SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 8, 1997
LIVING CENTERS OF AMERICA, INC.
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(Exact name of registrant as specified in charter)
Delaware 33-44726 74-2012902
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(State or other (Commission (IRS employer
jurisdiction file Number) identification No.)
of incorporation)
15415 Katy Freeway, Suite 800, Houston, Texas 77094
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (281)578-4600
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Not Applicable
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(former name or former address, if changed since last report)
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Item 5. Other Events.
On May 8, 1997, Living Centers of America, Inc. (the
"Company") announced execution of agreements for a leveraged
recapitalization of the Company to be followed immediately by a
business combination with GranCare, Inc. ("GranCare"). Attached
as Exhibits 99.1, 99.2 and 99.3, respectively, and incorporated
by reference, are the Agreement and Plan of Merger among Apollo
Management, L.P. ("Apollo"), Apollo LCA Acquisition Corporation
and the Company (providing for the recapitalization); the
Agreement and Plan of Merger among the Company, GranCare and
Apollo (providing for the merger with GranCare); and the joint
press release of the Company and GranCare announcing the
transactions.
Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits.
c) Exhibits.
99.1 Agreement and Plan of Merger among Apollo Management, L.P., Apollo
LCA Acquisition Corporation and Living Centers of America, Inc.
99.2 Agreement and Plan of Merger among Living Centers of America, Inc.,
GranCare, Inc. and Apollo Management, L.P.
99.3 Joint Press Release issued by Living Centers of America, Inc. and
GranCare, Inc. on May 8, 1997
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
Date: May 8, 1997 LIVING CENTERS OF AMERICA, INC.
(Registrant)
By: /s/ Susan Thomas Whittle
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Name: Susan Thomas Whittle
Title: Vice President and
General Counsel
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EXHIBIT INDEX
99.1 Agreement and Plan of Merger among Apollo Management, L.P., Apollo
LCA Acquisition Corporation and Living Centers of America, Inc.
99.2 Agreement and Plan of Merger among Living Centers of America, Inc.,
GranCare, Inc. and Apollo Management, L.P.
99.3 Joint Press Release issued by Living Centers of America, Inc. and
GranCare, Inc. on May 8, 1997
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AGREEMENT AND PLAN OF MERGER
AMONG
APOLLO MANAGEMENT, L.P.
APOLLO LCA ACQUISITION CORPORATION
AND
LIVING CENTERS OF AMERICA, INC.
Dated as of May 7, 1997
[MERGER I]
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TABLE OF CONTENTS
ARTICLE I
THE MERGER
SECTION 1.01 The Merger.......................................1
SECTION 1.02 Consummation of the Merger.......................2
SECTION 1.03 Effects of the Merger............................2
SECTION 1.04 Certificate of Incorporation and Bylaws..........2
SECTION 1.05 Directors and Officers...........................2
SECTION 1.06 Company Actions..................................2
ARTICLE II
EFFECTS OF THE MERGER
SECTION 2.01 Conversion of Shares.............................3
SECTION 2.02 Elections........................................4
SECTION 2.03 Proration........................................5
SECTION 2.04 Conversion of Common Stock of the Sub............6
SECTION 2.05 Stockholders' Meeting............................6
SECTION 2.06 Dissenting Shares................................6
SECTION 2.07 Exchange of Certificates.........................7
SECTION 2.08 Rights Under Stock Plans.........................9
SECTION 2.09 Nonqualified Deferred Compensation Plan.........10
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.01 Organization and Qualification..................10
SECTION 3.02 Capitalization..................................11
SECTION 3.03 Authority for this Agreement....................12
SECTION 3.04 Absence of Certain Changes......................12
SECTION 3.05 Reports.........................................13
SECTION 3.06 Information Supplied............................13
SECTION 3.07 Consents and Approvals; No Violation............14
SECTION 3.08 Brokers.........................................14
SECTION 3.09 Employee Benefit Matters........................15
SECTION 3.10 Litigation, etc.................................16
SECTION 3.11 Tax Matters.....................................17
SECTION 3.12 Compliance with Law.............................17
SECTION 3.13 Environmental Compliance........................18
SECTION 3.14 Insurance.......................................18
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SECTION 3.15 Vote Required...................................19
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE SUB
SECTION 4.01 Organization and Qualification..................19
SECTION 4.02 Authority Relative to this Agreement............19
SECTION 4.03 Consents and Approvals; No Violation............20
SECTION 4.04 Financing.......................................20
SECTION 4.05 Brokers.........................................21
SECTION 4.06 Litigation, etc.................................21
SECTION 4.07 Information Supplied............................21
SECTION 4.08 Ownership of Shares.............................22
ARTICLE V
COVENANTS
SECTION 5.01 Conduct of Business of the Company..............22
SECTION 5.02 No Solicitation.................................23
SECTION 5.03 Access to Information...........................24
SECTION 5.04 Reasonable Efforts, Filings.....................24
SECTION 5.05 Indemnification and Insurance...................25
SECTION 5.06 Employee Plans and Benefits and
Employment Contracts .........................27
SECTION 5.07 Proxy Statement.................................27
SECTION 5.08 Notification of Certain Matters.................28
SECTION 5.09 Rights Agreement Amendment......................28
SECTION 5.10 Solvency Letter.................................28
SECTION 5.11 New York Stock Exchange Listing.................29
SECTION 5.12 Election to the Company's Board of Directors....29
SECTION 5.13 Registration Rights Agreement...................29
SECTION 5.14 Capitalization of Sub...........................29
ARTICLE VI
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 6.01 Conditions to Each Party's Obligation to Effect
the Merger30
SECTION 6.02 Additional Condition to the
Company's Obligation to Effect the
Merger.......................................31
SECTION 6.03 Additional Conditions to the Parent's
and the Sub's Obligations
to Effect the Merger.........................31
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ARTICLE VII
TERMINATION; AMENDMENT; WAIVER
SECTION 7.01 Termination.....................................32
SECTION 7.02 Effect of Termination...........................34
SECTION 7.03 Amendment.......................................34
SECTION 7.04 Extension; Waiver...............................34
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01 Survival of Representations and Warranties......35
SECTION 8.02 Entire Agreement; Assignment....................35
SECTION 8.03 Enforcement of the Agreement; Jurisdiction......35
SECTION 8.04 Validity........................................35
SECTION 8.05 Notices.........................................36
SECTION 8.06 Governing Law...................................37
SECTION 8.07 Descriptive Headings............................37
SECTION 8.08 Parties in Interest.............................37
SECTION 8.09 Counterparts....................................37
SECTION 8.10 Fees and Expenses...............................37
SECTION 8.11 Certain Definitions.............................37
SECTION 8.12 Disclosure Letter...............................38
SECTION 8.13 Press Releases..................................38
SECTION 8.14 Obligation of the Parent........................38
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as
of May 7, 1997 among Apollo Management, L.P., a Delaware limited
partnership on behalf of one or more funds under management (the
"Parent"), Apollo LCA Acquisition Corp., a Delaware corporation
and a wholly-owned subsidiary of Parent (the "Sub"), and Living
Centers of America, Inc., a Delaware corporation (the "Company").
RECITALS
WHEREAS, the Board of Directors of each of the Sub and the
Company has determined that it is fair and in the best interests
of their respective stockholders for the Sub to merge with and
into the Company (the "Merger") pursuant to Section 251 of the
Delaware General Corporation Law ("DGCL") upon the terms and
subject to the conditions set forth herein;
WHEREAS, the Board of Directors of the Company has adopted
resolutions approving the Merger, this Agreement and the
transactions contemplated hereby, and has agreed to recommend
that the Company's stockholders approve the Merger, this
Agreement and the transactions contemplated hereby;
WHEREAS, the Sub and the Company have agreed (subject to
the terms and conditions of this Agreement), as soon as
practicable following the approval by the stockholders of the
Company, to effect the Merger, as more fully described herein;
WHEREAS, the Sub and the Company desire to make certain
representations, warranties, covenants and agreements in
connection with this Agreement; and
WHEREAS, it is intended that the Merger be recorded as a
recapitalization for financial reporting purposes;
NOW THEREFORE, in consideration of the mutual covenants and
agreements set forth herein, the parties hereto agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01 The Merger.
Upon the terms and subject to the conditions hereof, and in
accordance with the relevant provisions of the DGCL, the Sub
shall be merged with and into the Company as soon as practicable
following the satisfaction or waiver, if permissible, of the
conditions set forth in Article VI hereof.
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The Company shall be the surviving corporation in the Merger (the
"Surviving Corporation") under the name Living Centers of
America, Inc. (or such other name as the parties shall agree) and
shall continue its existence under the laws of Delaware. The
separate corporate existence of the Sub shall cease.
SECTION 1.02 Consummation of the Merger.
Subject to the provisions of this Agreement, the parties
hereto shall cause the Merger to be consummated by filing with
the Secretary of State of the State of Delaware a duly executed
and verified certificate of merger, as required by the DGCL, and
shall take all such other and further actions as may be required
by law to make the Merger effective as promptly as practicable.
Prior to the filing referred to in this Section, a closing (the
"Closing") will be held at the offices of Cleary, Gottlieb, Steen
& Hamilton, One Liberty Plaza, New York, New York (or such other
place as the parties may agree) for the purpose of confirming all
the foregoing. The time the Merger becomes effective in
accordance with applicable law is referred to as the "Effective
Time."
SECTION 1.03 Effects of the Merger.
The Merger shall have the effects set forth in the
applicable provisions of the DGCL and set forth herein.
SECTION 1.04 Certificate of Incorporation and Bylaws.
The Certificate of Incorporation and the Bylaws of the Sub,
in each case as in effect immediately prior to the Effective
Time, shall be the Certificate of Incorporation and Bylaws of the
Surviving Corporation; provided, however, that Article I of the
Certificate of Incorporation of the Surviving Corporation shall
be amended to read in its entirety as follows: "ARTICLE I. The
name of the Corporation is Living Centers of America, Inc." (or
such other name as the parties shall agree).
SECTION 1.05 Directors and Officers.
The directors of the Sub immediately prior to the Effective
Time and the officers of the Company immediately prior to the
Effective Time shall be the directors and officers, respectively,
of the Surviving Corporation until their respective successors
are duly elected and qualified.
SECTION 1.06 Company Actions.
The Company hereby represents and warrants that (a) its
Board of Directors (at a meeting duly called and held), has (i)
determined that the Merger is fair to and in the best interests
of the stockholders of the Company, (ii) resolved to approve this
Agreement, the Merger, the issuance of shares of common stock of
the Company, par value $0.01 per share (the "Shares") to the
stockholders of the Sub in connection with the Merger and the
issuance of Shares pursuant to the merger (the "GranCare Merger")
contemplated by the agreement and plan of merger (the "GranCare
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Merger Agreement") by and among GranCare Inc., a Delaware
corporation ("GranCare"), the Company, a wholly-owned Subsidiary
of the Company ("Merger Sub") and the Parent (collectively, the
"Stockholder Approvals"), and to recommend (subject to its
fiduciary duties as advised by legal counsel) approval and
adoption of the Stockholder Approvals by such stockholders of the
Company, (iii) taken all necessary steps to render Section 203 of
the DGCL and Article Tenth of the Company's Restated Certificate
of Incorporation inapplicable to the Merger, (iv) resolved to
elect not to be subject, to the extent permitted by law, to any
state takeover law other than Section 203 of the DGCL that may
purport to be applicable to the Merger, or the transactions
contemplated by this Agreement and (v) approved the Rights
Agreement Amendment (as defined below), and (b) Credit Suisse
First Boston ("CSFB") and NationsBanc Capital Markets, Inc.
("NationsBanc"), the Company's financial advisors, have advised
the Company's Board of Directors that, in their opinion, the
consideration to be paid to or retained by the Company's
stockholders in the Merger and the GranCare Merger is fair, from
a financial point of view, to such stockholders.
ARTICLE II
EFFECTS OF THE MERGER
SECTION 2.01 Conversion of Shares.
(a) Each Share issued and outstanding immediately
prior to the Effective Time (other than Shares owned by the
Parent, the Sub or any subsidiary of the Parent or the Sub or
held in the treasury of the Company (collectively "Excluded
Shares"), all of which shall be canceled and cease to exist,
without consideration being payable therefore and Dissenting
Shares (as defined in Section 2.06)) shall, by virtue of the
Merger, remain outstanding or be converted at the Effective Time
into the following (the "Merger Consideration"), upon the
surrender of the certificate representing such Shares as provided
in Section 2.07 and subject to Section 2.03 hereof:
(i) for each Share with respect to which an
election to retain such Share has been effectively made and
not revoked or lost, pursuant to Sections 2.02(c), (d) and
(e) ("Electing Shares"), the right to retain one fully paid
and nonassessable share of Common Stock of the Surviving
Corporation (a "Retained Share"); and
(ii)for each such Share (other than Retained
Shares), the right to receive in cash from the Company
following the Merger an amount equal to $40.50 (the "Cash
Election Price").
(b) As of the Effective Time of the Merger, all Shares
(other than Excluded Shares and Retained Shares) issued and
outstanding immediately prior to the Effective Time of the
Merger, shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist and each holder of
a certificate representing any such Shares shall, to the extent
such certificate represents such Shares, cease to have any rights
with respect thereto, except the right to
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receive cash, including such in lieu of fractional shares to be
issued or paid in consideration therefor upon surrender of such
certificate in accordance with Section 2.07.
SECTION 2.02 Elections.
(a) Each person who, on or prior to the Election Date
referred to in paragraph (c) below, is a record holder of Shares
will be entitled, with respect to all or any portion of his
Shares, to make an unconditional election (a "Non-Cash Election")
on or prior to such Election Date to retain Retained Shares
(subject to Section 2.03), on the basis hereinafter set forth.
(b) Prior to the mailing of the Proxy Statement, the
Sub shall appoint a bank or trust company to act as paying agent
(the "Paying Agent") for the payment of the Merger Consideration.
(c) The Company shall prepare and mail a form of
election, which form shall be subject to the reasonable approval
of the Sub (the "Form of Election"), with the Proxy Statement to
the record holders of Shares as of the record date for the
Stockholders Meeting, which Form of Election shall be used by
each record holder of Shares who wishes to elect to retain
Retained Shares for any or all Shares held, subject to the
provisions of Section 2.03 hereof, by such holder. The Company
will use commercially reasonable efforts to make the Form of
Election and the Proxy Statement available to all persons who
become holders of Shares during the period between such record
date and the Election Date referred to below. Any such holder's
election to retain Retained Shares shall have been properly made
only if the Paying Agent shall have received at its designated
office, by 5:00 p.m., New York City time on the business day (the
"Election Date") next preceding the date of the Stockholders
Meeting a Form of Election properly completed and signed and
accompanied by certificates for the Shares to which such Form of
Election relates, duly endorsed in blank or otherwise in form
acceptable for transfer on the books of the Company (or by an
appropriate guarantee of delivery of such certificates as set
forth in such Form of Election from a firm which is a member of a
registered national securities exchange or of the National
Association of Securities Dealers, Inc. or a commercial bank or
trust company having an office or correspondent in the United
States, provided such certificates are in fact delivered to the
Paying Agent within three (3) NYSE trading days after the date of
execution of such guarantee of delivery).
(d) Any Form of Election may be revoked by the
stockholder submitting it to the Paying Agent only by written
notice received by the Paying Agent (i) prior to 5:00 p.m., New
York City time on the Election Date or (ii) after the date of the
Stockholders Meeting, if (and to the extent that) the Paying
Agent is legally required to permit revocations and the Effective
Time of the Merger shall not have occurred prior to such date. In
addition, all Forms of Election shall automatically be revoked if
the Paying Agent is notified in writing by the Sub and the
Company that the Merger has been abandoned. If a Form of Election
is revoked, the certificate or certificates (or guarantees of
delivery, as appropriate) for the Shares to which such form of
Election relates shall be promptly returned to the stockholder
submitting the same to the Paying Agent.
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(e) The determination of the Paying Agent shall be
binding whether or not elections to retain Retained Shares have
been properly made or revoked pursuant to this Section 2.02 with
respect to Shares and when elections and revocations were
received by it. If the Paying Agent determines that any election
to retain Retained Shares was not properly made with respect to
Shares, such Shares shall be treated by the Paying Agent as
Shares which were not Electing Shares at the Effective Time of
the Merger, and such Shares shall be exchanged in the Merger for
cash pursuant to Section 2.01(a)(ii). The Paying Agent shall also
make all computations as to the allocation and the proration
contemplated by Section 2.03, and any such computation shall be
conclusive and binding on the holders of Shares. The Paying Agent
may, with the mutual agreement of the Sub and the Company, make
such rules as are consistent with this Section 2.02 for the
implementation of the elections provided for herein as shall be
necessary or desirable fully to effect such elections.
SECTION 2.03 Proration.
(a) Notwithstanding anything in this Agreement to the
contrary, the aggregate number of Shares to remain outstanding as
Retained Shares in the Surviving Corporation at the Effective
Time of the Merger shall be equal to1,404,088 (the "Retained
Share Number").
(b) If the number of Electing Shares exceeds the
Retained Share Number, then each Electing Share shall be
converted into the right to retain Retained Shares or receive
cash in accordance with the terms of Section 2.01(a) in the
following manner:
(i) A proration factor (the "Non-Cash Proration
Factor") shall be determined by dividing the Retained Share
Number by the total number of Electing Shares.
(ii)Subject to Section 2.07(e), the number of
Electing Shares covered by each Non-Cash Election to be
retained (on a consistent basis among stockholders who made
the election referred to in Section 2.01(a)(i) pro rata to
the number of shares as to which they made such elections)
shall be equal to the product of the Non-Cash Proration
Factor multiplied by the total number of Electing Shares.
(iiiSubject to Section 2.07(e), all Electing
Shares other than those shares retained as Retained Shares
in accordance with Section 2.03(b)(ii), shall be converted
into cash (on a consistent basis among stockholders who
made the election referred to in Section 2.01(a)(i), pro
rata to the number of shares as to which they made such
election) as if such shares were not Electing Shares in
accordance with the terms of Section 2.01(a)(ii).
(c) If the number of Electing Shares is less than the
Retained Share Number, then:
(i) All Electing Shares shall remain outstanding
as Retained Shares in the Surviving Corporation in
accordance with the terms of Section 2.01(a))(i);
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(ii)Subject to Section 2.07(e), additional
Shares other than Electing Shares shall be retained (on a
consistent basis among stockholders who held Shares as to
which they did not make the election referred to in Section
2.01(a)(i) pro rata to the number of Shares as to which
they made such election) as Retained Shares in accordance
with the terms of Section 2.01(a) in the following manner:
The number of Shares in addition to Electing Shares to be
retained as Retained Shares (the "Non-Electing Retained
Shares") (on a basis consistent among stockholders who held
Shares as to which they did not make the election referred
to in Section 2.01(a)(i) pro rata to the number of Shares
as to which they did not make such election) shall be equal
to the excess of the Retained Share Number over the number
of Electing Shares.
SECTION 2.04 Conversion of Common Stock of the Sub.
Each share of common stock, par value $.01 per share, of
the Sub issued and outstanding immediately prior to the Effective
Time shall, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into and become at the
Effective Time one share of common stock of the Surviving
Corporation.
SECTION 2.05 Stockholders' Meeting.
Subject to applicable law, the Company, acting through its
Board of Directors, shall, in accordance with applicable law,
duly call, give notice of, convene and hold a special meeting
(the "Special Meeting") of its stockholders as soon as
practicable for the purpose of obtaining the Stockholder
Approvals and, subject to the fiduciary duties of its Board of
Directors under applicable law as determined by such directors in
good faith after consultation with and based upon the advice of
Cleary, Gottlieb, Steen & Hamilton, as legal counsel to the
Company, include in the joint proxy statement (the "Proxy
Statement") of each of the Company and GranCare for use in
connection with the stockholders meeting of each of the Company
and GranCare, the recommendation of the Company's Board of
Directors that stockholders of the Company vote in favor of the
Stockholder Approvals. The Parent, the Sub and the Company agree
to use commercially reasonable efforts to cause the Special
Meeting to occur within forty-five (45) days after the Company
has responded to all SEC comments with respect to the preliminary
Proxy Statement as provided in Section 5.07.
SECTION 2.06 Dissenting Shares.
Notwithstanding anything in this Agreement to the contrary,
Shares which are issued and outstanding immediately prior to the
Effective Time and which are held by stockholders who did not
vote in favor of the Merger and who comply with all of the
relevant provisions of Section 262 of the DGCL (the "Dissenting
Shares") shall not be converted into or be exchangeable for the
right to receive the Merger Consideration (but instead shall be
converted into the right to receive payment from the Surviving
Corporation with respect to such Dissenting Shares in accordance
with the DGCL), unless and until such holders shall have failed
to perfect or shall have failed to perfect or shall have
effectively withdrawn or lost their rights to appraisal under the
DGCL. If any such holder
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shall have failed to perfect or shall have effectively withdrawn
or lost such right, such holder's Shares shall be treated at the
Company's sole discretion as either (i) a Share (other than an
Electing Share) that had been converted as of the Effective Time
of the Merger into the right to receive Merger Consideration in
accordance with Section 2.01(a) or (ii) an Electing Share. The
Company shall give prompt notice to the Sub of any demands
received by the Company for appraisal of Shares, and the Sub
shall have the right to participate in and direct all
negotiations and proceedings with respect to such demands. The
Company shall not, except with the prior written consent of the
Sub, make any payment with respect to, or settle or offer to
settle, any such demands.
SECTION 2.07 Exchange of Certificates.
(a) As soon as reasonably practicable as of or after
the Effective Time of the Merger, the Corporation shall deposit
with the Paying Agent, for the benefit of the holders of Shares,
for exchange in accordance with this Article II, the cash portion
of the Merger Consideration.
(b) As soon as practicable after the Effective Time of
the Merger, each holder of an outstanding certificate or
certificates which prior thereto represented Shares shall, upon
surrender to the Paying Agent of such certificate or certificates
and acceptance thereof by the Paying Agent, be entitled to a
certificate or certificates representing the number of full
shares in the Surviving Corporation, if any, to be retained by
the holder thereof as Retained Shares pursuant to this Agreement
and the amount of cash, if any, into which the number of Shares
previously represented by such certificate or certificates
surrendered shall have been converted pursuant to this Agreement.
The Paying Agent shall accept such certificates upon compliance
with such reasonable terms and conditions as the Paying Agent may
impose to effect an orderly exchange thereof in accordance with
normal exchange practices. After the Effective Time of the
Merger, there shall be no further transfer on the records of the
Company or its transfer agent of certificates representing (i)
Shares which have been converted, in whole or in part, pursuant
to this Agreement into the right to receive cash, and if such
certificates are presented to the Company for transfer, they
shall be canceled against delivery of cash and, if appropriate,
certificates for Retained Shares. If any certificate for such
Retained Shares is to be issued in, or if cash is to be remitted
to, a name other than that in which the certificate for Shares
surrendered for exchange is registered, it shall be a condition
of such exchange that the certificate so surrendered shall be
properly endorsed, with signature guaranteed or otherwise in
proper form for transfer and that the person requesting such
exchange shall pay to the Company or its transfer agent any
transfer or other taxes required by reason of the issuance of
certificates for such Retained Shares in a name other than that
of the registered holder of the certificate surrendered, or
establish to the satisfaction of the Company or its transfer
agent that such tax has been paid or is not applicable. Until
surrendered as contemplated by this Section 2.07(b), each
certificate for Shares shall be deemed at any time after the
Effective Time of the Merger to represent only the right to
receive upon such surrender the Merger Consideration as
contemplated by Section 2.01.
(c) No dividends or other distributions with respect
to Retained Shares with a record date after the Effective Time of
the Merger shall be paid to the holder of any unsurrendered
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certificate for Shares with respect to the Retained Shares
represented thereby and no cash payment in lieu of fractional
Shares shall be paid to any such holder pursuant to Section
2.07(e) until the surrender of such certificate in accordance
with this Article II. Subject to the effect of applicable laws,
following surrender of any such certificate, there shall be paid
to the holder of the certificate representing whole Retained
Shares issued in connection therewith, without interest (i) at
the time of such surrender or as promptly after the sale of the
Excess Shares (as defined in Section 2.07(e)) as practicable, the
amount of any cash payable in lieu of a fractional retained share
to which such holder is entitled pursuant to Section 2.07(e) and
the proportionate amount of dividends or other distributions with
a record date after the Effective Time of the Merger therefor
paid with respect to such Retained Shares, and (ii) at the
appropriate payment date, the proportionate amount of dividends
or other distributions with a record date after the Effective
Time of the Merger but prior to such surrender and a payment date
subsequent to such surrender payable with respect to such whole
Retained Shares.
(d) All cash paid upon the surrender for exchange of
certificates representing Shares in accordance with the terms of
this Article II (including any cash paid pursuant to Section
2.07(e) shall be deemed to have been issued (and paid) in full
satisfaction of all rights pertaining to the Shares exchanged for
cash theretofore represented by such certificates.
(e) Notwithstanding any other provision of this
Agreement, each holder of Shares retained pursuant to the Merger
who would otherwise have been entitled to retain a fraction of a
Retained Share (after taking into account all Shares delivered by
such holder) shall receive, in lieu thereof, a cash payment
(without interest) equal to such fraction multiplied by $40.50.
(f) Any portion of the Merger Consideration deposited
with the Paying Agent pursuant to this Section 2.07 (the
"Exchange Fund") which remains undistributed to the holders of
the certificates representing Shares for six months after the
Effective Time of the Merger shall be delivered to the Surviving
Corporation and any holders of Shares prior to the Merger who
have not theretofore complied with this Article II shall
thereafter look only to the Surviving Corporation and only as
general creditors thereof for payment of their claim for cash, if
any.
(g) None of the Sub or the Company or the Paying Agent
shall be liable to any person in respect of any cash from the
Exchange Fund delivered to a public office pursuant to any
applicable abandoned property, escheat or similar law. If any
certificates representing Shares shall not have been surrendered
prior to one year after the Effective Time of the Merger (or
immediately prior to such earlier date on which any cash in
respect of such certificate would otherwise escheat to or become
the property of any Governmental Authority), any such cash in
respect of such certificate shall, to the extent permitted by
applicable law, become the property of the Surviving Corporation,
free and clear of all claims or interest of any person previously
entitled thereto.
(h) The Paying Agent shall invest any cash included in
the Exchange Fund, as directed by the Company, on a daily basis.
Any interest and other income resulting from such investments
shall be paid to the Company. To the extent that there are losses
with respect to such
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investments, or the Exchange Fund diminishes for other reasons
below the level required to make prompt payments of the Merger
Consideration as contemplated hereby, the Parent shall promptly
replace or restore the portion of the Exchange Fund lost through
investments or other events so as to ensure that the Exchange
Fund is, at all times, maintained at a level sufficient to make
such payments.
(i) The Company shall pay all charges and expenses o
f the Paying Agent.
SECTION 2.08 Rights Under Stock Plans.
Immediately prior to the Effective Time, the Company shall
take such action as may be necessary so that each then
outstanding option (including stock purchase rights and options
granted to outside directors) to purchase Shares, each holder of
any other right to receive Shares subject to vesting, settlement
or other conditions (whether or not conditioned upon the payment
of consideration by such holder), each employee who has made an
election on or before the date hereof to purchase Shares under a
stock purchase arrangement in effect on or before the date hereof
(regardless of whether such Shares have been purchased or have
been allocated from treasury stock in response to such election
or whether the settlement or allocation of such Shares is subject
to vesting or other conditions, but, in the case of the salary
reduction plans, only with respect to Shares to be allocated with
respect to reductions in salary if such salary reduction relates
to the period prior to the Effective Time), and each holder of
Shares subject to vesting or other restrictions pursuant to any
employee benefit or stock plan (including, without limitation,
any stock option, stock purchase, restricted stock or other plan)
(the "Stock Plans"), whether or not such options or rights are
then vested or exercisable, or such elections have been fulfilled
or honored or such restrictions have lapsed or terminated (the
"Rights"), shall be cancelled by the Company, and each holder of
a Right to be cancelled shall be entitled to receive that number
of Shares as is equal to the product of (i) the total number of
Shares subject to such holder's Rights, and (ii) the excess, if
any, of (x) $40.50 over (y) the exercise price per Share
previously subject to each such Right, and (iii) 0.02469 (the
"Right Consideration") upon cancellation of such Rights
immediately prior to the Effective Time, and such holder shall be
given the opportunity to make the elections described in Section
2.02 (subject to proration as provided in Section 2.03) with
respect to the Shares to be issued as such Right Consideration;
provided, however, that with respect to any person subject to
Section 16 of the Exchange Act, to the extent that the payment or
the right to receive payment with respect to the Rights (or the
Shares relating thereto) would cause such person to have any
liability under Section 16 of the Exchange Act, any such amount
shall be paid on (and shall not be payable until) the first
business day following the expiration of six months after any
such Right was granted and shall not be due and payable prior
thereto (and the Parent, the Sub and the Company agree, for the
benefit of such persons, not to assert that any such person has
any liability pursuant to Section 16(b) of the Exchange Act with
respect to any such amount). In all other instances, the Parent
and the Surviving Corporation shall cause the Right Consideration
to be paid within 5 business days after the Effective Time. The
surrender of a Right to the Company in exchange for the Right
Consideration shall be deemed a release of any and all rights the
holder had or may have had in respect of such Right. Prior to the
Effective Time, the Company shall use all reasonable efforts to
obtain all necessary consents
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or releases from holders of Rights under the Stock Right Plans or
otherwise and take all such other action requested by the Sub,
consistent with applicable law and the terms of the Stock Right
Plans and the Rights as may be necessary to give effect to the
transactions contemplated by this Section 2.08. The foregoing
shall not limit or affect any provision of a Stock Plan that
would accelerate the vesting of any Right or prevent the
acceleration, settlement, or exercise of any Right that would
otherwise be required or permitted pursuant to the terms of a
Stock Plan (whether by reason of the consummation of the Offer or
otherwise). No salaries shall be reduced with respect to
employment subsequent to the Effective Time pursuant to stock
purchase elections under the salary reduction plan.
SECTION 2.09 Nonqualified Deferred Compensation Plan.
At the Effective Time, each participant in the Living
Centers of America, Inc. Deferred Retirement Income Plan and each
participant in the Company's Retirement Savings 401(k) Plan (the
"Deferred Plans") shall become vested in his or her entire
account balances under each Plan including, without limitation,
any portion of such account balance maintained in Shares or
Shares Units as provided under such Deferred Plans. Prior to the
Effective Time, the Company may continue to match deferrals of
compensation with Shares as provided pursuant to the Deferred
Plans. Subject to Section 5.6, after the Effective Time, the
Surviving Corporation may discontinue contributions or otherwise
amend the Deferred Plans; provided that the Surviving Corporation
shall continue to maintain in full force and effect, or otherwise
preserve the tax benefits provided by, such Deferred Plans.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants as of the date of this
Agreement to the Parent and the Sub as follows:
SECTION 3.01Organization and Qualification.
Each of the Company and its subsidiaries is a duly
organized and validly existing corporation in good standing under
the laws of its jurisdiction of incorporation, with all requisite
corporate power and other authority to own its properties and
conduct its business as it is being conducted on the date hereof,
and is duly qualified and in good standing as a foreign
corporation authorized to do business in each of the
jurisdictions in which the character of the properties owned or
held under lease by it or the nature of the business transacted
by it makes such qualification necessary. The Company has
heretofore made available to the Sub accurate and complete copies
of the Certificates of Incorporation and Bylaws as currently in
effect of the Company and its subsidiaries.
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SECTION 3.02 Capitalization.
(a) The authorized capital stock of the Company
consists of 75,000,000 Shares and 5,000,000 shares of preferred
stock, par value $.01 (the "Preferred Stock"), of which 350,000
shares have been designated as Series A Junior Participating
Preferred Stock (the "Junior Preferred Stock"). As of the close
of business on March 31, 1997 (the "Capitalization Date"):
19,547,616 Shares were issued and outstanding; no shares of
Preferred Stock were issued and outstanding; 720,304 Shares were
held in the Company's treasury; and there were outstanding Rights
with respect to 1,635,447 Shares as set forth in Section 3.02(a)
of the disclosure letter, dated the date hereof, delivered by the
Company to the Parent prior to the execution of this Agreement
setting forth certain matters referred to in this Agreement (the
"Disclosure Letter"); and there were outstanding rights (the
"Rights Agreement Rights") under the Rights Agreement dated
November 17, 1994 between the Company and Chemical Bank, as
amended by an amendment dated as of July 31, 1995 (the "Rights
Agreement"). Since the Capitalization Date, except as set forth
in Section 3.02(a) of the Disclosure Letter or in the SEC Reports
(as defined in Section 3.05), the Company (i) has not issued any
Shares other than upon the exercise or vesting of Rights
outstanding on such date, (ii) has not granted any options or
rights to purchase or acquire Shares (under the Company's Stock
Plans or otherwise) and (iii) has not split, combined or
reclassified any of its shares of capital stock. All of the
outstanding Shares have been duly authorized and validly issued
and are fully paid and nonassessable and are free of preemptive
rights. Except as set forth in this Section 3.02 or in Section
3.02(a) of the Disclosure Letter or in the SEC Reports, there are
outstanding (i) no shares of capital stock or other voting
securities of the Company, (ii) no securities of the Company
convertible into or exchangeable for shares of capital stock or
voting securities of the Company and (iii) no options, warrants,
rights, or other agreements or commitments to acquire from the
Company, and no obligation of the Company to issue, any capital
stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of the
Company, and no obligation of the Company to grant, extend or
enter into any subscription, warrant, option, right, convertible
or exchangeable security or other similar agreement or commitment
(the items in clauses (i), (ii) and (iii) being referred to
collectively as the "Company Securities"). Except as set forth in
Section 3.02(a) of the Disclosure Letter, there are no
outstanding obligations of the Company or any subsidiary to
repurchase, redeem or otherwise acquire any Company Securities.
There are no voting trusts or other agreements or understandings
to which the Company or any of its subsidiaries is a party with
respect to the voting of capital stock of the Company or any of
its subsidiaries. Notwithstanding the foregoing, the Company will
issue Shares pursuant to the Equity Commitment (as hereinafter
defined) and also will issue shares pursuant to the GranCare
Merger.
(b) Except as set forth in Section 3.02(b) of the
Disclosure Letter or in the SEC Reports, the Company is, directly
or indirectly, the record and beneficial owner of all the
outstanding shares of capital stock of each of its subsidiaries,
free and clear of any lien, mortgage, pledge, charge, security
interest or encumbrance of any kind, and there are no irrevocable
proxies with respect to any such shares. Except as set forth in
Section 3.02(b) of the Disclosure Letter or in the SEC Reports,
there are no outstanding (i) securities of the Company or any
subsidiary convertible into or exchangeable for shares of capital
stock or other voting securities or ownership interests in any
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subsidiary, or (ii) options or other rights to acquire from the
Company or any of its subsidiaries, and no other obligation of
the Company or any of its subsidiaries to issue, any capital
stock, voting securities or other ownership interests in, or any
securities convertible into or exchangeable for any capital
stock, voting securities or ownership interests in, any of its
subsidiaries, or any other obligation of the Company or any of
its subsidiaries to grant, extend or enter into any subscription,
warrant, right, convertible or exchangeable security or other
similar agreement or commitment (the items in clauses (i) and
(ii) being referred to collectively as the "Subsidiary
Securities"). There are no outstanding obligations of the Company
or any of its subsidiaries to repurchase, redeem or otherwise
acquire any outstanding Subsidiary Securities.
SECTION 3.03Authority for this Agreement.
The Company has the requisite corporate power and authority
to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of
this Agreement by the Company and the consummation by the Company
of the transactions contemplated hereby have been duly and
validly authorized by the Board of Directors of the Company and
no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement or to consummate the
transactions so contemplated, other than the approval and
adoption of the agreement of merger (as such term is used in
Section 251 of the DGCL) contained in this Agreement and the
approval of the Merger by the holders of a majority of the
outstanding Shares. This Agreement has been duly and validly
executed and delivered by the Company and, assuming this
Agreement constitutes a valid and binding obligation of each of
the Parent and the Sub, constitutes a valid and binding agreement
of the Company, enforceable against the Company in accordance
with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency and similar laws affecting
creditors' rights generally and to general principles of equity
(whether considered in a proceeding in equity or at law).
SECTION 3.04Absence of Certain Changes.
Except as disclosed in the SEC Reports (as defined in
Section 3.05) or as set forth in the capitalization information
set forth in Section 3.02 of the Disclosure Letter from September
30, 1996 through the date hereof, (i) the Company and its
subsidiaries have not suffered any Material Adverse Effect (as
defined in Section 5.11), (ii) the Company and its subsidiaries
have, in all material respects, conducted their respective
businesses only in the ordinary course consistent with past
practice, except in connection with the negotiation and execution
and delivery of this Agreement and the solicitation or receipt of
other offers to acquire the Company, and (iii) there has not been
(a) any declaration, setting aside or payment of any dividend or
other distribution in respect of the Shares or any repurchase,
redemption or other acquisition by the Company or any of its
subsidiaries of any Company Securities or Subsidiary Securities;
or (b) any action by the Company which if taken after the date
hereof would constitute a breach of Section 5.01 hereof. Except
as disclosed in the SEC Reports or in Section 3.04 of the
Disclosure Letter, since September 30, 1996, there has not been
any change by the Company in accounting methods, principles or
practices except as permitted by United States generally accepted
accounting principles.
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SECTION 3.05 Reports.
(a) The Company has timely filed with the SEC all
forms, reports and documents required to be filed by it pursuant
to the federal securities laws and the SEC rules and regulations
thereunder on and after September 30, 1995, all of which (the
"SEC Reports") have complied in form as of their respective
filing dates in all material respects with all applicable
requirements of the Exchange Act and the rules promulgated
thereunder applicable thereto. None of the SEC Reports, at the
time filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated or
incorporated by reference therein or necessary in order to make
the statements therein, in light of the circumstances under which
they were made, not misleading.
(b) As of their respective dates, the audited and
unaudited consolidated financial statements of the Company
included (or incorporated by reference) in the SEC Reports were
prepared in all material respects in accordance with United
States generally accepted accounting principles applied on a
consistent basis during the periods therein indicated (except as
may be indicated in the notes thereto) and presented fairly the
consolidated financial position of the Company, and the
consolidated results of operations and changes in consolidated
financial position or cash flows for the periods presented
therein, subject, in the case of the unaudited interim financial
statements, to normal year-end audit adjustments and any other
adjustments described therein which were not expected to have a
Material Adverse Effect.
(c) As of March 31, 1997, neither the Company nor any
of its subsidiaries had any liabilities of any nature, whether
accrued, absolute, contingent or otherwise, whether due or to
become due that are required to be recorded or reflected on a
balance sheet under United States generally accepted accounting
principles, except as reflected or reserved against or disclosed
in the financial statements of the Company included in the SEC
Reports or the Disclosure Letter or as otherwise disclosed in the
SEC Reports or the Disclosure Letter.
SECTION 3.06Information Supplied.
Any documents to be filed by the Company with the SEC or
any other governmental or regulatory authority in connection with
the Merger and the other transactions contemplated hereby will
not, on the date of its filing or, with respect to the Proxy
Statement, as supplemented if necessary, on the date it is sent
or given to stockholders, contain any untrue statement of a
material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made,
not misleading, except that no representation is made by the
Company with respect to information supplied in writing by or on
behalf of the Parent, the Sub or GranCare expressly for inclusion
therein and information incorporated by reference therein from
documents filed by GranCare with the SEC. The Proxy Statement and
any such other documents filed by the Company with the SEC under
the Exchange Act or with any other governmental or regulatory
authority under applicable law will comply as to form in all
material respects with the provisions of the Exchange Act and the
rules and regulations thereunder.
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SECTION 3.07Consents and Approvals; No Violation.
Neither the execution and delivery of this Agreement by the
Company nor the consummation of the transactions contemplated
hereby will conflict with or result in any breach of any
provision of the respective Restated Certificate of Incorporation
or Bylaws (or other similar governing documents) of the Company
or any of its subsidiaries and except as disclosed in Section
3.07 of the Disclosure Letter and except for filings, permits,
authorizations, notices, consents and approvals as may be
required under, and other applicable requirements of, the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), the Exchange Act, the DGCL, and the "takeover"
or blue sky laws of various states and consents, approvals,
authorizations or filings under laws of jurisdictions outside the
United States, and filings, notices, consents, authorizations and
approvals as may be required by local, state, and federal
regulatory agencies, commissions, boards, or public authorities
with jurisdiction over health care facilities and providers, (i)
require any consent, approval, authorization or permit of, or
filing with or notification to, any Governmental or regulatory
authority, except where the failure to obtain such consent,
approval, authorization or permit, or to make such filing or
notification, would not in the aggregate have a Material Adverse
Effect or have a material adverse effect on the ability of the
Company to consummate the transactions contemplated hereby; (ii)
result in a default (or give rise to any right of termination,
cancellation or acceleration) under any of the terms, conditions
or provisions of any note, license, agreement or other instrument
or obligation to which the Company is a party or by which the
Company or any of its assets or subsidiaries may be bound, except
for such defaults (or rights of termination, cancellation or
acceleration) which would not in the aggregate have a Material
Adverse Effect or have a material adverse effect on the ability
of the Company to consummate the transactions contemplated
hereby, (iii) result in the creation or imposition of any
mortgage, lien, pledge, charge, security interest or encumbrance
of any kind on any asset of the Company or any of its
subsidiaries which, in the aggregate, would have a Material
Adverse Effect or have a material adverse effect on the ability
of the Company to consummate the transactions contemplated
hereby; or (iv) violate any order, writ, injunction, agreement,
contract, decree, statute, rule or regulation applicable to the
Company, any of its subsidiaries or by which any of their
respective assets are bound, except for violations which would
not in the aggregate have a Material Adverse Effect or have a
material adverse effect on the ability of the Company to
consummate the transactions contemplated by this Agreement.
SECTION 3.08Brokers.
No broker, finder or other investment banker (other than
CSFB and NationsBanc, a copy of whose engagement letters have
been furnished to the Parent) is entitled to receive any
brokerage, finder's or other fee or commission in connection with
this Agreement or the transactions contemplated hereby based upon
agreements made by or on behalf of the Company.
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SECTION 3.09Employee Benefit Matters.
(a) For purposes of this Agreement, the term "Plan
shall refer to the following maintained by the Company, any of
its subsidiaries or any of their respective ERISA Affiliates (as
defined below), or with respect to which the Company, any of its
subsidiaries or any of their respective ERISA Affiliates
contributes or has any obligation to contribute or has any
liability (including, without limitation, a liability arising out
of an indemnification, guarantee, hold harmless or similar
agreement): any plan, program, arrangement, agreement or
commitment, whether written or oral, which is an employment,
consulting, deferred compensation or change-in-control agreement,
or an executive compensation, incentive bonus or other bonus,
employee pension, profit-sharing, savings, retirement, stock
option, stock purchase, severance pay, change-in-control, life,
health, disability or accident insurance plan, or other employee
benefit plan, program, arrangement, agreement or commitment,
whether written or oral, including, without limitation, any
"employee benefit plan" as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended
("ERISA"). Section 3.09(a) of the Disclosure Letter sets forth
each employment agreement with a person who is entitled to
receive at least $100,000 per year from the Company or any of its
subsidiaries (other than an employment agreement terminable
without material liability (not otherwise disclosed) on no more
than sixty (60) days' notice).
(b) Except as set forth in Section 3.09(b) of the
Disclosure Letter, none of the Company, its subsidiaries nor any
of their respective ERISA Affiliates maintains or contributes to,
nor have they maintained or contributed to, any:
(A) defined benefit plan subject to Title IV
of ERISA; or
(B) "Multiemployer plan" as defined in
Section 4001 of ERISA.
(c) No event has occurred and no condition or
circumstance currently exists, in connection with which the
Company, any of its subsidiaries, their respective ERISA
Affiliates or any Plan, directly or indirectly, are likely to be
subject to any liability under ERISA, the Code or any other law,
regulation or governmental order applicable to any Plan which
would be reasonably likely to have a Material Adverse Effect.
(d) With respect to each Plan, (A) all material
payments due from the Company or any of its subsidiaries to date
have been made and all material amounts properly accrued to date
or as of the Effective Time as liabilities of the Company or any
of its subsidiaries which have not been paid have been properly
recorded on the books of the Company; (B) each such Plan which is
an "employee pension benefit plan" (as defined in Section 3(2) of
ERISA) and intended to qualify under Section 401 of the Code has
either received a favorable determination letter from the
Internal Revenue Service with respect to such qualification as of
the date specified in Section 3.09(d) of the Disclosure Letter or
has filed for such a determination letter with the Internal
Revenue Service within the time permitted under Rev. Proc. 95-12
(December 29, 1994), 1995-3 IRB 24, and nothing has occurred
since the date of such letter that has resulted in or is likely
to result in a tax qualification
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defect which would have a Material Adverse Effect; and (C) there
are no material actions, suits or claims pending (other than
routine claims for benefits) or, to the best of the Company's
knowledge, threatened with respect to such Plan or against the
assets of such Plan.
(e) The Company has made available to the Parent,
with respect to each Plan for which the following exists:
(A) a copy of the most recent annual report
on Form 5500, with respect to such Plan including any
Schedule B thereto;
(B) a copy of the Summary Plan Description,
together with each Summary of Material Modifications
with respect to such Plan and, unless the Plan is
embodied entirely in an insurance policy to which the
Company or any of its subsidiaries is a Party, a true
and complete copy of such Plan; and
(C) if the Plan is funded through a trust
or any third party funding vehicle (other than an
insurance policy), a copy of the trust or other
funding agreement and the latest financial statements
thereof.
(f) Except as disclosed in Section 3.09(g) of the
Disclosure Letter or in the SEC Reports, neither the Company nor
any of its subsidiaries has any announced plan or legally binding
commitment to create any additional material Plans or to make any
material amendment or modification to any existing Plan, except
in the ordinary course of business in accordance with its
customary practices or as required by law or as necessary to
maintain tax-qualified status.
(g) For purposes of this Section 3.09, ERISA
Affiliates include each corporation that is a member of the same
controlled group as the Company or any of its subsidiaries within
the meaning of Section 414(b) of the Code, any trade or business,
whether or not incorporated, under common control with the
Company or any of its subsidiaries within the meaning of Section
414(c) of the Code and any member of an affiliated service group
that includes the Company, any of its subsidiaries and any of the
corporations, trades or business described above, within the
meaning of Section 414(m) of the Code.
SECTION 3.10Litigation, etc.
Except as set forth in Section 3.10 of the Disclosure
Letter or as disclosed in the SEC Reports, as of the date hereof
there is no pending audit, claim, action, proceeding or citizen's
suit and, to the knowledge of the Company, no audit, claim,
action, proceeding or citizen's suit or governmental
investigation has been threatened against the Company or any of
its subsidiaries before any court or governmental or regulatory
authority which, in the aggregate, (i) would have a Material
Adverse Effect or (ii) would have a material adverse effect on
the ability of the Company to consummate the transactions
contemplated by this Agreement. Except as set forth in Section
3.10 of the Disclosure Letter or as disclosed in the SEC Reports,
neither the Company nor any subsidiary
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of the Company is subject to any outstanding judicial,
administrative or arbitration order, writ, injunction or decree
that (i) has had a Material Adverse Effect or (ii) would have a
material adverse effect on the ability of the Company to
consummate the transactions contemplated by this Agreement.
SECTION 3.11Tax Matters.
The Company and each of its subsidiaries has duly filed all
tax returns and reports required to be filed by it, or requests
for extensions to file such returns or reports have been timely
filed and granted and have not expired, except to the extent that
such failures to file, in the aggregate, would not have a
Material Adverse Effect, and such returns and reports are true,
correct and complete in all material respects. The Company and
each of its subsidiaries has duly paid in full (or the Company
has paid on its behalf) or made adequate provision in the
Company's accounting records for all taxes for all past and
current periods for which the Company or any of its Subsidiaries
is liable. The most recent financial statements contained in the
SEC Reports reflect adequate reserves for all taxes payable by
the Company and its subsidiaries for all taxable periods and
portions thereof accrued through the date of such financial
statements, and no deficiencies for any taxes have been proposed,
asserted or assessed against the Company or any of its
subsidiaries that are not adequately reserved for, except for
inadequately reserved taxes and inadequately reserved
deficiencies that would not, in the aggregate, have a Material
Adverse Effect. No requests for waivers of the time to assess any
taxes against the Company or any of its subsidiaries have been
granted or are pending, except for requests with respect to such
taxes that have been adequately reserved for in the most recent
financial statements contained in the SEC Reports, or, to the
extent not adequately reserved, the assessment of which would
not, in the aggregate, have a Material Adverse Effect. Except as
set forth in Section 3.11 of the Disclosure Letter, neither the
Company nor any of its subsidiaries has made any payments, or is
obligated to make any payments, or is a party to any agreement
that under certain circumstances could obligate it to make any
payments that will not be deductible under Section 280G of the
Internal Revenue Code. Neither the Company nor any of its
subsidiaries has been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the
Internal Revenue Code during the applicable period specified in
Section 897(c)(1)(A)(ii) of the Internal Revenue Code. As used in
this Agreement the term "taxes" includes all federal, state,
local and foreign income, franchise, property, sales, use, excise
and other taxes, including without limitation obligations for
withholding taxes from payments due or made to any other person
and any interest, penalties or additions to tax.
SECTION 3.12Compliance with Law.
Except as set forth in Section 3.12 of the Disclosure
Letter or in the SEC Reports, neither the Company nor any of its
subsidiaries is in conflict with, or in default or violation of,
any law, rule, regulation, order, judgment or decree applicable
to the Company or any subsidiary or by which any property or
asset of the Company or any subsidiary is bound or affected,
except for any such conflicts, defaults or violations that would
not in the aggregate have a Material Adverse Effect. Except as
set forth in Section 3.12 of the Disclosure Letter or in the SEC
Reports, the Company and
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its subsidiaries have all permits, licenses, authorizations,
consents, approvals and franchises from governmental agencies
required to conduct their businesses as now being conducted (the
"Company Permits"), except for such permits, licenses,
authorizations, consents, approvals and franchises the absence of
which would not in the aggregate have a Material Adverse Effect.
Except as set forth in Section 3.12 of the Disclosure Letter or
in the SEC Reports, the Company and its subsidiaries are in
compliance with the terms of the Company Permits, except where
the failure so to comply would not in the aggregate have a
Material Adverse Effect.
SECTION 3.13Environmental Compliance.
Except as set forth in Section 3.13 of the Disclosure
Letter or in the SEC Reports, (i) the assets, properties,
businesses and operations of the Company and its subsidiaries are
in compliance with applicable Environmental Laws (as defined in
Section 8.11 hereof), except for such non-compliance which has
not had and will not have a Material Adverse Effect; (ii) the
Company and its subsidiaries have obtained and, as currently
operating, are in compliance with all Company Permits necessary
under any Environmental Law for the conduct of the business and
operations of the Company and its subsidiaries in the manner now
conducted except for such non-compliance which has not had and
will not have a Material Adverse Effect; and (iii) neither the
Company nor any of its subsidiaries nor any of their respective
assets, properties, businesses or operations has received or is
subject to any outstanding order, decree, judgment, complaint,
agreement, claim, citation, notice, or proceeding indicating that
the Company or any of its subsidiaries is or may be (a) liable
for a violation of any Environmental Law or (b) liable for any
Environmental Liabilities and Costs, where in each case such
liability would have a Material Adverse Effect.
SECTION 3.14Insurance.
Except as set forth in the SEC Reports, the Company and
each of its Subsidiaries maintains, and through the Closing Date
will maintain, insurance with reputable insurers (or pursuant to
prudent self-insurance programs) in such amounts and covering
such risks as are in accordance with normal industry practice for
companies engaged in businesses similar to those of the Company
and each of its Subsidiaries and owning property in the same
general areas in which the Company and each of its Subsidiaries
conducts their businesses. The Company and each of its
Subsidiaries may terminate each of its insurance policies or
binders at or after the closing and will incur no material
penalties or other material costs in doing so. None of such
policies or binders was obtained through the use of false or
misleading information or the failure to provide the insurer with
all information requested in order to evaluate the liabilities
and risks insured. There is no material default with respect to
any provision contained in any such policy or binder, nor has the
Company or any of its Subsidiaries failed to give any material
notice or present any material claim under any such policy or
binders in due and timely fashion. There are no billed but unpaid
premiums past due under any such policy or binder, the failure of
which to be paid would result in the cancellation of such policy
or binder. Except as otherwise set forth in the SEC Reports or
the Disclosure Letter, (a) there are no outstanding claims (in
excess of normal retentions) that are not covered under any such
policies or binders and, to the best knowledge of the Company,
there has not occurred any event that might
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reasonably form the basis of any claim (in excess of normal
retentions) that are not covered against or relating to the
Company or any of its Subsidiaries that is not covered by any of
such policies or binders; (b) no notice of cancellation or
non-renewal of any such policies or binders has been received;
and (c) there are no performance bonds outstanding with respect
to the Company or any of its Subsidiaries.
SECTION 3.15Vote Required.
Assuming the accuracy of the representations by the Parent
and the Sub in Section 4.08, the affirmative vote of holders of a
majority of the outstanding Shares is the only vote of the
holders of any class or series of the Company's capital stock or
other voting securities necessary to approve this Agreement, the
Merger and the transactions contemplated hereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PARENT AND
THE SUB
The Parent and the Sub, jointly and severally, represent
and warrant to the Company as follows:
SECTION 4.01Organization and Qualification.
Each of the Parent and the Sub is duly organized and
validly existing in good standing under the laws of the state of
its organization, with all requisite power and authority to own
its properties and conduct its business. All of the issued and
outstanding capital stock of the Sub is owned directly by the
Parent, free and clear of any lien, mortgage, pledge, charge,
security interest or encumbrance of any kind.
SECTION 4.02Authority Relative to this Agreement.
Each of the Parent and the Sub has full power and authority
to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of
this Agreement by the Parent and the Sub and the consummation by
the Parent and the Sub of the transactions contemplated hereby
have been duly and validly authorized by all necessary action.
This Agreement has been duly and validly executed and delivered
by the Parent and the Sub and, assuming this Agreement
constitutes the valid and binding obligation of the Company, this
Agreement constitutes a valid and binding agreement of each of
the Parent and the Sub, enforceable against each of the Parent
and the Sub in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy,
insolvency and similar laws affecting creditors' rights generally
and to general principles of equity (whether considered in a
proceeding in equity or at law).
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SECTION 4.03Consents and Approvals; No Violation.
The execution and delivery of this Agreement by each of the
Parent or the Sub and the consummation of the transactions
contemplated hereby will not (i) conflict with or result in any
breach of any provision of the respective Certificates of
Incorporation or Bylaws (or other similar governing documents) of
the Parent, the Sub or any of their subsidiaries; (ii) require
any consent, approval, authorization or permit of, or filing with
or notification to, any governmental or regulatory authority,
except (A) in connection with the HSR Act, (B) pursuant to the
Exchange Act, (C) the filing of a certificate of merger pursuant
to the DGCL, (D) any applicable filings under state securities,
blue sky or "takeover" laws, (E) consents, approvals,
authorizations or filings under laws of jurisdictions outside the
United States, (F) filings, notices, consents, authorizations and
approvals as may be required by local, state and federal
regulatory agencies, commissions, boards or public authorities
with jurisdiction over health care facilities and providers or
(G) where the failure to obtain such consent, approval,
authorization or permit, or to make such filing or notification,
would not in the aggregate have an adverse effect on the
financial condition, business or results of operation of the
Parent or the Sub and their subsidiaries which is material to the
Parent and its subsidiaries taken as a whole or has a material
adverse effect on the ability of the Parent or the Sub to
consummate the transactions contemplated hereby, (iii) result in
a default (or give rise to any right of termination, cancellation
or acceleration) under any of the terms, conditions or provisions
of any note, license, agreement or other instrument or obligation
to which the Parent or the Sub or any of their subsidiaries is a
party or by which any of its subsidiaries or any of their
respective assets may be bound, except for such defaults (or
rights of termination, cancellation or acceleration) as to which
requisite waivers or consents have been obtained or which would
not in the aggregate have an adverse effect on the financial
condition, business or results of operations of the Parent or the
Sub and their subsidiaries which is material to the Parent and
its subsidiaries taken as a whole or has a material adverse
effect on the ability of the Parent or the Sub to consummate the
transactions contemplated hereby; (iv) result in the creation or
imposition of any mortgage, lien, pledge, charge, security
interest or encumbrance of any kind on any asset of the Parent or
the Sub or any of their subsidiaries which, individually or in
the aggregate, would have a material adverse effect on the
ability of the Parent or the Sub to consummate the transactions
contemplated hereby; or (v) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to the Parent, the
Sub or any of their subsidiaries or any of their respective
assets, except for violations which would not in the aggregate
have an adverse effect on the financial condition, business or
results of operations of the Parent or the Sub and their
subsidiaries which is material to the Parent and its subsidiaries
taken as a whole or has a material adverse effect on the ability
of the Parent or the Sub to consummate the transactions
contemplated hereby.
SECTION 4.04Financing.
The Parent has provided a binding commitment, in the form
of a letter to the Company dated May 6, 1997 (the "Equity
Commitment") and has received a binding written commitment,
addressed to the Parent, the Sub and the Company from Chase
Securities, Inc. and the Chase Manhattan Bank (the "Debt
Commitment" and, together with the Equity Commitment, the
"Financing
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Commitments"), true and correct copies of which were furnished to
the Company to obtain, subject to the terms and conditions of the
Financing Commitments, the financing necessary to pay the Cash
Election Price pursuant to the Merger, to pay (or provide the
funds for the Company to pay) all amounts contemplated by Section
2.08 and Section 5.06 when due, to refinance any indebtedness or
other obligation of the Company, GranCare and their respective
subsidiaries which may become due as a result of this Agreement,
the GranCare Merger Agreement or any of the transactions
contemplated hereby or thereby, and to pay all related fees and
expenses (the financing necessary to provide such funds pursuant
to the Financing Commitments being hereinafter referred to as the
"Financing"), which Financing Commitments are in full force and
affect as of the date hereof. It is the good faith belief of
Parent and its affiliates, as of the date hereof, that the
Financing will be obtained, and the Parent shall use commercially
reasonable efforts to obtain the Financing, including using
commercially reasonable efforts to fulfill or cause the
fulfillment of any of the conditions thereto. If the Financing is
not available, the Parent shall use commercially reasonable
efforts to obtain other financing.
SECTION 4.05Brokers.
No broker, finder or other investment banker is entitled to
receive any brokerage, finder's or other fee or commission in
connection with this Agreement or the transactions contemplated
hereby based upon agreements made by or on behalf of the Parent
or the Sub.
SECTION 4.06Litigation, etc.
As of the date hereof there is no claim, action, proceeding
or governmental investigation pending or, to the best knowledge
of the Parent or the Sub, threatened against the Parent or any of
its subsidiaries, including the Sub, before any court or
governmental or regulatory authority which, in the aggregate
would have a material adverse effect on the ability of the Parent
or the Sub to consummate the transactions contemplated by this
Agreement. Neither the Parent nor any of its subsidiaries,
including the Sub is subject to any outstanding order, writ,
injunction or decree that would have a material adverse effect on
the ability of the Parent or the Sub to consummate the
transactions contemplated by this Agreement.
SECTION 4.07Information Supplied.
(a) The information supplied in writing by or on
behalf of the Parent and the Sub expressly for inclusion in the
Proxy Statement, as supplemented if necessary, and any other
documents to be filed by the Company with the SEC or any other
governmental or regulatory authority in connection with the
Merger or the GranCare Merger and the other transactions
contemplated hereby will not, on the date of its filing or, with
respect to the Proxy Statement, on the date first sent or given
to stockholders of the Company and stockholders of GranCare
contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
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SECTION 4.08Ownership of Shares.
As of the date hereof, none of the Parent, the Sub or their
affiliates beneficially owns (within the meaning of Rule l3d-3
under the Exchange Act) any Shares.
ARTICLE V
COVENANTS
SECTION 5.01Conduct of Business of the Company.
Except as contemplated by this Agreement and in the
Disclosure Letter, during the period from the date of this
Agreement to the Effective Date, the Company and its subsidiaries
will each conduct its operations according to its ordinary and
usual course of business and consistent with past practice and
will use all commercially reasonable efforts consistent with
prudent business practice to preserve intact the business
organization of the Company and each of its subsidiaries, to keep
available the services of its and their current officers and key
employees and to maintain existing relationships with those
having significant business relationships with the Company and
its subsidiaries, in each case in all material respects. Without
limiting the generality of the foregoing, except as set forth in
Section 5.01 of the Disclosure Letter and except as otherwise
expressly provided in or contemplated by this Agreement or the
Disclosure Letter, prior to the time specified in the preceding
sentence, neither the Company nor any of its subsidiaries, as the
case may be, will, without the prior written consent of the
Parent (not to be unreasonably withheld), (i) except for
issuances of capital stock of the Company's subsidiaries to the
Company or a wholly-owned subsidiary of the Company, issue, sell
or pledge, or authorize or propose the issuance, sale or pledge
of (A) Company Securities or Subsidiary Securities, in each case,
other than Shares issuable upon exercise or vesting of the Rights
or allocations or issuances pursuant to the Stock Plans or the
exercise of rights under any Plan or any agreement referred to in
Section 3.02 of the Disclosure Letter, or (B) any other
securities in respect of, in lieu of or in substitution for
Shares outstanding on the date hereof; (ii) otherwise acquire or
redeem, directly or indirectly, any Company Securities or
Subsidiary Securities (including the Shares); (iii) split,
combine or reclassify its capital stock or declare, set aside,
make or pay any dividend or distribution (whether in cash, stock
or property) on any shares of capital stock of the Company or any
of its subsidiaries (other than cash dividends paid to the
Company by its wholly-owned subsidiaries with regard to their
capital stock); (iv) (A) make any acquisition, by means of a
merger or otherwise, of assets or securities, or any sale, lease,
encumbrance or other disposition of assets or securities, in each
case involving the payment or receipt of consideration of
$10,000,000 or more outside the ordinary and usual course of
business consistent with past practice in all material respects,
or (B) other than in the ordinary course of business, enter into
a material contract or grant any release or relinquishment of any
material contract rights; (v) incur or assume any long-term debt
for borrowed money except for debt incurred in the ordinary
course of business consistent in all material respects with past
practice; (vi) assume, guarantee, endorse or otherwise become
liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person except
wholly-owned subsidiaries of the
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Company, except in the ordinary course of business consistent in
all material respects with past practice; (vii) except in
connection with transactions permitted by (iv) above, make any
loans, advances or capital contributions to, or investments in,
any other person (other than wholly-owned subsidiaries of the
Company) the aggregate in excess of $10,000,000, except in the
ordinary course of business consistent in all material respects
with past practice; (viii) change any of the accounting
principles or practices used by it or any of its subsidiaries,
except as required by the SEC or required by United States
generally accented accounting principles; (ix) adopt any
amendments to the Restated Certificate of Incorporation or Bylaws
(or similar documents) of the Company or any subsidiary; (x)
except as, may be required under any previously existing
agreement or Plan, grant any stock related awards; (xi) enter
into any new, or amend any existing, employee benefit, pension or
other plan (whether or not subject to ERISA), employment,
severance, consulting or salary continuation agreements with any
officers, directors or key employees, or grant any increases in
the compensation or benefits to officers, directors and key
employees; (xii) enter into, amend, or extend any material
collective bargaining or other labor agreement, except as
required by law; (xiii) adopt, make any material amendment to or
terminate any material employee benefit plan except as required
by law or to maintain tax qualified status or as requested by the
Internal Revenue Service in order to receive a determination
letter for such employee benefit plan; (xiv) merge or consolidate
with or transfer all or substantially all of its assets to
another corporation or other business entity or individual, (xv)
liquidate, wind-up or dissolve (or suffer any liquidation or
dissolution); or (xvi) agree in writing or otherwise to take any
of the foregoing actions.
SECTION 5.02No Solicitation.
Immediately following the execution of this Agreement, the
Company will terminate any and all existing activities,
discussions and negotiations with third parties (other than
Parent and GranCare) with respect to any possible Acquisition
Transaction (as defined below). The Company and its subsidiaries
and their respective officers, directors and employees shall not,
and the Company and its subsidiaries will use all reasonable
efforts to cause their representatives, agents or affiliates not
to, directly or indirectly, knowingly encourage, solicit, or
initiate any discussions or negotiations with, any corporation,
partnership, person or other entity or group (other than the
Parent, the Sub and GranCare and any affiliate or associate of
the Parent, the Sub and GranCare and any of their respective
directors, officers, employees, representatives and agents)
concerning any merger, consolidation, business combination,
liquidation, reorganization, sale of substantial assets, sale of
shares of capital stock or similar transactions involving the
Company or any material subsidiary of the Company (each an
"Acquisition Transaction"); provided, however, that if during the
45 days following the date of this Agreement, the Company's Board
of Directors determines, after consultation with counsel, that it
is required to do so in the exercise of its fiduciary duties to
the Company or its stockholders, the Board of Directors may
respond to, or engage in discussions with respect to, a written
offer for an Acquisition Transaction during such 45 day period;
and provided further that nothing contained in this Section 5.02
shall prohibit the Company or its Board of Directors from taking
and disclosing to the Company's stockholders a position with
respect to a tender offer by a third party pursuant to Rules
14d-9 and 14e-2(a) promulgated under the Exchange Act or from
making such other disclosure to the Company's stockholders which,
as advised by
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outside counsel, is required under applicable law. The Company
will promptly communicate to Parent the terms and conditions of
any proposal for an Acquisition Transaction that it may receive
and will keep Parent informed as to the status of any actions,
including any discussions, taken pursuant to such proposed or
contemplated Acquisition Transaction.
SECTION 5.03Access to Information.
(a) Between the date of this Agreement and the
Effective Time, the Company will, upon reasonable notice to an
executive officer of the Company, (i) give the Parent and the Sub
and their authorized representatives access (during regular
business hours), in a manner so as not to interfere with the
normal operations of the Company and its subsidiaries and subject
to reasonable restrictions imposed by an executive officer of the
Company, to all key employees, offices and other facilities and
to all books and records of the Company and its subsidiaries and
cause the Company's and its subsidiaries' independent public
accountants to provide access to their work papers and such other
information as the Parent or the Sub may reasonably request, (ii)
permit the Parent and the Sub to make such inspections as they
may reasonably require and (iii) cause its officers and those of
its subsidiaries to furnish the Parent and the Sub with such
financial and operating data and other information with respect
to the business, properties and personnel of the Company and its
subsidiaries as the Parent or the Sub may from time to time
reasonably request.
(b) Information obtained by the Parent or the Sub or their
respective representatives pursuant to this Section 5.03 shall be subject
to the provisions of the letter agreement between GranCare and the
Company (the "Confidentiality Agreement") the terms of which are
incorporated herein by reference.
SECTION 5.04Reasonable Efforts, Filings.
Subject to the terms and conditions herein provided for and
to the fiduciary duties of the Board of Directors of the Company
under applicable law as advised by legal counsel each of the
parties hereto agrees to use commercially reasonable efforts to
take, or cause to be taken, all appropriate action, and to do, or
cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective,
as soon as practicable, the transactions contemplated by this
Agreement. In connection with and without limiting the foregoing,
(a) (i) the Company, the Parent and the Sub shall use all
reasonable efforts to make promptly any required submissions
under the HSR Act which the Company and the Parent or the Sub
determines should be made, in each case, with respect to the
Merger, and the transactions contemplated by this Agreement (ii)
the Company, the Parent and the Sub shall use all reasonable
efforts to respond as promptly as practicable to all inquiries
received from the Federal Trade Commission (the "FTC") and the
Antitrust Division of the Department of Justice (the "Antitrust
Division") for additional information or documentation and to
respond as promptly as practicable to all inquiries and requests
received from any State Attorney General or other governmental
authority in connection with antitrust matters, and (iii) if
required by the FTC, the Antitrust Division, any State Attorney
General or any other governmental authority, or if otherwise
necessary or
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required in order to consummate the Merger, Parent agrees
promptly to take all commercially reasonable steps (including
executing agreements and submitting to judicial or administrative
orders) to effect the sale or other disposition of, or to hold
separate assets or businesses of Parent or the Company or any of
their respective subsidiaries or affiliates (including, without
limitation, pursuant to arrangements which limit or prohibit
access to such assets or businesses) unless such sale or other
disposition would have a Material Adverse Effect on the Company,
(b) the Parent, the Sub and the Company will take all such action
as may be necessary under federal and state securities laws
applicable or necessary for, and will file and, if appropriate,
use all reasonable efforts to have declared effective or approved
all documents and notifications with the SEC and other
governmental or regulating bodies which the Parent, the Sub and
the Company determines, in each case, is necessary for the
consummation of the Merger and the transactions contemplated
hereby and each party shall give the other information requested
by it which is reasonably necessary to enable it to take such
action, (c) the Parent, the Sub and the Company will, and will
cause each of their respective subsidiaries to, use commercially
reasonable efforts to obtain consents of all third parties and
governmental bodies (other than with respect to healthcare
regulatory licenses, certifications or permits or provider
agreements) necessary or, in the reasonable opinion of the Parent
or the Company, advisable to consummate the Merger and the
transactions contemplated by this Agreement and (d) prior to the
Effective Time, the Parent, Sub and the Company will take, and
cause their respective subsidiaries to take, such actions to
apply for such governmental approvals or consents, or make
filings with governmental bodies, with respect to healthcare
regulatory licenses, certifications, or permits or provider
agreements as may be required by applicable law. In case at any
time after the Effective Time any further action is necessary or
desirable to carry out the purposes of this Agreement, the Parent
shall cause the proper officers and directors of the Surviving
Corporation, the Parent or the Sub, as the case may be to take
all such necessary action.
SECTION 5.05Indemnification and Insurance.
(a) The Sub agrees that all rights to indemnification
existing in favor of the present or former directors, officers
and employees of the Company (as such) or any of its subsidiaries
or present or former directors of the Company or any of its
subsidiaries serving or who served at the Company's or any of its
subsidiaries' request as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, as provided in the
Company's Certificate of Incorporation or Bylaws, or the articles
of incorporation, bylaws or similar documents of any of the
Company's subsidiaries and the indemnification agreements with
such present and former directors, officers and employees as in
effect as of the date hereof with respect to matters occurring at
or prior to the Effective Time shall survive the Merger and shall
continue in full force and effect and without modification (other
than modifications which would enlarge the indemnification
rights) for a period of not less than the statutes of limitations
applicable to such matters, and the Surviving Corporation shall
comply fully with its obligations hereunder and thereunder.
Without limiting the foregoing, the Company shall, and after the
Effective Time, the Surviving Corporation shall periodically
advance expenses as incurred with respect to the foregoing
(including with respect to any action to enforce rights to
indemnification or the advancement of expenses) to the fullest
extent permitted under applicable law; provided,
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however, that the person to whom the expenses are advanced
provides an undertaking (without delivering a bond or other
security) to repay such advance if it is ultimately determined
that such person is not entitled to indemnification.
(b) For a period of six (6) years after the Effective
Time, the Surviving Corporation shall maintain officers' and
directors' liability insurance and fiduciary liability insurance
covering the persons described in paragraph (a) of this Section
5.05 (whether or not they are entitled to indemnification
thereunder) who are currently covered by the Company's existing
officers' and directors' or fiduciary liability insurance
policies on terms no less advantageous to such indemnified
parties than such existing insurance.
(c) The Surviving Corporation shall indemnify and
hold harmless (and shall advance expenses to), to the fullest
extent permitted under applicable law, each director, officer,
employee, fiduciary and agent of the Company or any subsidiary of
the Company including, without limitation, officers and
directors, serving as such on the date hereof against any costs
and expenses (including reasonable attorneys' fees), judgments,
fines, losses, claims, damages, liabilities and amounts paid in
settlement in connection with any claim, action, suit, proceeding
or investigation relating to any of the transactions contemplated
hereby, and in the event of any such claim, action, suit,
proceeding or investigation (whether arising before or after the
Effective Time), (i) the Surviving Corporation shall pay the
reasonable fees and expenses of counsel selected by the
indemnified parties, promptly as statements therefor are received
and (ii) the parties hereto will cooperate in the defense of any
such matter; provided, however, that the Surviving Corporation
shall not be liable for any settlement effected without its prior
written consent, which consent shall not unreasonably be
withheld.
(d) The Surviving Corporation shall pay all
reasonable costs and expenses, including attorneys' fees, that
may be incurred by any indemnified parties in enforcing the
indemnity and other obligations provided for in this Section
5.05.
(e) In the event the Surviving Corporation or any of
its respective successors or assigns (i) consolidates with or
merges into any other person and is not the continuing or
surviving corporation or entity of such consolidation or merger
or (ii) transfers all or substantially all of its properties and
assets to any person, proper provisions shall be made so that the
successors and assigns of the Surviving Corporation assumes the
obligations set forth in this Section 5.05.
(f) This Section 5.05, which shall survive the
consummation of the Merger at the Effective Time and shall
continue for the periods specified herein, is intended to benefit
the Company, the Surviving Corporation, and any person or entity
referenced in this Section 5.05 or indemnified hereunder each of
whom may enforce the provisions of this Section 5.05 (whether or
not parties to this Agreement).
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SECTION 5.06Employee Plans and Benefits and Employment Contracts.
(a) From and after the Effective Time, the Surviving
Corporation and its subsidiaries will honor in accordance with
their terms all existing employment, severance, consulting and
salary continuation agreements between the Company or any of its
subsidiaries and any current or former officer, director,
employee or consultant of the Company or any of its subsidiaries
or group of such officers, directors, employees or consultants
described in Sections 3.09 and 5.06(a) of the Disclosure Letter.
(b) In addition to honoring the agreements referred
to in Section 5.06(a), until the first anniversary of the
Effective Time, the Surviving Corporation and its subsidiaries
will provide or will cause to be provided to each current or
former employee (presently entitled to benefits) of the Company
or its subsidiaries (excluding employees covered by collective
bargaining agreements) (i) employee compensation, benefit plans,
programs, policies and arrangements, that are no less favorable
in the aggregate than those currently provided by the Company and
its subsidiaries to each such employees and former employee; and
(ii) severance benefits that are in the aggregate no less
favorable to any employee of the Company or any of its
subsidiaries than those currently provided to each such employee.
Nothing in this Section 5.06(b) shall be deemed to prevent the
Surviving Corporation or any of its subsidiaries from making any
change required by law.
(c) To the extent permitted under applicable law,
each employee of the Company or its subsidiaries shall be given
credit for all service with the Company or its Subsidiaries (or
service credited by the Company or its subsidiaries) under all
employee benefit plans, programs, policies and arrangements
maintained by the Surviving Corporation in which they participate
or in which they become participants for purposes of eligibility,
vesting and benefit accrual including, without limitation, for
purposes of determining (i) short-term and long-term disability
benefits, (ii) severance benefits, (iii) vacation benefits and
(iv) benefits under any retirement plan.
(d) This Section 5.06, which shall survive the
consummation of the Merger at the Effective Time and shall
continue without limit, is intended to benefit and bind the
Company, the Surviving Corporation and any person or entity
referenced in this Section 5.06, each of whom may enforce the
provisions of this Section 5.06 whether or not parties to this
Agreement. Except as provided in clause (a) above, nothing
contained in this Section 5.06 shall create any beneficiary
rights in any employee or former employee (including any
dependent thereof) of the Company, any of its subsidiaries or the
Surviving Corporation in respect of continued employment for any
specified period of any nature or kind whatsoever.
SECTION 5.07Proxy Statement.
The Company shall prepare and file with the SEC, as soon as
practicable, a preliminary Proxy Statement relating to the Merger
as required by the Exchange Act and the rules and regulations
thereunder. The Company, GranCare, the Parent and the Sub will
cooperate with each other in the preparation of the preliminary
Proxy Statement. The Company shall use all reasonable
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efforts to respond promptly, together with GranCare, to any
comments made by the SEC with respect to the preliminary Proxy
Statement, and to cause the Proxy Statement to be mailed to the
Company's stockholders and GranCare's stockholders at the
earliest practicable date.
SECTION 5.08Notification of Certain Matters.
The Company shall give prompt notice to the Parent and the
Sub, and the Parent or the Sub, as the case may be, shall give
prompt notice to the Company, of (i) the occurrence, or
non-occurrence, of any event the effect of which is likely to
cause any representation or warranty of such party contained in
this Agreement to be untrue or inaccurate in any material respect
at or prior to the Effective Time and (ii) any material failure
of such party to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by it hereunder;
provided, however, that the delivery of any notice pursuant to
this Section 5.08 shall not limit or otherwise affect the
remedies available hereunder to any of the parties receiving such
notice
SECTION 5.09Rights Agreement Amendment.
Subject to the terms and conditions of this Agreement, the
Company shall promptly enter into an amendment to the Rights
Agreement (the "Rights Agreement Amendment") pursuant to which
the Rights Agreement and the Rights Agreement Rights will not be
applicable to the Merger, shall not result in a "Distribution
Date" under the Rights Agreement and consummation of the Merger
shall not result in the Parent or the Sub or their affiliates
being an "Acquiring Person" or result in the occurrence of a
"Flip-In Event" or a "Flip-Over Event" thereunder.
SECTION 5.10Solvency Letter.
(a) The Parent shall use commercially reasonable
efforts to deliver to the Board of Directors of the Company prior
to the consummation of the Merger, a letter (the "Solvency
Letter") from an independent third party selected by the Parent
and reasonably satisfactory to the Company (the "Appraiser")
attesting that, immediately after the Effective Time, the
Surviving Corporation: (i) will be solvent (in that both the fair
value of its assets is not less than the sum of its debts and
that the present fair saleable value of its assets will not be
less than the amount required to pay its probable liability on
its debts as they become absolute and matured), (ii) will have
adequate capital with which to engage in its business; and (iii)
will not have incurred and does not plan to incur debts beyond
its ability to pay as they become absolute and matured, based
upon the proposed financing structure for the Mergers and certain
other financial information to be provided to the Appraiser by
the Parent and the Company and after giving effect to any changes
in the Surviving Corporation's assets and liabilities as a result
of the Merger and the financing relating thereto. Subject to the
foregoing, the Solvency Letter shall be in form and substance
reasonably satisfactory to the Company. Except with the prior
written consent of the Company's Board of Directors, the Parent
will not consummate the Merger unless and until such Board shall
have received the Solvency Letter (the "Solvency Letter
Conditions").
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(b) The Parent will request the Appraiser to deliver
the Solvency Letter as promptly as practicable. The parties agree
to cooperate with the Appraiser in connection with the
preparation of the Solvency Letter, including, without
limitations providing the Appraiser with any information
reasonably available to them necessary for the Appraiser's
preparation of such letter.
(c) The Sub shall provide to the Board any
appraisals, opinions or other statements relating to the solvency
and adequate capitalization of the Surviving Corporation and the
Surviving Corporation's ability to pay its debts, at the same
time that such materials are given to any banks or other lenders
in connection with the Merger.
SECTION 5.11New York Stock Exchange Listing.
Each party agrees to use commercially reasonable efforts to
retain the listing of the Retained Shares on the New York Stock
Exchange following the Effective Time.
SECTION 5.12Election to the Company's Board of Directors.
At the Effective Time of the Merger, the Surviving
Corporation shall promptly increase the size of its board of
directors in order to enable four nominees of Parent (the "Parent
Nominees") (but in no event less than 40% of the directors), four
nominees of GranCare and two of the current directors of the
Company (mutually satisfactory to the Company and Parent) to be
appointed to the Surviving Corporation's Board of Directors and
for so long as Parent continues to own Shares in the Surviving
Corporation, subject to fiduciary obligations under applicable
law, the Surviving Corporation shall use its reasonable efforts
to cause the Parent Nominees to be elected to the Surviving
Corporation's Board of Directors by the stockholders of the
Surviving Corporation.
SECTION 5.13Registration Rights Agreement.
Prior to the Effective Time, the Company shall execute and
deliver to Parent a registration rights agreement (the
"Registration Rights Agreement") in a form mutually acceptable to
Parent and the Company, such agreement to provide Parent with two
demand registration rights and ancillary registration rights for
its Shares all subject to customary terms and provisions.
SECTION 5.14Capitalization of Sub.
(a) Subject to the terms and conditions of this
Agreement and the Equity Commitment, the Parent agrees to
contribute to Sub not less than $200 million and up to $220
million (the total amount actually so contributed being referred
to as the "Sub Equity Contribution") in exchange for shares of
the Sub at a price of $40.50 per share (and such shares of the
Sub shall be converted into shares of the Surviving Corporation
pursuant to Section 2.04). As of the date hereof, and at all
times on and before the Effective Time, the Sub (i) has not
issued and will not issue any shares (except for a minimal number
of shares for minimal consideration, which shares shall be
cancelled prior to the Effective Time); (ii) has not granted and
will not grant any options or rights
29
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to purchase or acquire shares; (iii) has not granted or entered
into and will not grant or enter into any options, warrants,
rights, or other agreements or commitments to issue, any capital
stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of the Sub;
and (iv) does not have and will not have any obligation to grant,
extend or enter into any subscription, warrant, option, right,
convertible or exchangeable security or other similar agreement
or commitment, other than that number of shares of common stock
of the Sub as is equal to the Sub Equity Contribution divided by
$40.50.
(b) Prior to the Effective Time, Parent and Sub agree
to amend, in a manner mutually acceptable to the parties hereto,
the Certificate of Incorporation and Bylaws for the Sub to
authorize that number of shares of Sub common stock that is
sufficient to allow the Surviving Corporation to permit the
Retained Shares to be outstanding after the Merger and to permit
the issuance of the Shares contemplated by the GranCare Merger.
Certificates evidencing Shares prior to the Effective Time so
converted into Retained Shares shall continue to evidence the
Retained Shares until issuance of new certificates therefor, upon
transfer or otherwise.
ARTICLE VI
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 6.01Conditions to Each Party's Obligation to Effect the
Merger.
The respective obligations of each party to effect the
Merger are subject to the satisfaction or waiver, where
permissible, prior to the proposed Effective Time, of the
following conditions:
(a) the Stockholder Approvals shall have been ob-
tained as required by and in accordance with applicable law and the
Restated Certificate of Incorporation;
(b) no statute, rule, regulation, executive order,
decree or injunction shall have been enacted, entered,
promulgated or enforced by any court or governmental authority
against the Parent, the Sub or the Company and be in effect that
prohibits or restricts the consummation of the Merger or makes
such consummation illegal (each party agreeing to use
commercially reasonable efforts to have any such prohibition
lifted);
(c) the conditions to each party's obligations to
effect the GranCare Merger (other than the consummation of the
Merger) shall have been satisfied or waived; provided, however,
that neither the Company nor the Surviving Corporation may waive
any such condition or modify or amend the terms of such merger
agreement without the prior written consent of Parent; and
(d) the waiting period applicable to the consummation
of the Merger under the HSR Act shall have expired or been
terminated and all filings required to be made prior to the
Effective Time with, and all consents, approvals, authorizations
and permits required to be obtained prior to the Effective Time
from, any Governmental Authority in connection with the
consummation
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of the Merger shall have been made or obtained (as the case may
be), except where the failure to obtain such consents, approvals,
authorizations and permits would not be reasonably likely to
result in a Material Adverse Effect on the Company or to
materially adversely affect the consummation of the Merger.
(e) no action shall have been taken and be
continuing, and no statute, rule, regulation, judgment,
administrative interpretation, order or injunction shall have
been enacted, promulgated, entered, enforced or deemed applicable
to the Merger, which would make illegal or prohibit the
consummation of the Merger; and
(f) the conditions set forth in the Financing
Commitments shall have been satisfied or waived (other than the
conditions relating to the consummation of the Merger and the
GranCare Merger);
SECTION 6.02Additional Condition to the Company's Obligation to
Effect the Merger.
The obligation of the Company to effect the Merger is
subject to the satisfaction or waiver by the Company, prior to
the proposed Effective Time, of the following conditions:
(a) the Solvency Letter Condition; and
(b) the representations and warranties of the Parent
and the Sub set forth in Article III shall be true and correct in
all material respects as of the Effective Time as though made on
and as of that time, and the Parent and the Sub shall have
performed in all material respects all covenants and agreements
required to be performed by it under this Agreement at or prior
to the Effective Time.
SECTION 6.03Additional Conditions to the Parent's and the
Sub's Obligations to Effect the Merger.
The obligations of the Parent and the Sub to effect the
Merger shall be subject to the satisfaction or waiver by the
Parent and the Sub, prior to the proposed Effective Time, of the
following conditions:
(a) no action or proceeding brought by any
governmental, regulatory or administrative agency, authority or
commission shall have been instituted and be pending that would
be reasonably likely to result in any of the consequences
referred to in clauses (i) or (ii) of Section 6.03(a) above and
there shall be no proceeding or other action (including, without
limitation, relating to health care, regulatory, environmental
and pension matters) pending or threatened against the Company,
GranCare or their respective subsidiaries brought by any
governmental, regulatory or administrative agency, authority or
commission which is reasonably likely to have a Material Adverse
Effect;
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(b) during the 30 calendar day period ending on the
date of the Closing, there shall not have occurred (i) any
general suspension of trading in, or limitation on prices for,
securities on any national securities exchange or in the
over-the-counter market in the United States, (ii) the
declaration of any banking moratorium or any suspension of
payments in respect of banks or any material limitation (whether
or not mandatory) on the extension of credit by lending
institutions in the United States, (iii) the commencement of a
war, material armed hostilities or any other material
international or national calamity involving the United States
having a significant adverse effect on the functioning of the
financial markets in the United States, or (iv) in the case of
any of the foregoing existing at the time of the execution of the
Merger Agreement, a material acceleration or worsening thereof;
(c) since September 30, 1996, with respect to the
Company, and December 31, 1996, with respect to GranCare, no
change shall have occurred or have been threatened in the
business, operations, prospects, properties or condition
(financial or other) of the Company, GranCare or any of their
respective subsidiaries that would have or would be reasonably
likely to have a Material Adverse Effect provided, that the
transactions contemplated by the Recapitalization Agreement and
the Merger Agreement shall not be deemed to be such a materially
adverse change;
(d) the representation and warranties of the Company
set forth in Article IV shall be true and correct in all material
respects as of the Effective Time as though made on and as of
that time, and the Company shall have performed in all material
respects all covenants and agreements required to be performed by
them under this Agreement at or prior to the Effective Time.
ARTICLE VII
TERMINATION; AMENDMENT; WAIVER
SECTION 7.01Termination.
This Agreement may be terminated and the Merger may be
abandoned at any time notwithstanding approval thereof by the
stockholders of the Company, but prior to the Effective Time:
(a) by mutual written consent of the Boards of Directors
of the Company and the Parent;
(b) by the Parent or the Company if the Effective
Time shall not have occurred on or before September 30, 1997
(provided that the right to terminate this Agreement under this
Section 7.01(b) shall not be available to any party whose failure
to fulfill any obligation under this Agreement has been the cause
of or resulted in the failure of the Effective Time to occur on
or before such date);
32
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(c) by the Parent or the Company if any court of
competent jurisdiction in the United States or other United
States governmental body shall have issued an order, decree or
ruling, or taken any other action restraining, enjoining or
otherwise prohibiting the Merger and such order, decree, ruling
or other action shall have become final and non-appealable;
(d) prior to obtaining the Stockholder Approvals, by
the Parent if the Board of Directors of the Company withdraws or
modifies in a manner adverse to the Parent or the Sub its
favorable recommendation with respect to the Stockholder
Approvals or shall have recommended an Acquisition Transaction
with a party other than the Parent or any of its affiliates;
(e) by the Company if (i) any of the representations
and warranties of the Parent or the Sub contained in this
Agreement were untrue in any material respect when made or have
since become, and at the time of termination remain, untrue in
any material respect, or (ii) the Parent or the Sub shall have
breached or failed to comply in any material respect with any of
its obligations under this Agreement and such breach or failure
shall continue unremedied for ten (10) business days after the
Parent or the Sub has received written notice from the Company of
the occurrence of such breach or failure;
(f) prior to obtaining Stockholder Approvals, by the
Company if the Company receives a written offer with respect to
any Acquisition Transaction with a party other than the Parent or
its affiliates or such other party has commenced a tender offer
which, in either case, the Board of Directors of the Company
believes in good faith is more favorable to the Company's
stockholders than the transactions contemplated by this
Agreement;
(g) by the Parent, if (x) any of the representations
and warranties of the Company contained in this Agreement shall
fail to be true and correct in any material respect, in each case
either as of when made or have since become, and at the time of
termination remain, untrue in any material respect, or (y) the
Company shall have breached or failed to comply in any material
respect with any of its obligations under this Agreement (other
than as a result of a breach by the Parent or the Sub of any of
their obligations under this Agreement) and, with respect to a
representation or warranty, such breach shall continue unremedied
for ten (10) days after the Company has received written notice
from the Parent or the Sub of the occurrence of such breach or
failure;
(h) by the Parent or the Company if the GranCare Merger
Agreement is terminated; or
(i) by the Parent or the Company if the Company fails
to obtain approval of its stockholders of the Company's
Stockholder Approvals at the meeting held for such purpose (or
any adjournment thereof).
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SECTION 7.02Effect of Termination.
If this Agreement is terminated and the Merger is abandoned
pursuant to Section 7.01 hereof, this Agreement, except for the
provisions of Sections 5.03(b), this Section 7.02 and 8.10
hereof, shall forthwith become void and have no effect, without
any liability on the part of any party or its directors, officers
or stockholders. The Confidentiality Agreement shall remain in
full force and effect following any termination of this
Agreement. If this Agreement is terminated pursuant to Section
7.01(d) or (f), the Company promptly, but in no event later than
one business day after termination of this Agreement will pay to
the Parent a fee (the "Termination Fee") equal to $20 million in
same day funds, plus interest on such amount from the date
payable until paid at a rate equal to 9% per annum. If this
Agreement is terminated pursuant to Section 7.01(i) and, at the
time of the stockholder vote referred to herein, any person has
made (or publicly disclosed an intention to make) a proposal to
effect an Acquisition Transaction (and shall not have irrevocably
withdrawn such proposal), and within 180 days after such
termination an Acquisition Transaction shall be consummated, the
Company shall promptly, but in no event later than one business
day after such consummation, pay the Termination Fee. If this
Agreement is terminated pursuant to Section 7.01(d), (f), (g) or
(i), the Company shall also pay the out-of-pocket fees and
expenses reasonably incurred by the Parent and the Sub in
connection with this Agreement, provided that such fees and
expenses shall not exceed $6,000,000 expenses (plus reasonable
fees and of up to $1,000,000 in connection with any litigation
with respect to this Agreement). Nothing in this Section 7.02
shall relieve any party to this Agreement of liability for breach
of this Agreement.
SECTION 7.03Amendment.
To the extent permitted by applicable law, this Agreement
may be amended by action taken by or on behalf of the Boards of
Directors of the Company, the Parent and the Sub at any time
before or after adoption of this Agreement by the stockholders of
the Company but, after any such stockholder approval, no
amendment shall be made which decreases the Merger Consideration
or which adversely affects the rights of the Company's
stockholders hereunder without the approval of the stockholders
of the Company. This Agreement may not be amended except by an
instrument in writing signed on behalf of all of the parties.
SECTION 7.04Extension; Waiver.
At any time prior to the Effective Time, the parties
hereto, by action taken by or on behalf of the respective Boards
of Directors of the Company, the Parent and the Sub 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 contained
herein by any other applicable party or in any document,
certificate or writing delivered pursuant hereto by any other
applicable party or (iii) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the
part of any party to any such extension or waiver shall be valid
only if set forth in an instrument in writing signed on behalf of
such party.
34
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ARTICLE VIII
MISCELLANEOUS
SECTION 8.01Survival of Representations and Warranties.
The representations and warranties made in Articles III and
IV shall not survive beyond the Effective Time. This Section 8.01
shall not limit any covenant or agreement of the parties hereto
which by its terms contemplates performance after the Effective
Time.
SECTION 8.02Entire Agreement; Assignment.
Except for the Confidentiality Agreement and the Disclosure
Letter, this Agreement (a) constitutes the entire agreement
between the parties with respect to the subject matter hereof and
supersedes all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject
matter hereof and (b) shall not be assigned by operation of law
or otherwise; provided, however, that the Parent or the Sub may
assign any of its rights and obligations to any wholly-owned
subsidiary of the Parent or the Sub incorporated in Delaware, but
no such assignment shall relieve the Parent or the Sub, as the
case may be, of its obligations hereunder.
SECTION 8.03Enforcement of the Agreement; Jurisdiction.
The parties hereto agree that irreparable damage would
occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to
prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any federal or state court
located in the State of Delaware, this being in addition to any
other remedy to which they are entitled at law or in equity.
The parties hereto consent and agree that the state or
federal courts located in Delaware shall have exclusive
jurisdiction to hear and determine any claims or disputes
pertaining to this Agreement or to any matter arising out of or
related to this Agreement and each party hereto waives any
objection that it may have based upon lack of personal
jurisdiction, improper venue or forum non conveniens and hereby
consents to the granting of such legal or equitable relief as is
deemed appropriate by such court.
SECTION 8.04Validity.
The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any
other provisions of this Agreement, which shall remain in full
force and effect.
35
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SECTION 8.05Notices.
All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed
to have been duly given when delivered in person, by facsimile
transmission with confirmation of receipt, or by registered or
certified mail (postage prepaid, return receipt requested) to the
respective parties as follows:
if to the Parent or the Sub:
c/Apollo Management, L.P.
1999 Avenue of the Stars, Suite 1900
Los Angeles, California 90067
Attention: Peter P. Copses
with a copy to:
Sidley & Austin
555 W. Fifth Street, Suite 4000
Los Angeles, California 90013
Attention: Robert W. Kadlec, Esq.
if to the Company:
Living Centers of America, Inc.
15415 Katy Freeway, Suite 800
Houston, Texas 77094
Attention: Susan Thomas Whittle, Esq., General Counsel
Sydney K. Boone, Jr., Esq., Associate General Counsel
with copies to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: Victor I. Lewkow, Esq.
Mayor, Day, Caldwell & Keeton L.L.P.
700 Louisiana, Suite 1900
Houston, Texas 77002
Attention: Jeff C. Dodd, Esq.
36
<PAGE>
or to such other address as the person to whom notice is given
may have previously furnished to the others in writing in the
manner set forth above (provided that notice of any change of
address shall be effective only upon receipt thereof).
SECTION 8.0Governing Law.
This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware regardless of
the laws that might otherwise govern under principles of
conflicts of laws applicable thereto.
SECTION 8.0Descriptive Headings.
The descriptive headings herein are inserted for
convenience of reference only and are not intended to be part of
or to affect the meaning or interpretation of this Agreement.
SECTION 8.0Parties in Interest.
This Agreement shall be binding upon and inure solely to
the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to confer upon any other person
any rights or remedies of any nature whatsoever under or by
reason of this Agreement except for Sections 2.08, 5.05 and 5.06
(which are intended to be for the benefit of the persons referred
to therein, and may be enforced by any such persons).
SECTION 8.0Counterparts.
This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, but all of which shall
constitute one and the same agreement.
SECTION 8.1Fees and Expenses.
If the Merger is not consummated, all costs and expenses
incurred in connection with the transactions contemplated by this
Agreement shall be paid by the party incurring such expenses,
except as provided expressly to the contrary herein. If the
Merger is consummated, the Surviving Corporation shall reimburse
Parent for all such costs and expenses.
SECTION 8.1Certain Definitions.
(a"business day" shall mean any day that is not a
Saturday, Sunday or other day on which banking institutions in
New York, New York are authorized or required by law or executive
order to close;
(b"Environmental Law" means any law, regulation,
decree, judgment, permit or authorization relating to works or
public safety and the indoor and outdoor environment, including,
37
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without limitation, pollution, contamination, clean-up, regulation
and protection of the air, water or soils in the indoor or outdoor
environment;
(c"Environmental Liabilities and Costs" means all
damages, penalties, obligations or clean-up costs assessed or
levied pursuant to any Environmental Law;
(d"Material Adverse Effect" shall mean any adverse
change in the business, prospects, financial condition or results
of operations of the Company and its subsidiaries that is
material to the Company and its subsidiaries taken as a whole,
excluding any such adverse change that is due to events,
occurrences, facts, conditions, changes, developments or effects
which affect the economy generally; and
(e"Subsidiary" shall mean, when used with reference to
an entity, any other entity of which securities or other
ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing
similar functions, or a majority of the outstanding voting
securities of which, are owned directly or indirectly by such
entity.
SECTION 8.1Disclosure Letter.
Any disclosure under one section of the Disclosure Letter
shall be deemed disclosure under all sections of the Disclosure
Letter. Disclosure of any matter in the Disclosure Letter shall
not constitute an expression of a view that such matter is
material or is required to be disclosed pursuant to this
Agreement.
SECTION 8.1Press Releases.
Subject to the proviso to this sentence, the Parent, the
Sub and the Company will consult with each other before issuing
any press release or otherwise making any public statements with
respect to the transactions contemplated hereby and shall not
issue any such press release or make any such public statement
prior to such consultation, except as may be required by law or
by obligations pursuant to the rules of The New York Stock
Exchange, Inc. and any other appropriate exchange.
SECTION 8.1Obligation of the Parent.
Whenever this Agreement requires Sub to take any action,
such requirement shall be deemed to include an undertaking on the
part of Parent to cause Sub to take such action.
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IN WITNESS WHEREOF, each of the parties has caused this
Agreement to be executed on its behalf by its officers thereunto
duly authorized, all at or on the day and year first above
written.
APOLLO MANAGEMENT, L.P.
By: AIF Management, Inc.
Its General Partner
By:___________________________
Name:
Title:
APOLLO LCA ACQUISITION CORP.
By:___________________________
Name:
Title:
LIVING CENTERS OF AMERICA, INC.
By:___________________________
Name:
Title:
39
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AGREEMENT AND PLAN OF MERGER
AMONG
LIVING CENTERS OF AMERICA, INC.,
GRANCARE, INC.
AND
APOLLO MANAGEMENT, L.P.
Dated as of May 7, 1997
[MERGER II]
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
ARTICLE I
CERTAIN DEFINITIONS.........................................2
SECTION 1.01 Certain Definitions.....................2
ARTICLE II
THE MERGER..................................................3
SECTION 2.01 The Merger..............................3
SECTION 2.02 Consummation of the Merger..............3
SECTION 2.03 Effects of the Merger...................3
SECTION 2.04 Certificate of Incorporation and Bylaws.3
SECTION 2.05 Directors and Officers..................3
SECTION 2.06 Conversion of Shares....................3
SECTION 2.07 Conversion of Common Stock of the Sub...4
SECTION 2.08 Company Actions.........................4
SECTION 2.09 Stockholders' Meetings..................4
SECTION 2.10 Rights Under Stock Plans................5
SECTION 2.11 Exchange of Certificates................6
SECTION 2.12 Formation of Sub........................8
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY..............................................9
SECTION 3.01 Organization and Qualification..........9
SECTION 3.02 Capitalization..........................9
SECTION 3.03 Authority for this Agreement...........10
SECTION 3.04 Absence of Certain Changes.............10
SECTION 3.05 Reports................................11
SECTION 3.06 Information Supplied...................12
SECTION 3.07 Consents and Approvals; No Violation...12
SECTION 3.08 Brokers................................13
SECTION 3.09 Employee Benefit Matters...............13
SECTION 3.10 Litigation, etc........................15
SECTION 3.11 Tax Matters............................15
SECTION 3.12 Compliance with Law....................16
SECTION 3.13 Environmental Compliance...............16
SECTION 3.14 Insurance..............................16
SECTION 3.15 Vote Required..........................17
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE PARENT AND THE SUB..................................17
SECTION 4.01 Organization and Qualification.........17
SECTION 4.02 Capitalization.........................17
SECTION 4.03 Authority Relative to this Agreement...19
SECTION 4.04 Absence of Certain Changes.............19
SECTION 4.05 Reports................................19
SECTION 4.06 Information Supplied...................20
SECTION 4.07 Consents and Approvals; No Violation...20
SECTION 4.08 Brokers................................21
SECTION 4.09 Litigation, etc.......................21
SECTION 4.10 Ownership of Shares....................22
SECTION 4.11 Tax Matters............................22
ARTICLE V..................................................22
COVENANTS..................................................22
SECTION 5.01 Conduct of Business.....................22
SECTION 5.02 No Solicitation........................25
SECTION 5.03 Access to Information..................26
SECTION 5.04 Reasonable Efforts, Filings............26
SECTION 5.05 Indemnification and Insurance..........27
SECTION 5.06 Employee Plans and Benefits
and Employment Contracts .............29
SECTION 5.07 Proxy Statement and S-4................30
SECTION 5.08 Notification of Certain Matters........30
SECTION 5.09 Rights Agreement Amendment.............30
SECTION 5.10 Agreements of Rule 145 Affiliates......30
SECTION 5.11 New York Stock Exchange Listing........31
ARTICLE VI
CONDITIONS TO CONSUMMATION OF THE MERGER...................31
SECTION 6.01 Conditions to Each Party's Obligation
to Effect the Merger .................31
SECTION 6.02 Additional Conditions to the Company's
Obligation to Effect the Merger ......32
SECTION 6.03 Additional Conditions to the Parent's
and the Sub's Obligations to Effect
the Merger............................33
ARTICLE VII
TERMINATION; AMENDMENT; WAIVER.............................34
SECTION 7.01 Termination............................34
SECTION 7.02 Effect of Termination..................36
SECTION 7.03 Amendment..............................36
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SECTION 7.04 Extension; Waiver......................36
ARTICLE VIII
MISCELLANEOUS..............................................37
SECTION 8.01 Survival of Representations and
Warranties ...........................37
SECTION 8.02 Entire Agreement; Assignment...........37
SECTION 8.03 Enforcement of the Agreement;
Jurisdiction .........................37
SECTION 8.04 Validity...............................37
SECTION 8.05 Notices................................37
SECTION 8.06 Governing Law..........................39
SECTION 8.07 Descriptive Headings...................39
SECTION 8.08 Parties in Interest....................39
SECTION 8.09 Counterparts...........................39
SECTION 8.10 Fees and Expenses......................39
SECTION 8.11 Disclosure Letter......................39
SECTION 8.12 Press Releases.........................39
SECTION 8.13 Obligation of the Parent...............40
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<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as
of May 7, 1997 among Living Centers of America, Inc., a Delaware
corporation (the "Parent"), GranCare, Inc., a Delaware
corporation (the "Company") and Apollo Management, L.P., a
Delaware limited partnership, on behalf of one or more funds
under management (collectively, "Apollo"), and, upon its
subsequent execution and delivery to the other parties of a
counterpart hereof, a newly formed Delaware corporation wholly
owned by Parent (the "Sub").
RECITALS
WHEREAS, the Board of Directors of each of the Parent and
the Company has determined that it is in the best interests of
their respective stockholders for the Sub to merge with and into
the Company (the "Merger") pursuant to Section 251 of the
Delaware General Corporation Law ("DGCL") upon the terms and
subject to the conditions set forth herein;
WHEREAS, the Board of Directors of each of the Parent and
the Company has adopted resolutions approving the Merger of the
Sub with and into the Company, in accordance with applicable
Delaware law upon the terms and subject to the conditions set
forth herein, and each Board of Directors has agreed to recommend
that their respective stockholders approve the Merger;
WHEREAS, the Parent and the Company have agreed (subject to
the terms and conditions of this Agreement), as soon as
practicable following the approval by the stockholders of the
Company and the Parent, to effect the Merger as more fully
described herein;
WHEREAS, a condition of the Merger is the successful
completion of the recapitalization of Parent pursuant to the
merger of Parent with a wholly owned subsidiary of Apollo (the
"Recapitalization Merger");
WHEREAS, pursuant to the Merger, each issued and
outstanding share of common stock, par value $.001 per share, of
the Company ("Company Common Stock"), will be converted into
shares of common stock, par value $.01 per share, of the Parent
("Parent Common Stock") upon the terms and subject to the
conditions of this Agreement;
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");
WHEREAS, the Parent, the Sub (upon its becoming a party
hereto) and the Company desire to make certain representations,
warranties, covenants and agreements in connection with this
Agreement;
<PAGE>
NOW THEREFORE, in consideration of the mutual covenants and
agreements set forth herein, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
SECTION 1.01 Certain Definitions.
For purposes of this Agreement:
"business day" means any day that is not a Saturday,
Sunday or other day on which banking institutions in New York,
New York are authorized or required by law or executive order to
close;
"Environmental Law" means any law, regulation, decree,
judgment, permit or authorization relating to worker or public
safety and the indoor and outdoor environment, including, without
limitation, pollution, contamination, cleanup, regulation and
protection of the air, water or soils in the indoor or outdoor
environment;
"Environmental Liabilities and Costs" means all
damages, penalties, obligations or clean-up costs assessed or
levied pursuant to any Environmental Law;
"Material Adverse Effect" means, with respect to the
Parent or the Company, as the case may be, any adverse change in
the respective business, prospects, financial condition or
results of operations of the Parent or the Company and their
respective subsidiaries that is material to the Parent or the
Company and their respective subsidiaries taken as a whole,
excluding any such adverse change that is due to events,
occurrences, facts, conditions, changes, developments or effects
which affect the economy generally; and
"Securities Act" means the Securities Act of 1933, as
amended and in effect from time to time.
"Subsidiary" means, when used with reference to an
entity, any other entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions,
or a majority of the outstanding voting securities of which, are
owned directly or indirectly by such entity.
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ARTICLE II
THE MERGER
SECTION 2.01 The Merger. Upon the terms and subject to the
conditions hereof, and in accordance with the relevant provisions
of the DGCL, the Sub shall be merged with and into the Company as
soon as practicable following the satisfaction or waiver, if
permissible, of the conditions set forth in Article VI hereof.
The Company shall be the surviving corporation in the Merger (the
"Surviving Corporation") under the name GranCare, Inc. (or such
other name as the parties shall agree) and shall continue its
existence under the laws of Delaware. The separate corporate
existence of the Sub shall cease.
SECTION 2.02 Consummation of the Merger. Subject to the
provisions of this Agreement, the parties hereto shall cause the
Merger to be consummated by filing with the Secretary of State of
the State of Delaware a duly executed and verified certificate of
merger, as required by the DGCL, and shall take all such other
and further actions as may be required by law to make the Merger
effective as promptly as practicable. Prior to the filing
referred to in this Section, a closing (the "Closing") will be
held at the offices of Cleary, Gottlieb, Steen & Hamilton, One
Liberty Plaza, New York, New York (or such other place as the
parties may agree) for the purpose of confirming all the
foregoing. The time the Merger becomes effective in accordance
with applicable law is referred to as the "Effective Time."
SECTION 2.03 Effects of the Merger. The Merger shall have
the effects set forth in the applicable provisions of the DGCL
and set forth herein.
SECTION 2.04 Certificate of Incorporation and Bylaws. The
Certificate of Incorporation and the Bylaws of the Sub, in each
case as in effect immediately prior to the Effective Time, shall
be the Certificate of Incorporation and Bylaws of the Surviving
Corporation; provided, however, that Article I of the Certificate
of Incorporation of the Surviving Corporation shall be amended to
read in its entirety as follows: "ARTICLE I. The name of the
Corporation is GranCare, Inc." (or such other name as the parties
shall agree).
SECTION 2.05 Directors and Officers. The directors of the
Sub immediately prior to the Effective Time and the officers of
the Company immediately prior to the Effective Time shall be the
directors and officers, respectively, of the Surviving
Corporation until their respective successors are duly elected
and qualified.
SECTION 2.06 Conversion of Shares. At the Effective Time,
by virtue of the Merger and without any action on the part of
Sub, the Company or the holders of any of the shares of Company
Common Stock:
(a) Each share of Company Common Stock issued and
outstanding immediately prior to the Effective Time (other than
shares of Company Common Stock owned by the Parent, the
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Sub or any Subsidiary of the Parent or the Sub or held in the
treasury of the Company, all of which shall be canceled and cease
to exist, without consideration being payable therefore, shall,
by virtue of the Merger and without any action on the part of the
holder thereof, be converted at the Effective Time into the right
to receive 0.2469 (the "Conversion Number") shares of Parent
Common Stock for each share of Company Common Stock. All such
shares of Company Common Stock, when so converted, shall no
longer be outstanding and shall automatically be canceled and
retired and shall cease to exist, and each holder of a
certificate representing any such shares shall cease to have any
rights with respect thereto, except the right to receive the
shares of Parent Common Stock and cash in lieu of fractional
shares of Parent Common Stock as contemplated by Section 2.10(e),
to be issued or paid in consideration therefor upon the surrender
of such certificate in accordance with Section 2.10 without
interest.
(b) Each share of Company Common Stock held in the
treasury of the Company and each share owned by Sub, Parent or
any direct or indirect wholly owned subsidiary of Parent or the
Company immediately prior to the Effective Time shall be canceled
without any conversion thereof and no payment or distribution
shall be made with respect thereto.
SECTION 2.07 Conversion of Common Stock of the Sub. Each
share of common stock of the Sub issued and outstanding
immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder thereof,
be converted into and become at the Effective Time one share of
common stock of the Surviving Corporation.
SECTION 2.08 Company Actions. The Company hereby represents
and warrants that (a) its Board of Directors (at a meeting duly
called and held), has (i) determined that the Merger is fair to
and in the best interests of the stockholders of the Company,
(ii) resolved to approve the Merger and recommend (subject to its
fiduciary duties as advised by legal counsel) approval and
adoption of this Agreement by such stockholders of the Company,
(iii) taken all necessary steps to render Section 203 of the DGCL
inapplicable to the Merger, and (iv) resolved to elect not to be
subject, to the extent permitted by law, to any state takeover
law other than Section 203 of the DGCL that may purport to be
applicable to the Merger, or the transactions contemplated by
this Agreement, and (b) Chase Securities, Inc. and Smith Barney
Inc., the Company's financial advisors, have rendered their
respective opinions to the Company's Board of Directors to the
effect that, as of the date of this Agreement, the Conversion
Number is fair from a financial point of view, to the holders of
Company Common Stock.
SECTION 2.09 Stockholders' Meetings. Subject to applicable
law, each of the Parent and the Company, acting through its
respective Board of Directors, shall, in accordance with
applicable law, duly call, give notice of, convene and hold a
special meeting (the "Special Meetings") of its respective
stockholders as soon as practicable for the purpose (in the case
of the Company) of approving and adopting the agreement of merger
(within the meaning of Section 251 of the DGCL) set forth in this
Agreement and approving the Merger (the "Company Stockholder
Approval") or (in the case of the Parent) the issuance of the
shares of Parent Common Stock to the stockholders of the Company
in the Merger (the "Parent Stockholder Approval" and together
with the Company
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<PAGE>
Stockholder Approval, the "Stockholder Approvals"), and, subject
to the fiduciary duties of their respective Boards of Directors
under applicable law as determined by such directors in good
faith after consultation with and based upon the advice of
outside counsel, include in the Proxy Statement (as defined in
Section 5.07) of each of the Company and the Parent for use in
connection with the stockholders meeting of each of the Company
and GranCare, the recommendation of their Boards of Directors
that stockholders vote in favor of the Company Stockholder
Approval or the Parent Stockholder Approval, as the case may be.
The Parent, the Sub and the Company agree to use commercially
reasonable efforts to cause the Special Meetings to occur within
forty-five (45) days after the Parent and the Company have
responded to all SEC comments with respect to the preliminary
Proxy Statement. The Parent, the Sub and the Company agree to use
commercially reasonable efforts to cause the Special Meeting to
occur within forty-five (45) days after the Parent and the
Company have responded to all SEC comments with respect to the
preliminary Proxy Statement.
SECTION 2.10 Rights Under Stock Plans.
(a) Each option to purchase shares of Company Common
Stock ("Company Options") issued pursuant to the Company's 1996
Replacement Stock Option Plan, 1996 Stock Incentive Plan or
Outside Directors Stock Incentive Plan (the "Company Plans"), all
of which issued and outstanding Company Options are set forth on
Section 3.02(a) of the Company Disclosure Letter, shall, at the
Effective Time, be assumed by Parent and shall constitute an
option to acquire, on the same terms and conditions as were
applicable under such assumed Company Option, a number of shares
of Parent Common Stock equal to the product of the Conversion
Number and the number of shares of Company Common Stock subject
to such Company Option, at a price per share equal to the amount
obtained by dividing the exercise price of such Company Option by
the Conversion Number. As soon as practicable following the
Effective Time, but in no event later than 15 days following the
Effective Time, Parent shall deliver to holders of Company
Options appropriate option agreements representing the right to
acquire shares of Parent Common Stock on the same terms and
conditions as contained in the outstanding Company Options.
Parent shall adopt and comply with the terms of the Company Plans
as they apply to Company Options assumed as set forth above
including, without limitation, provisions regarding changes of
control that may apply with respect to the Merger.
(b) Parent shall take all corporate action necessary
to reserve for issuance a sufficient number of shares of its
common stock for delivery upon exercise of the Company Options
assumed in accordance with this Section 2.10. Parent shall file
and cause to be effective as of the Effective Time a registration
statement on Form S-8 or other appropriate form, with respect to
shares of Parent Common Stock that will be subject to the Company
Options and use commercially reasonable efforts to maintain the
effectiveness of such registration statement (and maintain the
current status of the prospectus contained therein) for so long
as such Company Options remain outstanding.
(c) Certain non-officer employees have been granted
awards of restricted shares
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<PAGE>
under the 1996 Stock Incentive Plan that have not yet been
issued, all of which awards of restricted stock are set forth on
Section 3.02(a) of the Company Disclosure Letter (the "Restricted
Shares," together with the Company Options, the "Rights"). All of
such Restricted Shares will be issued prior to the Effective Time
pursuant to the Company's standard Restricted Stock Award
Agreement, which provides for acceleration of vesting in the
event of a "Change in Control" (as defined therein), which the
Merger constitutes.
SECTION 2.11 Exchange of Certificates.
(a) Exchange Agent. As of the Effective Time, Parent
shall deposit with a bank or trust company designated by Parent
and reasonably acceptable to the Company (the "Exchange Agent"),
for the benefit of the holders of shares of Company Common Stock,
for exchange in accordance with this Article II, through the
Exchange Agent, certificates representing the shares of Parent
Common Stock (such shares of Parent Common Stock, together with
any dividends or distributions with respect thereto, being
hereinafter referred to as the "Exchange Fund") issuable pursuant
to Section 2.06 in exchange for outstanding shares of Company
Common Stock. The Exchange Agent shall, pursuant to irrevocable
instructions, deliver the Parent Common Stock contemplated to be
issued pursuant hereto out of the Exchange Fund. The Exchange
Fund shall not be used for any other purpose.
(b) Exchange Procedures. As soon as reasonably
practicable after the Effective Time, the Exchange Agent shall
mail to each holder of record of a certificate or certificates
which, immediately prior to the Effective Time, represented
outstanding shares of Company Common Stock (the "Certificates"):
(i) a letter of transmittal (which shall specify that delivery
shall be effected and risk of loss and title to the Certificates
shall pass only upon delivery of the Certificates to the Exchange
Agent, and shall be in such form and have such other provisions
as Parent may reasonably specify); and (ii) instructions for use
in effecting the surrender of the Certificates in exchange for
certificates representing shares of Parent Common Stock. Upon
surrender of a Certificate for cancellation to the Exchange Agent
or to such other agent or agents as may be appointed by Parent,
together with such letter of transmittal, duly executed, and any
other required documents, the holder of such Certificate shall be
entitled to receive in exchange therefor a certificate
representing that number of whole shares of Parent Common Stock
which such holder has the right to receive pursuant to the
provisions of this Article II and cash in lieu of fractional
shares of Parent Common Stock as contemplated by Section 2.11(e),
and the Certificate so surrendered shall forthwith be canceled.
In the event of a transfer of ownership of Company Common Stock
which is not registered in the transfer records of the Company, a
certificate representing the appropriate number of shares of
Parent Common stock may be issued to a transferee if the
Certificate representing such Company Common Stock is presented
to the Exchange Agent accompanied by all documents required to
evidence and effect such transfer and by evidence that any
applicable stock transfer taxes have been paid. Until surrendered
as contemplated by this Section 2.11, each Certificate shall be
deemed at any time after the Effective Time to represent only the
right to receive upon such surrender the certificate representing
shares of Parent Common Stock and cash in lieu of any fractional
shares of Parent Common Stock as contemplated by this Section
2.11. The Exchange Agent shall not be entitled to
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<PAGE>
vote or exercise any rights of ownership with respect to the
Parent Common Stock held by it from time to time hereunder,
except that it shall receive and hold all dividends or other
distributions paid or distributed with respect thereto for the
account of persons entitled thereto.
(c) Distributions with Respect to Unexchanged Shares.
No dividends or other distributions with respect to Parent Common
Stock declared or made after the Effective Time with a record
date after the Effective Time shall be paid to the holder of any
unsurrendered Certificate with respect to the right to receive
shares of Parent Common Stock represented thereby and no cash
payment in lieu of fractional shares shall be paid to any such
holder pursuant to Section 2.11(e) until the holder of such
Certificate shall surrender such Certificate. Subject to the
effect of applicable laws, following surrender of any such
Certificate, there shall be paid to the holder thereof, without
interest: (i) at the time of such surrender, the amount of any
cash payable in lieu of a fractional share of Parent Common Stock
to which such holder is entitled pursuant to Section 2.11(e) and
the amount of dividends or other distributions with a record date
after the Effective Time theretofore paid with respect to such
whole shares of Parent Common Stock; and (ii) at the appropriate
payment date, the amount of dividends or other distributions with
a record date after the Effective Time but prior to surrender and
a payment date subsequent to surrender payable with respect to
such whole shares of Parent Common Stock.
(d) No Further Ownership Rights in Company Common
Stock. All shares of Parent Common Stock issued upon the
surrender for exchange of shares of Company Common Stock in
accordance with the terms hereof (including any cash paid
pursuant to Section 2.11(c) or 2.11(e)) shall be deemed to have
been issued in full satisfaction of all rights pertaining to such
shares of Company Common Stock, subject, however, to the
Surviving Corporation's obligation to pay any dividends or make
any other distributions with a record date prior to the Effective
Time that may have been declared or made by the Company on such
shares of Company Common Stock in accordance with the terms of
this Agreement or prior to the date hereof and which remain
unpaid at the Effective Time, and after the Effective Time there
shall be no further registration of transfers on the stock
transfer books of the Surviving Corporation of the shares of
Company Common Stock that were outstanding immediately prior to
the Effective Time. If, after the Effective Time, Certificates
are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Article II.
(e) No Fractional Shares. No certificates or scrip
representing fractional shares of Parent Common Stock shall be
issued upon the surrender for exchange of Certificates pursuant
to this Article II, and, except as provided in this Section
2.11(e), no dividend or other distribution, stock split or
interest shall relate to any fractional security, and such
fractional interests shall not entitle the owner thereof to any
voting or other rights of a security holder of Parent. In lieu of
any fractional security, each holder of shares of Company Common
Stock who would otherwise have been entitled to a fraction of a
share of Parent 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 sum of (i) the net proceeds from the sale or
sales by the Exchange Agent in accordance with the provisions of
this Section 2.11(e), on behalf of all such
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<PAGE>
holders, of the aggregate fractional shares of Parent Common
Stock issued pursuant to this Article II and (ii) the aggregate
dividends or other distributions that are payable with respect to
such shares of Parent Common Stock pursuant to Section 2.11(c)
(such dividends and distributions being herein called the
"Fractional Dividends"). As soon as practicable following the
Effective Time, the Exchange Agent shall determine the excess of
(A) the number of full shares of Parent Common Stock delivered to
the Exchange Agent by Parent pursuant to Section 2.11(a) over (B)
the aggregate number of full shares of Parent Common stock to be
distributed to holders of Company Common Stock pursuant to
Section 2.11(b) (such excess being herein called the "Excess
Securities") and the Exchange Agent, as agent for the former
holders of Company Common Stock, shall sell the Excess Securities
at the prevailing prices on the NYSE. The sale of the Excess
Securities 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. Parent 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
Securities. Until the net proceeds of such sale of Excess
Securities and the Fractional Dividends have been distributed to
the former stockholders of the Company, the Exchange Agent will
hold such proceeds and dividends in trust for such former
stockholders. As soon as practicable after the determination of
the amount of cash to be paid to former stockholders of the
Company in lieu of any fractional interests, the Exchange Agent
shall make available in accordance with this Agreement such
amounts to such former stockholders.
(f) Termination of Exchange Fund. Any portion of the
Exchange Fund and any cash in lieu of fractional shares of Parent
Common Stock made available to the Exchange Agent that remain
undistributed to the former stockholders of the Company for six
months after the Effective Time shall be delivered to Parent,
upon demand, and any stockholders of the Company who have not
theretofore complied with this Article II shall thereafter look
only to Parent for payment of their claim for Parent Common
Stock, any cash in lieu of fractional shares of Parent Common
Stock and any dividends or distributions with respect to Parent
Common Stock.
(g) No Liability. Neither Parent nor the Company shall
be liable to any holder of shares of Company Common Stock or
Parent Common Stock, as the case may be, for such shares (or
dividends or distributions with respect thereto) or cash in lieu
of fractional shares of Parent Common Stock delivered to a public
official pursuant to any applicable abandoned property, escheat
or similar law. Any amounts remaining unclaimed by holders of any
such shares one year after the Effective Time (or such earlier
date immediately prior to the time at which such amounts would
otherwise escheat to or become property of any governmental
entity) shall, to the extent permitted by applicable law, become
the property of Parent free and clear of any claims or interest
of any such holders or their successors, assigns or personal
representatives previously entitled thereto.
SECTION 2.12 Formation of Sub. Promptly after the date
hereof, Parent shall cause Sub to be formed and to become a party
to this Agreement.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company represents and warrants as of the date of this
Agreement to the Parent, the Sub and Apollo as follows:
SECTION 3.01 Organization and Qualification. Each of the
Company and its subsidiaries is a duly organized and validly
existing corporation in good standing under the laws of its
jurisdiction of incorporation, with all requisite corporate power
and other authority to own its properties and conduct its
business as it is being conducted on the date hereof and is duly
qualified and in good standing as a foreign corporation
authorized to do business in each of the jurisdictions in which
the character of the properties owned or held under lease by it
or the nature of the business transacted by it makes such
qualification necessary. The Company has heretofore made
available to the Sub accurate and complete copies of the
Certificates of Incorporation and Bylaws as currently in effect
of the Company and its subsidiaries.
SECTION 3.02 Capitalization. (a) The authorized capital
stock of the Company consists of 50,000,000 shares of Company
Common Stock and 2,000,000 shares of preferred stock, par value
$0.01 per share. As of the close of business on May 5, 1997 (the
"Capitalization Date"): 23,815,695 shares of Company Common Stock
were issued and outstanding; no shares of Preferred Stock were
issued and outstanding; shares of Company Common Stock were held
in the Company's treasury; and there were outstanding Rights with
respect to 2,929,408 shares of Company Common Stock as set forth
in Section 3.02(a) of the disclosure letter, dated the date
hereof, delivered by the Company to the Parent prior to the
execution of this Agreement setting forth certain matters
referred to in this Agreement (the "Company Disclosure Letter").
Since the Capitalization Date, except as set forth in Section
3.02(a) of the Company Disclosure Letter or in the Company SEC
Reports (as defined in Section 3.05), the Company (i) has not
issued any Company Common Stock other than upon the exercise or
vesting of Rights outstanding on such date, (ii) has not granted
any options or rights to purchase or acquire Company Common Stock
(under the Company's Stock Plans or otherwise) and (iii) has not
split, combined or reclassified any of its shares of capital
stock. All of the outstanding shares of Company Common Stock have
been duly authorized and validly issued and are fully paid and
nonassessable and are free of preemptive rights. Except as set
forth in this Section 3.02 or in Section 3.02(a) of the Company
Disclosure Letter or in the Company SEC Reports, there are
outstanding (i) no shares of capital stock or other voting
securities of the Company, (ii) no securities of the Company
convertible into or exchangeable for shares of capital stock or
voting securities of the Company and (iii) no options, warrants,
rights, or other agreements or commitments to acquire from the
Company, and no obligation of the Company to issue, any capital
stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of the
Company, and no obligation of the Company to grant, extend or
enter into any subscription, warrant, option, right, convertible
or exchangeable security or other similar agreement or commitment
(the items in clauses (i), (ii) and (iii) being referred to
collectively as the "Company Securities"). Except as set
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forth in Section 3.02(a) of the Company Disclosure Letter, there
are no outstanding obligations of the Company or any Subsidiary
to repurchase, redeem or otherwise acquire any Company
Securities. There are no voting trusts or other agreements or
understandings to which the Company or any of its subsidiaries is
a party with respect to the voting of capital stock of the
Company or any of its subsidiaries.
(b) Except as set forth in Section 3.02(b) of the Company
Disclosure Letter or in the Company SEC Reports, the Company is,
directly or indirectly, the record and beneficial owner of all
the outstanding shares of capital stock of each of its
subsidiaries, free and clear of any lien, mortgage, pledge,
charge, security interest or encumbrance of any kind, and there
are no irrevocable proxies with respect to any such shares.
Except as set forth in Section 3.02(b) of the Company Disclosure
Letter or in the Company SEC Reports, there are no outstanding
(i) securities of the Company or any Subsidiary convertible into
or exchangeable for shares of capital stock or other voting
securities or ownership interests in any Subsidiary, or (ii)
options or other rights to acquire from the Company or any of its
subsidiaries, and no other obligation of the Company or any of
its subsidiaries to issue, any capital stock, voting securities
or other ownership interests in, or any securities convertible
into or exchangeable for any capital stock, voting securities or
ownership interests in, any of its subsidiaries, or any other
obligation of the Company or any of its subsidiaries to grant,
extend or enter into any subscription, warrant, right,
convertible or exchangeable security or other similar agreement
or commitment (the items in clauses (i) and (ii) being referred
to collectively as the "Subsidiary Securities"). There are no
outstanding obligations of the Company or any of its subsidiaries
to repurchase, redeem or otherwise acquire any outstanding
Subsidiary Securities.
SECTION 3.03 Authority for this Agreement. The Company has
the requisite corporate power and authority to execute and
deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement
by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly and validly
authorized by the Board of Directors of the Company and no other
corporate proceedings on the part of the Company are necessary to
authorize this Agreement or to consummate the transactions so
contemplated, other than the approval and adoption of the
agreement of merger (as such term is used in Section 251 of the
DGCL) contained in this Agreement and the approval of the Merger
by the holders of a majority of the outstanding shares of Company
Common Stock. This Agreement has been duly and validly executed
and delivered by the Company and, assuming this Agreement
constitutes a valid and binding obligation of each of the Parent
and the Sub, constitutes a valid and binding agreement of the
Company, enforceable against the Company in accordance with its
terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency and similar laws affecting creditors'
rights generally and to general principles of equity (whether
considered in a proceeding in equity or at law).
SECTION 3.04 Absence of Certain Changes. Except as
disclosed in the Company SEC Reports (as defined in Section 3.05)
or in Section 3.04 of the Company Disclosure Letter, from
September 30, 1996 through the date hereof, (i) the Company and
its subsidiaries have not suffered any Material Adverse Effect,
(ii) the Company and its subsidiaries have, in all material
respects,
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conducted their respective businesses only in the ordinary course
consistent with past practice, except in connection with the
negotiation and execution and delivery of this Agreement and the
solicitation or receipt of other offers to acquire the Company,
and (iii) there has not been (a) any declaration, setting aside
or payment of any dividend or other distribution in respect of
the shares of Company Common Stock or any repurchase, redemption
or other acquisition by the Company or any of its subsidiaries of
any Company Securities or Subsidiary Securities; or (b) any
action by the Company which if taken after the date hereof would
constitute a breach of Section 5.01 hereof. Except as disclosed
in the Company SEC Reports or in Section 3.04 of the Company
Disclosure Letter, since September 30, 1996, there has not been
any change by the Company in accounting methods, principles or
practices except as permitted by United States generally accepted
accounting principles.
SECTION 3.05 Reports.
(a) Except as disclosed in Section 3.05 of the Company
Disclosure Letter, the Company has timely filed with the SEC all
forms, reports and documents required to be filed by it pursuant
to the federal securities laws and the SEC rules and regulations
thereunder, all of which (the "Company SEC Reports") have
complied in form as of their respective filing dates in all
material respects with all applicable requirements of the
Exchange Act and the rules promulgated thereunder applicable
thereto. None of the Company SEC Reports, at the time filed,
contained any untrue statement of a material fact or omitted to
state a material fact required to be stated or incorporated by
reference therein or necessary in order to make the statements
therein, in light of the circumstances under which they were
made, not misleading.
(b) As of their respective dates, the audited and unaudited
consolidated financial statements of the Company included (or
incorporated by reference) in the Company SEC Reports were
prepared in all material respects in accordance with United
States generally accepted accounting principles applied on a
consistent basis during the periods therein indicated (except as
may be indicated in the notes thereto) and presented fairly the
consolidated financial position of the Company, and the
consolidated results of operations and changes in consolidated
financial position or cash flows for the periods presented
therein, subject, in the case of the unaudited interim financial
statements, to normal year-end audit adjustments and any other
adjustments described therein which were not expected to have a
Material Adverse Effect.
(c) As of September 30, 1996, to the best of Company's
knowledge, neither the Company or any of its subsidiaries had any
liabilities of any nature, whether accrued, absolute, contingent
or otherwise, whether due or to become due that are required to
be recorded or reflected on a balance sheet under United States
generally accepted accounting principles, except as reflected or
reserved against or disclosed in the financial statements of the
Company included in the Company SEC Reports or as otherwise
disclosed in the Company SEC Reports or as set forth in the
Company Disclosure Letter.
SECTION 3.06 Information Supplied. None of the information
supplied or to be supplied by the Company for inclusion or
incorporation by reference in the Registration Statement on Form
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S-4 to be filed with the SEC by Parent in connection with the
issuance of shares of Parent Common Stock in the Merger and as
contemplated by Section 2.06(b) (the "S-4") will, at the time the
S-4 becomes effective under the Securities Act or at the
Effective Time, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and
none of the information supplied or to be supplied by the Company
and included or incorporated by reference in the Proxy Statement,
as supplemented if necessary, will, at the date mailed to
stockholders of the Company, or at the time of the meeting of
such stockholders to be held in connection with the Merger,
contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the
circumstances under which they are made, not misleading. If at
any time prior to the time of such meeting, any event with
respect to the Company or any of its Subsidiaries, or with
respect to other information supplied by the Company for
inclusion in the Proxy Statement or S-4, shall occur which is
required to be described in an amendment of, or a supplement to,
the Proxy Statement or the S-4, such event shall be so described,
and such amendment or supplement shall be promptly filed with the
SEC. The Proxy Statement, insofar as it relates to other
information supplied by the Company for inclusion therein, will
comply as to form in all material respects with the provisions of
the Exchange Act and the rules and regulations thereunder.
SECTION 3.07 Consents and Approvals; No Violation. Neither
the execution and delivery of this Agreement by the Company nor
the consummation of the transactions contemplated hereby will
conflict with or result in any breach of any provision of the
respective Certificates of Incorporation or Bylaws (or other
similar governing documents) of the Company or any of its
subsidiaries, and except as disclosed in Section 3.07 of the
Company Disclosure Letter and except for filings, permits,
authorizations, notices, consents and approvals as may be
required under, and other applicable requirements of, the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), the Securities Act, the Exchange Act, the DGCL,
and the "takeover" or blue sky laws of various states and
consents, approvals, authorizations or filings under laws of
jurisdictions outside the United States, and filings, notices,
consents, authorizations and approvals as may be required by
local, state, and federal regulatory agencies, commissions,
boards, or public authorities with jurisdiction over health care
facilities and providers, (i) require any consent, approval,
authorization or permit of, or filing with or notification to,
any governmental or regulatory authority, except where the
failure to obtain such consent, approval, authorization or
permit, or to make such filing or notification, would not in the
aggregate have a Material Adverse Effect or have a material
adverse effect on the ability of the Company to consummate the
transactions contemplated hereby; (ii) result in a default (or
give rise to any right of termination, cancellation or
acceleration) under any of the terms, conditions or provisions of
any note, license, agreement or other instrument or obligation to
which the Company is a party or by which the Company or any of
its assets or subsidiaries may be bound, except for such defaults
(or rights of termination, cancellation or acceleration) which
would not in the aggregate have a Material Adverse Effect or have
a material adverse effect on the ability of the Company to
consummate the transactions contemplated hereby; (iii) result in
the creation or imposition of any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind on any asset of the
Company or any of its subsidiaries which, in the aggregate, would
have a Material Adverse Effect or have a material adverse effect
on the ability of
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the Company to consummate the transactions contemplated hereby;
or (iv) violate any order, writ, injunction, agreement, contract,
decree, statute, rule or regulation applicable to the Company,
any of its subsidiaries or by which any of their respective
assets are bound.
SECTION 3.08 Brokers. No broker, finder or investment
banker (except as disclosed to Parent and Apollo) is entitled to
receive any brokerage, finder's or other fee or commission in
connection with this Agreement or the transactions contemplated
hereby based upon agreements made by or on behalf of the Company.
SECTION 3.09 Employee Benefit Matters.
(a) For purposes of this Agreement, the term "Plan" shall
refer to the following maintained by the Company, any of its
subsidiaries or any of their respective ERISA Affiliates (as
defined below), or with respect to which the Company or any of
its subsidiaries or any of their respective ERISA Affiliates
contributes or has any obligation to contribute or has any
liability (including, without limitation, a liability arising out
of an indemnification, guarantee, hold harmless or similar
agreement): any plan, program, arrangement, agreement or
commitment, whether written or oral, which is an employment,
consulting, deferred compensation or change-in-control agreement,
or an executive compensation, incentive bonus or other bonus,
employee pension, profit-sharing, savings, retirement, stock
option, stock purchase, severance pay, change-in-control, life,
health, disability or accident insurance plan, or other employee
benefit plan, program, arrangement, agreement or commitment,
written or oral, including, without limitation, any material
"employee benefit plan" as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended
("ERISA"). Section 3.09(a) of the Company Disclosure Letter sets
forth each employment agreement with a person who is entitled to
receive at least $100,000 per year from the Company or any of its
subsidiaries (other than an employment agreement terminable
without material liability (not otherwise disclosed) on no more
than sixty (60) days' notice).
(b) Except as set forth in Section 3.09(b) of the Company
Disclosure Letter, none of the Company, its subsidiaries nor any
of their respective ERISA Affiliates maintains or contributes to,
nor have they maintained or contributed to any:
(A) defined benefit plan subject to Title IV of ERISA; or
(B) "Multiemployer plan" as defined in Section 4001 of
ERISA.
(c) No event has occurred and no condition or circumstance
currently exists in connection with which the Company, any of its
subsidiaries, their respective ERISA Affiliates or any Plan,
directly or indirectly, are likely to be subject to any liability
under ERISA, the Code or any other law, regulation or
governmental order applicable to any Plan which would be
reasonably likely to have a Material Adverse Effect.
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(d) With respect to each Plan, (A) all material payments
due from the Company or any of its subsidiaries to date have been
made and all material amounts properly accrued to date or as of
the Effective Time as liabilities of the Company or any of its
subsidiaries which have not been paid have been properly recorded
on the books of the Company; (B) each such Plan which is an
"employee pension benefit plan" (as defined in Section 3(2) of
ERISA) and intended to qualify under Section 401 of the Code has
either received a favorable determination letter from the
Internal Revenue Service with respect to such qualification as of
the date specified in Section 3.09(d) of the Disclosure Letter or
has filed for such a determination letter with the Internal
Revenue Service within the time permitted under Rev. Proc. 95-12
(December 29, 1994), 1995-3 IRB 24, and nothing has occurred
since the date of such letter that has resulted in or is likely
to result in a tax qualification defect which would have a
Material Adverse Effect; and (C) there are no material actions,
suits or claims pending (other than routine claims for benefits)
or, to the best of Company's knowledge, threatened with respect
to such Plan or against the assets of such Plan.
(e) The Company has made available to the Parent, with
respect to each Plan for which the following exists:
(A) a copy of the most recent annual report on Form
5500, with respect to such Plan including any Schedule B
thereto;
(B) a copy of the Summary Plan Description, together
with each Summary of Material Modifications with respect to
such Plan and, unless the Plan is embodied entirely in an
insurance policy to which the Company or any of its
subsidiaries is a Party, a true and complete copy of such
Plan; and
(C) if the Plan is funded through a trust or any third
party funding vehicle (other than an insurance policy), a
copy of the trust or other funding agreement and the latest
financial statements thereof.
(f) Except as disclosed in Section 3.09(g) of the Company
Disclosure Letter or in the Company SEC Reports, neither the
Company nor any of its subsidiaries has any announced plan or
legally binding commitment to create any additional material
Plans or to make any material amendment or modification to any
existing Plan, except in the ordinary course of business in
accordance with its customary practices or as required by law or
as necessary to maintain tax-qualified status.
(g) For purposes of this Section 3.09, ERISA Affiliates
include each corporation that is a member of the same controlled
group as the Company or any of its subsidiaries within the
meaning of Section 414(b) of the Code, any trade or business,
whether or not incorporated, under common control with the
Company or any of its subsidiaries within the meaning of Section
414(c) of the Code and any member of any affiliated service group
that includes the Company, any of its subsidiaries and any of the
corporations, trades or businesses described above, within the
meaning of Section 414(m) of the Code.
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<PAGE>
SECTION 3.10 Litigation, etc. Except as set forth in
Section 3.10 of the Company Disclosure Letter or as disclosed in
the Company SEC Reports, as of the date hereof there is no
pending audit, claim, action, proceeding, citizen's suit and, to
the knowledge of the Company, no audit, claim, action,
proceeding, citizen's suit or governmental investigation has been
threatened against the Company or any of its subsidiaries before
any court or governmental or regulatory authority which, in the
aggregate, (i) would have a Material Adverse Effect or (ii) would
have a material adverse effect on the ability of the Company to
consummate the transactions contemplated by this Agreement.
Except as set forth in Section 3.10 of the Company Disclosure
Letter or as disclosed in the Company SEC Reports, neither the
Company nor any Subsidiary of the Company is subject to any
outstanding judicial, administrative or arbitration order, writ,
injunction or decree that (i) has had a Material Adverse Effect
or (ii) would have a material adverse effect on the ability of
the Company to consummate the transactions contemplated by this
Agreement.
SECTION 3.11 Tax Matters. The Company and each of its
subsidiaries has duly filed all tax returns and reports required
to be filed by it, or requests for extensions to file such
returns or reports have been timely filed and granted and have
not expired, except to the extent that such failures to file, in
the aggregate, would not have a Material Adverse Effect and such
returns and reports are true, correct and complete in all
material respects. The Company and each of its subsidiaries has
duly paid in full (or the Company has paid on its behalf) or made
adequate provision in the Company's accounting records for all
taxes for all past and current periods for which the Company or
any of its subsidiaries is liable. The most recent financial
statements contained in the Company SEC Reports reflect adequate
reserves for all taxes payable by the Company and its
subsidiaries for all taxable periods and portions thereof accrued
through the date of such financial statements, and no
deficiencies for any taxes have been proposed, asserted or
assessed against the Company or any of its subsidiaries that are
not adequately reserved for, except for inadequately reserved
taxes and inadequately reserved deficiencies that would not, in
the aggregate, have a Material Adverse Effect. No requests for
waivers of the time to assess any taxes against the Company or
any of its subsidiaries have been granted or are pending, except
for requests with respect to such taxes that have been adequately
reserved for in the most recent financial statements contained in
the Company SEC Reports, or, to the extent not adequately
reserved, the assessment of which would not, in the aggregate,
have a Material Adverse Effect. Except as set forth in Section
3.11 of the Company Disclosure Letter, neither the Company nor
any of its subsidiaries has made any payments, is obligated to
make any payments, or is a party to any agreement that under
certain circumstances could obligate it to make any payments that
will not be deductible under Section 280G of the Code. Neither
the Company nor any of its subsidiaries has been a United States
real property holding corporation within the meaning of Section
897(c)(2) of the Code during the applicable period specified in
Section 897(c)(1)(A)(ii) of the Code. As used in this Agreement
the term "taxes" includes all federal, state, local and foreign
income, franchise, property, sales, use, excise and other taxes,
including without limitation obligations for withholding taxes
from payments due or made to any other person and any interest,
penalties or additions to tax.
SECTION 3.12 Compliance with Law. Except as set forth in
Section 3.12 of the Company Disclosure Letter or in the Company
SEC Reports, neither the Company nor any of its subsidiaries
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is in conflict with, or in default or violation of, any law,
rule, regulation, order, judgment or decree applicable to the
Company or any Subsidiary or by which any property or asset of
the Company or any Subsidiary is bound or affected, except for
any such conflicts, defaults or violations that would not in the
aggregate have a Material Adverse Effect. Except as set forth in
Section 3.12 of the Company Disclosure Letter or in the Company
SEC Reports, the Company and its subsidiaries have all permits,
licenses, authorizations, consents, approvals and franchises from
governmental agencies required to conduct their businesses as now
being conducted (the "Company Permits"), except for such permits,
licenses, authorizations, consents, approvals and franchises the
absence of which would not in the aggregate have a Material
Adverse Effect. Except as set forth in Section 3.12 of the
Company Disclosure Letter or in the Company SEC Reports, the
Company and its subsidiaries are in compliance with the terms of
the Company Permits, except where the failure so to comply would
not in the aggregate have a Material Adverse Effect.
SECTION 3.13 Environmental Compliance. Except as set forth
in Section 3.13 of the Company Disclosure Letter or in the
Company SEC Reports, (i) the assets, properties, businesses and
operations of the Company and its subsidiaries are in compliance
with applicable Environmental Laws (as defined in Section 1.01
hereof), except for such non-compliance which has not had and
will not have a Material Adverse Effect; (ii) the Company and its
subsidiaries have obtained and, as currently operating, are in
compliance with all Company Permits necessary under any
Environmental Law for the conduct of the business and operations
of the Company and its subsidiaries in the manner now conducted
except for such non-compliance which has not had and will not
have a Material Adverse Effect; and (iii) neither the Company nor
any of its subsidiaries nor any of their respective assets,
properties, businesses or operations has received or is subject
to any outstanding order, decree, judgment, complaint, agreement,
claim, citation, notice, or proceeding indicating that the
Company or any of its subsidiaries is or may be (a) liable for a
violation of any Environmental Law or (b) liable for any
Environmental Liabilities and Costs, where in each case such
liability would have a Material Adverse Effect.
SECTION 3.14 Insurance. Except as set forth in the Company
SEC Reports, the Company and each of its Subsidiaries maintains,
and through the Closing Date will maintain, insurance with
reputable insurers (or pursuant to prudent self-insurance
programs) in such amounts and covering such risks as are in
accordance with normal industry practice for companies engaged in
businesses similar to those of the Company and each of its
Subsidiaries and owning property in the same general areas in
which the Company and each of its Subsidiaries conducts their
businesses. The Company and each of its Subsidiaries may
terminate each of its insurance policies or binders at or after
the Closing and will incur no material penalties or other
material costs in doing so. None of such policies or binders was
obtained through the use of false or misleading information or
the failure to provide the insurer with all information requested
in order to evaluate the liabilities and risks insured. There is
no material default with respect to any provision contained in
any such policy or binder, nor has the Company or any of its
subsidiaries failed to give any material notice or present any
material claim under any such policy or binders in due and timely
fashion. There are no billed but unpaid premiums past due under
any such policy or binder, the failure of which to be paid would
result in the cancellation of such policy or binder. Except as
otherwise set forth in the Company SEC Reports or
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in the Company Disclosure Letter, (a) there are no outstanding
claims in excess of normal retentions that are not covered under
any such policies or binders and, to the best knowledge of the
Company, there has not occurred any event that might reasonably
form the basis of any claim in excess of normal retentions that
are not covered against or relating to the Company or any of its
subsidiaries that is not covered by any of such policies or
binders; (b) no notice of cancellation or non-renewal of any such
policies or binders has been received; and (c) there are no
performance bonds outstanding with respect to the Company or any
of its subsidiaries.
SECTION 3.15 Vote Required. The affirmative vote of the
holders of a majority of the outstanding shares of the Company
Common Stock is the only vote of the holders of any class or
series of the Company's capital stock or other voting securities
necessary to approve this Agreement, the Merger and the
transactions contemplated hereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE PARENT AND THE SUB
The Parent and the Sub (effective upon its becoming a party
hereto), jointly and severally, represent and warrant as of the
date of this Agreement to the Company and Apollo as follows:
SECTION 4.01 Organization and Qualification. Each of the
Parent and the Sub is a duly organized and validly existing
corporation in good standing under the laws of its jurisdiction
of organization, with all requisite corporate power and other
authority to own its properties and conduct its business as it is
being conducted on the date hereof and is duly qualified and in
good standing as a foreign corporation authorized to do business
in each of the jurisdictions in which the character of the
properties owned or held under lease by it or the nature of the
business transacted by it makes such qualification necessary. The
Parent has heretofore made available to the Company accurate and
complete copies of the Certificates of Incorporation and Bylaws
as currently in effect of the Parent and its subsidiaries. All of
the issued and outstanding capital stock of the Sub is owned
directly by the Parent, free and clear of any lien, mortgage,
pledge, charge, security interest or encumbrance of any kind.
SECTION 4.02 Capitalization. (a) The authorized capital
stock of the Parent consists of 75,000,000 shares of Parent
Common Stock and 5,000,000 shares of preferred stock, par value
$.01 (the "Preferred Stock"), of which 350,000 shares have been
designated as Series A Junior Participating Preferred Stock (the
"Junior Preferred Stock"). As of the Capitalization Date,
19,547,616 shares of Parent Common Stock were issued and
outstanding; no shares of Preferred Stock were issued and
outstanding; 720,304 shares of Parent Common Stock were held in
the Company's treasury; and there were outstanding Rights with
respect to 1,635,447 shares of Parent Common Stock as set forth
in Section 3.02(a) of the disclosure letter, dated the date
hereof, delivered by the Parent to the Company prior to the
execution of this Agreement setting forth certain matters
referred to in this Agreement (the "Parent Disclosure Letter");
and there were outstanding rights (the
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"Rights Agreement Rights") under the Rights Agreement dated
November 17, 1994 between the Company and Chemical Bank, as
amended by an amendment dated July 31, 1995 (the "Rights
Agreement"). Since the Capitalization Date, except as set forth
in Section 3.02(a) of the Parent Disclosure Letter or in the
Parent SEC Reports (as defined in Section 4.05), the Company (i)
has not issued any shares of Parent Common Stock other than upon
the exercise or vesting of Rights outstanding on such date, (ii)
has not granted any options or rights to purchase or acquire
shares of Parent Common stock (under the Parent's Stock Plans or
otherwise) and (iii) has not split, combined or reclassified any
of its shares of capital stock. All of the outstanding shares of
Parent Common Stock have been duly authorized and validly issued
and are fully paid and nonassessable and are free of preemptive
rights. Except as set forth in this Section 4.02 or in Section
3.02(a) of the Parent Disclosure Letter or in the Parent SEC
Reports, there are outstanding (i) no shares of capital stock or
other voting securities of the Parent, (ii) no securities of the
Parent convertible into or exchangeable for shares of capital
stock or voting securities of the Parent and (iii) no options,
warrants, rights, or other agreements or commitments to acquire
from the Parent, and except as contemplated by the
Recapitalization Merger, (A) no obligation of the Parent to
issue, any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting
securities of the Parent, and (B) no obligation of the Parent to
grant, extend or enter into any subscription, warrant, option,
right, convertible or exchangeable security or other similar
agreement or commitment (the items in clauses (i), (ii) and (iii)
being referred to collectively as the "Parent Securities").
Except as set forth in Section 3.02(a) of the Parent Disclosure
Letter, there are no outstanding obligations of the Parent or any
Subsidiary to repurchase, redeem or otherwise acquire any Parent
Securities. There are no voting trusts or other agreements or
understandings to which the Parent or any of its subsidiaries is
a party with respect to the voting of capital stock of the Parent
or any of its subsidiaries. Notwithstanding the foregoing, the
Parent has concurrently entered into the agreement and plan of
merger setting forth the terms of the Recapitalization Merger,
including the issuance of shares of Parent Common Stock in
connection therewith.
(b) Except as set forth in Section 3.02(b) of the Parent
Disclosure Letter or in the Parent SEC Reports, the Parent is,
directly or indirectly, the record and beneficial owner of all
the outstanding shares of capital stock of each of its
subsidiaries, free and clear of any lien, mortgage, pledge,
charge, security interest or encumbrance of any kind, and there
are no irrevocable proxies with respect to any such shares.
Except as set forth in Section 3.02(b) of the Parent Disclosure
Letter or in the Parent SEC Reports, there are no outstanding (i)
securities of the Parent or any Subsidiary convertible into or
exchangeable for shares of capital stock or other voting
securities or ownership interests in any Subsidiary, or (ii)
options or other rights to acquire from the Parent or any of its
subsidiaries, and no other obligation of the Parent or any of its
subsidiaries to issue, any capital stock, voting securities or
other ownership interests in, or any securities convertible into
or exchangeable for any capital stock, voting securities or
ownership interests in, any of its subsidiaries, or any other
obligation of the Parent or any of its subsidiaries to grant,
extend or enter into any subscription, warrant, right,
convertible or exchangeable security or other similar agreement
or commitment (the items in clauses (i) and (ii) being referred
to collectively as the "Parent Subsidiary Securities"). There are
no outstanding obligations of the Parent or any of its
subsidiaries to repurchase, redeem or otherwise acquire any
outstanding Parent Subsidiary Securities.
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SECTION 4.03 Authority Relative to this Agreement. Each of
the Parent and the Sub has requisite corporate power and
authority to execute and deliver this Agreement and to consummate
the transactions contemplated hereby. The execution and delivery
of this Agreement by the Parent and the Sub and the consummation
by the Parent and the Sub of the transactions contemplated hereby
have been duly and validly authorized by the Board of Directors
of the Parent and the Sub and no other corporate proceedings on
the part of the Parent and the Sub are necessary to authorize
this Agreement or consummate the transactions so contemplated,
other than the Company Stockholder Approvals and Parent
Stockholder Approvals. This Agreement has been duly and validly
executed and delivered by the Parent and the Sub and, assuming
this Agreement constitutes the valid and binding obligation of
the Company, this Agreement constitutes a valid and binding
agreement of each of the Parent and the Sub, enforceable against
each of the Parent and the Sub in accordance with its terms,
except as such enforceability may be limited by applicable
bankruptcy, insolvency and similar laws affecting creditors'
rights generally and to general principles of equity (whether
considered in a proceeding in equity or at law).
SECTION 4.04 Absence of Certain Changes. Except as
disclosed in the Parent SEC Reports (as defined in Section 4.05)
or in Section 3.04 of the Parent Disclosure Letter, from
September 30, 1996 through the date hereof, (i) the Parent and
its subsidiaries have not, to the best of the Parent's knowledge,
suffered any Material Adverse Effect, (ii) the Parent and its
subsidiaries have, in all material respects, conducted their
respective businesses only in the ordinary course consistent with
past practice, except in connection with the negotiation and
execution and delivery of this Agreement, and (iii) there has not
been (a) any declaration, setting aside or payment of any
dividend or other distribution in respect of the Shares or any
repurchase, redemption or other acquisition by the Parent or any
of its subsidiaries of any Parent Securities; or (b) any action
by the Parent which if taken after the date hereof would
constitute a breach of Section 5.01(b) hereof. Except as
disclosed in the Parent SEC Reports or in Section 3.04 of the
Parent Disclosure Letter, since September 30, 1996, there has not
been any change by the Parent in accounting methods, principles
or practices except as permitted by United States generally
accepted accounting principles.
SECTION 4.05 Reports.
(a) The Parent has filed with the SEC all forms, reports
and documents required to be filed by it pursuant to the federal
securities laws and the SEC rules and regulations thereunder on
and after September 30, 1995, all of which (the "Parent SEC
Reports") have complied in form as of their respective filing
dates in all material respects with all applicable requirements
of the Exchange Act and the rules promulgated thereunder
applicable thereto. None of the Parent SEC Reports, at the time
filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated or
incorporated by reference therein or necessary in order to make
the statements therein, in light of the circumstances under which
they were made, not misleading.
(b) As of their respective dates, the audited and unaudited
consolidated financial statements of the Parent included (or
incorporated by reference) in the Parent SEC Reports were
prepared in all material respects in accordance with United
States generally accepted accounting
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principles applied on a consistent basis during the periods
therein indicated (except as may be indicated in the notes
thereto) and presented fairly the consolidated financial position
of the Parent, and the consolidated results of operations and
changes in consolidated financial position or cash flows for the
periods presented therein, subject, in the case of the unaudited
interim financial statements, to normal year-end audit
adjustments and any other adjustments described therein which
were not expected to have a Material Adverse Effect.
(c) As of March 31, 1997, neither the Parent nor any of its
subsidiaries had any liabilities of any nature, whether accrued,
absolute, contingent or otherwise, whether due or to become due
that are required to be recorded or reflected on a balance sheet
under United States generally accepted accounting principles,
except as reflected or reserved against or disclosed in the
financial statements of the Parent included in the Parent SEC
Reports or the Parent Disclosure Letter or as otherwise disclosed
in the Parent SEC Reports or the Parent Disclosure Letter.
SECTION 4.06 Information Supplied. None of the information
supplied or to be supplied by the Parent for inclusion or
incorporation by reference in the Registration Statement on Form
S-4 to be filed with the SEC jointly by Parent and Company in
connection with the issuance of shares of Parent Common Stock in
the Merger and as contemplated by Section 2.06(b) will, at the
time the S-4 becomes effective under the Securities Act or at the
Effective Time, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and
none of the information supplied or to be supplied by the Parent
and included or incorporated by reference in the Proxy Statement,
as supplemented if necessary, will, at the date mailed to
stockholders of the Parent, or at the time of the meeting of such
stockholders to be held in connection with the Merger, contain
any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances
under which they are made, not misleading. If at any time prior
to the time of such meeting, any event with respect to the Parent
or any of its Subsidiaries, or with respect to other information
supplied by the Parent for inclusion in the Proxy Statement or
S-4, shall occur which is required to be described in an
amendment of, or a supplement to, the Proxy Statement or the S-4,
such event shall be so described, and such amendment or
supplement shall be promptly filed with the SEC. The Proxy
Statement, insofar as it relates to other information supplied by
the Parent for inclusion therein, will comply as to form in all
material respects with the provisions of the Exchange Act and the
rules and regulations thereunder.
SECTION 4.07 Consents and Approvals; No Violation. The
execution and delivery of this Agreement by each of the Parent or
the Sub and the consummation of the transactions contemplated
hereby will not (i) conflict with or result in any breach of any
provision of the respective Certificates of Incorporation or
Bylaws (or other similar governing documents) of the Parent, the
Sub or any of their subsidiaries; (ii) require any consent,
approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, except
(A) in connection with the HSR Act, (B) pursuant to the
Securities Act, the Exchange Act, (C) the filing of a certificate
of merger pursuant to the DGCL, (D) any applicable filings under
state securities, blue sky or "takeover" laws, (E) consents,
approvals, authorizations or filings under laws of jurisdictions
outside the United States,
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(F) consents, approvals, authorizations, permits, filings or
notifications required by local, state and federal regulatory
agencies, commissions, boards or public authorities with
jurisdiction over health care facilities and providers or (G)
where the failure to obtain such consent, approval, authorization
or permit, or to make such filing or notification, would not in
the aggregate have a Material Adverse Effect on the Parent or the
Sub or has a material adverse effect on the ability of the Parent
or the Sub to consummate the transactions contemplated hereby,
(iii) result in a default (or give rise to any right of
termination, cancellation or acceleration) under any of the
terms, conditions or provisions of any note, license, agreement
or other instrument or obligation to which the Parent or the Sub
or any of their subsidiaries is a party or by which any of its
subsidiaries or any of their respective assets may be bound,
except for such defaults (or rights of termination, cancellation
or acceleration) as to which requisite waivers or consents have
been obtained or which would not have a Material Adverse Effect
on the Parent or the Sub or has a material adverse effect on the
ability of the Parent or the Sub to consummate the transactions
contemplated hereby; (iv) result in the creation or imposition of
any mortgage, lien, pledge, charge, security interest or
encumbrance of any kind on any asset of the Parent or the Sub or
any of their subsidiaries which, individually or in the
aggregate, would have a material adverse effect on the ability of
the Parent or the Sub to consummate the transactions contemplated
hereby; or (v) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to the Parent, the Sub or
any of their subsidiaries or any of their respective assets,
except for violations which would not in the aggregate have a
Material Adverse Effect on the Parent or the Sub or have a
material adverse effect on the ability of the Parent or the Sub
to consummate the transactions contemplated hereby.
SECTION 4.08 Brokers. No broker, finder or other investment
banker (other than Credit Suisse First Boston and NationsBanc
Capital Markets, Inc.) is entitled to receive any brokerage,
finder's or other fee or commission in connection with this
Agreement or the transactions contemplated hereby based upon
agreements made by or on behalf of the Parent or the Sub.
SECTION 4.09 Litigation, etc. As of the date hereof there
is no claim, action, proceeding or governmental investigation
pending or, to the best knowledge of the Parent or the Sub,
threatened against the Parent or any of its subsidiaries,
including the Sub, before any court or governmental or regulatory
authority which, in the aggregate would have a material adverse
effect on the ability of the Parent or the Sub to consummate the
transactions contemplated by this Agreement. Neither the Parent
nor any of its subsidiaries, including the Sub is subject to any
outstanding order, writ, injunction or decree that would have a
material adverse effect on the ability of the Parent or the Sub
to consummate the transactions contemplated by this Agreement.
SECTION 4.10 Ownership of Shares. As of the date hereof,
neither the Parent nor any of its Subsidiaries beneficially owns
(within the meaning of Rule l3d-3 under the Exchange Act) any
Company Common Stock.
SECTION 4.11 Tax Matters. The Parent and each of its
subsidiaries has duly filed all tax returns and reports required
to be filed by it, or requests for extensions to file such
returns or reports have been timely filed and granted and have
not expired, except to the extent that such failures to file,
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in the aggregate, would not have a Material Adverse Effect and
such returns and reports are true, correct and complete in all
material respects. The Parent and each of its subsidiaries has
duly paid in full (or the Parent has paid on its behalf) or made
adequate provision in the Company's accounting records for all
taxes for all past and current periods for which the Parent or
any of its subsidiaries is liable. The most recent financial
statements contained in the Parent SEC Reports reflect adequate
reserves for all taxes payable by the Parent and its subsidiaries
for all taxable periods and portions thereof accrued through the
date of such financial statements, and no deficiencies for any
taxes have been proposed, asserted or assessed against the Parent
or any of its subsidiaries that are not adequately reserved for,
except for inadequately reserved taxes and inadequately reserved
deficiencies that would not, in the aggregate, have a Material
Adverse Effect. No requests for waivers of the time to assess any
taxes against the Parent or any of its subsidiaries have been
granted or are pending, except for requests with respect to such
taxes that have been adequately reserved for in the most recent
financial statements contained in the Parent SEC Reports, or, to
the extent not adequately reserved, the assessment of which would
not, in the aggregate, have a Material Adverse Effect. Except as
set forth in Section 3.11 of the Parent Disclosure Letter,
neither the Parent nor any of its subsidiaries has made any
payments, is obligated to make any payments, or is a party to any
agreement that under certain circumstances could obligate it to
make any payments that will not be deductible under Section 280G
of the Code. Neither the Parent nor any of its subsidiaries has
been a United States real property holding corporation within the
meaning of Section 897(c)(2) of the Code during the applicable
period specified in Section 897(c)(1)(A)(ii) of the Code.
ARTICLE V
COVENANTS
SECTION 5.01 Conduct of Business.
Except as contemplated by this Agreement and in the
Company Disclosure Letter, during the period from the date of
this Agreement to the Effective Date, the Company and its
subsidiaries will each conduct its operations according to its
ordinary and usual course of business and consistent with past
practice and will use all commercially reasonable efforts
consistent with prudent business practice to preserve intact the
business organization of the Company and each of its
subsidiaries, to keep available the services of its and their
current officers and key employees and to maintain existing
relationships with those having significant business
relationships with the Company and its subsidiaries, in each case
in all material respects. Without limiting the generality of the
foregoing, except as set forth in the Company Disclosure Letter
and except as otherwise expressly provided in or contemplated by
this Agreement or the Company Disclosure Letter, prior to the
time specified in the preceding sentence, neither the Company nor
any of its subsidiaries, as the case may be, will, without the
prior written consent of the Parent (not to be unreasonably
withheld), (i) except for issuances of capital stock of the
Company's subsidiaries to the Company or a wholly owned
subsidiary of the Company, issue, sell or pledge, or authorize or
propose the issuance, sale or pledge of (A) Company Securities or
Subsidiary Securities, in each case, other than Company Common
Stock issuable upon exercise or vesting of the Rights or
allocations or issuances pursuant to the Stock
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Plans or the exercise of rights under any Plan or any agreement
referred to in Section 3.02 of the Company Disclosure Letter, or
(B) any other securities in respect of, in lieu of or in
substitution for Company Common Stock outstanding on the date
hereof, (ii) otherwise acquire or redeem, directly or indirectly,
any Company Securities or Subsidiary Securities (including the
Company Common Stock); (iii) split, combine or reclassify its
capital stock or declare, set aside, make or pay any dividend or
distribution (whether in cash, stock or property) on any shares
of capital stock of the Company or any of its subsidiaries (other
than cash dividends paid to the Company by its wholly owned
subsidiaries with regard to their capital stock); (iv) (1) make
any acquisition, by means of a merger or otherwise, of assets or
securities, or any sale, lease, encumbrance or other disposition
of assets or securities, in each case involving the payment or
receipt of consideration of $10,000,000 or more outside the
ordinary and usual course of business consistent with past
practice in all material respects, or (2) other than in the
ordinary course of business, enter into a material contract or
grant any release or relinquishment of any material contract
rights; (v) incur or assume any long-term debt for borrowed money
except for debt incurred in the ordinary course of business
consistent in all material respects with past practice; (vi)
assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the
obligations of any other person except wholly owned subsidiaries
of the Company, except in the ordinary course of business
consistent in all material respects with past practice; (vii)
except in connection with transactions permitted by (iv) above,
make any loans, advances or capital contributions to, or
investments in, any other person (other than wholly owned
subsidiaries of the Company) in the aggregate in excess of
$10,000,000; (viii) change any of the accounting principles or
practices used by it or any of its subsidiaries, except as
required by the SEC or required by United States generally
accented accounting principles; (ix) adopt any amendments to the
Restated Certificate of Incorporation or Bylaws (or similar
documents) of the Company or any Subsidiary; (x) except as, may
be required under any previously existing agreement or Plan,
grant any stock related awards; (xi) enter into any new, or amend
any existing, employee benefit, pension or other plan (whether or
not subject to ERISA) or employment, severance, consulting or
salary continuation agreements with any officers, directors or
key employees, or grant any increases in the compensation or
benefits to officers, directors and key employees; (xii) enter
into, amend, or extend any material collective bargaining or
other labor agreement, except as required by law and except in
the ordinary course of business consistent in all material
respects with past practice; (xiii) adopt, make any material
amendment to or terminate any material employee benefit plan, as
required by law or to maintain tax qualified status or as
requested by the Internal Revenue Service in order to receive a
determination letter for such employee benefit plan; (xiv) merge
or consolidate with or transfer all or substantially all of its
assets to another corporation or other business entity or
individual; (xv) liquidate, wind-up or dissolve (or suffer any
liquidation or dissolution); or (xvi) agree in writing or
otherwise to take any of the foregoing actions.
Except as contemplated by this Agreement and in the
Parent Disclosure Letter, during the period from the date of this
Agreement to the Effective Date, the Parent and its subsidiaries
will each conduct its operations according to its ordinary and
usual course of business and consistent with past practice and
will use all commercially reasonable efforts consistent with
prudent business practice to preserve intact the business
organization of the Parent and each of its subsidiaries, to keep
available
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the services of its and their current officers and key employees
and to maintain existing relationships with those having
significant business relationships with the Parent and its
subsidiaries, in each case in all material respects. Without
limiting the generality of the foregoing, except as set forth in
the Parent Disclosure Letter and except as otherwise expressly
provided in or contemplated by this Agreement or the Parent
Disclosure Letter, prior to the time specified in the preceding
sentence, neither the Parent nor any of its subsidiaries, as the
case may be, will, without the prior written consent of the
Company (not to be unreasonably withheld), (i) except for
issuances of capital stock of the Parent's subsidiaries to the
Parent or a wholly owned subsidiary of the Parent, issue, sell or
pledge, or authorize or propose the issuance, sale or pledge of
(A) Parent Securities or Subsidiary Securities, in each case,
other than Parent Common Stock issuable upon exercise or vesting
of the Rights or allocations or issuances pursuant to the Stock
Plans or the exercise of rights under any Plan or any agreement
referred to in Section 3.02 of the Parent Disclosure Letter, or
(B) any other securities in respect of, in lieu of or in
substitution for Parent Common Stock outstanding on the date
hereof, (ii) otherwise acquire or redeem, directly or indirectly,
any Parent Securities or Subsidiary Securities (including the
Parent Common Stock); (iii) split, combine or reclassify its
capital stock or declare, set aside, make or pay any dividend or
distribution (whether in cash, stock or property) on any shares
of capital stock of the Parent or any of its subsidiaries (other
than cash dividends paid to the Parent by its wholly owned
subsidiaries with regard to their capital stock); (iv) (1) make
any acquisition, by means of a merger or otherwise, of assets or
securities, or any sale, lease, encumbrance or other disposition
of assets or securities, in each case involving the payment or
receipt of consideration of $10,000,000 or more outside the
ordinary and usual course of business consistent with past
practice in all material respects, or (2) other than in the
ordinary course of business, enter into a material contract or
grant any release or relinquishment of any material contract
rights; (v) incur or assume any long-term debt for borrowed money
except for debt incurred in the ordinary course of business
consistent in all material respects with past practice; (vi)
assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the
obligations of any other person except wholly owned subsidiaries
of the Parent, except in the ordinary course of business
consistent in all material respects with past practice; (vii)
except in connection with transactions permitted by (iv) above,
make any loans, advances or capital contributions to, or
investments in, any other person (other than wholly owned
subsidiaries of the Parent) in the aggregate in excess of
$10,000,000; (viii) change any of the accounting principles or
practices used by it or any of its subsidiaries, except as
required by the SEC or required by United States generally
accented accounting principles; (ix) adopt any amendments to the
Restated Certificate of Incorporation or Bylaws (or similar
documents) of the Parent or any Subsidiary; (x) except as, may be
required under any previously existing agreement or Plan, grant
any stock related awards; (xi) enter into any new, or amend any
existing, employee benefit, pension or other plan (whether or not
subject to ERISA) or employment, severance, consulting or salary
continuation agreements with any officers, directors or key
employees, or grant any increases in the compensation or benefits
to officers, directors and key employees; (xii) enter into,
amend, or extend any material collective bargaining or other
labor agreement, except as required by law and except in the
ordinary course of business consistent in all material respects
with past practice; (xiii) adopt, make any material amendment to
or terminate any material employee benefit plan, as required by
law or to maintain tax qualified status or as requested by the
Internal Revenue Service in order to receive a determination
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letter for such employee benefit plan; (xiv) merge or consolidate
with or transfer all or substantially all of its assets to
another corporation or other business entity or individual; (xv)
liquidate, wind-up or dissolve (or suffer any liquidation or
dissolution); or (xvi) agree in writing or otherwise to take any
of the foregoing actions.
SECTION 5.02 No Solicitation.
Immediately following the execution of this Agreement,
the Company will terminate any and all existing activities,
discussions and negotiations with third parties (other than the
Parent) with respect to any possible Acquisition Transaction (as
defined below). The Company and its subsidiaries and their
respective officers, directors and employees shall not, and the
Company and its subsidiaries will use all reasonable efforts to
cause their representatives, agents or affiliates not to,
directly or indirectly, knowingly encourage, solicit, or initiate
any discussions or negotiations with, any corporation,
partnership, person or other entity or group (other than the
Parent or the Sub or any affiliate or associate of the Parent or
the Sub or any of their respective directors, officers,
employees, representatives or agents) concerning any merger,
consolidation, business combination, liquidation, reorganization,
sale of substantial assets, sale of shares of capital stock or
similar transactions involving the Company or any material
Subsidiary of the Company (each an "Acquisition Transaction");
provided, however, that if Company's Board of Directors
determines after consultation with counsel, that it is required
to do so in the exercise of the fiduciary duties of the Company's
directors to the Company or its stockholders, the Board of
Directors may respond to, or engage in discussions with respect
to, a written offer for an Acquisition Transaction; and provided
further that nothing contained in this Section 5.02(a) shall
prohibit the Company or its Board of Directors from taking and
disclosing to the Company's stockholders a position with respect
to a tender offer by a third party pursuant to Rules 14d-9 and
14e-2(a) promulgated under the Exchange Act or from making such
other disclosure to the Company's stockholders which, as advised
by outside counsel, is required under applicable law. The Company
will promptly communicate to Parent the terms and conditions of
any proposal for an Acquisition Transaction that it may receive
and will keep Parent informed as to the status of any action,
including any discussions, taken pursuant to such proposed or
contemplated Acquisition Transaction.
Immediately following the execution of this Agreement,
the Parent will terminate any and all existing activities,
discussions and negotiations with third parties (other than the
Company and Apollo) with respect to any possible Acquisition
Transaction. The Parent and its subsidiaries and their respective
officers, directors and employees shall not, and the Parent and
its subsidiaries will use all reasonable efforts to cause their
representatives, agents or affiliates not to, directly or
indirectly, knowingly encourage, solicit, or initiate any
discussions or negotiations with, any corporation, partnership,
person or other entity or group (other than the Company and
Apollo or any affiliate or associate of the Company and Apollo or
any of their respective directors, officers, employees,
representatives or agents) concerning any Acquisition
Transaction; provided, however, that if during the 45 days
following the date of this Agreement the Parent's Board of
Directors determines, after consultation with counsel, that it is
required to do so in the exercise of the fiduciary duties of the
Parent's directors to the Parent or its stockholders, the Board
of Directors may respond to, or engage
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in discussions with respect to, a written offer for an
Acquisition Transaction during such 45 day period; and provided
further that nothing contained in this Section 5.02(b) shall
prohibit the Parent or its Board of Directors from taking and
disclosing to the Parent's stockholders a position with respect
to a tender offer by a third party pursuant to Rules 14d-9 and
14e-2(a) promulgated under the Exchange Act or from making such
other disclosure to the Parent's stockholders which, as advised
by outside counsel, is required under applicable law. The Parent
will promptly communicate to the Company the terms and conditions
of any proposal for an Acquisition Transaction that it may
receive and will keep the Company informed as to the status of
any action, including any discussions, taken pursuant to such
proposed or contemplated Acquisition Transaction.
SECTION 5.03 Access to Information.
(a) Between the date of this Agreement and the Effective
Time, the Company will, upon reasonable notice to an executive
officer of the Company, (i) give the Parent, the Sub and Apollo
and their respective authorized representatives access (during
regular business hours), in a manner so as not to interfere with
the normal operations of the Company and its subsidiaries and
subject to reasonable restrictions imposed by an executive
officer of the Company, to all key employees, plants, offices,
warehouses and other facilities and to all books and records of
the Company and its subsidiaries and cause the Company's and its
subsidiaries' independent public accountants to provide access to
their work papers and such other information as the Parent, the
Sub or Apollo may reasonably request, (ii) permit the Parent, the
Sub and Apollo to make such inspections as they may reasonably
require and (iii) cause its officers and those of its
subsidiaries to furnish the Parent, the Sub or Apollo with such
financial and operating data and other information with respect
to the business, properties and personnel of the Company and its
subsidiaries as the Parent, the Sub or Apollo may from time to
time reasonably request.
(b) Information obtained by the Parent or the Sub or their
respective representatives pursuant to this Section 5.03 shall be
subject to the provisions of the letter agreement between the
Parent and the Company (the "Confidentiality Agreement") the
terms of which are incorporated herein by reference.
SECTION 5.04 Reasonable Efforts, Filings. Subject to the
terms and conditions herein provided for and to the fiduciary
duties of the Board of Directors of each of the Company and the
Parent under applicable law as advised by legal counsel, each of
the parties hereto agrees to use commercially reasonable efforts
to take, or cause to be taken, all appropriate action, and to do,
or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations to consummate and make
effective, as soon as practicable, the transactions contemplated
by this Agreement. In connection with and without limiting the
foregoing, (a) (i) the Company, the Parent and the Sub shall use
all reasonable efforts to make promptly any required submissions
under the HSR Act which the Company and the Parent or the Sub
determine should be made, in each case, with respect to the
Merger, and the transactions contemplated by this Agreement (ii)
the Company, the Parent and the Sub shall use all reasonable
efforts to respond as promptly as practicable to all inquiries
received from the Federal Trade Commission (the "FTC") and the
Antitrust Division of the
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Department of Justice (the "Antitrust Division") for additional
information or documentation and to respond as promptly as
practicable to all inquiries and requests received from any State
Attorney General or other governmental authority in connection
with antitrust matters, and (iii) if required by the FTC, the
Antitrust Division, any State Attorney General or any other
governmental authority, or if otherwise necessary or required in
order to consummate the Merger, Parent agrees promptly to take
all commercially reasonable steps (including executing agreements
and submitting to judicial or administrative orders) to effect
the sale or other disposition of, or to hold separate assets or
businesses of Parent or the Company or any of their respective
subsidiaries or affiliates (including, without limitation,
pursuant to arrangements which limit or prohibit access to such
assets or businesses), unless such sale or other disposition
would have a Material Adverse Effect on the Company (b) the
Parent, the Sub and the Company will take all such action as may
be necessary under federal and state securities laws applicable
or necessary for, and will file and, if appropriate, use all
reasonable efforts to have declared effective or approved all
documents and notifications with the SEC and other governmental
or regulating bodies which the Parent, the Sub and the Company
determines, in each case, is necessary for the consummation of
the Merger and the transactions contemplated hereby and each
party shall give the other information requested by it which is
reasonably necessary to enable it to take such action, (c) the
Parent, the Sub and the Company will, and will cause each of
their respective subsidiaries to, use commercially reasonable
efforts to obtain consents of all third parties and governmental
bodies (other than with respect to healthcare regulatory
licenses, certifications or permits or provider agreements)
necessary or, in the reasonable opinion of the Parent or the
Company, advisable to consummate the Merger and the transactions
contemplated by this Agreement and (d) prior to the Effective
Time, the Parent, Sub and the Company will take, and cause their
respective subsidiaries to take, such actions to apply for such
governmental approvals or consents, or make filings with
governmental bodies, with respect to healthcare regulatory
licenses, certifications, or permits or provider agreements as
may be required by applicable law. In case at any time after the
Effective Time any further action is necessary or desirable to
carry out the purposes of this Agreement, the Parent shall cause
the proper officers and directors of the Surviving Corporation,
the Parent or the Sub, as the case may be to take all such
necessary action.
SECTION 5.05 Indemnification and Insurance.
(a) The Parent and the Sub agree that all rights to
indemnification existing in favor of the present or former
directors, officers and employees of the Company (as such) or any
of its subsidiaries or present or former directors of the Company
or any of its subsidiaries serving or who served at the Company's
or any of its subsidiaries' request as a director, officer,
employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, as
provided in the Company's Certificate of Incorporation or Bylaws,
or the articles of incorporation, bylaws or similar documents of
any of the Company's subsidiaries and the indemnification
agreements with such present and former directors, officers and
employees as in effect as of the date hereof with respect to
matters occurring at or prior to the Effective Time shall survive
the Merger and shall continue in full force and effect and
without modification (other than modifications which would
enlarge the indemnification rights) for a period of not less than
the statutes of limitations applicable to such matters, and the
Surviving Corporation shall comply fully with its obligations
hereunder and
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thereunder. Without limiting the foregoing, the Company shall,
and after the Effective Time, the Surviving Corporation shall
periodically advance expenses as incurred with respect to the
foregoing (including with respect to any action to enforce rights
to indemnification or the advancement of expenses) to the fullest
extent permitted under applicable law; provided, however, that
the person to whom the expenses are advanced provides an
undertaking (without delivering a bond or other security) to
repay such advance if it is ultimately determined that such
person is not entitled to indemnification.
(b) For a period of six (6) years after the Effective Time,
the Surviving Corporation shall maintain officers' and directors'
liability insurance and fiduciary liability insurance covering
the persons described in paragraph (a) of this Section 5.05
(whether or not they are entitled to indemnification thereunder)
who are currently covered by the Company's existing officers' and
directors' or fiduciary liability insurance policies on terms no
less advantageous to such indemnified parties than such existing
insurance.
(c) The Surviving Corporation shall indemnify and hold
harmless (and shall advance expenses to), to the fullest extent
permitted under applicable law, each director, officer, employee,
fiduciary and agent of the Company or any Subsidiary of the
Company including, without limitation, officers and directors,
serving as such on the date hereof against any costs and expenses
(including reasonable attorneys' fees), judgments, fines, losses,
claims, damages, liabilities and amounts paid in settlement in
connection with any claim, action, suit, proceeding or
investigation relating to any of the transactions contemplated
hereby, and in the event of any such claim, action, suit,
proceeding or investigation (whether arising before or after the
Effective Time), (i) the Surviving Corporation shall pay the
reasonable fees and expenses of counsel selected by the
indemnified parties, promptly as statements therefor are received
and (ii) the parties hereto will cooperate in the defense of any
such matter, provided, however, that the Surviving Corporation
shall not be liable for any settlement effected without its prior
written consent, which consent shall not unreasonably be
withheld.
(d) The Surviving Corporation shall pay all reasonable
costs and expenses, including attorneys' fees, that may be
incurred by any indemnified parties in enforcing the indemnity
and other obligations provided for in this Section 5.05.
(e) In the event the Surviving Corporation or any of its
successors or assigns (i) consolidates with or merges into any
other person and is not the continuing or surviving corporation
or entity of such consolidation or merger or (ii) transfers all
or substantially all of its properties and assets to any person,
proper provisions shall be made so that the successors and
assigns of the Surviving Corporation assume the obligations set
forth in this Section 5.05.
(f) This Section 5.05, which shall survive the consummation
of the Merger at the Effective Time and shall continue for the
periods specified herein, is intended to benefit the Company, the
Surviving Corporation, and any person or entity referenced in
this Section 5.05 or indemnified hereunder each of whom may
enforce the provisions of this Section 5.05 (whether or not
parties to this Agreement).
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SECTION 5.06 Employee Plans and Benefits and Employment
Contracts.
(a) From and after the Effective Time, the Surviving
Corporation and its subsidiaries will honor in accordance with
their terms all existing employment, severance, consulting and
salary continuation agreements between the Company or any of its
subsidiaries and any current or former officer, director,
employee or consultant of the Company or any of its subsidiaries
or group of such officers, directors, employees or consultants
described in Section 5.06(a) of the Company Disclosure Letter.
(b) In addition to honoring the agreements referred to in
Section 5.06(a), until the first anniversary of the Effective
Time, the Surviving Corporation and its subsidiaries will provide
or will cause to be provided to each current or former employee
(presently entitled to benefits) of the Company or its
subsidiaries (excluding employees covered by collective
bargaining agreements) (i) employee compensation, benefit plans,
programs, policies and arrangements, that are in the aggregate no
less favorable than those currently provided by the Company and
its subsidiaries to each such employees and former employee; and
(ii) severance benefits that are in the aggregate no less
favorable to any employee of the Company or any of its
subsidiaries than those currently provided to each such employee.
Nothing in this Section 5.06(b) shall be deemed to prevent the
Surviving Corporation or any of its subsidiaries from making any
change required by law.
(c) To the extent permitted under applicable law, each
employee of the Company or its subsidiaries shall be given credit
for all service with the Company or its Subsidiaries (or service
credited by the Company or its subsidiaries) under all employee
benefit plans, programs, policies and arrangements maintained by
the Surviving Corporation in which they participate or in which
they become participants for purposes of eligibility, vesting and
benefit accrual including, without limitation, for purposes of
determining (i) short-term and long-term disability benefits,
(ii) severance benefits, (iii) vacation benefits and (iv)
benefits under any retirement plan.
(d) This Section 5.06, which shall survive the consummation
of the Merger at the Effective Time and shall continue without
limit, is intended to benefit and bind the Company, the Surviving
Corporation and any person or entity referenced in this Section
5.06, each of whom may enforce the provisions of this Section
5.06 (whether or not parties to this Agreement). Except as
provided in clause (a) above, nothing contained in this Section
5.06 shall create any beneficiary rights in any employee or
former employee (including any dependent thereof) of the Company,
any of its subsidiaries or the Surviving Corporation in respect
of continued employment for any specified period of any nature or
kind whatsoever.
SECTION 5.07 Proxy Statement and S-4. The Company and the
Parent shall promptly prepare and file with the SEC, as soon as
practicable, a preliminary joint proxy statement (the "Proxy
Statement") and S-4 relating to the Recapitalization Merger and
the Merger as required by the Exchange Act and the rules and
regulations thereunder. Each of the Parent and the Company shall
use commercially reasonable efforts to have the S-4 declared
effective under the Securities Act as
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promptly as practicable after such filing. The Company, the
Parent and the Sub will cooperate with each other in the
preparation of the Proxy Statement. The Company and the Parent
shall use all reasonable efforts to respond promptly to any
comments made by the SEC with respect to the Proxy Statement, and
to cause the Proxy Statement to be mailed to the Company's and
the Parent's stockholders at the earliest practicable date.
SECTION 5.08 Notification of Certain Matters. The Company
shall give prompt notice to the Parent and the Sub, and the
Parent or the Sub, as the case may be, shall give prompt notice
to the Company, of (i) the occurrence, or non-occurrence, of any
event the effect of which is likely to cause any representation
or warranty of such party contained in this Agreement to be
untrue or inaccurate in any material respect at or prior to the
Effective Time and (ii) any material failure of such party to
comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however,
that the delivery of any notice pursuant to this Section 5.08
shall not limit or otherwise affect the remedies available
hereunder to any of the parties receiving such notice.
SECTION 5.09 Rights Agreement Amendment. Subject to the
terms and conditions of this Agreement, the Parent shall promptly
enter into an amendment to the Rights Agreement (the "Rights
Agreement Amendment") pursuant to which the Rights Agreement and
the Rights Agreement Rights will not be applicable to the Merger
shall not result in a "Distribution Date" under the Rights
Agreement and consummation of the Merger shall not result in the
Company or its affiliates being an "Acquiring Person" or result
in the occurrence of a "Flip-In Event" or a "Flip-Over Event"
thereunder.
SECTION 5.10 Agreements of Rule 145 Affiliates. Prior to
the Effective Time, the Company shall cause to be prepared and
delivered to Parent a list identifying all persons who, at the
time of the Company stockholder meeting, may be deemed to be
"affiliates" of the Company, as that term is used in paragraphs
(c) and (d) of Rule 145 under the Securities Act (the "Rule 145
Affiliates"). The Company shall use its commercially reasonable
efforts to cause each person who is identified as a Rule 145
Affiliate in such list to deliver to Parent, at or prior to the
Effective Time, a written agreement, in the form to be approved
by the parties hereto, that such Rule 145 Affiliate will not
sell, pledge, transfer or otherwise dispose of any shares of
Parent Common Stock issued to such Rule 145 Affiliate pursuant to
the Merger, except pursuant to an effective registration
statement or in compliance with Rule 145 or an exemption from the
registration requirements of the Securities Act.
SECTION 5.11 New York Stock Exchange Listing. Each party
agrees to use commercially reasonable efforts to retain the
listing of the shares of Parent Common Stock issued in connection
with the Merger on the New York Stock Exchange following the
Effective Time.
SECTION 5.12 Election to the Parent's Board of Directors.
At the Effective Time of the Merger, the Parent shall cause its
board of directors to consist of four nominees of the Company
(the "Company Nominees"), four nominees of Apollo (the "Apollo
Nominees") and two of the current directors of the Parent.
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ARTICLE VI
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 6.01 Conditions to Each Party's Obligation to
Effect the Merger. The respective obligations of each party to
effect the Merger are subject to the satisfaction or waiver,
where permissible, by each party hereto prior to the proposed
Effective Time, of the following conditions:
(a) the agreement of merger (as such term is used in
Section 251 of the DGCL) contained in this Agreement and
the Merger, and the issuance of the Parent Common Stock
pursuant to the Merger, shall have been approved and
adopted by the affirmative vote of the stockholders of each
of the Company and the Parent, respectively, required by
and in accordance with applicable law and the Restated
Certificates of Incorporation and Bylaws thereof (if
applicable);
(b) the Recapitalization Merger and the related
agreement of merger (as such term is used in section 251 of
the DGCL) contained in the agreement and plan of merger
setting forth the terms of the Recapitalization Merger and
the issuance of the Parent Common Stock pursuant to the
Merger shall have been approved by the affirmative vote of
the stockholders of the Parent required by and in
accordance with applicable law and the Parent's Restated
Certificate of Incorporation, and the Recapitalization
Merger shall have been consummated;
(c) no statute, rule, regulation, executive order,
decree or injunction shall have been enacted, entered,
promulgated or enforced by any court or governmental
authority against the Parent, the Sub or the Company and be
in effect that prohibits or restricts the consummation of
the Merger or makes such consummation illegal (each party
agreeing to use all reasonable efforts to have any such
prohibition lifted);
(d) the S-4 shall have become effective, and any
required post-effective amendment shall have become
effective, under the Securities Act, and shall not be the
subject of any stop order or proceedings seeking a stop
order, and any material "blue sky" and other state
securities laws applicable to the registration of the
Parent Common Stock shall have been complied with;
(e) the conditions to each party's obligations to
effect the Recapitalization Merger other than the
consummation of the Merger shall have been satisfied or
waived; and
(f) the waiting period applicable to the consummation
of the Merger under the HSR Act shall have expired or been
terminated and all filings required to be made prior to the
Effective Time with, and all consents, approvals,
authorizations and permits required to be obtained prior to
the Effective Time from, any governmental authority in
connection with the consummation of the Merger shall have
been made or obtained (as the case may be), except where
the failure to obtain such consents, approvals,
authorizations and permits would not
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be reasonably likely to result in a Material Adverse Effect
on the Company or to materially adversely affect the
consummation of the Merger.
SECTION 6.02 Additional Conditions to the Company's
Obligation to Effect the Merger.
The obligations of the Company to effect the Merger shall
be subject to the satisfaction or waiver by the Company and
Apollo, prior to the proposed Effective Time, of the following
conditions:
(a) no action shall have been taken and be
continuing, and no statute, rule, regulation, judgment,
administrative interpretation, order or injunction shall
have been enacted, promulgated, entered, enforced or deemed
applicable to the Merger, which would (i) make illegal or
prohibit the consummation of the Merger or (ii) render
Company unable to effect the Merger;
(b) no action or proceeding brought by any
governmental, regulatory or administrative agency,
authority or commission shall have been instituted and be
pending that would be reasonably likely to result in any of
the consequences referred to in clauses (i) or (ii) of
Section 6.02(a) above; and there shall be no proceeding or
other action (including without limitation, relating to
health care, regulatory, environmental and pension matters)
pending or threatened against the Parent or its
Subsidiaries which is reasonably likely to have a Material
Adverse Effect;
(c) during the 30 day period ending on the date of the
Closing, there shall not have occurred and be continuing
(i) any general suspension of trading in, or limitation on
prices for, securities on any national securities exchange
or in the over-the-counter market in the United States,
(ii) the declaration of any banking moratorium or any
suspension of payments in respect of banks or any material
limitation (whether or not mandatory) on the extension of
credit by lending institutions in the United States, (iii)
the commencement of a war, material armed hostilities or
any other material international or national calamity
involving the United States having a significant adverse
effect on the functioning of the financial markets in the
United States, or (iv) in the case of any of the foregoing
existing at the time of the execution of the Merger
Agreement, a material acceleration or worsening thereof;
(d) the Company shall have received an opinion from
its counsel, reasonably acceptable to the Company, to the
effect that (i) the Merger will qualify as a tax-free
reorganization within the meaning of Section 368(a) of the
Code; and (ii) the Company, the Parent and the Sub will
each be a "party to a reorganization" within the meaning of
Section 368(b) of the Code with respect to the Merger;
(e) the representations and warranties of the Parent
and the Sub set forth in Article IV shall be true and
correct in all material respects as of the Effective Time
as though made on and as of that time, and the Parent and
the Sub shall have performed in all material
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respects all covenants and agreements required to be performed
by them under this Agreement at or prior to the Effective Time;
and
(f) since September 30, 1996, no change shall have
occurred or been threatened in the business, operations,
prospects, properties or condition (financial or other) of
the Parent or any of its Subsidiaries that would have or
would be reasonably expected to have a Material Adverse
Effect; provided, that the transactions contemplated by the
Recapitalization Agreement and the Merger Agreement shall
not be deemed to have caused Material Adverse Effect.
SECTION 6.03 Additional Conditions to the Parent's and the
Sub's Obligations to Effect the Merger.
The obligations of the Parent and the Sub to effect the
Merger shall be subject to the satisfaction or waiver by the
Parent, the Sub and Apollo, prior to the proposed Effective Time,
of the following conditions:
(a) no action shall have been taken and be continuing,
and no statute, rule, regulation, judgment, administrative
interpretation, order or injunction shall have been
enacted, promulgated, entered, enforced or deemed
applicable to the Merger, which would (i) make illegal or
prohibit the consummation of the Merger or (ii) render
Parent unable to effect the Merger;
(b) no action or proceeding brought by any
governmental, regulatory or administrative agency,
authority or commission shall have been instituted and be
pending that would be reasonably likely to result in any of
the consequences referred to in clauses (i) or (ii) of
Section 6.03(a) above; and there shall be no proceeding or
other action (including, without limitation, relating to
health care, regulatory, environmental and pension matters)
pending or threatened against the Company or its
Subsidiaries which is reasonably likely to have a Material
Adverse Effect;
(c) there shall not have occurred (i) any general
suspension of trading in, or limitation on prices for,
securities on any national securities exchange or in the
over-the-counter market in the United States, (ii) the
declaration of any banking moratorium or any suspension of
payments in respect of banks or any material limitation
(whether or not mandatory) on the extension of credit by
lending institutions in the United States, (iii) the
commencement of a war, material armed hostilities or any
other material international or national calamity involving
the United States having a significant adverse effect on
the functioning of the financial markets in the United
States, or (iv) in the case of any of the foregoing
existing at the time of the execution of the Merger
Agreement, a material acceleration or worsening thereof;
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<PAGE>
(d) since December 31, 1996, no change shall have
occurred or have been threatened in the business,
operations, prospects, properties or condition (financial
or other) of GranCare or any of its Subsidiaries that would
have or would be reasonably expected to have a Material
Adverse Effect; provided, that the transactions
contemplated by the Recapitalization Agreement and the
Merger Agreement shall not be deemed to be such a
materially adverse change;
(e) the agreements of Rule 145 Affiliates required to
be delivered to Parent pursuant to Section 5.10 shall have
been furnished as required by Section 5.10; and
(f) the representations and warranties of the Company
set forth in Article III shall be true and correct in all
material respects as of the Effective Time as though made
on and as of that time, and the Company shall have
performed in all material respects all covenants and
agreements required to be performed by it under this
Agreement at or prior to the Effective Time.
ARTICLE VII
TERMINATION; AMENDMENT; WAIVER
SECTION 7.01 Termination. This Agreement may be terminated
and the Merger may be abandoned at any time notwithstanding
approval thereof by the stockholders of each of the Company and
the Parent, but prior to the Effective Time:
(a) by mutual written consent of the Boards of Directors
of the Company and the Parent;
(b) by the Parent or the Company if the Effective Time
shall not have occurred on or before September 30, 1997
(provided that the right to terminate this Agreement under
this Section 7.01(b) shall not be available to any party
whose failure to fulfill any obligation under this
Agreement has been the cause of or resulted in the failure
of the Effective Time to occur on or before such date);
(c) by the Parent or the Company if any court of
competent jurisdiction in the United States or other United
States governmental body shall have issued an order, decree
or ruling, or taken any other action restraining, enjoining
or otherwise prohibiting the Merger and such order, decree,
ruling or other action shall have become final and
non-appealable;
(d) by the Company if (i) any of the representations
and warranties of the Parent or the Sub contained in this
Agreement were untrue in any material respect when made or
have since become, and at the time of termination remain,
untrue in any material respect, or (ii) the Parent or the
Sub shall have breached or failed to comply in any material
respect with any of its obligations under this Agreement
and, with respect to a representation or warranty,
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<PAGE>
such breach shall continue unremedied for ten (10) days
after the Parent or the Sub has received written notice
from the Company of the occurrence of such breach of
failure;
(e) prior to Stockholder Approval by the Parent if the
Board of Directors of the Company withdraws or modifies in
a manner adverse to the Parent or the Sub its favorable
recommendation of the Merger or shall have recommended an
Acquisition Transaction with a party other than the Parent
or any of its affiliates;
(f) prior to Stockholder Approval by the Company if
the Company receives a written offer with respect to any
Acquisition Transaction with a party other than the Parent
or its affiliates or such other party has commenced a
tender offer which, in either case, the Board of Directors
of the Company believes in good faith is more favorable to
the Company's stockholders than the transactions
contemplated by this Agreement;
(g) by the Parent, if (i) any of the representations
and warranties of the Company contained in this Agreement
shall fail to be true and correct in any material respect,
in each case when made or have since become, and of the
time of termination remain, untrue in any material respect,
(ii) the Company shall have breached or failed to comply in
any material respect with any of its obligations under this
Agreement (other than as a result of a breach by the Parent
or the Sub of any of their obligations under this
Agreement) and, with respect to a representation or
warranty, such breach shall continue unremedied for ten
(10) days after the Company has received written notice
from the Parent or the Sub of the occurrence of such breach
or failure; or
(h) by the Parent or the Company if the Recapitalization
Merger Agreement is terminated; or
(i) (x) by the Parent if the Company fails to obtain
its stockholders' approval of the Merger at the meeting
held for such purpose (or any adjournment thereof) or (y)
by the Company if the Parent fails to obtain its
stockholders' approval of the issuance of Parent Common
Stock to be issued as part of the Merger at the meeting
held for such purpose (or any adjournment thereof).
SECTION 7.02 Effect of Termination. If this Agreement is
terminated and the Merger is abandoned pursuant to Section 7.01
hereof, this Agreement, except for the provisions of Section
5.03(b), this Section 7.02 and Section 8.10 hereof, shall
forthwith become void and have no effect, without any liability
on the part of any party or its directors, officers or
stockholders. The Confidentiality Agreement shall remain in full
force and effect following any termination of this Agreement. If
this Agreement is terminated pursuant to Section 7.01(e) or (f),
the Company promptly, but in no event later than one business day
after termination of this Agreement will pay to the Parent a fee
(the "Termination Fee") equal to $20 million in same day funds,
plus interest on such amount from the date payable until paid at
a rate equal to 9% per annum. If this Agreement is terminated
pursuant to Section 7.01(i)(x) and, at the time of the
stockholder vote referred to therein,
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<PAGE>
any person has made (or publicly disclosed an intention to make)
a proposal to effect an Acquisition Transaction with respect to
the Company (and shall not have irrevocably withdrawn such
proposal), and within 180 days after such termination an
Acquisition Transaction shall be consummated with respect to the
Company, the Company shall promptly (but in no event later than
one business day) after such consummation, pay the Termination
Fee. If this Agreement is terminated pursuant to Section 7.01(e),
(f), (g) or (i)(x), the Company shall also pay the out-of-pocket
fees and expenses reasonably incurred by the Parent and the Sub
in connection with this Agreement. Nothing in this Section 7.02
shall relieve any party to this Agreement of liability for breach
of this Agreement.
SECTION 7.03 Amendment. To the extent permitted by
applicable law, this Agreement may be amended by action taken by
or on behalf of the Boards of Directors of the Company, the
Parent, the Sub and Apollo, at any time before or after adoption
of this Agreement by the stockholders of each of the Company, the
Parent and Apollo but, after any such stockholder approval, no
amendment shall be made which decreases the Conversion Number or
which adversely affects the rights of the Company's stockholders
hereunder without the approval of the stockholders of the
Company. This Agreement may not be amended except by an
instrument in writing signed on behalf of all of the parties.
SECTION 7.04 Extension; Waiver At any time prior to the
Effective Time, the parties hereto, by action taken by or on
behalf of the respective Boards of Directors of the Company, the
Parent and the Sub 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
contained herein by any other applicable party or in any
document, certificate or writing delivered pursuant hereto by any
other applicable party or (iii) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the
part of any party to any such extension or waiver shall be valid
only if set forth in an instrument in writing signed on behalf of
such party.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01 Survival of Representations and Warranties.
The representations and warranties made in Articles III and IV
shall not survive beyond the Effective Time. This Section 8.01
shall not limit any covenant or agreement of the parties hereto
which by its terms contemplates performance after the Effective
Time.
SECTION 8.02 Entire Agreement; Assignment. Except for the
Confidentiality Agreement and the Disclosure Letter, this
Agreement (a) constitutes the entire agreement between the
parties with respect to the subject matter hereof and supersedes
all other prior agreements and understandings, both written and
oral, between the parties with respect to the subject matter
hereof and (b) shall not be assigned by operation of law or
otherwise; provided, however, that the Parent or the Sub may
assign any of its rights and obligations to any wholly-owned
subsidiary of the Parent
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<PAGE>
or the Sub incorporated in Delaware, but no such assignment shall
relieve the Parent or the Sub, as the case may be, of its
obligations hereunder.
SECTION 8.03 Enforcement of the Agreement; Jurisdiction.
The parties hereto agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties
shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms
and provisions hereof in any federal or state court located in
the State of Delaware, this being in addition to any other remedy
to which they are entitled at law or in equity.
The parties hereto consent and agree that the state or
federal courts located in Delaware shall have exclusive
jurisdiction to hear and determine any claims or disputes
pertaining to this Agreement or to any matter arising out of or
related to this Agreement and each party hereto waives any
objection that it may have based upon lack of personal
jurisdiction, improper venue or forum non conveniens and hereby
consents to the granting of such legal or equitable relief as is
deemed appropriate by such court.
SECTION 8.04 Validity. The invalidity or unenforceability
of any provision of this Agreement shall not affect the validity
or enforceability of any other provisions of this Agreement,
which shall remain in full force and effect.
SECTION 8.05 Notices. All notices, requests, claims,
demands and other communications hereunder shall be in writing
and shall be deemed to have been duly given when delivered in
person, by facsimile transmission with confirmation of receipt,
or by registered or certified mail (postage prepaid, return
receipt requested) to the respective parties as follows:
if to the Parent or the Sub:
Living Centers of America, Inc.
15415 Katy Freeway, Suite 800
Houston, Texas 77094
Attention: Susan Thomas Whittle, Esq., General Counsel
Sydney K. Boone, Jr., Esq., Associate General Counsel
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<PAGE>
with copies to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: Victor I. Lewkow, Esq.
Mayor, Day, Caldwell & Keeton L.L.P.
700 Louisiana, Suite 1900
Houston, Texas 77002
Attention: Jeff C. Dodd, Esq.
if to the Company:
GranCare, Inc.
One Ravinia Drive, Suite 1500
Atlanta, Georgia 30346
Attention: Evrett Benton, Executive Vice President
with a copy to:
Andrews & Kurth L.L.P.
600 Travis, Suite 4200
Houston, Texas 77002
Attention: Robert V. Jewell, Esq.
if to Apollo:
Apollo Management, L.P.
1999 Avenue of the Stars, Suite 1900
Los Angeles, California 90067
Attention: Peter P. Copses
with a copy to:
Sidley & Austin
555 W. Fifth Street, Suite 4000
Los Angeles, California 90013
Attention: Robert W. Kadlec, Esq.
or to such other address as the person to whom notice is given
may have previously furnished to the others in writing in the
manner set forth above (provided that notice of any change of
address shall be effective only upon receipt thereof).
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SECTION 8.06 Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the
State of Delaware regardless of the laws that might otherwise
govern under principles of conflicts of laws applicable thereto.
SECTION 8.07 Descriptive Headings. The descriptive headings
herein are inserted for convenience of reference only and are not
intended to be part of or to affect the meaning or interpretation
of this Agreement.
SECTION 8.08 Parties in Interest. This Agreement shall be
binding upon and inure solely to the benefit of each party
hereto, and nothing in this Agreement, express or implied, is
intended to confer upon any other person any rights or remedies
of any nature whatsoever under or by reason of this Agreement
except for Sections 2.13, 5.05 and 5.06 (which are intended to be
for the benefit of the persons referred to therein, and may be
enforced by any such persons).
SECTION 8.09 Counterparts. This Agreement may be executed
in counterparts, each of which shall be deemed to be an original,
but all of which shall constitute one and the same agreement.
SECTION 8.10 Fees and Expenses. Whether or not the Offer or
the Merger is consummated, all costs and expenses incurred in
connection with the transactions contemplated by this Agreement
shall be paid by the party incurring such expenses, except as
provided expressly to the contrary herein.
SECTION 8.11 Disclosure Letter. Any disclosure under one
section of the Disclosure Letter shall be deemed disclosure under
all sections of the Disclosure Letter. Disclosure of any matter
in the Disclosure Letter shall not constitute an expression of a
view that such matter is material or is required to be disclosed
pursuant to this Agreement.
SECTION 8.12 Press Releases. Subject to the proviso to this
sentence, the Parent, the Sub and the Company will consult with
each other before issuing any press release or otherwise making
any public statements with respect to the transactions
contemplated hereby and shall not issue any such press release or
make any such public statement prior to such consultation, except
as may be required by law or by obligations pursuant to the rules
of The New York Stock Exchange, Inc. and any other appropriate
exchange.
SECTION 8.13 Obligation of the Parent. Whenever this
Agreement requires Sub to take any action, such requirement shall
be deemed to include an undertaking on the part of Parent to
cause Sub to take such action.
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IN WITNESS WHEREOF, each of the parties has caused this
Agreement to be executed on its behalf by its officers thereunto
duly authorized, all at or on the day and year first above
written.
LIVING CENTERS OF AMERICA, INC.
By:_____________________________
Name:
Title:
GRANCARE, INC.
By:_____________________________
Name:
Title:
APOLLO MANAGEMENT, L.P.
By: AIF III Management, Inc.
Its General Partner
By:_____________________________
Vice President
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FOR IMMEDIATE RELEASE
- ---------------------
Contacts:
Grancare, Inc.
Kay Brown
Senior VP, Corporate Communications
(770) 673-2507
Noonan/Russo Communications
(212) 696-4455
Susan Noonan (investors) ext. 203
Anthony Russo, Ph.D. (media) ext. 202
e-mail: [email protected]
Living Centers of America, Inc.
Boyd Gentry
VP, Investor Relations and Treasurer
(713) 578-4650
LIVING CENTERS OF AMERICA AND GRANCARE ANNOUNCE RECAPITALIZATION
AND MERGER TRANSACTION
- $1.8 Billion Deal Will Create Country's Second Largest
Long-Term Care Company -
Houston, TX and Atlanta, GA -- May 8, 1997 -- Living Centers of
America, Inc. (NYSE: LCA), GranCare, Inc. (NYSE: GC), and Apollo
Management, L.P. today announced a recapitalization and merger
transaction that will result in a new company with pro forma
revenues of approximately $1.9 billion.
The transaction, valued at approximately $1.8 billion, will
create the second-largest long-term care provider in the country,
operating over 330 facilities with more than 38,000 beds in 21
states. In addition to long-term care, the company will provide
pharmaceutical and rehabilitation services, assisted living and
geriatric specialty healthcare services nationwide.
Edward L. Kuntz, Chairman and Chief Executive Officer of Living
Centers of America, said, "This is an outstanding transaction.
The new company presents an exciting platform for growth in a
dynamic consolidating healthcare market. We are very excited
about the opportunity to grow this combined company, which will
now be a powerful force and a strong consolidator in the
long-term care industry."
Gene E. Burleson, Chairman of GranCare, commented, "Both GranCare
and Living Centers are leaders in the markets in which we
operate, and this partnering will achieve increased revenue
growth, economies of scale and strengthened operating margins.
<PAGE>
This deal creates tremendous value for the shareholders and
employees of both companies, and is an opportunity for
substantial growth, both through future acquisitions as well as
through an increased focus on specialty medical services."
Under the terms of the agreements, which have been unanimously
approved by the Board of Directors of each company, LCA
shareholders will receive $40.50 per share in cash for 93 percent
of the outstanding LCA common stock, and will retain the
remaining seven percent of such stock in a recapitalization.
Unless some LCA shareholders elect to retain a larger percentage
of their shares, each LCA share will be converted into
approximately $37.67 in cash plus .07 shares in the new company.
As part of the recapitalization, Apollo will invest $200 million
to purchase approximately 4.94 million newly-issued shares of LCA
common stock at the $40.50 per share price. Upon completion of
the recapitalization, GranCare will merge with LCA. In the
merger, each outstanding share of GranCare common stock will be
exchanged for 0.2469 shares of common stock of the recapitalized
LCA. Based upon the $40.50 Apollo buy-in price, GranCare
shareholders will receive stock in the new entity valued at $10
per share (resulting in a premium of approximately 30 percent to
yesterday's closing price) and representing approximately 49.5
percent of the new combined company. Apollo will own
approximately 39.3 percent of the new company and LCA's current
shareholders will own the remaining 11.2 percent.
Cash received by LCA shareholders in the recapitalization will be
taxable as capital gains. The merger will be tax-free to
shareholders. The transaction is anticipated to close during the
third quarter of 1997. The integration of the two companies when
complete is expected to result in synergies of approximately $30
million. From the perspective of a GranCare shareholder, on an
adjusted basis, the transaction is expected to be accretive
beginning in calendar year 1998. Each of the two transactions is
subject to the consummation of the other, approval of the
shareholders of LCA and GranCare, the availability of the
contemplated financing, receipt of necessary regulatory approvals
and other customary conditions.
The Board of Directors of the combined company will be comprised
of two directors from the current LCA Board, four current
GranCare directors, and four Apollo designees. The new Board will
soon select a management team consisting of executives from both
companies.
The Chase Manhattan Corporation has committed to provide all of
the debt financing, which together with Apollo's equity
investment, will provide the necessary funds for the
recapitalization, the refinancing of certain outstanding
2
<PAGE>
indebtedness of LCA and GranCare, and the payment of transaction
expenses. Apollo, together with its affiliates, through the
Apollo Investment Funds, manages an investment portfolio in
excess of $5 billion, and has invested in several healthcare
companies including Forum Group, UROHEALTH Systems, Inc., and
Whitmire Distribution, Inc.
LCA is being advised by Credit Suisse First Boston Corporation
and Nationsbanc Capital Markets, Inc.; GranCare is being advised
by Smith Barney Inc. and Chase Securities Inc.
Based in Houston, Living Centers of America, Inc. is a
diversified company providing through its operating subsidiaries
a complete range of healthcare services to senior citizens. The
company's comprehensive continuum of healthcare services includes
skilled nursing care, assisted living, subacute care, care for
individuals with Alzheimer's disease, hospice, home health,
geriatric physician management, rehabilitation and pharmaceutical
services.
Based in Atlanta, GranCare, Inc. is a leading provider of
specialty medical and long-term care services in select markets.
The company operates 125 skilled nursing, subacute and assisted
living facilities in 16 states, 12 home health agencies in four
states and, through its Cornerstone subsidiary, 145 specialty
programs in acute care hospitals in 20 states.
This news release contains certain forward-looking information
regarding the anticipated performance of the combined company,
which information involves significant risks and uncertainties.
Actual results could differ materially from the results discussed
in this release.
Editors Note: This press release is also available on the World
Wide Web at:
http://www.noonanrusso.com
3
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