... $ 0.26 $ 0.28 $ 0.27 (5)
======== ======= ======
Fully diluted................................ $ 0.26 $ 0.28 $ 0.27 (5)
======== ======= ======
Weighted average number of common and common
equivalent shares outstanding:
Primary.................................... 14,449 14,449 24,122 (5)
======== ======= ======
Fully diluted.............................. 14,500 16,830 24,173 (5)
======== ======= ======
</TABLE>
- ---------------
Pro Forma Adjustments:
<TABLE>
<S> <C> <C>
(1) Operating expenses -- Pro Forma adjustments for operating expenses are as follows:
Eliminate Cornerstone management fees paid to an affiliated entity..................................... $ (242)
The services related to such management fees will be assumed by GranCare without material incremental
costs to GranCare.
(2) Depreciation and amortization -- Pro Forma adjustments for depreciation and amortization are as
follows:
Amortization of Cornerstone goodwill over 25 years..................................................... $ 495
(3) Interest expense -- Pro Forma adjustments for interest expenses are as follows:
Interest expense on Cornerstone acquisition borrowings @ 8.25%......................................... $1,103
(4) Income taxes are adjusted to reflect tax provision for Cornerstone (historical income taxes for
Cornerstone were provided at parent company level) and other pro forma adjustments.
(5) The GranCare and Evergreen pro forma income per share amounts are based on the combined historical
weighted average shares adjusted for the 0.775 Exchange Ratio.
</TABLE>
82
<PAGE> 90
APPENDIX A
AGREEMENT AND PLAN OF MERGER
AMONG
GRANCARE, INC.
GW ACQUISITION CORP.
AND
EVERGREEN HEALTHCARE, INC.
DATED AS OF MAY 2, 1995
<PAGE> 91
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I -- THE MERGER............................................................... A-1
1.1 The Merger.................................................................... A-1
1.2 Closing....................................................................... A-1
1.3 Effective Time................................................................ A-1
1.4 Effect of Merger.............................................................. A-1
1.5 Certificate of Incorporation and Bylaws....................................... A-2
1.6 Directors and Officers........................................................ A-2
ARTICLE II -- CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES...................... A-2
2.1 Share Consideration; Conversion or Cancellation of Shares in the Merger....... A-2
2.2 Payment for Shares in the Merger.............................................. A-3
2.3 Exchange Agent................................................................ A-4
2.4 Fractional Shares............................................................. A-4
2.5 Transfer of Shares After the Effective Time................................... A-5
2.6 Further Assurances............................................................ A-5
ARTICLE III -- REPRESENTATIONS AND WARRANTIES OF GREEN AND
MERGER SUB......................................................... A-5
3.1 Corporate Organization........................................................ A-5
3.2 Capitalization................................................................ A-5
3.3 Options or Other Rights....................................................... A-6
3.4 Authority Relative to this Agreement.......................................... A-6
3.5 Green Common Stock............................................................ A-6
3.6 No Violation.................................................................. A-6
3.7 Compliance with Laws.......................................................... A-7
3.8 Litigation.................................................................... A-7
3.9 Financial Statements and Reports.............................................. A-8
3.10 Absence of Certain Changes or Events.......................................... A-8
3.11 Employee Benefit Plans and Employment Matters................................. A-9
3.12 Labor Matters................................................................. A-9
3.13 Insurance..................................................................... A-10
3.14 Environmental Matters......................................................... A-10
3.15 Tax Matters................................................................... A-10
3.16 Intellectual Property......................................................... A-10
3.17 Related Party Transactions.................................................... A-11
3.18 No Undisclosed Material Liabilities........................................... A-11
3.19 No Default.................................................................... A-11
3.20 Title to Properties; Encumbrances............................................. A-11
3.21 Pooling of Interests.......................................................... A-11
3.22 Representations Complete...................................................... A-12
3.23 Brokers....................................................................... A-12
3.24 Opinion of Financial Advisors................................................. A-12
3.25 Whitecap Stock Ownership...................................................... A-12
ARTICLE IV -- REPRESENTATIONS AND WARRANTIES OF WHITECAP.............................. A-12
4.1 Corporate Organization........................................................ A-12
4.2 Capital Stock................................................................. A-12
4.3 Options or Other Rights....................................................... A-13
</TABLE>
A-i
<PAGE> 92
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
4.4 Authority Relative to this Agreement.......................................... A-13
4.5 No Violation.................................................................. A-13
4.6 Compliance with Laws.......................................................... A-14
4.7 Litigation.................................................................... A-14
4.8 Financial Statements and Reports.............................................. A-15
4.9 Absence of Certain Changes or Events.......................................... A-15
4.10 Employee Benefit Plans and Employment Matters................................. A-15
4.11 Labor Matters................................................................. A-16
4.12 Insurance..................................................................... A-17
4.13 Environmental Matters......................................................... A-17
4.14 Tax Matters................................................................... A-17
4.15 Intellectual Property......................................................... A-17
4.16 Related Party Transactions.................................................... A-18
4.17 No Undisclosed Material Liabilities........................................... A-18
4.18 No Default.................................................................... A-18
4.19 Title to Properties; Encumbrances............................................. A-18
4.20 Pooling of Interests.......................................................... A-18
4.21 Representations Complete...................................................... A-19
4.22 Brokers....................................................................... A-19
4.23 Opinion of Financial Advisors................................................. A-19
4.24 Contracts..................................................................... A-19
ARTICLE V -- COVENANTS AND AGREEMENTS................................................. A-19
5.1 Joint Proxy Statement/Prospectus; Registration Statement; Shareholders'
Meeting....................................................................... A-19
5.2 Conduct of the Business of Whitecap Prior to the Effective Time............... A-21
5.3 Conduct of the Business of Green Prior to the Effective Time.................. A-22
5.4 Access to Properties and Records.............................................. A-23
5.5 No Solicitation of Transactions............................................... A-23
5.6 Employee Benefit Plans........................................................ A-25
5.7 Treatment of Options.......................................................... A-25
5.8 Settlement of Options and Rights.............................................. A-25
5.9 Existing Indemnification Agreements........................................... A-26
5.10 Confidentiality............................................................... A-26
5.11 Reasonable Best Efforts....................................................... A-26
5.12 Certification of Stockholder Vote............................................. A-27
5.13 Affiliate Letters............................................................. A-27
5.14 Listing Application........................................................... A-27
5.15 Supplemental Disclosure Schedules............................................. A-27
5.16 No Action..................................................................... A-27
5.17 Conduct of Business of Merger Sub............................................. A-27
5.18 Corporate Governance.......................................................... A-27
5.19 Restructuring of Merger....................................................... A-28
5.20 Cross Option Agreement........................................................ A-28
ARTICLE VI -- CONDITIONS PRECEDENT.................................................... A-28
6.1 Conditions to Each Party's Obligation to Effect the Merger.................... A-28
6.2 Conditions to the Obligation of Whitecap to Effect the Merger................. A-29
6.3 Conditions to the Obligations of Green and Merger Sub to Effect the Merger.... A-30
</TABLE>
A-ii
<PAGE> 93
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE VII -- TERMINATION............................................................ A-31
7.1 Termination................................................................... A-31
7.2 Effects of Termination........................................................ A-32
ARTICLE VIII -- MISCELLANEOUS......................................................... A-33
8.1 Amendment..................................................................... A-33
8.2 Waiver........................................................................ A-33
8.3 Survival...................................................................... A-34
8.4 Expenses and Fees............................................................. A-34
8.5 Notices....................................................................... A-34
8.6 Headings...................................................................... A-34
8.7 Public Announcements.......................................................... A-35
8.8 Entire Agreement.............................................................. A-35
8.9 Assignment.................................................................... A-35
8.10 Counterparts.................................................................. A-35
8.11 Invalidity; Severability...................................................... A-35
8.12 Governing Law................................................................. A-35
</TABLE>
EXHIBITS
<TABLE>
<S> <C>
Exhibit A Articles of Incorporation and Bylaws of Surviving Corporation
Exhibit B Form of Affiliate Letter
Exhibit C Confidentiality Agreement
Exhibit D Form of Cross Option Agreement
Exhibit E Form of Shareholder Voting Agreement
Exhibit F Form of Shareholder Voting Agreement
</TABLE>
A-iii
<PAGE> 94
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER ("Agreement") dated as of May 2, 1995 among
GranCare, Inc., a California corporation ("Green"), GW Acquisition Corp., a
California corporation and a wholly-owned subsidiary of Green ("Merger Sub"),
and Evergreen Healthcare, Inc., a Georgia corporation ("Whitecap").
WHEREAS, the Boards of Directors of Green, Merger Sub and Whitecap deem
advisable, consistent with their respective long-term business strategies and in
the best interests of their respective shareholders the merger of Merger Sub
with and into Whitecap (the "Merger") upon the terms and conditions set forth
herein and in accordance with the California Corporation Code (the "CCC") and
the Georgia Business Corporation Code (the "GBCC") (Whitecap, following the
effectiveness of the Merger, being hereinafter sometimes referred to as the
"Surviving Corporation");
WHEREAS, the Boards of Directors of Green, Merger Sub and Whitecap have
approved the Merger pursuant to this Agreement, upon the terms and subject to
the conditions set forth herein;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, it is intended that the Merger shall be accounted for as a pooling
of interests pursuant to opinion No. 16 of the Accounting Principles Board.
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants, agreements and conditions contained herein, and in order to set forth
the terms and conditions of the Merger and the method of carrying the same into
effect, the parties hereby agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and conditions hereinafter set forth and in
accordance with the CCC and GBCC, at the Effective Time (as defined in Section
1.3), Merger Sub shall be merged with and into Whitecap and thereupon the
separate existence of Merger Sub shall cease, and Whitecap as the Surviving
Corporation, shall continue to exist under and be governed by the GBCC.
1.2 Closing. Subject to the terms and conditions of this Agreement, the
closing of the Merger (the "Closing") shall take place at the offices of Green
at One Ravinia Drive, Suite 1500, Atlanta, Georgia 30346 as promptly as
practicable after satisfaction or waiver of the conditions set forth in Article
VI, or at such other location, time or date as may be agreed to in writing by
the parties hereto. The date on which the Closing occurs is hereinafter referred
to as the "Closing Date."
1.3 Effective Time. If all the conditions to the Merger set forth in
Article VI shall have been satisfied or waived in accordance herewith and this
Agreement shall not have been terminated as provided in Article VII, the parties
hereto shall cause a Certificate of Merger meeting the requirements of the GBCC
and CCC ("Certificate of Merger") to be properly executed and filed in
accordance with such requirements on the Closing Date. The Merger shall become
effective at the time of filing of the Certificate of Merger with the Secretary
of State of the State of California in accordance with the CCC or at such other
time which the parties hereto shall have agreed upon and designated in such
filing as the effective time of the Merger (the "Effective Time").
1.4 Effect of Merger. After the Effective Time, pursuant to the CCC and
GBCC, the separate existence of Merger Sub will cease and the Surviving
Corporation shall succeed, without other transfer, to all the rights and
property of Merger Sub and shall be subject to all the debts and liabilities of
Merger Sub in the same manner as if the Surviving Corporation had itself
incurred them. All outstanding capital stock of Whitecap shall be automatically
converted into the right to receive shares of stock of Green (or cash for
A-1
<PAGE> 95
fractional shares) and all the shares of Merger Sub shall be converted into
shares of stock of Whitecap, as set forth in Article II hereof.
1.5 Certificate of Incorporation and Bylaws. At the Effective Time, the
Articles of Incorporation and the Bylaws attached as Exhibit A shall be the
Articles of Incorporation and Bylaws of the Surviving Corporation.
1.6 Directors and Officers. The persons who are directors of Merger Sub
immediately prior to the Effective Time shall, after the Effective Time, serve
as the directors of the Surviving Corporation, to serve until their successors
have been duly elected and qualified in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation. The persons who are
officers of Merger Sub immediately prior to the Effective Time shall, after the
Effective Time, serve as the officers of the Surviving Corporation at the
pleasure of the Board of Directors of the Surviving Corporation. The directors
of Green as of the Effective Time shall be as specified in Section 5.18.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
2.1 Share Consideration; Conversion or Cancellation of Shares in the
Merger. Subject to the provisions of this Article II, at the Effective Time, by
virtue of the Merger and without any action on the part of the holders thereof:
(a) Each issued and outstanding share of the common stock, $.01 par
value, of Whitecap (the "Whitecap Common Stock"), other than shares of
Whitecap Common Stock that are owned by Whitecap as treasury stock (the
"Treasury Shares"), shall be automatically converted into .775 shares (the
"Exchange Ratio") of the common stock, no par value, of Green (the "Green
Common Stock"). If prior to the Effective Time, Green or Whitecap should
split or combine their respective Common Stock, or pay a stock dividend or
other stock distribution in their respective Common Stock, or otherwise
change their respective Common Stock into any other securities, or make any
other dividend or distribution on their respective Common Stock, then the
Exchange Ratio will be appropriately adjusted to reflect such split,
combination, dividend or other distribution or change. The Exchange Ratio
shall, in each case, be rounded to the nearest ten-thousandth of a share.
(b) As a result of the Merger all of the shares of the Whitecap Common
Stock to be converted into Green Common Stock pursuant to Section 2.1(a)
(the "Whitecap Shares") shall cease to be outstanding, shall be cancelled
and retired and shall cease to exist, and each holder of a certificate
representing any such shares shall thereafter cease to have any rights with
respect to such shares, except the right to receive for each of the shares,
upon the surrender of such certificate in accordance with Section 2.2(b),
the amount of the Green Common Stock specified above (the "Share
Consideration") and cash in lieu of fractional Green Common Stock as
contemplated by Section 2.4.
(c) The issued and outstanding shares of the common stock, no par
value, of Merger Sub (the "Merger Sub Common Stock") shall be converted
into one hundred (100) shares of fully paid and nonassessable shares of
common stock, no par value, of the Surviving Corporation ("Surviving
Corporation Common Stock").
(d) All shares of Whitecap Common Stock which are owned as Treasury
Shares shall be cancelled and retired and cease to exist, without any
conversion thereof or payment with respect thereto.
(e) Each outstanding option or warrant to purchase Whitecap Common
Stock (each a, "Whitecap Stock Option") shall be assumed by Green as
provided in Section 5.7.
As used in this Agreement, the term "Subsidiary" shall mean with respect to
any party any corporation of which at least a majority of the securities having
by their terms ordinary voting power to elect a majority of the Board of
Directors 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; the term "Subsidiary" shall also include any
A-2
<PAGE> 96
unincorporated organization, including partnerships and joint ventures, of which
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 a majority of the voting interests in
such partnership) or at least a majority of the voting interests in such
organization are 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.
2.2 Payment for Shares in the Merger.
(a) At the Effective Time, Green shall make available to an exchange agent
selected by Green and reasonably acceptable to Whitecap as exchange agent for
the Whitecap Shares in accordance with this Article II (the "Exchange Agent"),
for the benefit of those persons who immediately prior to the Effective Time
were the holders of Whitecap Shares, a sufficient number of certificates
representing shares of Green Common Stock required to effect the delivery of the
aggregate Share Consideration required to be issued pursuant to Section 2.1 (the
certificates representing Green Common Stock comprising such aggregate Share
Consideration being hereinafter referred to as the "Exchange Fund"). The
Exchange Agent shall, pursuant to irrevocable instructions from Green, deliver
the shares of Green Common Stock contemplated to be issued pursuant to Section
2.1 and effect the sales provided for in Section 2.4 out of the Exchange Fund.
The Exchange Fund shall not be used for any other purpose.
(b) Promptly after the Effective Time, Green shall cause the Exchange Agent
to send a notice and transmittal form to each holder of record of the Whitecap
Shares immediately prior to the Effective Time advising such holder of the
effectiveness of the Merger and the procedure for surrendering to the Exchange
Agent (who may appoint forwarding agents with the approval of Green) the
certificate or certificates representing Whitecap Shares to be exchanged
pursuant to the Merger (the "Certificates"). Upon the surrender for exchange of
Certificates, together with such letter of transmittal duly completed and
properly executed in accordance with instructions thereto and such other
documents as may be reasonably required pursuant to such instructions, the
holder shall be paid promptly, without interest thereon and subject to any
required withholding of taxes, the Share Consideration to which such holder is
entitled hereunder, and such Certificates shall forthwith be cancelled. Until so
surrendered and exchanged, the Certificates shall represent solely the right to
receive the Share Consideration pursuant to Section 2.1 and cash in lieu of
fractional shares as contemplated by Section 2.4, subject to any required
withholding of taxes. If any payment for the Whitecap Shares is to be made to a
person other than the person in whose name the Certificates for such shares
surrendered are registered, it shall be a condition of the exchange that the
person requesting such exchange shall pay to the Exchange Agent any transfer or
other taxes required by reason of the delivery of such payment to a person other
than the registered owner of the Certificates surrendered or shall establish to
the satisfaction of the Exchange Agent that such tax has been paid or is not
applicable. Unless prohibited by law, former shareholders of record of Whitecap
shall be entitled to vote, after the Effective Time, at any meeting of Green
shareholders, the number of whole shares of Green Common Stock into which their
respective Whitecap Shares are converted, regardless of whether such holders
have exchanged their Certificates in accordance with this Section 2.2.
(c) No dividends or other distributions with respect to Green Common Stock
with a record date after the Effective Time shall be paid to the holders of any
unsurrendered Certificates with respect to the shares of Green Common Stock
represented thereby and no cash payment in lieu of fractional shares shall be
paid to any such holder pursuant to Section 2.4 until the surrender of such
Certificates in accordance with this Section 2.2. Subject to the effect of
applicable laws, following surrender of any such Certificates, there shall be
paid by Green or the Exchange Agent to the holder of the Certificates, in
addition to the Share Consideration to be 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 Green Common Stock to which such holder is
entitled pursuant to Section 2.4 and the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to such Share Consideration, 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 such surrender and with a payment date subsequent to
such surrender payable with respect to such Share Consideration.
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(d) In the event any Certificates 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 Green, the
posting by such person of a bond in such amount, form and with such surety as
Green may reasonably direct as indemnity against any claim that may be made
against it with respect to such Certificate, the Exchange Agent will issue in
exchange for such lost, stolen or destroyed Certificate the number of shares of
the Green Common Stock and cash in lieu of fractional shares deliverable (and
unpaid dividends and distributions) in respect thereof pursuant to this
Agreement.
(e) Green, as the sole shareholder of Merger Sub, shall, upon surrender to
the Surviving Corporation of certificates representing the Merger Sub Common
Stock, receive a certificate representing the number of shares of the Surviving
Corporation Common Stock into which such Merger Sub Common Stock shall have been
converted pursuant to Section 2.1.
(f) Certificates surrendered for exchange by any person constituting a Rule
145 Affiliate of Whitecap (as defined in Section 5.13) shall not be exchanged
for certificates representing Green Common Stock until Green has received a
written agreement from such person as provided in Section 5.13.
2.3 Exchange Agent. Green shall cause the Exchange Agent to agree, among
other things, that (i) the Exchange Agent shall maintain the Exchange Fund as a
separate fund to be held for the benefit of the holders of the Whitecap Shares,
which shall be promptly applied by the Exchange Agent to making the payments
provided for in Section 2.2, (ii) any portion of the Exchange Fund that has not
been paid to holders of the Whitecap Shares pursuant to Section 2.2 prior to
that date which is one year from the Effective Time shall be paid to Green, and
any holders of Whitecap Shares who shall not have theretofore complied with
Section 2.2 shall thereafter look only to Green for payment of the number of
shares of Green Common Stock and payments due pursuant to Section 2.2 hereof to
which they are entitled under this Agreement, (iii) the Exchange Fund shall not
be used for any purpose that is not provided for herein; and (iv) all expenses
of the Exchange Agent shall be paid directly by Green. Promptly following the
date which is one year from the Effective Time, the Exchange Agent shall return
to Green all cash, securities and any other instruments in its possession
relating to the transactions described in this Agreement, and the Exchange
Agent's duties shall terminate. Thereafter, each holder of Certificates may
surrender such Certificates to Green and (subject to applicable abandoned
property, escheat and similar laws) receive in exchange therefor the Share
Consideration, cash in lieu of fractional shares and other payments payable with
respect thereto pursuant to Sections 2.1, 2.2 and 2.4 hereof, without interest,
but shall have no greater rights against Green than may be accorded to general
creditors of Green under the CCC. The Exchange Agent shall not be entitled to
vote or exercise any rights of ownership with respect to the Green Common Stock
held by it from time to time hereunder.
2.4 Fractional Shares.
(a) No fractional shares of Green Common Stock shall be issued in the
Merger. In lieu of any such fractional securities, each holder of Whitecap
Shares who would otherwise have been entitled to a fractional share of Green
Common Stock upon surrender of Certificates for exchange pursuant to this
Article II will be paid an amount in cash (without interest) equal to such
holder's proportionate interest in the net proceeds from the sale or sales in
the open market by the Exchange Agent, on behalf of all such holders, of the
aggregate fractional shares of the Green Common Stock issued pursuant to this
Article II. As soon as practicable following the Effective Time, the Exchange
Agent shall determine the excess of (i) the number of full shares of the Green
Common Stock delivered to the Exchange Agent by Green over (ii) the aggregate
number of full shares of the Green Common Stock to be distributed to holders of
Whitecap Shares (such excess being herein called the "Excess Shares"), and the
Exchange Agent, as agent for the former holders of Whitecap Shares, shall sell
the Excess Shares at the prevailing prices on the New York Stock Exchange
("NYSE"). The sale of the Excess Shares by the Exchange Agent shall be executed
on the NYSE through one or more member firms of the NYSE and shall be executed
in round lots to the extent practicable. Green shall pay all commissions,
transfer taxes and other out-of-pocket transaction costs, including the expenses
and compensation of the Exchange Agent, incurred in connection with such sale of
Excess Shares. Until the net proceeds of such sale have been distributed to the
former shareholders of Whitecap, the Exchange Agent will hold such proceeds in
trust for such former shareholders (the "Fractional Securities Fund"). As soon
as
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practicable after the determination of the amount of cash to be paid to former
shareholders of Whitecap in lieu of any fractional interests, the Exchange Agent
shall make available in accordance with this Agreement such amounts to such
former shareholders.
(b) In lieu of establishing the Fractional Securities Fund pursuant to
Section 2.4(a), the Exchange Agent may, at the direction of Green, pay any cash
amounts due the former shareholders of Whitecap directly from cash made
available to the Exchange Agent by Green for such purpose.
2.5 Transfer of Shares After the Effective Time. No transfers of Whitecap
Shares shall be made on the stock transfer books of Whitecap after the close of
business on the day prior to the date of the Effective Time.
2.6 Further Assurances. If at any time after the Effective Time the
Surviving Corporation shall consider or be advised that any further deeds,
assignments or assurances in law or any other acts are necessary, desirable or
proper (a) to vest, perfect or confirm, of record or otherwise, in the Surviving
Corporation, the title to any property or right of Whitecap or Merger Sub
acquired or to be acquired by reason of, or as a result of, the Merger, or (b)
otherwise to carry out the purposes of this Agreement, Whitecap and Merger Sub
agree that the Surviving Corporation and its proper officers and directors shall
and will execute and deliver all such deeds, assignments and assurances in law
and do all acts necessary, desirable or proper to vest, perfect or confirm title
to such property or right in the Surviving Corporation and otherwise to carry
out the purposes of this Agreement, and that the proper officers and directors
of the Surviving Corporation are fully authorized in the name of Whitecap and
Merger Sub or otherwise to take any and all such action.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF GREEN AND MERGER SUB
Green and Merger Sub, jointly and severally, represent and warrant to
Whitecap that, except as set forth in the Disclosure Schedule delivered herewith
(the "Green Disclosure Schedule"):
3.1 Corporate Organization. Each of Green and its Subsidiaries (the "Green
Subsidiaries") is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, with all
requisite corporate power and authority to own, operate and lease its properties
and to carry on its business as it is now being conducted, and is qualified or
licensed to do business and is in good standing in each jurisdiction in which
the failure to be so qualified or licensed, individually or in the aggregate,
would have a material adverse effect on the financial condition, results of
operations, properties or business ("Material Adverse Effect") of Green and the
Green Subsidiaries taken as a whole (a "Material Adverse Effect on Green"). True
and complete copies of the Certificate of Incorporation and the Bylaws of Green
have been delivered to Whitecap. Such Certificate and Bylaws are in full force
and effect. The Green Disclosure Schedule contains a complete and accurate list
of all of the Green Subsidiaries. Neither Green nor any Green Subsidiary is in
violation of any provision of its Certificate of Incorporation or Bylaws which
could have a Material Adverse Effect on Green. Merger Sub has not engaged in any
business nor has it incurred any liabilities or obligations since it was
incorporated other than relating to this Agreement and the transactions
contemplated hereby. For the purposes of this Agreement the term "Significant
Subsidiaries" shall mean a Significant Subsidiary of Green or Whitecap, as
applicable, within the meaning of Rule 1-02 of Regulation S-X of the Commission.
3.2 Capitalization. The authorized capital stock of Green consists of
50,000,000 shares of Green Common Stock, and 2,000,000 shares of Preferred
Stock, no par value ("Green Preferred Stock"). As of the date of this Agreement,
13,818,057 shares of Green Common Stock are issued and outstanding, all of which
were validly issued, fully paid and nonassessable, and 200,000 shares of such
Common Stock are held in the treasury of Green. As of the date hereof, no shares
of Green Preferred Stock are issued and outstanding. As of the date of this
Agreement, 1,735,776 shares of Green Common Stock are reserved for future
issuance pursuant to employee stock options granted pursuant to Green's Amended
and Restated Stock Incentive Plan ("Stock Incentive Plan"), and 203,000 shares
are reserved for future issuance pursuant to stock options granted pursuant to
Green's 1994 Stock Option Plan ("1994 Plan") (any stock option issued under such
plans being a "stock option"). In addition to the foregoing, 2,210,351 shares of
Green Common Stock are reserved
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for issuance upon conversion of Green's $60,000,000 principal amount of
aggregate outstanding 6 1/2% Convertible Subordinated Debentures Due 2003, and
656,353 shares of Green Common Stock are reserved for issuance upon exercise of
outstanding warrants to purchase Green Common Stock. Green has heretofore
delivered to Whitecap, correct and complete copies of the Stock Incentive Plan,
the 1994 Plan, option agreements covering all outstanding stock options issued
thereunder and all outstanding warrants to purchase Green Common Stock, in each
case as currently in effect. Each option agreement sets forth for each stock
option holder (i) such holder's name, (ii) the date of grant of stock options to
such holder, (iii) the number of shares of Green Common Stock into which each
such grant is exercisable, (iv) the exercise price per share of Green Common
Stock with respect to each such grant, and (v) the periods during which such
stock options or portions thereof are exercisable by such holder. Except as set
forth in this Section 3.2 or in Schedule 3.2 of the Green Disclosure Schedule,
there are no options, warrants or other rights, agreements, arrangements or
commitments of any character relating to the issued or unissued capital stock of
Green or any Green Subsidiary or obligating Green or any Green Subsidiary to
issue or sell any shares of capital stock of, or other equity interests in,
Green or any Green Subsidiary. All shares of Green Common Stock subject to
issuance as aforesaid, upon issuance on the terms and conditions specified in
the instruments pursuant to which they are issuable, will be duly authorized,
validly issued, fully paid and nonassessable. Except as set forth in this
Section 3.2, there are no outstanding contractual obligations of Green or any
Green Subsidiary to repurchase, redeem or otherwise acquire any shares of Green
Common Stock or any capital stock of any Green Subsidiary, or make any material
investment (in the form of a loan, capital contribution or otherwise) in, any
Green Subsidiary or any other person. Each outstanding share of capital stock of
each Green Subsidiary is duly authorized, validly issued, fully paid and
nonassessable and, except as set forth in Schedule 3.2 of the Green Disclosure
Schedule, each such share owned by Green or another Green Subsidiary is free and
clear of all security interests, liens, claims, pledges, options, rights of
first refusal, agreements, limitations on Green's or such other Green
Subsidiary's voting rights, charges and other encumbrances of any nature
whatsoever.
3.3 Options or Other Rights. Except as disclosed in Section 3.2, there is
no outstanding right, subscription, warrant, call, unsatisfied preemptive right,
option or other agreement or arrangement of any kind to purchase or otherwise to
receive from Green or any Green Subsidiary any of the outstanding authorized but
unissued, unauthorized or treasury shares of the capital stock or any other
security of Green or any Green Subsidiary, and there is no outstanding security
of any kind convertible into or exchangeable for such capital stock.
3.4 Authority Relative to this Agreement. Each of Green and Merger Sub has
full corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated on its part hereby. The execution and
delivery of this Agreement by each of Green and Merger Sub and the consummation
of the transactions contemplated on its part hereby have been duly authorized by
its Board of Directors, and, other than the approval of Green's shareholders as
provided in Section 5.1 hereof, no other corporate proceedings on the part of
Green or Merger Sub are necessary to authorize the execution and delivery of
this Agreement by Green or Merger Sub or the consummation of the transactions
contemplated on its part hereby. This Agreement has been duly executed and
delivered by each of Green and Merger Sub, and constitutes a legal, valid and
binding obligation of each of Green and Merger Sub, enforceable against each of
Green and Merger Sub in accordance with its terms, except to the extent that
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other laws affecting the enforcement of creditors' rights
generally or by general equity principles.
3.5 Green Common Stock. The shares of Green Common Stock to be issued in
connection with the Merger have been duly authorized and, when issued as
contemplated hereby at the Effective Time, will be validly issued, fully paid
and non-assessable, and not subject to any preemptive rights.
3.6 No Violation. The execution, delivery and performance of this
Agreement by each of Green and Merger Sub and the consummation by each of them
of the transactions contemplated hereby will not (i) violate or conflict with
any provision of any material law applicable to Green or any Green Subsidiary or
by which any of their property or assets are bound, (ii) require the consent,
waiver, approval, license or authorization of or any filing by Green or any
Green Subsidiary with any public authority (other than (a) the filing of a
pre-merger notification report under The Hart-Scott-Rodino Antitrust
Improvements Act of 1976,
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as amended, and the rules and regulations promulgated thereunder (the "HSR Act")
and the expiration of the applicable waiting period, (b) filings or
authorizations required in connection with or in compliance with the provisions
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
Securities Act of 1933, as amended (the "Securities Act"), the CCC, the Bylaws
of the NYSE or the "takeover" or "blue sky" laws of various states and (c) any
other filings and approvals expressly contemplated by this Agreement), (iii)
require the consent, waiver, approval, license or authorization of any person or
entity other than as listed on Schedule 3.6 of the Green Disclosure Schedule or
(iv) violate, conflict with, or result in a breach of or the acceleration of any
obligation under, or constitute a default (or an event which with notice or the
lapse of time or both would become a default) under, or give to others any right
of, or result in any, termination, amendment, acceleration or cancellation of,
or loss of any benefit or creation of a right of first refusal or result in the
creation of a lien or other encumbrance on any property or asset of Green or any
Green Subsidiary pursuant to or under any provision of any charter or bylaw,
indenture, mortgage, lien, lease, license, agreement, contract, instrument,
order, judgment, ordinance, Green Permit (as defined below), law, regulation or
decree to which Green or any Green Subsidiary is subject or by which Green or
any Green Subsidiary or any of their property or assets are bound, except where
the failure to give such notice, make such filings, or obtain such
authorizations, consents, waivers, licenses or approvals, or where such
violations, conflicts, breaches, defaults, terminations, amendments,
accelerations, cancellations, loss of rights or liens, individually or in the
aggregate, would not have a Material Adverse Effect on Green or on Green's or
Merger Sub's ability to consummate the transactions contemplated hereby.
3.7 Compliance with Laws.
(a) Green and each Green Subsidiary hold all licenses, permits and other
authorizations necessary to conduct their respective businesses (collectively,
"Green Permits"), are certified as providers under all applicable Medicare and
Medicaid programs to the extent required to be so certified, and are in
compliance with all Green Permits and all federal, state and other laws, rules,
regulations, ordinances and orders governing their respective businesses,
including, without limitation, the requirements, guidelines, rules and
regulations of Medicare, Medicaid and other third-party reimbursement programs,
except where the failure to hold such licenses, permits and other authorizations
or to so comply, individually or in the aggregate, would not reasonably be
foreseen to have a Material Adverse Effect on Green.
(b) To Green's knowledge, all health care personnel employed by Green or
any Green Subsidiary are properly licensed to the extent required to perform the
duties of their employment in each jurisdiction where such duties are performed,
except where the failure to be so licensed, individually or in the aggregate,
would not have a Material Adverse Effect on Green.
(c) No action or proceeding is pending or, to Green's knowledge, threatened
that may result in the suspension, revocation or termination of any Green
Permit, the issuance of any cease-and-desist order, or the imposition of any
administrative or judicial sanction, and neither Green nor any Green Subsidiary
has received any notice from any governmental authority in respect of the
suspension, revocation or termination of any Green Permit, or any notice of any
intention to conduct any investigation or institute any proceeding, in any such
case where such suspension, revocation, termination, order, sanction,
investigation or proceeding would result, individually or in the aggregate, in a
Material Adverse Effect on Green.
(d) Neither Green nor any Green Subsidiary has received notice that
Medicare, Medicaid or any other third-party reimbursement program has any claims
for disallowance of costs against any of them which could result in offsets
against future reimbursement or recovery of prior payments, which offsets or
recoveries, individually or in the aggregate, would have a Material Adverse
Effect on Green.
(e) Green's and Green Subsidiary's pharmacy operations are in substantial
compliance with all applicable laws, rules and regulations, including but not
limited to, the Food, Drug and Cosmetic Act, the Prescription Drug Marketing Act
and the Comprehensive Drug Abuse Prevention and Control Act of 1970.
3.8 Litigation. Except as may be disclosed in the Green 10-K (as defined
below), there are no suits, arbitrations, mediations, actions, proceedings,
unfair labor practice complaints or grievances pending or, to Green's knowledge,
threatened, or, to Green's knowledge, investigations pending or threatened,
against Green
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or any Green Subsidiary or with respect to any property or asset of any of them
before any court, arbitrator, administrator or governmental or regulatory
authority or body which, individually or in the aggregate, would have a Material
Adverse Effect on Green. Neither Green nor any Green Subsidiary nor any property
or asset of any of them is subject to any order, judgment, injunction or decree
which, individually or in the aggregate, would have a Material Adverse Effect on
Green.
3.9 Financial Statements and Reports. Green has made available to Whitecap
true and complete copies of (a) its Annual Report on Form 10-K for the year
ended December 31, 1994 (the "Green 10-K") as filed with the Securities and
Exchange Commission (the "Commission"), for the year ended December 31, 1994,
(b) all registration statements filed by Green and declared effective under the
Securities Act (other than registration statements on Form S8), and (c) all
other reports, statements and registration statements (including Current Reports
on Form 8-K) filed by it with the Commission. The reports, statements and
registration statements referred to in the immediately preceding sentence
(including, without limitation, any financial statements or schedules or other
information, included or incorporated by reference therein) are referred to in
this Agreement as the "Green SEC Filings." As of the respective times such
documents were filed or, as applicable, became effective, the Green SEC Filings
complied as to form and content, in all material respects, with the requirements
of the Securities Act and the Exchange Act, as the case may be, and the rules
and regulations promulgated thereunder, except for such noncompliance which,
individually or in the aggregate, would not have a Material Adverse Effect on
Green, and did 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, in light of the circumstances under which they were made,
not misleading. The financial statements of Green included in the Green SEC
Filings were prepared in accordance with generally accepted accounting
principles (as in effect from time to time) applied on a consistent basis and
(except as may be indicated therein or in the notes thereto) present fairly the
consolidated financial position, consolidated results of operations and
consolidated cash flows of Green and the Green Subsidiaries as of the dates and
for the periods indicated subject, in the case of unaudited interim consolidated
financial statements, to normal recurring year-end adjustments and any other
adjustments described therein. No Green Subsidiary is required to file any form,
report or other document with the Commission.
3.10 Absence of Certain Changes or Events. Other than as disclosed in the
Green 10-K, in the Green SEC Filings filed with the Commission subsequent to
December 31, 1994, or otherwise disclosed in this Agreement, since December 31,
1994 and through the date hereof, the business of Green and of each of the Green
Subsidiaries has been conducted in the ordinary course, and there has not been
(i) any change in the financial condition, results of operations, properties or
business of Green and the Green Subsidiaries, taken as a whole that has resulted
in a Material Adverse Effect on Green; (ii) any material indebtedness incurred
by Green or any Green Subsidiary for money borrowed, except under credit
facilities disclosed in the SEC Filings; (iii) any material transaction or
commitment, except in the ordinary course of business or as contemplated by this
Agreement, entered into by Green or any of the Green Subsidiaries; (iv) any
damage, destruction or loss, whether covered by insurance or not, which,
individually or in the aggregate, would have a Material Adverse Effect on Green;
(v) any material change by Green in accounting principles or methods except
insofar as may be required by a change in generally accepted accounting
principles; (vi) any declaration, setting aside or payment of any dividend
(whether in cash, securities or property) with respect to the Green Common
Stock; or (vii) any material agreement to acquire any assets or stock or other
interests of any third-party; (viii) any increase in the compensation payable or
to become payable by Green or any Green Subsidiary to any employees, officers,
directors, or consultants or in any bonus, insurance, welfare, pension or other
employee benefit plan, payment or arrangement made to, for or with any such
employee, officer, director or consultant (other than as provided in employment
agreements, consulting agreements and welfare and benefit plans set forth on the
Green Disclosure Schedule, and except for increases consistent with past
practice); (ix) any material revaluation by Green or any Green Subsidiary of any
asset (including, without limitation, any writing down of the value of inventory
or writing off of notes or accounts receivable); (x) any mortgage or pledge of
any of the assets or properties of Green or any Green Subsidiary or the
subjection of any of the assets or properties of Green or any Green Subsidiary
to any material liens, charges, encumbrances, imperfections of title, security
interest, options or rights or claims of others with respect thereto; or (xi)
any assumption or guarantee by Green or a Green Subsidiary of the indebtedness
of any person or entity.
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3.11 Employee Benefit Plans and Employment Matters.
(a) The Green Disclosure Schedule lists all employee benefit plans,
collective bargaining agreements, labor contracts, and employment agreements not
otherwise disclosed in the Green 10-K which are not in the ordinary course of
business and which provide for the annual payment of more than $200,000 in which
Green or any Green Subsidiary participates, or by which any of them are bound,
including, without limitation, (i) any profit sharing, deferred compensation,
bonus, stock option, stock purchase, pension, welfare, and incentive plan or
agreement; (ii) any plan providing for "fringe benefits" to their employees,
including, but not limited to, vacation, sick leave, medical, hospitalization
and life insurance; (iii) any written employment agreement and any other
employment agreement not terminable at will; and (iv) any other "employee
benefit plan" (within the meaning of Section 3(3) of the Employment Retirement
Income Security Act of 1974 ("ERISA")) that is not exempted from the coverage of
ERISA by reason of the Department of Labor regulations. Green and the Green
Subsidiaries are in compliance in all material respects with the requirements
prescribed by all laws currently in effect applicable to employee benefit plans
and to any employment agreements, including, but not limited to, ERISA and the
Code. Green and the Green Subsidiaries have each performed all of its
obligations under all such employee benefit plans and employment agreements in
all material respects. There is no pending or, to the knowledge of Green,
threatened legal action, proceeding or investigation against or involving any
Green or Green Subsidiary employee benefit plan which could result in a material
amount of liability to such employee benefit plan or to Green.
(b) Neither Green nor the Green Subsidiaries sponsor or participate in, and
have not sponsored or participated in, any employee benefit pension plan to
which Section 4021 of ERISA applies that would create a material amount of
liability to Green under Title IV of ERISA.
(c) Neither Green nor the Green Subsidiaries sponsor or participate in, and
have not sponsored or participated in, any employee benefit pension plan that is
a "multiemployer plan" (within the meaning of Section 3(37) of ERISA).
(d) All group health plans of Green and the Green Subsidiaries have been
operated in compliance with the group health plan continuation coverage
requirements of Section 4980B of the Code in all material respects, to the
extent such requirements are applicable.
(e) There have been no acts or omissions by Green or the Green Subsidiaries
or by any fiduciary, disqualified person or party in interest with respect to an
employee benefit plan of Green or any Green Subsidiaries that have given rise to
or may give rise to a material amount of fines, penalties, taxes, or related
charges under Sections 502(c), 502(i) or 4071 of ERISA or under Chapter 43 of
the Code.
(f) No "reportable event," as defined in ERISA Section 4043, other than
those events with respect to which the Pension Benefit Guaranty Corporation has
waived the notice requirement, has occurred with respect to any of the employee
benefit plans of Green.
(g) The Green Disclosure Schedule sets forth the name of each director,
officer or employee of Green or any Green Subsidiary entitled to receive any
material amount of benefit or payment under any existing employment agreement,
severance plan or other benefit plan solely as a result of the consummation of
any transaction contemplated by this Agreement, and with respect to each such
person, the nature of such benefit or the amount of such payment, the event
triggering the benefit or payment, and the date of, and parties to, such
employment agreement, severance plan or other benefit plan.
(h) Green has furnished Whitecap with true and correct copies of all plan
documents and employment agreements referred to on the Green Disclosure
Schedule, including all amendments thereto, and all related summary plan
descriptions to the extent that one is required by law.
(i) For purposes of this Section 3.11, any reference to "Green" shall be
deemed to include a reference to any entity that is aggregated with Green under
the provisions of Section 414 of the Code, to the extent that those aggregation
rules apply.
3.12 Labor Matters. Except as disclosed on Schedule 3.12 of the Green
Disclosure Schedule, neither Green nor any Green Subsidiary is a party to any
collective bargaining agreement with respect to any of their
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employees. None of the employees of Green or any Green Subsidiary is represented
by any labor union. To the knowledge of Green, there is no activity involving
any employees of Green or the Green Subsidiaries seeking to certify a collective
bargaining unit or engaging in any other organizational activity.
3.13 Insurance. Green and the Green Subsidiaries maintain insurance
against such risks and in such amounts as Green reasonably believes are
necessary to conduct its business. Green and the Green Subsidiaries are not in
default with respect to any provisions or requirements of any such policy, nor
have any of them failed to give notice or present any claim thereunder in a due
and timely fashion, except for defaults or failures which, individually or in
the aggregate, would not have a Material Adverse Effect on Green. Neither Green
nor any Green Subsidiary has received any notice of cancellation or termination
in respect of any of its insurance policies. Green's captive insurance
subsidiary is adequately capitalized to insure against such risks as Green
reasonably believes necessary to conduct its business, in accordance with
industry standards.
3.14 Environmental Matters. Except as disclosed on Schedule 3.14 of the
Green Disclosure Schedule, Green and the Green Subsidiaries are in compliance
with all environmental laws, and have obtained all necessary licenses and
permits required to be issued pursuant to any environmental law, except where
the failure to so comply or to obtain such licenses or permits, individually or
in the aggregate, would not have a Material Adverse Effect on Green. Neither
Green nor any Green Subsidiary has received notice or communication from any
governmental agency with, respect to (i) any hazardous substance relative to its
operations, property or assets or (ii) any investigation, demand or request
pursuant to enforcing any environmental law relating to it or its operations,
and no such investigation is pending or, to the knowledge of Green threatened,
in any case, which would lead to a Material Adverse Effect on Green.
3.15 Tax Matters. Green has paid, or made adequate provision for on its
balance sheet at December 31, 1994 included in the Green 10-K, all federal,
state, local, foreign or other governmental income, franchise, payroll,
F.I.C.A., unemployment, withholding, real property, personal property, sales,
payroll, disability and all other taxes imposed on Green or any Green Subsidiary
or with respect to any of their respective properties, or otherwise payable by
them, including interest and penalties, if any, in respect thereof
(collectively, "Green Taxes"), for the Green taxable period ended December 31,
1994 and all fiscal periods of Green prior thereto, except such nonpayment, or
failure to make adequate provision, which, individually or in the aggregate,
would not have a Material Adverse Effect on Green. Green Taxes paid and/or
incurred from December 31, 1994 until the Closing Date shall include only Green
Taxes incurred in the ordinary course of business determined in the same manner
as in the taxable period ended December 31, 1994. Green and each of the Green
Subsidiaries have timely filed all income tax, excise tax, sales tax, use tax,
gross receipts tax, franchise tax, employment and payroll related tax, property
tax, and all other tax returns which Green and/or such Green Subsidiary (as the
case may be) are required to file ("Green Tax Returns"), and have paid or
provided for all the amounts shown to be due thereon, except where such failure
to make such timely filings, individually or in the aggregate, would not have a
Material Adverse Effect on Green, and except for the nonpayment of such amounts
which, individually or in the aggregate, would not have a Material Adverse
Effect on Green. Neither Green nor any Green Subsidiary (i) has filed or entered
into, or is otherwise bound by, any election, consent or extension agreement
that extends any applicable statute of limitations with respect to taxable
periods of Green, (ii) is a party to any contractual obligation requiring the
indemnification or reimbursement of any person with respect to the payment of
any Green Taxes, other than among Green and the Green Subsidiaries, or (iii) has
received any claim by an authority in a jurisdiction where neither Green nor any
Green Subsidiary files Green Tax Returns that they are or may be subject to
Green Taxes by that jurisdiction, except for any such claims as, individually or
in the aggregate, would not have a Material Adverse Effect on Green. No action
or proceeding is pending or, to Green's knowledge, threatened by any
governmental authority for any audit, examination, deficiency, assessment or
collection from Green or any Green Subsidiary of any Green Taxes, no unresolved
claim for any deficiency, assessment or collection of any Green Taxes has been
asserted against Green or any Green Subsidiary, and all resolved assessments of
Green Taxes have been paid or are reflected on the Green balance sheet at
December 31, 1994, except for any of the foregoing which, individually or in the
aggregate, would not have a Material Adverse Effect on Green.
3.16 Intellectual Property. Except as disclosed on Schedule 3.16 of the
Green Disclosure Schedule, Green and the Green Subsidiaries own, possess or have
the right to use all franchises, patents, trademarks,
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service marks, tradenames, licenses and authorizations (collectively, "Green
Intellectual Property Rights") which are necessary, to the conduct of their
respective businesses. To the knowledge of Green, neither Green nor any Green
Subsidiary is infringing or otherwise violating intellectual property rights of
any person which infringement or violation would subject Green or any Green
Subsidiary to liabilities which, individually or in the aggregate, would have a
Material Adverse Effect on Green or which would prevent Green or any Green
Subsidiary from conducting their respective businesses substantially in the
manner in which they are now being conducted. No claim has been made or, to
Green's knowledge, threatened against Green or any Green Subsidiary alleging any
such violation.
3.17 Related Party Transactions. Except as disclosed in the Green SEC
Filings, there have been no material transactions between Green or any Green
Subsidiary on the one hand, and any (i) officer or director of Green or any
Green Subsidiary, (ii) record or beneficial owner of five percent or more of the
voting securities of Green, or (iii) affiliate (as such term is defined in
Regulation 12b-2 promulgated under the Exchange Act) of any such officer,
director or beneficial owner, on the other hand, other than payment of
compensation for services rendered to Green or the Green Subsidiaries or the
grant of stock options to purchase shares of Green Common Stock.
3.18 No Undisclosed Material Liabilities. Except as disclosed in the Green
10-K, neither Green nor any of the Green Subsidiaries has incurred any
liabilities of any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise, that, individually or in the aggregate,
would have a Material Adverse Effect on Green other than (i) liabilities
incurred in the ordinary course of business consistent with past practice since
December 31, 1994, (ii) liabilities that have been repaid, discharged or
otherwise extinguished, and (iii) liabilities under or contemplated by this
Agreement.
3.19 No Default. Neither Green nor any of the Green Subsidiaries is in
default or violation (and no event has occurred which with notice or the lapse
of time or both would constitute a default or violation) of any term, condition
or provision of (a) its charter or By-Laws, (b) any note, bond, mortgage,
indenture, license, agreement, contract, lease, commitment or other obligation
to which Green or any of the Green Subsidiaries is a party or by which they or
any of their properties or assets may be bound, or (c) any order, writ,
injunction, decree, statute, rule or regulation applicable to Green or any of
the Green Subsidiaries, except in the case of clauses (b) and (c) above for
defaults or violations which would not have a Material Adverse Effect on Green.
3.20 Title to Properties; Encumbrances. Except as disclosed in the Green
10-K or the Green SEC Filings and as described in clause (ii) below: (i) each of
Green and the Green Subsidiaries has good, valid and marketable title to, or a
valid leasehold interest in, all of its properties and assets (real, personal
and mixed, tangible and intangible), including, without limitation, all the
properties and assets reflected in the consolidated balance sheet of Green and
the Green Subsidiaries at December 31, 1994 included in the Green 10-K (except
for properties and assets disposed of in the ordinary course of business and
consistent with past practices since December 31, 1994) and (ii) none of such
properties or assets are subject to any liability, obligation, claim, lien,
mortgage, pledge, security interest, conditional sale agreement, charge or
encumbrance of any kind (whether absolute, accrued, contingent or otherwise),
except for liens for taxes not yet due and payable and minor imperfections of
title and encumbrance, if any, which are not substantial in amount, do not
materially detract from the value of the property or assets subject thereto and
do not impair the operations of Green and the Green Subsidiaries. Except as
would not cause a Material Adverse Effect on Green, all of the properties and
assets of Green and the Green Subsidiaries are, in all material respects, in
good operating condition and repair, and maintenance thereon has not been
deferred beyond industry standards, and are suitable for the purposes for which
they are presently being used.
3.21 Pooling of Interests. Neither Green nor any of the Green Subsidiaries
nor, to the knowledge of Green, any of their respective directors, officers or
shareholders has taken any action which would interfere with the parties'
ability to account for the Merger as a pooling of interests in accordance with
Accounting Principles Board Opinion No. 16, the interpretive releases issued
pursuant thereto, and the pronouncements of the Commission.
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3.22 Representations Complete. None of the representations or warranties
made by Green or Merger Sub herein, or certificate furnished by Green or Merger
Sub pursuant to this Agreement, when all such documents are read together in
their entirety, contains or will contain at the Effective Time, to Green or
Merger Sub's knowledge, any untrue statement of a material fact, or omits or
will omit at the Effective Time to state any material fact necessary in order to
make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading.
3.23 Brokers. Neither Green nor any Green Subsidiary has paid or is
obligated to pay any fee or commission to any broker, finder, investment banker
or other intermediary in connection with this Agreement, except that Green has
retained Salomon Brothers Inc and Smith Barney Inc. as its financial advisors
for the transactions contemplated hereby.
3.24 Opinion of Financial Advisors. Green has received the opinions of
each of Salomon Brothers Inc and Smith Barney Inc. to the effect that, as of the
date hereof, the Exchange Ratio is fair to Green, from a financial point of
view.
3.25 Whitecap Stock Ownership. Except as contemplated pursuant to the
terms of this Agreement and the transactions to be consummated hereby, neither
Green nor any of the Green Subsidiaries own any shares of Whitecap Common Stock
or rights to acquire or dispose of Whitecap Common Stock.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF WHITECAP
Whitecap represents and warrants to Green and Merger Sub that, except as
set forth in the Disclosure Schedule delivered herewith (the "Whitecap
Disclosure Schedule"):
4.1 Corporate Organization. Whitecap and each of its Subsidiaries (the
"Whitecap Subsidiaries") is a corporation or partnership duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization, with all requisite corporate or partnership power and authority to
own, operate and lease its properties and to carry on its business as it is now
being conducted, and is qualified or licensed to do business and is in good
standing in each jurisdiction in which the failure to be so qualified or
licensed, individually or in the aggregate, would have a Material Adverse Effect
on Whitecap (a "Material Adverse Effect on Whitecap"). True and complete copies
of the Articles of Incorporation and the Bylaws together with all amendments
thereto of Whitecap and the Articles of Incorporation or Certificates of Limited
Partnership of the Whitecap Subsidiaries, together with all amendments thereto
have been made available to Green. Such charter, Bylaws and certificates are in
full force and effect. The Whitecap Disclosure Schedule 4.1 contains a complete
and accurate list of all of the Whitecap Subsidiaries. Neither Whitecap nor any
Whitecap Subsidiary is in violation of any provision of its charter or Bylaws or
certificate of limited partnership which could have a Material Adverse Effect on
Whitecap.
4.2 Capital Stock. As of the date hereof, the authorized capital stock of
Whitecap consists in its entirety of (i) 25,000,000 shares of common stock, $.01
par value, and (ii) 1,000,000 shares of Special Stock, $1.00 par value, none of
which are issued and outstanding. As of March 31, 1995, (i) 12,481,040 shares of
Whitecap Common Stock were issued and outstanding, (ii) options and warrants to
acquire 347,315 shares of Whitecap Common Stock were outstanding under the
Whitecap Option Plans (as hereinafter defined) and (iii) 572,800 shares of
Whitecap Common Stock were reserved for issuance under all of the Whitecap
Option Plans. Except as set forth on Schedule 4.1 (such Schedule 4.1 to also
include a list of all partners of any Limited Partnership of which Whitecap is a
general partner), all of the outstanding shares of capital stock of each of the
Whitecap Subsidiaries are owned beneficially and of record by Whitecap or a
Whitecap Subsidiary free and clear of all liens, charges, encumbrances, options,
rights of first refusal or limitations or agreements regarding voting rights of
any nature. All of the outstanding shares of capital stock of Whitecap and each
of the Whitecap Subsidiaries have been validly issued and are fully paid and
nonassessable. Whitecap has heretofore delivered to Green, correct and complete
copies of the Stock Option Plans and warrants to purchase Whitecap Common Stock,
in each case as currently in effect. Each option agreement sets forth for each
stock option holder (i) such holder's name, (ii) the date of grant of stock
options to such holder, (iii) the
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number of shares of Whitecap Common Stock into which each such grant is
exercisable, (iv) the exercise price per share of Whitecap Common Stock with
respect to each such grant, and (v) the periods during which such stock options
or portions thereof are exercisable by such holder. Except as set forth in this
Section 4.2 or in Schedule 4.2 of the Whitecap Disclosure Schedule, there are no
options, warrants or other rights, agreements, arrangements or commitments of
any character relating to the issued or unissued capital stock of Whitecap or
any Whitecap Subsidiary or obligating Whitecap or any Whitecap Subsidiary to
issue or sell any shares of capital stock of, or other equity interests in,
Whitecap or any Whitecap Subsidiary. All shares of Whitecap Common Stock subject
to issuance as aforesaid, upon issuance on the terms and conditions specified in
the instruments pursuant to which they are issuable, will be duly authorized,
validly issued, fully paid and nonassessable. Except as set forth in this
Section 4.2, there are no outstanding contractual obligations of Whitecap or any
Whitecap Subsidiary to repurchase, redeem or otherwise acquire any shares of
Whitecap Common Stock or any capital stock of any Whitecap Subsidiary, or make
any material investment (in the form of a loan, capital contribution or
otherwise) in, any Whitecap Subsidiary or any other person. Each outstanding
share of capital stock of each Whitecap Subsidiary is duly authorized, validly
issued, fully paid and nonassessable and, except as set forth in Section 4.2 of
the Whitecap Disclosure Schedule, each such share owned by Whitecap or another
Whitecap Subsidiary is free and clear of all security interests, liens, claims,
pledges, options, rights of first refusal, agreements, limitations on Whitecap's
or such other Whitecap Subsidiary's voting rights, charges and other
encumbrances of any nature whatsoever.
4.3 Options or Other Rights. Except as disclosed in Section 4.2 or in the
Whitecap 10-K (hereinafter defined), there is no outstanding right,
subscription, warrant, call, unsatisfied preemptive right, option or other
agreement or arrangement of any kind to purchase or otherwise to receive from
Whitecap or any Whitecap Subsidiary any of the outstanding, authorized but
unissued, unauthorized or treasury shares of the capital stock or any other
security of Whitecap or any Whitecap Subsidiary and there is no outstanding
security of any kind convertible into or exchangeable for such capital stock.
There are no agreements or understandings among Whitecap or any Whitecap
Subsidiary on the one hand and any other person on the other hand concerning the
registration of any security of Whitecap or a Whitecap Subsidiary under the
Securities Act. Except as set forth on Schedule 4.3 of the Whitecap Disclosure
Schedule, no options granted under the Whitecap Option Plans have provisions
which accelerate the vesting or right to exercise such options upon the
occurrence of certain events, including, but not limited to, the consummation of
the Merger.
4.4 Authority Relative to this Agreement. Whitecap has full corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated on its part hereby. The execution and delivery of this
Agreement by Whitecap and the consummation of the transactions contemplated on
its part hereby have been duly authorized by its Board of Directors, and, other
than the approval of Whitecap's shareholders as provided in Section 5.1 hereof,
no other corporate proceedings on the part of Whitecap are necessary to
authorize the execution and delivery of this Agreement by Whitecap or the
consummation of the transactions contemplated on its part hereby. This Agreement
has been duly executed and delivered by Whitecap, and constitutes legal, valid
and binding obligations of Whitecap, enforceable against Whitecap in accordance
with its terms, except to the extent that such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization or other laws affecting the
enforcement of creditors' rights generally or by general equity principles.
4.5 No Violation. The execution, delivery and performance of this
Agreement by Whitecap and the consummation by it of the transactions
contemplated hereby will not (i) violate or conflict with any provision of any
material law applicable to Whitecap or any Whitecap Subsidiary or by which any
property or assets are bound, (ii) require the consent, waiver, approval,
license or authorization of or any filing by Whitecap or any Whitecap Subsidiary
with any public authority (other than (a) the filing of a Pre-Merger
Notification Report under the HSR Act and the expiration of the applicable
waiting period, (b) filings or authorizations required in connection or in
compliance with the provisions of the Exchange Act, the Securities Act, the
GBCC, the Bylaws of the NYSE or the "takeover" or "blue sky" laws of various
states and (c) any other filings and approvals expressly contemplated by this
Agreement), (iii) require the consent, waiver, approval, license or
authorization of any person or entity other than as listed on Schedule 4.5 of
the Whitecap Disclosure Schedule or, (iv) violate, conflict with or result in a
breach of or the acceleration of any obligation under, or
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constitute a default (or an event which with notice or the lapse of time or both
would become a default) under, or give to others any right of, or result in any,
termination, amendment, acceleration or cancellation of, or loss of any benefit
or creation of a right of first refusal or result in the creation of a lien or
other encumbrance on any property or asset of Whitecap or any Whitecap
Subsidiary pursuant to or under any provision of any charter or bylaw,
indenture, mortgage, lien, lease, license, agreement, contract, instrument,
order, judgment, ordinance, Whitecap Permit (as defined below), law, regulation
or decree to which Whitecap or Whitecap Subsidiary is subject or by which
Whitecap or any Whitecap Subsidiary or any of their property or assets are
bound, except where the failure to give such notice, make such filings, or
obtain such authorizations, consents, waivers, licenses or approvals, or where
such violations, conflicts, breaches, defaults, terminations, amendments,
accelerations, cancellations, loss of rights or liens, individually or in the
aggregate, would not have a Material Adverse Effect on Whitecap or on Whitecap's
ability to consummate the transactions contemplated hereby.
4.6 Compliance with Laws.
(a) Whitecap and each Whitecap Subsidiary hold all licenses, permits and
other authorizations necessary to conduct its business (collectively, "Whitecap
Permits"), are certified as providers under all applicable Medicare and Medicaid
programs to the extent required to be so certified, and are in compliance with
all Whitecap Permits and all federal, state and other laws, rules, regulations,
ordinances and orders governing its business, including, without limitation, the
requirements, guidelines, rules and regulations of Medicare, Medicaid and other
third-party reimbursement programs, except where the failure to hold such
licenses, permits and other authorizations or to so comply, individually or in
the aggregate, would not reasonably be foreseen to have a Material Adverse
Effect on Whitecap.
(b) To Whitecap's knowledge, all health care personnel employed by Whitecap
or any Whitecap Subsidiary are properly licensed to the extent required to
perform the duties of their employment in each jurisdiction where such duties
are performed, except where the failure to be so licensed, individually or in
the aggregate, would not have a Material Adverse Effect on Whitecap.
(c) No action or proceeding is pending or, to Whitecap's knowledge,
threatened that may result in suspension, revocation or termination of any
Whitecap Permit, the issuance of any cease-and-desist order, or the imposition
of any administrative or judicial sanction, and neither Whitecap nor any
Whitecap Subsidiary has received any notice from any governmental authority in
respect of the suspension, revocation or termination of any Whitecap Permit, or
any notice of any intention to conduct any investigation or institute any
proceeding, in any such case where such suspension, revocation, termination,
order, sanction, investigation, or proceeding would result, individually or in
the aggregate, in a Material Adverse Effect on Whitecap. There are no deficiency
notices pending as of April 30, 1995 with respect to Whitecap's Permits which
are not set forth in Schedule 4.6(c) of the Whitecap Disclosure Schedule and
which would result in a Material Adverse Effect on Whitecap.
(d) Neither Whitecap nor any Whitecap Subsidiary has received notice that
Medicare, Medicaid or any other third-party reimbursement program has any claims
for disallowance of costs against any of them which could result in offsets
against future reimbursement or recovery of prior payments, which offsets or
recoveries, individually or in the aggregate, would have a Material Adverse
Effect on Whitecap.
4.7 Litigation. Except as may be disclosed in the Whitecap SEC Filings (as
defined below) or in the audit letters delivered to Green, there are no suits,
arbitrations, mediations, actions, proceedings, unfair labor practice complaints
or grievances pending or, to Whitecap's knowledge, threatened or, to Whitecap's
knowledge, investigations pending or threatened, against Whitecap or any
Whitecap Subsidiary or with respect to any property or asset of any of them
before any court, arbitrator, administrator or governmental or regulatory
authority or body which, individually or in the aggregate, would have a Material
Adverse Effect on Whitecap. Neither Whitecap nor any Whitecap Subsidiary nor any
property or asset of any of them is subject to any order, judgment, injunction
or decree which, individually or in the aggregate, would have a Material Adverse
Effect on Whitecap.
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4.8 Financial Statements and Reports. Whitecap has made available to Green
true and complete copies of (i) its Annual Report on Form 10-K for the year
ended June 30, 1994 (the "Whitecap 10-K"), as filed with the Commission, (ii)
its proxy statement relating to the annual meetings of its shareholders held on
February 16, 1995, (iii) all registration statements filed by Whitecap and
declared effective under the Securities Act (other than registration statements
on Form S-8) and (iv) all other reports, statements and registration statements
(including Current Reports on Form 8-K) filed by it with the Commission. The
reports, statements and registration statements referred to in the immediately
preceding sentence (including, without limitation, any financial statements or
schedules or other information included or incorporated by reference therein)
are referred to in this Agreement as the "Whitecap SEC Filings." As of the
respective times such documents were filed or, as applicable, became effective,
the Whitecap SEC Filings complied as to form and content, in all material
respects, with the requirements of the Securities Act and the Exchange Act, as
the case may be, and the rules and regulations promulgated thereunder, except
for such noncompliance which, individually or in the aggregate, would not have a
Material Adverse Effect on Whitecap, and did 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, in light of the circumstances under
which they were made, not misleading. The financial statements of Whitecap
included in the Whitecap SEC Filings were prepared in accordance with generally
accepted accounting principles (as in effect from time to time) applied on a
consistent basis and (except as may be indicated therein or in the notes
thereto) present fairly the consolidated financial position, consolidated
results of operations and consolidated cash flows of Whitecap and the Whitecap
Subsidiaries as of the dates and for the periods indicated subject, in the case
of unaudited interim consolidated financial statements, to normal recurring
year-end adjustment and any other adjustment described therein.
4.9 Absence of Certain Changes or Events. Other than as disclosed in the
Whitecap 10-K or in the Whitecap SEC Filings filed with the Commission
subsequent to June 30, 1994 or otherwise disclosed in this Agreement or on the
Whitecap Disclosure Schedule, since December 31, 1994 and through the date
hereof, the business of Whitecap and of each of the Whitecap Subsidiaries has
been conducted in the ordinary course, and there has not been (i) any change in
the financial condition, results of operations, properties or business of
Whitecap and the Whitecap Subsidiaries, taken as a whole that has resulted in a
Material Adverse Effect on Whitecap; (ii) any material indebtedness incurred by
Whitecap or any Whitecap Subsidiary for money borrowed, except under credit
facilities disclosed in the Whitecap SEC Filings; (iii) any material transaction
or commitment, except in the ordinary course of business or as contemplated by
this Agreement, entered into by Whitecap or any of the Whitecap Subsidiaries;
(iv) any damage, destruction or loss, whether covered by insurance or not,
which, individually or in the aggregate, would have a Material Adverse Effect on
Whitecap; (v) any declaration, setting aside or payment of any dividend (whether
in cash, securities or property) with respect to the Whitecap Common Stock (vi)
any material agreement to acquire any assets or stock or other interests of any
third-party; (vii) any increase in the compensation payable or to become payable
by Whitecap or any Whitecap Subsidiary to any employees, officers, directors, or
consultants or in any bonus, insurance, welfare, pension or other employee
benefit plan, payment or arrangement made to, for or with any such employee,
officer, director or consultant (other than as provided in employment
agreements, consulting agreements and welfare and benefit plans set forth on the
Whitecap Disclosure Schedule, and except for increases consistent with past
practice); (viii) any material revaluation by Whitecap or any Whitecap
Subsidiary of any asset (including, without limitation, any writing down of the
value of inventory or writing off of notes or accounts receivable); (ix) any
material change by Whitecap in accounting principles or methods except insofar
as may be required by a change in generally accepted accounting principles; (x)
any mortgage or pledge of any of the assets or properties of Whitecap or any
Whitecap Subsidiary or the subjection of any of the assets or properties of
Whitecap or any Whitecap Subsidiary to any material liens, charges,
encumbrances, imperfections of title, security interest, options or rights or
claims of others with respect thereto; or (xi) any assumption or guarantee by
Whitecap or a Whitecap Subsidiary of the indebtedness of any person or entity.
4.10 Employee Benefit Plans and Employment Matters.
(a) The Whitecap Disclosure Schedule lists all employee benefit plans,
collective bargaining agreements, labor contracts, and employment agreements not
otherwise disclosed in the Whitecap SEC Filings,
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which provide for the annual payment of more than $200,000 in which Whitecap or
any Whitecap Subsidiary participates, or by which any of them are bound,
including, without limitation, (i) any profit sharing, deferred compensation,
bonus, stock option, stock purchase, pension, welfare, and incentive plan or
agreement; (ii) any plan providing for "fringe benefits" to their employees,
including, but not limited to, vacation, sick leave, medical, hospitalization
and life insurance; (iii) any written employment agreement and any other
employment agreement not terminable at will; and (iv) any other "employee
benefit plan" (within the meaning of Section 3(3) of ERISA) that is not exempted
from the coverage of ERISA by reason of the Department of Labor regulations.
Whitecap and the Whitecap Subsidiaries are in compliance in all material
respects with the requirement prescribed by all laws currently in effect
applicable to employee benefit plans and to any employment agreement, including,
but not limited to, ERISA and the Code. Whitecap and the Whitecap Subsidiaries
have each performed all of its obligations under all such employee benefit plans
and employment agreements in all material respects. There is no pending or, to
the knowledge of Whitecap, threatened legal action, proceeding or investigation
against or involving any Whitecap or Whitecap Subsidiary employee benefit plan
which could result in a material amount of liability to such employee benefit
plan or to Whitecap.
(b) Neither Whitecap nor the Whitecap Subsidiaries sponsor or participate
in, and have not sponsored or participated in, any employee benefit pension plan
to which Section 4021 of ERISA applies that would create a material amount of
liability to Whitecap under Title IV of ERISA.
(c) Neither Whitecap nor the Whitecap Subsidiaries sponsor or participate
in, and have not sponsored or participated in, any employee benefit pension plan
that is a "multiemployer plan" (within the meaning of Section 3(37) of ERISA).
(d) All group health plans of Whitecap and the Whitecap Subsidiaries have
been operated in compliance with the group health plan continuation coverage
requirements of Section 4980B of the Code in all material respects, to the
extent such requirements are applicable.
(e) There have been no acts or omissions by Whitecap or any Whitecap
Subsidiary or by any fiduciary, disqualified person or party in interest with
respect to an employee benefit plan of Whitecap or any Whitecap Subsidiaries
that have given rise to or may give rise to a material amount of fines,
penalties, taxes, or related charges under Sections 502(c), 502(i) or 4071 of
ERISA or under Chapter 43 of the Code.
(f) No "reportable event," as defined in ERISA Section 4043, other than
those events with respect to which the Pension Benefit Guaranty Corporation has
waived the notice requirement, has occurred with respect to any of the employee
benefit plans of Whitecap.
(g) The Whitecap Disclosure Schedule sets forth the name of each director,
officer or employee of Whitecap or any Whitecap Subsidiary entitled to receive
any material amount of benefit or payment under any existing employment
agreement, severance plan or other benefit plan solely as a result of the
consummation of any transaction contemplated by this Agreement, and with respect
to each such person, the nature of such benefit or the amount of such payment,
the event triggering the benefit or payment, and the date of, and parties to,
such employment agreement, severance plan or other benefit plan.
(h) Whitecap has furnished Green with true and correct copies of all plan
documents and employment agreements referred to on the Whitecap Disclosure
Schedule, including all amendments thereto, and all related summary plan
descriptions to the extent that one is required by law.
(i) For purposes of this Section 4.10, any reference to "Whitecap" shall be
deemed to include a reference to any entity that is aggregated with Whitecap
under the provisions of Section 414 of the Code, to the extent that those
aggregation rules apply.
4.11 Labor Matters. Neither Whitecap nor any Whitecap Subsidiary is a
party to any collective bargaining agreement with respect to any of their
employees. None of the employees of Whitecap or any Whitecap Subsidiary is
represented by any labor union. To the knowledge of Whitecap, there is no
activity involving any employees of Whitecap or the Whitecap Subsidiaries
seeking to certify a collective bargaining unit or engaging in any other
activity.
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4.12 Insurance. Whitecap and the Whitecap Subsidiaries maintain insurance
against such risks and in such amounts as Whitecap reasonably believes are
necessary to conduct its business. Whitecap and the Whitecap Subsidiaries are
not in default with respect to any provisions or requirements of any such policy
nor have any of them failed to give notice or present any claim thereunder in a
due and timely fashion, except for defaults or failures which, individually or
in the aggregate, would not have a Material Adverse Effect on Whitecap. Neither
Whitecap nor any Whitecap Subsidiary has received any notice of cancellation or
termination in respect of any of its insurance policies.
4.13 Environmental Matters. Whitecap and the Whitecap Subsidiaries are in
compliance with all environmental laws, and have obtained all necessary licenses
and permits required to be issued pursuant to any environmental law, except
where the failure to so comply or to obtain such licenses or permits,
individually or in the aggregate, would not have a Material Adverse Effect on
Whitecap. Neither Whitecap nor any Whitecap Subsidiary has received notice or
communication from any governmental agency with respect to (i) any hazardous
substance relative to its operations, property or assets or (ii) any
investigation, demand or request pursuant to enforcing any environmental law
relating to it or its operations, and no such investigation is pending or, to
the knowledge of Whitecap threatened, in any case, which would lead to a
Material Adverse Effect on Whitecap.
4.14 Tax Matters. Whitecap has paid, or made adequate provision for on its
June 30, 1994 balance sheet, all federal, state, local, foreign or other
governmental income, franchise, payroll, F.I.C.A., unemployment, withholding,
real property, personal property, sales, payroll, disability and all other taxes
imposed on Whitecap or any Whitecap Subsidiary or with respect to any of their
respective properties, or otherwise payable by them, including interest and
penalties, if any, in respect thereof (collectively, "Whitecap Taxes"), for the
Whitecap taxable period ended June 30, 1994 and all fiscal periods of Whitecap
prior thereto, except such nonpayment, or failure to make adequate provision,
which, individually or in the aggregate, would not have a Material Adverse
Effect on Whitecap. Whitecap Taxes paid and/or incurred from June 30, 1994 until
the Closing Date shall include only Whitecap Taxes incurred in the ordinary
course of business determined in the same manner as in the taxable period ending
on June 30, 1994. Whitecap and each of the Whitecap Subsidiaries have timely
filed all income tax, excise tax, sales tax, use tax, gross receipts tax,
franchise tax, employment and payroll related tax, property tax, and all other
tax returns which Whitecap and/or such Whitecap Subsidiary (as the case may be)
are required to file ("Whitecap Tax Returns"), and have paid or provided for all
the amounts shown to be due thereon, except where such failure to make such
timely filings, individually or in the aggregate, would not have a Material
Adverse Effect on Whitecap, and except for the nonpayment of such amounts which,
individually or in the aggregate, would not have a Material Adverse Effect on
Whitecap. Neither Whitecap nor any Whitecap Subsidiary (i) has filed or entered
into, or is otherwise bound by, any election, consent or extension agreement
that extends any applicable statute of limitations with respect to taxable
periods of Whitecap, (ii) is a party to any contractual obligation requiring the
indemnification or reimbursement of any person with respect to the payment of
any Whitecap Taxes, other than among Whitecap and the Whitecap Subsidiaries,
(iii) has elected to be treated as a consenting corporation under Section 341(f)
of the Code, or (iv) has received any claim by an authority in a jurisdiction
where neither Whitecap nor any Whitecap Subsidiary files Whitecap Tax Returns
that they are or may be subject to Whitecap Taxes by that jurisdiction, except
for any such claims as, individually or in the aggregate, would not have a
Material Adverse Effect on Whitecap. No action or proceeding is pending or, to
Whitecap's knowledge, threatened by any governmental authority for any audit,
examination, deficiency, assessment or collection from Whitecap or any Whitecap
Subsidiary of any Whitecap Taxes, no unresolved claim for any deficiency,
assessment or collection of any Whitecap Taxes has been asserted against
Whitecap or any Whitecap Subsidiary, and all resolved assessments of Whitecap
Taxes have been paid or are reflected on the Whitecap balance sheet at June 30,
1994 included in its Annual Report on Form 10-K for the period ended on such
date, except for any of the foregoing which, individually or in the aggregate,
would not have a Material Adverse Effect on Whitecap.
4.15 Intellectual Property. Whitecap and the Whitecap Subsidiaries own,
possess or have the right to use all franchises, patents, trademarks, service
marks, tradenames, licenses and authorizations (collectively, "Whitecap
Intellectual Property Rights") which are necessary to the conduct of their
respective businesses.
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To the knowledge of Whitecap, neither Whitecap nor any Whitecap Subsidiary is
infringing or otherwise violating the intellectual property rights of any person
which infringement or violation would subject Whitecap or any Whitecap
Subsidiary to liabilities which, individually or in the aggregate, would have a
Material Adverse Effect on Whitecap or which would prevent Whitecap or any
Whitecap Subsidiary from conducting their respective businesses substantially in
the manner in which they are now being conducted. No claim has been made or, to
Whitecap's knowledge, threatened against Whitecap or any Whitecap Subsidiary
alleging any such violation.
4.16 Related Party Transactions. Except as disclosed in the Whitecap SEC
Filings, there have been no material transactions between Whitecap or any
Whitecap Subsidiary on the one hand, and any (i) officer or director of Whitecap
or any Whitecap Subsidiary, (ii) record or beneficial owner of five percent or
more of the voting securities of Whitecap or (iii) affiliate (as such term is
defined in Regulation 12b-2 promulgated under the Exchange Act) of any such
officer, director or beneficial owner, on the other hand, other than payment of
compensation for services rendered to Whitecap or the Whitecap Subsidiaries.
4.17 No Undisclosed Material Liabilities. Except as disclosed in the
Whitecap SEC Filings, neither Whitecap nor any of the Whitecap Subsidiaries has
incurred any liabilities of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise, that, individually or in the
aggregate, would have a Material Adverse Effect on Whitecap other than (i)
liabilities incurred in the ordinary course of business consistent with past
practice since December 31, 1994, (ii) liabilities that have been repaid,
discharged or otherwise extinguished and (iii) liabilities under this Agreement.
4.18 No Default. Neither Whitecap nor any of the Whitecap Subsidiaries is
in default or violation (and no event has occurred which with notice or the
lapse of time or both would constitute a default or violation) of any term,
condition or provision of (a) its charter or By-Laws, (b) any note, bond,
mortgage, indenture, license, agreement, contract, lease, commitment or other
obligation to which Whitecap or any of the Whitecap Subsidiaries is a party or
by which they or any of their properties or assets may be bound, or (c) any
order, writ, injunction, decree, statute, rule or regulation applicable to
Whitecap or any of the Whitecap Subsidiaries, except in the case of clauses (b)
and (c) above for defaults or violations which would not have a Material Adverse
Effect on Whitecap.
4.19 Title to Properties; Encumbrances. Schedule 4.19 of the Whitecap
Disclosure Schedule sets forth all real property owned or leased by Whitecap and
the Whitecap Subsidiaries (the "Real Property"), indicating which facilities are
owned and which are leased. Except as disclosed in the Whitecap SEC Filings and
as described in clause (ii) below: (i) each of Whitecap and the Whitecap
Subsidiaries has good, valid and marketable title to, or a valid leasehold
interest in, as applicable, all of its properties and assets (real, personal and
mixed, tangible and intangible), including, without limitation, all Real
Property and all the other properties and assets reflected in the consolidated
balance sheet of Whitecap and the Whitecap Subsidiaries at December 31, 1994
(except for properties and assets disposed of in the ordinary course of business
and consistent with past practices since December 31, 1994) and (ii) none of
such properties or assets are subject to any liability, obligation, claim, lien,
mortgage, pledge, security interest, conditional sale agreement, charge or
encumbrance of any kind (whether absolute, accrued, contingent or otherwise),
except for liens for taxes not yet due and payable and minor imperfections of
title and encumbrance, if any, which are not substantial in amount, do not
materially detract from the value of the property or assets subject thereto and
do not impair the operations of Whitecap and the Whitecap Subsidiaries. A true
and complete copy of each of the Whitecap real property leases has been made
available to Merger Sub and Green. Each of the leases is in full force and
effect and there is no default by landlord or tenant existing thereunder (and no
event has occurred which, with notice and the passage of time or both, would
constitute a default under such Lease) which would have a Material Adverse
Effect on Whitecap. Except as would not cause a Material Adverse Effect on
Whitecap, all of the properties and assets of Whitecap and the Whitecap
Subsidiaries are, in all material respects, in good operating condition and
repair, and maintenance thereon has not been deferred beyond industry standards,
and are suitable for the purposes for which they are presently being used.
4.20 Pooling of Interests. Neither Whitecap nor any of the Whitecap
Subsidiaries nor, to the knowledge of Whitecap, any of their respective
directors, officers or shareholders has taken any action which
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would interfere with the parties' ability to account for the Merger as a pooling
of interests in accordance with Accounting Principles Board Opinion No. 16, the
interpretive releases issued pursuant thereto, and the pronouncements of the
Commission.
4.21 Representations Complete. None of the representations or warranties
made by Whitecap herein or in any Schedule hereto, including the Whitecap
Disclosure Schedule, or certificate furnished by Whitecap pursuant to this
Agreement, or the Whitecap SEC Filings, when all such documents are read
together in their entirety, contains or will contain at the Effective Time, to
Whitecap's knowledge, any untrue statement of a material fact, or omits or will
omit at the Effective Time to state any material fact necessary in order to make
the statements contained herein or therein, in the light of the circumstances
under which made, not misleading.
4.22 Brokers. Neither Whitecap nor any Whitecap Subsidiary has paid or is
obligated to pay any fee or commission to any broker, finder, investment banker
or other intermediary in connection with this Agreement, except that Whitecap
has retained The Chicago Dearborn Company and McDonald & Co. Securities, Inc. as
its financial advisors for the transactions contemplated hereby.
4.23 Opinion of Financial Advisors. Whitecap has received the opinions of
each of The Chicago Dearborn Company and McDonald & Company Securities, Inc. to
the effect that, as of the date hereof, the Merger is fair to the holders of
Whitecap Common Stock, from a financial point of view.
4.24 Contracts. Except as set forth in Schedule 4.24 of the Whitecap
Disclosure Schedule, neither Whitecap nor any Whitecap Subsidiary has entered
into any agreement for pharmacy services, which agreement is not terminable upon
30 days notice, which agreements separately or in the aggregate are material to
Whitecap and the Whitecap Subsidiaries, taken as a whole.
ARTICLE V
COVENANTS AND AGREEMENTS
5.1 Joint Proxy Statement/Prospectus; Registration Statement;
Shareholders' Meeting.
(a) Each of Green and Whitecap agree that this Agreement shall be submitted
to their respective shareholders for approval at a meeting (the "Meeting") duly
called and held pursuant to applicable state law. As soon as practicable after
the date of this Agreement, each of Whitecap and Green shall take all action, to
the extent necessary in accordance with applicable law and their respective
charters and Bylaws, to convene each Meeting promptly to consider and vote upon
the approval of the Merger and such other matters as may be necessary or
desirable to consummate the Merger and the transactions contemplated hereby. As
soon as practicable after the date of this Agreement, Whitecap and Green shall
jointly prepare and file with (i) the Commission, subject to the prior approval
of the other party, which approval shall not be unreasonably withheld,
preliminary joint proxy materials relating to each Meeting as required by the
Exchange Act, and a registration statement on Form S-4 (as amended or
supplemented, the "Registration Statement") relating to the registration under
the Securities Act of the shares of Green Common Stock issuable to the holders
of the Whitecap Shares, and (ii) state securities administrators, such
registration statements or other documents as may be required under applicable
blue sky laws to qualify or register the shares of Green Common Stock issuable
to the holders of the Whitecap Shares (the "Blue Sky Filings"). Whitecap, Merger
Sub and Green will use their reasonable best efforts to cause the Registration
Statement to become effective as soon as practicable. Promptly after the
Registration Statement has become effective and all applicable blue sky laws
have been complied with, Whitecap and Green shall mail the joint proxy
statement/prospectus included in the Registration Statement to their respective
shareholders. Such joint proxy statement/prospectus at the time it initially is
mailed to the shareholders of Whitecap and the shareholders of Green and all
duly filed amendments or revisions made thereto, if any, similarly mailed are
hereinafter referred to as the "Proxy Statement." Notice of the Whitecap Meeting
shall be mailed to the shareholders of Whitecap and notice of the Green Meeting
shall be mailed to the shareholders of Green along with the Proxy Statement.
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(b) Each party represents and warrants that the information supplied or to
be supplied by it for and included or incorporated by reference in the
Registration Statement, the Blue Sky Filings, the Proxy Statement and any other
documents to be filed with the Commission or any regulatory agency in connection
with the transactions contemplated, or any amendments thereto, hereby will, at
the respective times such documents are filed or, as applicable, declared
effective and, as of the Effective Time, and, with respect to the Proxy
Statement, when first published, sent or given to the shareholders of Whitecap
and the shareholders of Green and at the time of the Meetings, not be false or
misleading with respect to any material fact, or omit to state any material fact
necessary in order to make the statements therein not misleading.
(c) Each party covenants and agrees that (i) if, at any time prior to the
Effective Time, any event relating to it or any of its affiliates, officers or
directors is discovered that should be set forth in an amendment to the
Registration Statement or Blue Sky Filings or a supplement to the Proxy
Statement, such party will promptly inform the other parties, and such amendment
or supplement will be promptly filed with the Commission and appropriate state
securities administrators and disseminated to the shareholders of Whitecap and
Green, to the extent required by applicable federal and state securities laws,
and (ii) documents which either party files or is responsible for filing with
the Commission and any regulatory agency in connection with the Merger
(including, without limitation, the Proxy Statement) will comply as to form and
content in all material respects with the provisions of applicable law.
Notwithstanding the foregoing, no party makes any representations or warranties
with respect to any information that has been supplied by the other party or by
its auditors, attorneys, financial advisors, other consultants or advisors
specifically for use in the Registration Statement, Blue Sky Filing, the Proxy
Statement, or any other documents to be filed with the Commission or any
regulatory agency in connection with the transactions contemplated hereby.
(d) Whitecap hereby represents that its Board of Directors has, (i)
determined that the Merger is fair to and in the best interests of Whitecap's
shareholders, (ii) approved the Merger and (iii) resolved to and will recommend
in the Proxy Statement adoption of this Agreement and authorization of the
Merger by the shareholders of Whitecap; provided, however, that such
determination, approval or recommendation may be amended, modified or withdrawn
to the extent required by the fiduciary obligations of Whitecap's Board of
Directors under applicable law, as advised as to legal matters by outside
counsel. Green hereby represents that its Board of Directors has (i) determined
that the Merger is fair to and in the best interests of Green's shareholders,
(ii) approved the Merger and (iii) resolved to and will recommend in the Proxy
Statement adoption of this Agreement and authorization of the Merger by the
shareholders of Green, provided, however, that such determination, approval or
recommendation may be amended, modified or withdrawn to the extent required by
the fiduciary obligations of Green's Board of Directors under applicable law, as
advised as to legal matters by outside counsel.
(e) Whitecap shall use all reasonable efforts to cause to be delivered to
Green a letter of KPMG Peat Marwick, Whitecap's independent accountants, dated a
date within two (2) business days before the date on which the Registration
Statement shall become effective and addressed to Green, of the kind
contemplated by the Statement of Auditing Standards with respect to Letters to
Underwriters promulgated by the American Institute of Certified Public
Accountants (the "AICPA Statement"), in form and substance reasonably
satisfactory to Green and customary in scope and substance for letters delivered
by independent public accountants in connection with registration statements
similar to the Registration Statement. Green shall use all reasonable efforts to
cause to be delivered to Whitecap a letter of Ernst & Young LLP, Green's
independent accountants, dated a date within two (2) business days before the
date on which the Registration Statement shall become effective and addressed to
Whitecap, of the kind contemplated by the AICPA Statement, in form and substance
reasonably satisfactory to Whitecap and customary in scope and substance for
letters delivered by independent public accountants in connection with
registration statements similar to the Registration Statement. Whitecap shall,
and shall cause KPMG Peat Marwick and its other representatives to, fully
cooperate with Green, Ernst & Young LLP and its other representatives in seeking
to obtain confirmation from the Commission that the Merger can be accounted for
as a "pooling of interests."
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5.2 Conduct of the Business of Whitecap Prior to the Effective Time. Prior
to the Effective Time, except as set forth on Schedule 5.2 of the Whitecap
Disclosure Schedules or otherwise consented to or approved in writing by Green,
which consent shall not be unreasonably withheld, or expressly permitted by, or
required to consummate the transactions contemplated by, this Agreement:
(a) Whitecap and the Whitecap Subsidiaries shall conduct their
respective businesses in the ordinary course and consistent in all material
respects with past practice and shall use all reasonable efforts to
preserve substantially intact their respective business organizations, to
keep available the services of their present officers, employees and
consultants and to preserve their present relationships with customers,
suppliers, payors and other persons with whom they have a significant
business relationship; provided, however, that the loss of any officer,
employee, consultant, customer, payor or supplier prior to the Effective
Time shall not constitute a breach of this covenant;
(b) Neither Whitecap nor any Whitecap Subsidiary shall (i) amend its
charter or Bylaws, (ii) declare, set aside or pay any dividend or other
distribution or payment in cash, securities or property in respect of
shares of the Whitecap Common Stock, (iii) make any direct or indirect
redemption, retirement, purchase or other acquisition of any of its capital
stock (except if required by written agreement existing as of the date
hereof) or (iv) reclassify, combine, split, subdivide or redeem, purchase
or otherwise acquire, directly or indirectly any of its outstanding shares
of capital stock;
(c) Neither Whitecap nor any Whitecap Subsidiary shall, directly or
indirectly, (i) issue, grant, sell or pledge or agree or propose to issue,
grant, sell or pledge any shares of, or rights or securities of any kind to
acquire any shares of, the capital stock of Whitecap or such Whitecap
Subsidiary, except that Whitecap may grant stock options to employees and
consultants under the Whitecap Option Plans (as defined in Section 5.7) and
may issue shares of Whitecap Common Stock upon the exercise of stock
options outstanding on the date hereof pursuant to the terms thereof
existing as of the date hereof or issued hereafter in accordance herewith,
(ii) other than in the ordinary course of business and consistent with past
practices incur any material indebtedness for borrowed money, except under
credit facilities existing as of the date hereof and as they may be amended
from time to time or pursuant to a substitute credit facility on terms
comparable to such existing credit facilities, (iii) waive, release, grant
or transfer any rights of material value, except in the ordinary course of
business, (iv) except as provided in clause (v) below, merge or consolidate
with any person or adopt a plan of liquidation or dissolution, (v) acquire
(or enter into an agreement to acquire) any assets, stock or other
interests of a third-party except for cash transactions involving total
cash consideration in any individual transaction not in excess of $25
million or taking all such acquisitions in the aggregate, involving
consideration not in excess of $25 million, and which are of a nature so as
not to require a merger or consolidation with Whitecap or to cause the
Registration Statement or the Proxy Statement to need to be amended by
Green, (vi) transfer, lease, license, sell or dispose of a material portion
of assets or any material assets, other than in the ordinary course of
business and consistent with past practices, (vii) change any accounting
principles or methods except insofar as may be required by changes in
generally accepted accounting principles or (viii) mortgage or pledge any
of their assets or properties or subject any of their assets or properties
to any material liens, charges, encumbrances, imperfections of title,
security interests, options or rights or claims of others with respect
thereto (and shall maintain such assets in good condition, reasonable wear
and tear excepted);
(d) Neither Whitecap nor any Whitecap Subsidiary will, directly or
indirectly, (i) increase the cash compensation payable or to become payable
by it to any of its employees, officers, consultants or directors (except
in accordance with employment or consulting agreements, and welfare and
benefit plans set forth on the Whitecap Disclosure Schedule, and except for
increases consistent with past practice and which are otherwise reasonably
necessary for the operation of the business of Whitecap and the Whitecap
Subsidiaries), (ii) enter into, adopt or amend any stock option, stock
purchase, profit sharing, pension, retirement, deferred compensation,
restricted stock or severance plan, agreement or arrangement for the
benefit of employees, officers, directors or consultants of Whitecap or any
Whitecap Subsidiary, (iii) enter into or amend any employment or consulting
agreement, except in the ordinary course of business, or (iv) make any loan
or advance to, or enter into any written contract, lease or commitment
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with, any officer, employee, consultant or director of Whitecap or any
Whitecap Subsidiary, except in the ordinary course of business;
(e) Neither Whitecap nor any Whitecap Subsidiary shall, directly or
indirectly, assume, guarantee, endorse or otherwise become responsible for
the obligations of any other individual, corporation or other entity, or
make any loans or advances to any individual, corporation or other entity
except in the ordinary course of business and consistent with past
practices;
(f) Neither Whitecap nor any Whitecap Subsidiary shall take any action
which would interfere with the parties' abilities to account for the merger
as a pooling of interests; and
(g) Neither Whitecap nor any Whitecap Subsidiary shall authorize or
enter into any agreement to do any of the things described in clauses (a)
through (f) of this Section 5.2.
5.3 Conduct of the Business of Green Prior to the Effective Time. Prior to
the Effective Time, except as otherwise consented to or approved in writing by
Whitecap, which consent shall not be unreasonably withheld, or expressly
permitted by, or required to consummate the transactions contemplated by this
Agreement:
(a) Green and the Green Subsidiaries shall conduct their respective
businesses in the ordinary course and consistent in all material respects
with past practice and shall use all reasonable efforts to preserve
substantially intact their respective business organizations, to keep
available the services of their present officers, employees and consultants
and to preserve their present relationships with customers, suppliers and
other persons with whom they have a significant business relationship;
provided, however, that the loss of any officer, employee, consultant,
customer or supplier prior to the Effective Time shall not constitute a
breach of this covenant;
(b) Neither Green nor any Green Subsidiary shall (i) amend its charter
or Bylaws, (ii) declare, set aside or pay any dividend or other
distribution or payment in cash, securities or property in respect of
shares of the Green Common Stock, (iii) make any direct or indirect
redemption, retirement, purchase or other acquisition of any of its capital
stock, except if required by a written agreement existing as of the date
hereof, or (iv) reclassify, combine, split, subdivide or redeem, purchase
or otherwise acquire, directly or indirectly any of its outstanding shares
of capital stock;
(c) Neither Green nor any Green Subsidiary shall, directly or
indirectly, (i) issue, grant, sell or pledge or agree or propose to issue,
grant, sell or pledge any shares of, or rights or securities of any kind to
acquire any shares of, the capital stock of Green, except that Green may
grant stock options to employees under the Stock Incentive Plan and the
1994 Plan and may issue shares of Green Common Stock upon the exercise of
stock options outstanding on the date hereof or issued hereinafter in
accordance herewith (ii) other than in the ordinary course of business and
consistent with past practice, incur any material indebtedness for borrowed
money, except under credit facilities existing as of the date hereof and as
they may be amended from time to time or pursuant to a substitute credit
facility on terms comparable to such existing credit facilities, (iii)
waive, release, grant or transfer any rights of material value, except in
the ordinary course of business, (iv) except as provided in clause (vii)
below, merge or consolidate with any person or adopt a plan of liquidation
or dissolution, (v) transfer, lease, license, sell or dispose of any
material assets other than in the ordinary course of business and
consistent with past practice, (vi) change any accounting principles or
methods except insofar as may be required by changes in generally accepted
accounting principles, (vii) without the consent of the Whitecap Directors
(hereinafter defined), acquire (or enter into an agreement to acquire) any
assets, stock or other interests of a third-party except for cash
transactions involving total cash consideration in any individual
transaction not in excess of $25 million or taking all such acquisitions in
the aggregate, involving consideration not in excess of $25 million, and
which are of a nature so as not to require a merger or consolidation with
Green or to cause the Registration Statement or the Proxy Statement to need
to be amended by Green, or (viii) mortgage or pledge any of their assets or
properties or subject any of their assets or properties to any material
liens, charges, encumbrances, imperfections of title, security interests,
options or rights or claims of others with respect thereto (and shall
maintain such assets in good condition, reasonable wear and tear excepted);
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(d) Neither Green nor any Green Subsidiary shall take any action which
would interfere with the parties' abilities to account for the merger as a
pooling of interests;
(e) Neither Green nor any Green Subsidiary will, directly or
indirectly, (i) increase the cash compensation payable or to become payable
by it to any of its employees, officers, consultants or directors (except
in accordance with employment or consulting agreements, and welfare and
benefit plans set forth on the Green Disclosure Schedule, and except for
increases consistent with past practice and which are otherwise reasonably
necessary for the operation of the business of Green and the Green
Subsidiaries), (ii) enter into, adopt or amend any stock option, stock
purchase, profit sharing, pension, retirement, deferred compensation,
restricted stock or severance plan, agreement or arrangement for the
benefit of employees, officers, directors or consultants of Green or any
Green Subsidiary, (iii) enter into or amend any employment or consulting
agreement, except in the ordinary course of business, or (iv) make any loan
or advance to, or enter into any written contract, lease or commitment
with, any officer, employee, consultant or director of Green or any Green
Subsidiary, except in the ordinary course of business;
(f) Neither Green nor any Green Subsidiary shall, directly or
indirectly, assume, guarantee, endorse or otherwise become responsible for
the obligations of any other individual, corporation or other entity, or
make any loans or advances to any individual, corporation or other entity
except in the ordinary course of business and consistent with past
practices; and
(g) Neither Green nor any Green Subsidiary shall enter into an
agreement to do any of the things described in clauses (a) through (f) of
this Section 5.3.
5.4 Access to Properties and Records. Each party shall afford to the other
and their respective accountants, counsel and representatives ("Respective
Representatives"), reasonable access during normal business hours throughout the
period prior to the Effective Time to all of their respective properties
(including, without limitation, books, contracts, commitments and written
records) and shall make reasonably available their respective officers and
employees to answer fully and promptly questions put to them thereby; provided,
however, that no investigation pursuant to this Section 5.4 shall alter any
representation or warranty of any party hereto or the conditions to the
obligations of the parties hereto.
5.5 No Solicitation of Transactions. (a) None of Whitecap or any Whitecap
Subsidiary shall, directly or indirectly, through any officer, director, agent
or otherwise, initiate or solicit or knowingly encourage (including by way of
furnishing non-public information or assistance), or take any other action to
facilitate knowingly, any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Third Party
Transaction (as such term is defined below in this Section 5.5), or enter into
or maintain or continue discussions or negotiate with any person or entity in
furtherance of such inquiries or to obtain a Third Party Transaction, or agree
to or endorse any Third Party Transaction, or authorize or permit any of the
officers, directors or employees of Whitecap or any Whitecap Subsidiary or any
investment banker, financial advisor, attorney, accountant or other
representative retained by Whitecap or any Whitecap Subsidiary to take any such
action, and Whitecap shall notify Green orally (within one business day) and in
writing (as promptly as practicable) of all relevant details relating to all
inquiries and proposals which it or any Whitecap Subsidiary or any such officer,
director, employee, investment banker, financial advisor, attorney, accountant
or other representative may receive relating to any of such matters and if such
inquiry or proposal is in writing, Whitecap shall forthwith deliver to Green a
copy of such inquiry or proposal; provided, however, that nothing contained in
this Section 5.5 shall prohibit the Board of Directors of Whitecap from (i)
furnishing information to, or entering into discussions or negotiations with,
any person or entity that makes an unsolicited inquiry or expression of interest
to acquire Whitecap pursuant to a merger, consolidation, share exchange,
business combination, tender or exchange offer or other similar transaction, if,
and only to the extent that (A) the Board of Directors of Whitecap, determines
in its good faith judgment, based as to legal matters on the advice of legal
counsel, that such action is required for the Board of Directors of Whitecap to
comply with its fiduciary duties to shareholders under applicable law and (B)
prior to furnishing such information to, or entering into discussions or
negotiations with, such person or entity, Whitecap (x) provides reasonable
notice to Green to the effect that it is furnishing information to, or entering
into discussions or negotiations with, such person or entity and (y) receives
from such person or entity an executed confidentiality agreement in
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reasonably customary form on terms not more favorable to such person or entity
than the terms contained in the Confidentiality Agreement, (ii) complying with
Rule 14e-2 promulgated under the Exchange Act with regard to a tender or
exchange offer or (iii) failing to make or withdrawing or modifying its
recommendation referred to in Section 5.1(d) if there exists a Third Party
Transaction and the Board of Directors of Whitecap determines, in its good faith
judgment, based as to legal matters on the advice of legal counsel, that such
action is required for the Board of Directors of Whitecap to comply with its
fiduciary duties to shareholders under applicable law.
(b) None of Green or any Green Subsidiary shall, directly or indirectly,
through any officer, director, agent or otherwise, initiate or solicit or
knowingly encourage (including by way of furnishing non-public information or
assistance), or take any other action to facilitate knowingly, any inquiries or
the making of any proposal that constitutes, or may reasonably be expected to
lead to, any Third Party Transaction (as such term is defined below in this
Section 5.5), or enter into or maintain or continue discussions or negotiate
with any person or entity in furtherance of such inquiries or to obtain a Third
Party Transaction, or agree to or endorse any Third Party Transaction, or
authorize or permit any of the officers, directors or employees of Green or any
Green Subsidiary or any investment banker, financial advisor, attorney,
accountant or other representative retained by Green or any Green Subsidiary to
take any such action, and Green shall notify Whitecap orally (within one
business day) and in writing (as promptly as practicable) of all relevant
details relating to all inquiries and proposals which it or any Green Subsidiary
or any such officer, director, employee, investment banker, financial advisor,
attorney, accountant or other representative may receive relating to any of such
matters and if such inquiry or proposal is in writing, Green shall forthwith
deliver to Whitecap a copy of such inquiry or proposal; provided, however, that
nothing contained in this Section 5.5 shall prohibit the Board of Directors of
Green from (i) furnishing information to, or entering into discussions or
negotiations with, any person or entity that makes an unsolicited inquiry or
expression of interest to acquire Green pursuant to a merger, consolidation,
share exchange, business combination, tender or exchange offer or other similar
transaction, if, and only to the extent that (A) the Board of Directors of
Green, determines in its good faith judgment, based as to legal matters on the
advice of legal counsel, that such action is required for the Board of Directors
of Green to comply with its fiduciary duties to shareholders under applicable
law and (B) prior to furnishing such information to, or entering into
discussions or negotiations with, such person or entity, Green (x) provides
reasonable notice to Whitecap to the effect that it is furnishing information
to, or entering into discussions or negotiations with, such person or entity and
(y) receives from such person or entity an executed confidentiality agreement in
reasonably customary form on terms not more favorable to such person or entity
than the terms contained in the Confidentiality Agreement, (ii) complying with
Rule 14e-2 promulgated under the Exchange Act with regard to a tender or
exchange offer or (iii) failing to make or withdrawing or modifying its
recommendation referred to in Section 5.1(d) if there exists a Third Party
Transaction and the Board of Directors of Green determines, in its good faith
judgment, based as to legal matters on the advice of legal counsel, that such
action is required for the Board of Directors of Green to comply with its
fiduciary duties to shareholders under applicable law.
(c) For purposes of this Agreement, "Third Party Transaction" shall mean
with respect to a party hereto any of the following (other than transactions
between Green, Merger Sub and Whitecap contemplated hereby): (i) any merger,
consolidation, share exchange, business combination, or other similar
transaction involving such party; (ii) any sale, exchange, transfer or other
disposition of 20% or more of the assets of such party and its Subsidiaries,
taken as a whole, in a single transaction or series of transactions; (iii) any
sale of or tender offer or exchange offer for 20% or more of the outstanding
shares of capital stock of such party or the filing of a registration statement
under the Securities Act in connection therewith; (iv) any person acquiring
beneficial ownership or the right to acquire beneficial ownership of, or any
"group" (as such term is defined under Section 13(d) of the Exchange Act and the
rules and regulations promulgated thereunder) having been formed for the purpose
of effecting a Third Party Transaction referred to in Sections 5.5(c)(i), (ii)
or (iii) which beneficially owns or has the right to acquire beneficial
ownership of, 20% or more of the then outstanding shares of capital stock of
such party; or (v) any public announcement by such party of a proposal, plan or
intention to do any of the foregoing or any agreement to engage in any of the
foregoing with respect to such party.
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5.6 Employee Benefit Plans. Except as otherwise provided in this
Agreement, the Whitecap employee benefit plans listed on the Whitecap Disclosure
Schedule which are in effect at the date of this Agreement shall remain in
effect immediately following the Effective Time. Green and Whitecap shall
cooperate in coordinating their respective benefit plans, and any Whitecap
employee benefit plan may be terminated after the Effective Time, to the extent
reasonably comparable benefits, considered in the aggregate, are made available
to employees of Whitecap under one or more employee benefits plans of Green or
any Green Subsidiary.
5.7 Treatment of Options.
(a) Each Whitecap Stock Option issued pursuant to Whitecap's warrants or
Whitecap's stock option plans (collectively, the "Whitecap Option Plans") set
forth in the Whitecap Disclosure Schedule, whether or not vested or exercisable,
shall be assumed by Green and shall constitute an option to acquire, on the same
terms and conditions as were applicable under such assumed Whitecap Stock
Option, a number of shares of Green Common Stock equal to the product of the
Exchange Ratio and the number of shares of Whitecap Common Stock subject to such
Whitecap Stock Option, at a price per share equal to the aggregate exercise
price for the shares of Whitecap Common Stock subject to such Whitecap Stock
Option divided by the number of full shares of Green Common Stock deemed to be
purchasable pursuant to such Whitecap Stock Option; provided, however, that (i)
subject to the provisions of clause (ii) below, the shares of Green Common Stock
that may be purchased upon exercise of such Whitecap Stock Option shall not
include any fractional shares and, upon the last such exercise of such Whitecap
Stock Option, a cash payment shall be made for any fractional shares based upon
the per share average of the highest and lowest sale price of the Green Common
Stock as reported on the NYSE on the date of such exercise, and (ii) in the case
of any Whitecap Stock Option to which Section 421 of the Code applies by reason
of its qualification under Section 422 or Section 423 of the Code ("Qualified
Stock Options"), the option price, the number of shares purchasable pursuant to
such Whitecap Stock Option and the terms and conditions of exercise of such
Whitecap Stock Option shall be determined in order to comply with Section 424 of
the Code. As soon as practicable after the Effective Time, Green shall deliver
to holders of Whitecap Stock Options appropriate option agreements representing
the right to acquire shares of Green Common Stock on the same terms and
conditions as contained in the outstanding Whitecap Stock Options (subject to
any adjustments required by the preceding sentence), upon surrender of the
outstanding Whitecap Stock Options. Green shall comply with the terms of the
Whitecap Option Plans as they apply to the Whitecap Stock Options assumed as set
forth above including, but not limited to, provisions regarding changes of
control that may apply with respect to the Merger.
(b) Green shall take all corporate action necessary to reserve for issuance
a sufficient number of shares of Green Common Stock for delivery upon exercise
of the Whitecap Stock Options assumed in accordance with this Section 5.7. Green
shall file a registration statement on Form S-8 (or any successor form) or
another appropriate form, effective as of the Effective Time, with respect to
shares of Green Common Stock subject to such Whitecap Stock Options and shall
use all reasonable efforts to maintain the effectiveness of such registration
statement or registration statements (and maintain the current status of the
prospectus or prospectuses contained therein) for so long as such Whitecap Stock
Options remain outstanding. With respect to those individuals who subsequent to
the Merger will be subject to the reporting requirements under Section 16(a) of
the Exchange Act, Green shall administer the Whitecap Option Plans assumed
pursuant to this Section 5.7 in a manner that complies with rule 16b-3
promulgated under the Exchange Act to the extent the applicable Whitecap Option
Plan complied with such rule prior to the Merger.
5.8 Settlement of Options and Rights. To the extent not already provided
for in the Whitecap Option Plans, Whitecap shall cause the holders of at least
95 percent of the options granted under the Whitecap Option Plans to have
entered into binding agreements with Whitecap and/or Green on the terms set
forth in paragraph (a) of Section 5.7 of this Agreement prior to the Effective
Time. Whitecap shall cause any other options, rights or agreements of any kind
to acquire the Whitecap Common Stock or other securities of Whitecap to have
been either cancelled, terminated, modified or exchanged on terms and conditions
reasonably satisfactory to Green prior to the Effective Time.
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5.9 Existing Indemnification Agreements. Green and the Surviving
Corporation, jointly and severally, shall insure and guaranty that the
provisions with respect to indemnification by Whitecap and the Whitecap
Subsidiaries or with respect to director liability to Whitecap or any Whitecap
Subsidiary now existing in favor of any present or former director, officer,
employee or agent (and their respective heirs and assigns) of Whitecap or any
Whitecap Subsidiary, respectively (the "Indemnified Parties"), as set forth in
their respective charters or Bylaws or pursuant to other agreements (including
any insurance policies), shall survive the Merger, shall not be amended,
repealed or modified in any manner as to adversely affect the rights of such
Indemnified Parties and shall continue in full force and effect for a period of
at least six years from the Effective Time; provided, however, that Green and
the Surviving Corporation shall be required to maintain or obtain such insurance
coverage only (i) if it is available for an annual premium not in excess of two
times the last annual premium paid by Whitecap or the Whitecap Subsidiaries
prior to the date of this Agreement, and (ii) for three years after the
Effective Time. This Section 5.9 shall survive the closing of all of the
transactions contemplated hereby, is intended to benefit the officers and
employees of Whitecap and of the Whitecap Subsidiaries at the Effective Time and
each of the Indemnified Parties (each of which shall be entitled to enforce this
Section 5.9 against Green and the Surviving Corporation, as the case may be, as
a third-party beneficiary of this Agreement), and shall be binding on all
successors and assigns of Green and the Surviving Corporation.
5.10 Confidentiality. The Confidentiality Agreements, each dated May 2,
1995 (collectively, the "Confidentiality Agreement") between Whitecap and Green
(copies of which are attached hereto as Exhibit C) and the letter agreement
between Whitecap and Green dated February 22, 1995 are hereby affirmed by Green
and Whitecap and the terms thereof are herewith incorporated herein by reference
and shall continue in full force and effect until the Effective Time shall have
occurred, and if this Agreement is terminated or if the Effective Time shall not
have occurred for any reason whatsoever, the Confidentiality Agreement (or the
letter agreement) shall thereafter remain in full force and effect in accordance
with its terms; provided, however, to the extent there are any provisions in the
Confidentiality Agreement (or the letter agreement) inconsistent with the terms
of this Agreement, the terms of this Agreement shall control. Each of Green and
Whitecap agrees that it will not, and will cause its Respective Representatives
not to, use any information obtained pursuant to Section 5.4 for any purpose
unrelated to the consummation of the transactions contemplated by this
Agreement. Subject to the requirements of law, each party hereto will keep
confidential, and will cause its Respective Representatives to keep
confidential, all information and documents obtained pursuant to Section 5.4
except as otherwise consented to by the other party and except for such
information which is at the time of disclosure or later becomes generally known
to the public (other than as a result of disclosure by a party hereto in
violation of this Section 5.10); provided, however, that neither Green nor
Whitecap shall be precluded from making any disclosure which it deems required
by law in connection with the Merger. In the event that any party is required to
disclose any information or documents pursuant to the immediately preceding
sentence, such party shall promptly give written notice of such disclosure that
is proposed to be made to the other party so that the parties can work together
to limit the disclosure to the greatest extent possible and, in the event that
either party is legally compelled to disclose any information, to seek a
protective order or other appropriate remedy or both. Upon any termination of
this Agreement, each of Green and Whitecap will collect and deliver to the other
party or destroy all documents obtained pursuant to Section 5.4 or otherwise
from such party or its Respective Representatives by it or any of its Respective
Representatives then in their possession and any copies thereof.
5.11 Reasonable Best Efforts. Subject to the terms and conditions herein
provided, the parties hereto shall: (i) promptly make their respective filings
and thereafter make any other required submissions under the HSR Act with
respect to the Merger; (ii) use all reasonable efforts to cooperate with one
another in (A) determining which filings are required to be made prior to the
Effective Time with, and which consents, approvals, permits or authorizations
("Third Party Consents") are required to be obtained prior to the Effective Time
from governmental or regulatory authorities of the United States and the several
states in connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby and (B) timely making all
such filings and timely seeking all such Third Party Consents; and (iii) use all
reasonable efforts to take, or cause to be taken, all other action and do, or
cause to be done, all other things necessary, proper or appropriate to
consummate and make effective the transactions contem-
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plated by this Agreement. If, at any time after the Effective Time, any further
action is necessary or desirable to carry out the purpose of this Agreement, the
proper officers and directors of the parties hereto shall take all such
necessary action. No party hereto shall (i) take any action for the purpose of
delaying, impairing or impeding the receipt of any Third Party Consent, or the
making of any required filing or registration, (ii) take any action that could
reasonably have the effect of preventing Green and Whitecap from accounting for
the Merger as a pooling of interests or (iii) subject to compliance with
mandatory disclosure requirements under applicable securities laws, take any
action (or fail to take any action) that could reasonably be expected to have an
adverse effect on the price of the Green Common Stock. Each of Green and
Whitecap shall use reasonable best efforts to obtain the executed Shareholder
Voting Agreements contemplated by Sections 6.2(h) and 6.3(j), respectively,
subject to applicable proxy regulations under the Exchange Act.
5.12 Certification of Stockholder Vote. At or prior to the Closing of the
transactions contemplated by this Agreement, Whitecap and Green shall deliver to
each other a certificate of their respective Secretary setting forth the number
of shares of Whitecap Common Stock or Green Common Stock, as the case may be,
voted in favor of adoption of this Agreement and consummation of the Merger and
the number of shares of Whitecap Common Stock or Green Common Stock voted
against adoption of this Agreement and consummation of the Merger.
5.13 Affiliate Letters. At least 30 days prior to the Closing Date,
Whitecap shall deliver to Green a list of names and addresses of those persons
who were, in Whitecap's reasonable judgment, at the record date for the Whitecap
Meeting, "affiliates" (each such person a "Rule 145 Affiliate") of Whitecap
within the meaning of Rule 145 of the rules and regulations promulgated under
the Securities Act. Whitecap shall provide Green such information and documents
as Green shall reasonably request for purposes of reviewing such list. Whitecap
shall cause to be delivered to Green, prior to the Closing Date, from each of
the Rule 145 Affiliates of Whitecap identified in the foregoing list, an
Affiliate Letter in the form attached hereto as Exhibit B. Green shall be
entitled to place legends as specified in such Affiliate Letters on the
certificates evidencing any Green Common Stock to be received by such Rule 145
Affiliates pursuant to the terms of this Agreement, consistent with the terms of
such Affiliate Letters. Green shall promptly and as soon as practicable publish
financial results reflecting at least 30 days of post-Merger combined
operations, as contemplated by the Affiliate Letter.
5.14 Listing Application. Green shall promptly prepare and submit to the
NYSE a listing application covering the shares of Green Common Stock issuable in
the Merger, and shall use its best efforts to obtain, prior to the Effective
Time, approval for the listing of such Green Common Stock, subject to official
notice of issuance.
5.15 Supplemental Disclosure Schedules. Each of Green and Whitecap shall
supplement their respective Disclosure Schedules delivered in connection with
this Agreement as of the Effective Time to the extent necessary to reflect
matters permitted by, or consented to by, the other party under this Agreement.
In addition, from time to time prior to the Effective Time, each of Green and
Whitecap will promptly deliver to the other party such amended or supplemental
Disclosure Schedules as may be necessary to make the Schedules accurate and
complete in all material respects as of the Effective Time; provided, however,
that no such disclosure shall have any effect for the purpose of determining the
satisfaction of the conditions set forth in Article VI of this Agreement.
5.16 No Action. Except as contemplated by this Agreement, no party hereto
will, nor will either such party permit any of its Subsidiaries to, take or
agree or commit to take any action that is reasonably likely to make any of its
representations or warranties hereunder inaccurate in any material respect at
the date made (to the extent so limited), or as of the Effective Time.
5.17 Conduct of Business of Merger Sub. Merger Sub shall not conduct any
business from the date of this Agreement, other than to consummate the Merger
and the transactions contemplated by this Agreement.
5.18 Corporate Governance.
(a) Immediately prior to the Effective Time, the Board of Directors of
Green shall take all action necessary (including any necessary amendments of the
Bylaws of Green) to implement the provisions of this Section 5.18 and to cause
the full Board of Directors of Green, at and immediately after the Effective
Time, to
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consist of the following nine directors: Gene E. Burleson, Charles M. Blalack,
Robert L. Parker, Antoinette Hubenette, M.D., Joel S. Kanter, Ronald G. Kenny,
William G. Petty, Jr., Edward V. Regan and Gary U. Rolle. If any of Robert L.
Parker, Ronald G. Kenny or William G. Petty, Jr. are unable or unwilling to
serve as a director of Green at the Effective Time, such individual or
individuals shall be replaced by an individual or individuals designated by the
Board of Directors of Whitecap and approved by the Board of Directors of Green,
such approval not to be unreasonably withheld, and if any of the remaining
individuals named above are unable or unwilling to serve, such individual or
individuals shall be replaced by an individual or individuals designated by the
Board of Directors of Green.
(b) Following the Effective Time and continuing through the 1997 Annual
Meeting of Shareholders of Green, any vacancy on the Board of Directors of Green
arising among Robert L. Parker, Ronald G. Kenny or William G. Petty, Jr. (or any
other individual or individuals selected by the Board of Directors of Whitecap
as a replacement director pursuant to Section 5.19(a) or by the foregoing
individuals or their successors) and any nominee selected to fill a director
position occupied by any of the foregoing individuals (the "Whitecap Directors")
shall be nominated on behalf of the Green Board of Directors, filled or selected
by a majority vote of the remaining Whitecap Directors and approved by the Board
of Directors of Green, such approval not to be unreasonably withheld. At the
1996 and 1997 Annual Meetings of Shareholders of Green, the Board of Directors
of Green shall use good faith efforts to cause the Board of Directors to consist
of no more than eight members, including the three Whitecap Directors.
(c) Immediately prior to the Effective Time, the Board of Directors of
Green shall take all action necessary to cause the committees of the Board of
Directors of Green to consist of the members set forth herein. William G. Petty,
Jr. shall be appointed to serve as a member of the Nominating Committee. William
G. Petty, Jr. and Ronald G. Kenny shall be appointed to serve as members of the
Audit Committee. Robert L. Parker shall be appointed to serve as a member of the
Compensation Committee.
(d) Immediately prior to the Effective Time, the Board of Directors of
Green shall take all actions necessary to cause William G. Petty to be elected
as Vice Chairman of the Board of Green.
5.19 Restructuring of Merger. Upon the mutual agreement of Whitecap and
Green expressed in an amendment of this Agreement approved by their respective
boards, the Merger may be restructured (i) in the form of a merger of Whitecap
into Green, with Green being the surviving corporation, or (ii) in the form of a
reverse triangular merger of a wholly owned subsidiary of Whitecap into Green,
with Green being the surviving corporation, or (iii) in the form of a merger of
Green into Whitecap, with Whitecap being the surviving corporation, or (iv) in
the form of a merger of both Whitecap and Green into a subsidiary of Whitecap or
Green, with such subsidiary being the surviving corporation. In any such event
this Agreement shall be deemed appropriately modified to reflect such form of
merger. If the Merger is restructured as specified in clause (ii) or clause
(iii) above, the provisions of Article II shall be modified to provide that
shares of Green Common Stock shall be converted into shares of Whitecap Common
Stock on a basis consistent with the Exchange Ratio.
5.20 Cross Option Agreement. Simultaneously with the execution of this
Agreement, each of Green, Merger Sub and Whitecap have executed and delivered
the Cross Option Agreement in the form attached hereto as Exhibit D (the "Cross
Option Agreement").
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of the following conditions:
(a) The Registration Statement shall have been declared effective, and
no stop order suspending the effectiveness of the Registration Statement
shall have been issued by the Commission or shall be continuing to be in
effect, and no proceedings for that purpose shall have been initiated or
threatened by
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the Commission. All state securities laws or "blue sky" permits and
authorizations (or shall otherwise have available an exemption from the
requirements of such laws) necessary to issue the Share Consideration and
other securities of Green pursuant to the Merger and the transactions
contemplated hereby shall have been received.
(b) This Agreement and the Merger contemplated hereby and any other
action necessary to consummate the transactions contemplated hereby shall
have been approved and adopted by the requisite vote of (i) the holders of
the outstanding shares of the Whitecap Common Stock entitled to vote
thereon at the Whitecap Meeting and (ii) the holders of the outstanding
shares of Green Common Stock entitled to vote thereon at the Green Meeting.
(c) No governmental authority or other agency, commission or court of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, injunction or other order (whether
temporary, preliminary or permanent) which is in effect and has the effect
of making the Merger illegal or otherwise prohibiting consummation of the
transactions contemplated by this Agreement; provided, however, that, prior
to invoking this condition, each party hereto shall use all reasonable
efforts to have such statute, rule, regulation, injunction or order
vacated.
(d) Any waiting period applicable to the Merger under the HSR Act
shall have expired or been terminated without action by the Justice
Department or the Federal Trade Commission to prevent consummation of the
Merger.
(e) The shares of Green Common Stock issuable to Whitecap's
shareholders and option holders in the Merger or thereafter shall have been
authorized for listing on the NYSE, upon official notice of issuance.
(f) All material federal, state, local and foreign governmental
consents, approvals and filings required to permit the Merger and the
consummation of the transactions contemplated by this Agreement shall have
been received or made and any applicable waiting period shall have expired
or been terminated without the imposition of conditions that are or would
become applicable to Whitecap or the Whitecap Subsidiaries or Green or the
Green Subsidiaries and which would reasonably be anticipated to have a
Material Adverse Effect on the financial condition, results of operations,
properties, business or immediate prospects of Whitecap and the Whitecap
Subsidiaries, taken as a whole, or Green and the Green Subsidiaries, taken
as a whole.
(g) There shall not have been instituted or pending any action or
proceeding by or before any court or governmental authority or other
regulatory or administrative agency or commission, domestic or foreign, nor
shall there be any determination by any government, governmental authority,
regulatory or administrative agency or commission which, in either case,
would require either party to take any action or do anything in connection
with the foregoing which would compel Green to dispose of all or a material
portion of the business or assets of Green and the Green Subsidiaries,
taken as a whole, or Whitecap and the Whitecap Subsidiaries, taken as a
whole.
(h) Green and Whitecap shall have received a letter from each of Ernst
& Young LLP and KPMG Peat Marwick, dated as of the Effective Time, in form
and substance reasonably satisfactory to them, to the effect that the
Merger qualifies for "pooling of interests" treatment for financial
reporting purposes and that such accounting treatment is in accordance with
generally accepted accounting principles.
6.2 Conditions to the Obligation of Whitecap to Effect the Merger. The
obligation of Whitecap to effect the Merger shall be subject to the fulfillment
or waiver by Whitecap at or prior to the Effective Time of the following
additional conditions:
(a) Each of Green and Merger Sub shall have performed in all material
respects its obligations under this Agreement required to be performed by
it on or prior to the Effective Time pursuant to the terms hereof.
(b) All representations or warranties of Green and Merger Sub in this
Agreement which are qualified with respect to a Material Adverse Effect on
Green or materiality shall be true and correct, and
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all such representations or warranties that are not so qualified shall be
true and correct in all material respects, in each case as if such
representation or warranty was made as of the Effective Time, except to the
extent that any such representation or warranty is made as of a specified
date, in which case such representation or warranty shall have been true
and correct as of such specified date and, with respect to Section 3.3, to
the extent it is permitted to change by the provisions of this Agreement.
(c) From the date hereof through the Effective Time, there shall have
been no material adverse change (or development involving a prospective
change) in the financial condition, results of operations, properties,
business, or prospects of Green and the Green Subsidiaries taken as a
whole.
(d) Each of Green and Merger Sub shall have delivered a certificate of
its President or Vice President and its Chief Financial Officer certifying
the fulfillment (or waiver by Whitecap) of the conditions set forth in
clauses (a), (b), (c) and (e) of this Section 6.2 and, as to Green and
Merger Sub, the conditions set forth in Section 6.1.
(e) Green and Merger Sub shall have obtained all Third Party Consents
(applicable to Green, any Green Subsidiary or Merger Sub) contemplated by
subsection (ii) of Section 5.11, except for such Third Party Consents
which, if not obtained, would not, individually or in aggregate, reasonably
be anticipated to have a Material Adverse Effect on the financial
condition, results of operations, properties, business or prospects of
Green and the Green Subsidiaries, taken as a whole.
(f) Whitecap shall have received from Brobeck, Phleger & Harrison,
counsel to Green, an opinion or opinions dated as of the Effective Time
covering such matters as shall be reasonably agreed upon by Whitecap and
Green.
(g) Whitecap shall have received the opinion of Rogers & Hardin dated
as of the Effective Time, to the effect that (i) the Merger will be treated
for federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code, (ii) that each of Green, Merger Sub and
Whitecap will be a party to the reorganization within the meaning of
Section 368(b) of the Code and (iii) that no gain or loss will be
recognized by a shareholder of Whitecap as a result of the Merger with
respect to the Whitecap Shares converted solely into shares of the Green
Common Stock.
(h) Whitecap shall have received Shareholder Voting Agreements, in
substantially the form attached hereto as Exhibit E, from the persons set
forth on Schedule 6.2(h) of the Green Disclosure Schedules.
6.3 Conditions to the Obligations of Green and Merger Sub to Effect the
Merger. The obligations of Green and Merger Sub to effect the Merger shall be
subject to the fulfillment or waiver by Green at or prior to the Effective Time
of the following additional conditions:
(a) Whitecap shall have performed in all material respects each of its
obligations under this Agreement required to be performed by it on or prior
to the Effective Time pursuant to the terms hereof.
(b) All representations or warranties of Whitecap in this Agreement
which are qualified with respect to a Material Adverse Effect on Whitecap
or materiality shall be true and correct, and all such representations or
warranties that are not so qualified shall be true and correct in all
material respects, in each case as if such representation or warranty were
made as of the Effective Time except to the extent that any such
representation or warranty is made as of a specified date, in which case
such representation or warranty shall have been true and correct as of such
specified date and with respect to Section 4.3, to the extent permitted to
change by the provisions of this Agreement.
(c) Whitecap shall have obtained all Third Party Consents (applicable
to Whitecap or any Whitecap Subsidiary) contemplated by subsection (ii) of
Section 5.11, except for such Third Party Consents which, if not obtained,
would not individually or in aggregate, reasonably be anticipated to have a
Material Adverse Effect on the financial condition, results of operations,
properties, business or prospects of Whitecap and the Whitecap
Subsidiaries, taken as a whole.
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(d) From the date hereof through the Effective Time, there shall have
been no material adverse change (or development involving a prospective
change) in the financial condition, results of operations, properties,
business or prospects of Whitecap and the Whitecap Subsidiaries taken as a
whole.
(e) Whitecap shall have delivered a certificate of its President or
Vice President and its Chief Financial Officer certifying the fulfillment
(or waiver by Green) of the conditions set forth in clauses (a), (b), (c)
and (d) of this Section 6.3 and, as to Whitecap, of the conditions set
forth in Section 6.1.
(f) Merger Sub shall have received letters of resignation addressed to
Whitecap from the members of Whitecap's board of directors, which
resignations shall be effective as of the Effective Time.
(g) Green shall have received from Rogers & Hardin, counsel to
Whitecap, an opinion or opinions dated as of the Effective Time covering
such matters as shall be reasonably agreed upon by Green and Whitecap.
(h) Green shall have received the opinion of Brobeck, Phleger &
Harrison, dated as of the Effective Time, to the effect that (i) the Merger
will be treated for federal income tax purposes as a reorganization within
the meaning of Section 368(a) of the Code, (ii) that each of Green, Merger
Sub and Whitecap will be a party to the reorganization within the meaning
of Section 368(b) of the Code and (iii) no gain or loss will be recognized
by Whitecap, Green or Merger Sub as a result of the Merger.
(i) Green shall have received the Affiliate Letters from each of the
Rule 145 Affiliates, as provided in Section 5.14.
(j) Green shall have received Shareholder Voting Agreements, in
substantially the form attached hereto as Exhibit F, from persons holding
in the aggregate in excess of 25% of the outstanding Whitecap Common Stock.
ARTICLE VII
TERMINATION
7.1 Termination.
(a) Termination by Mutual Consent. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, before or after
the approval of this Agreement by the shareholders of Green or Whitecap, by the
mutual consent of Green and Whitecap.
(b) Termination by Either Whitecap or Green. This Agreement may be
terminated and the Merger may be abandoned by action of the Board of Directors
of either Whitecap or Green if (i) the Merger shall not have been consummated by
September 30, 1995, or (ii) the approval of Green's shareholders required by
Section 6.1(b) shall not have been obtained at the Green Meeting or at any
adjournment thereof, or (iii) the approval of Whitecap's shareholders required
by Section 6.1(b) shall not have been obtained at the Whitecap Meeting or at any
adjournment thereof, or (iv) a United States federal or state court of competent
jurisdiction or United States federal or state governmental, regulatory or
administrative agency or commission shall have issued an order, decree or ruling
or taken any other action permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by this Agreement and such order,
decree, ruling or other action shall have become final and non-appealable;
provided, that the party seeking to terminate this Agreement pursuant to this
clause (iv) must have used all reasonable efforts to remove such injunction,
order or decree; provided further, in the case of a termination pursuant to
clause (i) above, that the terminating party shall not have breached in any
material respect its obligations under this Agreement in any manner that
proximately caused the occurrence of the failure referred to in said clause.
(c) Termination by Green. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time, before or after the
adoption and approval by the shareholders of Green referred to in Section 6.1(b)
by action of the Board of Directors of Green, if (i) a proposal for a Third
Party Transaction involving Green has been made or received and such Board
determines, in the exercise of its good faith judgment (based on the advice of
independent legal counsel) that such termination is required for such
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Board to comply with its fiduciary duties to the Green shareholders, (ii) there
has been a breach by Whitecap of any representation or warranty contained in
this Agreement which would have or would be reasonably likely to have a Material
Adverse Effect on Whitecap, (iii) there has been a material breach of any of the
covenants or agreements set forth in this Agreement on the part of Whitecap,
which breach is not curable or, if curable is not cured within 15 days after
written notice of such breach is given by Green to Whitecap, (iv) following the
receipt of a proposal of a Third Party Transaction by Whitecap, the Board of
Directors of Whitecap shall have altered its determination to recommend that the
shareholders of Whitecap approve this Agreement and the transactions
contemplated hereby, (v) following the receipt of a proposal for a Third Party
Transaction by Whitecap, Whitecap shall have failed to proceed to hold the
Whitecap Meeting of its shareholders as contemplated by Section 5.1, provided
Green gives Whitecap 24 hours' prior written notice of its election to terminate
under this clause (v), (vi) the conditions to Green's obligation to effect the
Merger pursuant to Sections 6.1 and 6.3 hereof shall not have been satisfied by
Whitecap or waived by Green on or before September 30, 1995 or (vii) the Average
Closing Price of the Green Common Stock is less than $14.50 per share; provided,
however, that for purposes of this Section 7.1(c), Third Party Transaction shall
refer only to those transactions described in Sections 5.5(c)(i), (ii) and (iii)
of this Agreement. The "Average Closing Price" is the average of the last sales
prices of Green Common Stock on the NYSE, as reported by the NYSE Composite
Tape, for any twenty consecutive trading day period commencing after May 15,
1995 and terminating at least two business days prior to the Closing.
(d) Termination by Whitecap. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, before or after
the approval by the shareholders of Whitecap referred to in Section 6.1(b), by
action of the Board of Directors of Whitecap, if (i) a proposal for a Third
Party Transaction involving Whitecap has been made and such Board determines, in
the exercise of its good faith judgment (based on the advice of independent
legal counsel) that such termination is required for such Board to comply with
its fiduciary duties to the Whitecap shareholders, (ii) there has been a breach
by Green of any representation or warranty contained in this Agreement which
would have or would be reasonably likely to have a Material Adverse Effect on
Green, (iii) there has been a material breach of any of the covenants or
agreements set forth in this Agreement on the part of Green, which breach is not
curable, or, if curable, is not cured within 15 days after written notice of
such breach is given by Whitecap to Green, (iv) following the receipt of a
proposal of a Third Party Transaction by Green, the Board of Directors of Green
shall have altered its determination to recommend that the shareholders of Green
approve this Agreement and the transactions contemplated hereby, (v) following
the receipt of a proposal for a Third Party Transaction by Green, Green shall
have failed to proceed to hold the Green Meeting as contemplated by Section 5.1,
provided Whitecap gives Green 24 hours' prior written notice of its election to
terminate under this clause (v), (vi) the conditions to Whitecap's obligation to
effect the Merger pursuant to Sections 6.1 and 6.2 hereof shall not have been
satisfied by Green or waived by Whitecap on or before September 30, 1995 or
(vii) the Average Closing Price of the Green Common Stock is less than $14.50
per share; provided, however, that for purposes of this Section 7.1(d), Third
Party Transaction shall refer only to those transactions described in Sections
5.5(c)(i), (ii) and (iii) of this Agreement.
(e) If the Agreement shall be terminated by Green or Whitecap pursuant to
clause (ii) of Section 7.1(b) (other than in circumstances in which Section
7.2(a) applies, then, within two business days of such termination, Green shall
pay Whitecap by wire transfer in immediately available funds a fee of $500,000.
(f) If the Agreement shall be terminated by Whitecap or Green pursuant to
clause (iii) of Section 7.1(b) (other than in circumstances in which Section
7.2(b) applies), then, within two business days of such termination, Whitecap
shall pay Green by wire transfer in immediately available funds a fee of
$500,000.
7.2 Effects of Termination.
(a) If (A) Green terminates this Agreement pursuant to clause (i) of
Section 7.1(c), (B) Whitecap terminates this Agreement pursuant to clause (iv)
or (v) of Section 7.1(d) following receipt by Green of a proposal for a Third
Party Transaction, or (C) either Whitecap or Green terminates this Agreement
pursuant to clause (i) or (ii) of Section 7.1(b) and prior to any Green Meeting
a proposal for a Third Party Transaction was received by Green and such Third
Party Transaction (or any revised transaction based upon such proposal
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for a Third Party Transaction) is consummated (including, in the case of a
tender offer, acceptance of shares upon the expiration of the tender offer) one
year, then, within two business days of such termination in the case of clauses
(A) and (B) or within two business days of such consummation in the case of
clause (C), Green (or the successor thereto) shall pay Whitecap by wire transfer
in immediately available funds a fee of $4.0 million; provided, however, that
for purposes of this Section 7.2(a), Third Party Transaction shall refer only to
those transactions described in Section 5.5(c)(i), (ii) and (iii) of this
Agreement.
(b) If (A) Whitecap terminates this Agreement pursuant to clause (i) of
Section 7.1(d), (B) Green terminates this Agreement pursuant to clause (iv) or
(v) of Section 7.1(c) following receipt by Whitecap of a proposal for a Third
Party Transaction, or (C) either Green or Whitecap terminates this Agreement
pursuant to clause (i) or (iii) of Section 7.1(b) provided that prior to any
Whitecap Meeting a proposal for a Third Party Transaction was received by
Whitecap and such Third Party Transaction (or any revised transaction based upon
such proposal for a Third Party Transaction) is consummated (including, in the
case of a tender offer, acceptance of shares upon the expiration of the tender
offer) one year, then, within two business days of such termination in the case
of clauses (A) and (B) or within two business days of such consummation in the
case of clause (C), Whitecap (or the successor thereto) shall pay Green by wire
transfer in immediately available funds a fee of $4.0 million; provided,
however, that for purposes of this Section 7.2(b), Third Party Transaction shall
refer only to those transactions described in Section 5.5(c)(i), (ii) and (iii)
of this Agreement.
(c) Except as provided in this Section 7.2 or Section 8.4, in the event of
the termination of this Agreement pursuant to Section 7.1, this Agreement shall
be void, there shall be no liability on the part of the parties or any of their
respective officers or directors to the other and all rights and obligations of
any party hereto shall cease; provided, however, that nothing herein shall
relieve any party from liability for the wilful breach of any of its
representations, warranties, covenants or agreements set forth in this
Agreement, or from any obligation under the Confidentiality Agreements;
provided, however, if either party has received the $4.0 million fee
contemplated by Section 7.2(a) or (b), the party receiving such fee shall not
assert or pursue in any manner, directly or indirectly, any claim or cause of
action (other than pursuant to the Cross Option Agreement) against the party
paying such fee or any of its officers or directors based in whole or in part
upon its or their receipt, consideration, recommendation or approval of a
proposal for a Third Party Transaction or the exercise of the right of the party
paying such fee to terminate this Agreement under clause (i) of Section 7.1(c)
or clause (i) of Section 7.1(d), as the case may be.
ARTICLE VIII
MISCELLANEOUS
8.1 Amendment. Subject to the applicable provisions of state law, this
Agreement may be amended by the parties hereto solely by action taken by their
respective Boards of Directors at any time prior to the Effective Time. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto.
8.2 Waiver. At any time prior to the Effective Time, the parties hereto,
by action taken by their respective Boards of Directors, may (i) extend the time
for the performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties of the
other party contained herein or in any documents delivered pursuant hereto, and
(iii) waive compliance by the other party with any of the agreements or
conditions herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party. No waiver by either party of any default with
respect to any provision, condition or requirement hereof shall be deemed to be
a waiver of any other provision, condition or requirement hereof; nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right accruing to it thereunder.
8.3 Survival. All representations, warranties and agreements contained in
this Agreement or in any instrument delivered pursuant to this Agreement shall
terminate and be extinguished at the Effective Time or
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the earlier date of termination of this Agreement pursuant to Section 7.1, as
the case may be, except that the agreements set forth in Article I and Article
II and in Sections 5.6, 5.7, 5.9, 5.10, 8.4 and 8.7 will survive the Effective
Time indefinitely and those set forth in Sections 7.2 and 8.7 will survive the
termination of this Agreement indefinitely, and other than any covenant the
breach of which has resulted in the termination of this Agreement.
8.4 Expenses and Fees. Subject to Section 7.2, whether or not the Merger
is consummated, all costs and expenses incurred by the parties hereto in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such expenses except as expressly provided herein
and except that (i) the filing fee in connection with the HSR Act filing, (ii)
the filing fee in connection with the filing of the Registration Statement or
Proxy Statement with the Commission and (iii) the expenses incurred in
connection with printing and mailing the Registration Statement and the Proxy
Statement, shall be shared equally by Green and Whitecap.
8.5 Notices. All notices and other communications given or made pursuant
hereto shall be in writing and shall be deemed to have been given or made if in
writing and delivered personally or sent by registered or certified mail
(postage prepaid, return receipt requested) or by telecopier to the parties at
the following addresses:
If to Merger Sub or Green:
Green
One Ravinia Drive, Suite 1500
Atlanta, Georgia 30346
Attention: Everett W. Benton
Telecopier: (404) 393-8054
With copies to:
Brobeck, Phleger & Harrison
Suite 2300
550 South Hope Street
Los Angeles, California 90071
Attention: Mitchell L. Edwards, Esq.
Telecopier: (213) 239-1324
If to Whitecap:
Whitecap
184 Shuman Boulevard, Suite 200
Naperville, Illinois 60563
Attention: William G. Petty, Jr.
Telecopier: (708) 357-4020
With copies to:
Rogers & Hardin
2700 Cain Tower, Peachtree Center
229 Peachtree Street, N.E.
Atlanta, Georgia 30303
Attention: Alan C. Leet, Esq.
Telecopier: (404) 525-2224
or at such other addresses as shall be furnished by the parties by like notice,
and such notice or communication shall be deemed to have been given or made as
of the date so delivered or mailed or sent by telecopier.
8.6 Headings. The headings contained in this Agreement are inserted for
convenience only and do not constitute a part of this Agreement.
8.7 Public Announcements. Whitecap and Green shall consult with each other
before issuing any press release or otherwise making any public statements with
respect to this Agreement or the Transactions and shall not issue any such press
release or make any such public statement without the prior consent of the other
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party, which shall not be unreasonably withheld; provided, however, that a party
may, without the prior consent of the other party, issue such press release or
make such public statement as may be required by law or any listing agreement
with a national securities exchange to which Whitecap or Green is a party if it
has used reasonable efforts to consult with the other party and to obtain such
party's consent but has been unable to do so in a timely manner.
8.8 Entire Agreement. This Agreement and the other agreements referred to
herein constitute the entire agreement among the parties and supersede all other
prior agreements and understandings, both written and oral, among the parties,
or any of them, with respect to the subject matter hereof.
8.9 Assignment. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefits of the parties hereto and their
respective successors and permitted assigns. Neither this Agreement nor any of
the rights, interests or obligations shall be assigned by any of the parties
hereto without the prior written consent of the other parties. Except as set
forth in Section 5.9 hereof, this Agreement is not intended to confer upon any
other person any rights or remedies hereunder.
8.10 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
8.11 Invalidity; Severability. In the event that any provision of this
Agreement shall be deemed contrary to law or invalid or unenforceable in any
respect by a court of competent jurisdiction, the remaining provisions shall
remain in full force and effect to the extent that such provisions can still
reasonably be given effect in accordance with the intentions of the parties, and
the invalid and unenforceable provisions shall be deemed, without further action
on the part of the parties, modified, amended and limited solely to the extent
necessary to render the same valid and enforceable.
8.12 Governing Law. The validity and interpretation of this Agreement
shall be governed by the laws of the State of California, without reference to
the conflict of laws principles thereof.
IN WITNESS WHEREOF, GranCare, Merger Sub and Evergreen have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
<TABLE>
<S> <C>
EVERGREEN HEALTHCARE, INC. GRANCARE, INC.
By: /s/ JOHN W. KNEEN By: /s/ EVRETT W. BENTON
-------------------------- ------------------------------
Name: John W. Kneen Name: Evrett W. Benton
Title: Vice President and Title: Executive Vice President
Assistant Secretary
GW ACQUISITION CORP.
By: /s/ EVRETT W. BENTON
------------------------------
Name: Evrett W. Benton
Title Vice President
</TABLE>
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APPENDIX B
SALOMON BROTHERS INC
Seven World Trade Center
New York, New York 10048
212-783-7000
--------------------------
SALOMON BROTHERS
--------------------------
May 2, 1995
Board of Directors
GranCare, Inc.
One Ravinia Drive, Suite 1240
Atlanta, GA 30346
Dear Sirs:
You have requested our opinion as to the fairness, from a financial point of
view, to GranCare, Inc. ("GranCare"), of the consideration to be paid by
GranCare in connection with the proposed merger (the "Merger") of GW Acquisition
Corp., a wholly owned subsidiary of GranCare ("Merger Sub"), with and into
Evergreen Healthcare, Inc. (the "Company") pursuant to the Agreement and Plan of
Merger dated as of May 2, 1995 (the "Merger Agreement"), by and among GranCare,
Merger Sub and the Company. In the Merger, each share of common stock, par value
$.01 per share ("Company Common Stock"), of the Company issued and outstanding
immediately prior to the effectiveness of the Merger (subject to certain
exceptions) shall be converted into 0.775 shares (the "Exchange Ratio") of the
common stock, no par value ("GranCare Common Stock"), of GranCare. We understand
that the Merger is intended to be accounted for as a pooling of interests in
accordance with generally accepted accounting principles as described in
Accounting Principles Board Opinion Number 16.
In arriving at our opinion, we have reviewed certain publicly available business
and financial information relating to GranCare and the Company, as well as
certain other information, including financial projections, provided to us by
GranCare and the Company. We have discussed the past and current operations and
financial condition and prospects of GranCare and the Company with members of
senior management of such companies. We have also considered such other
information, financial studies, analyses, investigations and financial,
economic, market and trading criteria as we deemed relevant.
We have assumed and relied on the accuracy and completeness of the information
reviewed by us for the purpose of this opinion and we have not assumed any
responsibility for independent verification of such information or for any
independent evaluation or appraisal of the assets of GranCare or the Company.
With respect to GranCare's and the Company's financial projections, we have
assumed that they have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of GranCare's and the Company's
management and we express no opinion with respect to such forecasts or the
assumptions on which they are based. Our opinion is necessarily based upon
business, market, economic and other conditions as they exist on, and can be
evaluated, as of the date of this letter and does not address GranCare's
underlying business decision to effect the Merger or constitute a recommendation
to any holder of GranCare Common Stock as to how such holder should vote with
respect to the Merger. Our opinion as expressed below does not imply any
conclusion as to the likely trading range for the GranCare Common Stock
following the consummation of the Merger, which may vary depending on, among
other factors, changes in interests rates, dividend rates, market conditions,
general economic conditions and other factors that generally influence the price
of securities.
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SALOMON BROTHERS INC
May 2, 1995
Page 2
--------------------------
SALOMON BROTHERS
--------------------------
We have acted as financial advisor to the Board of Directors of GranCare in
connection with the Merger and will receive a fee for our services, part of
which is payable upon the initial submission of this opinion. In the ordinary
course of our business, we actively trade the securities of GranCare and the
Company for our own account and for the accounts of customers and, accordingly,
may at any time hold a long or short position in such securities.
Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the Exchange Ratio is fair to GranCare from a financial point of view.
Very truly yours,
Salomon Brothers Inc
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<PAGE> 131
SMITHBARNEY APPENDIX C
A Member of TravelersGroup
May 2, 1995
The Board of Directors
GranCare, Inc.
One Ravinia Drive
Atlanta, Georgia 30346
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to GranCare, Inc. ("GranCare") of the consideration to be paid by GranCare
pursuant to the terms and subject to the conditions set forth in the Agreement
and Plan of Merger, dated as of May 2, 1995 (the "Merger Agreement"), by and
among GranCare, GW Acquisition Corp., a wholly owned subsidiary of GranCare
("Merger Sub"), and Evergreen Healthcare, Inc. ("Evergreen"). As more fully
described in the Merger Agreement, (i) Merger Sub will be merged with and into
Evergreen (the "Merger") and (ii) each outstanding share of the common stock,
par value $0.01 per share, of Evergreen (the "Evergreen Common Stock") will be
converted into the right to receive 0.775 (the "Exchange Ratio") of a share of
the common stock, no par value, of GranCare (the "GranCare Common Stock").
In arriving at our opinion, we reviewed the Merger Agreement and held
discussions with certain senior officers, directors and other representatives
and advisors of GranCare and certain senior officers and other representatives
and advisors of Evergreen concerning the businesses, operations and prospects of
GranCare and Evergreen. We examined certain publicly available business and
financial information relating to GranCare and Evergreen as well as certain
financial forecasts and other data for GranCare and Evergreen which were
provided to us by the respective managements of GranCare and Evergreen,
including information relating to certain strategic implications and operational
benefits anticipated from the Merger. We reviewed the financial terms of the
Merger as set forth in the Merger Agreement in relation to, among other things:
current and historical market prices and trading volumes of the GranCare Common
Stock and the Evergreen Common Stock; the respective companies' historical and
projected earnings; and the capitalization and financial condition of GranCare
and Evergreen. We also considered, to the extent publicly available, the
financial terms of certain other similar transactions recently effected which we
considered comparable to the Merger and analyzed certain financial, stock market
and other publicly available information relating to the businesses of other
companies whose operations we considered comparable to those of GranCare and
Evergreen. We also evaluated the potential pro forma financial impact of the
Merger on GranCare. In addition to the foregoing, we conducted such other
analyses and examinations and considered such other financial, economic and
market criteria as we deemed appropriate to arrive at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information publicly available or furnished to or otherwise reviewed by or
discussed with us. With respect to financial forecasts and other information
provided to or otherwise reviewed by or discussed with us, we have been advised
by the managements of GranCare and Evergreen that such forecasts and other
information were reasonably prepared on bases reflecting the best currently
available estimates and judgments of the respective managements of GranCare and
Evergreen as to the expected future financial performance of GranCare and
Evergreen and the strategic implications and operational benefits anticipated
from the Merger. We also assumed, with your consent, that the Merger will be
treated as a pooling of interests in accordance with generally accepted
accounting principles and as a tax-free reorganization for federal income tax
purposes. Our opinion, as set forth herein, relates to the relative values of
GranCare and Evergreen. We are not expressing any opinion as to what the value
of the GranCare Common
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<PAGE> 132
Stock actually will be when issued to Evergreen stockholders pursuant to the
Merger or the price at which the GranCare Common Stock will trade subsequent to
the Merger. We have not made or been provided with an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of GranCare or
Evergreen nor have we made any physical inspection of the properties or assets
of GranCare or Evergreen. We have not been asked to consider, and our opinion
does not address, the relative merits of the Merger as compared to any
alternative business strategies that might exist for GranCare or the effect of
any other transaction in which GranCare might engage. Our opinion is necessarily
based upon information available to us, and financial, stock market and other
conditions and circumstances existing and disclosed to us, as of the date
hereof.
Smith Barney has been engaged to render financial advisory services to GranCare
in connection with the Merger and will receive a fee for our services, a
significant portion of which is contingent upon the consummation of the Merger.
We also will receive a fee upon the delivery of this opinion. In the ordinary
course of our business, we may actively trade the securities of GranCare and
Evergreen for our own account or for the account of our customers and,
accordingly, may at any time hold a long or short position in such securities.
Our advisory services and the opinion expressed herein are provided solely for
the use of the Board of Directors of GranCare in its evaluation of the proposed
Merger, and our opinion is not intended to be and does not constitute a
recommendation to any stockholder as to how such stockholder should vote on the
proposed Merger. Our opinion may not be published or otherwise used or referred
to, nor shall any public reference to Smith Barney be made, without our prior
written consent.
Based upon and subject to the foregoing, our experience as investment bankers,
our work as described above and other factors we deemed relevant, we are of the
opinion that, as of the date hereof, the Exchange Ratio is fair, from a
financial point of view, to GranCare.
Very truly yours,
SMITH BARNEY INC.
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<PAGE> 133
[FORM OF OPINION OF THE CHICAGO DEARBORN COMPANY]
APPENDIX D
, 1995
Board of Directors
Evergreen Healthcare, Inc.
Suite 200
11350 N. Meridian Street
Carmel, IN 46032
Gentlemen:
You have asked our opinion with respect to the fairness to the shareholders
of Evergreen Healthcare, Inc. ("Evergreen" or the "Company"), from a financial
point of view and as of the date hereof, of the Exchange Ratio (as defined
below), in the proposed merger of Evergreen with GW Acquisition Corp. ("GWAC"),
a wholly owned subsidiary of GranCare, Inc. ("GranCare"), pursuant to the
Agreement and Plan of Merger, dated as of May 2, 1995 (the "Agreement").
Under the terms of the Agreement, Evergreen will merge with GWAC in
accordance with the Agreement, and Evergreen will be, as a consequence of the
Merger, a wholly owned subsidiary of GranCare. In the Merger, each outstanding
share of the common stock of Evergreen will be converted into the right to
receive 0.775 of a share of the common stock of GranCare (the "Exchange Ratio").
We understand that the Merger will qualify as a tax-free reorganization and be
accounted for as a "pooling of interests."
For purposes of our opinion, we have, among other things:
(i) reviewed certain publicly available financial statements and other
information of the Company and GranCare;
(ii) reviewed certain internal financial statements and other
financial and operating data concerning the Company and GranCare prepared
by the managements of the Company and GranCare, respectively;
(iii) reviewed certain financial projections prepared by the
managements of the Company and GranCare, respectively;
(iv) discussed with management of the Company and GranCare the
businesses, operations and prospects of both companies, independently and
combined;
(v) reviewed the stock prices and trading histories of the Company and
GranCare;
(vi) reviewed the exchange ratio implied by historical stock prices of
the Company and GranCare;
(vii) reviewed the contribution by the Company and GranCare to pro
forma combined revenue, operating profit, pretax income and net income;
(viii) reviewed the valuations of publicly traded companies which we
deemed comparable to the Company and GranCare;
(ix) compared the financial terms of the Merger and other transactions
which we deemed relevant;
(x) prepared discounted cash flow analyses of the Company and
GranCare;
(xi) reviewed the Agreement and certain related documents; and
(xii) performed such other analyses as we have deemed appropriate.
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<PAGE> 134
We have assumed and relief upon, without independent verification, the
accuracy and completeness of all of the information reviewed by us for the
purposes of this opinion and we have assumed no responsibility to independently
verify any of such information or for any independent evaluation or appraisal of
the assets of the Company or GranCare. With respect to the financial
projections, including the synergies and other benefits expected to result from
the merger, we have assumed that they have been reasonably prepared by
management of the Company and GranCare on bases reflecting the best currently
available estimates and judgments of the future financial performance of each of
the Company and GranCare. Our opinion is necessarily based on economic, market
and other conditions as in effect on, and the information made available to us
as of, the date hereof.
Chicago Dearborn is an investment banking firm engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, private placements and valuations for corporate and
other purposes. We have acted as financial advisor to Evergreen in connection
with the merger and will receive a fee for our services.
We hereby consent to the inclusion of this opinion as an exhibit to any
proxy or registration statement distributed in connection with the Merger as
contemplated by the Merger Agreement.
Based upon and subject to the foregoing and further based on our experience
as investment bankers, we are of the opinion that, as of the date hereof, the
Exchange Ratio pursuant to the Agreement is fair from a financial point of view
to the shareholders of Evergreen.
Very truly yours,
D-2
<PAGE> 135
[FORM OF OPINION OF MCDONALD & COMPANY SECURITIES, INC.]
APPENDIX E
, 1995
Board of Directors
Evergreen Healthcare, Inc.
11350 N. Meridian Street, Suite 200
Carmel, Indiana 46032
Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of the outstanding shares of Common Stock, par value
$.01 per share ("Evergreen Common Stock"), of Evergreen Healthcare, Inc.
("Evergreen" or the "Company") of the exchange ratio of 0.775 of a share of
Common Stock, no par value ("Grancare Common Stock"), of Grancare, Inc.
("Grancare") for each share of Evergreen Common Stock (the "Exchange Ratio") to
be received by holders of Evergreen Common Stock pursuant to the Agreement and
Plan of Merger, dated as of May 2, 1995, among Grancare, GW Acquisition Corp.
and the Company (the "Merger Agreement").
McDonald & Company Securities, Inc., as part of its investment banking
business, is customarily engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes.
In connection with rendering this opinion, we have reviewed and analyzed,
among other things, the following: (i) the Merger Agreement, including the
exhibits and schedules thereto; (ii) Annual Reports to shareholders and Annual
Reports on Form 10-K of the Company and Grancare for the five years ended June
30, 1994 and December 31, 1994, respectively, and Quarterly Reports on Form 10-Q
of the Company and Grancare for the periods subsequent to June 30, 1994 and
December 31, 1994, respectively; (iii) certain internal information, primarily
financial in nature, including projections, concerning the business and
operations of the Company and Grancare furnished to us for purposes of our
analysis; (iv) certain publicly available information concerning the trading of,
and the trading market for, the Evergreen Common Stock and the Grancare Common
Stock; (v) certain publicly available information with respect to certain other
companies that we believe to be comparable to the Company or to Grancare and the
trading markets for certain of such other companies' securities; and (vi)
certain publicly available information concerning the nature and terms of
certain other transactions that we consider relevant to our inquiry. We have
also met with certain officers and employees of the Company and Grancare to
discuss the past and current business operations, financial condition and future
prospects of their respective companies, as well as other matters we believe
relevant to our inquiry.
In our review and analysis and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of all of the financial and other
information provided to us or publicly available and have assumed and relied
upon the representations and warranties of the Company and Grancare contained in
the Merger Agreement and were not engaged to, nor have we independently
attempted to, verify any of such information. We have also relied upon the
managements of the Company and Grancare as to the reasonableness and
achievability of the financial and operating projections (and the assumptions
and bases therefor) provided to us and, with your consent, we have assumed that
such projections, including projected cost savings and operating synergies,
reflect the best currently available estimates and judgments of the respective
managements of the Company and Grancare and that such projections and forecasts
will be realized in the amounts and in the time periods currently estimated by
the managements of the Company and Grancare. We express no view as to such
projections or the assumptions on which they are based. In addition, we were not
engaged to, nor have we conducted, any physical inspection or appraisal of any
of the assets, properties or facilities of either the Company or Grancare nor
have we been furnished with any such evaluation or appraisal. Furthermore, we
assumed the consummation of the transaction contemplated
E-1
<PAGE> 136
pursuant to the Merger Agreement will qualify (i) for pooling of interests
accounting treatment and (ii) as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended.
In the ordinary course of our business, we may actively trade securities of
both the Company and Grancare for our own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities.
Based upon and subject to the foregoing and such other matters as we
consider relevant, it is our opinion, as investment bankers, that as of the date
hereof, the Exchange Ratio pursuant to the Merger Agreement is fair, from a
financial point of view, to the holders of Evergreen Common Stock.
We hereby consent to the inclusion of this opinion as an exhibit to any
proxy or registration statement distributed in connection with the Merger as
contemplated by the Merger Agreement.
Very truly yours,
E-2
<PAGE> 137
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Restated Articles of Incorporation of GranCare contain a provision that
limits the personal liability of GranCare's directors for monetary damages in an
action brought by or in the right of GranCare for breach of a director's duties
to GranCare and its shareholders. Such provision does not limit the liability of
GranCare's directors for acts or omissions that involve intentional misconduct
or a knowing culpable violation of law; for acts or omissions that a director
believes to be contrary to the best interests of GranCare or its shareholders or
that involve the absence of good faith on the part of the director; for any
transaction from which a director derived an improper personal benefit; for acts
or omissions that show a reckless disregard for the director's duty to the
corporation or its shareholders in circumstances under which the director was
aware, or should have been aware, in the ordinary course of performing a
director's duty, of a risk of serious injury to the corporation or its
shareholders; for acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty to GranCare or
its shareholders; under Section 310 of the California General Corporation Law
(which involves liability for a director having a material financial interests
in a corporate transaction); or under Section 316 of the California General
Corporation Law (which imposes liability on directors who approve certain
improper distributions to shareholders or approve certain improper loans or
guarantees to any director or officer).
GranCare's Bylaws permit GranCare to indemnify its officers and directors
to the full extent permitted by Section 317 of the California General
Corporation Law and applicable law. Section 317 of the California General
Corporation Law makes provisions for the indemnification of officers, directors
and other corporate agents in terms sufficiently broad to indemnify such
persons, under certain circumstances, for liabilities (including reimbursement
of expenses incurred) arising under the Securities Act of 1933. GranCare has
entered into agreements with certain of its directors and officers whereby it
has agreed to indemnify such persons against certain liabilities.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<C> <S>
*2.1 Agreement and Plan of Merger, dated May 2, 1993, by and among GranCare,
Inc., GW Acquisition Corp. and Evergreen Healthcare, Inc. with Exhibits.
**4.1 Restated Articles of Incorporation, as amended.
**4.2 Bylaws, as amended.
**4.3 Indenture, dated January 29, 1993, from GranCare, Inc. to First Fidelity
Trust Company, New York, as Trustee.
***5.1 Opinion of Brobeck, Phleger & Harrison.
***8.1 Opinion of Brobeck, Phleger & Harrison.
***8.2 Opinion of Rogers & Hardin.
***12.1 Computation of Ratio of Earnings to Fixed Charges.
23.1 Consent of Ernst & Young LLP (included on page II-4).
23.2 Consent of KPMG Peat Marwick LLP (included on page II-5).
23.3 Consent of Arthur Andersen LLP (included on page II-6).
***23.4 Consent of Brobeck, Phleger & Harrison (included in Exhibit 5.1).
***23.5 Consent of Brobeck, Phleger & Harrison (included in Exhibit 8.1).
***23.6 Consent of Rogers & Hardin (included in Exhibit 8.2).
24.1 Power of Attorney (included on page II-3).
99.1 Form of GranCare Proxy Card.
99.2 Form of Evergreen Proxy Card.
</TABLE>
- ---------------
* Incorporated by reference to GranCare's quarterly report on Form 10-Q filed
May 15, 1995.
** Incorporated by reference to GranCare's annual report on Form 10-K which was
filed on March 30, 1992.
*** To be filed by amendment.
II-1
<PAGE> 138
ITEM 22. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) of 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) 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
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(d) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (c) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the 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 the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(e) 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 means information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-2
<PAGE> 139
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia
on June 2, 1995.
GRANCARE, INC.
By: /s/ GENE E. BURLESON
------------------------------------
Name: Gene E. Burleson
Title: President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Gene E. Burleson, Evrett W. Benton and Jerry A.
Schneider, jointly and severally, his attorneys-in-fact, each with power of
substitution, for him in any and all capacities, to sign this Registration
Statement and any amendments hereto, and to file the same, with exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- -------------------------------- ---------------
<S> <C> <C>
/s/ GENE E. BURLESON Chairman of the Board, June 2, 1995
- --------------------------------------------- President and Chief Executive
Gene E. Burleson Officer and Director
(Principal Executive Officer)
/s/ JERRY A. SCHNEIDER Executive Vice President June 2, 1995
- --------------------------------------------- and Chief Financial Officer
Jerry A. Schneider (Principal Financial and
Accounting Officer)
/s/ GARY U. ROLLE Director June 2, 1995
- ---------------------------------------------
Gary U. Rolle
/s/ CHARLES M. BLALACK Director June 2, 1995
- ---------------------------------------------
Charles M. Blalack
/s/ EDWARD V. REGAN Director June 2, 1995
- ---------------------------------------------
Edward V. Regan
/s/ JOEL S. KANTER Director June 2, 1995
- ---------------------------------------------
Joel S. Kanter
/s/ ANTOINETTE HUBENETTE Director June 2, 1995
- ---------------------------------------------
Antoinette Hubenette, M.D.
</TABLE>
II-3
<PAGE> 140
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- --------- ----------------------------------------------------------------------- ------------
<C> <S> <C>
* 2.1 Agreement and Plan of Merger, dated May 2, 1993, by and among GranCare,
Inc., GW Acquisition Corp. and Evergreen Healthcare, Inc. with
Exhibits...............................................................
** 4.1 Restated Articles of Incorporation, as amended.........................
** 4.2 Bylaws, as amended.....................................................
** 4.3 Indenture, dated January 29, 1993, from GranCare, Inc. to First
Fidelity Trust Company, New York, as Trustee...........................
*** 5.1 Opinion of Brobeck, Phleger & Harrison.................................
*** 8.1 Opinion of Brobeck, Phleger & Harrison.................................
*** 8.2 Opinion of Rogers & Hardin.............................................
*** 12.1 Computation of Ratio of Earnings to Fixed Charges......................
23.1 Consent of Ernst & Young LLP (included on page II-4)...................
23.2 Consent of KPMG Peat Marwick LLP (included on page II-5)...............
23.3 Consent of Arthur Andersen LLP (included on page II-6).................
*** 23.4 Consent of Brobeck, Phleger & Harrison (included in Exhibit 5.1).......
*** 23.5 Consent of Brobeck, Phleger & Harrison (included in Exhibit 8.1).......
*** 23.6 Consent of Rogers & Hardin (included in Exhibit 8.2)...................
24.1 Power of Attorney (included on page II-3)..............................
99.1 Form of GranCare Proxy Card............................................
99.2 Form of Evergreen Proxy Card...........................................
</TABLE>
- ---------------
* Incorporated by reference to GranCare's quarterly report on Form 10-Q filed
May 15, 1995.
** Incorporated by reference to GranCare's annual report on Form 10-K which was
filed on March 30, 1992.
*** To be filed by amendment.
II-4
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
"The Merger -- Accounting Treatment" in the Registration Statement (Form S-4)
and related Joint Proxy Statement/Prospectus of GranCare, Inc. for the
registration of 9,941,975 shares of its Common Stock, and the incorporation by
reference therein of our report dated February 21, 1995, with respect to the
consolidated financial statements and schedules of GranCare, Inc. included in
its Annual Report (Form 10-K) for the year ended December 31, 1994, filed with
the Securities and Exchange Commission.
We also consent to the incorporation by reference therein of: (a) our
report dated March 25, 1994, with respect to the financial statements of
Long-Term Care Pharmaceutical Service Corporations I and III as of December 31,
1993 and 1992 and for the years then ended, included in the GranCare, Inc. Form
10-Q for the quarter ended June 30, 1994; and (b) our report dated May 25, 1995,
with respect to the financial statements of Cornerstone Health Management
Company as of March 31, 1995, and for the eleven month period then ended,
included in the Current Report on Form 8-K/A dated June 2, 1995, both filed with
the Securities and Exchange Commission.
We also consent to the incorporation by reference therein of: (a) our
report dated February 26, 1993, with respect to the financial statements of
Omega/Indiana Pharmacy, L.P., a limited partnership, for the year ended December
31, 1992; and (b) our report dated December 4, 1992, with respect to the
financial statements of Evergreen Healthcare, Ltd., L.P., a limited partnership,
for the year ended September 30, 1992, included in the Evergreen Healthcare,
Inc. Annual Report (Form 10-K) for the year ended June 30, 1994, filed with the
Securities and Exchange Commission.
Ernst & Young LLP
Atlanta, Georgia
June 2, 1995
II-5
<PAGE> 1
EXHIBIT 23.2
ACCOUNTANTS' CONSENT
The Board of Directors and Shareholders
Evergreen Healthcare, Inc.
We consent to the incorporation by reference in the registration statement
on Form S-4 of GranCare, Inc. and related Joint Proxy Statement/Prospectus of
GranCare, Inc. and Evergreen Healthcare, Inc. of our report dated September 30,
1994, with respect to the consolidated financial statements of Evergreen
Healthcare, Inc. and subsidiaries as of June 30, 1994 and 1993 and for the year
ended June 30, 1994 and the combined statements of operations, partners' equity
and cash flows of Evergreen Healthcare Ltd., L.P., Predecessor to Evergreen
Healthcare, Inc., for the nine-month period ended June 30, 1993 and the year
ended September 30, 1992 which report appears in the Evergreen Healthcare, Inc.
Annual Report (Form 10-K) for the year ended June 30, 1994 and to the references
to our firm under the headings "Experts," "The Merger-Accounting Treatment" and
"Terms of Merger Agreement and Related Transactions -- Conditions to the Merger"
in the Joint Proxy Statement/Prospectus.
KPMG Peat Marwick LLP
Indianapolis, Indiana
June 1, 1995
II-6
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement of our report dated October 26,
1993, with respect to the Consolidated Financial Statements of CompuPharm, Inc.
included in GranCare, Inc.'s Form 10-K for the year ended December 31, 1994 and
to all references to our Firm included in this Registration Statement.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
May 31, 1995
II-7
<PAGE> 1
PROXY GRANCARE, INC. EXHIBIT 99.1
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR SPECIAL MEETING OF SHAREHOLDERS -- JULY 31, 1995
The undersigned shareholder of GranCare, Inc., a California corporation (the
"Company") acknowledges receipt of the Notice of the Special Meeting of
Shareholders and Joint Proxy Statement/Prospectus, each dated June 30, 1995, and
the undersigned revokes all other proxies and appoints Gene E. Burleson and
Evrett W. Benton, and each of them, the attorneys and proxies for the
undersigned, each with the power of substitution, to attend and act for the
undersigned at the Company's Special Meeting of Shareholders to be held at the
offices of GranCare, Inc., One Ravinia Drive, Suite 1500, Atlanta, Georgia,
30346, on July 31, 1995, at 10:00 a.m., and at any adjournments thereof in
connection therewith to vote and represent all of the shares of the Company's
Common Stock which the undersigned would be entitled to vote, as follows:
1. The approval and adoption of an Agreement and Plan of Merger, dated as of
May 2, 1995 (the "Merger Agreement"), by and among GranCare, GW
Acquisition Corp., a wholly-owned subsidiary of GranCare ("GWAC"), and
Evergreen Healthcare, Inc. ("Evergreen"), pursuant to which, among other
things: (i) GWAC will be merged with and into Evergreen, and Evergreen
will become a wholly-owned subsidiary of GranCare, (ii) each share of
Evergreen common stock, par value $0.01 per share, will be converted into
0.775 of a share of GranCare common stock, no par value and (iii)
GranCare will assume the Evergreen 1993 Incentive Compensation Plan, the
1994 Non-Employee Director Stock Option Plan, and the National Heritage,
Inc. 1987 Stock Option Plan and all outstanding options under such plans
and all outstanding Evergreen warrants.
/ / FOR / / AGAINST / / ABSTAIN
2. The transaction of such other business as may properly come before the
Special Meeting or at any adjournment or postponement thereof.
(continued on reverse side)
(continued from reverse side)
Each of the above-named proxies present at said meeting, either in person or
by substitute, shall have and exercise all the powers of said proxies hereunder.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE CHOICES SPECIFIED BY THE
UNDERSIGNED. IF NO SPECIFICATIONS TO THE CONTRARY ARE INDICATED HEREON, THIS
PROXY WILL BE TREATED AS A GRANT OF AUTHORITY TO VOTE FOR PROPOSAL 1.
PLEASE SIGN, DATE AND RETURN YOUR PROXY PROMPTLY IN THE POSTAGE PREPAID ENVELOPE
PROVIDED.
DATED THIS_____DAY OF____
1995
------------------------
SIGNATURE OF SHAREHOLDER
------------------------
SIGNATURE OF SHAREHOLDER
PLEASE SIGN EXACTLY AS
YOUR NAME OR NAMES APPEAR
HEREON. WHEN SIGNING AS
ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR
GUARDIAN, PLEASE GIVE
FULL TITLE AS SUCH. IF
SHARES ARE HELD JOINTLY,
EACH HOLDER SHOULD SIGN.
<PAGE> 1
EXHIBIT 99.2
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
OF EVERGREEN HEALTHCARE, INC.
TO BE HELD ON JULY 31, 1995
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF EVERGREEN HEALTHCARE, INC.
The Board of Directors strongly recommends a vote FOR the following proposal:
(1) Approval and adoption of the Agreement and Plan of Merger dated as of May 2,
1995 (the "Merger Agreement") by and among Evergreen Healthcare, Inc.
("Evergreen"), GranCare, Inc., a California corporation ("GranCare"), and GW
Acquisition Corp., a wholly-owned subsidiary of GranCare ("GWAC"), pursuant
to which GWAC will merge with and into Evergreen (the "Merger"), as further
described in the accompanying Joint Proxy Statement/Prospectus of GranCare,
Inc. and Evergreen Healthcare, Inc. dated as of , 1995 (the "Proxy
Statement").
/ / FOR / / AGAINST / / ABSTAIN
UNLESS OTHERWISE MARKED, THIS PROXY WILL BE VOTED AS IF MARKED FOR THE PROPOSAL
ABOVE.
The undersigned appoints William G. Petty, Jr. and Keith J. Yoder, and each
of them, with full power of substitution, the proxies and attorneys of the
undersigned, to vote as specified herein at the Special Meeting of Shareholders
(the "Special Meeting") of Evergreen to be held at the offices of Evergreen,
11350 N. Meridian, Suite 200, Carmel, Indiana, on July 31, 1995 at 10:00 a.m.,
local time, and at any adjournments or postponements thereof, with all powers
(other than the power to revoke the proxy or vote the proxy in a manner not
authorized by the executed form of proxy) that the undersigned would have if
personally present at the Special Meeting, to act in their discretion upon any
other matter or matters that may properly be brought before the Special Meeting
and to appear and vote all the shares of common stock of Evergreen that the
undersigned may be entitled to vote. The undersigned hereby acknowledges receipt
of the accompanying Proxy Statement and hereby revokes any proxy or proxies
heretofore given by the undersigned relating to the Special Meeting.
Signature
---------------
Signature if
held jointly
------------
Dated:
------------------
Please date and sign as
name appears hereon. When
signing as executor,
administrator, trustee,
guardian or attorney,
please give full title of
each. If a corporation,
please sign in full
corporate name by
president or other
authorized corporate
officer. If a
partnership, please sign
in partnership name by
authorized person. Joint
owners should each sign.
