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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
ARBOR HEALTH CARE COMPANY
(Name of Subject Company)
ARBOR HEALTH CARE COMPANY
(Name of Person(s) Filing Statement)
COMMON STOCK, PAR VALUE $0.03 PER SHARE
(Title of Class of Securities)
03876L 10 8
(CUSIP Number of Class Securities)
PIER C. BORRA
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
ARBOR HEALTH CARE COMPANY
1100 SHAWNEE ROAD
P.O. BOX 840
LIMA, OHIO 45802-0840
419/227-3000
(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications on Behalf of the
Person(s) Filing Statement)
WITH A COPY TO:
GREGORY C. YADLEY, ESQUIRE
SHUMAKER, LOOP & KENDRICK, LLP
101 EAST KENNEDY BOULEVARD
SUITE 2800
TAMPA, FLORIDA 33602
(813) 229-7600
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Arbor Health Care Company, a Delaware
corporation (the "Company"). The address of the principal executive offices of
the Company is 1100 Shawnee Road, Lima, Ohio 45805. The title of the class of
equity securities to which this Solicitation/Recommendation Statement on
Schedule 14D-9 (this "Schedule 14D-9") relates is the common stock, par value
$0.03 per share ("Common Stock").
ITEM 2. TENDER OFFER OF THE BIDDER.
This Statement relates to the tender offer (the "Offer") by AHC Acquisition
Corp., a Delaware corporation ("Purchaser") and an indirect, wholly owned
subsidiary of Extendicare Inc., a corporation existing under the laws of Canada
("Parent"), to purchase all outstanding shares of Common Stock at a price per
share of $45.00, net to the seller in cash, without interest, upon the terms and
subject to the conditions set forth in the Offer to Purchase, dated October 3,
1997 (the "Offer to Purchase") and the related Letter of Transmittal (which
together constitute the "Offer").
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of September 29, 1997, among the Company, Parent and Purchaser (the "Merger
Agreement"). The Merger Agreement provides, among other things, that as soon as
practicable following the satisfaction or waiver of the conditions set forth in
the Merger Agreement, Purchaser will be merged with and into the Company (the
"Merger") and the Company will continue as the surviving corporation (the
"Surviving Corporation"). A copy of the Merger Agreement is filed as Exhibit 2
hereto and is incorporated herein by reference in its entirety.
As set forth in the Tender Offer Statement on Schedule 14D-1 of Purchaser
enclosed herewith, the address of the principal executive offices of Purchaser
and Parent is 3000 Steeles Avenue East, Markham, Ontario L3R 9W2.
ITEM 3. IDENTITY AND BACKGROUND.
(A) NAME AND BUSINESS ADDRESS OF PERSON FILING THIS STATEMENT.
The name and business address of the Company, which is the person filing
this Schedule 14D-9, are set forth in Item 1 above.
(B)(1) ARRANGEMENTS WITH EXECUTIVE OFFICERS, DIRECTORS OR AFFILIATES OF THE
COMPANY.
Certain contracts, agreements, arrangements and understandings between the
Company and certain of its executive officers and directors, together with
certain employee benefit plans of the Company available to them, are described
in the Proxy Statement dated April 18, 1997 (the "1997 Proxy Statement"). A copy
of the 1997 Proxy Statement is filed as Exhibit 1 hereto and is incorporated
herein by reference.
Certain of the stock options described in the 1997 Proxy Statement granted
to the Company's executive officers were granted pursuant to the First Amended
and Restated Incentive Stock Option Plan of Arbor Health Care Company (the "1991
Plan"). These options are intended to qualify as "Incentive Stock Options"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended, and are subject to numerous restrictions. Among those restrictions are
(i) the purchase price of the Common Stock cannot be less than the fair market
value of the Common Stock on the date the Option is granted, (ii) no options may
be exercised more than 10 years from the date of grant, (iii) except in the case
of an employee who is permanently and totally disabled, or upon death, the
option is exercisable only during the term of the recipient's employment with
the Company or a subsidiary.
The stock options described in the 1997 Proxy Statement granted to
directors (except Pier C. Borra) were granted under the Company's 1996 Stock
Option Plan for Non-Employee Directors (the "Directors Plan"). Mr. Borra's
options were granted under the 1995 Stock Option Plan described in the 1997
Proxy Statement. Under the Directors Plan, on May 23, 1996, the Company granted
to each director who was not an employee of the Company the right to purchase
1,000 shares of Common Stock at an exercise price of $27.33,
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the market value of the shares on such date. Under the terms of the Directors
Plan, non-employee directors elected or appointed to the Board subsequently were
granted a similar option on the date they were so elected or appointed. Further,
as provided in the Directors Plan, each non-employee director was granted
options to purchase an additional 1,000 shares of Common Stock on May 22, 1997,
the date of the Company's next Annual Stockholders' Meeting. The exercise price
of those options was $27.45, the market value of the shares on such date. Under
the terms of the Directors Plan, the market value of a share of Common Stock is
determined by calculating the average of the closing sale prices for the Common
Stock for the five most recent trading days, as reported on the Nasdaq Stock
Market's National Market.
(2) TERMINATION OF EMPLOYMENT/CHANGE-IN-CONTROL ARRANGEMENTS.
The Merger Agreement provides that the severance amounts payable under the
executive termination payment plans described in the Proxy Statement, and
similar plans subsequently entered into with other key executive officers (the
"Termination Agreements"), will be payable upon termination of employment at any
time after the thirtieth day after the directors designated by Purchaser
constitute a majority of the directors of the Company, so long as such
termination occurs within one year after the Effective Date. In addition to the
Termination Agreements with Pier C. Borra and Richard J. Clark described in the
Proxy Statement, the Company entered into similar Termination Agreements on June
21, 1996, with Dennis R. Smith, and on August 16, 1996, with William P. Bryan,
Clara L. Hanf, Elizabeth H. Hoffman, John H. Rondot, Brad C. Roush and William
W. Wondolowski. With respect to the Company's Vice Presidents (Hanf, Rondot and
Wondolowski), the termination payment is equal to one-half of the sum of such
person's then current annual base salary and his or her prior year's bonus. With
respect to the above named Senior Vice Presidents (Bryan, Clark, Hoffman, Smith
and Roush), the payment is equal to the sum of such person's then current annual
base salary and his or her prior year's bonus. With respect to the Chief
Executive Officer, the payment is equal to two times the sum of Mr. Borra's then
current annual base salary and his prior year's bonus. If it is determined that
any payment by the Company to any of such officers would be subject to excise
tax, the amount of the payments will be increased to cover such excise tax.
(3) NON-COMPETITION COVENANTS OF EXECUTIVE OFFICERS.
Each of the Company's executive officers is a party to a non-competition
and non-disclosure agreement (the "Non-competition Agreements"), providing that
the officer will maintain the confidentiality of specified proprietary
information of the Company. The Non-competition Agreements also provide that,
for a period of one year following the termination of such person's employment,
he or she will not, directly or indirectly, engage in any "Competitive
Business," assist others in engaging in any Competitive Business, or induce
employees of the Company or its affiliates or subsidiaries to terminate their
employment or engage in any Competitive Business. "Competitive Business" is
defined in the Non-competition Agreements as any business or activity related to
the operation, management, acquisition or marketing of nursing or convalescent
homes or assisted living facilities in any state in the United States. The
Non-competition Agreements provide for injunctive relief in addition to any
other available rights and remedies in case of any breach or threatened breach
of the agreements.
(4) CANCELLATION AND PAYMENT FOR STOCK OPTIONS
Under the terms of the Merger Agreement, effective as of the Effective
Time, the Company must cause each outstanding employee or director stock option
granted under the Directors Plan, the 1995 Stock Option Plan and the 1991 Plan,
whether or not then exercisable or vested, to become fully exercisable and
vested. Furthermore, the Company must cause each such stock option that is then
outstanding, exercisable and vested to be cancelled and in consideration of such
cancellation (except to the extent that Parent or Purchaser and the holder of
any such stock option otherwise agree), cause the Company (or, at Parent's
option, Purchaser) to pay to such holders of stock options an amount in respect
thereof equal to the product of (A) the excess, if any, of the Offer Price over
the exercise price of each such stock option, and (B) the number of shares of
Common Stock previously subject to the stock option immediately prior to its
cancellation (such payment to be net of withholding taxes).
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(5) STOCKHOLDER AGREEMENT.
In connection with the execution of the Merger Agreement, Parent and the
Purchaser entered into a Stockholder Agreement with Pier C. Borra, Chairman,
President and Chief Executive Officer of the Company, Renee A. Borra, his wife,
Borra Family Foundation and Pier C. Borra, Jr. (the "Selling Stockholders"). The
following is a summary of the material terms of the Stockholder Agreement. This
summary is not a complete description of the terms and conditions of the
Stockholder Agreement and is qualified in its entirety by reference to the
Stockholder Agreement which is incorporated herein by reference and a copy of
which has been filed with the Commission as an exhibit to the Tender Offer
Statement on Schedule 14D-1 of the Purchaser. The Stockholder Agreement may be
examined, and copies thereof may be obtained, as set forth in Section 8 of the
Offer to Purchase contained in the Tender Offer Statement on Schedule 14D-1 of
the Purchaser.
Tender of Shares. Upon the terms and subject to the conditions of the
Stockholder Agreement, each of the Selling Stockholders has agreed to validly
tender (and not withdraw) pursuant to and in accordance with the terms of the
Offer, not later than the fifth business day after commencement of the Offer,
the number of Shares owned beneficially by such Selling Stockholder (or a total
of 1,126,990 Shares, representing approximately 15.5% of the outstanding Shares
on a fully diluted basis). The Selling Stockholders have also consented to the
treatment of the stock options held by them as described under "Cancellation and
Payment for Stock Options" above.
Stock Option. In order to induce Parent and the Purchaser to enter into the
Merger Agreement, each of the Selling Stockholders has granted to Parent an
irrevocable option (a "Stock Option") to purchase such Selling Stockholder's
Shares (the "Option Shares") at an amount (the "Purchase Price") equal to the
Offer Price. Pursuant to the Stockholder Agreement, if the Merger Agreement is
terminated pursuant to Section 7.1(c)(ii) or 7.1(d)(i) thereof, the Stock
Options will become exercisable, in whole but not in part, upon the occurrence
of such event and remain exercisable in whole until the date which is 60 days
after the date of the occurrence of such event (the "60 Day Period"), so long
as: (i) all waiting periods under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act") required for the purchase of the Option
Shares upon such exercise, shall have expired or been waived, (ii) all other
applicable consents of any governmental entity required for the purchase or sale
of the Option Shares upon such exercise (if applicable) shall have been granted
or otherwise satisfied, and (iii) there shall not be in effect any preliminary
or final injunction or other order issued by any court or governmental entity
prohibiting the exercise of the Stock Options pursuant to the Stockholder
Agreement. The Stockholder Agreement provides that if (i) all HSR Act waiting
periods have not expired or been waived, (ii) all other applicable consents of
any governmental entity required for the purchase or sale of the Option Shares
(if applicable) shall not have been granted or otherwise satisfied, or (iii) or
there shall be in effect any such injunction or order, in each case on the
expiration of the 60 Day Period, the 60 Day Period shall be extended until 5
business days after the later of (A) the date of expiration or waiver of all HSR
Act waiting periods, (B) the grant or other satisfaction of such required
consents, and (C) the date of removal or lifting of such injunction or order;
provided, however, that in no event will the Stock Option be exercisable after
December 31, 1997; provided, further, that the Stock Option will terminate if
any governmental entity issues an order, decree or ruling or takes any other
action (which order, decree, ruling or other action the parties to the
Stockholder Agreement will use their best efforts to lift), which permanently
restrains, enjoins or otherwise prohibits Parent' s exercise of the Stock Option
or the sale of the Option Shares to Parent by the Selling Stockholders.
Make Whole. If Parent exercises the Stock Option, then, at Parent's
election: (i) Parent will, at or prior to the time of payment in connection with
any Superior Proposal, pay to the Stockholder a per Share amount (the
"Alternative Payment") equal to the consideration paid to all stockholders of
the Company in the Superior Proposal, less the Purchase Price per Share, plus
any additional amount as may be necessary so that the aggregate consideration,
after payment of all federal, state and local income taxes (the "Aggregate After
Tax Consideration") received by the Stockholder in connection with the
Alternative Payment is not less than the Aggregate After Tax Consideration that
would have been received by the Stockholder as if it had been paid the
consideration under the Superior Proposal) or (ii) prior to the Expiration Date,
the Effective Date or the consummation date for the Superior Proposal, Parent
shall rescind the exercise of the Stock Option and
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return the Stockholder's Shares to the Stockholder and the Stockholder, upon
receipt of such Shares, shall repay the Purchase Price to the Parent and,
provided that the Stockholder tenders its Shares to the Superior Proposal or
votes its Shares in favor of the Superior Proposal, and the Stockholder actually
receives the consideration paid in connection with the Superior Proposal (the
"Superior Proposal Payment"), then at or prior to the time of the Superior
Proposal Payment, Parent shall pay to the Stockholder any additional amount as
may be necessary so that the Aggregate After Tax Consideration received by the
Stockholder in connection with the Superior Proposal is not less than the
Aggregate After Tax Consideration it would have received in connection with the
Superior Proposal had Parent never exercised the Stock Option.
Provisions Concerning the Shares. The Selling Stockholders have agreed that
during the period commencing on the date of the Stockholder Agreement and
continuing until the first to occur of the Effective Time or the termination of
the Merger Agreement in accordance with its terms, and in any event until no
later than December 31, 1997, at any meeting of the Company's stockholders or in
connection with any written consent of the Company's stockholders, the Selling
Stockholders will vote (or cause to be voted) the Shares held of record or
beneficially owned by each of such Selling Stockholders: (i) in favor of the
Merger, the execution and delivery by the Company of the Merger Agreement and
the approval of the terms thereof and each of the other actions contemplated by
the Merger Agreement and the Stockholder Agreement and any actions required in
furtherance thereof; and (ii) against any Acquisition Proposal and against any
action or agreement that would impede, frustrate, prevent or nullify the
Stockholder Agreement or result in a breach in any respect of any covenant,
representation or warranty or any other obligation or agreement of the Company
under the Merger Agreement or which would result in any of the conditions to the
Offer or the Merger not being fulfilled. In addition, each of the Selling
Stockholders has appointed, during the period commencing on the date of the
Stockholder Agreement and continuing until the first to occur of the Effective
Time or the termination of the Merger Agreement in accordance with its terms,
and in any event no later than December 31, 1997, representatives of Parent as
proxies to vote such Selling Stockholder's Shares or grant a consent or approval
in respect of such Shares in favor of the various transactions contemplated by
the Merger Agreement and against any Acquisition Proposal and for no other
purpose. Each of the Selling Stockholders has also agreed not to transfer such
Selling Stockholder's Shares and not to, directly or indirectly, encourage,
solicit, participate in or initiate discussions or negotiations with, or provide
any information to, any corporation, partnership, person or other entity or
group (other than Parent, any of its affiliates or representatives) concerning
any Acquisition Proposal.
Other Covenants, Representations, Warranties. In connection with the
Stockholder Agreement, the Selling Stockholders made certain customary
representations and warranties, including with respect to (i) ownership of the
Shares, (ii) the Selling Stockholder's authority to enter into and perform its
or his obligations under the Stockholder Agreement, (iii) the absence of
conflicts and requisite governmental consents and approvals, and (iv) the
absence of encumbrances on and in respect of the Selling Stockholder's Shares.
Parent and the Purchaser have made certain representations and warranties with
respect to Parent and the Purchaser's authority to enter into the Stockholder
Agreement and the absence of conflicts and requisite governmental consents and
approvals.
In the Stockholder Agreement, Parent agreed that, in the event that within
three years following Parent's exercise of a Stock Option, Parent, the Purchaser
or any of their subsidiaries acquires any additional Shares from, or pursuant to
an offer made to all of the Company's stockholders, whether by merger,
consolidation, tender offer of other similar transaction, the price paid per
Share would be no less than the Purchase Price.
(B)(2) ARRANGEMENTS WITH PARENT, PURCHASER AND THEIR RESPECTIVE EXECUTIVE
OFFICERS, DIRECTORS OR AFFILIATES.
The Company has entered into the Merger Agreement with Parent and
Purchaser.
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THE MERGER AGREEMENT
The Offer is being made pursuant to the Merger Agreement.
The following is a summary of certain provisions of the Merger Agreement.
The summary is not a complete description of the terms and conditions of the
Merger Agreement and is qualified in its entirety by reference to the full text
thereof, which is incorporated herein by reference and a copy of which has been
filed with the Commission as an exhibit to this Schedule 14D-9 and the Tender
Offer Statement on Schedule 14D-1 of the Purchaser. The Merger Agreement may be
examined, and copies thereof may be obtained, as set forth in Section 8 of the
Offer to Purchase contained in the Tender Offer Statement on Schedule 14D-1 of
the Purchaser. Capitalized terms not otherwise defined in this section have the
meanings ascribed to them in the Merger Agreement.
The Offer. The Merger Agreement provides that the Purchaser will commence
the Offer and that, upon the terms and subject to prior satisfaction or waiver
of the conditions of the Offer (described below under "Conditions of the
Offer"), the Purchaser will purchase all Shares validly tendered and not
properly withdrawn pursuant to the Offer. The Merger Agreement provides that,
without the written consent of the Company, the Purchaser will not decrease the
Offer Price, decrease the number of Shares sought in the Offer, amend or waive
the Minimum Condition (as defined below under "Conditions of the Offer") or
amend any condition of the Offer in a manner adverse to the holders of Shares.
In the event that all of the conditions of the Offer have not been satisfied or
waived by the Initial Expiration Date, October 31, 1997, the Purchaser shall
have the right from time to time to extend the expiration date. The Purchaser
will, on the terms and subject to the prior satisfaction or waiver of the
conditions of the Offer, accept for payment and pay for Shares validly tendered
and not properly withdrawn as soon as it is legally permitted to do so under
applicable law; provided, however, that if, immediately prior to the Initial
Expiration Date of the Offer (as it may be extended pursuant to the preceding
sentence or otherwise), the Shares validly tendered and not properly withdrawn
pursuant to the Offer equal less than 90% of the outstanding Shares, the
Purchaser may extend the Offer for a period not to exceed 10 business days,
notwithstanding that all conditions to the Offer are satisfied as of such
Initial Expiration Date of the Offer. The Purchaser is obligated by the Merger
Agreement to extend the Initial Expiration Date for a period of the lesser of
(i) 2 business days after the date that all such approvals have been obtained
and (ii) 35 days after such Initial Expiration Date, if, and only if, the
Company, Parent and the Purchaser have not obtained the approvals of any
Governmental Entity required by the Merger Agreement.
The Merger. Following the consummation of the Offer, the Merger Agreement
provides that, subject to the terms and conditions thereof, and in accordance
with Delaware law, as soon as practicable following the Effective Time, the
Purchaser will be merged with and into the Company. As a result of the Merger,
the separate corporate existence of the Purchaser will cease and the Company
will continue as the Surviving Corporation.
The respective obligations of Parent and the Purchaser, on the one hand,
and the Company, on the other hand, to effect the Merger are subject to the
satisfaction on or prior to the Closing Date (as defined in the Merger
Agreement) of each of the following conditions, any and all of which may be
waived in whole or in part, to the extent permitted by applicable law: (i) the
Merger Agreement shall have been approved and adopted by the requisite vote of
the holders of Shares, if required by applicable law, in order to consummate the
Merger; (ii) no law, statute, rule, order, decree or regulation shall have been
enacted or promulgated by any government or any governmental entity of competent
jurisdiction which declares the Merger Agreement invalid or unenforceable in any
material respect or which prohibits the completion of the Offer or the
consummation of the Merger, and all governmental consents, orders and approvals
required for completion of the Offer or consummation of the merger shall have
been obtained and be in effect at the Effective Time; (iii) there shall be no
order or injunction of a court or other governmental entity of competent
jurisdiction in effect precluding consummation of the Offer or the Merger; (iv)
Parent, the Purchaser or their affiliates shall have purchased Shares pursuant
to the Offer and (v) the applicable waiting period under the HSR Act shall have
expired or been terminated.
At the Effective Time of the Merger (i) each issued and outstanding Share
(other than Shares that are owned by the Company or any wholly owned subsidiary
of the Company, any Shares owned by Parent or any
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wholly owned subsidiary of Parent, or any Shares which are held by stockholders
exercising dissenters' rights, if any, under Delaware law) will be converted
into the right to receive the price per Share paid pursuant to the Offer (the
"Merger Consideration"), and (ii) each issued and outstanding share of capital
stock of the Purchaser will be converted into one share of common stock of the
Surviving Corporation.
The Company Board. The Merger Agreement provides that upon the purchase and
payment by Parent or the Purchaser of Shares representing at least a majority of
the outstanding Shares on a fully diluted basis, Parent shall be entitled to
designate such number of directors (rounded up to the next whole number) on the
Company Board such that the percentage of Parent's nominees on the Company Board
equal the percentage of outstanding Shares beneficially owned by Parent and its
affiliates. If requested by Parent, the Company shall cause such persons
designated by Parent to be elected to the Company Board, if necessary by
increasing the size of the Company Board. At such time, the Company shall also
cause persons designated by Parent to constitute at least the same percentage
(rounded up to the next whole number) as is on the Company Board of (i) each
committee of the Company Board, (ii) each board of directors (or similar body)
of each subsidiary of the Company and (iii) each committee (or similar body) of
each such subsidiary board of directors.
The Merger Agreement further provides that, notwithstanding the provisions
of the foregoing paragraph, until the Effective Time of the Merger, the Company
Board shall have at least two directors who were neither officers of Parent nor
designees, stockholders or affiliates of Parent. From and after the time, if
any, that Parent's designees constitute a majority of the Company Board, the
affirmative vote of a majority of the directors then in office who are neither
officers of Parent nor designees, stockholders or affiliates of Parent shall be
required to (i) amend or terminate the Merger Agreement, (ii) extend the time
for performance of any of the obligations of Parent or the Purchaser hereunder,
(iii) waive any condition or any of the Company's rights under the Merger
Agreement or (iii) take any other action by the Company under the Merger
Agreement.
Stockholders' Meeting. Pursuant to the Merger Agreement, the Company will,
if required by applicable law in order to consummate the Merger: (i) duly call,
give notice of, convene and hold a special meeting of its stockholders (the
"Special Meeting") as promptly as practicable following the acceptance for
payment and purchase of Shares by the Purchaser pursuant to the Offer for the
purpose of considering and taking action upon the approval of the Merger and the
adoption of the Merger Agreement; (ii) prepare and file with the Commission a
preliminary proxy or information statement relating to the Merger and the Merger
Agreement and use its best efforts (a) to obtain and furnish the information
required to be included by the Commission in the Proxy Statement (as hereafter
defined) and, after consultation with Parent, to respond promptly to any
comments made by the Commission with respect to the preliminary proxy or
information statement and cause a definitive proxy or information statement,
including any amendment or supplement thereto (the "Proxy Statement") to be
mailed to its stockholders, provided that no amendment or supplement to the
Proxy Statement will be made by the Company without consultation with Parent and
its counsel and (b) to obtain the necessary approvals of the Merger and the
Merger Agreement by its stockholders; and (iii) provide the recommendation of
the Company Board that stockholders of the Company vote in favor of the approval
of the Merger and the adoption of the Merger Agreement, subject to the fiduciary
obligations of the Company Board under applicable law as advised by independent
counsel. Parent has agreed that it will vote, or cause to be voted, all of the
Shares then owned by it, the Purchaser or any of its other subsidiaries and
affiliates in favor of the approval of the Merger and the adoption of the Merger
Agreement. IF THE PURCHASER ACQUIRES AT LEAST A MAJORITY OF THE OUTSTANDING
SHARES, THE PURCHASER WILL HAVE SUFFICIENT VOTING POWER TO APPROVE THE MERGER,
EVEN IF NO OTHER STOCKHOLDERS VOTE IN FAVOR OF THE MERGER.
The Merger Agreement provides that in the event that Parent, the Purchaser
and any other subsidiaries of Parent acquire, in the aggregate, at least 90% of
the outstanding Shares pursuant to the Offer or otherwise, Parent, the Purchaser
and the Company will, at the request of Parent and subject to the terms of the
Merger Agreement, take all necessary and appropriate action to cause the Merger
to become effective as soon as practicable after such acquisition, without a
meeting of stockholders of the Company, in accordance with Section 253 of the
Delaware General Corporation Law ("DGCL").
Options. Effective as of the Effective Time, the Company must cause each
outstanding employee or director stock option, which is exercisable for Shares
and granted under the Company's 1996 Stock Option
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Plan for Non-Employee Directors, the Company's 1995 Stock Option Plan (as
amended) and the Company's First Amended and Restated Incentive Stock Option
Plan dated November 26, 1991 (collectively, the "Company Option Plans"), whether
or not then exercisable or vested, to become fully exercisable and vested.
Furthermore, the Company must cause each such stock option that is then
outstanding, exercisable and vested to be cancelled and in consideration of such
cancellation (except to the extent that Parent or the Purchaser and the holder
of any such stock option otherwise agree), cause the Company (or, at Parent's
option, the Purchaser) to pay to such holders of stock options an amount in
respect thereof equal to the product of (A) the excess, if any, of the Offer
Price over the exercise price of each such stock option and (B) the number of
Shares previously subject to the stock option immediately prior to its
cancellation (such payment to be net of withholding taxes).
Interim Operations. Pursuant to the Merger Agreement, the Company has
agreed that, except as expressly contemplated by the Merger Agreement or agreed
to in writing by Parent, prior to the time the directors of the Purchaser
constitute a majority of the Company Board (the "Board Appointment Date"), (a)
the business of the Company and its subsidiaries will be conducted only in the
ordinary and usual course and, to the extent consistent therewith, each of the
Company and its subsidiaries will use its best efforts to preserve its business
organization intact and maintain its existing relations with customers,
suppliers, employees, creditors and business partners; (b) the Company will not,
directly or indirectly, amend or propose to amend its charter or by-laws or
similar organizational documents; (c) the Company will not, and will not permit
its subsidiaries to, (i) declare, set aside or pay any dividend or other
distribution payable in cash, stock or property with respect to its capital
stock or that of its subsidiaries; (ii) redeem, purchase or otherwise acquire
directly or indirectly any shares of the capital stock of the Company or its
subsidiaries or any other securities thereof or any rights, warrants or options
to acquire any such shares or other securities; (iii) authorize for issuance,
issue, sell, pledge, deliver or agree to commit to issue, sell, pledge or
deliver (whether through the issuance or granting of any options, warrants,
calls, subscriptions, stock appreciation rights or other rights or other
agreements) or otherwise encumber any shares of capital stock of any class of
the Company or of its subsidiaries or any securities convertible into or
exchangeable for shares of capital stock of any class of the Company or of its
subsidiaries (other than Shares issued upon the exercise of stock options
outstanding on the date thereof in accordance with the Company option plans as
in effect on the date thereof or Shares for which there are accrued payments on
the date thereof in accordance with the Company's Employee Stock Purchase Plan
as in effect on the date thereof) or (iv) split, combine or reclassify the
outstanding capital stock of the Company or of any of its subsidiaries or
authorize the issuance of any other securities in respect of, in lieu of or in
substitution for shares in the capital stock of the Company or of any of its
subsidiaries; (d) except for certain specified acquisitions, the Company will
not, and it will not permit any of its subsidiaries to, acquire or agree to
acquire (i) by merging or consolidating with, or by purchasing a substantial
portion of the assets of, or by any other manner, any business or any
corporation, partnership, limited liability company, joint venture, association
or other business organization or division thereof or (ii) any assets, outside
of the ordinary course of business, that individually is in excess of $5 million
or that in the aggregate are in excess of $10 million; (e) the Company will not,
and it will not permit any of its subsidiaries to, sell, lease, license,
mortgage or otherwise encumber or subject to any lien or otherwise dispose of
any assets of the Company or of its subsidiaries other than (i) sales and
dispositions of interests or rights with respect to property having an aggregate
fair market value on the date of the Merger Agreement of less than $5 million,
in each case only if in the ordinary course of business and consistent with past
practice, or (ii) encumbrances and liens that are incurred in the ordinary
course of business and consistent with past practice; (f) neither the Company
nor any of its subsidiaries will: (i) grant any increase in the compensation
payable or to become payable by the Company or any of its subsidiaries to any of
its executive officers or key employees, (ii) adopt any new, or amend or
otherwise increase, or accelerate the payment or vesting of the amounts payable
or to become payable under any existing, bonus, incentive compensation, deferred
compensation, severance, profit sharing, stock option, stock purchase,
insurance, pension, retirement or other employee benefit plan agreement or
arrangement or (iii) enter into any employment or severance agreement with or,
except in accordance with the existing written policies of the Company, grant
any severance or termination pay to any officer, director or employee of the
Company or any its subsidiaries; (g) neither the Company nor any of its
subsidiaries will: (i) modify, amend or terminate any of its or its
subsidiaries' material contracts or waive, release or assign any material rights
or
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claims, except in the ordinary course of business and consistent with past
practice, (ii) enter into any other agreements, commitments or contracts that
are material to the Company and its subsidiaries taken as a whole, other than in
the ordinary course of business and consistent with past practice, or (iii)
otherwise make any material change that is adverse to the Company (including by
way of termination) in (A) any existing agreement, commitment or arrangement
that is material to the Company and its subsidiaries taken as a whole or (B) the
conduct of the business or operations of the Company and its subsidiaries; (h)
other than in connection with certain specified acquisitions, neither the
Company nor any of its subsidiaries will: (i) incur or assume any long-term debt
or, except in the ordinary course of business in amounts consistent with past
practice, incur or assume any short-term indebtedness; (ii) incur or modify any
material indebtedness or other liability; (iii) issue or sell any debt
securities or warrants or other rights to acquire any debt securities of the
Company or of any of its subsidiaries; (iv) enter into any "keep well" or other
arrangement to maintain any financial condition of another person; (v) assume,
guarantee, endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person, except in
the ordinary course of business and consistent with past practice; (vi) make any
loans, advances or capital contributions to, or investments in, any other person
(other than to wholly owned subsidiaries of the Company) or (vii) enter into any
material commitment or transaction (including, but not limited to, any material
capital expenditure or purchase or lease of assets or real estate other than the
purchase of products for inventory and supplies in the ordinary course of
business); (i) neither the Company nor any of its subsidiaries will change any
of the accounting methods used by it unless required by GAAP; (j) neither the
Company nor any of its subsidiaries will, without the prior written consent of
Parent, pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction of any such claims, liabilities or
obligations, in the ordinary course of business and consistent with past
practice, of claims, liabilities or obligations reflected or reserved against
in, or contemplated by, the consolidated financial statements (or the notes
thereto) of the Company and its consolidated subsidiaries; (k) neither the
Company nor any of its subsidiaries will take, or agree to commit to take, any
action that would or is reasonably likely to result in any of the conditions to
the Offer set forth in Annex A of the Merger Agreement or any of the conditions
to the Merger set forth in Article VI of the Merger Agreement not being
satisfied, or would make any representation or warranty of the Company contained
in the Merger Agreement inaccurate in any respect at, or as of any time prior
to, the Effective Time, or that would materially impair the ability of the
Company to consummate the Offer or the Merger in accordance with the terms of
the Merger Agreement or materially delay such consummation; (l) neither the
Company nor any of its subsidiaries will make any Tax election or settle or
compromise any Tax liability or refund, except to the extent already provided in
the Company's filings with the Commission; (m) neither the Company nor any of
its subsidiaries will permit any material insurance policy naming it as a
beneficiary or a loss payable payee to be cancelled or terminated without notice
to Parent, except in the ordinary course of business and consistent with past
practice; (n) neither the Company nor any of its subsidiaries will adopt a plan
of complete or partial liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization of the Company or any of
its subsidiaries (other than the Merger) and (o) neither the Company nor any of
its subsidiaries will enter into an agreement, contract, commitment or
arrangement to do any of the foregoing, or to authorize, recommend, propose or
announce an intention to do any of the foregoing.
No Solicitation. Pursuant to the Merger Agreement, the Company has agreed
that neither the Company nor any of its subsidiaries or affiliates will (and the
Company will use its best efforts to cause its officers, directors, employees,
representatives and agents, including, but not limited to, investment bankers,
attorneys and accountants, not to), directly or indirectly, encourage, solicit,
participate in or initiate discussions or negotiations with, or provide any
information to, any corporation, partnership, person or other entity or group
(other than Parent, any of its affiliates or representatives) concerning any
proposal or offer to acquire all or a substantial part of the business and
properties of the Company or any of its subsidiaries or any capital stock of the
Company or any of its subsidiaries, whether by merger, tender offer, exchange
offer, sale of assets or similar transactions involving the Company or any
subsidiary, division or operating or principal business unit of the Company (an
"Acquisition Proposal"), except that the Company and the Company Board may
furnish information concerning the Company and its subsidiaries to any
corporation, partnership, person or other entity or group pursuant to
appropriate confidentiality agreements, and may negotiate and participate in
8
<PAGE> 10
discussions and negotiations with such entity or group concerning an Acquisition
Proposal if (i) such entity or group has, on an unsolicited basis, submitted a
bona fide written proposal to the Company Board relating to any such transaction
which the Company Board determines in good faith represents a superior
transaction to the Offer and the Merger and which is not conditioned upon
obtaining additional financing and (ii) in the opinion of the Company Board,
only after receipt of advice from independent legal counsel, the failure to
provide such information or access or to engage in such discussions or
negotiations would cause the Company Board to violate its fiduciary duties to
the Company's stockholders under applicable law (an Acquisition Proposal which
satisfies the immediately foregoing clauses (i) and (ii) is referred to in the
Merger Agreement as a "Superior Proposal"). The Company has agreed to
immediately communicate to Parent the terms of any proposal, discussion,
negotiation or inquiry (and will disclose any written materials received by the
Company in connection with such proposal, discussion negotiation or inquiry) and
the identity of the party making such proposal or inquiry which it may receive
in respect of any such transaction.
The Company has agreed that neither the Company Board nor any committee
thereof will (i) withdraw or modify, or propose to withdraw or modify, in a
manner adverse to Parent or the Purchaser, the approval or recommendation by the
Company Board or any such committee of the Offer, the Merger Agreement or the
Merger, (ii) approve or recommend, or propose to approve or recommend, any
Acquisition Proposal or (iii) enter into any agreement with respect to any
Acquisition Proposal, except that prior to the time of acceptance for payment of
Shares in the Offer, the Company Board may do any of the foregoing at any time
after (A) the Company Board determines, after receipt of advice from outside
legal counsel to the Company, that the failure to take such action would cause
the Company Board to violate its fiduciary duties to the Company's stockholders
under applicable law and (B) two business days following Parent's receipt of
written notice advising Parent that the Company Board has received a Superior
Proposal, specifying the material terms and conditions of such Superior Proposal
and identifying the person making such Superior Proposal. Furthermore, the
Company may not enter into an agreement with respect to a Superior Proposal
unless the Company furnishes Parent with written notice not later than noon (New
York time) one day in advance of any date that it intends to enter into such
agreement and shall have caused its financial and legal advisors to negotiate
with Parent to make such adjustments in the terms and conditions of the Merger
Agreement as would enable the Company to proceed with the transactions
contemplated in the Merger Agreement on such adjusted terms. In addition, if the
Company proposes to enter into an agreement with respect to any Acquisition
Proposal, it must concurrently with entering into such agreement pay, or cause
to be paid, to Parent the Termination Fee described below under "-- Termination;
Fees."
Termination; Fees. The Merger Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time, whether before or after
approval of the stockholders of the Company, (a) by mutual written consent of
Parent and the Company; (b) by either the Company or Parent (i) if the Offer
shall have expired without any Shares being purchased therein, provided, that
such right to terminate will not be available to any party whose failure to
fulfill any obligation under the Merger Agreement was the cause of, or resulted
in, the failure of Parent or the Purchaser to purchase the Shares prior to the
expiration of the Offer; (ii) if any governmental entity shall have issued an
order, decree or ruling or taken any other action (which order, decree, ruling
or other action the parties will use their best efforts to lift), in each case
permanently restraining, enjoining or otherwise prohibiting any of the
transactions contemplated by the Merger Agreement and such order, decree, ruling
or other action shall have become final and non-appealable; (c) by the Company
(i) if, prior to the purchase of the Shares pursuant to the Offer, Parent or the
Purchaser breaches or fails in any material respect to perform or comply with
any of its material covenants and agreements contained in the Merger Agreement
or breaches its representations and warranties in any material respect, (ii) in
connection with entering into a definitive agreement with respect to an
Acquisition Proposal if the Company has complied with all of the provisions
described above under "-- No Solicitation," including the notice provisions, and
the Company pays the Termination Fee described hereinafter, (iii) if Parent or
the Purchaser shall have terminated the Offer without Parent or the Purchaser,
as the case may be, purchasing any Shares pursuant thereto or (iv) if Parent,
the Purchaser or any of their affiliates fail to commence the Offer on or prior
to five business days following the date of the initial public announcement of
the Offer; provided, that the Company may not terminate the Merger Agreement
pursuant to clause (iii) or (iv) if the Company is in material breach of the
Merger Agreement; (d) by Parent (i) if prior to the purchase of the Shares
pursuant to
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<PAGE> 11
the Offer, the Company Board (A) withdraws, or modifies or changes in a manner
adverse to Parent or the Purchaser, its approval or recommendation of the Offer,
the Merger Agreement or the Merger, (B) approves or recommends an Acquisition
Proposal, (C) executes an agreement in principle (or similar agreement) or
definitive agreement providing for a tender offer or exchange offer for any
shares of capital stock of the Company, or a merger, consolidation or other
business combination with a person or entity other than Parent, the Purchaser or
their affiliates or (D) resolves to do any of the foregoing, (ii) if Parent or
the Purchaser terminates the Offer without Parent or the Purchaser purchasing
any Shares thereunder, provided that Parent or the Purchaser may not terminate
the Merger Agreement pursuant to this clause (ii) if Parent or the Purchaser has
failed to purchase the Shares in the Offer in violation of the material terms
thereof or (iii) if, due to an occurrence that if occurring after the
commencement of the Offer would result in a failure to satisfy any of the
conditions set forth in Annex A to the Merger Agreement, Parent, the Purchaser
or any of their affiliates fail to commence the Offer on or prior to the fifth
business day following the date of the initial public announcement of the Offer.
In accordance with the Merger Agreement, if (x) the Company terminates the
Merger Agreement pursuant to clause (c)(ii) of the immediately preceding
paragraph, (y) Parent terminates the Merger Agreement pursuant to clause (d)(i)
of the immediately preceding paragraph or (z) prior to the termination of the
Merger Agreement, an Acquisition Proposal is made and within 12 months of such
termination an Acquisition Proposal is consummated or the Company enters into an
agreement with respect to, or approves or recommends, an Acquisition Proposal,
then the Company has agreed to pay to Parent U.S. $10 million. In addition, if
the Offer is terminated pursuant to the Parent Adverse Change Condition (as
defined in Section 14), Parent will pay to the Company an amount equal to all
out-of-pocket fees and expenses of the Company incurred in connection with the
Merger Agreement and the Offer (including legal and investment banking fees and
expenses) to a maximum of U.S. $1 million.
Indemnification. Pursuant to the Merger Agreement, for six years after the
Effective Time, the Surviving Corporation (or any successor to the Surviving
Corporation) will indemnify, defend and hold harmless the present and former
officers and directors of the Company and its subsidiaries with respect to
matters occurring at or prior to the Effective Time to the full extent permitted
under Delaware law, the terms of the Company's charter, by-laws and
indemnification agreements, each as in effect as of the date of the Merger
Agreement.
Representations and Warranties. Pursuant to the Merger Agreement, the
Company has made customary representations and warranties to Parent and the
Purchaser with respect to, among other things, its organization, capitalization,
authority, financial statements, need for consents or approvals, public filings,
conduct of business, employee benefit plans, intellectual property, employment
matters, excess parachute payments, compliance with laws, tax matters,
insurance, litigation, title to properties, environmental matters, vote required
to approve the Merger Agreement, undisclosed liabilities, information to be
contained in the Proxy Statement, finders fees, the opinion of its financial
advisor, and the absence of any material adverse change since December 31, 1996.
With respect to the Rights Agreement, dated as of November 14, 1996, by and
between the Company and Keybank, National Association, as Rights Agent (as
amended and supplemented from time to time, the "Rights Agreement"), pursuant to
which preferred stock purchase rights ("Rights") have been issued to holders of
the Company's Common Stock, the Company has represented and warranted to Parent
and the Purchaser that the Company Board has taken all necessary action so that
(i) the Rights will not be exercisable, trade separately or be otherwise
affected by the Offer, the Merger or the other transactions contemplated by the
Merger Agreement, (ii) none of Parent and its affiliates will be deemed to be an
"Acquiring Person" for purposes of the Rights Agreement and (iii) a
"Distribution Date" (as defined in the Rights Agreement) will not occur by
virtue of the Offer, the Merger or the other transactions contemplated by the
Merger Agreement.
Pursuant to the Merger Agreement, Parent and the Purchaser have made
substantially similar representations and warranties as to their organization,
authority, need for consents or approvals and information to be contained in the
Proxy Statement.
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<PAGE> 12
Conditions of the Offer. Notwithstanding any other provisions of the
Offer, and in addition to (and not in limitation of) the Purchaser's rights to
extend and amend the Offer at any time in its sole discretion (subject to the
provisions of the Merger Agreement), the Purchaser shall not be required to
accept for payment or, subject to any applicable rules and regulations of the
SEC, including Rule 14e-1(c) under the Exchange Act (relating to the Purchaser's
obligation to pay for or return tendered Shares promptly after termination or
withdrawal of the Offer), pay for, and may delay the acceptance for payment of
or, subject to the restriction referred to above, the payment for, any tendered
Shares, and may terminate or amend the Offer as to any Shares not then paid for,
if (A) any applicable waiting period under the HSR Act has not expired or
terminated, (B) at least a majority of the outstanding Shares (on a fully
diluted basis) have not been validly tendered and not withdrawn prior to the
expiration of the Offer (the tender of such shares prior to such time is
referred to as the "Minimum Condition"), (C) the Company, Parent and the
Purchaser, as required, have not obtained all necessary material consents,
approvals, orders, authorizations, registrations, declarations, permits or
filings required to be obtained by it in connection with the Merger Agreement
and the transactions contemplated thereby or (D) at any time on or after the
date of the Merger Agreement and before the time of payment for any such Shares,
any of the following events shall occur or shall be determined by the Purchaser
to have occurred:
(i) there shall be threatened or pending any suit, action or
proceeding by any Governmental Entity (as defined in the Merger Agreement)
against the Purchaser, Parent, the Company or any subsidiary of the Company
(a) seeking to prohibit or impose any material limitations on Parent's or
the Purchaser's ownership or operation (or that of any of their respective
subsidiaries or affiliates) of all or a material portion of their or the
Company's businesses or assets, or to compel Parent or the Purchaser or
their respective subsidiaries and affiliates to dispose of or hold separate
any material portion of the business or assets of the Company or Parent and
their respective subsidiaries, in each case taken as a whole, (b)
challenging the acquisition by Parent or the Purchaser of any Shares under
the Offer, the Merger or pursuant to the Stockholder Agreements, seeking to
restrain or prohibit the making or consummation of the Offer or the Merger
or the performance of any of the other transactions contemplated by the
Merger Agreement (including the voting provisions thereunder), or seeking
to obtain from the Company, Parent or the Purchaser any damages that are
material in relation to the Company and its subsidiaries taken as a whole,
(c) seeking to impose material limitations on the ability of the Purchaser,
or render the Purchaser unable, to accept for payment, pay for or purchase
some or all of the Shares pursuant to the Offer and the Merger, (d) seeking
to impose material limitations on the ability of the Purchaser or Parent
effectively to exercise full rights of ownership of the Shares, including,
without limitation, the right to vote the Shares purchased by it on all
matters properly presented to the Company's stockholders or (e) which
otherwise is reasonably likely to have a material adverse affect on the
Company and its subsidiaries, taken as a whole;
(ii) there shall be any statute, rule, regulation, judgment, order or
injunction enacted, entered, enforced, promulgated, or deemed applicable,
pursuant to an authoritative interpretation by or on behalf of a Government
Entity, to the Offer or the Merger, or any other action shall be taken by
any Governmental Entity, other than the application to the Offer or the
Merger of applicable waiting periods under HSR Act, that is reasonably
likely to result, directly or indirectly, in any of the consequences
referred to in clauses (a) through (d) of paragraph (i) above;
(iii) there shall have occurred (a) any general suspension of trading
in, or limitation on prices for, securities on the New York Stock Exchange,
The Toronto Stock Exchange or in The Nasdaq Stock Market, for a period in
excess of 24 hours (excluding suspensions or limitations resulting solely
from physical damage or interference with such exchanges not related to
market conditions), (b) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States or Canada
(whether or not mandatory), (c) a commencement of a war directly or
indirectly involving the United States or Canada, (d) any limitation
(whether or not mandatory) by any United States or Canadian governmental
authority on the extension of credit generally by banks or other financial
institutions, (e) a change in general financial, bank or capital market
conditions which materially or adversely affects the ability of financial
institutions in the United States or Canada to extend credit or
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<PAGE> 13
syndicate loans or (f) in the case of any of the foregoing existing at the
time of the commencement of the Offer, a material acceleration or worsening
thereof;
(iv) (a) the representations and warranties of the Company set forth
in the Merger Agreement shall not be true and correct in any material
respect as of the date of the Merger Agreement and as of consummation of
the Offer as though made on or as of such date, (b) the Company shall have
failed to comply with its covenants and agreements under the Merger
Agreement in all material respects or (c) there shall have occurred any
events or changes which have had or will have a material adverse effect on
the Company and its subsidiaries taken as a whole;
(v) (a) the Company Board shall have withdrawn, or modified or changed
in a manner adverse to Parent or the Purchaser (including by amendment of
the Schedule 14D-9) its approval or recommendation of the Offer, the Merger
Agreement or the Merger, or approved or recommended any Acquisition
Proposal, (b) the Company shall have entered into any agreement with
respect to any Superior Proposal in accordance with Section 5.5(b) of the
Merger Agreement or (c) the Company Board, upon request of the Purchaser,
shall fail to reaffirm its recommendation of the Offer, the Merger
Agreement or the Merger;
(vi) the Merger Agreement shall have terminated in accordance with its
terms; or
(vii) there shall have occurred after the date of the Merger Agreement
any material adverse change in the business, assets, liabilities (actual or
contingent), operations, condition (financial or otherwise) or prospects of
EHSI and its subsidiaries (taken as a whole) and NationsBank or NCMI shall
have declined to participate in the financing to be provided to EHSI as set
forth in the Bank Commitment Letter;
which in the sole judgment of Parent or the Purchaser, in any such case, and
regardless of the circumstances (including any action or inaction by Parent or
the Purchaser) giving rise to such condition makes it inadvisable to proceed
with the Offer and/or with such acceptance for payment of or payment for Shares.
The foregoing conditions are for the sole benefit of Parent and the
Purchaser and may be waived by Parent or the Purchaser, in whole or in part at
any time and from time to time in the sole discretion of Parent or the
Purchaser. The failure by Parent or the Purchaser at any time to exercise any of
the foregoing rights shall not be deemed a waiver of any such right and each
such right shall be deemed an ongoing right which may be asserted at any time
and from time to time. Any determination by the Purchaser or Parent concerning
the events described above will be final and binding upon all parties.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(A) RECOMMENDATION OF THE BOARD OF DIRECTORS.
At a meeting held on September 29, 1997, the Board of Directors of the
Company unanimously (i) determined that the Offer and the Merger, taken
together, are fair to and in the best interests of the Company's stockholders,
(ii) approved the Merger Agreement and the Stockholder Agreement and the
transactions contemplated thereby, and authorized the execution and delivery of
the Merger Agreement by the officers of the Company, and (iii) resolved to
recommend to the Company's stockholders that they accept the Offer and tender
their shares of Common Stock to Purchaser pursuant to the Offer.
(B) BACKGROUND OF THE OFFER.
Prior to September 9, 1997, members of Parent's management, together with
Bear Stearns, Parent's financial advisor, reviewed certain publicly-available
information regarding the Company. Based on this information, Parent directed
Bear Stearns to initiate contact with the Company and arrange a meeting to
discuss the possibility of a business combination or other transaction between
the Company and Parent.
On September 9, 1997, Pier C. Borra, the President and Chief Executive
Officer of the Company, Dennis R. Smith, Senior Vice President -- Finance of the
Company, Frederick B. Ladly, Deputy Chairman of the Board of Parent, Barry L.
Stephens, Senior Vice President, Finance of Parent, and representatives of Bear
Stearns met in New York, New York. The purpose of the meeting was to discuss
generally the possibility of a business combination or other transaction between
the Company and Parent and to discuss Parent's desire to review non-public
information about the Company.
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On September 10, 1997, Parent entered into a confidentiality agreement with
Raymond James (the "Confidentiality Agreement"), pursuant to which Parent agreed
to treat confidentially information provided by or on behalf of the Company and
to not solicit or employ certain employees of the Company without the written
consent of the Company for a period ending one year after the conclusion of
discussions governed by the Confidentiality Agreement.
On September 11, 1997, Mr. Borra, Mr. Smith, Mr. Stephens and Richard
Bertrand, Vice President of Parent and Senior Vice-President of EHSI, met in
Chicago, Illinois for the purpose of reviewing Company materials to determine
whether a business combination was possible at Parent's proposed price of $45.00
per Share. On September 12, 1997, Mr. Ladly called Mr. Borra regarding Parent's
interest in submitting a written preliminary indication of interest to purchase
the Company and to conduct due diligence.
On September 15, 1997, Parent delivered to the Company a non-binding
expression of interest to acquire the Company for $45.00 per share, subject to
obtaining financing on acceptable terms to Parent, completion of due diligence,
approval of the Board of Directors of Parent and execution of a definitive
acquisition agreement. In addition, the Company and Parent entered into an
exclusivity agreement which provided that, until September 30, 1997, the Company
would not and would direct each of its officers, directors, employees,
representatives and agents not to, directly or indirectly, (i) subject to the
exercise by the Company Board of its fiduciary duties, encourage, solicit,
participate in or initiate discussions or negotiations with or provide any
information to any Person (as defined therein) other than Parent and its
representatives concerning any stock purchase, asset purchase, merger or similar
transaction involving the Company or substantially all of its business or assets
or (ii) encourage, solicit, participate in or initiate discussions or
negotiations with or provide any information to any Person other than Parent and
its representatives concerning any stock purchase, asset purchase or similar
transaction which would result in the disposition of a material portion of any
of the consolidated business or assets of the Company. The Company agreed to
reimburse Parent upon demand for all out-of-pocket expenses and costs incurred
by it with respect to its proposal during the term of the exclusivity agreement
in the event that the Company breached its covenants set forth therein.
On September 16 and September 17, 1997, at the request of Parent in
connection with its due diligence review of the Company, members of the
Company's management and the Company's financial advisor, Raymond James &
Associates, Inc. ("Raymond James"), made presentations to senior management of
Parent, Bear Stearns and NationsBank in Chicago, Illinois regarding the
business, strategies and prospects of the Company. In addition, the Company made
available to Parent and its advisors certain non-public information for review.
On September 19, 1997, Mr. Ladly telephoned Mr. Borra to indicate that
management of Parent had determined to proceed with further discussions
regarding the acquisition of the Company by Parent.
From September 19, 1997 through September 29, 1997, Parent and its
financial and other advisors continued their review of the business and
operations of the Company. In addition, Parent and its advisors and the Company
and its advisors engaged in negotiations concerning the terms of a possible
transaction, including the terms of a merger agreement and tender offer. In
addition, Parent expressed its desire that Mr. Borra and certain of his family
members and other related parties agree to tender their shares into a tender
offer commenced by Parent or any affiliate thereof in connection with a
transaction. Parent and Mr. Borra commenced negotiations concerning this subject
matter and the terms of a possible agreement.
On September 24, 1997, the Board of Directors of Parent held a special
meeting to review, with the advice and assistance of the Parent Board's
financial and legal advisors, the proposed acquisition of the Company. At such
meeting, Parent's management and its financial and legal advisors made
presentations to the Board concerning the proposed transaction, including the
proposed methods of financing, and the Board of Directors authorized management
to proceed with the negotiation of a definitive merger agreement and stockholder
agreement. That day, Mr. Ladly informed Mr. Borra that the Board of Directors of
Parent had given such authorization.
On September 27, 1997, the Board of Directors of the Company held a special
meeting to review, with the advice and assistance of the Company Board's
financial and legal advisors, the proposed transaction. At such meeting the
Company's management and legal advisors made presentations to the Company Board
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concerning the status of the negotiations relating to the transaction and the
proposed stockholder agreement. Management also described the proposed terms of
Parent's financing arrangements. Parent's financial advisor, Raymond James,
reviewed with the Board the public market valuation of companies it deemed
comparable, certain recent transactions in the long term care industry it deemed
comparable, a discounted cash flow analysis regarding the Company and merger
premiums involving public companies of comparable size during the past year, and
presented an analysis of the fairness of the proposed offer price. Based on such
analysis and its review of the proposed terms and Parent's financing
arrangements, it orally advised that, subject to the execution of definitive
agreements, it believed it would be in a position to deliver an opinion that the
proposed transaction was fair to shareholders of the Company from a financial
point of view. The Board of the Company then authorized management to continue
negotiating the terms of the transaction with Parent.
On September 29, 1997, the Board of Directors of each of Parent and the
Purchaser took the steps required to approve the Offer, the Merger and the
Merger Agreement and to authorize their respective officers to execute the
Merger Agreement and to take other actions in connection therewith.
At the September 29, 1997 meeting of the Board of Directors of Parent,
management reported on the conclusion of financing arrangements with NationsBank
N.A. and the terms of the commitment letter delivered by NationsBank N.A., the
terms of the Merger Agreement and of the proposed stockholder agreement.
Following the Board's review of the transaction, the Board unanimously approved
the proposed Merger Agreement and the transactions contemplated thereby and the
commitment letter from NationsBank N.A., and authorized the execution and
delivery of such agreements.
At the September 29, 1997 meeting of the Company Board, Raymond James
presented its analysis of the proposed consideration to be received by the
Company's stockholders and delivered its oral opinion to the Company Board
(which was subsequently confirmed by delivery of a written opinion dated
September 29, 1997), to the effect that, as of such date and based upon and
subject to certain matters stated in such opinion, the cash consideration of
$45.00 per Share to be received by holders of Shares in the Offer and in the
Merger was fair, from a financial point of view, to such holders. Following a
number of questions from, and discussions among, the directors of the Company
Board, the Company Board unanimously (i) approved the Merger Agreement and the
Transactions and authorized the execution and delivery of the terms of the
Merger Agreement by the officers of the Company, (ii) determined that the Offer
and the Merger were fair and in the best interests of the stockholders of the
Company, (iii) approved the submission of the Merger Agreement to stockholders
of the Company with the recommendation of the Board that the Merger Agreement be
approved by such stockholders, (iv) approved the terms of the Stockholder
Agreement to be entered into among the proposed parties thereto, and (v) amended
the Rights Plan (as defined in Section 11) to provide that the Purchaser, Parent
and their affiliates shall be Exempt Persons thereunder.
During the evening of September 29, 1997, representatives of the Company
and Parent completed their negotiations on all substantive terms of the Merger
Agreement, and thereafter (i) the Purchaser, Parent and the Company executed the
Merger Agreement and (ii) the Parent and the Selling Stockholders (as defined in
Section 11) executed the Stockholder Agreement. On September 30, 1997, before
the opening of trading, the Company and Parent jointly announced the
Transactions. On October 3, 1997, the Purchaser commenced the Offer. The press
release issued jointly by the Company and Parent announcing the execution of the
Merger Agreement and the Offer and a letter to stockholders communicating the
recommendation of the Board of Directors of the Company are filed as Exhibits 3
and 5 hereto, respectively, and are incorporated herein by reference.
(C) REASONS FOR THE TRANSACTION; FACTORS CONSIDERED BY THE BOARD.
In approving the Merger Agreement, the Stockholder Agreement and the
transactions contemplated thereby and recommending that stockholders of the
Company tender their shares of Common Stock pursuant to the Offer, the Board
considered a number of factors, including:
1. The financial and other terms and conditions of the Offer and the
Merger Agreement;
14
<PAGE> 16
2. The Board's belief that it obtained the highest immediate value for
its stockholders by entering into a transaction with Parent, which, because
of the synergies that could be created by a combination of the Company with
Parent, could offer the best price for the Company's Common Stock;
3. The oral opinion of Raymond James & Associates, Inc. ("Raymond
James") rendered to the Board of Directors at the September 29, 1997
meeting (which opinion was subsequently confirmed by delivery of a written
opinion dated September 29, 1997) to the effect that, as of such date and
based upon and subject to certain matters stated in such opinion, the
$45.00 per share cash consideration to be received by holders of shares of
Common Stock (other than Parent and its affiliates) in the offer and the
Merger was fair, from a financial point of view, to such holders. The full
text of Raymond James' written opinion, dated September 29, 1997, which
sets forth the assumptions made, matters considered and limitations on the
review undertaken by Raymond James, is attached hereto as Exhibit 4 and is
incorporated herein by reference. Raymond James' opinion is directed only
to the fairness, from a financial point of view, of the cash consideration
to be received in the Offer and the Merger by holders of shares of Common
Stock (other than Parent and its affiliates) and is not intended to
constitute, and does not constitute, a recommendation as to whether any
stockholder should tender shares of Common Stock pursuant to the Offer.
Holders of Common Stock are urged to read such opinion carefully in its
entirety.
4. The historical market prices of, and recent trading activity in,
the shares of Common Stock, particularly the fact that the Offer and the
Merger will enable the stockholders of the Company to realize a premium of
approximately 19.21% over $37.75, the closing price of the shares of Common
Stock on September 26, 1997, the last trading day prior to the Board's
approval of the Merger Agreement, and a premium of approximately 17.65%
over $38.25, the closing price of the shares of Common Stock on September
9, 1997, the date the Parent first approached the Company regarding its
interest in considering an acquisition of the Company;
5. The possible alternatives to the Offer and the Merger, including,
without limitation, continuing to operate the Company as an independent
entity, and the risks associated therewith, including the ongoing need for
financing for the Company to make significant acquisitions, which the Board
believed would be necessary because of the continuing consolidation in the
long-term health care industry;
6. The fact that the terms of the Merger Agreement shall not prevent
the Board, if it determines in good faith, after consultation with, and
receipt of advice from, outside counsel, that it is required to do so in
order to discharge properly its fiduciary duties, from considering,
negotiating and, subject to payment of the Termination Fee, entering into a
Superior Proposal; and
7. The likelihood that the Merger would be consummated.
The Board did not assign relative weights to the factors or determine that
any factor was of particular importance. Rather, the Board viewed their position
and recommendation as being based on the totality of the information presented
to and considered by it.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Company has retained Raymond James & Associates, Inc. ("Raymond James")
to act as its financial advisor in connection with the Offer and the Merger.
Pursuant to the terms of Raymond James' engagement, the Company has agreed to
pay Raymond James for its services (i) a cash fee in the amount of two hundred
thousand dollars ($200,000) due and payable upon delivery of its fairness
opinion to the Company's board of directors and (ii) a cash success fee, due and
payable at the closing of the Merger, equal to eight hundred thousand dollars
($800,000) plus two and three quarters percent (2.75%) of the Total
Consideration (as defined) to be received by the stockholders of the Company,
including the assumption of the Company's commercial, third party debt, in
excess of three hundred and ninety-five million dollars ($395,000,000). In no
event, however, will Raymond James' total fees exceed one seven hundredth (.7%)
of such total consideration.
The Company also has agreed to reimburse Raymond James for all reasonable
out-of-pocket expenses incurred by Raymond James in connection with the
performance of its services (including, without limitation,
15
<PAGE> 17
reasonable travel, legal fees and expenses). In addition, the Company has agreed
to indemnify Raymond James and certain related parties against certain
liabilities, including liabilities under the federal securities laws, arising
out of Raymond James' engagement.
In the ordinary course of business, Raymond James and its affiliates may
actively trade or hold the securities of the Company and Parent for their own
account or for the account of customers and, accordingly, may at any time hold a
long or short position in such securities.
Neither the Company nor any person acting on its behalf has employed,
retained or compensated any other person to make solicitations or
recommendations to stockholders in connection with the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) Except as set forth below, there have been no transactions in the
shares of Common Stock during the past 60 days by the Company or, to the best of
the Company's knowledge, by any executive officer, director, affiliate or
subsidiary of the Company. Messrs. Stephen T. Bennett and Richard J. Clark sold
shares of Common Stock as follows:
<TABLE>
<CAPTION>
NUMBER
OF PRICE PER
STOCKHOLDER DATE SHARES SHARE
----------- ----------------- ----------- -----------------
<S> <C> <C> <C>
Stephen T. Bennett...................................... August 14, 1997 41,666 $36.88
Richard J. Clark........................................ September 4, 1997 1,000 $37.25
Richard J. Clark........................................ August 12, 1997 1,000 $37.25
Richard J. Clark........................................ August 12, 1997 1,000 $37.37
</TABLE>
(b) To the best of the Company's knowledge, each of its executive officers,
directors, affiliates and subsidiaries currently intends to tender, pursuant to
the Offer, any shares of Common Stock beneficially owned individually by such
persons.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as set forth in this Schedule 14D-9, the Company is not
currently engaged in any negotiation in response to the Offer, which relates to
or would result in (i) an extraordinary transaction, such as a merger or
reorganization involving the Company or any subsidiary of the Company; (ii) a
purchase, sale or transfer of a material amount of assets by the Company or any
subsidiary of the Company; (iii) a tender offer for or other acquisition of
securities by or of the Company; or (iv) any material change in the present
capitalization or dividend policy of the Company.
(b) Except as described in Item 3(B) and Item 4 above (the provisions of
which hereby are incorporated by reference), there are no transactions, board
resolutions, agreements in principle or signed contracts in response to the
Offer, which relate to or would result in one or more of the matters referred to
in paragraph (a) of this Item 7.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
None.
16
<PAGE> 18
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
1 -- Proxy Statement of the Company dated April 18, 1997*
2 -- Agreement and Plan of Merger dated as of September 29, 1997,
among Parent, Purchaser and the Company*
3 -- Form of Press Release issued by Parent on September 30,
1997*
4 -- Opinion of Raymond James & Associates, Inc. dated September
29, 1997
5 -- Letter to stockholders of the Company from Pier C. Borra
dated October 3, 1997, communicating the recommendation of
the Board of Directors of the Company
</TABLE>
- ---------------
* Not included in copies mailed to stockholders.
17
<PAGE> 19
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
ARBOR HEALTH CARE COMPANY
By: /s/ PIER C. BORRA
------------------------------------
Pier C. Borra
Chairman, President, and
Chief Executive Officer
Dated: October 3, 1997
18
<PAGE> 20
ANNEX I
INFORMATION STATEMENT PURSUANT TO SECTION 14(F)
OF THE SECURITIES EXCHANGE ACT OF 1934
AND RULE 14F-1 THEREUNDER
GENERAL
This Information Statement is being mailed on or about October 3, 1997 as
part of the Solicitation/ Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") of Arbor Health Care Company (the "Company") with respect to
the tender offer by AHC Acquisition Corp. (the "Purchaser") to the holders of
record of the common stock of the Company, par value $0.03 per share ("Shares").
Capitalized terms used and not otherwise defined herein shall have the meanings
set forth in the Schedule 14D-9. You are receiving this Information Statement in
connection with the possible election of persons designated by the Purchaser to
a majority of the seats on the Board of Directors of the Company (the "Board").
The Merger Agreement provides that the Purchaser, upon purchase of Shares
pursuant to the Offer, shall be entitled to designate such number of directors
(the "Purchaser Designees"), rounded up to the next whole number, to serve on
the Board as will give the Purchaser representation on the Board equal to the
product of (i) the total number of directors on the Board and (ii) the
percentage that the number of Shares purchased by the Purchaser bears to the
total number of Shares outstanding, and that the Company shall, upon request by
the Purchaser, promptly increase the size of the Board and/or exercise its
reasonable best efforts to secure the resignation of such number of directors as
is necessary to enable the Purchaser Designees to be elected to the Board. This
Information Statement is required by Section 14(f) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and Rule 14f-1 promulgated
thereunder.
You are urged to read this Information Statement carefully. You are not,
however, required to take any action.
The Offer to Purchase commenced on October 3, 1997 and is scheduled to
expire at 12:00 midnight, New York City time, on October 31, 1997, at which
time, if all conditions to the Offer have been satisfied or waived, the
Purchaser will purchase all of the Shares validly tendered pursuant to the Offer
and not properly withdrawn.
The information contained in this Information Statement concerning the
Purchaser and Extendicare Inc. ("Parent") has been furnished to the Company by
Parent and the Company assumes no responsibility for the accuracy, completeness
or fairness of any such information.
At the close of business on September 29, 1997, there were 6,937,161 shares
of Common Stock of the Company issued and outstanding, which is the only class
of securities outstanding having the right to vote for the election of directors
of the Company, each of which entitles its record holder to one vote.
DESIGNEES TO THE COMPANY'S BOARD OF DIRECTORS
The Purchaser has informed the Company that it will choose the Purchaser
Designees from the directors and executive officers listed in Schedule I to the
Purchaser's Offer to Purchase, a copy of which is being mailed to the Company's
stockholders together with the Schedule 14D-9. The Purchaser has informed the
Company that each of the directors and executive officers listed in Schedule I
to the Offer to Purchaser has consented to act as a director, if so designated.
The business address of each such person is c/o Parent, 3000 Steeles Avenue
East, Markham, Ontario L3R 9W2.
It is expected that the Purchaser Designees may assume office at any time
following the purchase by Parent or the Purchaser, as applicable, of the
specified minimum number of shares of Common Stock pursuant to the Offer, which
purchase cannot be earlier than October 31, 1997.
19
<PAGE> 21
DIRECTORS, EXECUTIVE OFFICERS AND AFFILIATES OF THE COMPANY
Certain information regarding (i) the current directors and executive
officers of the Company, (ii) the security ownership of certain beneficial
owners and management of the Company, (iii) certain relationships and
transactions with the Company and (iv) compliance with Section 16(a) of the
Exchange Act is described in the Proxy Statement dated April 18, 1997 for the
Company's Annual Meeting of Stockholders held on May 22, 1997. The Proxy
Statement is filed as Exhibit 1 to the Schedule 14D-9 and is incorporated herein
by reference.
20
<PAGE> 1
EXHIBIT 1
================================================================================
SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
ARBOR HEALTH CARE COMPANY
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
XXXXXXXXXXXXXXXX
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: .......
(2) Aggregate number of securities to which transaction applies: ..........
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): ............
(4) Proposed maximum aggregate value of transaction: ......................
(5) Total fee paid: .......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ...............................................
(2) Form, Schedule or Registration Statement No.: .........................
(3) Filing Party: .........................................................
(4) Date Filed: ...........................................................
================================================================================
<PAGE> 2
April 18, 1997
Dear Stockholder:
You are cordially invited to attend the 1997 Annual Meeting of Stockholders
of Arbor Health Care Company. The meeting will be held Thursday, May 22, 1997,
at 9:00 a.m., Eastern Daylight Savings Time, at the Company's corporate offices,
located at 1100 Shawnee Road, Lima, Ohio 45805.
The Notice of the meeting and the Proxy Statement on the following pages
cover the formal business of the meeting, which includes the election of
Directors, approval of an amendment to the Company's 1995 Stock Option Plan,
approval of the Company's Employee Stock Purchase Plan, and a proposal to ratify
the appointment of the Company's independent auditors. We also will report on
the progress of the Company and comment on matters of current interest.
It is important that your shares be represented at the meeting. We ask that
you promptly sign, date and return the enclosed proxy card in the envelope
provided, even if you plan to attend the meeting. Returning your proxy card to
us will not prevent you from voting in person at the meeting if you are present
and choose to do so.
If your shares are held in street name by a brokerage, your broker will
supply you with a proxy to be returned to the brokerage. It is important that
you return the form to the brokerage as quickly as possible so that the
brokerage may vote your shares. You may not vote your shares in person at the
meeting unless you obtain a power of attorney or legal proxy from your broker
authorizing you to vote the shares, and you present this power of attorney or
proxy at the meeting.
The Board of Directors and management look forward to greeting you
personally at the meeting.
Sincerely,
/s/ PIER C. BORRA
PIER C. BORRA
Chairman, President
and Chief Executive Officer
<PAGE> 3
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
THURSDAY, MAY 22, 1997
Notice is hereby given that the Annual Meeting of Stockholders of Arbor
Health Care Company, a Delaware corporation, will be held on Thursday, May 22,
1997, at 9:00 a.m., Eastern Daylight Savings Time, at the Company's corporate
offices, located at 1100 Shawnee Road, Lima, Ohio 45805, for the following
purposes:
1. To elect two Directors to serve until the Annual Meeting
in 2000, and until their successors are elected and qualified or until
their earlier resignation, removal from office or death;
2. To approve an amendment to the Company's 1995 Stock
Option Plan;
3. To approve the Company's Employee Stock Purchase Plan;
4. To ratify the appointment of Ernst & Young LLP as the
Company's independent auditors for the year 1997; and
5. To transact such other business as properly may come
before the Meeting or any adjournment thereof.
Your attention is directed to the Proxy Statement accompanying this
Notice for a more complete description of the matters to be acted upon at the
Meeting. The 1996 Annual Report of the Company previously was sent to you.
Stockholders of record at the close of business on April 1, 1997, are entitled
to receive notice of and to vote at the Meeting and any adjournment thereof.
All stockholders are cordially invited to attend the Meeting. Whether
or not you expect to attend, please sign and return the enclosed Proxy promptly
in the envelope provided to assure the presence of a quorum. You may revoke your
Proxy and vote in person at the Meeting if you desire. If your shares are held
in street name by a brokerage, your broker will supply you with a proxy to be
returned to the brokerage. It is important that you return the form to the
brokerage as quickly as possible so that the brokerage may vote your shares. You
may not vote your shares in person at the Meeting unless you obtain a power of
attorney or legal proxy from your broker authorizing you to vote the shares, and
you present this power of attorney or proxy at the Meeting.
By order of the Board of Directors,
/s/ Brad C. Roush
----------------------------------
BRAD C. ROUSH
Secretary
Lima, Ohio
April 18, 1997
<PAGE> 4
ARBOR HEALTH CARE COMPANY
1100 SHAWNEE ROAD
LIMA, OHIO 45805
PROXY STATEMENT
This Proxy Statement is furnished by the Board of Directors and
Management of Arbor Health Care Company (the "Company") in connection with the
solicitation of proxies to be voted at the Company's 1997 Annual Meeting of
Stockholders, which will be held on Thursday, May 22, 1997, at 9:00 a.m.,
Eastern Daylight Savings Time, at the Company's corporate offices, located at
1100 Shawnee Road, Lima, Ohio 45805 (the "Meeting").
Any proxy delivered pursuant to this solicitation may be revoked, at
the option of the person executing the proxy, at any time before it is exercised
by delivering a signed revocation to the Company, by submitting a later-dated
proxy, or by attending the Meeting in person and casting a ballot. If proxies
are signed and returned without voting instructions, the shares represented by
the proxies will be voted as recommended by the Board of Directors.
The cost of soliciting proxies will be borne by the Company. In
addition to the use of the mails, proxies may be solicited personally or by
telephone by regular employees of the Company. The Company does not expect to
pay any compensation for the solicitation of proxies, but may reimburse brokers
and other persons holding stock in their names, or in the names of nominees, for
their expense in sending proxy materials to their principals and obtaining their
proxies. The approximate date on which this Proxy Statement and enclosed form of
proxy first has been mailed to stockholders is April 18, 1997.
The close of business on April 1, 1997, has been designated as the
record date for the determination of stockholders entitled to receive notice of
and to vote at the Meeting. As of March 17, 1997, 6,913,121 shares of the
Company's Common Stock, par value $.03 per share, were issued and outstanding.
Each stockholder will be entitled to one vote for each share of Common Stock
registered in his or her name on the books of the Company on the close of
business on April 1, 1997, on all matters that come before the Meeting.
The affirmative vote of the holders of a majority of the shares
represented, in person or by proxy, and voting at the Annual Meeting will be
required to take action at the Annual Meeting. Abstentions will be counted
toward the number of shares represented at the meeting. Broker non-votes will be
disregarded.
<PAGE> 5
ELECTION OF DIRECTORS
The Board of Directors of the Company currently consists of seven
members. The Board is divided into three classes of Directors serving staggered
three-year terms. Directors hold their positions until the annual meeting of
stockholders in the year in which their term expires, and until their respective
successors are elected and qualified or until their earlier resignation, removal
from office or death.
The term of office of two of the Company's current seven Directors will
expire at the 1997 Annual Meeting. The Board of Directors recommends that these
two Directors be elected at the Meeting to hold office until the Company's
annual meeting in 2000, and until their respective successors shall be duly
elected and qualified or until their earlier resignation, removal from office or
death. The Board of Directors unanimously recommends that you vote "FOR" the
reelection of James F. White, Jr. and the election of Carl R. Adkins, M.D., who
was appointed as a Director in November 1996 to fill a vacancy on the Board of
Directors, to serve until 2000. See "Management-Directors and Executive
Officers" and "Certain Transactions" for further information on such nominees.
Stockholders may vote for up to two nominees. The affirmative vote of a majority
of the shares represented at the Meeting and entitled to vote thereon will be
required for the election of Directors. Stockholders may not vote cumulatively
in the election of Directors. Abstentions will be counted toward the number of
shares represented at the Meeting. Broker non-votes will be disregarded. In the
event any of the nominees should be unable to serve, which is not anticipated,
the proxy committee, which consists of Pier C. Borra and Brad C. Roush, will
vote for such other person or persons for the office of Director as the Board of
Directors may recommend.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names and ages of the Company's
Directors and executive officers and the positions they hold with the Company.
Executive officers serve at the pleasure of the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Pier C. Borra ........................ 57 Chairman, Director (term expiring in
1999), Chief Executive Officer,
President, and a member of the
Executive and Compensation
Committees
Stephen T. Bennett.................... 56 Senior Vice President-Development
</TABLE>
-2-
<PAGE> 6
<TABLE>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Richard J. Clark...................... 50 Senior Vice President-Health Care
and Chief Operating Officer
Dennis R. Smith....................... 42 Senior Vice President-Finance,
Chief Financial Officer and Chief
Accounting Officer
Allan K. Vrable....................... 45 President, Pharmacy Division
Carl R. Adkins, M.D................... 52 Director (term expiring in 1997) and
nominee for Director (term expiring
in 2000)
Howard E. Cox, Jr. ................... 53 Director (term expiring in 1998) and
a member of the Executive and
Compensation Committees
Thomas A. James ...................... 54 Director (term expiring in 1998) and
a member of the Executive and
Compensation Committees
Fredrick C. Powell.................... 56 Director (term expiring in 1999) and
a member of the Audit Committee
Bruce G. Thompson..................... 67 Director (term expiring in 1999) and
a member of the Audit Committee
James F. White, Jr.................... 57 Director (term expiring in 1997),
nominee for Director (term expiring
in 2000) and a member of the Audit
Committee
</TABLE>
-------------------------------------------------------------------------
PIER C. BORRA has served as Chairman of the Board, President and Chief
Executive Officer of the Company since he founded it in April, 1985. From 1980
to 1984, he was President and a Director of Health Care and Retirement
Corporation of America ("HCR"), a public company involved in the development and
operation of nursing homes. From 1972 to 1980, Mr. Borra served as Executive
Vice President and a Director of HCR and its predecessor, Wolfe Industries
Construction Company. Mr. Borra is a Director of Health Care REIT, Inc., a
public company, the shares of which are traded on the New York Stock Exchange.
STEPHEN T. BENNETT has served as Senior Vice President-Development
since April, 1985. From 1979 to 1984, Mr. Bennett was a Project Planner for HCR.
Prior to 1979, he was a Project Review and Planning Officer for the West Central
Ohio Systems Agency, and a consultant to the State of Ohio in the development of
the state's health plan. From 1988 to
-3-
<PAGE> 7
1993, Mr. Bennett served on the Ohio Certificate of Need Review Board. In 1995,
he served as the Governor's appointee to the Florida Certificate of Need Study
Committee.
RICHARD J. CLARK has served as Chief Operating Officer since August,
1994, and as Senior Vice President-Health Care since April, 1985. From 1981 to
1984, Mr. Clark was Vice President of Operations for HCR. From 1978 to 1981, he
was General Manager and Executive Vice President of Heartland Health Care
Company, a division of HCR. Prior to 1978 he was Executive Director of the
Southern Division of Unicare Health Facilities and the Vice President of
Operations of Monterey Life Systems, Inc. Mr. Clark currently is Chairman of the
board and executive committee member of the National Subacute Care Association.
He also currently serves on the American Health Care Association's
multi-facility committee.
DENNIS R. SMITH has served as Senior Vice President-Finance and Chief
Financial Officer since June, 1996 and as Chief Accounting Officer since
February, 1995. From March, 1994 to June, 1996, Mr. Smith was the Company's
Controller. From June, 1991 through March, 1994, Mr. Smith was Corporate
Controller for Triad Healthcare, a spin-off of Nu-Med, Inc. From 1989 to 1991,
he was Treasurer and Vice President of Corporate Finance at Nu-Med, Inc., a
public company, the shares of which are traded on the Nasdaq National Market.
Prior to 1989, Mr. Smith served as Senior Manager in the health care audit
department of Deloitte & Touche.
ALLAN K. VRABLE has served as President of the Company's Pharmacy
Division since August, 1995. He also served as manager of Green Tree Pharmacy,
Inc. ("Green Tree") from November, 1989, through June 30, 1995, when Green Tree
was merged into The Druggist, Inc. which operates under the name of Vrable
Healthcare Services. He has served as President of The Druggist, Inc. since 1978
and of Alternacare Plus Enterprises, Inc. since 1987.
CARL R. ADKINS, M.D. has served as a Director of the Company since
November, 1996. Dr. Adkins is Chairman, President and Chief Executive Officer of
UtiliMed, Inc., a position he has held since September, 1995. From September,
1992 to September, 1995, he was President and Chief Executive Officer for the
West Region of United HealthCare of Ohio, a subsidiary of United HealthCare
Corp., a public company, the shares of which are traded on the New York Stock
Exchange. From August, 1986 to September, 1992, Dr. Adkins served as Senior Vice
President/Senior Medical Director for the New York Region of U.S. Healthcare.
HOWARD E. COX, JR. has served as a Director of the Company since April,
1985. Mr. Cox is a General Partner of Greylock, a national venture capital firm
headquartered in Boston with which he has been associated for 26 years. Mr. Cox
is a Director of Stryker Corporation, HPR, AMISYS, Vincam and numerous private
companies.
THOMAS A. JAMES has served as a Director of the Company since June,
1988. Mr. James is Chairman and Chief Executive Officer of Raymond James
Financial, Inc. and Chairman of Raymond James & Associates, Inc., an investment
banking and securities firm. Raymond James & Associates, Inc. was a Managing
Underwriter for the Company's initial public offering. Mr. James is Chairman of
the Heritage Family of Mutual Funds, is a director of Imco Recycling, Inc., and
has served as a Director of numerous other public corporations.
-4-
<PAGE> 8
FREDRICK C. POWELL has served as a Director of the Company since
December, 1990. Mr. Powell is Chief Executive Officer and Founder of Omni
Interactive Systems which custom designs and installs electronic environmental
control systems for homes and businesses. Until December, 1993, he was President
and General Manager of Rehab Systems Company, a firm he founded in 1987. From
1982 to 1987, he helped form and was Executive Vice President and Head of
Operations for Rehab Hospital Services Corporation. Prior to 1982, Mr. Powell
served as President and Chief Executive Officer at the Bradford, Pennsylvania
hospital. Mr. Powell is a founding Director of Campania Insurance Co.
BRUCE G. THOMPSON has been a Director of the Company since April, 1985.
Mr. Thompson serves as President of First Toledo Corporation and retired in
November, 1996 as Chairman of the Board and Chief Executive Officer of Health
Care REIT, Inc. ("REIT"), the securities of which are listed on the New York
Stock Exchange, companies he had founded in 1970 and 1971, respectively. Mr.
Thompson is a Director of the REIT, a Director of KeyCorp, formerly known as
Society National Bank, Toledo, Ohio; a Director of the Douglas Company, a
general contractor; a Director of Huron Systems, Inc., which develops hospital
information systems software for health care providers; and Chairman of the
Board of Trustees of Medical College of Ohio.
JAMES F. WHITE, JR. has served as a Director of the Company since May,
1994. Since January 1, 1996, he has been of counsel to the law firm of Shumaker,
Loop & Kendrick, LLP. He served as Vice Chairman and Chief Executive Officer of
Checkers Drive-In Restaurants, Inc. ("Checkers"), a public company, the shares
of which are traded on the Nasdaq National Market, from August, 1994 to August,
1995, and as Vice Chairman from August, 1995 to December, 1995. Mr. White served
as President of Checkers from March to July, 1994, and as Chief Operating
Officer of Checkers from February, 1993 to February, 1994, and was a Director of
the company from January, 1993 to December, 1995. Prior to joining Checkers, Mr.
White was a senior partner of Shumaker, Loop & Kendrick, LLP in Toledo, Ohio. He
practiced law with Shumaker, Loop & Kendrick, LLP for over 25 years and
continued of counsel to the firm until December 31, 1993. Mr. White is a
Director of Danka Business Systems, PLC, a public company, the shares of which
are traded on the Nasdaq National Market, and numerous private companies.
No family relationships exist between any of the Company's Directors,
nominees and executive officers. There are no arrangements or understandings
between any Director or nominee and any other person concerning service or
nomination as a Director.
The Board of Directors has Executive, Audit and Compensation
Committees. The Company does not have a Nominating Committee; instead, the
entire Board of Directors functions as a Nominating Committee.
The Board of Directors held four meetings during 1996. Directors who
were not officers of the Company received an $8,000 annual retainer in 1996,
plus $2,000 for each Board meeting attended. In addition, Directors are
reimbursed for expenses in connection with attendance at Board meetings.
Directors who are officers of the Company receive no extra compensation for
their services as Directors.
In 1996, the Company adopted a stock option plan for non-employee
directors. Under the terms of the plan, each of the Company's six non-employee
directors has been granted an option to purchase 1,000 shares of Common Stock.
All of the options have an exercise price equal to the average closing sale
price for the five most recent trading days prior to the grant date. The
non-statutory options become exercisable in three equal installments on the
first three anniversaries of the grant date and expire ten
-5-
<PAGE> 9
years after the grant date. Additional options to purchase 1,000 shares of
Common Stock automatically will be granted to non-employee directors on the date
of each future annual meeting of stockholders.
The Executive Committee, to the fullest extent allowed by the Delaware
General Corporation Law and subject to the powers and authority delegated to the
Audit Committee and the Compensation Committee, has and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the Company during intervals between meetings of the Board of
Directors. The Executive Committee took action eight times during 1996.
The Audit Committee held two meetings during 1996. The functions of the
Audit Committee are to recommend annually to the Board of Directors the
appointment of the independent auditors, discuss and review the scope and fees
of the prospective annual audit with the independent auditors, review the
results thereof with the independent auditors, review compliance with existing
major accounting and financial policies, review the adequacy of the financial
organization of the Company, review the adequacy of the internal audit process,
review the adequacy of internal accounting controls and monitor compliance with
federal and state laws relating to accounting practice.
The Compensation Committee met two times and took action by written
consent one time during 1996. The functions of the Compensation Committee are to
review compensation for all officers, to review and approve annual salaries and
bonuses for all executive officers, to review, approve and recommend to the
Board of Directors the terms and conditions of the 401(k) employee benefit plan
or changes thereto, to administer the Company's Stock Option Plans, and to carry
out the responsibilities required by rules of the Securities and Exchange
Commission.
In 1996, each incumbent Director attended at least 75%, collectively,
of the meetings of the Board held during the period for which he has been a
director and of each committee of which he was a member.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 17, 1997, information as to
the beneficial ownership of the Company's Common Stock by (i) each person known
to the Company as having beneficial ownership of more than 5% of the Company's
Common Stock, (ii) each Director and nominee for Director, (iii) each "named
executive officer" as defined in Item 402(a)(3) of Regulation S-K under the
Securities Exchange Act of 1934 ("Named Executive Officers"), and (iv) all
Directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP(2) CLASS
------------------- ----------------------- ----------
<S> <C> <C>
Pier C. Borra (3)(4) 1,062,324 15.3%
AIM Management Group(5) 510,100 7.4
111 Greenway Plaza
Suite 1919
Houston, TX 77046
</TABLE>
-6-
<PAGE> 10
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP(2) CLASS
------------------- ----------------------- ----------
<S> <C> <C>
Thomas F. Franke (6) 454,324 6.5
410 N. Eagle Street
Marshall, MI 49068
Allan K. Vrable (3)(7) 79,905 1.2
Richard J. Clark (3)(8) 68,416 1.0
Stephen T. Bennett (3)(9) 46,999 *
Howard E. Cox, Jr. (3)(10) 43,546 *
Greylock
One Federal Street
Boston, MA 02110
Thomas A. James (3)(11) 35,000 *
Raymond James Financial, Inc.
880 Carillon Parkway
St. Petersburg, FL 33716
Bruce G. Thompson (3)(12) 25,467 *
First Toledo Corp.
One SeaGate, Suite 1960
P.O. Box 2165
Toledo, OH 43603-2165
Fredrick C. Powell (3)(13) 2,333 *
Omni Interactive Systems
2415A Old Gettysburg Road
Camp Hill, PA 17011
Dennis R. Smith (3)(14) 2,400 *
James F. White, Jr. (3)(15) 2,000 *
Shumaker, Loop & Kendrick, LLP
North Courthouse Square
1000 Jackson
Toledo, OH 43624
Carl R. Adkins, M.D.(3) -0- *
UtiliMed, Inc
40 Skokie Blvd., Suite 500
Northbrook, IL 60062
All Directors and Executive Officers 1,368,390 19.7%
as a Group (11 persons)
</TABLE>
* Represents less than one percent of the class.
-7-
<PAGE> 11
(1) Unless otherwise indicated above, the address of the persons listed in
the table is as follows: c/o Arbor Health Care Company, 1100 Shawnee
Road, Lima, OH 45805.
(2) This column sets forth shares of Common Stock which are deemed to be
"beneficially owned" by the persons named in the table under Rule
13d-3 of the Securities and Exchange Commission. All of the persons
named in the table have sole voting and investment power with respect
to all shares beneficially owned by them except as otherwise described
in the following footnotes.
(3) See "Management - Directors and Executive Officers" for position with
the Company.
(4) Shares are held of record by Pier C. Borra individually (101,666),
Renee A. Borra (100,000), and Pier C. Borra and Renee A. Borra,
jointly (860,658). Excludes 33,333 shares held in trust for Mr.
Borra's son as to which he disclaims beneficial ownership.
(5) Based on information contained in Amendment No. 1 to Schedule 13G
filed by AIM Management Group with the Securities and Exchange
Commission on February 12, 1997.
(6) Shares are held of record by Thomas F. Franke as Trustee under an
Inter Vivos Trust dated May 20, 1981. The address of the trust is
Suite F, 6360 Jackson Road, Ann Arbor, MI 48103. Based on information
contained in Amendment No. 1 to Schedule 13G filed by Thomas F. Franke
with the Securities and Exchange Commission, dated February 2, 1996.
(7) Includes 5,000 shares owned by Mr. Vrable's wife, beneficial ownership
of which is disclaimed.
(8) Includes 7,333 shares which Mr. Clark has the right to acquire under
currently exercisable stock options.
(9) Includes 5,333 shares which Mr. Bennett has the right to acquire under
currently exercisable stock options.
(10) Includes 5,667 shares which Mr. Cox has the right to acquire under
currently exercisable stock options.
(11) Includes 20,000 shares owned by a charitable foundation for which Mr.
James serves as a trustee, beneficial ownership of which is
disclaimed, and 1,667 shares which Mr. James has the right to acquire
under currently exercisable stock options.
(12) Includes 5,555 shares held by Mr. Thompson's son, beneficial ownership
of which is disclaimed, and 334 shares which Mr. Thompson has the
right to acquire under currently exercisable stock options.
(13) Includes 1,000 shares which Mr. Powell has the right to acquire under
currently exercisable stock options.
(14) Includes 2,400 shares which Mr. Smith has the right to acquire under
currently exercisable stock options.
(15) Includes 1,000 shares held in a self-directed retirement plan for the
benefit of James F. White, Jr., and 1,000 shares which Mr. White has
the right to acquire under currently exercisable stock options.
-8-
<PAGE> 12
DIRECTOR AND EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table is a summary of the compensation paid or accrued by
the Company for the last three fiscal years for services in all capacities to
each of the Named Executive Officers.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------------------------------------------------
LONG TERM
ANNUAL COMPENSATION COMPENSATION ALL OTHER
NAME AND SALARY AWARDS - COMPEN-
PRINCIPAL POSITION YEAR (1) BONUS (2) OPTIONS (3) SATION
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Pier C. Borra 1996 $245,000 $171,638 50,000 $ -
Chairman of the Board, 1995 225,000 148,419 - -
President and Chief 1994 200,000 116,156 - -
Executive Officer
Richard J. Clark 1996 165,000 67,571 - 1,000
Senior Vice President- 1995 135,000 76,438 20,000 1,000
Health Care and Chief 1994 120,000 70,659 - 1,000
Operating Officer
Allan K. Vrable 1996 167,000 60,000 - 1,000
President, Pharmacy 1995 80,000 25,000 - -
Division 1994 - - - -
Stephen T. Bennett 1996 125,000 57,075 - 1,000
Senior Vice President- 1995 115,000 56,845 10,000 479
Development 1994 110,000 48,330 - 1,000
Dennis R. Smith 1996 120,000 34,296 28,000 1,000
Senior Vice President - 1995 87,000 20,342 7,000 650
Finance, Chief 1994 85,000 15,000 5,000 -
Financial Officer and
Chief Accounting Officer
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Certain perquisites were provided to certain of the Named Executive
Officers, but in no event did the value of the perquisites provided in
any year exceed 10% of the amount of the executive's salary for that
year.
(2) Bonuses were accrued pursuant to individual bonus plans with each
executive officer, which are comprised of an objective component (a
percentage of the Company's pre-tax income in excess of a
pre-determined goal) and a subjective component (based on the
Compensation Committee's evaluation of the executive's overall
performance, including performance in comparison with goals for which
the officer has responsibility).
-9-
<PAGE> 13
(3) The stock options described in this table which were granted by the
Company in 1996 and 1995 were granted pursuant to the 1995 Stock
Option Plan of the Company. The options vest 20% each year over five
years, and the options granted in 1996 and 1995 expire in 2006 and
2005, respectively, except for 23,310 options granted in 1996 to Mr.
Borra which expire in 2001. The stock options awarded in 1994 were
granted by the Company pursuant to the 1985 Stock Option Plan of the
Company. The options vest 20% each year over five years and expire in
2004.
STOCK OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table details individual grants of stock options made in
fiscal year 1996 to each of the Named Executive Officers of the Company. The
Company has never granted any stock appreciation rights (SAR). The table also
indicates the potential realizable value of each grant of options assuming that
the market price of the underlying security appreciates in value from the date
of the grant to the end of the option term at the following annualized rates:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS (1) OPTION TERM (2)
- -----------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g)
% of Total
Number of Options
Securities Granted to Exercise
Underlying Employees or Base
Options in Fiscal Price Expiration
Name Granted (#) Year ($/Sh) Date 5% ($) 10% ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
26,690 (3) 20.9 19.50 10/29/06 327,311 829,471
Pier C. Borra 23,310 (3) 18.2 21.45 10/29/01 138,140 305,254
Richard J. Clark - - - - - -
Allan K. Vrable - - - - - -
Stephen T. Bennett - - - - - -
Dennis R. Smith 28,000 (3) 21.9 19.50 10/29/06 343,376 870,183
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) All options were granted pursuant to the 1995 Stock Option
Plan.
(2) The 5% and 10% assumed annual rates of stock price
appreciation are provided in compliance with Regulation S-K
under the Securities Exchange Act of 1934. The Company does
not necessarily believe that these appreciation calculations
are indicative of actual future stock option values or that
the price of the Company's Common Stock will appreciate at
such rates.
-10-
<PAGE> 14
(3) These options provide that they become exercisable for
one-fifth of the shares on October 29, 1997, and for an
additional one-fifth thereafter on each of the next four
anniversaries of such date.
STOCK OPTION EXERCISES AND YEAR END OPTION VALUES
The following table sets forth information with respect to the Named
Executive Officers concerning the exercise of options during 1996 and
unexercised options held on December 31, 1996.
<TABLE>
<CAPTION>
Number of Securities
Shares Underlying Unexercised Value of Unexercised In-the-
Acquired Value Options at Money Options at
on Exer- Realized December 31, 1996 December 31, 1996 (1)
Name cise (#) ($000) Exercisable Unexercisable Exercisable Unexercisable
---- -------- ------ ----------- ------------- ----------- -------------
<S> <C> <C> <C>
Pier C. Borra - - - 50,000 $ - $279,546
Richard J. Clark - - 7,333 16,000 110,659 144,000
Allan K. Vrable - - - - - -
Stephen T. Bennett - - 5,333 8,000 92,659 72,000
Dennis R. Smith 2,400 18,157 1,000 36,600 7,250 235,750
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based upon the December 31, 1996 closing stock price of
$26.00, as reported on the Nasdaq National Market.
The information contained in the following sections "Report of
Compensation Committee" and "Performance Graph" are not deemed to be "soliciting
material" or to be "filed" with the Securities and Exchange Commission or
subject to Regulations 14A or 14C or to the liabilities of Section 18 of the
Securities Exchange Act of 1934.
REPORT OF COMPENSATION COMMITTEE
The following report was prepared by the members of the Company's
Compensation Committee:
Annual compensation for the Company's Named Executive Officers,
including the Chief Executive Officer, is determined by the Compensation
Committee. The goals of the Company's compensation program are to attract,
retain, motivate and reward highly qualified management personnel and to provide
them with long-term career opportunities. The Company's compensation philosophy
is to provide its executives with a competitive total compensation package which
motivates superior job performance, the achievement of the Company's business
objectives, and the enhancement of stockholder value. Compensation of the
Company's Named Executive Officers is reviewed annually by the Committee.
Changes proposed for these employees are evaluated and approved by the Committee
on an individual basis.
The Company's general approach to compensating Named Executive Officers
is to pay cash salaries which generally are competitive within ranges of
salaries paid to executives of other public nursing home companies, although the
Company does not attempt to meet salary levels of such companies. Instead, the
Committee sets overall compensation at a level it believes to be fair, based
upon
-11-
<PAGE> 15
a subjective analysis of the individual executive's experience and past and
potential contributions to the Company. To assist in determining appropriate
overall compensation, the Company reviews information regarding revenues,
income, and executive compensation for other public nursing home companies.
In addition to base salaries, which are reviewed annually, the
Committee establishes annual performance-based incentive opportunities for its
Named Executive Officers, including the Chief Executive Officer. Bonus plans,
based upon various factors which may differ for individual officers, are set
prior to or shortly after the beginning of the year which reflect the Company's
performance expectations and support the attainment of the Company's strategic,
operational and financial goals. Typically, the bonus plans include both an
objective component (a percentage of the Company's pre-tax income in excess of a
pre-determined level, sometimes subject to adjustment based on individual
criteria) and a subjective component (the Committee's evaluation of the
executive's overall performance, including performance in comparison with goals
for which the officer has responsibility).
Approximately 70% of the Chief Executive Officer's 1996 bonus was based
on an increase in profitability by the Company in excess of a pre-determined
level, and approximately 30% was awarded in recognition of his performance in
successfully managing the Company. The bonuses paid to the Chief Executive
Officer and other Named Executive Officers were calculated in February, 1997 in
accordance with the individual bonus plans approved in February, 1996.
Stock option grants to Named Executive Officers and other key employees
of the Company, including the Chief Executive Officer, are made at the
discretion of the Compensation Committee pursuant to the Company's 1995 Stock
Option Plan (the "Stock Option Plan"). The Chief Executive Officer and one other
current Named Executive Officer received stock option grants in 1996. Factors
and criteria used by the Compensation Committee in the award of stock options
included individual responsibilities, individual performance and direct and
indirect contributions to the profitability of the Company. The benefits derived
from each stock option granted under the Stock Option Plan are directly
attributable to a future increase in the value of the Company's Common Stock.
Section 162(m) of the Internal Revenue Code limits the tax deduction to
$1 million for compensation paid to a corporation's key executive officers
unless certain requirements are met. One of the requirements imposed under
regulations promulgated by the Internal Revenue Service is that the
corporation's compensation committee be comprised solely of "disinterested
directors." Not all of the Directors serving on the Company's Compensation
Committee are disinterested under those regulations. However, given the
Company's compensation program and historic compensation levels, the
Compensation Committee does not believe the limitation on deductibility will
have a material effect on the Company. The Company intends to monitor the effect
of the Section 162(m) regulations and take steps in the future as might be
appropriate.
Pier C. Borra abstains from all determinations by the Compensation
Committee as they relate to his compensation as Chief Executive Officer and
President.
COMPENSATION COMMITTEE
Pier C. Borra
Howard E. Cox, Jr.
Thomas A. James
-12-
<PAGE> 16
TERMINATION OF EMPLOYMENT CHANGE-IN-CONTROL ARRANGEMENTS
On June 1, 1996, the Company entered into key executive termination
payment plans with Pier C. Borra, Richard J. Clark, and Stephen T. Bennett and
on June 21, 1996 with Dennis R. Smith. The termination plan for each of Messrs.
Clark, Bennett and Smith provides that if, within one year following a change in
control of the Company, the Company terminates such employee's employment or
such employee terminates his employment with the Company for good reason
(including diminution of his duties, removal from his position as executive
officer of the Company, reduction in his compensation, or any requirement that
he change his current place of principal residence), such employee will receive
a cash severance benefit equal to the sum of his then current annual base salary
and his prior year's bonus. Mr. Borra's plan provides that, upon the happening
of any such event, he will receive a cash severance benefit equal to two times
the sum of his then current annual base salary and his prior year's bonus. The
severance benefit will be paid in a lump sum within ten business days following
the employee's termination of employment. In addition, such employee will be
entitled to acceleration of any stock options which are unvested at the date of
termination of his employment and payment of COBRA insurance premiums for a
period of six months following the date of termination of his employment. If it
is determined that any payment or distribution by the Company to such employee
would be subject to excise tax, the amount of the payments to him will be
increased to cover such excise tax.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Company's Compensation Committee are Pier C. Borra,
Howard E. Cox, Jr. and Thomas A. James. Mr. Borra is Chairman, President and
Chief Executive Officer of the Company. Mr. Borra abstained from voting as to
his compensation package as an officer. Mr. Borra also is a director of Health
Care REIT, Inc., a company for which Bruce G. Thompson, a director of the
Company, serves as a director and until November, 1996, served as an executive
officer. Mr. James is chairman of Raymond James & Associates, Inc., an
investment banking and securities firm which acted as a managing underwriter in
the Company's initial public offering. Mr. James is also chairman and chief
executive officer of Raymond James Financial, Inc., which owned two subsidiaries
that are the controlling partners in a partnership that is the general partner
in a partnership that owned a health center leased to the Company until
September, 1996, at which time the Company acquired the center. See "Certain
Transactions."
-13-
<PAGE> 17
PERFORMANCE GRAPH
The following graph compares cumulative total return among Arbor Health
Care Company, Nasdaq Market Index and Peer Group Index from August 6, 1993, to
December 31, 1996.
<TABLE>
<CAPTION>
Measurement Period
--------------------------------------------------------------------------------------------
8/93 12/93 12/94 12/95 12/96
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Arbor Health Care Co. 100.00 115.25 138.98 118.64 176.27
Nasdaq Market Index 100.00 105.26 110.52 143.35 178.13
Peer Group Index 100.00 122.95 149.64 148.11 166.34
</TABLE>
The graph above assumes $100 invested on August 6, 1993, in Arbor
Health Care Company, and companies included in the Nasdaq Market Index and in
the Peer Group. Comparison is made for the period from August 6, 1993, to
December 31, 1996, with the base measurement point fixed at the close of trading
on August 6, 1993, since the Company's stock has only been registered under the
Exchange Act and trading reported by the Nasdaq National Market since that date.
Total return assumes reinvestment of any dividends for all companies considered
within the comparison. The stock price performance shown on the graph above is
not necessarily indicative of future price performance.
The graph above compares the performance of the Company with that of
the Nasdaq Market Index, and a group of peer companies, excluding the Company,
with the investment weighted on market capitalization at the beginning of the
measurement period. The Nasdaq Market Index includes all companies, the common
stock of which is listed on The Nasdaq Stock Market and Over the Counter Market.
Companies in the peer group are Beverly Enterprises, Inc., Genesis Health
Ventures, Inc., GranCare, Inc., Health Care and Retirement Corporation, Horizon
CMS Healthcare Corporation, Integrated Health Services, Inc., Living Centers of
America, Inc., Manor Care, Inc., and Mariner Health Group, Inc. The Hillhaven
Corporation, a tenth company previously included in the index, has been excluded
for all periods because it ceased to exist as a separate corporation following
its acquisition by another company in 1995.
-14-
<PAGE> 18
CERTAIN TRANSACTIONS
The information set forth herein briefly describes transactions during
the past fiscal year between the Company and its Directors, officers and 5%
stockholders. Management of the Company believes that such transactions have
been on terms no less favorable to the Company than those that could have been
obtained from unaffiliated parties. These transactions have been approved by a
majority of the Company's disinterested Directors and the Audit Committee.
Future transactions, if any, with affiliated parties will be approved by a
majority of the Company's disinterested Directors and the Audit Committee and
will be on terms no less favorable to the Company than those that could be
obtained from unaffiliated parties.
On September 19, 1996, the Company acquired Arbors at Waterville, a
100-bed Center that it has operated under an operating lease agreement since
1989. Raymond James Financial, Inc. ("RJFI") owns two subsidiaries that are
controlling partners in a partnership that is the general partner in the
partnership that owned the Center. The general partner's interest in the leased
Center was 1%. Thomas A. James, a Director of the Company, is an officer,
director and major stockholder of RJFI. The purchase price of $5.8 million was
funded with $4.6 million in debt and cash of approximately $1.2 million. The
acquisition was accounted for using the purchase method. The excess of the
purchase price over the estimated fair value of the tangible net assets acquired
is amortized over a period of 20 years using the straight-line method. Lease
expense paid to the partnership in 1996 prior to acquisition was approximately
$401,000. RJFI is an affiliate of Raymond James & Associates, Inc., an
investment banking firm which served as Managing Underwriter for the Company's
initial public offering.
On June 30, 1995, the Company acquired all of the outstanding stock of The
Druggist, Inc. ("Druggist") from Allan K. Vrable. Mr. Vrable currently serves as
President of the Company's Pharmacy Division, The Druggist, Inc. and Alternacare
Plus Enterprises, Inc. ("Alternacare"). The purchase price of $10.5 million
consisted of $4.8 million in seller financing, $3.0 million in additional
acquisition borrowings, cash of approximately $2.2 million and $0.5 million in
Common Stock of the Company (24,968 shares). The Company may be required to make
additional payments of up to $2.5 million if certain earnings targets are
attained through December 31, 1999. The Company leases Druggist and Alternacare
office space from Mr. Vrable under renewable operating lease agreements.
Interest and lease expense paid by the Company to or on behalf of Allan K.
Vrable in 1996 was $373,619 and $240,000, respectively.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's Directors, officers and holders of more than 10% of the Company's
Common Stock to file with the Securities and Exchange Commission initial reports
of ownership and reports of changes in ownership of Common Stock and any other
equity securities of the Company. To the Company's knowledge, based solely upon
a review of the forms, reports and certificates filed with the Company by such
persons, all of them complied with the Section 16(a) filing requirements in
1996, except as follows: Pier C. Borra, Renee A. Borra, Fredrick C. Powell and
Dennis R. Smith, each filed one untimely Form 4 report with respect to one
transaction.
-15-
<PAGE> 19
PROPOSAL TO AMEND THE COMPANY'S
1995 STOCK OPTION PLAN
The 1995 Stock Option Plan (the "Stock Option Plan") provides incentive
stock options to employees (including officers) of the Company and its
subsidiaries and the grant of nonstatutory options to employees (including
officers), and Directors of the Company and its subsidiaries and others. On
February 21, 1997, subject to stockholder approval, the Board of Directors
adopted an amendment to the Stock Option Plan to increase the number of shares
of Common Stock authorized for issuance thereunder by 300,000, bringing the
total number of shares authorized for issuance under the Stock Option Plan to
632,197 shares. The proposed share increase will avoid a shortfall in the number
of shares available for award by the Compensation Committee.
At the Meeting, the stockholders are asked to approve the amendment to
the Stock Option Plan adopted by the Board of Directors in February 1997,
increasing the number of shares of Common Stock authorized to be issued
thereunder from a total of 332,197 shares to a total of 632,197 shares. The
affirmative vote of a majority of the votes cast at the meeting is required to
approve the proposed amendment to the Stock Option Plan.
THE FOLLOWING GENERAL DESCRIPTION OF CERTAIN FEATURES OF THE STOCK
OPTION PLAN IS QUALIFIED IN ITS ENTIRETY TO REFERENCE TO THE STOCK OPTION PLAN,
COPIES OF WHICH ARE AVAILABLE UPON REQUEST TO THE INVESTOR RELATIONS DEPARTMENT
OF THE COMPANY. IN ADDITION, A COPY OF THE STOCK OPTION PLAN IS FILED WITH THE
SEC AS AN APPENDIX TO THE COMPANY'S PROXY STATEMENT DATED APRIL 24, 1995.
SUMMARY OF THE STOCK OPTION PLAN
Shares Available Under the Stock Option Plan. Subject to adjustment as
provided in the Stock Option Plan, the number of shares of Common Stock that may
be issued or transferred and covered by outstanding awards granted under the
Stock Option Plan will not in the aggregate exceed 332,197, which may be
original issue shares, treasury shares, or a combination thereof. The
stockholders are asked to approve an amendment to the Stock Option Plan
increasing the number of shares by 300,000 to 632,197.
Eligibility. Officers, other key salaried employees of the Company and
members of the Board of Directors may be selected by the Compensation Committee
to receive benefits under the Stock Option Plan. It is estimated that
approximately 60 individuals currently are eligible to participate in the Stock
Option Plan.
Options. Options granted to eligible employees under the Stock Option
Plan may be Options that are intended to qualify as "Incentive Stock Options"
within the meaning of Section 422 of the Code or Options that are not intended
to so qualify ("Nonstatutory Options"). Options granted to non-employee members
of the Board of Directors will be Nonstatutory Options.
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If the Option is designated as an Incentive Stock Option, the purchase
price of the Common Stock that is the subject of such Option may be not less
than the fair market value of the Common Stock on the date the Option is
granted. If the Option is a Nonstatutory Option, the purchase price may be equal
to or less than the fair market value of the Common Stock on the date the Option
is granted, as the Compensation Committee shall determine. The market value of a
share of Common Stock was $25.75 on March 17, 1997, which was the closing price
of the Common Stock on the Nasdaq Stock Market on that date. The option price is
payable at the time of exercise (i) in cash, (ii) by the delivery of shares of
Common Stock having a fair market value equal to the option price, (iii) with a
promissory note for part of the option price, or (iv) in such other manner as
the Compensation Committee may approve. Any grant may provide for payment of the
option price from the proceeds of sale through a broker on the date of exercise
of some or all of the shares of Common Stock to which the exercise relates.
No Options may be exercised more than 10 years from the date of grant.
Each employee's or director's stock option agreement may specify the period of
continuous service with the Company that is necessary before the Option will
become exercisable. Except in the case of an employee who is permanently and
totally disabled, if the Option is intended to be an Incentive Stock Option it
will be exercisable only if the recipient is an employee of either the Company
or a subsidiary corporation at all times during the period beginning on the date
of the grant of the Option and ending on a date which is no later than three
months before the date of such exercise, all as specified in the employee's or
director's stock option agreement. Successive grants may be made to the same
recipient regardless of whether Options previously granted to him or her remain
unexercised.
Transferability. No Option granted under the Stock Option Plan is
transferable by a participant except by will or the laws of descent and
distribution. Options may not be exercised during a participant's lifetime
except by the participant or, in the event of the participant's incapacity, by
the participant's guardian or legal representative acting in a fiduciary
capacity on behalf of the participant under state law and court supervision.
Adjustments. The maximum number of shares that may be issued or
transferred under the Stock Option Plan and the number of shares covered by
outstanding Options and the option prices per share applicable thereto are
subject to adjustment in the event of stock dividends, stock splits,
combinations, exchanges of shares, recapitalizations, mergers, consolidations,
liquidation of the Company, and similar transactions or events.
Administration and Amendments. The Stock Option Plan is administered by
the Compensation Committee. In connection with its administration of the Stock
Option Plan, the Compensation Committee is authorized to interpret the Stock
Option Plan and related agreements and other documents.
The Stock Option Plan may be amended from time to time by the Board of
Directors in such respects as it deems advisable. Further approval by the
stockholders of the Company will be required for any amendment that would (i)
increase the aggregate number of shares of Common Stock that may be issued under
the Stock Option Plan, (ii) materially change the classes of persons eligible to
participate in the Stock Option Plan, or (iii) otherwise cause Rule 16b-3 under
the Exchange Act to cease to be applicable to the Stock Option Plan. No
amendment may change the Stock Option Plan so as to cause any Option intended to
be an Incentive Stock Option to fail to meet the Internal Revenue Code
requirements for an incentive stock option. No amendment may change any rights
an optionee may have
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under any outstanding Option without the written consent of the Optionee. The
Board of Directors may at any time terminate or discontinue the Stock Option
Plan.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of certain of the federal income tax
consequences of certain transactions under the Stock Option Plan based on
federal income tax laws in effect on January 1, 1997. This summary is not
intended to be exhaustive and does not describe state or local tax consequences.
Nonstatutory Options. In general, (i) an employee or director will not
recognize taxable income at the time he or she is granted Nonstatutory Options;
(ii) at the time of exercise of a Nonstatutory Option, ordinary income will be
recognized by the employee in an amount equal to the difference between the
option price paid for the shares and the fair market value of the shares; and
(iii) at the time of sale of shares acquired pursuant to the exercise of a
Nonstatutory Option, any appreciation (or depreciation) in the value of the
shares after the date of exercise will be treated as either short-term or
long-term capital gain (or loss) depending on how long the shares have been
held.
Incentive Stock Options. No income generally will be recognized by an
employee upon either the grant or the exercise of an Incentive Stock Option. If
the shares of Common Stock are issued to an employee pursuant to the exercise of
an Incentive Stock Option and the shares are not sold or otherwise transferred
by the employee within two years after the date of grant or within one year
after the transfer of the shares to the employee, then upon the sale of the
shares any amount realized in excess of the option price will be taxed to the
employee as long-term capital gain and any loss sustained will be a long-term
capital loss.
If shares of Common Stock acquired upon the exercise of an Incentive
Stock Option are disposed of before the expiration of the one-year or two-year
holding periods described above, including where the employee pays the option
price through a so-called cashless exercise, the employee generally will
recognize ordinary income in the year of disposition in an amount equal to any
excess of the fair market value of the shares at the time of exercise (or, if
less, the amount realized on the disposition of the shares in a sale or
exchange) over the option price paid for the shares. Any further gain (or loss)
realized by the employee generally will be taxed as short-term or long-term
capital gain (or loss) depending on the holding period.
Tax Consequences to the Company. To the extent that the recipient of an
Option recognizes ordinary income in the circumstances described above, the
Company generally will be entitled to a corresponding federal income tax
deduction, provided that, among other things, (i) the income meets the test of
reasonableness, and is an ordinary and necessary business expense; (ii) the
benefits do not constitute an "excess parachute payment" within the meaning of
Section 280G of the Code; and (iii) the deduction is not disallowed because the
compensation paid to the employee during the period exceeds the $1 million
limitation on executive compensation of named executive officers.
The affirmative vote of a majority of the shares of Common Stock of the
Company present, or represented, and entitled to vote at the Meeting is
necessary for approval of the amendment to the Stock Option Plan. The Board of
Directors believes that the approval of the amendment is in the best interests
of the Company and the stockholders because the Stock Option Plan enables the
Company to provide competitive equity incentives to officers and key salaried
employees to enhance the profitability of the
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<PAGE> 22
Company and increase stockholder value. The Stock Option Plan further serves to
align the interests of such persons and members of the Board of Directors with
the interests of stockholders by giving them a personal interest in the value of
the Company's Common Stock.
THE BOARD OF DIRECTORS HAS APPROVED THE AMENDMENT TO THE STOCK OPTION
PLAN AND RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS VOTE "FOR" APPROVAL OF THE
AMENDMENT TO THE 1995 STOCK OPTION PLAN.
PROPOSAL TO ADOPT
EMPLOYEE STOCK PURCHASE PLAN
Effective April 1, 1997, the Board of Directors, subject to stockholder
approval, adopted the Arbor Health Care Company Employee Stock Purchase Plan
(the "Stock Purchase Plan"). It is proposed that the stockholders of the Company
approve the Stock Purchase Plan. The affirmative vote of a majority of the votes
cast at the Annual Meeting is required to adopt the Stock Purchase Plan. If the
Stock Purchase Plan is not approved by the stockholders, it will not become
effective. The purpose of the Stock Purchase Plan is to provide employees
(except employees who own 5% or more of the Company's Common Stock, Directors
and the Named Executive Officers) of the Company and its subsidiaries with an
opportunity to purchase through payroll deductions Common Stock at a purchase
price that is 90% of the fair market value of Common Stock.
A COMPLETE COPY OF THE STOCK PURCHASE PLAN IS ATTACHED TO THIS PROXY
STATEMENT AS APPENDIX I. THE FOLLOWING DISCUSSION OF THE STOCK PURCHASE PLAN IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO APPENDIX I.
SUMMARY OF THE STOCK PURCHASE PLAN
Purpose. The purpose of the Stock Purchase Plan is to provide employees
(except employees who own 5% or more of the Company's Common Stock, Directors
and the Named Executive Officers) of the Company and its subsidiaries with an
opportunity to purchase Common Stock through payroll deductions.
Administration. The Board of Directors has created a committee composed
of three officers of the Company, which is generally responsible for the
administration of the Stock Purchase Plan, and for creating any rules or
regulations needed for its operation.
The Board of Directors will also appoint a nationally known stock
brokerage firm to act as the "Agent" for participating employees under the Stock
Purchase Plan. This Agent will complete all purchases of shares on behalf of
participating employees, and has the authority (and discretion) to determine the
exact times at which purchases of Common Stock will be made under the Stock
Purchase Plan, as well as the prices. This Agent will also retain custody of the
stock purchased for employees under the Stock Purchase Plan.
Eligibility and Participation. Any employee (except employees who own
5% or more of the Company's Common Stock, Directors and the Named Executive
Officers) who is employed for at least 20 hours per week and more than five
months per calendar year by the Company or any of its subsidiaries is eligible
to participate in the Stock Purchase Plan, provided that such employee has been
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<PAGE> 23
employed for at least one year prior to any offering date and subject to
limitations imposed by Section 423(b) of the Internal Revenue Code. Eligible
employees become participants in the Stock Purchase Plan by delivering to the
Company's payroll office, at least 20 days prior to the first day of the
applicable offering period, an authorization form directing payroll deductions.
Offering Periods. The Stock Purchase Plan is generally implemented by
one offering during each three-month period of the plan. Offering periods
normally commence in January, April, July and October of each year and offering
dates normally are the first day of each of these months. The Board of Directors
has the power to alter the duration of the offering periods without stockholder
approval. On the first day of each offering period, the Company grants options
to purchase shares of Common Stock to each participant. On the last day of each
offering period, the participants are deemed to have exercised the options.
Purchase Price. The purchase price at which shares will be sold in an
offering under the Stock Purchase Plan is 90% of the fair market value of Common
Stock. Up to 150,000 shares of the Company's Common Stock will be available for
purchase by employees under the plan. These shares will be bought either on the
open market (that is, in purchases made on the Nasdaq Stock Market or other
public stock markets) or directly from the Company. When shares are purchased on
the open market, the Company will contribute the additional funds needed to
purchase the shares at fair market value. If the shares are purchased directly
from the Company, the fair market value will be based on the average of the
closing prices during the last 20 trading days of the quarter. The Board of
Directors has the authority to increase the Company's contribution for any
offering period up to 15% of the Purchase Price to be paid for Common Stock for
that offering period. The Company's contributions (and the discount) will be
limited to an aggregate of $12,500 each quarter, unless the Board of Directors
expressly approves a larger amount.
Payroll Deductions. The purchase price of the shares to be acquired
under the Stock Purchase Plan is accumulated by payroll deductions over the
offering period. The rate of deductions may not exceed 10% of participant's
compensation, up to an annual maximum of $10,000 per employee. A participant may
not increase or decrease the rate of payroll deductions during the offering
period, except that an employee may reduce the deduction to zero during a
quarter.
All payroll deductions made for a participant are credited to his or
her account under the Stock Purchase Plan and are deposited with the general
funds of the Company. The amount by which an employee's payroll deductions
exceeds the amount required to purchase the shares subject to option and amounts
attributable to fractional share interests are rolled over into the next
offering period.
Withdrawal. A participant in the Stock Purchase Plan may terminate his
or her interest in a given offering in whole, but not in part, by giving written
notice to the Company of his or her election to withdraw at least 30 days prior
to the end of the applicable three-month offering period. Such withdrawal
automatically terminates the participant's interest in that offering, but does
not have any effect upon such participant's eligibility to participate in
subsequent offerings under the Stock Purchase Plan.
Termination of Employment. Upon termination of a participant's
employment, any cash credited to the participant's account and not used to
purchase shares will be refunded and any shares of Common Stock held by the
Agent for the participant's account will be distributed to the participant or,
if the participant is deceased, his or her beneficiary, unless the participant
or his or her beneficiary requests
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<PAGE> 24
that the Agent sell the Common Stock in the account and forward the net proceeds
to the participant or beneficiary, as applicable.
Selling Stock. Eligible employees generally will not be able to sell
the shares purchased for their accounts under the plan for at least six months
after the shares were purchased. After that date, the shares can be withdrawn or
sold.
Capital Changes. In the event of any change in the number of
outstanding shares of Common Stock by reason of a recapitalization, merger,
consolidation, reorganization, separation, liquidation, stock split or stock
dividend, combination of shares, or any other change in the corporate structure
or shares of stock of the Company, appropriate adjustment will be made in the
purchase price and in the number and kind of shares subject to purchase under
the Stock Purchase Plan, as well as in the number of shares available for
issuance under the Stock Purchase Plan.
Nonassignability. No rights or accumulated payroll deductions of an
employee under the Stock Purchase Plan may be pledged, assigned, transferred or
otherwise disposed of in any way for any reason other than death. Any attempt to
do so may be treated by the Company as an election to withdraw from the Stock
Purchase Plan.
Amendment and Termination of the Stock Purchase Plan. The Board of
Directors of the Company may at any time amend or terminate the Stock Purchase
Plan. Approval of the stockholders of the Company is required for amendments to
the Stock Purchase Plan if such amendment would (a) increase the number of
shares which may be available for purchase under the Stock Purchase Plan (except
in connection with capital changes of the Company) or (b) materially modify the
requirements as to eligibility for participation under the Stock Purchase Plan.
FEDERAL INCOME TAX CONSEQUENCES
The Stock Purchase Plan and the right of participants to make purchases
thereunder are intended to qualify as an "employee stock purchase plan" under
the provisions of Section 423 of the Code. Under these provisions, amounts
deducted from a participant's pay under the Stock Purchase Plan are included in
the employee's compensation subject to federal income and social security taxes.
The Company will withhold taxes on these amounts. Participants will not
recognize any additional income for federal income tax purposes either upon
enrollment in the Stock Purchase Plan or upon any purchase of stock thereunder.
The tax consequences are deferred until a participant sells the stock acquired
under the Stock Purchase Plan, or a participant disposes of such stock by gift
or otherwise.
Upon disposition of the shares, the participant will be subject to tax
and the amount of the tax will depend upon the holding period. If the shares
have been held by the participant for more than two years after the beginning of
the quarter in which the option was granted the gain will be taxed as long-term
capital gain except that the lesser of this gain or the excess of the fair
market value of the shares over the option price on the offering date (as if the
option was exercised at such time) will be treated as ordinary income (but not
subject to withholding or social security taxes). If the shares are disposed of
before the expiration of this holding period, the participant will recognize
ordinary income for federal income tax purposes (and may be subject to
withholding taxes including social security taxes) in an amount generally
measured as the excess of the fair market value of the shares on the exercise
date over
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<PAGE> 25
the purchase price, and any further gain (or loss) generally will be long-term
or short-term capital gain (or loss), depending on the holding period.
The Company is entitled to a deduction for amounts taxed to a
participant as ordinary income only to the extent that ordinary income is
recognized by the participant upon disposition of shares.
The foregoing does not purport to be a complete summary of the effect
of federal income taxation of Stock Purchase Plan transactions upon participants
and the Company. It also does not discuss the tax consequences of a
participant's death or the provisions of the income tax laws of any municipality
or state in which a participant may reside.
THE BOARD OF DIRECTORS HAS APPROVED THE EMPLOYEE STOCK PURCHASE PLAN
AND RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS VOTE "FOR" APPROVAL OF THE
EMPLOYEE STOCK PURCHASE PLAN.
RATIFICATION OF APPOINTMENT OF
INDEPENDENT AUDITORS
The Company has engaged the firm of Ernst & Young LLP, independent
auditors, to report upon the financial statements included in the Annual Report
previously delivered to the stockholders. A representative from said firm will
be in attendance at the Meeting, will have the opportunity to make a statement
if desired, and will be available to respond to any questions from those in
attendance. The Company has appointed Ernst & Young LLP to report upon its 1997
financial statements, subject to ratification of such appointment by the
stockholders at the Meeting. Stockholder ratification of the Company's
independent auditors is not required by the Company's By-Laws or otherwise. The
Board of Directors has elected to seek such ratification as a matter of good
corporate practice and unanimously recommends that you vote "FOR" such
ratification. Abstentions will be counted toward the number of shares
represented at the Meeting. Broker non-votes will be disregarded. If the
stockholders do not ratify this appointment, other certified public accountants
will be considered by the Board of Directors upon recommendation of the Audit
Committee.
OTHER BUSINESS
Management of the Company does not know of any other business that may
be presented at the Meeting. If any matter not described herein should be
presented for stockholder action at the Meeting, the persons named in the
enclosed Proxy will vote the shares represented thereby in accordance with their
best judgment.
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STOCKHOLDER PROPOSALS FOR
PRESENTATION AT THE 1998 ANNUAL MEETING
The Board of Directors requests that any stockholder proposals intended
for presentation at the 1998 Annual Meeting be submitted to Brad C. Roush,
Secretary, in writing no later than December 1, 1997, for consideration for
inclusion in the Company's proxy materials for such meeting.
By Order of the Board of Directors
/s/ Brad C. Roush
---------------------------------
BRAD C. ROUSH
Secretary
Dated: April 18, 1997
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Appendix I
ARBOR HEALTH CARE COMPANY
EMPLOYEE STOCK PURCHASE PLAN
SECTION ONE. PURPOSES
The Arbor Health Care Company Employee Stock Purchase Plan
(the "Plan") is intended to provide employees of Arbor Health Care Company and
its Subsidiaries (hereinafter referred to, unless the context otherwise
requires, as the "Company") with an opportunity to acquire shares of the
Company's Common Stock at an advantageous price with savings accumulated through
payroll deductions. It is the intention of the Company to have the Plan qualify
as an "employee stock purchase plan" under Section 423 of the Code. The
provisions of the Plan shall, accordingly, be construed in a manner consistent
with the requirements of that section of the Code.
SECTION TWO. DEFINITIONS
A. Agent. The term "Agent" shall mean the bank, brokerage
firm, or other firm the Board of Directors has designated to carry out the
functions assigned to the Agent in Section Sixteen hereof.
B. Board of Directors. The term "Board of Directors" shall
mean the Board of Directors of the Company (or any committee to which the Board
of Directors has delegated authority to act with respect to a specific
activity).
C. Code. The term "Code" shall mean the Internal Revenue Code
of 1986, as amended.
D. Common Stock. The term "Common Stock" shall mean the common
stock, par value $0.03 per share, of the Company.
E. Company. The term "Company" shall mean Arbor Health Care
Company, a Delaware corporation.
F. Compensation. The term "Compensation" shall mean cash
compensation, before any payroll deductions for taxes or any other purposes,
paid by the Company or a Subsidiary to a Participant in respect of the service
of such Participant to the Company or a Subsidiary during an Offering Period.
This amount shall be deemed to include any amounts which the Participant has
elected to defer for federal income tax purposes under any 401(k) savings plan,
cafeteria plan or deferred compensation plan maintained by the Company or a
Subsidiary. Compensation shall not include any amounts paid to the Participant
as (i) any amounts paid during that Offering Period on account of the
Participant under any employee pension benefit plan (as defined in Section 3(2)
of ERISA), and (ii) except as otherwise provided in the preceding sentence, any
amounts which are not includable in the income of the Participant for federal
income tax purposes.
G. Designated Subsidiary. The term "Designated Subsidiary"
shall mean a Subsidiary designated by the Board of Directors to participate in
the Plan.
H. Offering Date. The term "Offering Date" shall mean April 1,
1997, and the first day of each subsequent July, October, January and April.
I. Offering Period. The term "Offering Period" shall mean a
three-month period commencing with an Offering Date and ending with the
following Purchase Date. The initial Offering Period shall commence April 1,
1997 and end June 30, 1997.
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J. Option. The term "Option" shall mean the right of a
Participant to acquire Common Stock pursuant to the provisions of the Plan.
K. Participant. The term "Participant" shall mean an eligible
employee who has authorized payroll deductions for the purchase of Common Stock
under the Plan in accordance with Section Four hereof.
L. Purchase Date. The term "Purchase Date" shall mean the
first trading day of each July, October, January and April, commencing July,
1997. The Agent may, in its discretion, use any trading day within five business
days after the end of the quarter as the Purchase Date.
M. Subsidiary. The term "Subsidiary" shall mean a subsidiary
corporation of the Company as defined by Section 424(f) of the Code.
N. Trading Day. The term "trading day" means any day that the
principal stock exchange, or other national market, upon which the Common Stock
is traded is open for business.
O. Year of Service. The term "Year of Service" shall mean a
period of twelve consecutive months of employment with the Company or any
Subsidiary.
P. Wherever appropriate, words used in this Plan in the
singular may mean the plural, the plural may mean the singular and the masculine
may mean the feminine.
SECTION THREE. ELIGIBILITY
All employees of the Company who have completed one Year of
Service as of any Offering Date, shall be eligible to participate in the Plan,
provided that no employee shall be eligible if such employee (i) owns
immediately after any Option is granted, stock possessing five percent (5%) or
more of the total combined voting power or value of all classes of stock of the
Company (applying the rules of Section 424(d) of the Code in determining stock
ownership), (ii) is a Director or executive officer of the Company whose
compensation must be reported in the Company's proxy statements, or (iii) is an
employee whose customary employment is twenty hours or less per week or whose
customary employment is for not more than five months in any calendar year.
In addition, the employees of each such Designated Subsidiary
shall be eligible to participate in this Plan to the extent they have satisfied
the requirements set forth in the preceding paragraph. Except as otherwise
expressly designated by the Board of Directors, each Subsidiary of the Company
shall be considered a Designated Subsidiary.
SECTION FOUR. EMPLOYEE PARTICIPATION AND PAYROLL DEDUCTIONS
A. On each Offering Date, each Participant shall be granted
the right to purchase on the next Purchase Date such number of shares of Common
Stock as may be purchased, as provided herein, by a sum equal to (i) the amount
of the Compensation of the Participant deducted in accordance with the following
paragraph of this Section Four during the Offering Period beginning with that
Offering Date, and (ii) the Participant's share of the contribution made by the
Company for such Offering Period in accordance with Section Five.
An eligible employee shall become a Participant in the Plan by
delivering to the Company a written payroll deduction authorization relating to
the Plan on such form as may be approved by the Company, together with
instructions to use the deductions to purchase shares of Common Stock under the
Plan. At the time a Participant files his or her authorization, the Participant
shall elect to have deductions made from his or her pay on each payday during
the time he or she is a Participant at a rate not less than one percent (1%) and
not in excess of ten percent (10%) in whole percentages, to the nearest whole
percent, of his or her Compensation, but in no event
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<PAGE> 29
may the deductions taken from the Participant's pay during any one calendar year
exceed $10,000. The Company will deduct the specified amounts from the
Compensation otherwise payable to the Participant during the Offering Period,
and the Company will accumulate all payroll deductions made for a Participant
and credit them to his or her account under the Plan. A Participant may not make
any separate cash payment into such account. No interest will be paid on funds
in the account of a Participant.
B. Notwithstanding the preceding Section 4.A, no Participant
shall have the right to purchase Common Stock under the Plan at a rate of more
than $25,000 in value thereof in any calendar year, such value to be based on
the fair market value per share of the Common Stock as of the Offering Dates on
which a Participant becomes eligible to purchase Common Stock in such year under
the terms of the Plan.
C. A Participant may not increase or reduce the amount of his
or her payroll deduction during an Offering Period, provided, however, that a
Participant may reduce the amount of his or her payroll deduction to zero at any
time during the Offering Period in which case the employee may not participate
again in the Plan until the following Offering Period. A Participant shall be
deemed to have elected to purchase all of the shares which his or her authorized
payroll deductions and share of the contribution of the Company would purchase
on the following Purchase Date.
A Participant shall be deemed to have continued his or her
most recent election to participate in the Plan for the next Offering Period
unless he or she notifies the Company on or before the twentieth day of the
month preceding the beginning of the next Offering Period that he or she elects
not to participate in the Plan for the next Offering Period. Such notice may not
be revoked. Similarly, a Participant may elect to increase or decrease the
amount of his or her payroll deduction on or before the twentieth day of the
month preceding the beginning of the next Offering Period, such increase or
decrease to be effective at the beginning of the next Offering Period.
SECTION FIVE. COMPANY CONTRIBUTIONS
On each Purchase Date, the Company shall contribute an amount
equal to one-ninth of the aggregate amount contributed by Participants for the
Offering Period, or, if less, ten percent (10%) of the purchase price for the
Common Stock to be purchased on that Purchase Date. The Executive Committee of
the Board of Directors shall have the authority to increase the Company's
contribution for any Offering Period to an amount not greater than fifteen
percent (15%) of the Purchase Price to be paid for Common Stock for that
Offering Period. The aggregate amount of the Company's contributions shall be
limited to $12,500 per calendar quarter, or $50,000 during any one calendar
year, unless the Executive Committee of the Board of Directors expressly
approves a larger amount.
The Company shall have no obligation to make contributions for
a Purchase Date to the extent that (i) the Agent is directed to purchase Common
Stock directly from the Company on that Purchase Date, and (ii) the Company
offers to sell such shares to the Agent at a purchase price equal to ninety
percent of their current market value, as described in Section 6.C.
SECTION SIX. METHOD OF PURCHASE
A. On each Purchase Date, or within a reasonable period
thereafter, the Agent shall cause all the contributions made by Participants and
the contribution of the Company during the preceding Offering Period to be
applied to the purchase of Common Stock. The Agent may purchase the shares to be
purchased for each such Purchase Date either from third parties in market
transactions or, at the direction of the Company, from the Company.
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If the Agent is purchasing shares in market transactions, the
Agent may purchase shares of Common Stock in one or more lots, and at such time
or times and at such price or prices as the Agent may, in its discretion,
determine to be advisable to obtain favorable purchase prices for Participants.
B. Subject to the overall limitations contained herein with
respect to the total number of shares to be made available under the Plan, the
Board of Directors shall determine the maximum number of shares of Common Stock,
if any, to be made subject to Options on each Purchase Date. The Board of
Directors shall fix said maximum number at the lesser of (i) the maximum number
of shares of Common Stock purchasable with all Participant and Company
contributions made for the Offering Period, or (ii) a specified number of shares
of Common Stock. Each Participant shall be granted on the Offering Date an
Option to purchase that percentage of the total number of shares of Common Stock
to be purchased under the Plan for that Offering Period which is proportionate
to the percentage which his or her contributions represents of the total
contributions made by all Participants during the Offering Period.
C. If the Company directs the Agent to purchase some or all of
the shares directly from the Company, the purchase price per share payable to
the Company for such shares on the Purchase Date shall be equal to the average
of the closing prices quoted for the Common Stock for the last twenty (20)
trading days preceding the Purchase Date (or, if the Company elected not to make
a contribution to the Plan for such Purchase Date, ninety percent of such
average closing prices).
D. As of the Purchase Date, the account of each Participant
shall be credited with a number of shares of Common Stock equal to the sum of
(1) the contributions made by the Participant and the Participant's share of the
Company contributions applied by the Agent to the purchase of Common Stock in
open market purchases divided by the average price per share of Common Stock
purchased by the Agent in market transactions for that Purchase Date, plus (2)
the number of shares purchased directly from the Company on the Participant's
behalf on that Purchase Date. Promptly after the Purchase Date, the Agent will
report to each Participant the number of shares of Common Stock purchased on his
or her behalf on that Purchase Date, and the accumulated number of shares then
held by the Agent for the Participant's account.
E. Unless the Company otherwise directs, the Agent may, but
shall not be obligated to, allocate fractional shares of Common Stock for any
Participant or purchase shares of Common Stock in odd lots. Upon a Participant's
termination of employment or total withdrawal from the Plan, any fractional
shares in the Participant's account will be sold, and the proceeds therefrom
shall be delivered to such Participant. In the event fractional shares are not
allocated to the accounts of Participants under the Plan, any accumulated
payroll deductions which would have been used to purchase fractional shares
shall remain in the accounts of Participants and shall be deemed to be a payroll
deduction for the next Offering Period. No interest will be paid on such funds
in accounts of Participants.
F. If at any time the number of shares as to which Options
have been granted shall exceed the number of shares authorized for purchase
under the Plan on that Purchase Date, the number of shares which may be
purchased by each Participant shall be reduced proportionately. Any accumulated
payroll deductions which cannot be used to purchase shares on the Purchase Date,
by reason of such reduction, shall remain in the accounts of Participants and
shall be deemed to be payroll deductions for the next Offering Period. No
interest will be paid on such funds in the accounts of Participants.
G. At any time prior to a Purchase Date, the Board of
Directors may terminate the Plan without any obligation whatsoever to the
Participants, other than to refund to each Participant, without interest, any
sum accumulated for him or her by payroll deductions since the most recent prior
Purchase Date.
-4-
<PAGE> 31
SECTION SEVEN. WITHDRAWALS
A Participant may withdraw funds in his or her account under
the Plan only by withdrawal from the Plan. Upon at least thirty (30) days
written notice to the Company prior to the Purchase Date for an Offering Period,
the Participant may withdraw the entire cash balance accumulated in his or her
account through payroll deductions. Such withdrawal shall terminate the
Participant's right to exercise any Options for that Offering Period. In the
event of the withdrawal of the Participant, he or she shall not be eligible to
participate in the Plan until the next Offering Date, except that if the
withdrawing Participant is an executive officer subject to Section 16 of the
Securities Exchange Act of 1934, then he or she shall not again be eligible to
participate in the Plan at any time during the next two full Offering Periods.
SECTION EIGHT. TERMINATION OF EMPLOYMENT
Upon termination of the employment of a Participant with the
Company or any Subsidiary for any reason, excluding death, any cash credited to
the account of such Participant and not used to purchase shares on prior
Purchase Dates will be refunded to the Participant, and any shares of Common
Stock held by the Agent for his or her account will be distributed to the
Participant, within sixty days after the end of the then current Offering Period
or as soon as administratively practicable thereafter. As an alternative to a
distribution of Common Stock, a terminated Participant may request that the
Agent sell the Common Stock in the account of the Participant and forward the
net proceeds to the Participant.
SECTION NINE. RIGHTS AS A STOCKHOLDER
A Participant shall have no rights as a stockholder with
respect to any shares of Common Stock offered hereunder until completion of
payment therefor.
Shares purchased pursuant to the Plan initially will be
registered in the name of the Agent, or such other nominee as may be designated
by the Company, as custodian for the account of the Participant entitled
thereto. Stock certificates will not be issued to Participants for shares held
in the name of the Agent, but all rights accruing to an owner of record of such
shares (including voting rights and the right to receive any dividends declared
with respect to the shares) will belong to the Participant for whose account
such shares are held.
During the period of six (6) months beginning with the first
day of the calendar quarter which includes a Purchase Date, all stock
certificate or certificates representing the shares purchased on a Participant's
behalf on that Purchase Date will be retained by the Agent or other custodian.
The Participant will not be permitted to sell or transfer the shares during this
six month period, except on termination of employment to the extent permitted by
Section 8.
Each Participant may elect, effective as of any Purchase Date,
but not more than once during any one calendar year, to have some or all of
those full shares of Common Stock which have been held by the Agent on his or
her behalf for at least six (6) full months registered in the name of such
Participant. Written notice of such an election must be given by the Participant
to the Agent, specifying the number of full shares of Common Stock to be
registered in the name of such Participant. The specified number of shares of
Common Stock will be transferred to and registered in the name of the notifying
Participant, and stock certificates for such shares will be delivered to the
Participant (or a broker or other custodian he or she has designated in writing)
as soon as administratively practicable.
-5-
<PAGE> 32
SECTION TEN. NONASSIGNABILITY
Neither payroll deductions credited to the account of a
Participant nor any Options to purchase shares of Common Stock under the Plan
may be assigned, transferred, pledged or otherwise disposed of in any way by the
Participant other than by will or the laws of descent and distribution. Any such
attempted assignment, transfer, pledge, or other disposition of such Options
shall be without effect, except that the Company may treat such act as an
election to withdraw funds in accordance with Section Seven.
SECTION ELEVEN. DESIGNATION OF BENEFICIARY
A Participant may file a written designation of a beneficiary
who is to receive any shares of Common Stock and/or cash in the event of the
death of the Participant prior to the delivery of such shares or cash to the
Participant. Such designation of beneficiary may be changed by the Participant
at any time by written notice to the Secretary of the Company. Upon the death of
a Participant and upon receipt by the Company of proof of the identity and
survivorship of a beneficiary validly designated by the Participant under the
Plan, and notice of election of the beneficiary to exercise the Option, the
Company shall deliver such Common Stock and/or cash to such beneficiary. In the
event of the death of a Participant and in the absence of a beneficiary validly
designated under the Plan who is living at the time of such death of a
Participant, the Company shall deliver such Common Stock and/or cash to the
executor or administrator of the estate of the Participant within sixty days
after the end of the current Offering Period or as soon as administratively
practicable thereafter, or if no such executor or administrator has been
appointed (to the knowledge of the Company), the Company, in its discretion, may
deliver such Common Stock and/or cash to the spouse or to any one or more
dependents of the Participant as the Company may designate. No beneficiary
shall, prior to the death of the Participant by whom he or she has been
designated, acquire any interest in the Common Stock or cash credited to the
Participant under the Plan.
SECTION TWELVE. STOCK AUTHORIZED UNDER THE PLAN
Subject to adjustment upon changes in the capitalization of
the Company as provided in Section Thirteen, the maximum number of shares of
Common Stock which shall be made available for purchase under the Plan is
150,000 shares. The shares of Common Stock purchased under the Plan may, at the
election of the Company, be authorized but unissued shares, treasury stock held
by the Company, or shares of Common Stock purchased on the open market by the
Agent.
SECTION THIRTEEN. RECAPITALIZATION
In the event of any change in the number of outstanding shares
of Common Stock by reason of a recapitalization, merger, consolidation,
reorganization, separation, liquidation, stock split, stock dividend,
combination of shares, or any other change in the corporate structure or shares
of stock of the Company, the Board of Directors will make an appropriate
adjustment, in accordance with applicable provisions of the Code and rulings and
regulations thereunder, in the number and kind of shares which may be offered
under the Plan, both in the aggregate and as to each Participant, the number of
shares then subject to offerings theretofore made, and the price of shares
offered under the Plan.
If the Company shall not be the surviving corporation in any
merger or consolidation (or survives only as a subsidiary of another entity), or
if the Company is to be dissolved or liquidated, then unless a surviving
corporation assumes or substitutes new options (within the meaning of Section
424(a) of the Code) for all Options then outstanding under this Plan, (i) the
Purchase Date for all Options then outstanding shall be accelerated to a date
fixed by the Board prior to the effective date of such merger or consolidation
or such dissolution or liquidation and shall be deemed to be exercised, and (ii)
upon such effective date any unexercised Options shall expire.
-6-
<PAGE> 33
SECTION FOURTEEN. SECURITIES LAWS
The Company shall not be obligated to issue any Common Stock
pursuant to the Plan at any time when the shares have not been registered under
the Securities Act of 1933, as amended, and such other state and federal laws,
rules or regulations as the Company or the Board deems applicable and, in the
opinion of legal counsel for the Company, there is no exemption from the
registration requirements of such laws, rules or regulations available for the
issuance and sale of such shares. Further, all Common Stock acquired pursuant to
the Plan shall be subject to, and may be sold only in a manner consistent with,
the Company's Policy on Confidentiality-Insider Trading and other policies
concerning compliance with securities laws and insider trading, as the same may
be amended from time to time.
SECTION FIFTEEN. STATUS OF PLAN FUNDS
All amounts held by the Company under the Plan shall be added
to the general funds of the Company and shall be used for such purposes as the
Company shall from time to time determine. The Company shall not be obligated to
segregate such payroll deductions.
SECTION SIXTEEN. ADMINISTRATION
The Plan shall be administered by the Board of Directors. The
interpretation and construction of any provision of the Plan and the adoption of
rules and regulations for administering the Plan shall be made by the Board of
Directors. Determinations made by the Board of Directors with respect to any
matter or provision contained in the Plan shall be final, conclusive and binding
upon the Company and upon all Participants, their heirs or legal
representatives. Any rule or regulation adopted by the Board of Directors shall
remain in full force and effect unless and until altered, amended, or repealed
by the Board of Directors. The Board of Directors may delegate to a committee
any authority of the Board of Directors under this Plan. An Agent may be
appointed by the Board of Directors to perform the functions and have the
responsibilities assigned to the Agent in this Section Sixteen with respect to
the purchase of Common Stock. The Board of Directors shall have the right to
change the Agent at any time.
The Agent shall have all authority to determine the times of
purchase of Common Stock, the prices at which such purchases are made, the
manner of such purchases and the selection of brokers or dealers (which may
include the Agent) to make such purchases. If Common Stock is purchased at
varying Market Prices, an average price will be allocated to the account of each
Participant.
All costs and expenses incurred in administering the Plan
shall be paid by the Company, excluding (i) costs associated with requests for
the issuance of stock certificates to Participants or to the beneficiaries or
persons entitled to receive the same under Section Eleven hereof, (ii) the costs
of the sale of Common Stock, and (iii) costs associated with a Participant's
termination or withdrawal from the Plan.
SECTION SEVENTEEN. AMENDMENT OR TERMINATION
The Board of Directors may at any time terminate or amend the
Plan. No amendment may be made without approval of the stockholders of the
Company if such amendment would (a) increase the number of shares which may be
available for purchase under the Plan (except by operation of Section 13), or
(b) materially modify the requirements as to eligibility for participation under
the Plan.
-7-
<PAGE> 34
SECTION EIGHTEEN. NONGUARANTEE OF EMPLOYMENT
Nothing in this Plan shall be construed as giving any
Participant or other employee the right to be retained in the service of the
Company or any Subsidiary; and each such employee shall remain subject to
discharge, with or without cause, to the same extent as if this Plan had not
been adopted.
SECTION NINETEEN. NOTICES
All notices or other communications by a Participant to the
Company under or in connection with the Plan shall be deemed to have been given
when received by the Secretary of the Company.
SECTION TWENTY. APPROVAL OF STOCKHOLDERS
The effectiveness of this Plan is subject to its approval by
the stockholders of the Company within twelve months after the date it is
adopted by the Board of Directors.
-8-
<PAGE> 1
EXHIBIT 2
--------------------------------------------------
AGREEMENT AND PLAN OF MERGER
by and among
EXTENDICARE INC.,
AHC ACQUISITION CORP.
and
ARBOR HEALTH CARE COMPANY
dated as of
September 29, 1997
--------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C> <C>
ARTICLE I THE OFFER AND MERGER................................... 1
Section 1.1 The Offer.............................................. 1
Section 1.2 Company Actions........................................ 3
Section 1.3 SEC Documents.......................................... 4
Section 1.4 Directors.............................................. 6
Section 1.5 The Merger............................................. 7
Section 1.6 Effective Time......................................... 8
Section 1.7 Closing................................................ 8
Section 1.8 Stockholders' Meeting.................................. 8
Section 1.9 Merger Without Meeting of Stockholders................. 9
ARTICLE II CONVERSION OF SECURITIES............................... 10
Section 2.1 Conversion of Capital Stock............................ 10
Section 2.2 Exchange of Certificates............................... 11
Section 2.3 Dissenters' Rights..................................... 12
Section 2.4 Company Stock Plans.................................... 13
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE
COMPANY................................................ 14
Section 3.1 Organization........................................... 14
Section 3.2 Capitalization......................................... 15
Section 3.3 Authorization; Validity of Agreement;
Company Action......................................... 17
Section 3.4 Consents and Approvals; No Violations.................. 18
Section 3.5 SEC Reports and Financial Statements................... 19
Section 3.6 Absence of Certain Changes............................. 20
Section 3.7 No Undisclosed Liabilities............................. 21
Section 3.8 Litigation............................................. 22
Section 3.9 Information in Proxy Statement......................... 22
Section 3.10 No Default; Compliance with Applicable
Laws................................................... 22
Section 3.11 Intellectual Property.................................. 25
Section 3.12 Taxes.................................................. 25
Section 3.13 Opinion of Financial Adviser........................... 28
Section 3.14 Title to Properties.................................... 28
Section 3.15 Employee Benefit Plan.................................. 28
Section 3.16 Insurance.............................................. 30
Section 3.17 No Excess Parachute Payments........................... 30
Section 3.18 Environmental Matters.................................. 31
Section 3.19 Labor Matters.......................................... 33
Section 3.20 Finders and Investment Bankers......................... 34
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT
AND THE PURCHASER...................................... 34
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 4.1 Organization........................................... 34
Section 4.2 Authorization; Validity of Agreement;
Necessary Action....................................... 35
Section 4.3 Consents and Approvals; No Violations.................. 35
Section 4.4 Information in Proxy Statement......................... 36
ARTICLE V COVENANTS.............................................. 36
Section 5.1 Interim Operations of the Company...................... 36
Section 5.2 Access; Confidentiality................................ 40
Section 5.3 Additional Agreements.................................. 41
Section 5.4 Consents and Approvals................................. 41
Section 5.5 No Solicitation........................................ 42
Section 5.6 Publicity.............................................. 44
Section 5.7 Notification of Certain Matters........................ 44
Section 5.8 Indemnification........................................ 45
ARTICLE VI CONDITIONS............................................. 46
Section 6.1 Conditions to Each Party's Obligation to
Effect the Merger...................................... 46
ARTICLE VII TERMINATION............................................ 47
Section 7.1 Termination............................................ 47
Section 7.2 Effect of Termination.................................. 49
ARTICLE VIII MISCELLANEOUS.......................................... 49
Section 8.1 Fees and Expenses...................................... 49
Section 8.2 Amendment and Modification............................. 50
Section 8.3 Nonsurvival of Representations and War-
ranties................................................ 50
Section 8.4 Notices................................................ 50
Section 8.5 Interpretation......................................... 51
Section 8.6 Counterparts........................................... 51
Section 8.7 Entire Agreement; No Third Party Benefi-
ciaries; Rights of Ownership........................... 51
Section 8.8 Severability........................................... 52
Section 8.9 Governing Law.......................................... 52
Section 8.10 Assignment............................................. 52
Section 8.11 Transfer and Similar Taxes............................. 52
ANNEX A Certain Conditions of the Offer........................A-1
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Index of Defined Terms
----------------------
Defined Term Section No.
- ------------ -----------
<S> <C>
Acquisition Proposal....................................................... 5.5(a)
Appointment Date........................................................... 5.1
Balance Sheet.............................................................. 3.14
By-laws.................................................................... 1.5
Certificate of Incorporation............................................... 1.5
Certificate of Merger...................................................... 1.6
Certificates............................................................... 2.2(b)
Closing.................................................................... 1.7
Closing Date............................................................... 1.7
Company.................................................................... Recitals
Company Agreements......................................................... 3.4
Company Benefit Plans...................................................... 3.6(vii)
Company Disclosure Schedule................................................ Art. III
Company Nursing Facilities................................................. 3.10(b)
Company Option Plans....................................................... 2.4
Company Options............................................................ 2.4
Company SEC Documents...................................................... 3.5
Confidentiality Agreement.................................................. 5.2
Current Company SEC Documents.............................................. 3.6
DGCL....................................................................... 1.2(a)
Director Option Plan....................................................... 2.4
Dissenting Stockholders.................................................... 2.1(c)
Effective Time............................................................. 1.6
Employee Stock Purchase Plan............................................... 3.2(a)
Environmental Law.......................................................... 3.18(ii)
ERISA...................................................................... 3.15
Exchange Act............................................................... 1.1
Excess parachute payments.................................................. 8.11
Fully diluted basis........................................................ 1.1
GAAP....................................................................... 3.5
Governmental Entity........................................................ 3.4
Hazardous Substance........................................................ 3.18(iii)
HSR Act.................................................................... 3.4
Indemnified Party.......................................................... 5.8
Intellectual Property Rights............................................... 3.1l
Liens...................................................................... 3.2(b)
Merger..................................................................... 1.5
Merger Consideration....................................................... 2.1(c)
Minimum Condition.......................................................... 1.1
Offer...................................................................... 1.1
Offer Documents............................................................ 1.3(a)
Offer Price................................................................ 1.1
Offer to Purchase.......................................................... 1.1
Parent..................................................................... Recitals
Paying Agent............................................................... 2.2(a)
</TABLE>
i
<PAGE> 5
<TABLE>
<CAPTION>
Defined Term Section No.
- ------------ -----------
<S> <C>
Permits.................................................................... 3.10(b)
Plans...................................................................... 3.15
Primary Company Executives................................................. 3.17
Preferred Stock............................................................ 3.2
Proxy Statement............................................................ 1.8(a)(ii)
Purchaser.................................................................. Recitals
Raymond James.............................................................. 1.2(a)
Rights..................................................................... 3.2
Rights Agreement........................................................... 3.2
Schedule 14D-1............................................................. 1.3(a)
Schedule 14D-9............................................................. 1.3(a)
SEC........................................................................ 1.3(a)
Secretary of State......................................................... 1.6
Securities Act............................................................. 3.5
Shares..................................................................... 1.1
Special Meeting............................................................ 1.8(a)(i)
Stockholder Agreements..................................................... Recitals
Subsidiary................................................................. 3.1
Superior Proposal.......................................................... 5.5(a)
Surviving Corporation...................................................... 1.5
Taxes...................................................................... 3.12(b)(i)(A)
Tax Return................................................................. 3.12(b)(i)(B)
Termination Fee............................................................ 8.1
Transactions............................................................... 1.2(a)
Voting Debt................................................................ 3.2
1991 Option Plan........................................................... 2.4
1995 Option Plan........................................................... 2.4
</TABLE>
ii
<PAGE> 6
AGREEMENT AND PLAN OF MERGER
----------------------------
AGREEMENT AND PLAN OF MERGER, dated as of September 29, 1997
(this "Agreement"), by and among Extendicare Inc., a corporation existing under
the laws of Canada ("PARENT"), AHC Acquisition Corp., a Delaware corporation and
an indirect wholly owned subsidiary of Parent (the "PURCHASER"), and Arbor
Health Care Company, a Delaware corporation (the "COMPANY").
WHEREAS, the Board of Directors of each of Parent, the
Purchaser and the Company has approved, and deems it advisable and in the best
interests of its respective stockholders to consummate, the acquisition of the
Company by Parent upon the terms and subject to the conditions set forth herein;
WHEREAS, concurrently with the execution of this Agreement,
and as an inducement to Parent and the Purchaser to enter into this Agreement,
certain stockholders of the Company have each entered into a Stockholder
Agreement, dated as of the date hereof (collectively, the "STOCKHOLDER
AGREEMENTS"), among Parent, the Purchaser and the stockholder named therein
providing, among other things, that each such stockholder will vote in favor of
the Merger (as defined in Section 1.5 hereof) and will grant a proxy to Parent
for that purpose;
NOW, THEREFORE, in consideration of the foregoing and the
mutual representations, warranties, covenants and agreements set forth herein,
the parties hereto agree as follows:
ARTICLE I
THE OFFER AND MERGER
Section 1.1 THE OFFER. As promptly as practicable (but in no
event later than five business days after the public announcement of the
execution hereof), the Purchaser shall commence (within the meaning of Rule
14d-2 under the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT")) a tender offer (the "OFFER") for any and all of the outstanding shares of
Common Stock, par value $.03 per share (the "SHARES"), of the
<PAGE> 7
Company at a price of U.S.$45.00 per Share, net to the seller in cash (such
price, or such other price per Share as may be paid in the Offer, being referred
to herein as the "OFFER PRICE") and, subject to there being validly tendered and
not withdrawn prior to the expiration of the Offer, that number of Shares which
represents at least a majority of the Shares outstanding on a fully diluted
basis (the "MINIMUM CONDITION") and to the other conditions set forth in Annex A
hereto, shall consummate the Offer in accordance with its terms ("FULLY DILUTED
BASIS" means issued and outstanding Shares and Shares subject to issuance under
Company Option Plans (as defined in Section 2.4) and Shares subject to issuance
upon exercise of outstanding warrants, calls, subscriptions or other rights,
agreements, arrangements or commitments of any character relating to the issued
or unissued capital stock of the Company or securities convertible or
exchangeable for such capital stock).
The obligations of the Purchaser to commence the Offer and to
accept for payment and to pay for any Shares validly tendered on or prior to the
expiration of the Offer and not properly withdrawn shall be subject only to the
Minimum Condition and the other conditions set forth in Annex A hereto. The
Offer shall be made by means of an offer to purchase (the "OFFER TO PURCHASE")
containing the terms set forth in this Agreement, the Minimum Condition and the
conditions set forth in Annex A hereto.
The Purchaser shall not amend or waive the Minimum Condition
and shall not decrease the Offer Price or decrease the number of Shares sought
or amend any other condition of the Offer in any manner adverse to the holders
of the Shares (other than with respect to insignificant changes or amendments
and subject to the penultimate sentence of this Section 1.1) without the written
consent of the Company (such consent to be authorized by the Board of Directors
of the Company (the "COMPANY BOARD") or a duly authorized committee thereof);
PROVIDED, HOWEVER, that if on the initial scheduled expiration date of the
Offer, which shall be 20 business days after the date the Offer is commenced,
all conditions to the Offer shall not have been satisfied or waived, the
Purchaser may, from time to time, in its sole discretion, extend the expiration
date; PROVIDED, HOWEVER, that the Purchaser shall, if the Company, Parent and
the Purchaser
2
<PAGE> 8
have not obtained the approvals of any Governmental Entity (as defined in
Section 3.4) as required under Section 5.4, extend the expiration date for a
period of the lesser of (i) 2 business days after the date that all such
approvals have been obtained and (ii) 35 days after such initial scheduled
expiration date. In addition, the Offer Price may be increased, and the Offer
may be extended to the extent required by law in connection with such increase
in each case without the consent of the Company. The Purchaser shall, on the
terms and subject to the prior satisfaction or waiver of the conditions of the
Offer, accept for payment and pay for Shares validly tendered as soon as it is
permitted to do so under applicable law; PROVIDED, HOWEVER, that if, immediately
prior to the initial expiration date of the Offer (as it may be extended), the
Shares validly tendered and not withdrawn pursuant to the Offer equal less than
90% of the outstanding Shares, the Purchaser may extend the Offer for a period
not to exceed 10 business days, notwithstanding that all conditions to the Offer
are satisfied as of such initial expiration date of the Offer.
Section 1.2 COMPANY ACTIONS.
(a) The Company hereby approves of and consents to
the Offer and represents that the Company Board, at a meeting duly called and
held, has (i) unanimously determined that each of this Agreement, the Offer and
the Merger (as defined in Section 1.5) are fair to and in the best interests of
the stockholders of the Company, (ii) received the opinion of Raymond James &
Associates, Inc. ("RAYMOND JAMES"), financial advisor to the Company, to the
effect that the Offer and the Merger are fair to the stockholders of the Company
from a financial point of view, (iii) approved this Agreement and the
Stockholder Agreements and the transactions contemplated hereby and thereby,
including the Offer and the Merger (collectively, the "TRANSACTIONS"), and such
approval constitutes approval of the Offer, this Agreement, the Stockholder
Agreements and the Transactions for purposes of Section 203 of the Delaware
General Corporation Law, as amended (the "DGCL"), such that Section 203 of the
DGCL will not apply to the Transactions and (iv) resolved to recommend that the
stockholders of the Company accept the Offer, tender their Shares thereunder to
the Purchaser and approve and adopt this Agreement and the Merger; PROVIDED,
THAT such recommendation may be withdrawn,
3
<PAGE> 9
modified or amended if, in the opinion of the Company Board, only after receipt
of written advice from independent legal counsel, failure to withdraw, modify or
amend such recommendation would result in the Company Board violating its
fiduciary duties to the Company's stockholders under applicable law. The Company
represents that the actions set forth in this Section 1.2(a) and all other
actions it has taken in connection herewith and therewith are sufficient to
render the relevant provisions of such Section 203 of the DGCL inapplicable to
the Offer, the Merger and the Stockholders Agreements.
(b) In connection with the Offer, the Company will
promptly furnish or cause to be furnished to the Purchaser mailing labels,
security position listings and any available listing or computer file containing
the names and addresses of all recordholders of the Shares as of a recent date,
and shall furnish the Purchaser with such additional information (including, but
not limited to, updated lists of holders of the Shares and their addresses,
mailing labels and lists of security positions) and assistance as the Purchaser
or its agents may reasonably request in communicating the Offer to the record
and beneficial holders of the Shares.
Section 1.3 SEC DOCUMENTS.
(a) As soon as practicable on the date the Offer is
commenced, Parent and the Purchaser shall file with the United States Securities
and Exchange Commission (the "SEC") a Tender Offer Statement on Schedule 14D-1
with respect to the Offer (together with all amendments and supplements thereto
and including the exhibits thereto, the "SCHEDULE 14D-1") (the Schedule 14D-1,
together with all amendments and supplements thereto and including the exhibits
thereto, including the Offer to Purchase, being collectively the "OFFER
DOCUMENTS"). Concurrently with the commencement of the Offer, the Company shall
file with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9
(together with all amendments and supplements thereto and including schedules,
annexes and the exhibits thereto, the "SCHEDULE 14D-9"), which shall, subject to
the fiduciary duties of the Company Board under applicable law and to the
provisions of this Agreement, contain the recommendation referred to in clause
(iv) of Section 1.2(a) hereof.
4
<PAGE> 10
(b) Parent and the Purchaser will take all steps
necessary to ensure that the Offer Documents, and the Company will take all
steps necessary to ensure that the Schedule 14D-9, will comply in all material
respects with the provisions of applicable federal securities laws and, on the
date filed with the SEC and on the date first published, sent or given to the
Company's stockholders, shall not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, except that Parent and the Purchaser
make no representation with respect to information furnished by the Company for
inclusion in the Offer Documents and the Company makes no representation with
respect to information furnished by Parent or the Purchaser for inclusion in the
Schedule 14D-9. The Company agrees that the information supplied in writing by
the Company for inclusion in the Offer Documents will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. Parent and the
Purchaser agree that the information supplied in writing by the Parent or the
Purchaser for inclusion in the Schedule 14D-9 will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. Each of Parent and
the Purchaser will take all steps necessary to cause the Offer Documents, and
the Company will take all steps necessary to cause the Schedule 14D-9, to be
filed with the SEC and to be disseminated to holders of the Shares, in each case
as and to the extent required by applicable federal securities laws. Each of
Parent and the Purchaser, on the one hand, and the Company, on the other hand,
will promptly correct any information provided by it for use in the Offer
Documents and the Schedule 14D-9 if and to the extent that it shall have become
false or misleading in any material respect and the Purchaser will take all
steps necessary to cause the Offer Documents, and the Company will take all
steps necessary to cause the Schedule 14D-9, as so corrected to be filed with
the SEC and to be disseminated to holders of the Shares, in each case as and to
the extent required by applicable
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federal securities laws. The Company, on the one hand, and Parent and the
Purchaser on the other hand, and their respective counsel shall be given the
opportunity to review the Offer Documents and the Schedule 14D-9 before they are
filed with the SEC. In addition, each party hereto will provide the other
parties and their counsel in writing with any comments, whether written or oral,
which they may receive from time to time from the SEC or its staff with respect
to the Offer Documents or the Schedule 14D-9 promptly after the receipt of such
comments.
Section 1.4 DIRECTORS.
(a) Promptly upon the purchase of, and payment for,
any Shares by Parent or any of its subsidiaries which represents at least a
majority of the outstanding Shares (on a fully diluted basis, as defined in
Section 1.1), Parent shall be entitled to designate such number of directors,
rounded up to the next whole number, on the Company Board such that the
percentage of its designees on the Company Board (including persons previously
designated by Parent or its affiliates to the Company Board) shall equal the
percentage of the outstanding Shares beneficially owned by Parent and its
affiliates. In furtherance thereof, the Company shall, upon request of the
Parent, use its best efforts promptly to cause Parent's designees to be so
elected to the Company Board, and in furtherance thereof, to the extent
necessary, increase the size of the Company Board. At such time, the Company
shall also cause persons designated by Parent to constitute at least the same
percentage (rounded up to the next whole number) as is on the Company Board of
(i) each committee of the Company Board, (ii) each board of directors (or
similar body) of each subsidiary of the Company and (iii) each committee (or
similar body) of each such board. Notwithstanding the foregoing, until the
Effective Time (as defined in Section 1.6 hereof), the Company shall use all
reasonable efforts to have at least two members of the Company Board who are
neither (i) officers of Parent or the Company, nor (ii) designees, stockholders
or affiliates of Parent. The Company shall promptly take all actions required
pursuant to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated
thereunder in order to fulfill its obligations under this Section 1.4(a),
including mailing to stockholders the information required by such Section
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14(f) and Rule 14f-1 (or, at Parent's request, furnishing such information to
Parent for inclusion in the Offer Documents initially filed with the SEC and
distributed to the stockholders of the Company) as is necessary to enable
Parent's designees to be elected to the Company Board. Parent or the Purchaser
will supply the Company any information with respect to either of them and their
nominees, officers, directors and affiliates required by such Section 14(f) and
Rule 14f-1. The provisions of this Section 1.4(a) are in addition to and shall
not limit any rights which the Purchaser, Parent or any of their affiliates may
have as a holder or beneficial owner of Shares as a matter of law with respect
to the election of directors or otherwise.
(b) From and after the time, if any, that Parent's
designees constitute a majority of the Company Board, any amendment of this
Agreement, any termination of this Agreement by the Company, any extension of
time for performance of any of the obligations of Parent or the Purchaser
hereunder, any waiver of any condition or any of the Company's rights hereunder
or other action by the Company hereunder may be effected only by the action of a
majority of the directors of the Company then in office who were not officers of
Parent or designees, stockholders or affiliates of Parent, which action shall be
deemed to constitute the action of any committee specifically designated by the
Company Board to approve the actions and transactions contemplated hereby and
the full Company Board; PROVIDED, THAT if there shall be no such directors, such
actions may be effected by majority vote of the entire Company Board.
Section 1.5 THE MERGER. Subject to the terms and conditions of
this Agreement, at the Effective Time (as defined in Section 1.6 hereof), the
Company and the Purchaser shall consummate a merger (the "MERGER") pursuant to
which (i) the Purchaser shall be merged with and into the Company and the
separate corporate existence of the Purchaser shall thereupon cease, (ii) the
Company shall be the successor or surviving corporation in the Merger (sometimes
hereinafter referred to as the "SURVIVING CORPORATION") and shall continue to be
governed by the laws of the State of Delaware, and (iii) the separate corporate
existence of the Company with all its rights, privileges, immunities, powers and
franchises shall
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continue unaffected by the Merger, except as set forth in this Section 1.5.
Pursuant to the Merger, (x) the Restated Certificate of
Incorporation of the Company (the "CERTIFICATE OF INCORPORATION"), as in effect
immediately prior to the Effective Time, shall be the initial certificate of
incorporation of the Surviving Corporation until thereafter amended as provided
by law and such Certificate of Incorporation, and (y) the Restated By-laws of
the Company (the "BY-LAWS"), as in effect immediately prior to the Effective
Time, shall be the initial By-laws of the Surviving Corporation until thereafter
amended as provided by law, by the Certificate of Incorporation or by such
By-laws. The Merger shall have the effects specified in the DGCL.
The directors and officers of the Purchaser at the Effective
Time shall be the initial directors and officers, respectively, of the Surviving
Corporation until their successors shall have been duly elected or appointed or
qualified or until their earlier death, resignation or removal in accordance
with the Certificate of Incorporation and the By-laws.
Section 1.6 EFFECTIVE TIME. Parent, the Purchaser and the
Company will cause a Certificate of Merger, or, if applicable, a Certificate of
Ownership and Merger (as applicable, the "CERTIFICATE OF MERGER"), to be
executed and filed on the date of the Closing (as defined in Section 1.7) (or on
such other date as Parent and the Company may agree) with the Secretary of State
of the State of Delaware (the "SECRETARY OF STATE") as provided in the DGCL. The
Merger shall become effective on the date on which the Certificate of Merger has
been duly filed with the Secretary of State or at such later time as is agreed
upon by the parties and specified in the Certificate of Merger, and such
effective time is hereinafter referred to as the "EFFECTIVE TIME."
Section 1.7 CLOSING. The closing of the Merger (the
"CLOSING) shall take place at 9:00 a.m., local time, on a date to be
specified by the parties, which shall be no later than the second business day
after satisfaction or waiver of all of the conditions set forth in Article VI
hereof (the "CLOSING DATE), at the offices of Skadden, Arps, Slate,
Meagher & Flom LLP, 919
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Third Avenue, New York, New York, 10022 unless another date or place is agreed
to in writing by the parties hereto.
Section 1.8 STOCKHOLDERS' MEETING.
(a) If required by applicable law in
order to consummate the Merger, the Company, acting through the Company Board,
shall, in accordance with applicable law:
(i) duly call, give notice of, convene and hold a
special meeting of its stockholders (the "SPECIAL MEETING"), as
promptly as practicable following the acceptance for payment and
purchase of Shares by the Purchaser pursuant to the Offer, for the
purpose of considering and taking action upon the approval of the
Merger and the adoption of this Agreement;
(ii) prepare and file with the SEC a preliminary
proxy or information statement relating to the Merger and this
Agreement and use its best efforts (x) to obtain and furnish the
information required to be included by the SEC in the Proxy
Statement(as hereinafter defined) and, after consultation with Parent,
to respond promptly to any comments made by the SEC with respect to the
preliminary proxy or information statement and cause a definitive proxy
or information statement, including any amendment or supplement thereto
(the "PROXY STATEMENT") to be mailed to its stockholders, provided that
no amendment or supplement to the Proxy Statement will be made by the
Company without consultation with Parent and its counsel and (y) to
obtain the necessary approvals of the Merger and this Agreement by its
stockholders; and
(iii) subject to the fiduciary obligations of the
Company Board under applicable law as advised by independent counsel,
include in the Proxy Statement the recommendation of the Company Board
that stockholders of the Company vote in favor of the approval of the
Merger and the adoption of this Agreement.
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(b) Parent shall vote, or cause to be voted, all of
the Shares then owned by it, the Purchaser or any of its other subsidiaries and
affiliates in favor of the approval of the Merger and the adoption of this
Agreement.
Section 1.9 MERGER WITHOUT MEETING OF STOCKHOLDERS.
Notwithstanding Section 1.8 hereof, in the event that Parent, the Purchaser and
any other subsidiaries of Parent shall acquire in the aggregate at least 90% of
the outstanding shares of each class of capital stock of the Company, pursuant
to the Offer or otherwise, the parties hereto shall, at the request of Parent
and subject to Article VI hereof, take all necessary and appropriate action to
cause the Merger to become effective as soon as practicable after such
acquisition, without a meeting of stockholders of the Company, in accordance
with Section 253 of the DGCL.
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1 CONVERSION OF CAPITAL STOCK. As of the Effective
Time, by virtue of the Merger and without any action on the part of the holders
of any Shares or any shares of capital stock of the Purchaser:
(a) PURCHASER CAPITAL STOCK. Each issued and
outstanding share of capital stock of the Purchaser shall be converted into
and become one fully paid and nonassessable share of common stock of the
Surviving Corporation.
(b) CANCELLATION OF TREASURY STOCK AND
PURCHASER-OWNED STOCK. All Shares that are owned by the Company or any
wholly-owned subsidiary of the Company and any Shares owned by the Parent or any
wholly-owned subsidiary of the Parent shall be cancelled and retired and shall
cease to exist and no consideration shall be delivered in exchange therefor.
(c) EXCHANGE OF SHARES. Each issued and
outstanding Share (other than Shares to be cancelled in accordance with Section
2.1(b) and any Shares which are held by stockholders exercising appraisal rights
pursuant
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to Section 262 of the DGCL ("DISSENTING STOCKHOLDERS")) shall be converted into
the right to receive the Offer Price, payable to the holder thereof, without
interest (the "MERGER CONSIDERATION"), upon surrender of the certificate
formerly representing such Share in the manner provided in Section 2.2. All such
Shares, when so converted, shall no longer be outstanding and shall
automatically be cancelled 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 Merger Consideration
therefor upon the surrender of such certificate in accordance with Section 2.2.
Section 2.2 EXCHANGE OF CERTIFICATES.
(a) PAYING AGENT. Prior to the Effective
Time, Parent shall designate a bank or trust company to act as agent for the
holders of the Shares in connection with the Merger (the "PAYING AGENT")
to receive in trust the funds to which holders of the Shares shall become
entitled pursuant to Section 2.1(c). Parent shall, from time to time, make
available to the Paying Agent funds in amounts and at times necessary for the
payment of the Merger Consideration as provided herein. All interest earned on
such funds shall be paid to Parent.
(b) EXCHANGE PROCEDURES. As soon as rea-
sonably practicable after the Effective Time, the Paying Agent shall mail to
each holder of record of a certificate or certificates, which immediately prior
to the Effective Time represented outstanding Shares (the "CERTIFICATES"),
whose Shares were converted pursuant to Section 2.1 into the right to receive
the Merger Consideration (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 receipt of the Certificates by the Paying Agent and shall be in
such form and have such other provisions as Parent and the Company may
reasonably specify) and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for payment of the Merger Consideration. Upon
surrender of a Certificate for cancellation to the Paying Agent or to such other
agent or agents as may be appointed by Parent, together with such letter of
transmittal, duly executed, the holder of such Certificate shall be entitled to
receive in exchange therefor the Merger
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Consideration for each Share formerly represented by such Certificate and the
Certificate so surrendered shall forthwith be cancelled. If payment of the
Merger Consideration is to be made to a person other than the person in whose
name the surrendered Certificate is registered, it shall be a condition of
payment that the Certificate so surrendered shall be properly endorsed or shall
be otherwise in proper form for transfer and that the person requesting such
payment shall have paid any transfer and other taxes required by reason of the
payment of the Merger Consideration to a person other than the registered holder
of the Certificate surrendered or shall have established to the satisfaction of
the Surviving Corporation that such tax either has been paid or is not
applicable. Until surrendered as contemplated by this Section 2.2, each
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive the Merger Consideration in cash as contemplated by
this Section 2.2. The right of any stockholder to receive the Merger
Consideration shall be subject to and reduced by any applicable withholding
obligation.
(c) TRANSFER BOOKS; NO FURTHER OWNERSHIP RIGHTS IN
THE SHARES. At the Effective Time, the stock transfer books of the Company shall
be closed and thereafter there shall be no further registration of transfers of
the Shares on the records of the Company. From and after the Effective Time, the
holders of Certificates evidencing ownership of the Shares outstanding
immediately prior to the Effective Time shall cease to have any rights with
respect to such Shares, except as otherwise provided for herein or by applicable
law. If, after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be cancelled and exchanged as provided in
this Article II.
(d) TERMINATION OF FUND; NO LIABILITY.
At any time following six months after the Effective Time, the Surviving
Corporation shall be entitled to require the Paying Agent to deliver to it any
funds (including any interest received with respect thereto) which had been made
available to the Paying Agent and which have not been disbursed to holders of
Certificates, and thereafter such holders shall be entitled to look to the
Surviving Corporation (subject to abandoned property, escheat or other similar
laws) only as general creditors thereof with respect to the Merger Consideration
payable
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upon due surrender of their Certificates, without any interest thereon.
Notwithstanding the foregoing, none of Parent, the Surviving Corporation or the
Paying Agent shall be liable to any holder of a Certificate for Merger
Consideration delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
Section 2.3 DISSENTERS' RIGHTS. If any Dissenting Stockholder
shall be entitled to be paid the "fair value" of such holder's Shares, as
provided in Section 262 of the DGCL, the Company shall give the Parent notice
thereof and the Parent shall have the right to participate in all negotiations
and proceedings with respect to any such demands. Neither the Company nor the
Surviving Corporation shall, except with the prior written consent of the
Parent, voluntarily make any payment with respect to, or settle or offer to
settle, any such demand for payment. If any Dissenting Stockholder shall fail to
perfect or shall have effectively withdrawn or lost the right to dissent, the
Shares held by such Dissenting Stockholder shall thereupon be treated as though
such Shares had been converted into the Merger Consideration pursuant to Section
2.1.
Section 2.4 COMPANY STOCK PLANS. The Company shall,
effective as of the Effective Time, (i) cause each outstanding employee or
director stock option to purchase Shares (the "COMPANY OPTIONS") granted under
the Arbor Health Care Company 1996 Stock Option Plan for Non-Employee Directors
(the "DIRECTOR OPTION PLAN") the Arbor Health Care Company 1995 Stock Option
Plan, as amended by Amendment No. 1 (the "1995 OPTION PLAN") and the First
Amended and Restated Incentive Stock Option Plan dated November 26, 1991 (the
"1991 OPTION PLAN" and, together with the Director Option Plan and the 1995
Option Plan, the "COMPANY OPTION PLANS"), whether or not then exercisable or
vested, to become fully exercisable and vested, (ii) cause each Company Option
that is then outstanding, exercisable and vested to be cancelled and (iii) in
consideration of such cancellation, and except to the extent that Parent or the
Purchaser and the holder of any such Company Options otherwise agree, cause the
Company (or, at Parent's option, the Purchaser) to pay to such holders of
Company Options an amount in respect thereof equal to the product of (A) the
excess, if any, of the Offer Price over the exercise price of each such Company
Option and (B) the
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number of Shares previously subject to the Company Options immediately prior to
its cancellation (such payment to be net of withholding taxes). The Company
shall take all actions necessary to cause the Company's employees and directors
to consent, to the extent required, to the transactions contemplated by this
Section 2.4 no later than immediately prior to the time the Purchaser accepts
Shares for payment pursuant to the Offer.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and the
Purchaser that all of the statements contained in this Article III are true and
correct as of the date of this Agreement (or, if made as of a specified date, as
of such date), and will be true and correct in all material respects as of the
Closing Date as though made on the Closing Date, except as set forth in the
schedule attached to this Agreement setting forth exceptions to the Company's
representations and warranties set forth herein (the "COMPANY DISCLOSURE
SCHEDULE"). The Company Disclosure Schedule will be arranged in sections
corresponding to the sections of this Agreement to be modified by such
disclosure schedule, provided that any disclosure made in any section of the
Company Disclosure Schedule shall be deemed incorporated in all other sections
thereof.
Section 3.1 ORGANIZATION. Each of the Company and its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
and has all requisite corporate power and authority and all necessary
governmental approvals to own, lease and operate its properties and to carry on
its business as now being conducted, except where the failure to be so
organized, existing and in good standing or to have such power, authority, and
governmental approvals would not have a material adverse effect on the Company
and its subsidiaries, taken as a whole. As used in this Agreement, a
"SUBSIDIARY" of any entity shall mean all corporations or other entities in
which such entity owns a majority of the issued and outstanding capital stock or
equity or similar interests. As used in this Agreement, any reference to any
event, change or effect being mate-
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rial or having a material adverse effect on or with respect to any entity (or
group of entities taken as a whole) means such event, change or effect as is
materially adverse to (i) the consolidated financial condition, businesses,
prospects or results of operations of such entity (or, if used with respect
thereto, of such group of entities taken as a whole) or (ii) the ability of such
entity (or group) to consummate the Transactions. The Company and each of its
subsidiaries is duly qualified or licensed to do business and in good standing
in each jurisdiction in which the property owned, leased or operated by it or
the nature of the business conducted by it makes such qualification or licensing
necessary, except where the failure to be so duly qualified or licensed and in
good standing would not individually or in the aggregate have a material adverse
effect on the Company and its subsidiaries, taken as a whole. Except as set
forth in Section 3.1 of the Company Disclosure Schedule, the Company does not
own (i) any equity interest in any corporation or other entity or (ii)
marketable securities where the Company's equity interest in any entity exceeds
five percent of the outstanding equity of such entity on the date hereof.
Section 3.2 CAPITALIZATION. (a) The authorized capital stock
of the Company consists of 20,000,000 Shares and 2,000,000 shares of preferred
stock, par value $.01 per share, including 10,000 shares of Series A Junior
Participating Cumulative Preferred Stock, par value $.01 per share
(collectively, the PREFERRED STOCK"). As of September 26, 1997, (i) 6,937,161
Shares are issued and outstanding, (ii) no Shares are issued and held in the
treasury of the Company, (iii) no shares of Preferred Stock are issued and
outstanding, (iv) 327,766 Shares are issuable pursuant to options granted under
the Company Option Plans and (v) 2,000 Shares are issuable pursuant to the Arbor
Health Care Company Employee Stock Purchase Plan (the "EMPLOYEE STOCK PURCHASE
PLAN"). All the outstanding shares of the Company's capital stock are, and all
Shares which may be issued pursuant to the exercise of outstanding Company
Options will be, when issued in accordance with the respective terms thereof,
duly authorized, validly issued, fully paid and non-assessable. There are no
bonds, debentures, notes or other indebtedness having general voting rights (or
convertible into securities having such rights) ("VOTING DEBT") of the Company
or any of its subsidiaries issued
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and outstanding. Except as set forth above, and except for the rights (the
"RIGHTS") issuable pursuant to the Rights Agreement dated as of November 14,
1996 (the "RIGHTS AGREEMENT"), between the Company and Keybank, National
Association, as rights agent (a true and complete copy of which has been
delivered to Parent), and the securities issuable upon the exercise of such
Rights, (i) there are no shares of capital stock of the Company authorized,
issued or outstanding and (ii) there are no existing options, warrants, calls,
pre-emptive rights, subscriptions or other rights, agreements, arrangements or
commitments of any character, relating to the issued or unissued capital stock
of the Company or any of its subsidiaries, obligating the Company or any of its
subsidiaries to issue, transfer or sell or cause to be issued, transferred or
sold any shares of capital stock or Voting Debt of, or other equity interest in,
the Company or any of its subsidiaries or securities convertible into or
exchangeable for such shares or equity interests, or obligating the Company or
any of its subsidiaries to grant, extend or enter into any such option, warrant,
call, subscription or other right, agreement, arrangement or commitment and
(iii) there are no outstanding contractual obligations of the Company or any of
its subsidiaries to repurchase, redeem or otherwise acquire any Shares, or the
capital stock of the Company, or any subsidiary or affiliate of the Company or
to provide funds to make any investment (in the form of a loan, capital
contribution or otherwise) in any subsidiary or any other entity.
(b) Section 3.2(b) of the Company Disclosure
Schedule lists each subsidiary of the Company and the ownership interest therein
of the Company. All of the outstanding shares of capital stock of each of the
Company's subsidiaries are beneficially owned by the Company, directly or
indirectly, and all such shares have been validly issued and are fully paid and
nonassessable and are owned by either the Company or one of its subsidiaries
free and clear of all liens, charges, claims or encumbrances ("LIENS").
(c) 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 the capital stock of the Company or any of the
subsidiaries.
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(d) None of the Company or its subsidiaries
is required to redeem, repurchase or otherwise acquire shares of capital
stock of the Company, or any of its subsidiaries.
Section 3.3 AUTHORIZATION; VALIDITY OF AGREEMENT; COMPANY
ACTION. (a) The Company has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution, delivery and performance by the Company of this Agreement, and
the consummation by it of the transactions contemplated hereby, have been duly
authorized by the Company Board and, except for obtaining the approval of its
stockholders as contemplated by Section 1.8 hereof, no other corporate action on
the part of the Company is necessary to authorize the execution and delivery by
the Company of this Agreement and the consummation by it of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by the
Company and, subject to the approval of its stockholders as contemplated by
Section 1.8 hereof, and assuming due and valid authorization, execution and
delivery hereof by Parent and the Purchaser, is a valid and binding obligation
of the Company enforceable against the Company in accordance with its terms
except as may be limited by (a) bankruptcy, insolvency, reorganization or other
laws now or hereafter in effect relating to creditors' rights generally and (b)
general principles of equity (regardless of whether enforceability is considered
in a proceeding at law or in equity). The affirmative vote of the holders of a
majority of the outstanding Shares, voting together as a single class, are the
only votes of the holders of any class or series of the Company's capital stock
necessary to approve this Agreement and the transactions contemplated hereby.
(b) The Company Board has duly and validly approved
the transactions contemplated hereby for the purposes of Section 203 of the
DGCL. Accordingly, the provisions of Section 203 of the DGCL will not apply to
the transactions contemplated by this Agreement. No other state takeover statute
or similar statute or regulation applies or purports to apply to the Offer, the
Merger or the other transactions contemplated hereby.
(c) The Company Board has taken all necessary
action so that (i) the Rights will not be
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exercisable, trade separately, or be otherwise affected by the Offer, the Merger
or the other transactions contemplated hereby, (ii) none of Parent and its
affiliates will be deemed to be an "Acquiring Person" for purposes thereof and
(iii) a "Distribution Date" shall not occur by virtue of the Offer, the Merger
or the other transactions contemplated hereby. The Company will take any action
reasonably requested by Parent to ensure and confirm that the Company, Parent
and their respective affiliates will not have any obligations in connection with
the Rights or the Rights Agreement in connection with the Offer, the Merger and
the other transactions contemplated hereby.
Section 3.4 CONSENTS AND APPROVALS; NO VIOLATIONS. Except for
the notices, filings and consents set forth in Section 3.4 of the Company
Disclosure Schedule (including, if applicable, such notices, filings and
consents applicable to the Company and its subsidiaries as may be required under
any environmental, health or safety law or regulation, under federal and state
laws, rules and regulations applicable to health care providers reimbursed under
the federal Medicare and state Medicaid programs, under any certificate of need
law or regulation, or under any state licensure law or regulation) and the
filings, permits, orders, authorizations, consents and approvals as may be
required under, and other applicable requirements of, the Exchange Act, the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
ACT"), state securities or blue sky laws, and the DGCL, neither the execution,
delivery or performance of this Agreement by the Company nor the consummation by
the Company of the transactions contemplated hereby nor compliance by the
Company with any of the provisions hereof will (i) conflict with or result in
any breach of any provision of the Certificate of Incorporation or the By-laws
or similar organizational documents of the Company or of any of its
subsidiaries, (ii) require any notice to, filing with, or permit, order,
authorization, consent or approval of, any court, arbitral tribunal,
administrative agency or commission or other governmental or other regulatory
authority or agency (a "GOVERNMENTAL ENTITY"), (iii) result in a violation or
breach of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, amendment, cancellation or
acceleration) under, any of the terms, conditions or provisions of any note,
bond, mort-
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<PAGE> 24
gage, indenture, lease, Medicare or Medicaid provider agreement, license,
contract, agreement or other instrument or obligation to which the Company or
any of its subsidiaries is a party or by which any of them or any of their
properties or assets may be bound (collectively, the "COMPANY AGREEMENTS") or
(iv) violate any order, writ, injunction, decree, statute, rule or regulation
applicable to the Company, any of its subsidiaries or any of their properties or
assets, excluding from the foregoing clauses (ii), (iii) and (iv) such
violations, breaches or defaults which would not, individually or in the
aggregate, have a material adverse effect on the Company and its subsidiaries,
taken as a whole. Section 3.4 of the Company Disclosure Schedule sets forth a
list of any notices, filings, consents and approvals required to be obtained
under the Company Agreements in connection with this Agreement prior to the
consummation of the transactions contemplated by this Agreement.
Section 3.5 SEC REPORTS AND FINANCIAL STATEMENTS. The Company
has filed with the SEC, and has heretofore made available to Parent, true and
complete copies of, all forms, reports, schedules, statements and other
documents required to be filed by it since January 1, 1995 under the Securities
Act of 1933, as amended (the "SECURITIES ACT") or the Exchange Act
(collectively, the "COMPANY SEC DOCUMENTS"). As of their respective dates or, if
amended, as of the date of the last such amendment, the Company SEC Documents,
including, without limitation, any financial statements or schedules included
therein (a) did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading and (b) complied in all material respects with the
applicable requirements of the Exchange Act and the Securities Act, as the case
may be, and the applicable rules and regulations of the SEC thereunder. None of
the Company's subsidiaries is required to file any forms, reports or other
documents with the SEC. The financial statements of the Company included in the
Company SEC Documents have been prepared from, and are in accordance with, the
books and records of the Company and its consolidated subsidiaries, comply in
all material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance
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with United States generally accepted accounting principles ("GAAP") applied on
a consistent basis during the periods involved (except as may be indicated in
the notes thereto) and fairly present the consolidated financial position and
the consolidated results of operations and cash flows (and changes in financial
position, if any) of the Company and its consolidated subsidiaries as of the
respective dates and for the respective periods indicated therein. None of the
subsidiaries of the Company is subject to the informational reporting
requirements of Section 13 of the Exchange Act.
Section 3.6 ABSENCE OF CERTAIN CHANGES. Except as disclosed in
the Company SEC Documents filed with the SEC since January 1, 1997 (the "CURRENT
COMPANY SEC DOCUMENTS") or in Section 3.6 of the Company's Disclosure Schedule,
since December 31, 1996:
(i) the Company and its subsidiaries have conducted their
respective businesses only in the ordinary and usual course;
(ii) neither the Company nor any of its subsidiaries has taken
any of the actions contemplated by Section 5.1 hereof other than in the
ordinary course of business and consistent with past practice;
(iii) there has not been any event, change, effect or
development which, individually or in the aggregate, has had or is, so
far as reasonably can be foreseen, likely to have, a material adverse
effect on the Company and its subsidiaries, taken as a whole (without
regard, however, to changes in conditions generally applicable to the
long-term and subacute care industry, institutional pharmacy and
outpatient therapy clinic business or general economic conditions);
(iv) there has not been any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock
or property) with respect to any shares of the Company's capital stock;
(v) there has not been any split, combination or
reclassification of any of the Company's capital stock or any issuance
or the authorization of any
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issuance of any other securities in exchange or in substitution for
shares of the Company's capital stock;
(vi) there has not been (A) any granting by the Company or any
of its subsidiaries to any executive officer or other key employee of
the Company or any of its subsidiaries of any increase in compensation,
except in the ordinary course of business consistent with prior
practice or as required under employment agreements in effect as of
December 31, 1996, (B) any granting by the Company or any of its
subsidiaries to any such executive officer of any increase in severance
or termination pay, except as was required under any employment,
severance or termination agreements in effect as of December 31, 1996
or (C) any entry by the Company or any of its subsidiaries into any
employment, severance or termination agreement with any such executive
officer or key employee;
(vii) there has not been any adoption or amendment in any
material respect by the Company or any of its subsidiaries of any
collective bargaining agreement or any bonus, pension, profit sharing,
deferred compensation, incentive compensation, stock ownership, stock
purchase, stock option, phantom stock, retirement, vacation, severance,
disability, death benefit, hospitalization, medical or other plan,
arrangement or understanding (whether or not legally binding) providing
benefits to any current or former employee, officer or director of the
Company or any of its subsidiaries (collectively, "COMPANY BENEFIT
PLANS").
(viii) there has not been any change in accounting methods,
principles or practices by the Company or any of its subsidiaries
materially affecting its assets, liabilities or business, except
insofar as may have been required by a change in GAAP.
Section 3.7 NO UNDISCLOSED LIABILITIES. Except (a) as
disclosed in the Current Company SEC Documents, including any exhibits to the
Current Company SEC Documents, and (b) for liabilities and obligations (x)
incurred in the ordinary course of business and consis-
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tent with past practice (y) pursuant to the terms of this Agreement or (z) as
set forth in Section 3.7 of the Company Disclosure Schedule, since January 1,
1997, neither the Company nor any of its subsidiaries has incurred any
liabilities or obligations of any nature, whether or not accrued, contingent or
otherwise, that have had, or would be reasonably likely to have, a material
adverse effect on the Company and its subsidiaries, taken as a whole, or would
be required by GAAP to be reflected on a consolidated balance sheet of the
Company and its subsidiaries (including the notes thereto).
Section 3.8 LITIGATION. Except as disclosed in the Current
Company SEC Documents or in Section 3.8 of the Company Disclosure Schedule,
there is no suit, claim, action, proceeding, including, without limitation,
arbitration proceedings or alternative dispute resolution proceedings, or
investigation pending before any Governmental Entity or, to the best knowledge
of the Company, threatened against the Company or any of its subsidiaries that,
individually or in the aggregate, could reasonably be expected to have a
material adverse effect on the Company and its subsidiaries, taken as a whole.
Except as disclosed in the Current Company SEC Documents or in Section 3.8 of
the Company Disclosure Schedule, neither the Company nor any of its subsidiaries
is subject to any outstanding order, judgment, writ, injunction, rule or decree
of any Governmental Entity or arbitrator that, individually or in the aggregate,
could reasonably be expected to have a material adverse effect on the Company
and its subsidiaries, taken as a whole.
Section 3.9 INFORMATION IN PROXY STATEMENT. The Proxy
Statement, if required by Section 1.8 hereof (or any amendment thereof or
supplement thereto), will, at the date mailed to Company stockholders and at the
time of the meeting of Company stockholders to be held in connection with
stockholder approval of the Merger, not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading, except that no
representation is made by the Company with respect to statements made therein
based on information supplied by Parent or the Purchaser for inclusion in the
Proxy Statement. The Proxy Statement will comply in all material respects with
the provisions
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of the Exchange Act and the rules and regulations promul-
gated thereunder by the SEC.
Section 3.10 NO DEFAULT; COMPLIANCE WITH APPLICABLE LAWS. (a)
Except as disclosed in Section 3.10 of the Company's Disclosure Schedule, the
business of the Company and each of its subsidiaries is not being conducted in
default or violation of any term, condition or provision of (i) its respective
Certificate of Incorporation or By-laws, (ii) any Company Agreement or (iii) any
federal, state, local or foreign statute, law, ordinance, rule, regulation,
judgment, decree, order, concession, grant, franchise, permit or license or
other governmental authorization or approval applicable to the Company or any of
its subsidiaries, excluding from the foregoing clauses (ii) and (iii), defaults
or violations which would not, individually or in the aggregate, have a material
adverse effect on the Company and its subsidiaries, taken as a whole. Except as
disclosed in Section 3.10 of the Company's Disclosure Schedule, as of the date
of this Agreement, no investigation or review by any Governmental Entity or
other entity with respect to the Company or any of its subsidiaries is pending
or, to the best knowledge of the Company, threatened, nor has any Governmental
Entity or other entity indicated an intention to conduct the same.
(b) Except as set forth in Section 3.10 of the Company
Disclosure Schedule, the Company and each of its subsidiaries possess all
certificates, franchises, licenses, permits, authorizations and approvals issued
to or granted by Governmental Entities (collectively, "PERMITS") necessary to
conduct their business as such business is currently conducted (including
certifications for participation or enrollment in the Medicare and Medicaid
programs for each of the nursing and subacute care facilities owned or operated
by the Company and/or any of its subsidiaries ("COMPANY NURSING FACILITIES"),
and current and valid provider contracts with the Medicare and Medicaid programs
for each Company Nursing Facility), except for such Permits, the lack of
possession of which would not reasonably be expected to have a material adverse
effect on the Company and its subsidiaries, taken as a whole. Except as set
forth in Section 3.10 of the Company Disclosure Schedule, (i) all such Permits
are validly held by the Company or its subsidiaries, and the Company and each of
its subsidiaries have complied in all re-
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spects with all terms and conditions thereof (and in particular, the Company
Nursing Facilities are in substantial compliance with the terms and conditions
of participation of the Medicare and Medicaid programs), except for such
instances where the failure to validly hold such Permits or the failure to have
complied with such Permits has not, and is not reasonably expected to have, a
material adverse effect on the Company and its subsidiaries, taken as a whole,
(ii) none of such Permits will be subject to suspension, modification,
revocation or nonrenewal as a result of the execution and delivery of this
Agreement or the consummation of the Transactions, other than such Permits, the
suspension, modification or nonrenewal of which, in the aggregate, have not had
and would not reasonably be expected to have a material adverse effect on the
Company and its subsidiaries, taken as a whole and (iii) neither the Company nor
any of its subsidiaries has received any written warning, notice, notice of
violation or probable violation, survey report, statement of deficiencies,
notice of revocation, or other written communication from or on behalf of any
Governmental Entity that remains unresolved or which has resulted in any
restriction on the permissible operations of the Company or any of its
subsidiaries, alleging (A) any violation of any such Permit or of any law, rule,
regulation or provider agreement or (B) that the Company or any of its
subsidiaries requires any Permit required for its business, as such business is
currently conducted, that is not currently held by it, which violation or
failure to hold a Permit would have a material adverse effect on the Company and
its subsidiaries, taken as a whole. The Company has delivered to Parent true and
complete copies of the most recent survey reports, statements of deficiencies
and plans of correction filed with any Governmental Entity with respect to the
operations of any Company Nursing Facility. The Company and each of its
subsidiaries have filed all required cost reports with respect to Medicaid and
Medicare. The Company has delivered to Parent all such cost reports, audits and
schedules prepared or issued by, or filed with, any Governmental Entity or
private payor with respect to the operations of each Company Nursing Facility
for the last twelve (12) months and each such report is complete and accurate in
all material respects. Section 3.10 of the Company Disclosure Schedule sets
forth the status of any open cost reporting periods, pending reimbursement
appeals, and reimbursement payment rates for the last
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twelve (12) months with respect to any Governmental Entity or other third party
payor. There is no outstanding claim, and the Company does not know of any basis
for any claims against the Company or any of its subsidiaries by any third party
payors. Neither the Company, nor any of its subsidiaries, have received any
notices that Medicare or Medicaid has any claim or claims against any of them
which could result in consolidated net offsets against future reimbursements in
excess of that provided for in the consolidated financial statements of the
Company. Neither the Company, nor any of its subsidiaries, nor, to the best
knowledge of the Company or its subsidiaries, any person who provides
professional services for or on behalf of the Company and/or any of its
subsidiaries, has engaged in any activities which are prohibited under federal
Medicare or federal and state Medicaid statutes, as amended, or the regulations
promulgated pursuant thereto, or related state or local statutes or regulations,
and, to the knowledge of the Company, no investigations or other adverse actions
are being taken by Medicare and/or Medicaid, and all schedules and/or reports
have been filed with Medicare and Medicaid.
Section 3.11 INTELLECTUAL PROPERTY. The Company and its
subsidiaries own, or are licensed or otherwise have the rights to use, all
patents, trademarks, trade names, copyrights, technology, trade secrets,
know-how and processes (collectively, "INTELLECTUAL PROPERTY RIGHTS") material
to or necessary for the conduct of their respective businesses, as presently
conducted. No claims are pending by any person against the Company or any of its
subsidiaries as to the use of any Intellectual Property Rights and, to the
Company's best knowledge, the use by the Company or any of its subsidiaries of
all Intellectual Property Rights does not infringe on the rights of any person.
To the Company's best knowledge, no third person is infringing on the
Intellectual Property Rights of the Company or any of its subsidiaries.
Section 3.12 TAXES. (a) The Company and each of its
subsidiaries have timely filed (or have had timely filed on their behalf) all
Tax Returns (as hereinafter defined) required by applicable law to be filed by
any of them on or prior to or as of the Effective Time of the Merger. All such
Tax Returns are, or will be at the time
25
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of filing, true, complete and correct in all material re-
spects.
(b) The Company and each of its subsidiaries have paid (or
have had paid on their behalf) or, where payment is not yet due, have
established in accordance with GAAP (or have had established on their behalf and
for their sole benefit and recourse) an adequate accrual for the payment of all
Taxes due with respect to any period ending on or prior to the date hereof. The
Company and each of its subsidiaries have complied in all respects with all
applicable laws, rules and regulations relating to the payment and withholding
of Taxes and have, within the time and manner prescribed by law, withheld and
paid over to the proper governmental authorities all amounts required to be so
withheld and paid over under applicable laws.
(c) No deficiencies for any Taxes have been proposed, asserted
or assessed against the Company or any of its subsidiaries. There are no
outstanding requests, agreements, consents or waivers to extend the statutory
period of limitations applicable to the assessment of any Taxes or deficiencies
against the Company or any of its subsidiaries, and no power of attorney granted
by either the Company or any of its subsidiaries with respect to any Taxes is
currently in force.
(d) There are no Liens for Taxes upon the assets of the
Company or any of its subsidiaries except Liens for Taxes not yet due.
(e) There are no United States Federal, state, local or
foreign audits or other administrative proceedings or court proceedings
presently pending with regard to any Taxes or Tax Returns of the Company or any
of its subsidiaries.
(f) Except as set forth in Section 3.12 of the Company
Disclosure Schedule, neither the Company nor any of its subsidiaries is a party
to any agreement or arrangement (written or oral) providing for the allocation
or sharing of Taxes.
(g) Neither the Company nor any of its subsidiaries has made
any change in accounting methods, received a ruling from any taxing authority
or signed an
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agreement with any taxing authority likely to have a material adverse effect on
the Company and its subsidiaries, taken as a whole.
(h) All transactions that could give rise to an understatement
of the Federal income tax liability of the Company or any of its subsidiaries
within the meaning of Section 6662(d) of the Code are adequately disclosed on
Tax Returns in accordance with Section 6662(d)(2)(B) of the Code if there is or
was no substantial authority for the treatment giving rise to such
understatement.
(i) Except as disclosed in Section 3.12 of the Company
Disclosure Schedule, no excess loss accounts or deferred intercompany gains as
defined in the consolidated return regulations promulgated under the Code (the
"Treasury Regulations") exist with respect to the Company or the subsidiaries.
(j) The Federal income tax net operating loss carryovers
available to the Company and its subsidiaries, and their expiration dates, are
set forth in Section 3.12 of the Company Disclosure Schedule. Except as set
forth in Section 3.12 of the Company Disclosure Schedule, as of the date of this
Agreement, the net operating loss and credit carryovers are not subject to
limitations imposed by Sections 382, 383 or 384 of the Code (or any predecessor
thereto) or otherwise (including Sections 1.1502-21 and 1502-22 of the Treasury
Regulations).
(k) Neither the Company nor any of its subsidiaries has filed
a consent to application of Section 341 of the Code, or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as
such term is defined in Section 341(f)(4) of the Code) owned by the Company or
any of its subsidiaries.
(l) The Company is a corporation within the
meaning of Section 7701(a)(3) of the Code.
(m) For purposes of this Agreement, the following terms shall
have the following meanings:
(A) "TAXES" shall mean any and all taxes, charges,
fees, levies or other assessments, including, without
limitation, income, gross receipts, excise, real or personal
property,
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sales, withholding, social security, occupation, use, service,
service use, license, net worth, payroll, franchise, transfer
and recording taxes, fees and charges, imposed by the Internal
Revenue Service or any taxing authority (whether domestic or
foreign including, without limitation, any state, county,
local or foreign government or any subdivision or taxing
agency thereof (including a United States possession)),
whether computed shall include any interest, fines, penalties
or additional amounts attributable to, or imposed upon, or
with respect to, any such amounts.
(B) "TAX RETURNS" shall mean any report, return
document, declaration or other information or filing required
to be supplied to any taxing authority or jurisdiction
(foreign or domestic) with respect to Taxes, including,
without limitation, information returns, any documents with
respect to or accompanying payments of estimated Taxes, or
with respect to or accompanying requests for the extension of
time in which to file any such report, return, document,
declaration or other information.
Section 3.13 OPINION OF FINANCIAL ADVISER. The Company Board
has received the opinion of Raymond James, dated the date of this Agreement,
that, as of such date, the Offer Price and the Merger Consideration are fair
from a financial point of view to the Company's stockholders, a signed copy of
which opinion has been delivered to Parent.
Section 3.14 TITLE TO PROPERTIES. The Company and its
subsidiaries have good, valid and marketable title to the properties and assets
reflected on the most recent consolidated balance sheet included in the Current
Company SEC Documents (the "BALANCE SHEET") (other than properties and assets
disposed of in the ordinary course of business since the date of the Balance
Sheet), and all such properties and assets are free and clear of any Liens,
except as described in the Current Company SEC Documents and the financial
statements included therein or in Section 3.14 of the Company Disclosure
Schedule and other than Liens for current taxes not yet due and other Liens or
title imperfections that do not have, and are
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not reasonably likely to have, a material adverse effect on the Company and its
subsidiaries, taken as a whole.
Section 3.15 EMPLOYEE BENEFIT PLAN. (a) The Company and
each of its subsidiaries have complied, and currently are in compliance, in all
material respects with the applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") the Code and all other
applicable laws with respect to each compensation or benefit plan, agreement,
policy, practice, program or arrangement (whether or not subject to ERISA)
maintained by the Company or any of its subsidiaries for the benefit of any
employee, former employee, independent contractor or director of the Company and
its subsidiaries (including, without limitation, any employment agreements or
any pension, savings, profit-sharing, bonus, medical, insurance, disability,
severance, equity-based or deferred compensation plans) (collectively, the
"PLANS"). The Company has provided or made available a current, accurate
and complete copy of each Plan to Parent and, to the extent applicable to the
Plans, (A) copies of any funding instruments, (B) summary plan descriptions
(C) Forms 5500 for the last three years and (D) IRS determination letters.
(b) Each of the Plans that is intended to
qualify under Section 401(a) of the Code, does so qualify, is exempt from
taxation pursuant to Section 501(a) of the Code and has received a favorable
determination letter from the IRS.
(c) Neither the Company nor any of its
subsidiaries has maintained, adopted or established, contributed or been
required to contribute to, or otherwise participated in or been required to
participate in, any employee benefit plan or other program or arrangement
subject to Title IV of ERISA (including, without limitation, a "multiemployer
plan" (as defined in Section 3(37) of ERISA) and a defined benefit plan (as
defined in Section 3(35) of ERISA)).
(d) No Plan, other than a Plan which is
an employee pension benefit plan (within the meaning of Section 3(2)(A) of
ERISA), provides benefits, including, without limitation, death, health or
medical benefits (whether or not insured), with respect to current or former
employees of the Company beyond their retirement
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or other termination of service with the Company (other than (A) coverage
mandated by applicable law, (B) deferred compensation benefits accrued as
liabilities on the books of the Company, or (iii) benefits the full cost of
which is borne by the current or former employee (or his or her beneficiary)).
(e) Except as set forth in Section 3.15 of the
Company Disclosure Schedule, neither the Company nor its subsidiaries has
incurred any withdrawal liability with respect to any Plan that is a
multiemployer plan.
(f) No reportable event (within the meaning of
Section 4043 of ERISA) or prohibited transaction (within the meaning of Section
4975 of the Code or Section 406 of ERISA) has occurred with respect to any Plan
that could have a material adverse effect on the Company and its subsidiaries,
taken as a whole.
(g) There are no pending or, to the knowledge of
the Company, threatened actions, claims or lawsuits by any individuals or
entities with respect to any Plan (other than for routine benefit claims) that
could have a material adverse effect on the Company and its subsidiaries, taken
as a whole.
(h) Except as set forth in Section 3.15 of the
Company Disclosure Schedule, no payments or benefits (nor acceleration of
vesting or exercisability of any benefits) under any Plan are triggered (in
whole or in part) as a result of the transactions contemplated by this
Agreement.
(i) No Plan provides for any stock option that is
exercisable into the stock of any of the subsidiaries of the Company.
Section 3.16 INSURANCE. The Company maintains, and has
maintained, without interruption, during the past three years, policies or
binders of insurance covering such risks, and events, including personal injury,
property damage and general liability, in amounts the Company reasonably
believes adequate for its business and operations.
Section 3.17 NO EXCESS PARACHUTE PAYMENTS. Other than
payments that may be made to the persons
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listed in Section 3.17 of the Company Disclosure Schedule (the "PRIMARY COMPANY
EXECUTIVES"), any amount that could be received (whether in cash or property or
the vesting of property) as a result of any of the Transactions (whether alone
or in combination with a qualifying termination of employment) by any employee,
officer or director of the Company or any of its affiliates who is a
"disqualified individual" (as such term is defined in proposed Treasury
Regulation Section 1.280G-1) under any employment, severance or termination
agreement, other compensation arrangement or Company Benefit Plan currently in
effect would not be characterized as an "excess parachute payment" (as such term
is defined in Section 280G(b)(1) of the Code). Set forth in Section 3.17 of the
Company Disclosure Schedule is (i) the estimated maximum amount that could be
paid to each Primary Company Executive as a result of the Transactions under all
employment, severance and termination agreements, other compensation
arrangements and Company Benefit Plans currently in effect (together with a
qualifying termination of employment); and (ii) the "base amount" (as such term
is defined in Section 280G(b)(3) of the Code) for each Primary Company Executive
calculated as of the date of this Agreement.
Section 3.18 ENVIRONMENTAL MATTERS. (i) Except as disclosed in
the Current Company SEC Documents or as set forth in Section 3.18 of the Company
Disclosure Schedule, (A) the Company and each of its subsidiaries have conducted
their respective businesses in compliance with all applicable Environmental Laws
(as hereinafter defined) and are currently in compliance with all such laws,
including, without limitation, having all permits, licenses and other approvals
and authorizations necessary for the operation of their respective businesses as
presently conducted, (B) none of the properties currently or formerly owned or
operated by the Company or any of its subsidiaries contains any Hazardous
Substance (as hereinafter defined) in amounts exceeding the levels permitted by
applicable Environmental Laws, (C) neither the Company nor any of its
subsidiaries has received any notices, demand letters or requests for
information from any Governmental Entity or third party indicating that the
Company or any of its subsidiaries may be in violation of, or liable under, any
Environmental Law in connection with the ownership or operation of their
businesses, including, without limitation, liability relating
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to sites not owned or operated by the Company or any of its subsidiaries, (D)
there are no civil, criminal or administrative actions, suits, demands, claims,
hearings, investigations or proceedings, pending or threatened, against the
Company or any of its subsidiaries relating to any violation of or liability
under, or alleged violation of or liability under, any Environmental Law, (E)
all reports that are required to be filed by the Company or any of its
subsidiaries concerning the release of any Hazardous Substance or the threatened
or actual violation of any Environmental Law have been so filed, (F) no
Hazardous Substance has been disposed of, released or transported in violation
of or under circumstances that could create liability under any applicable
Environmental Law from any properties owned by the Company or any of its
subsidiaries as a result of any activity of the Company or any of its
subsidiaries during the time such properties were owned, leased or operated by
the Company or any of its subsidiaries, (G) neither the Company, any of its
subsidiaries nor any of their respective properties are subject to any material
liabilities or expenditures (fixed or contingent) relating to any suit,
settlement, court order, administrative order, regulatory requirement, judgment
or claim asserted or arising under any Environmental Law, except for violations
of the foregoing clauses (A) through (G) that, singly or in the aggregate, would
not reasonably be expected to have a material adverse effect on the Company and
its subsidiaries, taken as a whole, and (H) the Company has provided Parent with
each environmental audit, test or analysis performed within the last three years
of any property currently or formerly owned or operated by the Company or any of
its subsidiaries (x) which involves any condition of environmental impairment
which would give rise to a material adverse effect on the Company and its
subsidiaries, taken as a whole and (y) of which the Company has knowledge.
(ii) As used herein, "ENVIRONMENTAL LAW" means any United States
Federal, territorial, state, local or foreign law, statute, ordinance, rule,
regulation, code, license, permit, authorization, approval, consent, legal
doctrine, order, judgment, decree, injunction, requirement or agreement with any
governmental entity relating to (x) the protection, preservation or restoration
of the environment (including, without limitation, air, water vapor, surface
water, groundwater, drinking water supply,
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surface land, subsurface land, plant and animal life or any other natural
resource) or to human health or safety or (y) the exposure to, or the use,
storage, recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of Hazardous Substances. The term
"Environmental Law" includes, without limitation, (i) the Federal Comprehensive
Environmental Response Compensation and Liability Act of 1980, the Superfund
Amendments and Reauthorization Act, the Federal Water Pollution Control Act of
1972, the Federal Clean Air Act, the Federal Clean Water Act, the Federal
Resource Conservation and Recovery Act of 1976 (including the Hazardous and
Solid Waste Amendments thereto), the Federal Solid Waste Disposal Act and the
Federal Toxic Substances Control Act, the Federal Insecticide, Fungicide and
Rodenticide Act, and the Federal Occupational Safety and Health Act of 1970, and
(ii) any common law or equitable doctrine (including, without limitation,
injunctive relief and tort doctrines such as negligence, nuisance, trespass and
strict liability) that may impose liability or obligations for injuries or
damages due to, or threatened as a result of, the presence of, effects of or
exposure to any Hazardous Substance.
(iii) As used herein, "HAZARDOUS SUBSTANCE" means any substance
presently or hereafter listed, defined, designated or classified as hazardous,
toxic, radioactive, or dangerous, or otherwise regulated, under any
Environmental Law. Hazardous Substance includes any substance to which exposure
is regulated by any government authority or any Environmental Law including,
without limitation, any toxic waste, pollutant, contaminant, hazardous
substance, toxic substance, hazardous waste, special waste, industrial substance
or petroleum or any derivative or by-product thereof, radon, radioactive
material, asbestos, or asbestos containing material, urea formaldehyde foam
insulation, lead or polychlorinated byphenyls.
Section 3.19 LABOR MATTERS. Except as set forth in Section
3.19 of the Company Disclosure Schedule, neither the Company nor any of its
subsidiaries is a party to, or bound by, any collective bargaining agreement,
contract or other agreement or understanding with a labor union or labor
organization. There is no unfair labor practice or labor arbitration proceeding
pending
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or, to the knowledge of the Company, threatened against the Company or any of
its subsidiaries relating to its business, except for any such proceeding which
would not have a material adverse effect on the Company and its subsidiaries,
taken as a whole. To the knowledge of the executive officers of the Company,
there are no organizational efforts with respect to the formation of a
collective bargaining unit presently being made or threatened involving
employees of the Company or any of its subsidiaries.
Section 3.20 FINDERS AND INVESTMENT BANKERS. Neither the
Company nor any of its officers or directors has employed any investment banker,
business consultant, financial advisor, broker or finder in connection with the
transactions contemplated by this Agreement, except for Raymond James (the fees
of which will be paid by the Company), or incurred any liability for any
investment banking, business consultancy, financial advisory, brokerage or
finders' fees or commissions in connection with the Transactions, except for
fees payable to Raymond James. The Company has provided Parent with a true and
correct copy of the fee letter between the Company and Raymond James.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND THE PURCHASER
Parent and the Purchaser represent and warrant to the Company
that all of the statements contained in this Article IV are true and correct as
of the date of this Agreement (or, if made as of a specified date, as of such
date), and will be true and correct in all material respects as of the Closing
Date as though made on the Closing Date.
Section 4.1 ORGANIZATION. Each of Parent and the Purchaser is
a corporation duly organized, validly existing and in good standing under the
laws of Canada and Delaware, respectively, and has all requisite corporate or
other power and authority and all necessary governmental approvals to own, lease
and operate its properties and to carry on its business as now being conducted,
except where the failure to be so organized, existing and in good standing or to
have such power,
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authority, and governmental approvals would not have a material adverse effect
on Parent and its subsidiaries, taken as a whole. Parent and each of its
subsidiaries is duly qualified or licensed to do business and in good standing
in each jurisdiction in which the property owned, leased or operated by it or
the nature of the business conducted by it makes such qualification or licensing
necessary, except where the failure to be so duly qualified or licensed and in
good standing would not, in the aggregate, have a material adverse effect on
Parent and its subsidiaries, taken as a whole.
Section 4.2 AUTHORIZATION; VALIDITY OF AGREEMENT; NECESSARY
ACTION. Each of Parent and the Purchaser has full corporate power and authority
to execute and deliver this Agreement and to consummate the Transactions. The
execution, delivery and performance by Parent and the Purchaser of this
Agreement, and the consummation of the Merger and of the Transactions, have been
duly authorized by the Board of Directors of Parent and the Board of Directors
of the Purchaser and by Parent as the sole stockholder of the Purchaser and no
other corporate action on the part of Parent and the Purchaser is necessary to
authorize the execution and delivery by Parent and the Purchaser of this
Agreement and the consummation of the Transactions. This Agreement has been duly
executed and delivered by each of the Parent and the Purchaser and, assuming due
and valid authorization, execution and delivery hereof by the Company, is a
valid and binding obligation of each of Parent and the Purchaser, as the case
may be, enforceable against each of them in accordance with its respective terms
except as may be limited by (a) bankruptcy, insolvency, reorganization or other
laws now or hereafter in effect relating to creditors' rights generally and (b)
general principles of equity (regardless of whether enforceability is considered
in a proceeding at law or in equity).
Section 4.3 CONSENTS AND APPROVALS; NO VIOLATIONS. Except for
filings, permits, authorizations, consents and approvals as may be required
under, and other applicable requirements of, the Exchange Act, the HSR Act,
state securities or blue sky laws and the DGCL, neither the execution, delivery
or performance of this Agreement by Parent or the Purchaser nor the consummation
by Parent or the Purchaser of the Transactions nor compliance by Parent or the
Purchaser with any of the provi-
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sions hereof will (i) conflict with or result in any breach of any provision of
the articles of incorporation or by-laws of Parent or the certificate of
incorporation or by-laws of the Purchaser, (ii) require any filing with, or
permit, authorization, consent or approval of, any Governmental Entity with
respect to the business carried on by Parent or its subsidiaries as of the date
hereof, (iii) result in a violation or breach of, or constitute (with or without
due notice or lapse of time or both) a default (or give rise to any right of
termination, cancellation or acceleration) under, any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, lease, license, contract,
agreement or other instrument or obligation to which Parent, or any of its
subsidiaries or the Purchaser is a party or by which any of them or any of their
respective properties or assets may be bound or (iv) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to Parent, any of its
subsidiaries or any of their properties or assets, excluding from the foregoing
clauses (ii),(iii) and (iv) such violations, breaches or defaults which would
not, individually or in the aggregate, have a material adverse effect on Parent,
its subsidiaries and the Purchaser taken as a whole.
Section 4.4 INFORMATION IN PROXY STATEMENT. None of the
information supplied by Parent or the Purchaser specifically for inclusion or
incorporation by reference in the Proxy Statement, if required by Section 1.8
hereof, will, at the date mailed to Company stockholders and at the time of the
meeting of Company stockholders to be held in connection with Company
stockholder approval of 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.
ARTICLE V
COVENANTS
Section 5.1 INTERIM OPERATIONS OF THE COMPANY. The Company
covenants and agrees that, except (i) as expressly contemplated by this
Agreement, (ii) as set forth in Section 5.1 of the Company Disclosure Schedule
or
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(iii) as agreed in writing by Parent, after the date hereof, and prior to the
time the directors of the Purchaser have been elected to, and shall constitute a
majority of, the Company Board pursuant to Section 1.4 hereof (the "APPOINTMENT
DATE"):
(a) the business of the Company and its subsidiaries
shall be conducted only in the ordinary and usual course and, to the extent
consistent therewith, each of the Company and its subsidiaries shall use its
best efforts to preserve its business organization intact and maintain its
existing relations with customers, suppliers, employees, creditors and business
partners;
(b) the Company shall not, directly or indirectly,
amend or propose to amend its Certificate of Incorporation or By-laws or similar
organizational documents;
(c) the Company shall not, and it shall not permit
any of its subsidiaries to: (i)(A) declare, set aside or pay any dividend or
other distribution payable in cash, stock or property with respect to the
Company's capital stock or that of its subsidiaries, or (B) redeem, purchase or
otherwise acquire directly or indirectly any shares of the capital stock of the
Company or of its subsidiaries or any other securities thereof or any rights,
warrants or options to acquire any such shares or other securities; (ii)
authorize for issuance, issue, sell, pledge, deliver or agree to commit to
issue, sell, pledge or deliver (whether through the issuance or granting of any
options, warrants, calls, subscriptions, stock appreciation rights or other
rights or other agreements) or otherwise encumber any shares of capital stock of
any class of the Company or of its subsidiaries or any securities convertible
into or exchangeable for shares of capital stock of any class of the Company or
of its subsidiaries other than Shares issued upon the exercise of Company
Options outstanding on the date hereof in accordance with the Company Option
Plans as in effect on the date hereof or Shares for which there are accrued
payments through September 30, 1997 in accordance with the Employee Stock
Purchase Plan as in effect on the date hereof; or (iii) split, combine or
reclassify the outstanding capital stock of the Company or of any of its
subsidiaries or authorize the issuance of any other securities in respect of, in
lieu of or in substitution
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for shares in the capital stock of the Company or of any of its subsidiaries;
(d) except for those acquisitions specifically set
forth and described in Section 5.1(d) of the Company Disclosure Schedule, the
Company shall not, and it shall not permit any of its subsidiaries to, acquire
or agree to acquire (i) by merging or consolidating with, or by purchasing a
substantial portion of the assets of, or by any other manner, any business or
any corporation, partnership, limited liability company, joint venture,
association or other business organization or division thereof or (ii) any
assets, outside of the ordinary course of business, that individually is in
excess of $5 million or in the aggregate in excess of $10 million;
(e) the Company shall not, and it shall not permit
any of its subsidiaries to, sell, lease, license, mortgage or otherwise encumber
or subject to any Lien or otherwise dispose of any assets of the Company or of
its subsidiaries other than (i) sales and dispositions of interests or rights
with respect to property having an aggregate fair market value on the date of
this Agreement of less than $5 million, in each case only if in the ordinary
course of business and consistent with past practice or (ii) encumbrances and
Liens that are incurred in the ordinary course of business and consistent with
past practice;
(f) neither the Company nor any of its
subsidiaries shall: (i) grant any increase in the compensation payable or to
become payable by the Company or any of its subsidiaries to any of its executive
officers or key employees or (ii)(A) adopt any new, or (B) amend or otherwise
increase, or accelerate the payment or vesting of the amounts payable or to
become payable under any existing, bonus, incentive compensation, deferred
compensation, severance, profit sharing, stock option, stock purchase,
insurance, pension, retirement or other employee benefit plan agreement or
arrangement, including without limitation, the Company Option Plans; or (iii)
enter into any employment or severance agreement with or, except in accordance
with the existing written policies of the Company, grant any severance or
termination pay to any officer, director or employee of the Company or any its
subsidiaries;
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(g) neither the Company nor any of its subsidiaries
shall: (i) modify, amend or terminate any of its or its subsidiaries' material
contracts or waive, release or assign any material rights or claims, except in
the ordinary course of business and consistent with past practice (ii) enter
into any other agreements, commitments or contracts that are material to the
Company and its subsidiaries taken as a whole, other than in the ordinary course
of business and consistent with past practice, or otherwise make any material
change that is adverse to the Company (including by way of termination) in (A)
any existing agreement, commitment or arrangement that is material to the
Company and its subsidiaries taken as a whole or (B) the conduct of the business
or operations of the Company and its subsidiaries;
(h) neither the Company nor any of its
subsidiaries shall: (i) incur or assume any long-term debt, or except in the
ordinary course of business in amounts consistent with past practice, incur or
assume any short-term indebtedness; (ii) incur or modify any material
indebtedness or other liability; (iii) issue or sell any debt securities or
warrants or other rights to acquire any debt securities of the Company or of any
of its subsidiaries; (iv) enter into any "keep well" or other arrangement to
maintain any financial condition of another person; (v) assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person, except in
the ordinary course of business and consistent with past practice; (vi) make any
loans, advances or capital contributions to, or investments in, any other person
(other than to wholly owned subsidiaries of the Company); or (vii) enter into
any material commitment or transaction (including, but not limited to, any
material capital expenditure or purchase or lease of assets or real estate other
than the purchase of products for inventory and supplies in the ordinary course
of business); PROVIDED that this Section 5.1(h) shall not prevent the financings
of the acquisitions described in Section 5.1(d) of the Company Disclosure
Schedule;
(i) neither the Company nor any of its subsidiaries
shall change any of the accounting methods used by it unless required by GAAP;
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(j) neither the Company nor any of its
subsidiaries shall, without the prior written consent of Parent, pay, discharge
or satisfy any claims, liabilities or obligations (absolute, accrued, asserted
or unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction of any such claims, liabilities or obligations, in the ordinary
course of business and consistent with past practice, of claims, liabilities or
obligations reflected or reserved against in, or contemplated by, the
consolidated financial statements (or the notes thereto) of the Company and its
consolidated subsidiaries;
(k) neither the Company nor any of its
subsidiaries will take, or agree to commit to take, any action that would or is
reasonably likely to result in any of the conditions to the Offer set forth in
Annex A or any of the conditions to the Merger set forth in Article VI not being
satisfied, or would make any representation or warranty of the Company contained
herein inaccurate in any respect at, or as of any time prior to, the Effective
Time, or that would materially impair the ability of the Company to consummate
the Offer or the Merger in accordance with the terms hereof or materially delay
such consummation;
(l) neither the Company nor any of its
subsidiaries shall make any Tax election or settle or compromise any Tax
liability or refund, except to the extent already provided in the Current
Company SEC Documents;
(m) neither the Company nor any of its
subsidiaries shall permit any material insurance policy naming it as a
beneficiary or a loss payable payee to be cancelled or terminated without notice
to Parent, except in the ordinary course of business and consistent with past
practice;
(n) neither the Company nor any of its
subsidiaries will adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other reorganization
of the Company or any of its subsidiaries (other than the Merger); and
(o) neither the Company nor any of its
subsidiaries will enter into an agreement, contract,
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commitment or arrangement to do any of the foregoing, or to authorize,
recommend, propose or announce an intention to do any of the foregoing.
Section 5.2 ACCESS; CONFIDENTIALITY. Upon reasonable notice,
the Company shall (and shall cause each of its subsidiaries to) afford to the
officers, employees, accountants, counsel, financing sources and other
representatives of Parent, reasonable access, during normal business hours
during the period prior to the Appointment Date, to all its properties, books,
contracts, commitments and records and, during such period, the Company shall
(and shall cause each of its subsidiaries to) furnish promptly to the Parent (a)
a copy of each report, schedule, registration statement and other document filed
or received by it during such period pursuant to the requirements of federal
securities laws and (b) all other information concerning its business,
properties and personnel as Parent may reasonably request. After the Appointment
Date the Company shall provide Parent and such persons as Parent shall designate
with all such information, at such time as Parent shall request. Unless
otherwise required by law and until the Appointment Date, Parent will hold any
such information which is non-public in confidence in accordance with the
provisions of a letter agreement dated September 10, 1997 between the Company
and the Parent (the "CONFIDENTIALITY AGREEMENT"). The parties agree that the
access and assistance to be provided pursuant to this Section 5.2 shall not be
such as to unreasonably interfere with the operation of the Company's business.
Section 5.3 ADDITIONAL AGREEMENTS. Subject to the terms and
conditions herein provided, each of the parties hereto shall use all reasonable
efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations, or to remove any injunctions or other impediments or delays, legal
or otherwise, to consummate and make effective the Merger and the other
transactions contemplated by this Agreement. In case at any time after the
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement, the proper officers and directors of the Company and
Parent shall use all reasonable efforts to take, or cause to be taken, all such
necessary actions.
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Section 5.4 CONSENTS AND APPROVALS. (a) Each of the Company,
Parent and the Purchaser will take all reasonable actions necessary to comply
promptly with all legal requirements which may be imposed on it with respect to
this Agreement and the Transactions (which actions shall include, without
limitation, furnishing all information required under the HSR Act and in
connection with approvals of or filings with any other Governmental Entity) and
will promptly cooperate with and furnish information to each other in connection
with any such requirements imposed upon any of them or any of their subsidiaries
in connection with this Agreement and the Transactions. Each of the Company,
Parent and the Purchaser will, and will cause its subsidiaries to, take all
reasonable actions necessary to obtain (and will cooperate with each other in
obtaining) any consent, authorization, order or approval of, or any exemption
by, any Governmental Entity or other public or private third party required to
be obtained or made by Parent, the Purchaser, the Company or any of their
subsidiaries in connection with the Merger or the taking of any action
contemplated thereby or by this Agreement.
(b) The Company and Parent shall take all
reasonable actions necessary to file as soon as practicable notifications under
the HSR Act and to respond as promptly as practicable to any inquiries received
from the Federal Trade Commission and the Antitrust Division of the Department
of Justice for additional information or documentation and to respond as
promptly as practicable to all inquiries and requests received from any
Governmental Entity in connection with antitrust matters.
Section 5.5 NO SOLICITATION. (a) Neither the Company nor any
of its subsidiaries or affiliates shall (and the Company shall use its best
efforts to cause its officers, directors, employees, representatives and agents,
including, but not limited to, investment bankers, attorneys and accountants,
not to), directly or indirectly, encourage, solicit, participate in or initiate
discussions or negotiations with, or provide any information to, any
corporation, partnership, person or other entity or group (other than Parent,
any of its affiliates or representatives) concerning any proposal or offer to
acquire all or a substantial part of the business and properties of the Company
or any of its subsidiaries or any capital stock of the Company or any of its
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subsidiaries, whether by merger, tender offer, exchange offer, sale of assets,
sale of shares of capital stock or debt securities or similar transactions
involving the Company or any subsidiary, division or operating or principal
business unit of the Company (collectively, an "ACQUISITION PROPOSAL").
Notwithstanding the foregoing, the Company may furnish information concerning
its business, properties or assets to any corporation, partnership, person or
other entity or group pursuant to appropriate confidentiality agreements, and
may negotiate and participate in discussions and negotiations with such entity
or group concerning an Acquisition Proposal (x) if such entity or group has on
an unsolicited basis submitted a bona fide written proposal to the Company Board
relating to any such transaction which the Company Board determines in good
faith represents a superior transaction to the Offer and the Merger and which is
not conditioned upon obtaining additional financing and (y) if, in the opinion
of the Company Board, only after receipt of advice from independent legal
counsel to the Company, the failure to provide such information or access or to
engage in such discussions or negotiations would cause the Company Board to
violate its fiduciary duties to the Company's stockholders under applicable law
(an Acquisition Proposal which satisfies clauses (x) and (y) being referred to
herein as a "SUPERIOR PROPOSAL"). The Company will immediately communicate to
Parent the terms of any proposal, discussion, negotiation or inquiry (and will
disclose any written materials received by the Company in connection with such
proposal, discussion negotiation, or inquiry) and the identity of the party
making such proposal or inquiry which it may receive in respect of any such
transaction.
(b) Except as set forth herein, neither
the Company Board nor any committee thereof shall (i) withdraw or modify, or
propose to withdraw or modify, in a manner adverse to Parent or the Purchaser,
the approval or recommendation by the Company Board or any such committee of the
Offer, this Agreement or the Merger, (ii) approve or recommend, or propose to
approve or recommend, any Acquisition Proposal or (iii) enter into any agreement
with respect to any Acquisition Proposal. Notwithstanding the foregoing, prior
to the time of acceptance for payment of Shares in the Offer, the Company Board
may (subject to the terms of this and the following sentence) withdraw or modify
its approval or recommendation of the
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Offer, this Agreement or the Merger, approve or recommend a Superior Proposal,
or enter into an agreement with respect to a Superior Proposal, in each case at
any time after the second business day following Parent's receipt of written
notice advising Parent that the Company Board has received a Superior Proposal,
specifying the material terms and conditions of such Superior Proposal and
identifying the person making such Superior Proposal; PROVIDED that the Company
Board shall have determined, only after receipt of advice from outside legal
counsel to the Company, that the failure to take such action would cause the
Company Board to violate its fiduciary duties to the Company's stockholders
under applicable law; PROVIDED FURTHER that the Company shall not enter into an
agreement with respect to a Superior Proposal unless the Company shall have
furnished Parent with written notice not later than noon (New York time) one day
in advance of any date that it intends to enter into such agreement and shall
have caused its financial and legal advisors to negotiate with Parent to make
such adjustments in the terms and conditions of this Agreement as would enable
the Company to proceed with the transactions contemplated herein on such
adjusted terms. In addition, if the Company proposes to enter into an agreement
with respect to any Acquisition Proposal, it shall concurrently with entering
into such agreement pay, or cause to be paid, to Parent the Termination Fee (as
defined in Section 8.1) subject to the provisions of Section 8.1.
Section 5.6 PUBLICITY. The initial press release with respect
to the execution of this Agreement shall be a joint press release acceptable to
Parent and the Company. Thereafter, so long as this Agreement is in effect,
neither the Company, Parent nor any of their respective affiliates shall issue
or cause the publication of any press release or other announcement with respect
to the Merger, this Agreement or the other transactions contemplated hereby
without the prior consultation of the other party, except as may be required by
law or by any listing agreement with a national securities exchange or trading
market.
Section 5.7 NOTIFICATION OF CERTAIN MATTERS. The Company shall
give prompt notice to Parent and Parent shall give prompt notice to the Company,
of (i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would cause any representation
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or warranty 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 the Company, Parent or the Purchaser, as the case may be, 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 5.7 shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
Section 5.8 INDEMNIFICATION. For six years after the Effective
Time, Parent shall cause the Surviving Corporation (or any successor to the
Surviving Corporation) to indemnify, defend and hold harmless the present and
former officers and directors of the Company and its subsidiaries (each an
"INDEMNIFIED PARTY") against all losses, claims, damages, liabilities, fees and
expenses (including reasonable fees and disbursements of counsel and judgments,
fines, losses, claims, liabilities and amounts paid in settlement (provided that
any such settlement is effected with the written consent of the Parent or the
Surviving Corporation)) arising out of actions or omissions occurring at or
prior to the Effective Time to the full extent permitted under Delaware law,
subject to the terms of the Company's Certificate of Incorporation, By-laws and
indemnification agreements, all as in effect at the date hereof, including
provisions relating to advancement of expenses incurred in the defense of any
action or suit; PROVIDED THAT, in the event any claim or claims are asserted or
made within such six year period, all rights to indemnification in respect of
any such claim or claims shall continue until disposition of any and all such
claims; PROVIDED FURTHER, that any determination required to be made with
respect to whether an Indemnified Party's conduct complies with the standards
set forth under Delaware law, the Certificate of Incorporation, the By-Laws or
such agreements, as the case may be, shall be made by independent counsel
mutually acceptable to Parent and the Indemnified Party and; PROVIDED FURTHER,
that nothing herein shall impair any rights or obligations of any present or
former directors or officers of the Company.
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ARTICLE VI
CONDITIONS
Section 6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT
THE MERGER. The respective obligation of each party to effect the Merger shall
be subject to the satisfaction on or prior to the Closing Date of each of the
following conditions, any and all of which may be waived in whole or in part by
the Company, Parent or the Purchaser, as the case may be, to the extent
permitted by applicable law:
(a) STOCKHOLDER APPROVAL. This Agreement
shall have been approved and adopted by the requisite vote of the stockholders
of the Company, if required by applicable law and the Certificate of
Incorporation, in order to consummate the Merger;
(b) STATUTES; CONSENTS. No law, statute,
rule, order, decree or regulation shall have been enacted or promulgated by any
Governmental Entity of competent jurisdiction which declares this Agreement
invalid or unenforceable in any material respect or which prohibits completion
of the Offer or consummation of the Merger, and all governmental consents,
orders and approvals (including, without limitation, those identified in Section
5.4(a) of the Schedule attached to this Agreement) required for the completion
of the Offer or consummation of the Merger and the other transactions
contemplated hereby shall have been obtained and shall be in effect at the
Effective Time;
(c) INJUNCTIONS. There shall be no order
or injunction of any Governmental Entity in effect precluding, restraining,
enjoining or prohibiting completion of the Offer or consummation of the Merger;
(d) PURCHASE OF SHARES IN OFFER. Parent, the
Purchaser or their affiliates shall have purchased Shares pursuant to the Offer;
and
(e) HSR APPROVAL. The applicable waiting period
under the HSR Act shall have expired or been terminated.
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ARTICLE VII
TERMINATION
Section 7.1 TERMINATION. This Agreement may be terminated and
the Merger contemplated herein may be abandoned at any time prior to the
Effective Time, whether before or after stockholder approval thereof:
(a) By the mutual written consent of the
Board of Directors of Parent and the Company Board.
(b) By either of the Board of Directors
of Parent or the Company Board:
(i) if the Offer shall have expired without any
Shares being purchased therein; PROVIDED, HOWEVER, that the right to
terminate this Agreement under this Section 7.1(b)(i) 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
Parent or the Purchaser, as the case may be, to purchase the Shares
pursuant to the Offer on or prior to the date on which the Offer shall
have expired; or
(ii) if any Governmental Entity shall have issued an
order, decree or ruling or taken any other action (which order, decree,
ruling or other action the parties hereto shall use their reasonable
efforts to lift), in each case permanently restraining, enjoining or
otherwise prohibiting the Transactions and such order, decree, ruling
or other action shall have become final and non-appealable.
(c) By the Company Board:
(i) if, prior to the purchase of the Shares pursuant
to the Offer, Parent or the Purchaser breaches or fails in any material
respect to perform or comply with any of its material covenants and
agreements contained herein or breaches its representations and
warranties in any material respect; or
(ii) in connection with entering into a
definitive agreement in accordance with Section
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5.5(b), provided it has complied with all provisions thereof, including
the notice provisions therein, and that it makes simultaneous payment
of the Termination Fee; or
(iii) if Parent or the Purchaser shall have
terminated the Offer without Parent or the Purchaser, as the case may
be, purchasing any Shares pursuant thereto; provided that the Company
may not terminate this Agreement pursuant to this Section 7.1(c)(iii)
if the Company is in material breach of this Agreement; or
(iv) if Parent, the Purchaser or any of their
affiliates shall have failed to commence the Offer on or prior to the
fifth business day following the date of the initial public
announcement of the Offer; provided, that the Company may not terminate
this Agreement pursuant to this Section 7.1(c)(iv) if the Company is in
material breach of this Agreement.
(d) By the Board of Directors of the
Parent or the Board of Directors of the Purchaser:
(i) if prior to the purchase of the Shares pursuant
to the Offer, the Company Board (A) shall have withdrawn, or modified
or changed in a manner adverse to Parent or the Purchaser, its approval
or recommendation of the Offer, this Agreement or the Merger, or (B)
shall have approved or recommended an Acquisition Proposal, or (C)
shall have executed an agreement in principle (or similar agreement) or
definitive agreement providing for a tender offer or exchange offer for
any shares of capital stock of the Company, or a merger, consolidation
or other business combination with a person or entity other than
Parent, the Purchaser or their affiliates (or the Company Board
resolves to do any of the foregoing); or
(ii) if Parent or the Purchaser shall have terminated
the Offer without Parent or the Purchaser purchasing any Shares
thereunder, PROVIDED that Parent or the Purchaser may not terminate
this Agreement pursuant to this Section 7.1(d)(ii) if Parent or the
Purchaser has failed to purchase the
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Shares in the Offer in violation of the material terms thereof; or
(iii) if, due to an occurrence that if occurring
after the commencement of the Offer would result in a failure to
satisfy any of the conditions set forth in Annex A hereto, Parent, the
Purchaser, or any of their affiliates shall have failed to commence the
Offer on or prior to the fifth business day following the date of the
initial public announcement of the Offer.
Section 7.2 EFFECT OF TERMINATION. In the event of the
termination of this Agreement as provided in Section 7.1, written notice thereof
by the terminating party shall forthwith be given to the other party or parties
specifying the provision hereof pursuant to which such termination is made, and
this Agreement shall forthwith become null and void, and there shall be no
liability on the part of Parent, the Company, their respective stockholders and
affiliates, or the respective officers and directors thereof, except as set
forth in Section 8.1 and pursuant to the Confidentiality Agreement; PROVIDED,
HOWEVER, that nothing herein shall relieve any party from liability for fraud or
for any material breach of this Agreement.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 FEES AND EXPENSES. All costs and expenses incurred
in connection with this Agreement and the consummation of the Transactions shall
be paid by the party incurring such expenses. Notwithstanding the foregoing, if
(x) this Agreement is terminated pursuant to Section 7.1(c)(ii) or 7.1(d)(i)
hereof or (y) prior to the termination of this Agreement an Acquisition Proposal
shall have been made and within 12 months of such termination an Acquisition
Proposal shall have been consummated or the Company shall have entered into an
agreement with respect to, or shall have approved or recommended, an Acquisition
Proposal, then the Company shall pay to Parent (concurrently with such
termination, in the case of clause (x) above, and not later than the
consummation of such later Acquisition Proposal, in the case of clause
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(y) above) an amount equal to U.S.$10 million (the "TERMINATION FEE"). In
addition, if the Offer is terminated pursuant to paragraph (g) of Annex A
hereto, Parent will pay to the Company an amount equal to all out-of-pocket fees
and expenses of the Company incurred in connection with this Agreement and the
Offer (including legal and investment banking fees and expenses) to a maximum of
U.S. $1 million.
Section 8.2 AMENDMENT AND MODIFICATION. Subject to
applicable law, this Agreement may be amended, modified and supplemented in any
and all respects, whether before or after any vote of the stockholders of the
Company contemplated hereby, by written agreement of the parties hereto (which
in the case of the Company shall include approvals as contemplated in Section
1.4(b)), at any time prior to the Closing Date with respect to any of the terms
contained herein; PROVIDED, HOWEVER, that after the approval of this Agreement
by the stockholders of the Company, no such amendment, modification or
supplement shall reduce the amount, or change the form, of the Merger
Consideration.
Section 8.3 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES.
None of the representations and warranties in this Agreement or in any schedule,
instrument or other document delivered pursuant to this Agreement shall survive
the Effective Time.
Section 8.4 NOTICES. All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered personally,
telecopied (which is confirmed) or sent by an overnight courier service, such as
Federal Express, to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) if to Parent or the Purchaser, to:
Extendicare Inc.
3000 Steeles Avenue East
Suite 700
Markham, Ontario
L3R 9W2
50
<PAGE> 56
Attention: Joy D. Calkin
Telephone: (905) 470-4000
Facsimile: (905) 470-4003
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022-3897
Attention: Milton G. Strom
Telephone No.: (212) 735-2300
Telecopy No.: (212) 735-3618
(b) if to the Company, to:
Arbor Health Care Company
1100 Shawnee Road
Box 840
Lima, Ohio 45802
Attention: Pier C. Borra
Telephone: (419) 227-3000
Facsimile: (419) 227-3499
with a copy to:
Shumaker, Loop & Kendrick, LLP
Barnett Plaza - Suite 2800
101 East Kennedy Boulevard
Tampa, Florida 33602
Attention: Gregory C. Yadley
Telephone No.: (813) 229-7600
Telecopy No.: (813) 229-1660
Section 8.5 INTERPRETATION. When a reference is made in this
Agreement to Sections, such reference shall be to a Section of this Agreement
unless otherwise indicated. Whenever the words "include", "includes" or
"including" are used in this Agreement they shall be deemed to be followed by
the words "without limitation". As used in this Agreement, the term
"affiliate(s)" shall have the meaning set forth in Rule l2b-2 promulgated under
the Exchange Act.
51
<PAGE> 57
Section 8.6 COUNTERPARTS. This Agreement may be executed in
one or more counterparts, each of which shall be considered one and the same
agreement and shall become effective when two or more counterparts have been
signed by each of the parties and delivered to the other parties.
Section 8.7 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES;
RIGHTS OF OWNERSHIP. This Agreement and the Confidentiality Agreement (including
the documents and the instruments referred to herein and therein): (a)
constitute the entire agreement and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, and (b) except as provided in Section 5.8 and Schedule
3.15 hereto, is not intended to confer upon any person other than the parties
hereto any rights or remedies hereunder.
Section 8.8 SEVERABILITY. Any term or provision of this
Agreement that is held by a court of competent jurisdiction or other authority
to be invalid, void or unenforceable in any situation in any jurisdiction shall
not affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction. If the final judgment of a
court of competent jurisdiction or other authority declares that any term or
provision hereof is invalid, void or unenforceable, the parties agree that the
court making such determination shall have the power to reduce the scope,
duration, area or applicability of the term or provision, to delete specific
words or phrases, or to replace any invalid, void or unenforceable term or
provision with a term or provision that is valid and enforceable and that comes
closest to expressing the intention of the invalid or unenforceable term or
provision.
Section 8.9 GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware without
giving effect to the principles of conflicts of law thereof.
Section 8.10 ASSIGNMENT. Neither this Agree-
ment nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto
52
<PAGE> 58
(whether by operation of law or otherwise) without the prior written consent of
the other parties, except that the Purchaser may assign, in its sole discretion,
any or all of its rights, interests and obligations hereunder to Parent or to
any direct or indirect wholly owned subsidiary of Parent. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit of
and be enforceable by the parties and their respective successors and assigns.
Section 8.11 TRANSFER AND SIMILAR TAXES. Notwithstanding any
other provision of this Agreement to the contrary, each of the Company's
stockholders shall be responsible for the payment of any sales, use, privilege,
transfer, documentary, gains, stamp, duties, recording and similar Taxes and
fees (including any penalties, interest and additions to such fees), except for
taxes relating to "EXCESS PARACHUTE PAYMENTS" with respect to persons referred
to in Schedule 3.17 of the Company Disclosure Schedule, incurred in connection
with such stockholder's sale of Shares to the Purchaser pursuant to this
Agreement and for the accurate filing of all necessary Tax Returns and other
documentation with respect to any transfer Tax.
53
<PAGE> 59
IN WITNESS WHEREOF, Parent, the Purchaser and the Company have
caused this Agreement to be signed by their respective officers thereunto duly
authorized as of the date first written above.
EXTENDICARE INC.
By:/s/ Barry L. Stephens
----------------------------------
Name: Barry L. Stephens
Title: Senior Vice President,
Finance
AHC ACQUISITION CORP.
By:/s/ Stephen F. Dineley
----------------------------------
Name: Stephen F. Dineley
Title: Vice President & Chief
Financial Officer
ARBOR HEALTH CARE COMPANY
By:/s/ PIER C. BORRA
----------------------------------
Name: Pier. C. Borra
Title: Chairman, President
and Chief Executive
Officer
54
<PAGE> 60
ANNEX A
CERTAIN CONDITIONS OF THE OFFER. Notwithstanding any other
provisions of the Offer, and in addition to (and not in limitation of) the
Purchaser's rights to extend and amend the Offer at any time in its sole
discretion (subject to the provisions of this Agreement), the Purchaser shall
not be required to accept for payment or, subject to any applicable rules and
regulations of the SEC, including Rule 14e-1(c) under the Exchange Act (relating
to the Purchaser's obligation to pay for or return tendered Shares promptly
after termination or withdrawal of the Offer), pay for, and may delay the
acceptance for payment of or, subject to the restriction referred to above, the
payment for, any tendered Shares, and may terminate or amend the Offer as to any
Shares not then paid for, if (i) any applicable waiting period under the HSR Act
has not expired or terminated, (ii) the Minimum Condition has not been
satisfied, (iii) the Company, the Parent and the Purchaser, as required, have
not obtained all necessary material consents, approvals, orders, authorizations,
registrations, declarations, permits or filings required to be obtained by it in
connection with this Agreement and the transactions contemplated hereby or (iv)
at any time on or after the date of the Merger Agreement and before the time of
payment for any such Shares, any of the following events shall occur or shall be
determined by the Purchaser to have occurred:
(a) there shall be threatened or pending any
suit, action or proceeding by any Governmental Entity against the Purchaser,
Parent, the Company or any subsidiary of the Company (i) seeking to prohibit or
impose any material limitations on Parent's or the Purchaser's ownership or
operation (or that of any of their respective subsidiaries or affiliates) of all
or a material portion of their or the Company's businesses or assets, or to
compel Parent or the Purchaser or their respective subsidiaries and affiliates
to dispose of or hold separate any material portion of the business or assets of
the Company or Parent and their respective subsidiaries, in each case taken as a
whole, (ii) challenging the acquisition by Parent or the Purchaser of any Shares
under the Offer, the Merger or pursuant to the Stockholder Agreements, seeking
to restrain or prohibit the making or consummation of the Offer or the Merger or
the performance of any of the other Transactions (including the voting
provisions thereunder), or seeking to obtain from the Company, Parent or the
A-1
<PAGE> 61
Purchaser any damages that are material in relation to the Company and its
subsidiaries taken as a whole, (iii) seeking to impose material limitations on
the ability of the Purchaser, or render the Purchaser unable, to accept for
payment, pay for or purchase some or all of the Shares pursuant to the Offer and
the Merger, (iv) seeking to impose material limitations on the ability of the
Purchaser or Parent effectively to exercise full rights of ownership of the
Shares, including, without limitation, the right to vote the Shares purchased by
it on all matters properly presented to the Company's stockholders, or (v) which
otherwise is reasonably likely to have a material adverse affect on the Company
and its subsidiaries, taken as a whole;
(b) there shall be any statute, rule, regulation,
judgment, order or injunction enacted, entered, enforced, promulgated, or deemed
applicable, pursuant to an authoritative interpretation by or on behalf of a
Government Entity, to the Offer or the Merger, or any other action shall be
taken by any Governmental Entity, other than the application to the Offer or the
Merger of applicable waiting periods under HSR Act, that is reasonably likely to
result, directly or indirectly, in any of the consequences referred to in
clauses (i) through (iv) of paragraph (a) above;
(c) there shall have occurred (i) any general
suspension of trading in, or limitation on prices for, securities on the New
York Stock Exchange, The Toronto Stock Exchange or in the Nasdaq Stock Market,
for a period in excess of 24 hours (excluding suspensions or limitations
resulting solely from physical damage or interference with such exchanges not
related to market conditions), (ii) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States or Canada
(whether or not mandatory), (iii) a commencement of a war directly or indirectly
involving the United States or Canada, (iv) any limitation (whether or not
mandatory) by any United States or Canadian governmental authority on the
extension of credit generally by banks or other financial institutions, (v) a
change in general financial, bank or capital market conditions which materially
adversely affects the ability of financial institutions in the United States or
Canada to extend credit or syndicate loans or (vi) in the case of any of the
foregoing existing at the time of the commencement of the Offer, a material
acceleration or worsening thereof;
A-2
<PAGE> 62
(d) (i) the representations and warranties of
the Company set forth in this Agreement shall not be true and correct in any
material respect as of the date of this Agreement and as of consummation of the
Offer as though made on or as of such date, (ii) the Company shall have failed
to comply with its covenants and agreements under this Agreement in all material
respects or (iii) there shall have occurred any events or changes which have had
or will have a material adverse effect on the Company and its subsidiaries taken
as a whole;
(e) (i) the Company Board shall have with-
drawn, or modified or changed in a manner adverse to Parent or the Purchaser
(including by amendment of the Schedule 14D-9) its approval or recommendation
of the Offer, this Agreement, or the Merger, or approved or recommended any
Acquisition Proposal, (ii) the Company shall have entered into any agreement
with respect to any Superior Proposal in accordance with Section 5.5(b) of this
Agreement or (iii) the Company Board, upon request of the Purchaser, shall fail
to reaffirm its recommendation of the Offer, this Agreement or the Merger;
(f) this Agreement shall have terminated in
accordance with its terms; or
(g) there shall have occurred after the date
hereof any material adverse change in the business, assets, liabilities (actual
or contingent), operations, condition, financial or otherwise) or prospects of
Extendicare Health Services, Inc., an indirect wholly owned subsidiary of Parent
("EHSI"), and its subsidiaries, taken as a whole, and Nationsbank, N.A. or
Nationsbanc Capital Markets, Inc. shall have declined to participate in the
financing to be provided to EHSI as set forth in their letter to Parent dated
September 29, 1997.
which in the sole judgment of Parent or the Purchaser, in any such case, and
regardless of the circumstances (including any action or inaction by Parent or
the Purchaser) giving rise to such condition makes it inadvisable to proceed
with the Offer and/or with such acceptance for payment of or payment for Shares.
The foregoing conditions are for the sole benefit of Parent
and the Purchaser and may be waived by Parent or the Purchaser, in whole or in
part at any time and from time
A-3
<PAGE> 63
to time in the sole discretion of Parent or the Purchaser. The failure by Parent
or the Purchaser at any time to exercise any of the foregoing rights shall not
be deemed a waiver of any such right and each such right shall be deemed an
ongoing right which may be asserted at any time and from time to time.
A-4
<PAGE> 1
EXHIBIT 3
NEWS RELEASE
FOR IMMEDIATE RELEASE
SEPTEMBER 30, 1997
EXTENDICARE TO ACQUIRE ARBOR FOR US$45.00 PER SHARE
MARKHAM, ONTARIO and LIMA, OHIO -- Extendicare Inc. ("Extendicare") (TSE/ME
stock symbols: EXE, EXE.A; NYSE stock symbol: EXE.A) through its wholly owned
United States subsidiary Extendicare Health Services, Inc. (formerly United
Health, Inc.) and Arbor Health Care Company ("Arbor") today jointly announced
that they have signed a definitive agreement whereby Extendicare will acquire
Arbor (Nasdaq: AHCC), through a cash tender offer, for US$45.00 per share. The
transaction, which will be accounted for as a purchase, is valued at US$432
million, including the assumption of approximately US$107 million of Arbor debt.
Arbor has approximately 7.2 million fully diluted shares outstanding. The
transaction has been approved by the Boards of both companies, and is expected
to close in the fourth quarter of 1997.
Pier C. Borra, Chairman, President and Chief Executive Officer of Arbor has
entered into a stockholder agreement whereby he has agreed to tender and vote
his shares in favor of the transaction. Extendicare intends to commence a tender
offer for all of Arbor's shares on October 3, 1997.
The transaction will add Arbor's 31 nursing facilities with approximately 3,700
beds, four institutional pharmacies serving 27,000 beds, and ten comprehensive
outpatient rehabilitation facilities to Extendicare's 279 nursing facilities
with approximately 28,300 beds, creating one of the largest operators of
long-term care in North America. Annualized second quarter revenues of Arbor
amounted to US$241 million.
"We believe Arbor is a premier subacute care provider that will complement our
existing operations in both Florida and Ohio. We expect that this consolidation
will lead to greater efficiency in providing services, significant operating
synergies, and future margin improvements. We expect this transaction to be
non-dilutive to earnings in 1998 and accretive in 1999", said Dr. Joy D. Calkin,
President and Chief Executive Officer of Extendicare Inc.
Pier C. Borra, Chairman, President and Chief Executive Officer of Arbor stated,
"We are very pleased with this combination which provides Arbor shareholders
with a very attractive return. In addition, combining Extendicare's existing
operations with Arbor's high quality facilities, and market concentration will
allow the combination to continue Arbor's strategy of providing high quality
subacute services. We are excited to be part of a great organization that will
become an even stronger player in our industry."
Bank financing for the transaction, will be provided by NationsBank. Bear
Stearns & Co. Inc. is acting as advisor to Extendicare, and will act as
dealer-manager for the tender offer. Raymond James & Associates, Inc. is acting
as advisor to Arbor.
In its 30th year of operation, Extendicare operates long-term care facilities in
North America, with more than 34,000 employees in the United States, Canada and
the United Kingdom. The corporation also provides medical specialty services,
including subacute care and rehabilitative therapy services, institutional
pharmacy services, and other medical supplies and services in the United States;
and home care and rehabilitative therapy services in Canada. Extendicare
currently has an equity market value of US$1.2 billion.
<PAGE> 2
Extendicare management will host a breakfast in Boston on Wednesday, October 1
at 8:00 a.m. at the Boston Harbor Hotel (70 Rowes Wharf), and lunch on
Wednesday, October 1 at 12 noon in New York at the St. Regis Hotel (2 E. 55(th)
Street). Please call Elizabeth Serbek at Bear Stearns at 212-272-3582 to sign up
for any of these meetings.
Statements contained in this press release which are not historical facts are
forward-looking statements. In addition, the parties, through their senior
management, may from time to time make forward-looking public statements
concerning the matters described herein. Such forward-looking statements are
necessarily estimates reflecting the best judgment of the party making such
statements based upon current information and involve a number of risks and
uncertainties. Factors which could affect the accuracy of such forward-looking
statements include the possibility that Extendicare may be unable to realize
expected synergies. Forward-looking statements contained in this press release
or in other public statements of the parties should be considered in light of
those factors. There can be no assurance that such factors or other factors will
not affect the accuracy of such forward-looking statements.
For further information contact:
Barry L. Stephens
Senior Vice-President, Finance
Telephone: 905-470-5579
Fax: 905-470-4003
<PAGE> 1
EXHIBIT 4
[LETTERHEAD OF RAYMOND JAMES & ASSOCIATES, INC.]
September 29, 1997
The Board of Directors
Arbor Health Care Company
1100 Shawnee Road, Box 840
Lima, Ohio 45802-0840
Members of the Board:
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of the common stock of Arbor Health Care Company
("Arbor") of the consideration to be received by such holders pursuant to the
terms and subject to the conditions set forth in the Agreement and Plan of
Merger, dated as of September 29, 1997 (the "Merger Agreement"), by and among
Extendicare, Inc. ("Extendicare"), AHC Acquisition Corp., a wholly-owned
subsidiary of Extendicare ("Merger Sub"), and Arbor. As more fully described in
the Merger Agreement, (i) Extendicare will cause Merger Sub to commence a tender
offer to purchase all outstanding shares of the common stock, par value $0.03
per share, of Arbor (the "Arbor Common Stock") at a purchase price of $45.00 per
share, net to the seller in cash (the "Tender Offer") and (ii) subsequent to the
Tender Offer, Merger Sub will be merged with and into Arbor (the "Merger" and,
together with the Tender Offer, the "Transaction") and each outstanding share of
Arbor Common Stock not previously tendered will be converted into the right to
receive $45.00 in cash.
In arriving at our opinion, we reviewed the Merger Agreement and held
discussions with certain senior officers, directors and other representatives
and advisors of Arbor and certain senior officers and other representatives of
Extendicare concerning the business, operations and prospects of Arbor. We
examined certain publicly available business and financial information relating
to Arbor as well as certain financial forecasts and other information and data
for Arbor which were provided to or otherwise discussed with us by the
management of Arbor. We reviewed the financial terms of the Transaction as set
forth in the Merger Agreement in relation to, among other things: current and
historical market prices and trading volumes of Arbor Common Stock; the
historical and projected earnings and other operating data of Arbor; and the
capitalization and financial condition of Arbor. We considered, to the extent
publicly available, the financial terms of similar transactions recently
effected which we considered relevant in evaluating the Transaction and analyzed
certain financial, stock market and other publicly available information
relating to the businesses of other companies whose operations we considered
relevant in evaluating those of Arbor. In connection with our engagement, we
were requested to approach, and held discussions with, third parties to solicit
indications of interest in a possible acquisition of Arbor. In addition to the
foregoing, we conducted such other analyses and examinations and considered such
other financial, economic and market criteria as we deemed appropriate in
arriving at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise reviewed by
or discussed with us. With respect to financial forecasts and other information
and data provided to or otherwise reviewed by or discussed with us, we have been
advised by the management of Arbor that such forecasts and other information and
data were reasonably prepared in good faith on bases reflecting the best
currently available estimates and judgments of the management of Arbor as to the
future financial performance of Arbor, and we have relied upon Arbor to advise
us promptly if any information previously provided became inaccurate or was
required to be updated during the period of our review. We have not made or been
provided with an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of Arbor nor have we made any physical
inspection of the properties or assets of Arbor. Our opinion is necessarily
based upon information available to us, and financial, stock market and other
conditions and circumstances existing and disclosed to us, as of the date
hereof, and any material change in such conditions and circumstances would
require a reevaluation of this opinion.
<PAGE> 2
The Board of Directors
Arbor Health Care Company
September 29, 1997
Page 2
Raymond James & Associates, Inc. has been engaged to render financial
advisory services to Arbor in connection with the proposed Transaction and will
receive a fee for such services, a significant portion of which is contingent
upon the consummation of the Transaction. We also will receive a fee upon the
delivery of this opinion. In addition, Arbor has agreed to indemnify us against
certain liabilities arising out of our engagement. Raymond James & Associates,
Inc. is actively engaged in the investment banking business and regularly
undertakes the valuation of investment securities in connection with public
offerings, private placements, business combinations and similar transactions.
In the ordinary course of our business, we and our affiliates may actively trade
or hold the securities of Arbor for our own account or for the account of our
customers and, accordingly, may at any time hold a long or short position in
such securities. We have in the past provided investment banking services to
Arbor unrelated to the proposed Transaction, for which services we have received
compensation.
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of Arbor in its evaluation of the proposed
Transaction, and our opinion is not intended to be and does not constitute a
recommendation to any stockholder as to whether or not such stockholder should
tender shares of Arbor Common Stock in the Tender Offer or how such stockholder
should vote on the proposed Merger. Our opinion may not be published or
otherwise used or referred to, nor shall any public reference to Raymond James &
Associates, Inc. be made, without our prior written consent; provided that this
opinion letter may be included in its entirety in the
Solicitation/Recommendation Statement of Arbor relating to the proposed
Transaction.
Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and other factors we deemed relevant, we
are of the opinion that, as of the date hereof, the cash consideration to be
received by the holders of Arbor Common Stock in the Transaction is fair, from a
financial point of view, to such holders.
Very truly yours,
[Signature]
RAYMOND JAMES & ASSOCIATES, INC.
<PAGE> 1
EXHIBIT 5
<TABLE>
<S> <C>
[ARBOR LOGO]
October 3, 1997
</TABLE>
Dear Fellow Stockholder:
I am pleased to inform you that Arbor Health Care Company (the "Company")
has entered into a merger agreement with Extendicare Inc. ("Extendicare") and
AHC Acquisition Corp., an indirect wholly owned subsidiary of Extendicare (the
"Purchaser"), pursuant to which the Purchaser has today commenced a tender offer
for any and all of the Company's outstanding shares at a price of $45.00 per
share in cash. Under the merger agreement, the tender offer will be followed by
a merger in which shares of the Company not purchased in the tender offer will
be converted into the right to receive cash in the amount of $45.00 per share.
As a result of the merger, the Company will become an indirect subsidiary of
Extendicare.
The Board of Directors of the Company, by unanimous vote, has determined
that the tender offer and the merger are fair to, and in the best interests of,
the Company's stockholders. The Board has approved the tender offer and the
merger and recommends that stockholders accept the tender offer and tender their
shares.
In arriving at its recommendation, the Board of Directors gave careful
consideration to a number of factors, including the opinion of Raymond James &
Associates, Inc., the Company's financial advisor, that, as of the date of their
opinion, the proposed cash consideration to be received by stockholders in the
tender offer and the merger is fair to such stockholders from a financial point
of view.
You will have separately received the Purchaser's Offer to Purchase, dated
October 3, 1997, Letter of Transmittal and other related documents. These
documents set forth the terms and conditions of the tender offer. Attached is a
copy of the Company's Schedule 14D-9, as filed with the Securities and Exchange
Commission (without exhibits). The Schedule 14D-9 describes in more detail the
reasons for the Board's conclusions and contains other important information
relating to the tender offer. I urge you to consider this information carefully
before making your decision with respect to tendering your shares in the tender
offer.
Personally and on behalf of the Board of Directors, I would like to thank
you for your loyal support throughout the years.
Sincerely,
/s/ PIER C. BORRA
PIER C. BORRA
Chairman, President and
Chief Executive Officer
