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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
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PACIFIC REHABILITATION &
SPORTS MEDICINE, INC.
(Name of Subject Company)
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PACIFIC REHABILITATION &
SPORTS MEDICINE, INC.
(Name of Person(s) Filing Statement)
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Common Stock, par value $0.01 per share
(Title of Class of Securities)
694926 10 6
(CUSIP Number of Class of Securities)
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Michael McArthur-Phillips
Senior Vice President--General Counsel and Secretary
Pacific Rehabilitation & Sports Medicine, Inc.
One S.W. Columbia Street, Suite 900
Portland, Oregon 97258
(503) 222-4191
(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:
Morton A. Pierce, Esq.
Denise A. Cerasani, Esq.
Dewey Ballantine
1301 Avenue of the Americas
New York, New York 10019-6092
(212) 259-8000
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Pacific Rehabilitation & Sports Medicine,
Inc., a Delaware corporation (the "Company"). The address of the principal
executive offices of the Company is One S.W. Columbia Street, Suite 900,
Portland, Oregon 97258. This statement relates to the Company's common stock,
par value $0.01 per share (the "Common Stock" or the "Shares").
ITEM 2. TENDER OFFER OF THE BIDDER.
This statement relates to the tender offer made by Horizon PRSM Corporation
("Purchaser"), a Delaware corporation and an indirect wholly-owned subsidiary of
Horizon/CMS Healthcare Corporation, a Delaware corporation ("Parent"), disclosed
in a Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D-1") dated
November 22, 1996, to purchase all outstanding Shares at $6.50 per Share, net to
the seller in cash, without interest (the "Offer"), upon the terms and subject
to the conditions set forth in the Offer to Purchase dated November 22, 1996
(the "Offer to Purchase"), and the related Letter of Transmittal (which
together, with the Schedule 14D-1, the Offer to Purchase and any supplements or
amendments thereto, constitute the "Offer Documents") which are filed as
Exhibits (a) and (b) to this Schedule 14D-9 and are incorporated herein by
reference.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of November 17, 1996, among the Company, Parent and Purchaser (the "Merger
Agreement"), which provides for, among other things, the commencement of the
Offer by Purchaser, subject to the conditions and upon the terms of the Merger
Agreement, and for the subsequent merger of Purchaser with and into the Company
(the "Merger").
The Schedule 14D-1 states that the principal executive offices of Parent are
located at 6001 Indian School Road, N.E., Albuquerque, New Mexico 87110.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of the Company, which is the person filing
this statement, are set forth in Item 1 above.
(b) Except as set forth in this Item 3(b), to the knowledge of the Company,
as of the date hereof, there are no material contracts, agreements, arrangements
or understandings and no actual or potential conflicts of interest between the
Company or its affiliates and (i) the Company, its executive officers, directors
or affiliates or (ii) Parent or Purchaser or their respective executive
officers, directors or affiliates.
Certain contracts, agreements, arrangements and understandings between the
Company and certain of its executive officers, directors and affiliates are
described in Annex A hereto, which description is incorporated in its entirety
by reference herein.
Certain other contracts, agreements and understandings between the Company
and its directors, executive officers and affiliates and between the Company,
Parent and Purchaser are set forth below:
(i) MERGER AGREEMENT. On November 17, 1996, the Company, Purchaser and
Parent entered into the Merger Agreement. The following discussion of the Merger
Agreement and the transactions contemplated thereby, including the Offer and the
Merger, does not purport to be complete and is qualified in its entirety by
reference to the text of the Merger Agreement, a copy of which has been filed as
Exhibit (d) hereto and is incorporated herein by reference. Defined terms used
below and not defined herein have the respective meanings assigned to those
terms in the Merger Agreement.
THE OFFER. The Merger Agreement provides that Purchaser will commence the
Offer and, subject to the terms of the Offer, Purchaser shall accept for payment
and pay for all Shares which have been validly tendered and not withdrawn
pursuant to the Offer at a price of $6.50 per Share, net to the seller in cash,
promptly after expiration of the Offer; PROVIDED that, Purchaser may extend the
Offer up to the tenth business day after the later of (i) the initial expiration
date of the Offer and (ii) the date on which all conditions to the Offer shall
first have been satisfied or waived. The Company agrees that no Shares held
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by the Company will be tendered to Parent pursuant to the Offer; PROVIDED, that
Shares held beneficially or of record by any plan, program or arrangement
sponsored or maintained for the benefit of employees of the Company shall not be
deemed to be held by the Company, regardless of whether the Company has,
directly or indirectly, the power to vote or control the disposition of such
Shares. The obligations of Purchaser to commence the Offer and to accept for
payment and to pay for Shares validly tendered on or prior to the expiration of
the Offer and not withdrawn shall be subject only to the conditions set forth
below in "Conditions to the Offer." Purchaser may not, without the prior written
consent of the Company, (a) decrease or change the form of the consideration
payable in the Offer, (b) decrease the number of Shares sought pursuant to the
Offer, (c) add to or change the conditions of the Offer, except that Parent in
its sole discretion may waive any of the conditions to the Offer other than the
condition set forth below in clause (1) of "Conditions to the Offer," which may
not be waived without the Company's prior written consent, or (d) make any other
change in the terms or conditions of the Offer which is adverse to the holders
of the Shares.
CONDITIONS TO THE OFFER. The Merger Agreement provides that Parent will not
be required to accept for payment, purchase or pay for any Shares tendered until
the expiration of any applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and Parent may
terminate or, subject to the terms and conditions of the Merger Agreement, amend
the Offer as to any Shares not then accepted for payment, shall not be required
to accept for payment or pay for any Shares, or may delay the acceptance for
payment of Shares tendered, if (1) at the expiration of the Offer, the number of
Shares validly tendered and not withdrawn, together with the Shares beneficially
owned by Parent and its affiliates, shall not constitute a majority of the
outstanding Shares on a fully diluted basis (the "Minimum Condition"), or (2) at
any time on or after November 17, 1996, and at or prior to the time of payment
for any such Shares, any of the following events shall occur:
(a) there shall have been any action or proceeding brought by any
governmental authority before any federal or state court, or any order or
preliminary or permanent injunction entered in any action or proceeding before
any federal or state court or governmental, administrative or regulatory
authority or agency, located or having jurisdiction within the United States, or
any other action taken, proposed or threatened, or statute, rule, regulation,
legislation, interpretation, judgment or order proposed, sought, enacted,
entered, enforced, promulgated, amended, issued or deemed applicable to
Purchaser, the Company or any Subsidiary (as defined in the Merger Agreement) or
affiliate of Purchaser or the Company or the Offer or the Merger, by any
legislative body, court, government or governmental, administrative or
regulatory authority or agency located or having jurisdiction within the United
States, which could reasonably be expected to have the effect of: (i) making
illegal, materially delaying or otherwise restraining or prohibiting the Offer
or the Merger or the acquisition by Parent or Purchaser of any Shares; (ii)
prohibiting or materially limiting the ownership or operation by Parent,
Purchaser or their respective affiliates of any material portion of the business
or assets of the Company or compelling Parent or Purchaser to dispose of or hold
separate all or any material portion of the business or assets of the Company,
in each case as a result of the transactions contemplated by the Merger
Agreement; (iii) imposing material limitations on the ability of Parent or any
of its affiliates to exercise full rights of ownership of the Shares, including,
without limitation, the right to vote any Shares purchased by them on all
matters properly presented to the stockholders of the Company; or (iv)
preventing Parent or any of its affiliates from acquiring, or to require
divestiture by Parent or any of its affiliates of, any Shares; or
(b) there shall have occurred (i) any general suspension of, or limitation
on prices for, trading in securities on any national securities exchange or in
the over-the-counter market in the United States, (ii) the declaration of any
banking moratorium or any suspension of payments in respect of banks or any
limitation (whether or not mandatory) on the extension of credit by lending
institutions in the United States, (iii) the commencement of a war, material
armed hostilities or any other material international or national calamity
involving the United States, or (iv) in the case of any of the foregoing
existing at the time of the commencement of the Offer, a material acceleration
or worsening thereof; or
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(c) any Person (as defined in the Merger Agreement), entity or "group" (as
such term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) other than Parent or any of its affiliates shall
have become the beneficial owner (as that term is used in Rule 13d-3 under the
Exchange Act) of more than 50% of the outstanding Shares; or
(d) the Company shall have breached or failed to comply in any material
respect with any of its obligations under the Merger Agreement (which breach, if
curable, has not been cured within 30 days following receipt of written notice
thereof by Parent specifying in reasonable detail the basis of such alleged
breach), or any representation or warranty of the Company contained in the
Merger Agreement shall not have been true and correct in all material respects,
except (i) for changes specifically permitted or contemplated by the Merger
Agreement and (ii) those representations and warranties that address matters
only as to a particular date which are true and correct in all material respects
as of such date; or
(e) the Merger Agreement shall have been terminated pursuant to its terms or
amended pursuant to its terms to provide for such termination or amendment of
the Offer; or
(f) the Board of Directors of the Company (the "Board") shall have modified
or amended in any manner materially adverse to Parent or Purchaser or shall have
withdrawn its recommendation of the Offer or the Merger, or shall have resolved
to do any of the foregoing;
which, in the good faith judgment of Parent makes it inadvisable to proceed with
the Offer or with acceptance for payment or payment for Shares.
THE BOARD. The Merger Agreement provides that promptly upon the purchase by
Purchaser pursuant to the Offer of such number of Shares as represents at least
a majority of the outstanding Shares and from time to time thereafter, Parent
shall be entitled to designate such number of directors (the "Parent
Designees"), rounded up to the next whole number, on the Board as will give
Parent representation on the Board equal to the product of the number of
directors on the Board and the percentage that such number of Shares so
purchased bears to the number of Shares outstanding, and the Company shall, upon
request of Parent, exercise reasonable efforts to increase the size of the Board
or secure the resignations of such number of directors as is necessary to enable
such Parent Designees to be so elected or appointed. Such Parent Designees will
abstain from any action proposed to be taken by the Company to amend or
terminate the Merger Agreement or waive any action by Parent or Purchaser, which
actions will be effective with the approval of a majority of the remaining
directors. The Company's obligations to appoint designees to the Board shall be
subject to Section 14(f) of the Exchange Act. At the request of Parent, the
Company shall take all action reasonably necessary to effect any such election
or appointment, including mailing to its stockholders the information required
by Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder,
unless such information previously has been provided to the Company's
stockholders in this Schedule 14D-9. Parent and Purchaser will supply to the
Company, and will be solely responsible for, all information with respect to
themselves and their officers, directors and affiliates required by such Section
and Rule.
THE MERGER. The Merger Agreement provides that, upon the terms and subject
to the conditions therein, and in accordance with the General Corporation Law of
the State of Delaware (the "DGCL"), at the Effective Time (as defined in the
Merger Agreement), Purchaser shall be merged with and into the Company. As a
result of the Merger, the separate corporate existence of Purchaser shall cease
and the Company shall continue as the surviving corporation of the Merger (the
"Surviving Corporation").
As provided in the Merger Agreement, by virtue of the Merger and without any
action on the part of any of the parties thereto or the holders of any of the
following securities:
(a) each Share that is issued and outstanding immediately prior to the
Effective Time (other than any Shares owned by Parent, Purchaser or their
respective affiliates or held by the Company in its treasury, which Shares will
be cancelled and extinguished, and any Dissenting Shares, as hereinafter
defined) shall be changed and converted into and represent the right to receive
$6.50 in cash, or any higher price paid per
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Share in the Offer (the "Per Share Merger Consideration"). All such Shares shall
no longer be outstanding and shall automatically be cancelled and extinguished
and shall cease to exist, and each certificate which immediately prior to the
Effective Time evidenced any such Shares (other than Shares owned by Parent,
Purchaser or their respective affiliates or held by the Company in its treasury,
which Shares will be cancelled and extinguished, and any Dissenting Shares, as
hereinafter defined) shall thereafter represent the right to receive (without
interest), upon surrender of such certificate in accordance with the provisions
of the Merger Agreement, the Per Share Merger Consideration multiplied by the
number of Shares evidenced by such certificate (the "Merger Consideration"). The
holders of certificates previously evidencing Shares outstanding immediately
prior to the Effective Time shall cease to have any rights with respect thereto
(including, without limitation, any rights to vote or to receive dividends and
distributions in respect of such Shares), except as otherwise provided in the
Merger Agreement or by law; and
(b) each share of capital stock of Purchaser issued and outstanding
immediately prior to the Effective Time shall be converted into and exchanged
for one validly issued, fully paid and nonassessable share of common stock of
the Surviving Corporation.
Notwithstanding anything in the Merger Agreement to the contrary, Shares
that are outstanding immediately prior to the Effective Time and that are held
by stockholders who shall have perfected dissenters' rights in accordance with
Section 262 of the DGCL (the "Dissenting Shares") shall not be converted into or
represent the right to receive the Merger Consideration, unless and until such
holder shall have failed to perfect or shall have effectively withdrawn or lost
such holder's rights to appraisal under the DGCL. If any such holder shall have
failed to perfect or shall have effectively withdrawn or lost such holder's
rights to appraisal of such Shares under the DGCL, such holder's shares shall
thereupon be deemed to have been converted into and to have become exchangeable
for, at the Effective Time, the right to receive, upon surrender as provided
above, the Merger Consideration for the certificate or certificates that
formerly evidenced such Shares.
The Merger Agreement provides that immediately prior to the Effective Time,
(a) all outstanding (i) options and other rights to acquire Shares granted
to employees under any stock option or purchase plan, program or similar
arrangement of the Company (each, as amended, an "Option Plan" and, such options
and other rights, "Stock Options"), and (ii) any other rights to acquire Shares
(the "Company Acquisition Rights"), whether or not then exercisable or vested,
will be cancelled by the Company upon consummation of the Offer, and the holders
thereof shall be entitled to receive, for each Share subject to such Stock
Option or Company Acquisition Rights, in settlement and cancellation thereof, an
amount in cash equal to the positive difference, if any, between the Per Share
Merger Consideration and the exercise price per share of such Stock Option or
Company Acquisition Right, as the case may be, which amount shall be paid at the
time the Stock Option or Company Acquisition Right is cancelled; PROVIDED, that,
with respect to any person subject to Section 16 of the Exchange Act, any such
amount shall be paid as soon as practicable after the first date payment can be
made without liability to such person under Section 16(b) of the Exchange Act.
All applicable withholding taxes attributable to the payments made under the
Merger Agreement or to distributions contemplated thereby shall be deducted from
the amounts payable under the Merger Agreement and all such taxes attributable
to the cancellation of Stock Options and Company Acquisition Rights shall be
withheld from the proceeds received in connection with the cancellation thereof.
(b) Except as provided in the Merger Agreement or as otherwise agreed to by
the parties and to the extent permitted by the Option Plans, the Option Plans
shall terminate as of the Effective Time and any rights under any provisions in
any other plan, program or arrangement providing for the issuance or grant by
the Company of any interest in respect of the capital stock of the Company shall
be cancelled as of the Effective Time.
The Merger Agreement provides that, unless the Merger is consummated without
a meeting of the Company's stockholders in accordance with Section 253 of the
DGCL, and subject to applicable law, the
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Company, acting through its Board, shall, in accordance with the DGCL, its
Certificate of Incorporation and its Bylaws, (a) duly call, give notice of,
convene and hold a special meeting of its stockholders as soon as reasonably
practicable following the consummation of the Offer for the purpose of
considering and taking action upon the Merger Agreement (the "Company
Stockholders' Meeting") and (b) subject to the fiduciary duties of its Board of
Directors, include in the proxy statement or information statement prepared by
the Company for distribution to stockholders of the Company in advance of the
Company Stockholders' Meeting in accordance with Regulation 14A or Regulation
14C promulgated under the Exchange Act (the "Company Proxy Statement") the
recommendation of a majority of the Board in favor of the Offer and the Merger.
Parent will provide the Company with the information concerning Parent and
Purchaser required to be included in the Company Proxy Statement, and will vote,
or cause to be voted, all Shares owned by it or its affiliates in favor of
approval and adoption of the Merger Agreement and the Merger.
Notwithstanding anything to the contrary in the Merger Agreement, if Parent,
Purchaser or their respective affiliates shall acquire at least 90% of the
outstanding Shares, each of Parent, Purchaser and the Company shall take all
necessary and appropriate action to cause the Merger to become effective, as
soon as practicable after the consummation of the Offer, without a meeting of
stockholders of the Company, in accordance with Section 253 of the DGCL.
CONDITIONS TO THE MERGER. Under the Merger Agreement, the respective
obligations of each party thereto to effect the Merger are subject to the
satisfaction at or prior to the Effective Time of the following conditions, any
or all of which may be waived, in whole or in part, to the extent permitted by
applicable law: (a) Parent having accepted for payment and purchased all Shares
validly tendered and not withdrawn pursuant to the Offer; PROVIDED that this
condition will be deemed satisfied if Parent fails to accept for payment or pay
for Shares pursuant to the Offer in breach of the terms thereof or in the Merger
Agreement; (b) unless the Merger is consummated without a meeting of the
Company's stockholders in accordance with Section 253 of the DGCL, the Merger
Agreement having been adopted, and the Merger having been approved, by a vote of
the holders of a majority of the outstanding Shares; (c) no federal or state
governmental or regulatory body or court of competent jurisdiction having
enacted, issued, promulgated or enforced any statute, rule, regulation,
executive order, decree, judgment, preliminary or permanent injunction or other
order that is in effect and that prohibits, enjoins or otherwise restrains the
consummation of the Merger; PROVIDED, HOWEVER, that the parties shall use all
commercially reasonable efforts to cause any such decree, judgment, injunction
or order to be vacated or lifted; (d) any waiting period under the HSR Act
applicable to the Merger having terminated or otherwise expired; and (e) all
material filings required to be made prior to the Effective Time with, and all
material consents, approvals, permits and authorizations required to be obtained
prior to the Effective Time from, governmental and regulatory authorities in
connection with the Merger and the consummation of the other transactions
contemplated by the Merger Agreement which are listed in the Company Disclosure
Schedule (as defined in the Merger Agreement) having been made or obtained, as
the case may be.
The obligation of the Company to effect the Merger is also subject to the
satisfaction at or prior to the Effective Time of each of the following
additional conditions, unless waived by the Company: (a) all representations and
warranties made by Parent and Purchaser in the Merger Agreement being true and
correct in all material respects on and as of the Effective Time, with the same
force and effect as though such representations and warranties had been made on
and as of the Effective Time, except for changes permitted or contemplated by
the Merger Agreement and except for representations and warranties that were
made as of a specific date or time, which must be true and correct in all
material respects only as of such specific date or time; (b) each of Parent and
Purchaser having performed in all material respects all obligations and
agreements, and complied in all material respects with all covenants, contained
in the Merger Agreement to be performed or complied with by it prior to or at
the Effective Time; and (c) the Company having received the Deposit (as
hereinafter defined).
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The obligation of Parent and Purchaser to effect the Merger is also subject
to the satisfaction at or prior to the Effective Time of each of the following
additional conditions, unless waived by either of Parent or Purchaser: (a) all
representations and warranties made by the Company in the Merger Agreement being
true and correct in all material respects on and as of the Effective Time, with
the same force and effect as though such representations and warranties had been
made on and as of the Effective Time, except for changes permitted or
contemplated by the Merger Agreement and except for representations and
warranties that were made as of a specific date or time, which must be true and
correct in all material respects only as of such specific date or time; and (b)
the Company having performed in all material respects all obligations and
agreements, and complied in all material respects with all covenants, contained
in the Merger Agreement to be performed or complied with by it prior to or on
the Effective Time.
REPRESENTATIONS AND WARRANTIES. The Merger Agreement contains various
customary representations and warranties of the parties. Representations and
warranties of the Company include, without limitation, certain matters relating
to its organization and qualifications to do business, capitalization, authority
to enter into the Merger Agreement and to consummate the transactions
contemplated thereby, consents and approvals required for the execution and
delivery of the Merger Agreement and the consummation of the transactions
contemplated thereby, the absence of certain violations, filings with the
Securities and Exchange Commission (the "Commission"), the absence of certain
changes since December 31, 1995, litigation, employee benefit matters, taxes,
compliance with law, intellectual property, insurance, employment agreements,
brokers and finders, opinions of financial advisors, permits, business
practices, disclosure of certain agreements, and the accuracy of the Offer
Documents, the Company Proxy Statement and this Schedule 14D-9.
Representations and warranties of the Purchaser and Parent include, without
limitation, certain matters relating to its organization and qualifications to
do business, authority to enter into the Merger Agreement and to consummate the
transactions contemplated thereby, consents and approvals required for the
execution and delivery of the Merger Agreement and the consummation of the
transactions contemplated thereby, the absence of certain violations,
litigation, financing for the transactions contemplated by the Merger Agreement,
brokers and finders, the operations of Purchaser, and the accuracy of the Offer
Documents, the Company Proxy Statement and this Schedule 14D-9.
CONDUCT OF BUSINESS PENDING THE MERGER. From the date of the Merger
Agreement until the Effective Time, except as otherwise required or contemplated
by the Merger Agreement or as required by applicable law or as set forth in the
Company Disclosure Schedule, the Company shall: (a) use all commercially
reasonable efforts to conduct its business and the business of its subsidiaries
(the "Subsidiaries") in all material respects only in the ordinary course of
business and consistent with past practice; (b) not amend its Certificate of
Incorporation or Bylaws or declare, set aside or pay any dividend or other
distribution or payment in cash, stock or property in respect of its capital
stock; (c) not reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock; (d) not
issue, grant, sell or pledge or agree or authorize the issuance, grant, sale or
pledge of any shares of, or rights of any kind to acquire any shares of, its
capital stock other than the grant of stock options to purchase up to an
aggregate of 5,000 Shares in the ordinary course of business and consistent with
past practice under current employee benefit plan arrangements and other than
Shares issuable upon the exercise of stock options or issuable upon the exercise
of convertibility features in its securities outstanding on the date of the
Merger Agreement; (e) not acquire, sell, transfer, lease or encumber any
material assets except in the ordinary course of business and consistent with
past practice; (f) use all commercially reasonable efforts to preserve intact
its business organizations and the business organizations of its Subsidiaries,
and to keep available the services of its present key officers and employees;
PROVIDED, HOWEVER, that to satisfy the foregoing obligation, the Company shall
not be required to make any payments or enter into or amend any contractual
arrangements or understandings, except in the ordinary course of business and
consistent with past practice; (g) not adopt a plan of complete or partial
liquidation or adopt resolutions providing for the complete or partial
liquidation, dissolution, consolidation, merger, restructuring or
recapitalization of the
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Company or any of its Subsidiaries; (h) not grant any severance or termination
pay (otherwise than pursuant to policies in effect on the date of the Merger
Agreement) to, or enter into any employment agreement with, any of its executive
officers or directors; (i) not, except in the ordinary course of business
consistent with past practice or pursuant to obligations imposed by collective
bargaining agreements, increase the compensation payable or to become payable to
its officers or employees, enter into any contract or other binding commitment
in respect of any such increase with any of its directors, officers or other
employees or any director, officer or other employee of its Subsidiaries, and
not establish, adopt, enter into, make any new grants or awards under or amend,
any collective bargaining agreement or Company Benefit Plan, except as required
by applicable law, including any obligation to engage in good faith collective
bargaining, to maintain tax-qualified status or as may be required by any
Company Benefit Plan as of the date of the Merger Agreement; (j) not settle or
compromise any material claims or litigation or, except in the ordinary course
of business, modify, amend or terminate any of its material contracts or waive,
release or assign any material rights or claims, or make any payment, direct or
indirect, of any material liability before the same becomes due and payable in
accordance with its terms; (k) not take any action, other than reasonable and
usual actions in the ordinary course of business and consistent with past
practice with respect to accounting policies or procedures (including tax
accounting policies and procedures), except as may be required by the Commission
or the Financial Accounting Standards Board; (l) not make any material tax
election or 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 (m) not authorize or enter into
an agreement to do any of the foregoing.
ACCESS; CONFIDENTIALITY. From the date of the Merger Agreement until the
Effective Time, upon reasonable prior notice to the Company, the Company shall
give Parent and its authorized representatives reasonable access during normal
business hours to its executive officers and such other officers or other
representatives of the Company approved in advance by the Company (which
approval shall not be unreasonably withheld), properties, books and records, and
shall furnish Parent and its authorized representatives with such financial and
operating data and other information concerning the business and properties of
the Company as Parent may from time to time reasonably request. Parent and
Purchaser will hold and treat, and will cause their respective affiliates,
agents and other representatives to hold and treat, all documents and
information concerning the Company furnished to Parent, Purchaser or their
respective representatives in connection with the transactions contemplated by
the Merger Agreement confidential in accordance with the Confidentiality
Agreement dated October 24, 1996, between the Company and Parent (the
"Confidentiality Agreement"), which Confidentiality Agreement shall remain in
full force and effect until the termination of the Merger Agreement or otherwise
in accordance with its terms.
FURTHER ACTIONS. Upon the terms and subject to the conditions of the Merger
Agreement, each of the parties thereto shall act in good faith toward and use
all commercially reasonable efforts to take, or cause to be taken, all actions,
and to do, or cause to be done, all things necessary, proper or advisable, and
consult and fully cooperate with and provide reasonable assistance to each other
party, in order to consummate and make effective the transactions contemplated
by the Merger Agreement as soon as practicable thereafter, including, without
limitation, (a) using all commercially reasonable efforts to obtain all
consents, approvals, authorizations or permits of governmental or regulatory
authorities (including early termination of any waiting period under the HSR
Act) or other Persons as are necessary for the consummation of the transactions
contemplated by the Merger Agreement, (b) taking such actions and doing such
things as any other party thereto may reasonably request in order to cause any
of the closing conditions specified in the Merger Agreement to such other
party's obligation to consummate such transactions to be fully satisfied, and
(c) in the event and to the extent required, amending the Merger Agreement so
that the Merger Agreement and the Merger comply with the DGCL. Prior to making
any application to or filing with any governmental or regulatory authority or
other Person in connection with the Merger Agreement, the Company, on the one
hand, and Parent and Purchaser, on the other hand, shall provide the other with
drafts thereof and afford the other a reasonable opportunity to comment on such
drafts.
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COMPANY PROXY STATEMENT. Unless the Merger is consummated without a meeting
of the Company's stockholders in accordance with Section 253 of the DGCL, the
Company shall, as soon as reasonably practicable after the consummation of the
Offer, prepare a preliminary form of the Company Proxy Statement (the "Company
Preliminary Proxy Statement"). The Company shall (a) file the Company
Preliminary Proxy Statement with the Commission promptly after it has been
prepared in a form reasonably satisfactory to the Company and Parent and (b) use
commercially reasonable efforts to promptly prepare any amendments to the
Company Preliminary Proxy Statement required in response to comments of the
Commission or its staff or that the Company with the advice of counsel deems
necessary or advisable and to cause the Company Proxy Statement to be mailed to
the Company's stockholders as soon as reasonably practicable after the Company
Preliminary Proxy Statement, as so amended, is cleared by the Commission.
STATE TAKEOVER STATUTES. The Company, Parent and Purchaser will cooperate
to take reasonable steps to (a) exempt the Offer and the Merger from the
requirements of any applicable state takeover law and (b) assist in any
challenge by any of the parties to the validity or applicability to the Offer or
the Merger of any state takeover law.
COOPERATION. Subject to the terms and conditions of the Merger Agreement
and applicable law, each of the parties shall act in good faith and use
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, all things necessary, proper or advisable to consummate and
make effective the transactions contemplated by the Merger Agreement as soon as
practicable, including such actions or things as any other party may reasonably
request in order to cause any of the conditions to such other party's obligation
to consummate the transactions contemplated by the Merger Agreement to be fully
satisfied. The parties shall (and shall cause their respective affiliates,
directors, officers, employees, agents, attorneys, accountants and
representatives to) use their reasonable efforts to cause the lifting of any
permanent or preliminary injunction or restraining order or other similar order
issued or entered by any court or other Governmental Entity preventing or
restricting consummation of the transactions contemplated by the Merger
Agreement in the manner provided for in the Merger Agreement.
PUBLIC ANNOUNCEMENTS. No party to the Merger Agreement shall or shall
permit any of its subsidiaries to (and each party shall use commercially
reasonable efforts to cause its affiliates, directors, officers, employees,
agents or representatives not to) issue any press release or make any public
statement concerning the Merger Agreement or any of the transactions
contemplated therein, without the prior written consent of the other parties
thereto; PROVIDED, HOWEVER, that a party may, without the prior written consent
of the other party thereto, issue such a press release or make such a public
statement to the extent required by applicable law or any listing agreement with
a national securities exchange by which such party is bound if it has used
commercially reasonable efforts to consult with the other parties and to obtain
such parties' consent but has been unable to do so in a timely manner.
ACQUISITION PROPOSALS. Except as contemplated in the Merger Agreement, the
Company shall not (and shall not permit any of its Subsidiaries to, and shall
use its best efforts to cause its officers, directors and employees and any
investment banker, attorney, accountant, or other agent retained by it or any of
its Subsidiaries not to) initiate, solicit or encourage (including by way of
furnishing information or assistance), or take any other action to facilitate,
any inquiries or the making of any proposal relating to, or that may reasonably
be expected to lead to, the acquisition of all or a significant part of the
business and properties or capital stock of the Company or its Subsidiaries,
taken as a whole, whether by merger, purchase of assets, tender offer or
otherwise with a third party other than Parent (an "Acquisition Proposal"), or
enter into discussions or negotiate with any person or entity in furtherance of
such inquiries or to obtain an Acquisition Proposal, or agree to or endorse any
Acquisition Proposal, or authorize or knowingly permit any of the officers,
directors, employees or agents of the Company or its Subsidiaries or any
investment banker, financial advisor, attorney, accountant or other agent
retained by the Company or any of its Subsidiaries to take any such action. The
Company shall as promptly as practicable notify Parent of all
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relevant terms of any such inquiries or proposals received by the Company or its
Subsidiaries and, if such inquiry or proposal is in writing, the Company shall
as promptly as practicable deliver or cause to be delivered to Parent a copy of
such inquiry or proposal. Notwithstanding the foregoing, nothing shall prohibit
the Company's Board from (a) furnishing information to, or entering into
discussions or negotiations with, any persons or entity in connection with an
unsolicited bona fide proposal in connection with an Acquisition Proposal if,
and only to the extent that (i) such unsolicited bona fide proposal is on terms
that the Company's Board determines it cannot reject, based on applicable
fiduciary duties and the advice of counsel and (except with respect to
furnishing information) for which financing, to the extent required, is then
committed, or in the good faith judgment of the Board, could reasonably be
expected to be obtained, and (ii) prior to furnishing such information to,
entering into discussions or negotiations with, such person or entity the
Company provides written notice to Parent to the effect that it is furnishing
information to, or entering into discussions or negotiations with, such person
or entity; or (b) complying with Rule 14d-9 or Rule 14e-2 promulgated under the
Exchange Act with regard to an Acquisition Proposal.
DIRECTORS' & OFFICERS' INDEMNIFICATION. The Company, Parent and Purchaser
have agreed that:
(a) From the Effective Time through the later of (i) the sixth anniversary
of the date on which the Effective Time occurs and (ii) the expiration of any
statute of limitations applicable to any claim, action, suit, proceeding or
investigation referred to below, the Surviving Corporation shall indemnify and
hold harmless each present and former director and officer of the Company and
its Subsidiaries, determined as of the Effective Time (the "Indemnified
Parties"), against any claims, losses, liabilities, damages, judgments, fines,
fees, costs or expenses, including, without limitation, attorneys' fees and
disbursements (collectively, "Costs"), incurred in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to matters
existing or occurring at or prior to the Effective Time (including, without
limitation, the Merger, the preparation, filing and mailing of the Proxy
Statement and the other transactions and actions contemplated by the Merger
Agreement), whether asserted or claimed prior to, at or after the Effective
Time, to the fullest extent that the Company or such Subsidiary would have been
permitted, under applicable law, indemnification agreements existing on the date
of the Merger Agreement, the Certificate of Incorporation or Bylaws of the
Company or such Subsidiary in effect on the date thereof, to indemnify such
Person (and the Surviving Corporation shall also advance expenses as incurred to
the fullest extent permitted under applicable law provided the person to whom
expenses are advanced provides an undertaking to repay such advances if it is
ultimately determined that such person is not entitled to indemnification).
(b) Notwithstanding anything in the Merger Agreement to the contrary, if any
claim, action, suit, proceeding or investigation (whether arising before, at or
after the Effective Time) is made against any present or former director or
officer of the Company, on or prior to the sixth anniversary of the Effective
Time, the indemnification provisions of the Merger Agreement shall continue in
effect until the final disposition of such claim, action, suit, proceeding or
investigation. The indemnification provided for in the Merger Agreement shall
not be deemed exclusive of any other rights to which an Indemnified Party is
entitled, whether pursuant to law, contract or otherwise. To the extent that the
Surviving Corporation fails to perform any of its indemnification obligations
pursuant to the Merger Agreement, Parent has agreed to assume such
indemnification obligations and rights of the Surviving Corporation under the
Merger Agreement.
COMPANY PLANS. The Company, Parent and Purchaser have agreed that:
(a) Following the Effective Time, Parent shall cause the Surviving
Corporation to provide to persons who were employees of the Company or any of
its Subsidiaries prior to the Effective Time (the "Company Personnel") employee
benefit plans, programs and arrangements (the "Surviving Corporation Plans")
which in the aggregate are substantially comparable to those employee benefit
plans, programs and arrangements generally provided to the employees of Parent
as of the Effective Time.
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(b) Following the Effective Time, Parent shall cause the Surviving
Corporation Plans to recognize any prior accrued service, compensation credit,
credit toward satisfying deductible expense requirements, out-of-pocket expense
limits and maximum lifetime benefit limits of such Company Personnel and/or such
Company Personnel's eligible dependents, to the extent such prior service,
credits and limits were recognized under the comparable employee benefit plans,
programs or arrangements of the Company as of the Effective Time (the "Assumed
Plans"), for all purposes under the Surviving Corporation Plans (including, but
not limited to, participation, eligibility, vesting and the calculation of
benefits), and Parent shall cause the Surviving Corporation Plans to waive any
preexisting condition, exclusion or limitation under any such Plan to the extent
such condition, exclusion or limitation would be covered by the comparable plan,
program or arrangement of the Company as of the Effective Time.
(c) Each of the employment agreements, the employment security agreements
and severance agreements for the benefit of Company Personnel identified in
Section 5.11 of the Company Disclosure Schedule shall be assumed by the
Surviving Corporation at the Effective Time on the same terms and subject to the
same conditions as in effect under such agreements immediately prior to the
Effective Time (the "Assumed Agreements").
(d) Parent, under the Merger Agreement, absolutely, irrevocably and
unconditionally guarantees the performance of all of the Surviving Corporation's
obligations under the Assumed Plans and the Assumed Agreements, as specified
thereunder or otherwise.
(e) Parent shall, and shall cause the Surviving Corporation to, honor and
fully defend all such agreements in accordance with their terms.
DEPOSIT. Pursuant to the Merger Agreement, Parent provided the Company with
an earnest money deposit in the amount of $1.0 million (the "Deposit"), which
Deposit shall be refunded by the Company to Parent on the earlier of (a) the
date on which the fee described below in paragraph (a) of "Termination Fees and
Expenses," is due and payable by the Company to Parent, (b) the date on which
the Company consummates a business combination or other transaction pursuant to
an Acquisition Proposal, or (c) within 120 days of termination of the Merger
Agreement or termination of the Offer without the purchase of any Shares;
PROVIDED, that the Deposit shall not be required to be refunded by the Company
if the events specified below in paragraph (b)(i) of "Termination Fees and
Expenses" shall occur.
TERMINATION. The Merger Agreement may be terminated and the Offer and the
Merger may be abandoned at any time (notwithstanding approval of the Merger by
the stockholders of the Company, if required by applicable provisions of the
DGCL), prior to the Effective Time:
(a) by either the Company or Parent, (i) upon mutual written consent of both
the Company and Parent; (ii) if the Effective Time shall not have occurred on or
before 120 days from the date of the Merger Agreement; PROVIDED, that such right
to terminate shall not be available to any party whose misrepresentation in the
Merger Agreement or whose failure to perform any of its covenants and agreements
or to satisfy any obligation under the Merger Agreement has been the cause of or
resulted in the failure of the Merger to occur on or before such date; or (iii)
if any federal or state court of competent jurisdiction or other federal or
state governmental or regulatory body shall have issued any judgment,
injunction, order or decree prohibiting, enjoining or otherwise restraining the
transactions contemplated by the Merger Agreement and such judgment, injunction,
order or decree shall have become final and nonappealable (PROVIDED, HOWEVER,
that the party seeking to so terminate the Merger Agreement shall have used
commercially reasonable efforts to remove such judgment, injunction, order or
decree) or if any statute, rule, regulation or executive order promulgated or
enacted by any federal or state governmental authority after the date of the
Merger Agreement which prohibits the consummation of the Offer or the Merger
shall be in effect;
(b) by the Company, if (i) Parent fails to commence the Offer as provided in
the Merger Agreement, (ii) the Offer expires or is terminated without any Shares
being purchased thereunder, (iii) Parent fails to
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purchase validly tendered Shares in violation of the terms and conditions of the
Offer or the Merger Agreement, (iv) the Merger Agreement is not adopted or,
unless the Merger is consummated without a meeting of the Company's stockholders
in accordance with Section 253 of the DGCL, the Merger is not approved at the
Company Stockholders' Meeting by the holders of a majority of the outstanding
Shares, (v) there shall have been a material breach of any representation,
warranty or material covenant or agreement on the part of either of Parent or
Purchaser, which is incurable or which is not cured after 30 days' written
notice by the Company to Parent, or (vi) the Company Board shall withdraw,
modify or change its approval or recommendation of the Offer or the Merger or
shall have resolved to do any of the foregoing in connection with the receipt by
the Company of an Acquisition Proposal, or any Person or group of Persons shall
have made an Acquisition Proposal the acceptance of which the Company Board
determines, after consultation with legal counsel, is required to comply with
its fiduciary duties under applicable law; or
(c) by Parent, if (i) the Offer is not commenced as provided in the Merger
Agreement directly as a result of actions or inaction by the Company, (ii) the
Offer is terminated or expires as a result of the failure of a condition
specified above in "Conditions to the Offer" or upon the expiration of the Offer
without the purchase of any Shares thereunder, unless such termination or
expiration has been caused by or resulted from the failure of Parent or
Purchaser to perform any covenants and agreements of Parent or Purchaser
contained in the Merger Agreement, (iii) prior to the consummation of the Offer,
by Parent, if the Company Board withdraws or modifies in a manner materially
adverse to Parent or Purchaser its favorable recommendation of the Offer or the
Merger or shall have recommended any Acquisition Proposal with a party other
than Parent or any of its affiliates, or (iv) there shall have been a material
breach of any representation, warranty or material covenant or agreement on the
part of the Company, which is incurable or which is not cured after 30 days'
written notice by Parent to the Company.
In the event of any termination of the Merger Agreement pursuant to the above,
the Merger Agreement forthwith shall become void and of no further force or
effect, and no party thereto (or any of its affiliates, directors, officers,
agents or representatives) shall have any liability or obligation thereunder,
except in any such case (a) as provided in Sections 5.2(b) (Confidentiality),
5.8 (Public Announcements), and 7.3 (Fees and Expenses) of the Merger Agreement,
which shall survive any such termination and (b) to the extent such termination
results from the breach by such party of any of its representations, warranties,
covenants or agreements contained in the Merger Agreement.
TERMINATION FEES AND EXPENSES. The Company, Parent and Purchaser have
agreed that:
(a) Provided that neither Parent nor Purchaser shall be in breach of their
respective obligations under the Merger Agreement, if (i) prior to the
consummation of the Offer, the Board terminates the Merger Agreement as
described above in paragraph (b)(vi) of "Termination" or Parent terminates the
Merger Agreement as described above in paragraph (c)(iii) or (iv) of
"Termination" and (ii) as a result thereof, Parent shall have terminated the
Offer, allowed the Offer to expire without purchasing any Shares thereunder or
failed to commence the Offer in accordance with the terms thereof and (iii) the
Company enters into a definitive agreement relating to an Acquisition Proposal
or a business combination or other transaction contemplated by such Acquisition
Proposal shall have been consummated (A) prior to or within six months following
such termination (in the case of a termination by the Board as described above
in paragraph (b)(vi) of "Termination" or by Parent as described above in
paragraph (c)(iii) of "Termination"), or (B) prior to or within three months
following such termination with respect to an Acquisition Proposal that provides
for consideration in excess of $6.50 per Share (in the case of a termination by
Parent as described above in paragraph (c)(iv) of "Termination"), then the
Company agrees that it will immediately thereafter pay to Parent a fee of
$2,500,000 in cash, payable in same day funds. Parent and Purchaser have agreed
that, so long as Parent has received such fee, it shall not assert or pursue in
any manner, directly or indirectly, (i) any claim or cause of action based in
whole or in part upon alleged tortious or other interference with rights under
the Merger Agreement against any third party submitting an Acquisition Proposal,
or (ii) any claim or cause of action against the Company or any of its officers,
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directors, employees, agents or other representatives based in whole or in part
upon its or their receipt, consideration, recommendation or approval of, or
other action taken with respect to, an Acquisition Proposal or based in whole or
in part upon the failure of the transactions contemplated by the Merger
Agreement to be consummated.
(b) Provided that the Company shall not be in breach of its obligations
under the Merger Agreement, (i) if, notwithstanding the satisfaction or waiver
of the conditions specified above in "Conditions to the Offer," and the mutual
conditions of Parent and the Company and the other conditions of Parent in the
Merger Agreement, Parent shall for any reason fail to consummate the
transactions contemplated by the Merger Agreement or, as a result of actions or
inaction of Parent, any of the conditions set forth above in "Conditions to the
Offer," or the closing conditions set forth in the Merger Agreement shall not
have been satisfied and as a result thereof the transactions contemplated by the
Merger Agreement are not consummated, then Parent agrees that it will
immediately thereafter pay to the Company a fee of $2,500,000 in cash (less the
Deposit to the extent previously paid by Parent as contemplated by the Merger
Agreement), payable in same day funds, or (ii) if Parent shall fail to
consummate the transactions contemplated by the Merger Agreement as a result of
the failure to satisfy any condition set forth above in "Conditions to the
Offer," or the mutual conditions of Parent and the Company or the other
conditions of Parent in the Merger Agreement, and such failure is neither a
result of any action or inaction of Parent nor a result of a termination by the
Company of the Merger Agreement under circumstances in which the Company would
be required to pay to Parent the fee as described above in paragraph (a) of
"Termination Fees and Expenses," then, in lieu of the fee specified in clause
(i) above, Parent shall reimburse to the Company the actual and documented
out-of-pocket expenses incurred by the Company in connection with the
transactions contemplated thereby; and
(c) Except as provided above, whether or not the Offer or the Merger is
consummated, all costs and expenses incurred in connection with the Merger
Agreement and the transactions contemplated thereby (including, without
limitation, fees and disbursements of counsel, financial advisors and
accountants) shall be borne by the party which incurs such cost or expense;
PROVIDED, that if the Merger Agreement is terminated as described above in
"Termination" as a result of a material misrepresentation by a party or a
material breach by a party of any of its covenants or arrangements set forth
therein, such party shall pay the costs and expenses incurred by the other party
in connection with the Merger Agreement; and PROVIDED, FURTHER, that all costs
and expenses related to the preparation, printing, filing and mailing (as
applicable) of the Company Proxy Statement and all Commission and other
regulatory filing fees incurred in connection with the Company Proxy Statement
shall be borne equally by the Company, on the one hand, and Parent and
Purchaser, on the other hand.
AMENDMENT AND WAIVER. The Merger Agreement may be amended by the parties at
any time prior to the Effective Time; PROVIDED, that, after approval of the
Merger and the Merger Agreement by the stockholders of the Company if required
under applicable law, no amendment shall be made that by law requires further
approval by the stockholders of the Company, without such approval. The Merger
Agreement may not be amended or modified except by an instrument in writing
signed on behalf of each of the parties thereto. Furthermore, at any time prior
to the Effective Time, Parent (for Parent and Purchaser), on the one hand, or
the Company, on the other hand, may, to the extent legally allowed, (a) extend
the time specified in the Merger Agreement for the performance of any of the
obligations or other acts of the other, (b) waive any inaccuracies in the
representations and warranties of the other contained in the Merger Agreement or
in any document delivered pursuant thereto, or (c) waive compliance by the other
with any of the agreements or covenants of such other party or parties (as the
case may be) contained in the Merger Agreement. Any such extension or waiver
shall be valid only if set forth in a written instrument signed on behalf of the
party or parties to be bound thereby. No such extension or waiver shall
constitute a waiver of, or estoppel with respect to, any subsequent or other
breach or failure to strictly comply with the provisions of the Merger
Agreement. The failure of any party to insist on strict
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compliance with the Merger Agreement or to assert any of its rights or remedies
thereunder or with respect thereto shall not constitute a waiver of such rights
or remedies.
(ii) CONFIDENTIALITY AGREEMENT. On October 24, 1996, the Company and Parent
entered into the Confidentiality Agreement pursuant to which the Company agreed
to supply certain information to Parent and its affiliates, and Parent agreed to
treat, and to cause its affiliates, representatives and advisors to treat, such
information as confidential. Parent also agreed to indemnify the Company and its
affiliates and representatives from liabilities arising out of a breach or
alleged breach of the Confidentiality Agreement.
The foregoing summary of the Confidentiality Agreement does not purport to
be complete and is qualified in its entirety by reference to the text of the
Confidentiality Agreement, a copy of which is filed as Exhibit (e) hereto and is
incorporated herein by reference.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(A) RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS
At a meeting duly called and held on November 15, 1996, a majority of the
Board (with Mr. Barancik dissenting) determined that the Merger Agreement and
the transactions contemplated thereby, including the Offer and the Merger, are
fair to, and in the best interests of, the stockholders of the Company and
approved the Merger Agreement and the transactions contemplated thereby,
including the Offer and the Merger, in all respects.
A MAJORITY OF THE BOARD RECOMMENDS THAT THE STOCKHOLDERS OF THE COMPANY
ACCEPT THE OFFER AND TENDER THEIR SHARES TO PURCHASER UNDER THE OFFER. See
"BACKGROUND OF THE OFFER" and "REASONS FOR THE RECOMMENDATION" for a discussion
of the factors considered by the Board in making its recommendation.
As set forth in the Offer, upon the terms and subject to the conditions of
the Offer (including satisfaction of the Minimum Condition), Purchaser will
accept for payment and pay for all Shares validly tendered on or prior to the
initial expiration date of the Offer and not properly withdrawn. Stockholders
considering not tendering their Shares in order to wait for the Merger should
note that Purchaser is not obligated to purchase any Shares, and can terminate
the Offer and the Merger Agreement and not proceed with the Merger, if the
Minimum Condition is not satisfied or any of the other conditions to the Offer
are not satisfied.
(B) REASONS FOR THE RECOMMENDATION
BACKGROUND OF THE OFFER
Beginning in April 1994, Brian Bussanich, the Company's former President and
Chief Executive Officer, had occasional, informal conversations with senior
management of other health care companies in an effort to explore strategic
alternatives available to the Company. At such time, the Company had determined
that it would be in its best interest to expand its operations and achieve
economies of scale through acquisitions. By the end of 1994, the Company owned
39 rehabilitation clinics and anticipated acquiring a significant number of
additional clinics in 1995. During this time, Dr. Bussanich continued to have
discussions with other health care companies and, to a limited extent, with
investment bankers regarding acquisition and capital raising activities.
In February 1995, after attending a health care conference, observing
presentations by other companies and analysts and speaking with a number of
attendees, senior management of the Company concluded that the Company should
affirmatively pursue a possible transaction with a larger health care company.
The Board observed that the health care industry, in general, and the physical
therapy/rehabilitation segment of this industry, in particular, was rapidly
consolidating and concluded that the Company either had to continue to grow
substantially through its aggressive acquisition strategy or combine with a
larger
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health care company. The Board determined that the continuation of its
aggressive acquisition strategy as an independent company would have required
substantial additional capital, in the form of debt or equity, and a significant
increase in personnel in order to manage its operations. The Board was of the
view that raising such capital in the form of debt would have significantly
added to the Company's interest expense and that raising such capital in the
form of equity (or debt with an equity component) would have diluted the
Company's earnings. After deliberations regarding the option of raising
additional capital, the Board concluded that this option was not as attractive
an alternative as combining the Company with another health care company.
Shortly thereafter, the Company retained Smith Barney Inc. ("Smith Barney") as
its exclusive financial advisor to assist the Company in this regard.
Between February and April 1995, confidential information pertaining to the
Company was prepared and potential parties to a transaction were identified.
From late April 1995 through mid-July 1995, approximately 17 parties were
contacted. Approximately 10 parties executed confidentiality agreements with the
Company and were furnished with confidential information relating to the
Company. Three parties requested additional information and subsequently met
with the Company and its advisors to conduct preliminary due diligence. On July
24, 1995, the Company announced that it expected its second quarter earnings to
be lower than the prior year's results. As a result of such announcement,
discussions with interested parties were delayed.
In August 1995, certain parties, including those that previously had
indicated an interest in a possible transaction with the Company, were
contacted. Two parties expressed an interest in pursuing a possible transaction,
including Parent which actively pursued discussions with the Company. The
remaining party and the Company terminated their discussions after such party
indicated that it did not wish to pursue a possible transaction with the Company
at that time.
In November 1995, the Company and Parent entered into a definitive merger
agreement (the "Previous Merger Agreement") providing for a stock-for-stock
merger transaction pursuant to which each Share would be converted into 0.3483
of a share of Parent's common stock. Pursuant to the Previous Merger Agreement,
either party could terminate such agreement if the merger had not been effected
on or before April 1, 1996. In March 1996, it became apparent that the merger
could not be effected on or before April 1, 1996. Parent previously had informed
the Company that it intended to terminate the Previous Merger Agreement if the
merger contemplated thereby had not been effected by April 1, 1996 unless the
Company agreed to a lower implied purchase price. The Company was unwilling to
agree to a reduced purchase price and, given the recent significant decline in
the trading price of Parent's common stock and certain other factors, terminated
the Previous Merger Agreement on April 2, 1996.
Following the termination of the proposed merger with Parent, the Board
began implementing a two-part approach to operating the Company. The Board first
determined that the Company would continue to conduct its operations on an
independent, stand-alone basis and, for such purposes, hired Bill Barancik as
its President and Chief Executive Officer on April 15, 1996. The Board also
determined to resume soliciting indications of interest from third parties with
respect to a possible acquisition of the Company.
Thereafter, through September 1996, Smith Barney, at the direction of the
Company, solicited certain third parties, including certain parties that
previously had expressed an interest in the Company, to determine whether such
parties retained or had any interest in acquiring the Company. The Company
subsequently provided certain interested parties with information concerning the
Company's operations. Only three entities, including Parent, remained interested
in continuing discussions concerning the possible acquisition of the Company.
On September 13, 1996, representatives of Parent met with John Elorriaga, a
member of the Company's Board, to discuss the possible acquisition of the
Company. Later that day, Parent delivered a letter to the Company in which
Parent indicated an interest in acquiring all outstanding Shares at a purchase
price of $6.25 per Share in cash, subject to certain conditions. At a meeting of
the Board held on September 16, 1996, the Board unanimously rejected Parent's
proposal. On October 3, 1996, Parent
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submitted a revised offer to the Company in which it proposed to acquire all
outstanding Shares for a purchase price of $6.50 in cash, subject to certain
conditions. On October 16, 1996, certain members of management met with an
additional party concerning a possible transaction with the Company. On October
17, 1996, certain members of management and representatives of Smith Barney
informed the Board that the three entities, other than Parent, that had
expressed interest in a transaction with the Company had indicated that they
were no longer interested in such a transaction. That same day, the Board
considered the revised Parent proposal and directed Smith Barney to contact
Parent for clarification of certain of the terms and conditions set forth in the
revised Parent proposal. On October 21, 1996, Parent responded in writing to the
Board's request for clarification.
At a meeting of the Board held on October 23, 1996, the directors considered
the terms and conditions of Parent's revised offer and a majority of the Board
agreed to proceed with a due diligence and negotiation process with Parent.
Between October 23 and November 15, 1996, representatives of Parent conducted
due diligence with respect to the Company and the parties negotiated the terms
and conditions of a merger agreement and related documents. On October 30, 1996,
the Company issued a press release that it was in discussions concerning the
possibility of a merger of the Company with Parent at a price of $6.50 per Share
in cash. The closing price per Share, as reported by the Nasdaq Stock Market on
October 29, 1996 (the day prior to such public announcement), was $3.875.
On the evening of November 15, 1996, the Board held a special telephonic
meeting to consider in detail the proposed terms of the Merger with Parent. At
such meeting, legal counsel reviewed with the Board the material terms and
conditions of the Merger Agreement and certain related matters, including the
termination fee, the severance arrangements for its executive officers, and the
Board's fiduciary obligations in connection with the proposed transaction. The
Board also discussed the capital needs of the Company prior to consummation of
the Offer and the consequences to the Company if the Offer were not successful.
Smith Barney then made a financial presentation to the Board and rendered an
oral opinion (subsequently confirmed by delivery of a written opinion dated
November 17, 1996) to the effect that, as of such date and based upon and
subject to certain matters stated in such opinion, the cash consideration to be
received by the holders of Shares (other than Parent and its affiliates) in the
Offer and the Merger, taken together, was fair, from a financial point of view,
to such holders. After discussion, a majority of the Board (with Mr. Barancik
dissenting) approved the Merger, the Merger Agreement and related documents and
authorized the Company's officers and other representatives to resolve any
remaining issues. The parties thereafter finalized such remaining issues and
executed the Merger Agreement on November 17, 1996. Public announcement of such
execution was made on the morning of November 18, 1996.
REASONS FOR THE RECOMMENDATION
In approving the Offer and the Merger Agreement and recommending that
stockholders tender their Shares pursuant to the Offer, the Board considered a
number of factors, including:
(i) the financial condition, results of operations, business and
prospects of the Company, including the competitive position of the Company,
values placed by the market on comparable companies, uncertainty, due in
part to termination of discussions with potential lenders during the course
of negotiations with Parent, as to the Company's ability to obtain adequate
financing to meet its capital requirements, and the prospects of the Company
if the Company were to remain independent;
(ii) the relationship between the price to be paid pursuant to the Offer
and Merger and the current and historical market prices for the Shares,
including the fact that the consideration to be received by holders of
Shares in the Offer and the Merger represents a premium, based on closing
prices for the Shares on October 2, 1996, October 23, 1996 and October 29,
1996 (approximately one month, one week and one day, respectively, prior to
public announcement by the Company that it was engaged in merger discussions
with Parent) of approximately 48.6%, 62.5% and 67.7%, respectively;
15
<PAGE>
(iii) the Board's belief that the process undertaken by the Company in
obtaining proposals with respect to a business combination with the Company
was comprehensive and that, after consultation with Smith Barney based on
its involvement in such process, the Company had received the best and final
offer from interested parties. In addition, the Board noted that, following
the Company's October 30, 1996 press release in which the Company announced
that it was in discussions with Parent concerning the possibility of a
merger of the Company with Parent at a price of $6.50 per Share in cash, the
Company did not receive inquiries from other interested parties;
(iv) the structure of the transaction, including the belief of a
majority of the Board that the Offer represents an attractive opportunity
for stockholders to promptly receive fair value in cash for their investment
in the Company;
(v) the terms and conditions of the Offer, the Merger Agreement and
related agreements. The Board noted that, while the Merger Agreement
prohibits the Company from soliciting other takeover proposals, the Board,
in the exercise of its fiduciary duties, may furnish information concerning
the Company to a third party and may engage in discussions or negotiations
with a third party regarding certain takeover proposals. The Board also
noted that the Company may terminate the Merger Agreement following receipt
of a superior proposal. The Board also considered the termination fee that
would be payable to Parent or the Company upon the occurrence of specified
conditions, and concluded that the fee was reasonable in light of the
benefits of the Offer and the Merger;
(vi) the fact that the Offer is not subject to a financing condition;
and
(vii) the written opinion of Smith Barney dated November 17, 1996, to the
effect that, as of such date and based upon and subject to certain matters
stated in such opinion, the cash consideration to be received by holders of
Shares (other than Parent and its affiliates) in the Offer and the Merger,
taken together, was fair, from a financial point of view, to such holders.
The full text of Smith Barney's written opinion, which sets forth the
assumptions made, matters considered and limitations on the review
undertaken by Smith Barney, is attached hereto as Annex B and is
incorporated herein by reference. Smith Barney's 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 (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 pursuant to the Offer or how such stockholder should vote on the
Merger. STOCKHOLDERS ARE URGED TO READ SUCH OPINION CAREFULLY IN ITS
ENTIRETY.
The foregoing discussion of the information and factors considered and given
weight by the Board is not intended to be exhaustive. In view of the wide
variety of factors considered in connection with its evaluation of the Offer and
the Merger, the Board did not find it practicable to, and did not, quantify or
otherwise attempt to assign relative weights to the specific factors considered
in reaching its determinations. In addition, individual members of the Board may
have given different weights to different factors.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Company has retained Smith Barney as its financial advisor in connection
with the Offer and the Merger. Pursuant to the terms of Smith Barney's
engagement, the Company has agreed to pay Smith Barney for its services an
aggregate financial advisory fee equal to 1.5% of the total consideration
(including liabilities assumed) payable in connection with the Offer and the
Merger. The Company also has agreed to reimburse Smith Barney for travel and
other out-of-pocket expenses, including reasonable legal fees and expenses, and
to indemnify Smith Barney and certain related parties against certain
liabilities, including liabilities under the federal securities laws, arising
out of Smith Barney's engagement. In the ordinary course of business, Smith
Barney 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.
16
<PAGE>
Neither the Company nor any person acting on its behalf intends to employ,
retain or compensate any person to make solicitations or recommendations to the
stockholders of the Company in connection with the Offer or the Merger.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) To the Company's knowledge, no transactions in Shares have been effected
within the past 60 days by the Company or by any executive officer, director,
affiliate or subsidiary of the Company.
(b) To the Company's knowledge, except for Mr. Barancik, all of the
Company's executive officers, directors and affiliates currently intend to
tender their Shares pursuant to the Offer.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY SUBJECT COMPANY.
(a) Except as described in Items 3(b) and 4 above, no negotiation is being
undertaken or is underway by the Company in response to the Offer that relates
to or would result in (1) an extraordinary transaction, such as a merger or
reorganization, involving the Company or any subsidiary of the Company, (2) a
purchase, sale or transfer of a material amount of assets by the Company or any
subsidiary of the Company, (3) a tender offer for, or other acquisition of,
securities by or of the Company, or (4) any material change in the present
capitalization or dividend policy of the Company.
(b) Except as set forth in Items 3(b) and 4 above, 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
events referred to in Item 7(a) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
(a) The information statement attached as Annex A hereto is being furnished
in connection with the possible designation by Parent, pursuant to the Merger
Agreement, of certain persons to be appointed to the Board other than at a
meeting of the Company's stockholders.
17
<PAGE>
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<S> <C> <C>
(a) -- Form of Offer to Purchase dated November 22, 1996 (filed as Exhibit (a)(1)
to the Schedule 14D-1 of Horizon PRSM Corporation filed with the
Commission on November 22, 1996 and incorporated herein by reference).
(b) -- Form of Letter of Transmittal dated November 22, 1996 (filed as Exhibit
(a)(2) to the Schedule 14D-1 of Horizon PRSM Corporation filed with the
Commission on November 22, 1996 and incorporated herein by reference).
(c) -- Form of Summary Advertisement dated as of November 22, 1996 (filed as
Exhibit (a)(8) to the Schedule 14D-1 of Horizon PRSM Corporation filed
with the Commission on November 22, 1996 and incorporated herein by
reference).
(d) -- Agreement and Plan of Merger, dated as of November 17, 1996, among the
Company, Parent and Purchaser.
(e) -- Confidentiality Agreement, dated October 24, 1996, between the Company and
Parent.
(f) -- Employment Agreement dated September 11, 1996, as amended, by and between
the Company and Michael McArthur-Phillips.
(g) -- Agreement dated November 4, 1993 by and between the Company and Randall J.
Robertson.
(h) -- Agreement dated November 18, 1996 by and between the Company and William
A. Norris.
(i) -- Letter to stockholders of the Company dated November 22, 1996.*
(j) -- Opinion of Smith Barney Inc. dated November 17, 1996.*
(k) -- Press release issued by the Company on October 30, 1996.
(l) -- Press release issued by the Company on November 18, 1996.
</TABLE>
- ------------------------
* Included in copies mailed to stockholders.
18
<PAGE>
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.
PACIFIC REHABILITATION & SPORTS
MEDICINE, INC.
By: /s/ MICHAEL MCARTHUR-PHILLIPS
-----------------------------------------
Michael McArthur-Phillips
SENIOR VICE PRESIDENT--GENERAL
Dated: November 22, 1996 COUNSEL AND SECRETARY
19
<PAGE>
ANNEX A
PACIFIC REHABILITATION & SPORTS MEDICINE, INC.
ONE S.W. COLUMBIA STREET, SUITE 900
PORTLAND, OREGON 97258
(503) 222-4191
------------------------
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
------------------------
NO VOTE OR OTHER ACTION OF THE STOCKHOLDERS IS REQUIRED IN CONNECTION
WITH THIS INFORMATION STATEMENT. NO PROXIES ARE BEING SOLICITED AND YOU
ARE REQUESTED NOT TO SEND THE COMPANY A PROXY.
This Information Statement is being mailed on or about November 22, 1996, as
part of the Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") of Pacific Rehabilitation & Sports Medicine, Inc. (the
"Company") to the holders of record of the Company's common stock, par value
$0.01 per share (the "Common Stock" or the "Shares"). You are receiving this
Information Statement in connection with the possible election of persons
designated by Parent ("Parent Designees") to seats on the the Company's Board of
Directors (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. Capitalized terms used and not otherwise
defined herein shall have the meanings set forth in the Schedule 14D-9.
Pursuant to the Merger Agreement, on November 22, 1996, Purchaser commenced
the Offer. The Offer is scheduled to expire at 12:00 midnight, New York City
time, on Friday, December 20, 1996, unless extended pursuant to the terms of the
Offer. The terms of the Merger Agreement, a summary of the events leading up to
the Offer and the execution of the Merger Agreement and other information
concerning the Offer and the Merger are contained in the Schedule 14D-9.
The information contained in this Information Statement concerning Parent,
Purchaser and Parent Designees has been furnished to the Company by such
persons, and the Company assumes no responsibility for the accuracy or
completeness of such information.
The Merger Agreement provides that promptly upon the purchase by Purchaser
pursuant to the Offer of such number of Shares as represents at least a majority
of the outstanding Shares, on a fully diluted basis, excluding Shares held by
Parent or its affiliates and from time to time thereafter, Parent shall be
entitled to designate such number of directors, rounded up to the next whole
number, on the Board as will give Parent representation on the Board of the
Company equal to the product of the number of directors on the Board and the
percentage that such number of Shares so purchased bears to the number of Shares
outstanding, and the Company shall, upon request of Parent, exercise reasonable
efforts to increase the size of the Board or secure the resignations of such
number of directors as is necessary to enable such Parent Designees to be so
elected or appointed. Such Parent Designees will abstain from any action
proposed to be taken by the Company to amend or terminate the Merger Agreement
or waive any action by Parent or Purchaser, which actions will be effective with
the approval of a majority of the remaining directors. The Company's obligations
to appoint designees to the Board shall be subject to Section 14(f) of the
Exchange Act. At the request of Parent, the Company shall take all action
reasonably necessary to effect any such election or appointment, including
mailing to its stockholders the information required by
A-1
<PAGE>
Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder, unless
such information previously has been provided to the Company's stockholders in
the Schedule 14D-9. Parent and Purchaser will supply to the Company, and will be
solely responsible for, all information with respect to themselves and their
officers, directors and affiliates required by such Section and Rule.
INFORMATION WITH RESPECT TO THE COMPANY
The outstanding voting securities of the Company, as of November 15, 1996,
consisted of 8,328,517 shares of Common Stock. Each share of Common Stock is
entitled to one vote.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of November 15, 1996, certain information
furnished to the Company with respect to ownership of the Common Stock of (i)
each director, (ii) the Chief Executive Officer, (iii) the "named executive
officers" (as defined under "Executive Compensation") other than the Chief
Executive Officer, (iv) all persons known by the Company to be beneficial owners
of more than 5% of its Common Stock, and (v) all executive officers and
directors as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED (A)
----------------------
NAME OF BENEFICIAL OWNER SHARES PERCENT
- ----------------------------------------------------------------------------- --------- -----------
<S> <C> <C>
Kalmar Investments Inc....................................................... 432,700 5.3%
1300 Market Street, Suite 500
Wilmington, DE 19801
Bill Barancik................................................................ 155,000 1.8
One S.W. Columbia St., Suite 900
Portland, OR 97258
John A. Elorriaga............................................................ 68,450 *
One S.W. Columbia St., Suite 900
Portland, OR 97258
Frank Jungers................................................................ 79,825 *
One S.W. Columbia St., Suite 900
Portland, OR 97258
William A. Norris............................................................ 105,000 1.2
One S.W. Columbia St., Suite 900
Portland, OR 97258
Randall J. Robertson......................................................... 100,000 1.1
One S.W. Columbia St., Suite 900
Portland, OR 97258
All executive officers and directors as a group (six persons)................ 558,275 6.3%
</TABLE>
- --------------------------
*Represents beneficial ownership of less than 1% of the outstanding Common
Stock.
(A) Beneficial ownership is determined in accordance with the rules of the
Commission, and includes voting power and investment power with respect to
Shares. Shares issuable upon the exercise of outstanding stock options that
are currently exercisable or become exercisable within 60 days from November
15, 1996 are considered outstanding for the purpose of calculating the
percentage of Common Stock owned by such person but not for the purpose of
calculating the percentage of Common Stock owned by any other person. The
number of Shares for which stock options are exercisable within 60 days of
November 15, 1996 (assuming the consummation of the Offer within 60 days) is
as follows: Mr. Barancik--150,000; Mr. Elorriaga--41,000; Mr.
Jungers--41,000; Mr. Norris-- 100,000; Mr. Robertson--100,000; and all
directors and officer as a group--482,000. To the Company's knowledge, all
of the beneficial owners of Common Stock listed above have sole voting and
investment power as to the Common Stock beneficially owned by them.
A-2
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
PARENT DESIGNEES
The Company has been informed by Purchaser that, as of the date of this
Information Statement, the individuals listed below have been selected as Parent
Designees. The following sets forth certain information with respect to Parent
Designees based on information in the Offer to Purchase, including their names,
ages, principal occupations for the past five years and their directorships with
other corporations. Each person listed below is a director or officer of Parent
or Purchaser and, unless otherwise specified, has his principal business address
at the offices of Parent and Purchaser, 6001 Indian School Road, N.E., Suite
530, Albuquerque, New Mexico 87110.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND
NAME AGE FIVE-YEAR EMPLOYMENT HISTORY
- ------------------------------------------ --- ---------------------------------------------------------------
<S> <C> <C>
Neal M. Elliott........................... 56 President, Chief Executive Officer and Chairman of the Board of
Parent since July 1986. Director of Frontier Natural Gas
Corporation and LTC Properties, Inc., a real estate investment
trust which invests in healthcare related real estate.
Mr. Elliott is President and a director of Purchaser.
Charles H. Gonzales....................... 40 Senior Vice President of Subsidiary Operations and a director
of Parent since January 1992. From September 1986 to January
1992, Mr. Gonzales, a certified public accountant, served as
Senior Vice President of Government Programs for Parent.
Mr. Gonzales is Senior Vice President and a director of
Purchaser.
Ernest A. Schofield....................... 38 Senior Vice President, Treasurer and Chief Financial Officer of
Parent since September 1994 and a director of Parent since July
1996. From November 1990 to August 1994, Mr. Schofield served
as Vice President of Finance.
Mr. Schofield is Senior Vice President, Chief Financial Officer
and a director of Purchaser.
</TABLE>
CURRENT DIRECTORS
The following table sets forth the ages (as of November 15, 1996) and
certain other information with respect to the current directors of the Company.
<TABLE>
<CAPTION>
HAS BEEN A
NAME AGE DIRECTOR SINCE
- ------------------------------------------------------------------------ --------- ---------------
<S> <C> <C>
Bill Barancik........................................................... 61 1996
John A. Elorriaga....................................................... 73 1993
Frank Jungers........................................................... 70 1993
</TABLE>
BILL BARANCIK has been a director since April 15, 1996, when he also joined
the Company as its President, Chief Executive Officer and Chairman of the Board.
From 1995 until joining the Company, Mr. Barancik was a healthcare consultant on
outsourcing and strategic business planning for healthcare companies. From 1994
to 1995, he was President and Chief Operating Officer for Certus Enterprises,
Inc., an early stage healthcare outsourcing company. From 1992 until 1994, he
was the Senior Executive Vice
A-3
<PAGE>
President and Head of Operations for CMSI, Inc., Irvine, a data processing and
information outsourcing services provider to hospitals, healthcare organizations
and local governments, where he directed daily operations for all outsourcing
accounts in the company's healthcare and insurance markets, provided executive
oversight to all regional data centers and all major corporate development
projects (including implementation of development and operation standard and
methodologies) and had responsibility for directing 475 employees. From 1989
until 1992, he was an executive consultant to aerospace, high-technology and
healthcare companies, for which he developed business and technical strategies
and implementation plans. Prior to 1989, Mr. Barancik served as Chairman, Vice
Chairman, Chief Executive Officer and President of numerous companies.
JOHN A. ELORRIAGA has been a director of the Company since August 1993. On
October 1, 1995, Mr. Elorriaga became President, Chief Executive Officer and
Chairman of the Board. On April 15, 1996, Mr. Barancik succeeded Mr. Elorriaga
as President, Chief Executive Officer and Chairman of the Board. In 1987, Mr.
Elorriaga retired from his positions as Chairman of the Board and Chief
Executive Officer of the United States National Bank of Oregon and of its
holding company, US Bancorp, which he had held since 1974. Mr. Elorriaga also
serves as a director of certain private companies.
FRANK JUNGERS has been a director of the Company since August 1993. Mr.
Jungers retired in 1978 as Chairman of the Board of Directors and Chief
Executive Officer of Arabian American Oil Company, following 30 years of
employment with the company. Since his retirement, Mr. Jungers has been a
private consultant and serves on the Board of Directors of The AES Corporation,
Dual Drilling Company, Georgia-Pacific Corporation, Star Technologies, Inc.,
Thermo Ecotek Corporation, Thermo Electron Corporation, Thermo Quest Corporation
and Thermo Instrument Systems, Inc. Mr. Jungers also serves as a director of
certain private companies.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board held 12 regular meetings and took action pursuant to nine
unanimous written consents during the year ended December 31, 1995. All three
members of the Board were in attendance at ten of the 12 board meetings held in
1995. The Board has standing Audit, Administrative and Compensation Committees.
Prior to October 1, 1995, the Audit Committee was composed of Messrs.
Elorriaga and Jungers, outside directors who were not, and had not been at any
time in the past, officers of the Company. The Audit Committee reviews with the
Company's independent public accountants and representatives of management the
scope and results of audits, the appropriateness of accounting principles used
in financial reporting, and the adequacy of financial and operating controls.
The Audit Committee did not meet in 1995.
The Administrative Committee of the 1993 Amended and Restated Combination
Stock Option Plan as amended (the "Administrative Committee"), was composed of
Messrs. Elorriaga and Jungers from January 1, 1995 until October 1, 1995, at
which time Dr. Bussanich (President and Chief Executive Officer of the Company
from December 1991 to October 1, 1995) succeeded Mr. Elorriaga who became the
Company's President and Chief Executive Officer on that date. The Administrative
Committee took action pursuant to seven unanimous written consents during the
year ended December 31, 1995.
During the year ended December 31, 1995, the Compensation Committee was
composed of Mr. Elorriaga, Mr. Jungers and Dr. Bussanich. The Compensation
Committee met once in 1995.
The Board does not have a Nominating Committee.
EXECUTIVE OFFICERS
The following table identifies the current executive officers of the
Company, the positions which they hold, and the year in which they began serving
in their respective capacities. Officers of the Company are
A-4
<PAGE>
elected by the Board at the annual meeting of the stockholders to hold office
until their successors are elected and qualified.
<TABLE>
<CAPTION>
POSITION HELD
NAME AGE CURRENT POSITION(S) WITH COMPANY SINCE
- ------------------------ --------- -------------------------------------------------------- ---------------
<S> <C> <C> <C>
Bill Barancik........... 61 President, Chief Executive Officer and Chairman of the 1996
Board
William A. Norris....... 43 Executive Vice President--Finance & Administration and 1993
Treasurer
Randall J. Robertson.... 43 President-Western Region 1993
Michael McArthur- 40 Senior Vice President--General Counsel and Secretary 1996
Phillips..............
</TABLE>
For information on the business background of Mr. Barancik, see "Current
Directors" above.
WILLIAM A. NORRIS has been Executive Vice President--Finance &
Administration of the Company since December 1993 and Treasurer of the Company
since April 1996. From December 1993 to September 1996, Mr. Norris also served
as the Company's Secretary. Prior to March 1995, Mr. Norris was also Treasurer
of the Company. From 1989 until joining the Company, Mr. Norris was Executive
Vice President--Finance & Administration and, in addition, in May 1992 was
appointed Treasurer of CMSI, Inc., a data processing and information outsourcing
services provider to hospitals, healthcare organizations and local governments.
RANDALL J. ROBERTSON was a Senior Vice President of the Company from October
1993 until June 1994, at which time Mr. Robertson became President--Western
Region of the Company. From 1992 until October 1993, he was the President and
Chief Executive Officer of Affiliated Physical Therapists (Phoenix), a
wholly-owned subsidiary of RehabClinics, Inc., and Area Vice President for
RehabClinics, Inc. (Arizona and Nevada). Mr. Robertson previously served as
Medical Center Administrator for FHP Health Care in Tucson, Arizona from 1991 to
1992. From 1989 to 1991 Mr. Robertson served as the Director of Operations for
START Clinics in Phoenix and Tucson.
MICHAEL MCARTHUR-PHILLIPS was a partner with the Portland, Oregon law firm
of Garvey, Schubert & Barer from 1991 until September 1996, when he became the
Senior Vice President--General Counsel and Secretary of the Company. In 1986, as
an associate with the law firm of McMenamin, Joseph, Babener & Carpenter, Mr.
McArthur-Phillips assisted the partner in charge of securities work at the firm
in an offering of limited partnership interests in the State of Oregon. In
December 1989, after the partnership was not profitable, certain of the limited
partners brought suit against the general partner, the broker-dealer involved in
the sale of the interests, the partnership's accountants, the McMenamin law firm
and its partners, including the partner in charge of the project, and Mr.
McArthur-Phillips. Plaintiffs alleged that the interests had been sold after
expiration of an order of registration issued by the State of Oregon under the
Oregon securities statute. The general partner of the partnership and the
partner in charge of the offering from the McMenamin law firm declared
bankruptcy and no judgment was entered against them. The other defendants, with
the exception of Mr. McArthur-Philips, were dismissed from the litigation upon
payment of amounts in settlement. Plaintiffs obtained a judgment against Mr.
McArthur-Phillips on the grounds that the offering was not completed within the
one-year period the order of registration was effective. Such judgment is
currently under appeal.
A-5
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
INDEMNIFICATION AGREEMENTS
The Company has entered into an indemnification agreement with each of its
executive officers and directors. Each agreement provides that the Company shall
hold harmless and indemnify such executive officer or director, as the case may
be, to the fullest extent provided by law. The indemnification provided under
each agreement is in addition to any rights to which the executive officer or
director may be entitled under the Company's Certificate of Incorporation or
Bylaws, any other agreement, any vote of stockholders or disinterested
directors, the DGCL, or otherwise.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers and persons who own more than 10% of the outstanding shares
of the Common Stock ("10% stockholders"), to file with the Commission initial
reports of beneficial ownership and reports of changes in beneficial ownership
of shares of Common Stock and other equity securities of the Company. During
1995, based solely on review of the copies of such reports furnished to the
Company or otherwise in its files and on written representations from its
directors, executive officers and 10% stockholders that no other reports were
required, the Company believes that the Company's executive officers, directors
and 10% stockholders complied with all applicable Section 16(a) filing
requirements.
A-6
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain summary information concerning
compensation awarded to, earned by or paid to the Company's Chief Executive
Officer and each of the four other most highly compensated executive officers of
the Company, determined as of the end of the last fiscal year (hereinafter
referred to as the "named executive officers"), for the fiscal years ended
December 31, 1995, 1994 and 1993.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------------- ---------
OTHER STOCK
ANNUAL OPTIONS ALL OTHER
NAME YEAR SALARY(A) BONUS COMPENSATION GRANTED COMPENSATION
- --------------------------------------------- ---------- -------- ------ ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
John A. Elorriaga (B)........................ 1995 -- -- -- 11,000 --
Brian M. Bussanich (C)....................... 1995 $105,000 -- $10,699(D) -- $71,263(E)
1994 125,000 -- 12,359(D) -- 5,869(E)
1993 105,200 -- 13,901(D) 318,750 4,027(F)
Alfred J. Howard (H)......................... 1995 107,000 -- -- -- 3,025(F)
William A. Norris (H)........................ 1995 110,000 -- 5,000 1,849(F)
Randall J. Robertson (H)..................... 1995 107,000 -- -- -- 10,252(G)
</TABLE>
- ------------------------------
(A) Amounts shown include cash compensation earned in each respective year.
(B) Mr. Elorriaga became President, Chief Executive Officer and Chairman of the
Board on October 1, 1995. Mr. Elorriaga did not receive cash compensation
for his duties as an officer in 1995.
(C) Dr. Bussanich served as President, Chief Executive Officer and Chairman of
the Board from December 1991 until October 1, 1995. Amounts shown for Dr.
Bussanich are through October 1, 1995. Upon his resignation, Dr. Bussanich
entered into an agreement under which he agreed not to compete with the
Company for a period of two years, for which he will be paid $140,000 per
year for two years, and was paid $26,923 for unused accrued vacation.
(D) Includes automobile lease payments of $6,334, $7,494 and $3,747 in 1995,
1994 and 1993, respectively, and club dues of $4,365, $5,045 and $4,330 in
1995, 1994 and 1993, respectively.
(E) Includes matching amounts contributed to the Company's 401(k) plan of
$5,020, $3,489 and $4,027 in 1995, 1994 and 1993, respectively; $3,320 and
$2,380 of life insurance premiums paid by the Company for the benefit of Dr.
Bussanich, in 1995 and 1994, respectively; $1,000 in accounting services;
and $26,923 of unused accrued vacation and $35,000 paid in 1995, pursuant to
Dr. Bussanich's non-compete agreement. See "Employment and Change in Control
Agreements."
(F) Represents matching amounts contributed to the Company's 401(k) plan.
(G) Represents matching amounts contributed to the Company's 401(k) plan of $66;
$2,603 of rental reimbursements; $3,467 of office rent; and $4,116 of
payment for unused accrued vacation.
(H) Amounts paid to Messrs. Howard, Norris and Robertson for salary did not
exceed $100,000 in 1994 and 1993.
OTHER EXECUTIVE OFFICER COMPENSATION INFORMATION. On April 15, 1996, Bill
Barancik joined the Company as its President, Chief Executive Officer and
Chairman of the Board. Mr. Barancik received an annual salary of $120,000 until
October 15, 1996, at which time his salary increased to $160,000 annually. Upon
commencement of his employment, Mr. Barancik was granted options to acquire
150,000 shares of Common Stock at an exercise price of $6.00 per share, all of
which are currently vested and exercisable. Mr. Barancik also will be reimbursed
for certain accommodation and travel expenses.
A-7
<PAGE>
STOCK OPTIONS
The following table contains information concerning the grant of stock
options under the Company's 1993 Amended and Restated Combination Stock Option
Plan, as amended (the "Stock Option Plan"), to the named executive officers in
1995. Two executive officers of the Company received options exercisable for a
total of 16,000 shares of Common Stock during fiscal year 1995. All employees
who are not currently executive officers of the Company received options
exercisable for a total of 105,484 shares of Common Stock during fiscal 1995. In
April 1996, the Company granted Mr. Barancik options exercisable for 150,000
shares of Common Stock. See "OTHER EXECUTIVE OFFICER COMPENSATION INFORMATION."
All options granted under the Stock Option Plan shall immediately vest and
become exercisable upon the consummation of the Offer.
OPTION GRANTS IN FISCAL YEAR 1995
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
TOTAL ANNUAL RATES OF STOCK
OPTIONS PRICE APPRECIATION
GRANTED TO EXERCISE FOR OPTION TERM (B)
OPTIONS EMPLOYEES PRICE EXPIRATION ----------------------
NAME GRANTED (A) IN 1995 ($/SH.) DATE 5% 10%
- ----------------------------------------- ----------- ------------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
John A. Elorriaga........................ 10,000 8.2% $ 8.50 4/05 $ 138,456 $ 220,468
1,000 .8 6.63 10/05 10,800 17,197
William A. Norris........................ 5,000 4.1 7.63 2/05 62,142 98,951
</TABLE>
- ------------------------------
(A) Options granted to Mr. Elorriaga are exercisable starting 12 months after
the grant date, with 1/5 of such options covered thereby becoming
exercisable at that time, an additional 1/5 of such options becoming
exercisable each successive 12-month period, and full vesting occurring on
the fifth anniversary date. Options granted to Mr. Norris are exercisable
starting February 1, 1996, with 1/2 of such options becoming exercisable at
that time, an additional 1/4 of such options becoming exercisable on each
successive 12-month period, and full vesting occurring on the third
anniversary date. All options granted to Messrs. Elorriaga and Norris become
immediately exercisable upon certain mergers and other corporate
reorganizations, as set forth in their respective stock option agreements.
(B) The potential realizable value is calculated based on the term of the option
at its time of grant (10 years) and is calculated by assuming that the stock
price on the date of grant appreciates at the indicated annual rate
compounded annually for the entire
term of the option and that the option is exercised and sold on the last day
of its term for the appreciated price. Actual gains, if any, on stock
options exercised are dependent on the future performance of Common Stock
and overall stock market conditions.
FISCAL YEAR END OPTION VALUES
The following table provides information concerning the exercise of options
during fiscal year 1995 and unexercised options held as of the end of such
fiscal year with respect to the named executive officers.
A-8
<PAGE>
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1995 DECEMBER 31, 1995 (A)
---------------------------- -------------------------- GRANT DATE EXPIRATION
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE (B) DATE (B)
- ------------------------------------ ----------- --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John A. Elorriaga................... 10,000 -- 31,300 -- 10/93 10/03
2,000 8,000 3,500 14,000 10/94 10/04
-- 10,000 -- -- 4/95 4/05
-- 1,000 -- 1,500 10/95 10/05
Brian M. Bussanich.................. 18,750 -- 77,438 -- 1/93 1/98
200,000 -- 626,000 -- 10/93 10/03
Alfred J. Howard.................... 45,000 35,000 140,850 109,550 10/93 10/03
10,000 10,000 21,300 21,300 5/94 5/04
William A. Norris................... 45,000 30,000 140,850 93,900 12/93 12/03
10,000 10,000 21,300 21,300 5/94 5/04
5,000 2,500 2/95 2/05
Randall J. Robertson................ 45,000 35,000 140,850 109,550 10/93 10/03
10,000 10,000 21,300 21,300 5/94 5/04
</TABLE>
- ------------------------------
(A) Based on the market value of the underlying securities at December 31, 1995,
of $8.13 per Share, minus the exercise price of the unexercised options.
(B) The Company has elected to add these columns for clarification.
RETIREMENT PLAN
The Company makes available to each of its full-time employees the Pacific
Rehabilitation & Sports Medicine Retirement Plan (the "Retirement Plan"), which
is qualified under Section 401(k) of the Internal Revenue Code 1986, as amended
(the "Code"). Employees electing to participate in the Retirement Plan may
annually contribute a portion (up to 15%) of their compensation to the
Retirement Plan. After each plan year, the Company may match 50% of the
employee's contribution up to 6% of the employee's total annual compensation.
The Company also may contribute a discretionary amount to be determined each
year to employees who have completed at least one year of service with the
Company and are at least 21 years of age. The Company contributed $136,000 in
matching contributions to the Retirement Plan in 1995, of which $9,960 was
allocated to named executive officers. The Company made no discretionary
contributions to the Retirement Plan in 1995.
EMPLOYMENT AND CHANGE IN CONTROL AGREEMENTS
In January 1993, the Company entered into an employment agreement with Dr.
Bussanich. On October 1, 1995, Dr. Bussanich resigned as the Company's
President, Chief Executive Officer and Chairman of the Board. Dr. Bussanich's
severance package included his agreement not to compete with the Company for a
period of two years, for which he will be paid $140,000 per year for two years,
and included payment of $26,923 for unused accrued vacation.
In September 1996, the Company entered into an employment agreement with
Michael McArthur-Phillips for the position of Corporate Counsel. The employment
agreement provides for compensation in the amount of $100,000 per year. Mr.
McArthur-Phillips is also eligible to participate in the Company's incentive
bonus program for executives and managers. Furthermore, Mr. McArthur-Phillips
was granted stock options to purchase 50,000 shares of Common Stock at market
value on the date of grant. The employment agreement also provides that, should
the Company be sold, acquired or experience a change of control, Mr.
McArthur-Phillips will receive a $25,000 severance pay package which will be
reduced by $2,000 for every month Mr. McArthur-Phillips is employed by the
Company.
A-9
<PAGE>
On November 4, 1996, the Company entered into a salary continuation
agreement with Mr. Robertson which provides that, upon the sale or merger of the
Company during 1996 resulting in Mr. Robertson's position being eliminated, if
Mr. Robertson remains in his current position through the successful transition
of his responsibilities, he will be placed on a four-month leave of absence
effective with the date of the transition of his duties to the new organization.
During the four-month period he will receive full compensation and maintain all
insured employee benefits (medical, dental, vision and life). This salary
continuation plan is in lieu of any other retention/separation package.
On November 4, 1996, the Company entered into a salary continuation
agreement for Mr. Barancik which provides that, upon the sale or merger of the
Company during 1996 resulting in Mr. Barancik's position being eliminated, he
will be placed on a six-month leave of absence effective with the date of the
elimination of his position. During the six-month period he will receive full
compensation and maintain all insured employee benefits (medical, dental, vision
and life). In addition, Mr. Barancik will be paid $100,000 on the earlier of the
Effective Time (as defined in the Merger Agreement) or the date on which his
position is eliminated. This salary continuation plan is in lieu of any other
retention/separation package. A majority of the Company's Board has taken the
position that the only severance agreement between the Company and Mr. Barancik
is as follows: the Company will pay $115,000 to Mr. Barancik upon his
termination as President and Chief Executive Officer of the Company or, at his
option, the Company will pay his salary and benefits for six months plus $50,000
upon his termination as President and Chief Executive Officer of the Company.
The position of a majority of the Board is that any agreement, including,
without limitation, the letter agreement dated November 4, 1996 between the
Company and Mr. Barancik, with inconsistent provisions was not authorized and
approved by the Board. Mr. Barancik does not agree with this position.
On November 18, 1996, the Company and Mr. Norris entered into a salary
continuation agreement. Pursuant to the terms of such agreement, if Parent
commences a successful tender offer for the Common Stock and if the transaction
is completed by May 1, 1997, the Company will pay Mr. Norris $110,000 upon his
termination as Executive Vice President--Finance & Administration or, at his
option, the Company will pay his salary and benefits for six months plus $55,000
upon his termination as Executive Vice President--Finance & Administration. Upon
such termination as Executive Vice President--Finance & Administration, Mr.
Norris will be placed on a six month leave of absence. During such leave of
absence, Mr. Norris will receive full compensation and certain employee
benefits. Time off benefits will not accrue during the leave of absence.
DIRECTOR COMPENSATION
Non-employee directors of the Company receive $1,000, and reimbursement for
related expenses, for each Board meeting that they attend or in which they
participate. The Company has adopted a Directors' Stock Option Plan, as amended
(the "Directors' Plan"). The Directors' Plan provides that Eligible Directors
(as defined in the Directors' Plan) be granted an option to purchase 10,000
shares of the Common Stock upon becoming an Eligible Director, an option to
purchase 10,000 shares of the Common Stock on the six month anniversary date of
becoming an Eligible Director and be granted an option to purchase 1,000 shares
of the Common Stock on each one year anniversary date of becoming an Eligible
Director. All options granted under the Directors' Plan shall immediately vest
and become exercisable upon the consummation of the Offer.
Pursuant to the Directors' Plan, in 1995, the Company granted each of its
non-employee directors, who qualify as Eligible Directors, options to acquire
10,000 shares of the Common Stock on April 3, 1995, at $8.50 per share and, on
October 1, 1995, the Company granted to Mr. Jungers, the only Eligible Director
on that date, an option to acquire 1,000 shares of the Common Stock at an
exercise price of $6.63 per share. The Company pays no additional remuneration
to employees of the Company who serve as directors.
A-10
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In 1995, the Compensation Committee of the Board was composed of the entire
Board, Mr. Elorriaga, Mr. Jungers, and Dr. Bussanich. The Compensation Committee
was responsible for establishing the compensation of Messrs. Howard, Norris and
Robertson, as well as Dr. Bussanich, an officer of the company until October 1,
1995, who then served on the Board. Dr. Bussanich resigned as the Company's
President and Chief Executive Officer on October 1, 1995, and was succeeded by
Mr. Elorriaga. Mr. Elorriaga did not receive cash compensation for his duties as
President and Chief Executive Officer from October 1, 1995 through December 31,
1995. The Compensation Committee is responsible for reviewing and providing
feedback on non-director executive officer compensation with goals and dollar
amounts established by the Chief Executive Officer in accordance with policies
approved by the Board.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
COMPENSATION PHILOSOPHY AND POLICIES. The Company's compensation program is
comprised of cash compensation in the form of salary and equity based
compensation in the form of stock options. The Company's philosophy is to
structure executive officer compensation to attract, motivate and retain senior
management at levels consistent with those offered by other similar publicly
held companies and to reward those who have made a meaningful contribution to
meeting the Company's operational goals and improving the returns to its
stockholders. The Compensation Committee also believes in the importance of
meaningful equity participation in the Company so as to equate the interests of
the executive officers with those of the stockholders of the Company. To that
end, the Compensation Committee has weighted executive officer compensation more
heavily toward equity based compensation, maintaining a minimum level of cash
compensation necessary to attract and retain appropriate management expertise.
Executive officer compensation includes competitive salaries and long-term
stock-based incentive opportunities in the form of options exercisable to
purchase the Common Stock. It is the policy of both the Compensation Committee
and the Administrative Committee that, to the extent possible, compensation will
be structured so that it meets the "performance-based" criteria as defined by
Section 162(m) of the Code, and, therefore, is not subject to federal income tax
deduction limitations.
CASH COMPENSATION. Each of the Company's executive officers received an
increase in cash compensation effective January 1, 1995. As a result of such
increases, Mr. Norris, Executive Vice President-Finance & Administration
received an annual salary of $110,000; Mr. Howard, then President-Eastern Region
and Mr. Robertson, President-Western Region, each received an annual salary of
$107,000. Dr. Bussanich, the Company's President and Chief Executive Officer
until October 1, 1995, received an annual salary of $140,000, of which $105,000
was paid for the period January 1, 1995 to October 1, 1995. None of the
Company's executive officers had received an increase in annual salary since
they joined the Company in 1993. The Compensation Committee believed that the
increase in 1995 executive officer salaries was necessary to make such salaries
more consistent with the compensation level of executives in similarly situated
publicly held companies in the outpatient physical therapy/rehabilitation
industry.
STOCK OPTION AWARDS FOR 1995. Awards to executive officers under the Stock
Option Plan are made solely by the Administrative Committee which from January
1, 1995, until October 1, 1995, was composed of the two non-employee, outside
Directors, Mr. Elorriaga and Mr. Jungers. These Directors were considered
"disinterested persons" as defined in amended Rule 16b-3, adopted by the
Commission pursuant to the Exchange Act. As of October 1, 1995, Mr. Elorriaga no
longer was considered "disinterested" and Dr. Bussanich replaced Mr. Elorriaga
as a member of the Administrative Committee.
The Stock Option Plan provides for the issuance of incentive stock options
to officers and employees of the Company to acquire shares of the Common Stock
at an exercise price equal to the fair market value on the date of grant. In
1995, options to acquire 1,000 shares of the Common Stock at $6.63 per share
were granted to Mr. Elorriaga; and options to acquire 5,000 shares of the Common
Stock at $7.63 per share were granted to Mr. Norris, both executive officers of
the Company. Mr. Elorriaga was also granted
A-11
<PAGE>
options to acquire 10,000 shares of the Common Stock at $8.50 per share under
the Directors' Plan prior to becoming the Company's President and Chief
Executive Officer in October 1995. Grants of stock options are based on level of
responsibilities and performance, as well as the Company's performance within
its industry.
At the end of 1995, the Company had 72 outpatient rehabilitation clinics.
During 1995, the Company acquired 32 clinics, opened three new clinics and
successfully integrated them into the Company's operations, nearly doubling the
number of facilities owned by the Company. The Compensation Committee believes
the opportunity to acquire significant equity interest in the Company is an
integral part of the compensation for such efforts and is strong motivation for
the Company's executives to pursue the long-term interests of the Company and
its stockholders.
CHIEF EXECUTIVE OFFICER COMPENSATION. As described above in "Employment and
Change in Conrol Contracts," the Company had an employment agreement with Dr.
Bussanich, pursuant to which he was employed as the Company's President and
Chief Executive Officer. On October 1, 1995, Dr. Bussanich resigned from these
positions. Dr. Bussanich's severance package included his agreement not to
compete with the Company for a period of two years, for which he will be paid
$140,000 per year for two years, and included payment of $26,923 for unused
accrued vacation. The Compensation Committee believes that the compensation of
Dr. Bussanich was competitive with other Chief Executive Officers in similarly
situated outpatient physical therapy/rehabilitation service companies.
Compensation decisions with respect to Dr. Bussanich were made with the
consideration of the Company's competitive position and success and the
contributions made by Dr. Bussanich to the success of the Company.
On October 1, 1995, Mr. Elorriaga became the Company's President, Chief
Executive Officer and Chairman of the Board; assuming such positions concurrent
with the resignation of Dr. Bussanich. Mr. Elorriaga had previously served as a
member of the Board. Mr. Elorriaga received no cash compensation for his
services as President and Chief Executive Officer in 1995.
SUBMITTED BY THE BOARD OF DIRECTORS:
John A. Elorriaga*
Frank Jungers*
Brian M. Bussanich*
- ------------------------
* Mr. Elorriaga and Mr. Jungers were the sole members of the Administrative
Committee for the Stock Option Plan until October 1, 1995 at which time Dr.
Bussanich succeeded Mr. Elorriaga.
A-12
<PAGE>
STOCK PERFORMANCE GRAPH
The Commission requires that registrants include in their proxy statement a
line-graph presentation comparing cumulative five-year stockholder returns on an
indexed basis, assuming a $100 initial investment and reinvestment of dividends,
of (a) the registrant, (b) a broad-based equity market index and (c) an
industry-specific index. The broad-based market index used in the graph is the
Nasdaq Stock Market U.S. Total Return Index and the industry-specific index used
is the S&P Mid Cap 400 Health Care Services Index.
The Company registered its Common Stock under the Securities Act of 1933, as
amended, and the Exchange Act, effective April 14, 1994. Accordingly, the
following graph includes the required information from April 14, 1994 through
the end of the last fiscal year (December 31, 1995).
<TABLE>
<CAPTION>
BASE PERIOD
COMPANY/INDEX NAME 4/14/94 12/31/94 12/31/95
- --------------------------------------------------------------------------------- --------------- ----------- -----------
<S> <C> <C> <C>
Pacific Rehabilitation & Sports Medicine, Inc.................................... 100 79.17 135.42
S & P Midcap 400 Healthcare Services Index....................................... 100 114.58 137.46
Nasdaq Stock Market U.S. Total Return Index...................................... 100 102.05 144.20
</TABLE>
November 22, 1996 Pacific Rehabilitation & Sports Medicine, Inc.
A-13
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- --------- -----------------------------------------------------------------------------------------
<S> <C> <C>
(a) -- Form of Offer to Purchase dated November 22, 1996 (filed as Exhibit (a)(1) to the
Schedule 14D-1 of Horizon PRSM Corporation filed with the Commission on November 22, 1996
and incorporated herein by reference).
(b) -- Form of Letter of Transmittal dated November 22, 1996 (filed as Exhibit (a)(2) to the
Schedule 14D-1 of Horizon PRSM Corporation filed with the Commission on November 22, 1996
and incorporated herein by reference).
(c) -- Form of Summary Advertisement dated as of November 22, 1996 (filed as Exhibit (a)(8) to
the Schedule 14D-1 of Horizon PRSM Corporation filed with the Commission on November 22,
1996 and incorporated herein by reference).
(d) -- Agreement and Plan of Merger, dated as of November 17, 1996, among the Company, Parent
and Purchaser.
(e) -- Confidentiality Agreement, dated October 24, 1996, between the Company and Parent.
(f) -- Employment Agreement dated September 11, 1996, as amended, by and between the Company and
Michael McArthur-Phillips.
(g) -- Agreement dated November 4, 1993 by and between the Company and Randall J. Robertson.
(h) -- Agreement dated November 18, 1996 by and between the Company and William A. Norris.
(i) -- Letter to stockholders of the Company dated November 22, 1996.*
(j) -- Opinion of Smith Barney Inc. dated November 17, 1996.*
(k) -- Press release issued by the Company on October 30, 1996.
(l) -- Press release issued by the Company on November 18, 1996.
</TABLE>
- ------------------------
* Included in copies mailed to stockholders.
<PAGE>
AGREEMENT AND PLAN OF MERGER
AMONG
PACIFIC REHABILITATION & SPORTS MEDICINE, INC.
HORIZON/CMS HEALTHCARE CORPORATION
AND
HORIZON PRSM CORPORATION
DATED AS OF NOVEMBER 17, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<C> <S> <C>
ARTICLE I THE OFFER............................................................................. D-1
1.1 The Offer............................................................................. D-1
1.2 Company Actions....................................................................... D-2
1.3 Stockholder Lists..................................................................... D-2
1.4 Directors............................................................................. D-2
ARTICLE II THE MERGER............................................................................ D-3
2.1 The Merger............................................................................ D-3
2.2 Closing............................................................................... D-3
2.3 Effective Time........................................................................ D-3
2.4 Effect of the Merger.................................................................. D-3
2.5 Certificate of Incorporation and Bylaws............................................... D-3
2.6 Directors and Officers................................................................ D-4
2.7 Consideration; Conversion of Shares................................................... D-4
2.8 Exchange of Certificates.............................................................. D-4
2.9 Stock Transfer Books.................................................................. D-5
2.10 Options and Other Purchase Rights..................................................... D-5
2.11 Dissenting Shares..................................................................... D-6
2.12 Company Stockholders' Meeting......................................................... D-6
2.13 Merger Without Meeting of Stockholders................................................ D-6
2.14 Withholding Taxes..................................................................... D-6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................................... D-7
3.1 Organization and Qualification........................................................ D-7
3.2 Capitalization of the Company......................................................... D-7
3.3 Authorization and Validity of Agreement............................................... D-7
3.4 Consents and Approvals................................................................ D-7
3.5 No Violation.......................................................................... D-8
3.6 SEC Reports; Financial Statements..................................................... D-8
3.7 Schedule 14D-9; Offer Documents and Company Proxy Statement........................... D-9
3.8 Compliance with Law................................................................... D-9
3.9 Absence of Certain Changes............................................................ D-9
3.10 Litigation............................................................................ D-9
3.11 Employee Benefit Matters.............................................................. D-9
3.12 Taxes................................................................................. D-10
3.13 Insurance............................................................................. D-10
3.14 Employment Agreements................................................................. D-10
3.15 Brokers and Finders................................................................... D-10
3.16 Opinion of Financial Advisor.......................................................... D-11
3.17 Certain Business Practices............................................................ D-11
3.18 Permits; Compliance................................................................... D-11
3.19 Certain Agreements.................................................................... D-12
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER................................ D-12
4.1 Organization and Qualification........................................................ D-12
4.2 Authorization and Validity of Agreement............................................... D-12
4.3 Consents and Approvals................................................................ D-13
4.4 No Violation.......................................................................... D-13
4.5 Litigation............................................................................ D-13
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<C> <S> <C>
4.6 Offer Documents; Company Proxy Statement; Schedule 14D-9.............................. D-13
4.7 Financing; Sufficient Funds........................................................... D-14
4.8 Brokers and Finders................................................................... D-14
4.9 Operations of Purchaser............................................................... D-14
ARTICLE V COVENANTS............................................................................. D-14
5.1 Conduct of Business Pending the Merger................................................ D-14
5.2 Access; Confidentiality............................................................... D-15
5.3 Further Actions....................................................................... D-16
5.4 Notice of Certain Matters............................................................. D-16
5.5 Company Proxy Statement............................................................... D-16
5.6 State Takeover Statutes............................................................... D-16
5.7 Cooperation........................................................................... D-16
5.8 Public Announcements.................................................................. D-17
5.9 Acquisition Proposals................................................................. D-17
5.10 D&O Indemnification................................................................... D-18
5.11 Company Plans......................................................................... D-19
5.12 Deposit............................................................................... D-19
ARTICLE VI CLOSING CONDITIONS.................................................................... D-20
6.1 Conditions to Obligations of Each Party to Effect the Merger.......................... D-20
6.2 Conditions Precedent to the Obligations of the Company................................ D-20
6.3 Conditions Precedent to the Obligations of Parent and Purchaser....................... D-20
ARTICLE VII TERMINATION........................................................................... D-21
7.1 Termination........................................................................... D-21
7.2 Effect of Termination................................................................. D-22
7.3 Fees and Expenses..................................................................... D-22
ARTICLE VIII MISCELLANEOUS......................................................................... D-23
8.1 No Survival........................................................................... D-23
8.2 Notices............................................................................... D-23
8.3 Certain Definitions................................................................... D-24
8.4 Entire Agreement...................................................................... D-25
8.5 Assignment; Binding Effect............................................................ D-25
8.6 Amendments............................................................................ D-25
8.7 Waiver................................................................................ D-25
8.8 Captions.............................................................................. D-25
8.9 Counterparts.......................................................................... D-25
8.10 Validity.............................................................................. D-25
8.11 Governing Law......................................................................... D-25
</TABLE>
ii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of November 17, 1996 by and among
PACIFIC REHABILITATION & SPORTS MEDICINE, INC., a Delaware corporation (the
"COMPANY"), HORIZON/CMS HEALTHCARE CORPORATION, a Delaware corporation
("PARENT"), and HORIZON PRSM CORPORATION, a Delaware corporation and wholly
owned indirect subsidiary of Parent ("PURCHASER").
RECITALS
WHEREAS, the respective Boards of Directors of the Company, Parent and
Purchaser have approved the acquisition of the Company by Parent, upon the terms
and subject to the conditions set forth herein;
WHEREAS, it is intended that the acquisition be accomplished by Purchaser
commencing a cash tender offer for Shares (as defined in Section 1.1) to be
followed by a merger of Purchaser with and into the Company; and
NOW, THEREFORE, in consideration of the foregoing and of the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto hereby agree as follows:
ARTICLE I
THE OFFER
1.1 THE OFFER.
(a) As promptly as practicable (but in no event later than five business
days following the public announcement of the execution hereof), Purchaser shall
commence (within the meaning of Rule 14d-2 under the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT")), an offer to purchase all of the
Company's outstanding shares of common stock, par value $0.01 per share (the
"SHARES"), at a price of $6.50 per Share, net to the seller in cash (as such
offer may be amended in accordance with the terms of this Agreement, the
"OFFER"), subject to the conditions set forth in Annex A hereto. Purchaser will
not, without the prior written consent of the Company, (i) decrease or change
the form of the consideration payable in the Offer, (ii) decrease the number of
Shares sought pursuant to the Offer, (iii) impose additional conditions to the
Offer, (iv) change the conditions to the Offer, except that Parent in its sole
discretion may waive any of the conditions to the Offer other than the condition
set forth in clause (1) of ANNEX A, which may not be waived without the
Company's prior written consent, or (v) make any other change in the terms or
conditions of the Offer that is adverse to the holders of Shares. Purchaser
will, on the terms and subject to the prior satisfaction or waiver of the
conditions to the Offer, accept for payment and pay for all Shares validly
tendered and not withdrawn pursuant to the Offer promptly after expiration of
the Offer; PROVIDED that, Purchaser may extend the Offer up to the tenth
business day after the later of (i) the initial expiration date of the Offer and
(ii) the date on which all such conditions shall first have been satisfied or
waived. The Company agrees that no Shares held by the Company will be tendered
to Parent pursuant to the Offer; PROVIDED, that Shares held beneficially or of
record by any plan, program or arrangement sponsored or maintained for the
benefit of employees of the Company shall not be deemed to be held by the
Company, regardless of whether the Company has, directly or indirectly, the
power to vote or control the disposition of such Shares. The obligations of
Purchaser to commence the Offer and to accept for payment and to pay for Shares
validly tendered on or prior to the expiration of the Offer and not withdrawn
shall be subject only to the conditions set forth in Annex A hereto.
(b) On the date of commencement of the Offer, Parent and Purchaser shall
file or cause to be filed with the Securities and Exchange Commission (the
"SEC") a Tender Offer Statement on Schedule 14D-1
D-1
<PAGE>
(together with all amendments thereto, the "SCHEDULE 14D-1") with respect to the
Offer, which shall contain the offer to purchase and related letter of
transmittal and other ancillary offer documents and instruments pursuant to
which the Offer will be made (collectively, together with any supplements or
amendments thereto, the "OFFER DOCUMENTS"). Parent and Purchaser will
disseminate the Offer Documents to holders of Shares. Each of Parent, Purchaser
and the Company will promptly correct any information provided by it for use in
the Offer Documents that becomes false or misleading in any material respect and
Parent and Purchaser will take all steps necessary to cause the Offer Documents
as so corrected to be filed with the SEC and to be disseminated to holders of
Shares, in each case as and to the extent required by applicable law. The
Company and its counsel shall be given a reasonable opportunity to review and
comment on the Offer Documents prior to their filing with the SEC. Parent and
Purchaser agree to provide the Company with any comments that may be received
from the SEC or its staff with respect to the Offer Documents promptly after
receipt thereof and to further provide the Company with a reasonable opportunity
to participate in all substantive communications with the SEC and its staff
relating to the Offer Documents, the Offer or the transactions contemplated
thereby.
1.2 COMPANY ACTIONS. The Company hereby consents to the Offer and
represents and warrants that a majority of its Board of Directors (at meetings
duly called and held) has (a) determined as of the date hereof that the Offer
and the Merger are fair to and in the best interests of the stockholders of the
Company and (b) subject to the fiduciary duties of the Board of Directors,
resolved to recommend acceptance of the Offer and, if required by applicable
law, approval and adoption of this Agreement and the Merger by the stockholders
of the Company. As soon as practicable after the commencement of the Offer, the
Company shall file or cause to be filed with the SEC a
Solicitation/Recommendation Statement on Schedule 14D-9 (the "SCHEDULE 14D-9")
containing the recommendation of the majority of the Board of Directors in favor
of the Offer and the Merger and shall permit the inclusion in the Schedule 14D-1
of such recommendation, in each case subject to the fiduciary duties of the
Board of Directors of the Company. Each of the Company, Parent and Purchaser
will promptly correct any information provided by it for use in the Schedule
14D-9 that becomes false or misleading in any material respect 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 Shares, in each case as
and to the extent required by applicable law. Parent and its counsel shall be
given a reasonable opportunity to review and comment on the Schedule 14D-9 prior
to its filing with the SEC. The Company agrees to provide Parent with any
comments that may be received from the SEC or its staff with respect to the
Schedule 14D-9 promptly after receipt thereof and to further provide Parent with
a reasonable opportunity to participate in all substantive communications with
the SEC and its staff relating to the Schedule 14D-9, the Offer or the
transactions contemplated thereby.
1.3 STOCKHOLDER LISTS. In connection with the Offer, the Company shall
promptly furnish or cause to be furnished to Purchaser mailing labels and
security position listings and any available listing or computer file containing
the names and addresses of the record holders of Shares as of a recent date and
shall furnish Purchaser with such information reasonably available to the
Company and such assistance as Parent or its agents may reasonably request in
communicating the Offer to the record and beneficial holders of Shares. Subject
to the requirements of applicable law and except for such steps as are necessary
to disseminate the Offer Documents and any other documents necessary to
consummate the Offer and the Merger, Parent, Purchaser and their respective
affiliates will hold in confidence such listings and other information, shall
use such information only in connection with the Offer and the Merger and, if
this Agreement is terminated, shall, and shall cause their respective agents or
other representatives to, promptly deliver to the Company all copies of all such
information (and extracts or summaries thereof) then in their possession.
1.4 DIRECTORS. Promptly upon the purchase by Purchaser pursuant to the
Offer of such number of Shares as represents at least a majority of the
outstanding Shares and from time to time thereafter, Parent shall be entitled to
designate such number of directors, rounded up to the next whole number, on the
Board of Directors of the Company as will give Parent representation on the
Board of Directors of the
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Company equal to the product of the number of directors on the Board of
Directors of the Company and the percentage that such number of Shares so
purchased bears to the number of Shares outstanding, and the Company shall, upon
request of Parent, exercise reasonable efforts to increase the size of the Board
of Directors of the Company or secure the resignations of such number of
directors as is necessary to enable such Parent designees to be so elected or
appointed. Such designees will abstain from any action proposed to be taken by
the Company to amend or terminate this Agreement or waive any action by Parent
or Purchaser, which actions will be effective with the approval of a majority of
the remaining directors. The Company's obligations to appoint designees to the
Board of Directors shall be subject to Section 14(f) of the Exchange Act. At the
request of Parent, the Company shall take all action reasonably necessary to
effect any such election or appointment, including mailing to its stockholders
the information required by Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder, unless such information previously has been provided to
the Company's stockholders in the Schedule 14D-9. Parent and Purchaser will
supply to the Company, and will be solely responsible for, all information with
respect to themselves and their officers, directors and affiliates required by
such Section and Rule.
ARTICLE II
THE MERGER
2.1 THE MERGER. Upon the terms and subject to the conditions of this
Agreement, and in accordance with the General Corporation Law of the State of
Delaware (the "DGCL"), at the Effective Time (as defined below), Purchaser shall
be merged with and into the Company (the "MERGER"). As a result of the Merger,
the separate corporate existence of Purchaser shall cease and the Company shall
continue as the surviving corporation of the Merger (the "SURVIVING
CORPORATION").
2.2 CLOSING. Unless this Agreement shall have been terminated pursuant to
Article VII and subject to the satisfaction or, if permissible, waiver of the
conditions set forth in Article VI, the consummation of the Merger and the other
transactions contemplated hereby (the "CLOSING") shall take place at the offices
of Dewey Ballantine, 1301 Avenue of the Americas, New York, New York 10019, as
promptly as practicable (and in any event within two business days) following
the satisfaction or, if permissible, waiver of the conditions set forth in
Article VI, unless another place, date or time is agreed to in writing by Parent
and the Company.
2.3 EFFECTIVE TIME. As promptly as practicable after the satisfaction or,
if permissible, waiver of the conditions set forth in Article VI, the parties
hereto will cause a certificate of merger (the "CERTIFICATE OF MERGER") to be
executed, acknowledged and filed with the Delaware Secretary of State in
accordance with the DGCL. The Merger shall become effective at such time as the
Certificate of Merger is filed with the Delaware Secretary of State in
accordance with the DGCL, or at such later time as may be agreed to by Parent
and the Company and specified in the Certificate of Merger in accordance with
applicable law. The date and time when the Merger shall become effective is
referred to herein as the "EFFECTIVE TIME."
2.4 EFFECT OF THE MERGER. The Merger shall have the effects set forth in
the DGCL. Without limiting the generality of the foregoing, and subject thereto,
at the Effective Time, all properties, rights, privileges, powers and franchises
of the Company and Purchaser shall vest in the Surviving Corporation, and all
debts, liabilities and duties of the Company and Purchaser shall become the
debts, liabilities and duties of the Surviving Corporation.
2.5 CERTIFICATE OF INCORPORATION AND BYLAWS. At the Effective Time, the
Amended and Restated Certificate of Incorporation (the "CERTIFICATE OF
INCORPORATION") and the Amended and Restated Bylaws (the "BYLAWS") of the
Company, in each case as in effect immediately prior to the Effective Time,
shall be the Certificate of Incorporation and the Bylaws of the Surviving
Corporation until thereafter amended as provided by law.
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2.6 DIRECTORS AND OFFICERS. At the Effective Time, the officers and
directors of Purchaser immediately prior to the Effective Time shall become the
officers and directors of the Surviving Corporation, each to hold office from
the Effective Time until their respective successors are duly elected or
appointed and qualified in the manner provided in the Certificate of
Incorporation and Bylaws of the Surviving Corporation and applicable law. The
Company shall use commercially reasonable efforts to cause each executive
officer and director of the Company to tender his or her resignation effective
at or before the Effective Time.
2.7 CONSIDERATION; CONVERSION OF SHARES. At the Effective Time, by virtue
of the Merger and without any action on the part of any of the parties hereto or
the holders of any of the following securities:
(a) Each Share that is issued and outstanding immediately prior to the
Effective Time (other than any Shares to be cancelled pursuant to Section
2.7(b) and any Dissenting Shares, as defined below) shall be changed and
converted into and represent the right to receive $6.50 in cash, or any
higher price paid per Share in the Offer (the "PER SHARE MERGER
CONSIDERATION"). All such Shares shall no longer be outstanding and shall
automatically be cancelled and extinguished and shall cease to exist, and
each certificate which immediately prior to the Effective Time evidenced any
such Shares (other than Shares to be cancelled pursuant to Section 2.7(b)
and any Dissenting Shares) shall thereafter represent the right to receive
(without interest), upon surrender of such certificate in accordance with
the provisions of Section 2.8, the Per Share Merger Consideration multiplied
by the number of Shares evidenced by such certificate (the "MERGER
CONSIDERATION"). The holders of certificates previously evidencing Shares
outstanding immediately prior to the Effective Time shall cease to have any
rights with respect thereto (including, without limitation, any rights to
vote or to receive dividends and distributions in respect of such Shares),
except as otherwise provided herein or by law.
(b) All Shares, which immediately prior to the Effective Time are owned
by Parent, Purchaser or their respective affiliates or held by the Company
in its treasury, shall be cancelled and extinguished and shall cease to
exist and no consideration shall be delivered with respect thereto.
(c) Each share of capital stock of Purchaser issued and outstanding
immediately prior to the Effective Time shall be converted into and
exchanged for one validly issued, fully paid and nonassessable share of
common stock of the Surviving Corporation.
2.8 EXCHANGE OF CERTIFICATES.
(a) PAYING AGENT. As of the Effective Time, Parent shall, pursuant to an
agreement with a paying agent mutually acceptable to Parent and the Company (the
"PAYING AGENT"), deposit, or cause to be deposited, with or for the account of
the Paying Agent in trust for the benefit of the holders of Shares (other than
Shares to be cancelled pursuant to Section 2.7(b) and any Dissenting Shares) for
exchange through the Paying Agent in accordance with this Article II, cash in
the aggregate amount required to be exchanged for Shares pursuant to Section 2.7
(the "PAYMENT FUND"). The Paying Agent shall, pursuant to irrevocable
instructions, deliver the Merger Consideration out of the Payment Fund to
holders of Shares. The Payment Fund shall not be used for any other purpose. The
Paying Agent shall invest funds in the Payment Fund only in short-term
securities issued or guaranteed by the United States government or certificates
of deposit of commercial banks that have consolidated total assets of not less
than $5,000,000,000 and are "well capitalized" within the meaning of the
applicable federal bank regulations. Any interest or other income earned on the
investment of funds in the Payment Fund shall be for the account of and payable
to the Surviving Corporation. Parent shall replace any monies lost through any
investment made pursuant to this Section 2.8.
(b) PAYMENT PROCEDURE. Promptly after the Effective Time, Parent will
cause the Paying Agent to mail to each holder of record of a certificate or
certificates that immediately prior to the Effective Time evidenced outstanding
Shares (other than Shares to be cancelled pursuant to Section 2.7(b) and any
Dissenting Shares) ("CERTIFICATES"), (i) a notice of the effectiveness of the
Merger, (ii) a letter of transmittal
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(which shall specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon delivery of the Certificates to the
Paying Agent and shall be in such customary form and have such other provisions
as Parent may reasonably specify in accordance with the terms of this Agreement)
and (iii) instructions to effect the surrender of the Certificates in exchange
for the Merger Consideration. Upon surrender of a Certificate for cancellation
to the Paying Agent together with such letter of transmittal, duly executed, and
such other customary documents as may be required pursuant to such instructions,
the holder of such Certificate shall be entitled to receive in exchange therefor
the Merger Consideration and the Certificate so surrendered shall forthwith be
cancelled. In the event of a transfer of ownership of Shares that is not
registered in the transfer records of the Company, the Merger Consideration may
be paid or issued to the transferee if the Certificate representing such Shares
is presented to the Paying Agent, accompanied by all documents required to
evidence and effect such transfer and by evidence that any applicable stock
transfer taxes have been paid. In the event that any Certificate shall have been
lost, stolen or destroyed, the Paying Agent shall issue in exchange therefor,
upon the making of an affidavit of that fact by the holder thereof and such
bond, security or indemnity as Parent may reasonably require, the Merger
Consideration that such holder has the right to receive pursuant to the
provisions of this Article II. Until surrendered as contemplated by this Section
2.8, each Certificate shall be deemed at any time after the Effective Time to
evidence only the right to receive upon such surrender the Merger Consideration
applicable to the Shares evidenced by such Certificate.
(c) TERMINATION OF PAYMENT FUND. Any portion of the Payment Fund that
remains undistributed to the holders of Shares for six months after the
Effective Time shall be delivered to Parent upon demand, and any holders of
Shares who have not theretofore complied with this Article II shall thereafter
look, subject to Section 2.8(d), only to Parent for the Merger Consideration to
which they are entitled pursuant to this Article II.
(d) ABANDONED PROPERTY LAWS. Neither the Surviving Corporation nor the
Paying Agent shall be liable to any holder of a Certificate for any cash from
the Payment Fund properly delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
(e) TRANSFER TAXES. Except as provided in paragraph (b) above, Parent
shall pay or cause to be paid any real property transfer, gains or similar real
property taxes imposed in connection with or as a result of the Merger,
including any such tax that is imposed on a shareholder of the Company.
2.9 STOCK TRANSFER BOOKS. At the Effective Time, the stock transfer books
of the Company shall be closed, and there shall be no further registration of
transfers of Shares thereafter on the records of the Company other than to
reflect transfers of Shares effected on or prior to the date on which the
Effective Time occurs. At and after the Effective Time, any Certificates
presented to the Paying Agent or the Surviving Corporation for any reason shall
be converted into the Merger Consideration applicable to the Shares evidenced
thereby.
2.10 OPTIONS AND OTHER PURCHASE RIGHTS.
(a) All outstanding (i) options and other rights to acquire Shares granted
to employees under any stock option or purchase plan, program or similar
arrangement of the Company (each, as amended, an "OPTION PLAN" and, such options
and other rights, "STOCK OPTIONS"), and (ii) any other rights to acquire Shares
(the "COMPANY ACQUISITION RIGHTS"), whether or not then exercisable or vested,
will be cancelled by the Company upon consummation of the Offer, and the holders
thereof shall be entitled to receive, for each Share subject to such Stock
Option or Company Acquisition Rights, in settlement and cancellation thereof, an
amount in cash equal to the positive difference, if any, between the Per Share
Merger Consideration and the exercise price per share of such Stock Option or
Company Acquisition Right, as the case may be, which amount shall be paid at the
time the Stock Option or Company Acquisition Right is cancelled; PROVIDED, that,
with respect to any person subject to Section 16 of the Exchange Act, any such
amount shall be paid as soon as practicable after the first date payment can be
made without liability to such person under Section 16(b) of the Exchange Act.
All applicable withholding taxes attributable to the
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payments made hereunder or to distributions contemplated hereby shall be
deducted from the amounts payable under this Section 2.10 and all such taxes
attributable to the cancellation of Stock Options and Company Acquisition Rights
shall be withheld from the proceeds received in connection with the cancellation
thereof.
(b) Except as provided herein or as otherwise agreed to by the parties and
to the extent permitted by the Option Plans, the Option Plans shall terminate as
of the Effective Time and any rights under any provisions in any other plan,
program or arrangement providing for the issuance or grant by the Company of any
interest in respect of the capital stock of the Company shall be cancelled as of
the Effective Time.
2.11 DISSENTING SHARES. Notwithstanding anything in this Agreement to the
contrary, Shares that are outstanding immediately prior to the Effective Time
and that are held by stockholders who shall have perfected dissenters' rights in
accordance with Section 262 of the DGCL (the "DISSENTING SHARES") shall not be
converted into or represent the right to receive the Merger Consideration,
unless and until such holder shall have failed to perfect or shall have
effectively withdrawn or lost such holder's rights to appraisal under the DGCL.
If any such holder shall have failed to perfect or shall have effectively
withdrawn or lost such holder's rights to appraisal of such Shares under the
DGCL, such holder's shares shall thereupon be deemed to have been converted into
and to have become exchangeable for, at the Effective Time, the right to
receive, upon surrender as provided above, the Merger Consideration for the
Certificate or Certificates that formerly evidenced such Shares.
2.12 COMPANY STOCKHOLDERS' MEETING. Unless the Merger is consummated in
accordance with Section 253 of the DGCL as contemplated by Section 2.13, and
subject to applicable law, the Company, acting through its Board of Directors,
shall, in accordance with the DGCL, its Certificate of Incorporation and its
Bylaws, (a) duly call, give notice of, convene and hold a special meeting of its
stockholders as soon as reasonably practicable following the consummation of the
Offer for the purpose of considering and taking action upon this Agreement (the
"COMPANY STOCKHOLDERS' MEETING") and (b) subject to the fiduciary duties of its
Board of Directors, include in the proxy statement or information statement
prepared by the Company for distribution to stockholders of the Company in
advance of the Company Stockholders' Meeting in accordance with Regulation 14A
or Regulation 14C promulgated under the Exchange Act (the "COMPANY PROXY
STATEMENT") the recommendation of its Board of Directors referred to in Section
1.2 hereof. Parent will provide the Company with the information concerning
Parent and Purchaser required to be included in the Company Proxy Statement, and
will vote, or cause to be voted, all Shares owned by it or its affiliates in
favor of approval and adoption of this Agreement and the Merger.
2.13 MERGER WITHOUT MEETING OF STOCKHOLDERS. Notwithstanding anything to
the contrary in this Agreement, if Parent, Purchaser or their respective
affiliates shall acquire at least 90% of the outstanding Shares, each of Parent,
Purchaser and the Company shall take all necessary and appropriate action to
cause the Merger to become effective, as soon as practicable after the
consummation of the Offer, without a meeting of stockholders of the Company, in
accordance with Section 253 of the DGCL.
2.14 WITHHOLDING TAXES. Except as otherwise provided in Section 2.8(e),
Parent and Purchaser shall be entitled to deduct and withhold, or cause the
Paying Agent to deduct and withhold, from the consideration otherwise payable to
a holder of Shares pursuant to the Offer or the Merger any stock transfer taxes
and such amounts as are required under the Internal Revenue Code of 1986, as
amended (the "CODE"), or any applicable provision of state, local or foreign tax
law, as specified in the Offer Documents. To the extent that amounts are so
withheld by Parent or Purchaser, such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the holder of the Shares in
respect of which such deduction and withholding was made by Parent or Purchaser,
in the circumstances described in the Offer Documents, and Parent shall provide,
or cause the Paying Agent to provide, to the holders of such Certificates
written notice of the amounts so deducted or withheld.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company hereby represents and warrants to Parent as follows:
3.1 ORGANIZATION AND QUALIFICATION. Each of the Company and its
subsidiaries (the "SUBSIDIARIES") which are listed in Section 3.1 of the
Company's disclosure schedule delivered to Parent in connection with this
Agreement (the "COMPANY DISCLOSURE SCHEDULE") (a) is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, (b) has all requisite corporate power to carry on its business as
it is now being conducted, and (c) is in good standing and duly qualified to do
business in each jurisdiction in which the transaction of its business makes
such qualification necessary, except where the failure to be in good standing or
so qualified would not have a Material Adverse Effect (as defined in Section
8.3(c) below) on the Company. True and complete copies of the Certificate of
Incorporation and the Bylaws, as amended to date, of the Company have been made
available to Parent.
3.2 CAPITALIZATION OF THE COMPANY. The authorized capital stock of the
Company consists of 20,000,000 Shares and 5,000,000 shares of preferred stock,
$0.01 par value (the "COMPANY PREFERRED STOCK"). As of November 15, 1996,
8,328,247 Shares were issued and outstanding, and no shares of Company Preferred
Stock were outstanding. As of such date, no Shares were owned beneficially or of
record by any Subsidiary of the Company. All outstanding Shares are validly
issued, and are fully paid and nonassessable. Except as disclosed in the Company
SEC Documents (as defined in Section 3.6) or in Section 3.2 of the Company
Disclosure Schedule, there are no outstanding subscriptions, options, warrants,
calls, rights, commitments or any other agreement to which the Company is a
party or by which the Company is bound that, directly or indirectly, obligate
the Company to issue, deliver or sell or cause to be issued, delivered or sold
any additional Shares or any other capital stock of the Company or any other
securities convertible into, or exercisable or exchangeable for, or evidencing
the right to subscribe for any such Shares or other capital stock of the
Company.
3.3 AUTHORIZATION AND VALIDITY OF AGREEMENT. The Company has the requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby in accordance with the terms hereof (subject to
the approval and adoption of this Agreement and the Merger by the holders of a
majority of the outstanding Shares, if required by applicable law). A majority
of the Company's Board of Directors (the "COMPANY BOARD") has duly authorized
the execution, delivery and performance of this Agreement by the Company, and no
other corporate proceedings on the part of the Company are necessary to
authorize this Agreement or the transactions contemplated hereby (other than the
approval and adoption of this Agreement and the Merger by the holders of a
majority of the outstanding Shares, if required by applicable law). This
Agreement has been duly executed and delivered by the Company and, assuming this
Agreement constitutes the legal, valid and binding obligation of Parent and
Purchaser, constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as may be
limited by any bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other similar laws affecting the enforcement of creditors' rights
generally or by general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
3.4 CONSENTS AND APPROVALS.
(a) Neither the execution and delivery of this Agreement by the Company nor
the consummation by the Company of the transactions contemplated hereby will
require any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority by reason of the
Company's status or operations, except (i) in connection with the applicable
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR ACT"), (ii) pursuant to the applicable requirements of the
Securities Act of 1933, as amended (the "SECURITIES ACT"), and the rules and
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regulations promulgated thereunder, and the Exchange Act, and the rules and
regulations promulgated thereunder, and state securities or "blue sky" laws and
state takeover laws, (iii) the filing and recordation of the Certificate of
Merger pursuant to the DGCL and appropriate documents with the relevant
authorities of other states in which the Company is authorized to do business,
(iv) as set forth in Section 3.4 of the Company Disclosure Schedule or (v) where
the failure to obtain such consent, approval, authorization or permit, or to
make such filing or notification, would not in the aggregate have a Material
Adverse Effect on the Company or prevent the consummation of the transactions
contemplated hereby.
(b) A majority of the Company Board has approved this Agreement and the
transactions contemplated hereby for purposes of Section 203 of the DGCL so that
Section 203 of the DGCL is not applicable to the transactions provided for in
this Agreement. Unless the Merger is otherwise consummated as contemplated by
Section 2.13 hereof, the affirmative vote of the holders of a majority of the
outstanding Shares is the only vote of the holders of capital stock of the
Company necessary to approve the Merger.
3.5 NO VIOLATION. Except as set forth in Section 3.5 of the Company
Disclosure Schedule, assuming the Merger has been duly approved by the holders
of a majority of the outstanding Shares or the Merger is consummated as
contemplated by Section 2.13 hereof, neither the execution and delivery of this
Agreement by the Company nor the consummation by the Company of the transactions
contemplated hereby will conflict with or violate the Certificate of
Incorporation or Bylaws of the Company, result in a violation or breach of,
constitute a default under, give rise to any right of termination, cancellation
or acceleration of, or result in the imposition of any lien, charge or other
encumbrance on any material assets or property of the Company pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, license or other
instrument or obligation to which the Company is a party or by which the Company
or any of its assets or properties may be bound, except for such violations,
breaches and defaults (or rights of termination, cancellation or acceleration or
lien or other charge or encumbrance) as to which requisite waivers or consents
have been obtained or which in the aggregate would not have a Material Adverse
Effect on the Company or prevent the consummation of the transactions
contemplated hereby or assuming the consents, approvals, authorizations or
permits and filings or notifications referred to in Section 3.4 and this Section
3.5 are duly and timely obtained or made and the approval of the Merger by the
holders of a majority of the outstanding Shares has been obtained or the Merger
is consummated as contemplated by Section 2.13 hereof, violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the Company or any
of its assets and properties, except for such violations which would not in the
aggregate have a Material Adverse Effect on the Company or prevent the
consummation of the transactions contemplated hereby.
3.6 SEC REPORTS; FINANCIAL STATEMENTS.
(a) Since April 14, 1994, the Company has filed with the SEC all forms,
reports, schedules, statements and other documents required to be filed by it
with the SEC pursuant to the Exchange Act, the Securities Act and the SEC's
rules and regulations thereunder (all such forms, reports and other documents,
including any such reports filed prior to the Effective Time, collectively, the
"COMPANY SEC DOCUMENTS"). The Company SEC Documents, including, without
limitation, any financial statements or schedules included therein, at the time
filed (or, if amended, at the time of such amended filing), or in the case of
registration statements on their respective effective dates, 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 and did not at the time they were filed (or, if amended, at
the time of such amended filing and, in the case of registration statements, at
the time of effectiveness), 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 made therein, in light of the circumstances under
which they were made, not misleading.
(b) Each of the consolidated financial statements of the Company (including
any related notes thereto) included in the Company SEC Documents (excluding the
Company SEC Documents described in
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Section 3.7 hereof) comply as to form 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 with generally accepted
accounting principles applied on a consistent basis during the period involved
(except as may be indicated in such financial statements or in the notes thereto
or, in the case of unaudited financial statements, as permitted by the
requirements of Form 10-Q) and fairly present (subject, in the case of the
unaudited statements, to normal year-end adjustments and the absence of
footnotes) the consolidated financial position of the Company as of the dates
thereof and the consolidated results of the Company's operations and cash flows
for the periods presented therein.
3.7 SCHEDULE 14D-9; OFFER DOCUMENTS AND COMPANY PROXY STATEMENT. None of
the Schedule 14D-9, the Company Proxy Statement nor any information supplied by
the Company specifically for inclusion in the Offer Documents will, at the
respective times filed with the SEC or first published, sent or given to
stockholders, as the case may be, or, in the case of the Company Proxy
Statement, at the date mailed to the Company stockholders and at the time of the
Company Stockholders' Meeting, 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. The Schedule 14D-9 and the Company Proxy
Statement will, when filed by the Company with the SEC, comply as to form in all
material respects with the applicable provisions of the Exchange Act and the
rules and regulations thereunder. Notwithstanding the foregoing, the Company
makes no representation or warranty with respect to the statements made in any
of the foregoing documents based on information supplied by or on behalf of
Parent or Purchaser or any of their respective affiliates specifically for
inclusion therein.
3.8 COMPLIANCE WITH LAW. Except as set forth in Section 3.8 of the Company
Disclosure Schedule, neither the Company nor any of its Subsidiaries is in
violation of any applicable law, rule, regulation, decree or order of any
governmental or regulatory authority applicable to the Company or its
Subsidiaries, except for violations which in the aggregate do not have a
Material Adverse Effect on the Company. The Company holds all permits, licenses,
exemptions, orders and approvals of all governmental and regulatory authorities
necessary for the lawful conduct of its businesses, except where the failures to
hold permits, licenses, exemptions, orders and approvals do not in the aggregate
have a Material Adverse Effect on the Company.
3.9 ABSENCE OF CERTAIN CHANGES. Except as disclosed in the Company SEC
Documents filed with the SEC prior to the date hereof or in Section 3.9 of the
Company Disclosure Schedule, since December 31, 1995, the Company has conducted
its business only in the ordinary course of such business and there has not been
(a) any Material Adverse Effect on the Company; (b) any declaration, setting
aside or payment of any dividend or other distribution with respect to the
Company's capital stock; or (c) any material change in the Company's accounting
principles, practices or methods.
3.10 LITIGATION. Except as disclosed in the Company SEC Documents or in
Section 3.10 of the Company Disclosure Schedule, there are no claims, actions,
proceedings or governmental investigations pending or, to the knowledge of the
Company, threatened against the Company or any of its Subsidiaries, by or before
any court or other governmental or regulatory body, which, if adversely
determined, would have a Material Adverse Effect on the Company. As of the date
hereof, to the knowledge of the Company, no action or proceeding has been
instituted or threatened before any court or other governmental or regulatory
body by any Person (as defined in Section 8.3) seeking to restrain or prohibit
the execution, delivery or performance of this Agreement or the consummation of
the transactions contemplated hereby.
3.11 EMPLOYEE BENEFIT MATTERS. All employee benefit plans and other
benefit arrangements covering employees of the Company and its Subsidiaries are
listed in the Company SEC Documents or in Section 3.11 of the Company Disclosure
Schedule, except such benefit plans and other benefit arrangements that are not
material (the "COMPANY BENEFIT PLANS"). True and complete copies of the Company
Benefit Plans have been made available to Parent. To the extent applicable, the
Company Benefit Plans comply, in all
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material respects, with the requirements of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and the Code, and any Company
Benefit Plan intended to be qualified under Section 401(a) of the Code has
received a determination letter from the Internal Revenue Service (the "IRS")
stating that it is so qualified. No Company Benefit Plan is covered by Title IV
of ERISA or Section 412 of the Code. There has been no transaction involving any
Company Benefit Plan that has resulted or would result in any material liability
or penalty under Section 4975 of the Code or Section 502(i) of ERISA. Each
Company Benefit Plan has been maintained and administered in all material
respects in compliance with its terms and with ERISA and the Code to the extent
applicable thereto. To the knowledge of the executive officers of the Company,
there are no pending or anticipated material claims against or otherwise
involving any of the Company Benefit Plans and no suit, action or other
litigation (excluding claims for benefits incurred in the ordinary course of
Company Benefit Plan activities) has been brought against or with respect to any
such Company Benefit Plan, except for any of the foregoing that would not have a
Material Adverse Effect on the Company. All material contributions required to
be made as of the date hereof to the Company Benefit Plans have been made or
provided for. Neither the Company nor any entity under "common control" with the
Company within the meaning of Section 4001 of ERISA has contributed to, or been
required to contribute to, any "multi-employer plan" (as defined in Sections
3(37) and 4001(a)(3) of ERISA). Except as disclosed in Section 3.11 of the
Company Disclosure Schedule, the Company does not maintain or contribute to any
plan or arrangement that provides or has any liability to provide life
insurance, medical or other employee welfare benefits to any employee or former
employee upon his retirement or termination of employment, except as required by
Section 4980B of the Code, and the Company has never represented, promised or
contracted (whether in oral or written form) to any employee or former employee
that such benefits would be provided. Except as disclosed in the Company SEC
Documents or in Section 3.11 of the Company Disclosure Schedule, the execution
of, and performance of the transactions contemplated in, this Agreement will not
(either alone or upon the occurrence of any additional or subsequent events)
constitute an event under any benefit plan, policy, arrangement or agreement or
any trust or loan that will or may result in any payment (whether of severance
pay or otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligations to fund benefits with respect
to any employee.
3.12 TAXES. The Company and each of its Subsidiaries (i) has timely filed
all material federal, state and foreign tax returns required to be filed by any
of them for tax years ended prior to the date of this Agreement or requests for
extensions have been timely filed and any such request shall have been granted
and not expired and all such returns are complete in all material respects, (ii)
has paid or accrued all taxes shown to be due and payable on such returns, (iii)
has properly accrued all such taxes for such periods subsequent to the periods
covered by such returns and (iv) has "open" years for federal income tax returns
only as set forth in the Company SEC Documents or in Section 3.12 of the Company
Disclosure Schedule.
3.13 INSURANCE. True and complete copies of all material insurance
policies maintained by the Company have been made available to Parent. Such
policies provide coverage for the operations of the Company and its Subsidiaries
in amounts and covering such risks as the Company believes is necessary to
conduct its business. Neither the Company nor any of its Subsidiaries has
received notice that any such policy is invalid or unenforceable.
3.14 EMPLOYMENT AGREEMENTS. Except as disclosed in the Company SEC
Documents or as set forth in Section 3.14 of the Company Disclosure Schedule,
there are no (a) material employment, consulting, noncompetition, severance or
indemnification agreements between the Company and any current or former officer
or director of the Company, (b) employment, consulting or severance agreements
between the Company or any of its Subsidiaries and any other Person providing
for payments in excess of $50,000 per annum and (c) material noncompetition or
indemnification agreements between the Company or any of its Subsidiaries and
any other Person.
3.15 BROKERS AND FINDERS. No broker, finder or investment bank has acted
directly or indirectly for the Company, nor has the Company incurred any
obligation to pay any brokerage, finder's or other fee or
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commission in connection with the transactions contemplated hereby, other than
Smith Barney Inc. ("SMITH BARNEY"), the fees and expenses of which shall be
borne by the Company. Section 3.15 of the Company Disclosure Schedule sets forth
the fees payable to Smith Barney pursuant to the Company's engagement letter
with Smith Barney (a copy of which has been provided to Parent).
3.16 OPINION OF FINANCIAL ADVISOR. Smith Barney has delivered its opinion,
dated the date of this Agreement, to the Board of Directors of the Company to
the effect that, as of the date of this Agreement, the cash consideration to be
received by the holders of Shares (other than Parent and its affiliates) in the
Offer and the Merger is fair, from a financial point of view, to such holders.
3.17 CERTAIN BUSINESS PRACTICES. None of the Company or, to the Company's
knowledge, any of its Subsidiaries or any directors, officers, agents or
employees of the Company or any of its Subsidiaries (in their capacities as
such) has (a) used any funds for unlawful contributions, gifts, entertainment or
other unlawful expenses relating to political activity, (b) made any unlawful
payment to foreign or domestic government officials or employees or to foreign
or domestic political parties or campaigns or violated any provision of the
Foreign Corrupt Practices Act of 1977, as amended, (c) consummated any
transaction, made any payment, entered into any agreement or arrangement or
taken any other action in violation of Section 1128B(b) of the Social Security
Act, as amended, or (d) made any other unlawful payment, in all cases except
where the impact from such contributions, gifts, entertainment, payments,
violations, agreements, arrangements, actions or payments would not in the
aggregate have a Material Adverse Effect on the Company.
3.18 PERMITS; COMPLIANCE.
Except as disclosed in Section 3.18(a) of the Company Disclosure Schedule,
each of the Company and its Subsidiaries is in possession of (i) all franchises,
grants, authorizations, licenses, permits, easements, variances, exemptions,
consents, certificates, identification and registration numbers, approvals and
orders necessary to own, lease and operate its properties and to carry on its
business as it is now being conducted and (ii) agreements from all federal,
state and local governmental agencies and accrediting and certifying
organizations having jurisdiction over such facility or facilities that are
required to operate the facility or facilities in the manner in which it or they
are currently operated and receive reimbursement for care provided to patients
covered under the federal Medicare program or any applicable state Medicaid
program (collectively, the "COMPANY PERMITS"), except where the failure to
possess such Company Permits could not reasonably be expected to have a Material
Adverse Effect on the Company. Without limiting the generality of the foregoing,
certain of the Company's facilities are certified for participation or
enrollment in the Medicare program, have a current and valid provider contract
with the Medicare program and are in substantial compliance with the conditions
of participation of such programs. Neither the Company nor any of its
Subsidiaries has received notice from the regulatory authorities that enforce
the statutory or regulatory provisions in respect to either the Medicare or
Medicaid programs, of any pending or threatened investigations or surveys, and
no such investigations or surveys are pending or, to the knowledge of the
Company, threatened or imminent that could reasonably be expected to have a
Material Adverse Effect on the Company. Section 3.18(a) of the Company
Disclosure Schedule sets forth, as of the date of this Agreement, all actions,
proceedings, investigations or surveys pending or, to the knowledge of the
Company, threatened against the Company or any of its Subsidiaries that could
reasonably be expected to result in (i) the loss or revocation of a Company
Permit necessary to operate one or more facilities or for a facility to receive
reimbursement under the Medicare or Medicaid programs or (ii) the suspension or
cancellation of any other Company Permit, except any such Company Permit where
such suspension or cancellation could not reasonably be expected to have a
Material Adverse Effect on the Company. Except as set forth in Section 3.18(a)
of the Company Disclosure Schedule, neither the Company nor any of its
Subsidiaries is in conflict with, or in default or violation of (a) any law
applicable to the Company or any of its Subsidiaries or by or to which any of
their respective properties is bound or subject or (b) any of the Company
Permits, except for any such conflicts, defaults or violations that could not
reasonably be expected to have a Material Adverse Effect on the Company. Except
as set forth in Section 3.18(a) of the
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Company Disclosure Schedule, since December 31, 1994, neither the Company nor
any of its Subsidiaries has received from any Governmental Entity (as defined in
Section 5.7) any written notification with respect to possible conflicts,
defaults or violations of laws, except for written notices relating to possible
conflicts, defaults or violations of laws that could not reasonably be expected
to have a Material Adverse Effect on the Company.
(b) The Company and its Subsidiaries, as appropriate, are approved
participating providers in and under all third-party payment programs from which
they receive revenues. No action or investigation is pending or, to the best
knowledge of the Company, threatened to suspend, limit, terminate, condition or
revoke the status of the Company or any of its Subsidiaries as a provider in any
such program, and neither the Company nor any of its Subsidiaries has been
provided notice by any third-party payor of its intention to suspend, limit,
terminate, revoke, condition or fail to renew in whole or in part or decrease
the amounts payable under any arrangement with the Company or such subsidiary as
a provider, which action, investigation or proceeding would have a Material
Adverse Effect on the Company.
(c) The Company and its Subsidiaries have filed on a timely basis all
claims, cost reports or annual filings required to be filed to secure payments
for services rendered by them under any third-party payment program from which
they receive or expect to receive revenues, except where the failure to file
such claim, report or other filing would not have a Material Adverse Effect on
the Company. Except as indicated in its financial statements included in the
Company SEC Documents (as defined in Section 3.6 above), the Company or its
Subsidiaries, as applicable, have paid, or caused to be paid, all refunds,
discounts, adjustments, or amounts owing that have become due to such
third-party payors pursuant to such claims, reports or filings, and neither the
Company nor any of its Subsidiaries has any knowledge or notice of any material
changes required to be made to any cost reports, claims or filings made by them
for any period or of any deficiency in any such claim, report, or filing, except
for changes and deficiencies that in the aggregate would not have a Material
Adverse Effect on the Company.
3.19 CERTAIN AGREEMENTS. Section 3.19 of the Company Disclosure Schedule
sets forth a complete and accurate list in all material respects of all (i) real
property leases, (ii) agreements with respect to indebtedness for borrowed money
(including capital leases) with a principal amount in excess of $50,000 and
(iii) acquisition agreements providing for the payment in the future of
contingent consideration in an amount in excess of $50,000, in each case to
which the Company or any or its Subsidiaries is a party on the date hereof.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT AND PURCHASER
Parent and Purchaser hereby represent and warrant, jointly and severally, to
the Company as follows:
4.1 ORGANIZATION AND QUALIFICATION. Each of Parent and Purchaser (a) is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, (b) has all requisite corporate power to
carry on its business as it is now being conducted and (c) is in good standing
and duly qualified to do business in each jurisdiction in which the transaction
of its business makes such qualification necessary, except where the failure to
be in good standing or so qualified would not have a Material Adverse Effect on
Parent or Purchaser.
4.2 AUTHORIZATION AND VALIDITY OF AGREEMENT. Each of Parent and Purchaser
has all requisite corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby in accordance
with the terms hereof. The Boards of Directors of Parent and Purchaser,
respectively, and Eagle Rehab Corporation, as the sole stockholder of Purchaser,
have duly authorized the execution, delivery and performance of this Agreement
by each of Parent and Purchaser, and no other corporate proceedings on the part
of either Parent or Purchaser are necessary to authorize
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this Agreement or the transactions contemplated hereby. This Agreement has been
duly executed and delivered by each of Parent and Purchaser and, assuming this
Agreement constitutes the legal, valid and binding obligation of the Company,
constitutes the legal, valid and binding obligation of each of Parent and
Purchaser, enforceable against each of Parent and Purchaser in accordance with
its terms, except as may be limited by any bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws
affecting the enforcement of creditors' rights generally or by general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
4.3 CONSENTS AND APPROVALS. Neither the execution and delivery of this
Agreement by Parent and Purchaser nor the consummation by Parent and Purchaser
of the transactions contemplated hereby will require any consent, approval,
authorization or permit of, or filing with or notification to, any governmental
or regulatory authority by reason of Parent's or Purchaser's status or (as
applicable) operations, except in connection with the applicable requirements of
the HSR Act, pursuant to the applicable requirements of the Securities Act, the
Exchange Act, the rules and regulations promulgated thereunder, and state
securities or "blue sky" laws and state takeover laws, the filing and
recordation of the Certificate of Merger pursuant to the DGCL, (d) except as may
be required in connection with the Financing (as defined in Section 4.7 below),
which consents have been duly obtained or (e) where the failure to obtain such
consent, approval, authorization or permit, or to make such filing or
notification, would not in the aggregate have a Material Adverse Effect on
either of Parent or Purchaser or prevent the consummation of the transactions
contemplated hereby.
4.4 NO VIOLATION. Neither the execution and delivery of this Agreement by
Parent and Purchaser nor the consummation by Parent and Purchaser of the
transactions contemplated hereby will conflict with or violate the Certificate
of Incorporation or Bylaws of Parent or Purchaser, result in a violation or
breach of, constitute (with or without notice or lapse of time or both) a
default under, give rise to any right of termination, cancellation or
acceleration of, or result in the imposition of any lien, charge or other
encumbrance on any material assets or property of either of Parent or Purchaser
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license or other instrument or obligation to which either of Parent or Purchaser
is a party or by which either of Parent or Purchaser or any of their respective
assets or properties are bound, except for such violations, breaches and
defaults (or rights of termination, cancellation or acceleration or lien or
other charge or encumbrance) as to which consents have been obtained or which in
the aggregate would not have a Material Adverse Effect on either of Parent or
Purchaser or prevent the consummation of the transactions contemplated hereby or
assuming the consents, approvals, authorizations or permits and filings or
notifications referred to in Section 4.3 are duly and timely obtained or made,
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to either of Parent or Purchaser or any of their respective assets or
properties, except for such violations which would not in the aggregate have a
Material Adverse Effect on either of Parent or Purchaser or prevent the
consummation of the transactions contemplated hereby.
4.5 LITIGATION. Except as set forth in the Parent SEC Documents, there are
no claims, actions, proceedings or governmental investigations pending or, to
the knowledge of Parent and Purchaser, threatened against either of Parent or
Purchaser or any of their respective subsidiaries before any court or other
governmental or regulatory body, which, if adversely determined, would impair,
interfere with, or otherwise adversely affect the ability of Parent or Purchaser
to consummate the transactions contemplated hereby in any material respect. As
of the date hereof, no action or proceeding has been instituted or, to the
knowledge of Parent or Purchaser, threatened before any court or other
governmental or regulatory body by any Person seeking to restrain or prohibit or
to obtain damages with respect to the execution, delivery or performance of this
Agreement or the consummation of the transactions contemplated hereby.
4.6 OFFER DOCUMENTS; COMPANY PROXY STATEMENT; SCHEDULE 14D-9. Neither the
Offer Documents nor any other document filed or to be filed by or on behalf of
Parent or Purchaser with the SEC or any other governmental entity in connection
with the transactions contemplated by this Agreement nor any information
supplied by or on behalf of Parent or Purchaser specifically for inclusion in
the Schedule 14D-9 or
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Company Proxy Statement will, at the respective times filed with the SEC or
other governmental entity, or at any time thereafter when the information
included therein is required to be updated pursuant to applicable law, or, in
the case of the Company Proxy Statement, at the date mailed to the Company's
stockholders and at the time of the Company Stockholders' Meeting, 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 made therein,
in light of the circumstances under which they were made, not misleading. The
Offer Documents will, when filed by Parent or Purchaser with the SEC or other
governmental entity, comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations thereunder.
Notwithstanding the foregoing, Parent and Purchaser make no representation or
warranty with respect to the statements made in the foregoing documents based on
information supplied by or on behalf of the Company or any of its affiliates
specifically for inclusion therein.
4.7 FINANCING; SUFFICIENT FUNDS. Parent and Purchaser have received and
furnished to the Company a copy of the amendment to Parent's existing $750
million credit facility to provide to Parent and Purchaser in connection with
the Offer and the transactions contemplated thereby the funds necessary to
consummate such Offer and transactions (the "FINANCING"). Parent and Purchaser
have no knowledge of any facts or circumstances, nor will Parent or Purchaser
take any action or omit to take any action, that could be expected to result in
the inability of Parent or Purchaser to obtain and use the funds available from
the Financing for consummation of the Offer and the transactions contemplated
thereby. Parent and Purchaser will have available to them and will utilize, upon
consummation of the Offer and at the Effective Time, all immediately available
funds necessary to consummate the transactions contemplated by this Agreement,
to pay all related fees and expenses for which Parent or Purchaser will be
responsible, and to provide adequate working capital for the operation of the
Company upon consummation of the Offer and at the Effective Time.
4.8 BROKERS AND FINDERS. No broker, finder or investment bank has acted
directly or indirectly for either of Parent or Purchaser, nor has either of
Parent or Purchaser incurred any obligation to pay any brokerage, finder's or
other fee or commission in connection with the transactions contemplated hereby.
4.9 OPERATIONS OF PURCHASER. Purchaser has been formed solely for the
purpose of engaging in the transactions contemplated hereby and prior to the
Effective Time will have engaged in no other business activities, will have
incurred no other liabilities or obligations other than as contemplated herein,
will have no subsidiaries other than the Company and its Subsidiaries, and will
have conducted its operations only as contemplated hereby.
ARTICLE V
COVENANTS
5.1 CONDUCT OF BUSINESS PENDING THE MERGER. From the date hereof until the
Effective Time, except as otherwise required or contemplated hereunder or as
required by applicable law or as set forth in Section 5.1 of the Company
Disclosure Schedule, the Company shall:
(a) use all commercially reasonable efforts to conduct its business and
the business of its Subsidiaries in all material respects only in the
ordinary course of business and consistent with past practice;
(b) not amend its Certificate of Incorporation or Bylaws or declare, set
aside or pay any dividend or other distribution or payment in cash, stock or
property in respect of its capital stock;
(c) not reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;
(d) not issue, grant, sell or pledge or agree or authorize the issuance,
grant, sale or pledge of any shares of, or rights of any kind to acquire any
shares of, its capital stock other than the grant of stock
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options to purchase up to an aggregate of 5,000 Shares in the ordinary
course of business and consistent with past practice under current employee
benefit plan arrangements and other than Shares issuable upon the exercise
of stock options or issuable upon the exercise of convertibility features in
its securities outstanding on the date hereof;
(e) not acquire, sell, transfer, lease or encumber any material assets
except in the ordinary course of business and consistent with past practice;
(f) use all commercially reasonable efforts to preserve intact its
business organizations and the business organizations of its Subsidiaries,
and to keep available the services of its present key officers and
employees; PROVIDED, HOWEVER, that to satisfy the foregoing obligation, the
Company shall not be required to make any payments or enter into or amend
any contractual arrangements or understandings, except in the ordinary
course of business and consistent with past practice;
(g) not adopt a plan of complete or partial liquidation or adopt
resolutions providing for the complete or partial liquidation, dissolution,
consolidation, merger, restructuring or recapitalization of the Company or
any of its Subsidiaries;
(h) not grant any severance or termination pay (otherwise than pursuant
to policies in effect on the date hereof) to, or enter into any employment
agreement with, any of its executive officers or directors;
(i) not, except in the ordinary course of business consistent with past
practice or pursuant to obligations imposed by collective bargaining
agreements, increase the compensation payable or to become payable to its
officers or employees, enter into any contract or other binding commitment
in respect of any such increase with any of its directors, officers or other
employees or any director, officer or other employee of its Subsidiaries,
and not establish, adopt, enter into, make any new grants or awards under or
amend, any collective bargaining agreement or Company Benefit Plan, except
as required by applicable law, including any obligation to engage in good
faith collective bargaining, to maintain tax-qualified status or as may be
required by any Company Benefit Plan as the date hereof;
(j) not settle or compromise any material claims or litigation or,
except in the ordinary course of business, modify, amend or terminate any of
its material contracts or waive, release or assign any material rights or
claims, or make any payment, direct or indirect, of any material liability
before the same becomes due and payable in accordance with its terms;
(k) not take any action, other than reasonable and usual actions in the
ordinary course of business and consistent with past practice with respect
to accounting policies or procedures (including tax accounting policies and
procedures), except as may be required by the SEC or the Financial
Accounting Standards Board;
(l) not make any material tax election or 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
(m) not authorize or enter into an agreement to do any of the foregoing.
5.2 ACCESS; CONFIDENTIALITY.
(a) From the date of this Agreement until the Effective Time, upon
reasonable prior notice to the Company, the Company shall give Parent and its
authorized representatives reasonable access during normal business hours to its
executive officers and such other officers or other representatives of the
Company approved in advance by the Company (which approval shall not be
unreasonably withheld), properties, books and records, and shall furnish Parent
and its authorized representatives with such financial and operating data and
other information concerning the business and properties of the Company as
Parent may from time to time reasonably request.
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(b) Parent and Purchaser will hold and treat, and will cause their
respective affiliates, agents and other representatives to hold and treat, all
documents and information concerning the Company furnished to Parent, Purchaser
or their respective representatives in connection with the transactions
contemplated by this Agreement confidential in accordance with the
Confidentiality Agreement dated October 24, 1996, between the Company and
Parent, which Confidentiality Agreement shall remain in full force and effect
until the termination of this Agreement or otherwise in accordance with its
terms.
5.3 FURTHER ACTIONS. Upon the terms and subject to the conditions hereof,
each of the parties hereto shall act in good faith toward and use all
commercially reasonable efforts to take, or cause to be taken, all actions, and
to do, or cause to be done, all things necessary, proper or advisable, and
consult and fully cooperate with and provide reasonable assistance to each other
party, in order to consummate and make effective the transactions contemplated
by this Agreement as soon as practicable hereafter, including, without
limitation, (a) using all commercially reasonable efforts to obtain all
consents, approvals, authorizations or permits of governmental or regulatory
authorities (including early termination of any waiting period under the HSR
Act) or other Persons as are necessary for the consummation of the transactions
contemplated hereby, (b) taking such actions and doing such things as any other
party hereto may reasonably request in order to cause any of the conditions
specified in Article VI to such other party's obligation to consummate such
transactions to be fully satisfied, and (c) in the event and to the extent
required, amending this Agreement so that this Agreement and the Merger comply
with the DGCL. Prior to making any application to or filing with any
governmental or regulatory authority or other Person in connection with this
Agreement, the Company, on the one hand, and Parent and Purchaser, on the other
hand, shall provide the other with drafts thereof and afford the other a
reasonable opportunity to comment on such drafts.
5.4 NOTICE OF CERTAIN MATTERS. The Company shall give prompt notice to
Parent, and Parent and Purchaser shall give prompt notice to the Company, of (a)
the occurrence or nonoccurrence of any event that would be likely to cause (i)
any representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect or (ii) any covenant, condition or agreement
contained in this Agreement not to be complied with or satisfied in all material
respects and (b) any failure of the Company or of Parent or 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 in any material respect.
5.5 COMPANY PROXY STATEMENT. Unless the Merger is consummated as
contemplated in Section 2.13 hereof, the Company shall, as soon as reasonably
practicable after the consummation of the Offer, prepare a preliminary form of
the Company Proxy Statement (the "COMPANY PRELIMINARY PROXY STATEMENT"). The
Company shall (a) file the Company Preliminary Proxy Statement with the SEC
promptly after it has been prepared in a form reasonably satisfactory to the
Company and Parent and (b) use commercially reasonable efforts to promptly
prepare any amendments to the Company Preliminary Proxy Statement required in
response to comments of the SEC or its staff or that the Company with the advice
of counsel deems necessary or advisable and to cause the Company Proxy Statement
to be mailed to the Company's stockholders as soon as reasonably practicable
after the Company Preliminary Proxy Statement, as so amended, is cleared by the
SEC.
5.6 STATE TAKEOVER STATUTES. The Company, Parent and Purchaser will
cooperate to take reasonable steps to (a) exempt the Offer and the Merger from
the requirements of any applicable state takeover law and (b) assist in any
challenge by any of the parties to the validity or applicability to the Offer or
the Merger of any state takeover law.
5.7 COOPERATION. Subject to the terms and conditions of this Agreement and
applicable law, each of the parties shall act in good faith and use reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, all things necessary, proper or advisable to consummate and make effective
the transactions contemplated by this Agreement as soon as practicable,
including such actions or things as any other party may reasonably request in
order to cause any of the conditions to such other party's obligation
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to consummate the transactions contemplated by this Agreement to be fully
satisfied. Without limiting the foregoing, the parties shall (and shall cause
their respective subsidiaries, and use reasonable efforts to cause their
respective affiliates, directors, officers, employees, agents, attorneys,
accountants and representatives, to) consult and fully cooperate with and
provide assistance to each other in (a) the preparation and filing with the SEC
of the Offer Documents, the Schedule 14D-9, the Company Preliminary Proxy
Statement and the Company Proxy Statement, and any necessary amendments or
supplements thereto; (b) seeking to have the Company Preliminary Proxy Statement
cleared by the SEC as soon as reasonably practicable after filing; (c) obtaining
all necessary consents, approvals, waivers, licenses, permits, authorizations,
registrations, qualifications, or other permissions or actions by, and giving
all necessary notices to and making all necessary filings with and applications
and submissions to, any court, administrative agency or commission or other
governmental authority or instrumentality, domestic (federal, state or local) or
foreign (collectively, "GOVERNMENTAL ENTITY") or other Person as soon as
reasonably practicable after filing; (d) seeking early termination of any
waiting period under the HSR Act; (e) providing all such information concerning
such party, its subsidiaries and its officers, directors, partners and
affiliates and making all applications and filings as may be necessary or
reasonably requested in connection with any of the foregoing; (f) in general,
consummating and making effective the transactions contemplated hereby; and (g)
in the event and to the extent required, amending this Agreement so that this
Agreement and the Offer and the Merger comply with the DGCL. The parties shall
(and shall cause their respective affiliates, directors, officers, employees,
agents, attorneys, accountants and representatives to) use their reasonable
efforts to cause the lifting of any permanent or preliminary injunction or
restraining order or other similar order issued or entered by any court or other
Governmental Entity preventing or restricting consummation of the transactions
contemplated hereby in the manner provided for herein. Prior to making any
application to or filing with any Governmental Entity or other Person in
connection with this Agreement (other than filing under the HSR Act), each party
shall provide the other party with drafts thereof and afford the other party a
reasonable opportunity to comment on such drafts.
5.8 PUBLIC ANNOUNCEMENTS. No party hereto shall or shall permit any of its
subsidiaries to (and each party shall use commercially reasonable efforts to
cause its affiliates, directors, officers, employees, agents or representatives
not to) issue any press release or make any public statement concerning this
Agreement or any of the transactions contemplated hereby, without the prior
written consent of the other parties hereto; PROVIDED, HOWEVER, that a party
may, without the prior written consent of the other party hereto, issue such a
press release or make such a public statement to the extent required by
applicable law or any listing agreement with a national securities exchange by
which such party is bound if it has used commercially reasonable efforts to
consult with the other parties and to obtain such parties' consent but has been
unable to do so in a timely manner.
5.9 ACQUISITION PROPOSALS. Except as contemplated hereby, the Company
shall not (and shall not permit any of its subsidiaries to, and shall use its
best efforts to cause its officers, directors and employees and any investment
banker, attorney, accountant, or other agent retained by it or any of its
subsidiaries not to) initiate, solicit or encourage (including by way of
furnishing information or assistance), or take any other action to facilitate,
any inquiries or the making of any proposal relating to, or that may reasonably
be expected to lead to, the acquisition of all or a significant part of the
business and properties or capital stock of the Company or its Subsidiaries,
taken as a whole, whether by merger, purchase of assets, tender offer or
otherwise with a third party other than Parent (an "ACQUISITION PROPOSAL"), or
enter into discussions or negotiate with any person or entity in furtherance of
such inquiries or to obtain an Acquisition Proposal, or agree to or endorse any
Acquisition Proposal, or authorize or knowingly permit any of the officers,
directors, employees or agents of the Company or its Subsidiaries or any
investment banker, financial advisor, attorney, accountant or other
representative retained by the Company or any of its Subsidiaries to take any
such action. The Company shall as promptly as practicable notify Parent of all
relevant terms of any such inquiries or proposals received by the Company or its
Subsidiaries and, if such inquiry or proposal is in writing, the Company shall
as promptly as practicable deliver or cause to be delivered to Parent a copy of
such inquiry or proposal. Notwithstanding the foregoing, nothing shall prohibit
the Company's Board of
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Directors from (a) furnishing information to, or entering into discussions or
negotiations with, any persons or entity in connection with an unsolicited bona
fide proposal in connection with an Acquisition Proposal if, and only to the
extent that (i) such unsolicited bona fide proposal is on terms that the
Company's Board of Directors determines it cannot reject, based on applicable
fiduciary duties and the advice of counsel and (except with respect to
furnishing information) for which financing, to the extent required, is then
committed, or in the good faith judgment of the Board of Directors, could
reasonably be expected to be obtained, and (ii) prior to furnishing such
information to, entering into discussions or negotiations with, such person or
entity the Company provides written notice to Parent to the effect that it is
furnishing information to, or entering into discussions or negotiations with,
such person or entity; or (b) complying with Rule 14d-9 or Rule 14e-2
promulgated under the Exchange Act with regard to an Acquisition Proposal.
5.10 D&O INDEMNIFICATION.
(a) From the Effective Time through the later of (i) the sixth anniversary
of the date on which the Effective Time occurs and (ii) the expiration of any
statute of limitations applicable to any claim, action, suit, proceeding or
investigation referred to below, the Surviving Corporation shall indemnify and
hold harmless each present and former director and officer of the Company and
its Subsidiaries, determined as of the Effective Time (the "INDEMNIFIED
PARTIES"), against any claims, losses, liabilities, damages, judgments, fines,
fees, costs or expenses, including without limitation attorneys' fees and
disbursements (collectively, "COSTS"), incurred in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to matters
existing or occurring at or prior to the Effective Time (including, without
limitation, the Merger, the preparation, filing and mailing of the Proxy
Statement and the other transactions and actions contemplated by this
Agreement), whether asserted or claimed prior to, at or after the Effective
Time, to the fullest extent that the Company or such subsidiary would have been
permitted, under applicable law, indemnification agreements existing on the date
hereof, the Certificate of Incorporation or Bylaws of the Company or such
subsidiary in effect on the date hereof, to indemnify such Person (and the
Surviving Corporation shall also advance expenses as incurred to the fullest
extent permitted under applicable law provided the person to whom expenses are
advanced provides an undertaking to repay such advances if it is ultimately
determined that such person is not entitled to indemnification).
(b) Any Indemnified Party wishing to claim indemnification under this
Section 5.10, upon learning of any such claim, action, suit, proceeding or
investigation, shall promptly notify the Surviving Corporation thereof, but the
failure to so notify shall not relieve the Surviving Corporation of any
liability or obligation it may have to such Indemnified Party except, and only
to the extent, that such failure materially prejudices the Surviving
Corporation. In the event of any such claim, action, suit, proceeding or
investigation (whether arising before, at or after the Effective Time), the
Surviving Corporation shall have the right to assume the defense thereof and the
Surviving Corporation shall not be liable to such Indemnified Parties for any
legal expenses of other counsel or any other expenses subsequently incurred by
such Indemnified Parties in connection with the defense thereof, except that if
the Surviving Corporation elects not to assume such defense or counsel for the
Indemnified Parties advises that there are issues that raise conflicts of
interest between the Surviving Corporation and the Indemnified Parties, the
Indemnified Parties may retain counsel satisfactory to them, and the Surviving
Corporation shall pay all reasonable fees and expenses of such counsel for the
Indemnified Parties promptly as statements therefor are received. If such
indemnity is not available with respect to any Indemnified Party, then the
Surviving Corporation and the Indemnified Party shall contribute to the amount
payable in such proportion as is appropriate to reflect relative faults and
benefits. In the event that any claim or claims are asserted or made within the
aforesaid six-year period, all rights to indemnification in respect of any such
claim or claims shall continue until the final disposition of any and all such
claims.
(c) Notwithstanding anything herein to the contrary, if any claim, action,
suit, proceeding or investigation (whether arising before, at or after the
Effective Time) is made against any present or former
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director or officer of the Company, on or prior to the sixth anniversary of the
Effective Time, the provisions of this Section 5.10 shall continue in effect
until the final disposition of such claim, action, suit, proceeding or
investigation.
(d) This covenant is intended to be for the benefit of, and shall be
enforceable by, each of the Indemnified Parties and their respective heirs and
legal representatives. The indemnification provided for herein shall not be
deemed exclusive of any other rights to which an Indemnified Party is entitled,
whether pursuant to law, contract or otherwise.
(e) To the extent that the Surviving Corporation fails to perform any of its
obligations pursuant to this Section 5.10, Parent shall assume the obligations
and rights of the Surviving Corporation under this Section 5.10.
5.11 COMPANY PLANS.
(a) Following the Effective Time, Parent shall cause the Surviving
Corporation to provide to persons who were employees of the Company or any of
its Subsidiaries prior to the Effective Time (the "COMPANY PERSONNEL") employee
benefit plans, programs and arrangements (the "SURVIVING CORPORATION PLANS")
which in the aggregate are substantially comparable to those employee benefit
plans, programs and arrangements generally provided to the employees of Parent
as of the Effective Time.
(b) Following the Effective Time, Parent shall cause the Surviving
Corporation Plans to recognize any prior accrued service, compensation credit,
credit toward satisfying deductible expense requirements, out-of-pocket expense
limits and maximum lifetime benefit limits of such Company Personnel and/or such
Company Personnel's eligible dependents, to the extent such prior service,
credits and limits were recognized under the comparable employee benefit plans,
programs or arrangements of the Company as of the Effective Time (the "ASSUMED
PLANS"), for all purposes under the Surviving Corporation Plans (including, but
not limited to, participation, eligibility, vesting and the calculation of
benefits), and Parent shall cause the Surviving Corporation Plans to waive any
preexisting condition, exclusion or limitation under any such Plan to the extent
such condition, exclusion or limitation would be covered by the comparable plan,
program or arrangement of the Company as of the Effective Time.
(c) Each of the employment agreements, the employment security agreements
and severance agreements for the benefit of Company Personnel identified in
Section 5.11 of the Company Disclosure Schedule shall be assumed by the
Surviving Corporation at the Effective Time on the same terms and subject to the
same conditions as in effect under such agreements immediately prior to the
Effective Time (the "ASSUMED AGREEMENTS").
(d) Parent hereby absolutely, irrevocably and unconditionally guarantees the
performance of all of the Surviving Corporation's obligations under the Assumed
Plans and the Assumed Agreements, as specified hereunder or otherwise.
(e) Parent shall, and shall cause the Surviving Corporation to, honor and
fully defend all such agreements in accordance with their terms.
5.12 DEPOSIT. Promptly following execution of this Agreement (but in no
event later than two business days thereafter), Parent shall provide the
Company, by wire transfer of immediately available funds, with an earnest money
deposit in the amount of $1.0 million (the "DEPOSIT"), which Deposit shall be
refunded by the Company to Parent on the earlier of (a) the date on which the
fee pursuant to Section 7.3(b) is due and payable by the Company to Parent, (b)
the date on which the Company consummates a business combination or other
transaction pursuant to an Acquisition Proposal, or (c) within 120 days of
termination of this Agreement or termination of the Offer without the purchase
of any Shares; PROVIDED, that the Deposit shall not be required to be refunded
by the Company if the events specified in Section 7.3(c)(i) shall occur.
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ARTICLE VI
CLOSING CONDITIONS
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of each party hereto to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions, any or all of which may be waived, in whole or in part, to the
extent permitted by applicable law:
(a) PURCHASE OF SHARES. Parent will have accepted for payment and
purchased all Shares validly tendered and not withdrawn pursuant to the
Offer; PROVIDED that this condition will be deemed to have been satisfied if
Parent fails to accept for payment or pay for Shares pursuant to the Offer
in breach of the terms hereof or thereof.
(b) STOCKHOLDER APPROVAL. Unless the Merger is consummated as
contemplated in Section 2.13 hereof, this Agreement shall have been adopted,
and the Merger shall have been approved, by a vote of the holders of a
majority of the outstanding Shares.
(c) NO INJUNCTION. No federal or state governmental or regulatory body
or court of competent jurisdiction shall have enacted, issued, promulgated
or enforced any statute, rule, regulation, executive order, decree,
judgment, preliminary or permanent injunction or other order that is in
effect and that prohibits, enjoins or otherwise restrains the consummation
of the Merger; PROVIDED, HOWEVER, that the parties shall use all
commercially reasonable efforts to cause any such decree, judgment,
injunction or order to be vacated or lifted.
(d) HSR ACT. Any waiting period under the HSR Act applicable to the
Merger shall have terminated or otherwise expired.
(e) GOVERNMENTAL AND REGULATORY CONSENTS. All material filings
required to be made prior to the Effective Time with, and all material
consents, approvals, permits and authorizations required to be obtained
prior to the Effective Time from, governmental and regulatory authorities in
connection with the Merger and the consummation of the other transactions
contemplated hereby which are listed in Section 3.4 of the Company
Disclosure Schedule shall have been made or obtained, as the case may be.
6.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY. The obligation
of the Company to effect the Merger is also subject to the satisfaction at or
prior to the Effective Time of each of the following additional conditions,
unless waived by the Company:
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made by Parent and Purchaser herein shall be true and correct
in all material respects on and as of the Effective Time, with the same
force and effect as though such representations and warranties had been made
on and as of the Effective Time, except for changes permitted or
contemplated by this Agreement and except for representations and warranties
that are made as of a specific date or time, which shall be true and correct
in all material respects only as of such specific date or time.
(b) COMPLIANCE WITH COVENANTS. Each of Parent and Purchaser shall have
performed in all material respects all obligations and agreements, and
complied in all material respects with all covenants, contained in this
Agreement to be performed or complied with by it prior to or on the
Effective Time.
(c) DEPOSIT. The Company shall have received the Deposit.
6.3 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PARENT AND PURCHASER. The
obligation of Parent and Purchaser to effect the Merger is also subject to the
satisfaction at or prior to the Effective Time of each of the following
additional conditions, unless waived by either of Parent or Purchaser:
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(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made by the Company herein shall be true and correct in all
material respects on and as of the Effective Time, with the same force and
effect as though such representations and warranties had been made on and as
of the Effective Time, except for changes permitted or contemplated by this
Agreement and except for representations and warranties that are made as of
a specific date or time, which shall be true and correct in all material
respects only as of such specific date or time.
(b) COMPLIANCE WITH COVENANTS. The Company shall have performed in all
material respects all obligations and agreements, and complied in all
material respects with all covenants, contained in this Agreement to be
performed or complied with by it prior to or on the Effective Time.
ARTICLE VII
TERMINATION
7.1 TERMINATION. This Agreement may be terminated and the Offer and the
Merger may be abandoned at any time (notwithstanding approval of the Merger by
the stockholders of the Company, if required by applicable provisions of the
DGCL), prior to the Effective Time:
(a) by mutual written consent of the Company and Parent;
(b) by either the Company or Parent, if the Effective Time shall not
have occurred on or before 120 days from the date hereof; PROVIDED, that the
right to terminate this Agreement under this clause (b) shall not be
available to any party whose misrepresentation in this Agreement or whose
failure to perform any of its covenants and agreements or to satisfy any
obligation under this Agreement has been the cause of or resulted in the
failure of the Merger to occur on or before such date;
(c) by either the Company or Parent, if any federal or state court of
competent jurisdiction or other federal or state governmental or regulatory
body shall have issued any judgment, injunction, order or decree
prohibiting, enjoining or otherwise restraining the transactions
contemplated by this Agreement and such judgment, injunction, order or
decree shall have become final and nonappealable (PROVIDED, HOWEVER, that
the party seeking to terminate this Agreement pursuant to this clause (c)
shall have used commercially reasonable efforts to remove such judgment,
injunction, order or decree) or if any statute, rule, regulation or
executive order promulgated or enacted by any federal or state governmental
authority after the date of this Agreement which prohibits the consummation
of the Offer or the Merger shall be in effect;
(d) by the Company, if (i) Parent fails to commence the Offer as
provided in Section 1.1, (ii) the Offer expires or is terminated without any
Shares being purchased thereunder or (iii) Parent fails to purchase validly
tendered Shares in violation of the terms and conditions of the Offer or
this Agreement;
(e) by Parent, if (i) the Offer is not commenced as provided in Section
1.1 directly as a result of actions or inaction by the Company or (ii) the
Offer is terminated or expires as a result of the failure of a condition
specified in ANNEX A hereto or on the expiration of the Offer without the
purchase of any Shares thereunder, unless such termination or expiration has
been caused by or resulted from the failure of Parent or Purchaser to
perform any covenants and agreements of Parent or Purchaser contained in
this Agreement;
(f) prior to the consummation of the Offer, by Parent, if the Company
Board withdraws or modifies in a manner materially adverse to Parent or
Purchaser its favorable recommendation of the Offer or the Merger or shall
have recommended any Acquisition Proposal with a party other than Parent or
any of its affiliates;
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(g) by the Company, if this Agreement is not adopted or, unless the
Merger is consummated as contemplated in Section 2.13 hereof, the Merger is
not approved at the Company Stockholders' Meeting by the holders of a
majority of the outstanding Shares;
(h) by Parent, if there shall have been a material breach of any
representation, warranty or material covenant or agreement on the part of
the Company, which is incurable or which is not cured after thirty (30)
days' written notice by Parent to the Company;
(i) by the Company, if there shall have been a material breach of any
representation, warranty or material covenant or agreement on the part of
either of Parent or Purchaser, which is incurable or which is not cured
after thirty (30) days' written notice by the Company to Parent; or
(j) by the Company, if (i) the Company Board shall withdraw, modify or
change its approval or recommendation of the Offer or the Merger or shall
have resolved to do any of the foregoing pursuant to Section 5.9 or (ii) any
Person or group of Persons shall have made an Acquisition Proposal the
acceptance of which the Company Board determines, after consultation with
legal counsel, is required to comply with its fiduciary duties under
applicable law.
7.2 EFFECT OF TERMINATION. In the event of any termination of this
Agreement pursuant to Section 7.1, this Agreement forthwith shall become void
and of no further force or effect, and no party hereto (or any of its
affiliates, directors, officers, agents or representatives) shall have any
liability or obligation hereunder, except in any such case (a) as provided in
Sections 5.2(b) (Confidentiality), 5.8 (Public Announcements), and 7.3 (Fees and
Expenses), which shall survive any such termination and (b) to the extent such
termination results from the breach by such party of any of its representations,
warranties, covenants or agreements contained in this Agreement.
7.3 FEES AND EXPENSES.
(a) Whether or not the Offer or the Merger is consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby (including, without limitation, fees and disbursements of
counsel, financial advisors and accountants) shall be borne by the party which
incurs such cost or expense; PROVIDED, that if this Agreement is terminated
pursuant to Section 7.1 as a result of a material misrepresentation by a party
or a material breach by a party of any of its covenants or arrangements set
forth herein, such party shall pay the costs and expenses incurred by the other
party in connection with this Agreement; and PROVIDED, FURTHER, that all costs
and expenses related to the preparation, printing, filing and mailing (as
applicable) of the Company Proxy Statement and all SEC and other regulatory
filing fees incurred in connection with the Company Proxy Statement shall be
borne equally by the Company, on the one hand, and Parent and Purchaser, on the
other hand.
(b) Notwithstanding the foregoing, provided that neither Parent nor
Purchaser shall be in breach of their respective obligations under this
Agreement, if (i) prior to the consummation of the Offer, the Company Board
terminates this Agreement pursuant to Section 7.1(j) or Parent terminates this
Agreement pursuant to Section 7.1(f) or Section 7.1(h) and (ii) as a result
thereof, Parent shall have terminated the Offer, allowed the Offer to expire
without purchasing any Shares thereunder or failed to commence the Offer in
accordance with the terms hereof and (iii) the Company enters into a definitive
agreement relating to an Acquisition Proposal or a business combination or other
transaction contemplated by such Acquisition Proposal shall have been
consummated (A) prior to or within six months following such termination (in the
case of a termination by the Company Board pursuant to Section 7.1(j) or by
Parent pursuant to Section 7.1(f)), or (B) prior to or within three months
following such termination with respect to an Acquisition Proposal that provides
for consideration in excess of $6.50 per Share (in the case of a termination by
Parent pursuant to Section 7.1(h)), then the Company agrees that it will
immediately thereafter pay to Parent a fee of $2,500,000 in cash, payable in
same day funds. The Company acknowledges that the provisions of this Section
7.3(b) are an integral part of the transactions contemplated in this Agreement
and that, without such provisions, Parent and Purchaser would not enter into
this Agreement.
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Parent and Purchaser hereby agree that, so long as Parent has received the fee
contemplated by this Section 7.3(b), it shall not assert or pursue in any
manner, directly or indirectly, (i) any claim or cause of action based in whole
or in part upon alleged tortious or other interference with rights under this
Agreement against any third party submitting an Acquisition Proposal, or (ii)
any claim or cause of action against the Company or any of its officers,
directors, employees, agents or other representatives based in whole or in part
upon its or their receipt, consideration, recommendation or approval of, or
other action taken with respect to, an Acquisition Proposal or based in whole or
in part upon the failure of the transactions contemplated by this Agreement to
be consummated.
(c) Notwithstanding the foregoing, provided that the Company shall not be in
breach of its obligations under this Agreement, (i) if, notwithstanding the
satisfaction or waiver of the conditions specified in Annex A and Sections 6.1
and 6.3, Parent shall for any reason fail to consummate the transactions
contemplated by this Agreement or, as a result of actions or inaction of Parent,
any of the conditions set forth in Annex A or Section 6 hereof shall not have
been satisfied and as a result thereof the transactions contemplated by this
Agreement are not consummated, then Parent agrees that it will immediately
thereafter pay to the Company a fee of $2,500,000 in cash (less the Deposit to
the extent previously paid by Parent as contemplated by Section 5.12 hereof),
payable in same day funds or (ii) if Parent shall fail to consummate the
transactions contemplated by this Agreement as a result of the failure to
satisfy any condition set forth in Annex A or Sections 6.1 or 6.3 and such
failure is neither a result of any action or inaction of Parent nor a result of
a termination by the Company of this Agreement under circumstances in which the
Company would be required to pay to Parent the fee contemplated by Section
7.3(b), then, in lieu of the fee specified in clause (i) above, Parent shall
reimburse to the Company the actual and documented out-of-pocket expenses
incurred by the Company in connection with the transactions contemplated hereby.
Parent and Purchaser acknowledge that the provisions of this Section 7.3(c) are
an integral part of the transactions contemplated in this Agreement and that,
without such provisions, the Company would not enter into this Agreement.
ARTICLE VIII
MISCELLANEOUS
8.1 NO SURVIVAL. None of the representations, warranties, covenants or
agreements contained in this Agreement or in any certificate or other instrument
delivered pursuant to this Agreement shall survive the Effective Time, except
for the covenants and agreements contained in Sections 5.10 (D&O Indemnification
and Insurance), 5.11 (Company Plans) and 5.12 (Severance Agreements).
8.2 NOTICES. All notices and other communications given or made pursuant
hereto shall be in writing and shall be deemed to have been duly given or made
as of the date delivered, mailed or transmitted, and shall be effective upon
receipt, if delivered personally, mailed by registered or certified mail
(postage prepaid, return receipt requested) or sent by facsimile (with immediate
confirmation) or nationally recognized overnight courier service, as follows:
(a) if to Parent or Purchaser, to:
Horizon/CMS Healthcare Corporation
6001 Indian School Road, N.E.
Albuquerque, New Mexico 97110
Attn: Scot Sauder, Esq.
Fax: (505) 881-5907
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with a copy to:
Vinson & Elkins L.L.P.
2300 First City Tower
1001 Fanninp
Houston, Texas 77002
Attn: James H. Wilson, Esq.
Fax: (713) 615-5926
(b) if to the Company, to:
Pacific Rehabilitation & Sports Medicine, Inc.
One S.W. Columbia Street, Suite 900
Portland, Oregon 97258
Attn: Michael McArthur-Phillips, Esq.
Fax: (503) 222-6995
with a copy to:
Dewey Ballantine
1301 Avenue of the Americas
New York, New York 10019
Attn: Denise A. Cerasani, Esq.
Fax: (212) 259-6333
or to such other Person or address or facsimile number as any party shall
specify by like written notice to the other parties hereto (any such notice of a
change of address to be effective only upon actual receipt thereof).
8.3 CERTAIN DEFINITIONS. The following terms, when used in this Agreement,
shall have the following respective meanings:
(a) "AFFILIATE" shall have the meaning assigned to such term in Section
12(b)-2 of the Exchange Act.
(b) "BUSINESS DAY" shall have the meaning set forth in Rule 14d-1(c)(6)
under the Exchange Act.
(c) "MATERIAL ADVERSE EFFECT" means, with respect to any Person, any
change or effect that is materially adverse to the financial condition or
results of operations of such Person and its subsidiaries, taken as a whole,
excluding in all cases: (i) events or conditions generally affecting the
industry in which such Person and its subsidiaries operate or arising from
changes in general business or economic conditions; (ii) out-of-pocket fees
and expenses (including without limitation legal, accounting, investigatory,
and other fees and expenses) incurred in connection with the transactions
contemplated by this Agreement; (iii) in the case of the Company, the
payment by the Company and/or its Subsidiaries of all amounts due to any
officers or employees of the Company or any of its Subsidiaries under
employment contracts or other employee benefit plans in effect as of the
date hereof; (iv) any effect resulting from any change in law or generally
accepted accounting principles, which affect generally entities such as such
Person; and (v) any effect resulting from compliance by such Person with the
terms of this Agreement.
(d) "PERSON" means any natural person, corporation, limited liability
company, partnership, unincorporated organization or other entity.
(e) "SUBSIDIARY" of any Person means any other corporation or entity of
which such Person owns, directly or indirectly, stock or other equity
interests having a majority of the votes entitled to be cast in
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the election of directors of such corporation or entity under ordinary
circumstances or of which such Person owns a majority beneficial interest.
8.4 ENTIRE AGREEMENT. This Agreement (including the schedules, exhibits
and other documents referred to herein), together with the Confidentiality
Agreement referred to in Section 5.2(b), constitutes the entire agreement
between and among the parties hereto and supersedes all prior agreements and
understandings, oral and written, between or among any of the parties with
respect to the subject matter hereof.
8.5 ASSIGNMENT; BINDING EFFECT. Neither this Agreement nor any of the
rights, benefits or obligations hereunder may be assigned, in whole or in part,
by any party (whether by operation of law or otherwise) without the prior
written consent of the other parties hereto. Subject to the preceding sentence,
this Agreement shall be binding upon, inure to the benefit of and be enforceable
by the parties and their respective successors and assigns. Nothing in this
Agreement, expressed or implied, is intended to confer on any person other than
the parties or their respective successors and assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement, other than
rights conferred upon Indemnified Parties under Section 5.10.
8.6 AMENDMENTS. This Agreement may be amended by the parties at any time
prior to the Effective Time; PROVIDED, that, after approval of the Merger and
this Agreement by the stockholders of the Company if required under applicable
law, no amendment shall be made that by law requires further approval by the
stockholders of the Company, without such approval. This Agreement may not be
amended or modified except by an instrument in writing signed on behalf of each
of the parties hereto.
8.7 WAIVERS. At any time prior to the Effective Time, Parent (for Parent
and Purchaser), on the one hand, or the Company, on the other hand, may, to the
extent legally allowed, extend the time specified herein for the performance of
any of the obligations or other acts of the other, waive any inaccuracies in the
representations and warranties of the other contained herein or in any document
delivered pursuant hereto, or waive compliance by the other with any of the
agreements or covenants of such other party or parties (as the case may be)
contained herein. Any such extension or waiver shall be valid only if set forth
in a written instrument signed on behalf of the party or parties to be bound
thereby. No such extension or waiver shall constitute a waiver of, or estoppel
with respect to, any subsequent or other breach or failure to strictly comply
with the provisions of this Agreement. The failure of any party to insist on
strict compliance with this Agreement or to assert any of its rights or remedies
hereunder or with respect hereto shall not constitute a waiver of such rights or
remedies.
8.8 CAPTIONS. The Table of Contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
8.9 COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, and all of which together shall be
deemed to be one and the same instrument.
8.10 VALIDITY. The invalidity or unenforceability of any provisions of
this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
8.11 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Delaware, without regard to
any applicable principles of conflicts of law.
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IN WITNESS WHEREOF, the parties have executed this Agreement and Plan of
Merger as of the date first above written.
PACIFIC REHABILITATION & SPORTS
MEDICINE, INC.
By: /s/ BILL BARANCIK
-----------------------------------------
Bill Barancik
PRESIDENT AND CHIEF EXECUTIVE OFFICER
HORIZON/CMS HEALTHCARE CORPORATION
By: /s/ CHARLES GONZALES
-----------------------------------------
Charles Gonzales
SENIOR VICE PRESIDENT -- SUBSIDIARY
OPERATIONS
HORIZON PRSM CORPORATION
By: /s/ CHARLES GONZALES
-----------------------------------------
Charles Gonzales
SENIOR VICE PRESIDENT
D-26
<PAGE>
ANNEX A
CONDITIONS TO THE OFFER
Capitalized terms used in this Annex A shall have the meanings assigned to
them in the Agreement to which it is attached (the "MERGER AGREEMENT").
Parent shall not be required to accept for payment, purchase or pay for any
Shares tendered until the expiration of any applicable waiting period for the
Offer under the HSR Act and Parent may terminate or, subject to the terms and
conditions of the Merger Agreement, amend the Offer as to any Shares not then
accepted for payment, shall not be required to accept for payment or pay for any
Shares, or may delay the acceptance for payment of Shares tendered, if (1) at
the expiration of the Offer, the number of Shares validly tendered and not
withdrawn, together with the Shares beneficially owned by Parent and its
affiliates, shall not constitute a majority of the outstanding Shares on a fully
diluted basis or (2) at any time after November 17, 1996 and prior to the
acceptance for payment of Shares, any of the following events shall occur:
(a) there shall have been any action or proceeding brought by any
governmental authority before any federal or state court, or any order or
preliminary or permanent injunction entered in any action or proceeding
before any federal or state court or governmental, administrative or
regulatory authority or agency, located or having jurisdiction within the
United States, or any other action taken, proposed or threatened, or
statute, rule, regulation, legislation, interpretation, judgment or order
proposed, sought, enacted, entered, enforced, promulgated, amended, issued
or deemed applicable to Purchaser, the Company or any subsidiary or
affiliate of Purchaser or the Company or the Offer or the Merger, by any
legislative body, court, government or governmental, administrative or
regulatory authority or agency located or having jurisdiction within the
United States, which could reasonably be expected to have the effect of: (i)
making illegal, materially delaying or otherwise restraining or prohibiting
the Offer or the Merger or the acquisition by Parent or Purchaser of any
Shares; (ii) prohibiting or materially limiting the ownership or operation
by Parent, Purchaser or their respective affiliates of any material portion
of the business or assets of the Company or compelling Parent or Purchaser
to dispose of or hold separate all or any material portion of the business
or assets of the Company, in each case as a result of the transactions
contemplated by the Merger Agreement; (iii) imposing material limitations on
the ability of Parent or any of its affiliates to exercise full rights of
ownership of the Shares, including, without limitation, the right to vote
any Shares purchased by them on all matters properly presented to the
stockholders of the Company; or (iv) preventing Parent or any of its
affiliates from acquiring, or to require divestiture by Parent or any of its
affiliates of, any Shares; or
(b) there shall have occurred (i) any general suspension of, or
limitation on prices for, trading in securities on any national securities
exchange or in the over-the-counter market in the United States, (ii) the
declaration of any banking moratorium or any suspension of payments in
respect of banks or any limitation (whether or not mandatory) on the
extension of credit by lending institutions in the United States, (iii) the
commencement of a war, material armed hostilities or any other material
international or national calamity involving the United States, or (iv) in
the case of any of the foregoing existing at the time of the commencement of
the Offer, a material acceleration or worsening thereof; or
(c) any Person, entity or "group" (as such term is used in Section
13(d)(3) of the Exchange Act) other than Parent or any of its affiliates
shall have become the beneficial owner (as that term is used in Rule 13d-3
under the Exchange Act) of more than 50% of the outstanding Shares; or
(d) the Company shall have breached or failed to comply in any material
respect with any of its obligations under the Merger Agreement (which
breach, if curable, has not been cured within thirty (30) days following
receipt of written notice thereof by Parent specifying in reasonable detail
the basis
D-27
<PAGE>
of such alleged breach), or any representation or warranty of the Company
contained in the Merger Agreement shall not have been true and correct in
all material respects, except (i) for changes specifically permitted or
contemplated by the Merger Agreement and (ii) those representations and
warranties that address matters only as to a particular date which are true
and correct in all material respects as of such date; or
(e) the Merger Agreement shall have been terminated pursuant to its
terms or amended pursuant to its terms to provide for such termination or
amendment of the Offer; or
(f) the Board of Directors of the Company shall have modified or amended
in any manner materially adverse to Parent or Purchaser or shall have
withdrawn its recommendation of the Offer or the Merger, or shall have
resolved to do any of the foregoing;
which, in the good faith judgment of Parent makes it inadvisable to proceed with
the Offer or with acceptance for payment or payment for Shares.
The foregoing conditions are for the sole benefit of Parent and Purchaser
and may be asserted or waived by Parent or Purchaser in whole or in part at any
time or from time to time in its discretion subject to the terms and conditions
of the Merger Agreement. The failure of Parent or 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.
D-28
<PAGE>
[LETTERHEAD]
October 24, 1996
Horizon/CMS Healthcare Corporation
6100 Indian School Rd., NE
PO Box 30278
Albuquerque, New Mexico 87190-0278
Attention: Mr. Charles Gonzales
Senior Vice President Subsidiary Operations
CONFIDENTIALITY AGREEMENT
Ladies and Gentlemen:
You (together with your subsidiaries and affiliates, "Recipient") have
expressed an interest in a possible transaction involving Pacific
Rehabilitation & Sports Medicine, Inc. (together with its subsidiaries and
affiliates, the "Company" and, such transaction, the "Transaction"). In
connection with Recipient's evaluation of such Transaction, Recipient has
requested certain information concerning the Company which is non-public,
confidential or otherwise proprietary in nature (such information, including,
without limitation, any notes, summaries, reports, analyses or other
materials derived in whole or in part from such information, the
"Confidential Information"). For purposes of this Agreement, the term
"Confidential Information" shall not include such portions of the
Confidential Information that (i) are or become generally available to the
public other than as a result of disclosure by Recipient or its
Representatives (as defined in paragraph 1 below), (ii) become available to
Recipient on a non-confidential basis from a source not subject to a
confidentiality obligation to the Company, whether by contractual, legal or
fiduciary obligation or otherwise, or (iii) were in Recipient's possession on
a non-confidential basis prior to the Company's disclosure to Recipient. As a
condition to being furnished the Confidential Information, Recipient agrees
as follows:
1. Recipient recognizes and acknowledges the competitive value of the
Confidential Information and the damage that could result from the
disclosure thereof to third parties. Accordingly, Recipient agrees to
treat the Confidential Information strictly confidential and Recipient
will not, without the prior written consent of the Company, disclose the
Confidential Information (or the fact that the Confidential Information
has been made available, that discussions or negotiations concerning a
Transaction are taking place or any of the terms, conditions or other
facts relating to a Transaction) to any third party in any manner
whatsoever, in whole or in part, except that Recipient may disclose the
Confidential Information to those of Recipient's directors, officers,
employees, agents, advisors or other representatives (collectively,
"Representatives") who need to know the Confidential Information for the
purpose of evaluating the proposed Transaction and who have agreed to
treat the Confidential Information in strict confidence in accordance
with the terms of this Agreement. All Confidential Information disclosed
to Recipient or its Representatives will be used by Recipient and its
Representatives solely for the purpose of evaluating the Transaction and
for no other purpose. Recipient agrees to be responsible for any breach
by any of its Representatives of the matters referred to herein.
2. Recipient hereby acknowledges that Recipient is aware (and that its
Representatives have been or will be advised) that the United States
securities laws restrict persons with material non-public information
about a company from purchasing or selling securities of such company or
from communicating such information to a third party under circumstances
in which it is reasonably foreseeable that such third party is likely to
purchase or sell such securities.
<PAGE>
3. Upon request of the Company or its Representatives, Recipient shall,
and shall cause its Representatives to, promptly return all Confidential
Information to the Company, without retaining any copies, summaries, or
extracts thereof. In the event of such request, all documents, analyses,
compilations, studies or other materials prepared by Recipient or its
Representatives that contain or reflect Confidential Information shall
be destroyed and no copy thereof shall be retained (such destruction to
be confirmed in writing by a duly authorized officer of Recipient, if
requested by the Company). Notwithstanding the return or destruction of
the Confidential Information, Recipient and its Representatives shall
continue to be bound by their obligations of confidentiality and other
obligations hereunder.
4. In the event that Recipient or its Representatives are requested or
become legally compelled (by oral questions, interrogatories, requests
for information or documents, subpoena, investigative demand or similar
process) to disclose any of the Confidential Information, Recipient and
its Representatives will promptly provide the Company with written
notice so that the Company may seek a protective order or other
appropriate remedy and/or waive compliance with the provisions of this
Agreement. If, in the absence of a protective order or other remedy or
waiver. Recipient or its Representatives are, after consultation with
the Company, legally compelled to disclose such Confidential Information
to any tribunal or else stand liable for contempt or suffer other
censure or penalty. Recipient and its Representatives will furnish only
that portion of the Confidential Information which is legally required
to be furnished and each will exercise its best efforts to obtain
reliable assurance that confidential treatment will be accorded such
Confidential Information.
5. In the event that a Transaction is not consummated, neither Recipient
nor its Representatives shall, directly or indirectly, solicit for
employment any of the Company's senior management for a period of one
year from the date hereof, except with the prior written approval of the
Company. In addition, for a period of one year from the date hereof,
without the Company's prior written consent, Recipient shall not and
Recipient shall cause each of its Representatives not to, directly or
indirectly, alone or in concert with others, (a) acquire, offer to
acquire, or agree to acquire, by purchase, gift or otherwise, any
securities (as defined below), or propose (or request permission to
propose) or make any offer for any Transaction involving the Company or
its securities, (b) make, or in any way participate in, any
"solicitation" of "proxies" (as such terms are used in the proxy rules
of the United States Securities and Exchange Commission), or advise or
seek to influence any person or entity with respect to the voting of, or
giving of consents with respect to, any securities, (c) form, join or in
any way participate in a "group" (as such term is used in Rule 13d-5 of the
Securities Exchange Act of 1934, as amended) or otherwise act to seek to
control or influence the management, board of directors, policies or
affairs of the Company, (d) make any request to waive or amend any
provision of this Agreement or otherwise take any action specified
herein if, in the sole judgment of the Company, such request may require
public disclosure by the Company or (e) encourage any third party to do
any of the foregoing. As used in this Agreement, the term "securities"
shall mean any securities of the Company and any direct or indirect
warrants, rights or options to acquire securities of the Company.
6. Recipient acknowledges, on behalf of itself and its Representatives,
that neither the Company nor its Representatives makes any
representations or warranties, express or implied, as to the accuracy or
completeness of the Confidential Information, that neither the Company
nor its Representatives shall have any liability whatsoever to Recipient
or its Representatives or any other person as a result of the use of the
Confidential Information or any errors therein or omissions therefrom by
virtue of this Agreement and that Recipient and its Representatives shall
assume full responsibility for all conclusions derived from the
Confidential Information. Only those representations and warranties that
are made in a final definitive agreement between the Company and
Recipient regarding a Transaction, when, as and if executed and subject
to such limitations and restrictions as may be specified therein, will
have any legal effect. Recipient further acknowledges and agrees that
the Company shall at all times have the right, in its sole discretion,
to reject any and all proposals made by Recipient and/or its
Representatives in respect of a Transaction, to terminate discussions
and negotiations with Recipient and its Representatives at any time and
to conduct any process for a Transaction involving the Company as it may
determine (including, without limitation, negotiating with any other
interested parties, entering into a definitive agreement with such
parties, or modifying any procedures relating to such process or
Transaction, in each case, without prior notice to Recipient or its
Representatives).
<PAGE>
7. Recipient hereby agrees that money damages would not be a sufficient
remedy for any breach or threatened breach of this Agreement by
Recipient or its Representatives and that the Company shall be entitled,
without the requirement of posting a bond or other security, to specific
performance and injunctive or other equitable relief in the event of
any such breach or threatened breach, in addition to all other remedies
available to the Company at law or in equity. In the event of litigation
relating to this Agreement, the prevailing party shall be entitled to
reimbursement for legal fees and expenses incurred in connection with
such litigation, including any appeals therefrom.
8. All inquiries for information about the Company or the Transaction
and any communications with the Company shall be made through: Brian P.
Gottlieb, Vice President, Smith Barney Inc. Neither Recipient nor its
Representatives will contact any third party with whom the Company has
a business or other relationship (including any employee, customer,
supplier, stockholder or creditor of the Company) in connection with a
Transaction without the prior written consent of the Company.
9. a. No failure or delay by the Company or its Representatives in exercising
any right, power of privilege under this Agreement shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude any other
or further exercise of any right, power or privilege hereunder. The
invalidity or unenforceability of any provision of this agreement shall not
affect the validity or enforceability of the remaining provisions of this
Agreement.
b. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF WASHINGTON, WITHOUT GIVING EFFECT TO
PRINCIPLES OF CONFLICTS OF LAWS. RECIPIENT, ON BEHALF OF ITSELF AND ITS
REPRESENTATIVES, AGREES TO SUBMIT TO THE JURISDICTION OF ANY COURT OF
COMPETENT JURISDICTION LOCATED IN THE STATE OF WASHINGTON TO RESOLVE ANY
DISPUTE RELATING TO THIS AGREEMENT AND WAIVES THE RIGHT TO MOVE TO
DISMISS OR TRANSFER ANY SUCH ACTION BROUGHT IN ANY SUCH COURT ON THE
BASIS OF ANY OBJECTION TO PERSONAL JURISDICTION OR VENUE.
If Recipient agrees to the terms and conditions of this Agreement,
please indicate such acceptance by signing and returning to the undersigned
the duplicate copy of this Agreement. This Agreement may be executed in
several counterparts, all of which together shall constitute one and the same
agreement.
Very truly yours,
PACIFIC REHABILITATION & SPORTS
MEDICINE, INC.
By: /s/ Michael McArthur-Phillips
---------------------------------
Michael McArthur-Phillips
Senior Vice President
and General Counsel
Agreed to as of the date first written above:
Horizon/CMS Healthcare Corporation
By: /s/ Charles Gonzales
--------------------------------
Charles Gonzales
Senior Vice President
of Subsidiary Operations
<PAGE>
Mr. Michael McArthur-Phillips
C/O Garvey, Schubert & Barer
121 S.W. Morrison St.
Portland, Oregon 97204-3141
Dear Mike:
We are pleased to offer you the position of Corporate Counsel, located at
our corporate office. Your employment will commence on October 1 1996 at the
initial bi-weekly rate of $3,846.15 (equivalent to $100,000 on an annualized
basis). You will also be eligible to participate in the Company's incentive
bonus program for executives and managers. Further, subject to Board
approval, you will be granted 50,000 shares of stock options at market value
on the date of grant.
We have made provision in our Corporate budget for hiring a legal
secretary/assistant to support your efforts.
Should the Company be sold, acquired or experience a change in control, you
will receive a $25,000 severance pay package. The severance package will,
however, be reduced by $2,000 for every month you are employed by Pacific
Rehab.
Mike, we will be required to confirm your eligibility to work in the United
States within three days of your hire date. To assist us in readily providing
this information, please bring appropriate documentation with you on the
first day. A list of acceptable documents is provided on the back of the I-9
Form included in your packet. Please return the signed copy to me with your
new employee paperwork.
You have been provided a packet containing detailed information about our
company, policies and benefits. Our employment offer includes Pacific
Rehab's comprehensive benefit program, and is subject to our normal personnel
policies. If you have any questions, please feel free to contact me.
We would like you to acknowledge acceptance of this employment offer by
signing both copies of the offer letter and returning one to me. You may
keep the other copy for your records. Again, we look forward to welcoming
you to Pacific Rehab and to a mutually rewarding relationship.
Sincerely
/s/ BILL BARANCIK
Bill Barancik
President
/s/ Michael McArthur-Phillips
Acknowledgment of Employment Signature
Bill - this letter also will confirm our prior discussion regarding the
following:
(1) PRSM will pay me a year end bonus of approximately $15,000 to the
extent that Garvey does not agree to pay this to me in connection with a
"catch-up" payment of my salary for the period January 1-July 30, 1996.
(2) I will receive three weeks vacation.
(3) PRSM will pay my professional dues and expenses (including those
associated the continuing legal education)(I discussed this with Bill Norris).
<PAGE>
(4) Pending a determination of whether PRSM will be sold within the next
couple of months, I can continue to provide small amounts of legal services
to 3-4 of my existing clients. These services will not interfere with my
duties at PRSM. (I also discussed this with Bill Norris).
If this is consistent with your understanding, please sign and return to me.
Thanks. McP
/s/ BILL BARANCIK 9/20/96
---------------------
Bill Barancik, President
<PAGE>
November 4, 1996
Mr. Randy Robertson
Pacific Rehabilitation & Sports Medicine, Inc.
One S. W. Columbia Street, Suite 900
Portland, Oregon 97258
Dear Randy:
As you know, we are currently in discussions with Horizon about a possible
sale or merger of Pacific Rehab with Horizon. While discussions are
underway, there is not at this time a definitive agreement. Until there is a
definitive agreement and 51% of the Pac Rehab shareholders respond favorably
to a tender offer or vote in favor of a sale or merger to Horizon, there is
no guarantee the transaction will go through. Retention of key corporate
staff during this time of uncertainty is of concern to us and, therefore, we
are willing to provide an incentive to key corporate staff to retain them in
successfully carrying out their current responsibilities. This salary
continuation package is being provided because your Employment Agreement has
expired and, therefore, as an at-will employee you are no longer eligible for
any salary continuation benefits under your agreement.
NOTICE
If there should be a merger or sale of Pacific Rehabilitation and Sports
Medicine, Inc. at any time during calendar year 1996 and, as a result of that
sale or merger, your position is eliminated, Pacific Rehabilitation agrees to
the following salary continuation package. The definition of a sale or
merger includes that, if Horizon commences a tender offer and is successful
even if it occurs after the first of the year, you will be eligible for the
salary continuation package as long as the transaction is completed by May 1,
1997.
SALARY CONTINUATION
If the sale or merger of Pacific Rehab takes place, your position is eliminated,
and you remain in your current position through the successful transition of
your
<PAGE>
responsibilities which could be after December 31, 1996, you will be placed
on a four month leave of absence effective with the date of the transition of
your duties to the new organization. During this four month period of time
you will receive full compensation, paid out over the four month period with
appropriate withholding, and maintain all insured employee benefits (medical,
dental vision, and life). time off benefits will not accrue during the
leave. At the end of the four month period you will receive any accrued
vacation and will be eligible for COBRA continuation. This salary
continuation plan is in lieu of any other retention/separation package.
Please understand, however, if an on-going position becomes available with
the successor company and you accept this position, you will not be eligible
for the retention package.
We appreciate and look forward to your continued contributions at Pacific
Rehab. Please do not hesitate to contact me should you have questions and,
of course, we will keep you informed as developments occur.
Sincerely,
/s/ BILL BARANCIK
- ------------------
Bill Barancik
President & CEO
2
<PAGE>
November 18, 1996
William A. Norris
Executive Vice President - Finance & Administration
Pacific Rehabilitation & Sports Medicine, Inc.
One S.W. Columbia Street, Suite 900
Portland, Oregon 97258
Dear Bill:
On May 9, 1996, you were provided a letter outlining a salary continuation
package should the Company sell or be merged by the end of the calendar year.
In that letter, we agreed that if, as a result of a sale or merger, your
position was eliminated, the Company would provide a salary continuation
package to you.
On November 4, 1996, you were provided a letter outlining a revised salary
continuation package. In connection with the negotiations with Horizon, you
agreed to modify the revised terms of your salary continuation package as set
forth below and to release any and all claims you may have had under the
November 4, 1996 letter agreement or any other salary continuation plan.
As negotiated, your salary continuation/severance package is as follows: if
Horizon commences a tender offer and is successful and if the transaction is
completed by May 1, 1997, the Company will pay $110,000 to you upon your
termination as Executive Vice President - Finance & Administration of the
Company or, at your option, will pay to you your salary and benefits for six
months plus $55,000 upon termination as Executive Vice President - Finance &
Administration of the Company. Upon termination as Executive Vice
President-Finance & Administration, you will be placed on a six month leave
of absence. During the six month period of time you will receive full
compensation, paid out over the six month period with appropriate withholding
and maintain all insured employee benefits (medical, dental, vision and life).
Time off benefits will not accrue during the leave. At the end of the six
month period, you will receive any accrued vacation and will be eligible for
COBRA continuation.
We appreciate and look forward to your continuing contributions at the
Company. Please do not hesitate to contact me should you have any questions.
Sincerely,
/s/ MICHAEL MCARTHUR-PHILLIPS
- -----------------------------
Michael McArthur-Phillips
Senior Vice President-General
Counsel & Secretary
I hereby acknowledge and agree to accept the terms and conditions of my
severance package as set forth above.
/s/ WILLIAM A. NORRIS
- ---------------------
William A. Norris
Executive Vice President - Finance & Administration
<PAGE>
PACIFIC REHABILITATION & SPORTS MEDICINE, INC.
ONE S.W. COLUMBIA STREET, SUITE 900
PORTLAND, OREGON 97258
November 22, 1996
Dear Stockholder:
On November 17, 1996, Pacific Rehabilitation & Sports Medicine, Inc. (the
"Company"), Horizon/ CMS Healthcare Corporation ("Horizon"), and Horizon PRSM
Corporation, an indirect wholly-owned subsidiary of Horizon ("Purchaser")
entered into an agreement and plan of merger (the "Merger Agreement") providing
for the acquisition of the Company by Horizon.
Pursuant to the Merger Agreement, Purchaser has commenced a cash tender
offer (the "Offer") to purchase all outstanding shares of the Company's common
stock at a price of $6.50 per share in cash. The Merger Agreement provides that,
among other things, subject to the satisfaction or waiver of the conditions
thereto, following the Offer, Purchaser will be merged with and into the Company
(the "Merger"), and each outstanding share of the Company's common stock not
owned by Purchaser or its affiliates by virtue of the Offer will be converted
into the right to receive $6.50 per share in cash.
A MAJORITY OF THE BOARD OF DIRECTORS HAS DETERMINED THAT THE OFFER AND THE
MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF THE
COMPANY. A MAJORITY OF THE BOARD OF DIRECTORS HAS APPROVED THE OFFER AND THE
MERGER AGREEMENT AND RECOMMENDS THAT STOCKHOLDERS ACCEPT THE OFFER AND TENDER
THEIR SHARES PURSUANT TO THE OFFER.
In arriving at its recommendation, your Board of Directors gave careful
consideration to a number of factors described in the enclosed
Solicitation/Recommendation Statement on Schedule 14D-9, including the opinion
dated November 17, 1996 of Smith Barney Inc., the Company's financial advisor,
to the effect that, as of such date and based upon and subject to certain
matters stated therein, the cash consideration to be received by holders of the
Company's common stock (other than Parent and its affiliates) in the Offer and
the Merger, taken together, was fair, from a financial point of view, to such
holders. The Schedule 14D-9 contains other important information relating to the
Offer and you are encouraged to read the Schedule 14D-9 carefully.
Accompanying this letter is the Offer to Purchase of Purchaser, dated
November 22, 1996, together with related materials including the Letter of
Transmittal to be used for tendering your shares. These documents set forth the
terms and conditions of the Offer and provide instructions as to how to tender
your shares. We urge you to read the enclosed material carefully before making
your decision with respect to tendering your shares.
Sincerely,
/s/ BILL BARANCIK
------------------------------------------
Bill Barancik
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
[LETTERHEAD]
November 17, 1996
The Board of Directors
Pacific Rehabilitation & Sports Medicine, Inc.
One S.W. Columbia Street
Portland, Oregon 97258
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 Pacific Rehabilitation & Sports
Medicine, Inc. ("Pacific Rehab") pursuant to the terms and subject to the
conditions set forth in the Agreement and Plan of Merger, dated as of
November 17, 1996 (the "Merger Agreement"), by and among Pacific Rehab,
Horizon/CMS Healthcare Corporation ("Horizon") and Horizon PRSM Corporation,
a wholly owned indirect subsidiary of Horizon ("Sub"). As more fully
described in the Merger Agreement, (i) Horizon and Sub will make a tender
offer to purchase all outstanding shares of the common stock, par value $0.01
per share, of Pacific Rehab (the "Pacific Rehab Common Stock") at a purchase
price of $6.50 per share, net to the seller in cash (the "Tender Offer") and
(ii) subsequent to the Tender Offer, Sub will be merged with and into Pacific
Rehab (the "Merger" and, together with the Tender Offer, the "Transaction")
and each outstanding share of Pacific Rehab Common Stock not previously
tendered will be converted into the right to receive $6.50 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 Pacific Rehab and certain senior officers and other
representatives of Horizon concerning the business, operations and prospects
of Pacific Rehab. We examined certain publicly available business and
financial information relating to Pacific Rehab as well as certain financial
forecasts and other information and data for Pacific Rehab which were
provided to or otherwise discussed with us by the management of Pacific
Rehab. 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 Pacific Rehab Common Stock;
the historical and projected earnings and other operating data of Pacific
Rehab; and the capitalization and financial condition of Pacific Rehab. 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 Pacific Rehab. 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 Pacific Rehab that such
forecasts and other information and data were reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
management of Pacific Rehab as to the future financial performance of Pacific
Rehab. We have not
<PAGE>
The Board of Directors
Pacific Rehabilitation & Sports Medicine, Inc.
November 17, 1996
Page 2
made or been provided with an independent evaluation or appraisal of the
assets or liabilities (contingent or otherwise) of Pacific Rehab nor have we
made any physical inspection of the properties or assets of Pacific Rehab.
In connection with our engagement, we were requested to approach, and held
discussions with, certain third parties to solicit indications of interest in
a possible acquisition of Pacific Rehab. Our opinion is necessarily based
upon information available to us, and financial, stock market and other
conditions and circumstances existing and disclosed to us, as of the date
hereof.
Smith Barney has been engaged to render financial advisory services to
Pacific Rehab 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 the ordinary course of our business, we and our
affiliates may actively trade or hold the securities of Pacific Rehab and
Horizon 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
Pacific Rehab. In addition, we and our affiliates (including Travelers Group
Inc. and its affiliates) may maintain relationships with Pacific Rehab and
Horizon.
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of Pacific Rehab 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 Pacific Rehab 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 Smith Barney be made, without our prior written consent.
Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and other factors we deemed relevant, we
are of the opinion that, as of the date hereof, the cash consideration to be
received by the holders of Pacific Rehab Common Stock (other than Horizon and
its affiliates) in the Transaction is fair, from a financial point of view,
to such holders.
Very truly yours,
/s/ SMITH BARNEY INC.
- -----------------------------------
SMITH BARNEY INC.
<PAGE>
Pacific Rehabilitation & Sports Medicine, Inc.
One SW Columbia Street
Suite 900
Portland, OR 97258
NEWS RELEASE Contact: Bill Barancik
- ------------ President and Chief
FOR IMMEDIATE RELEASE Executive Officer
or
William A. Norris
Executive VP-Finance
Pacific Rehabilitation &
Sports Medicine, Inc.
(503) 222-4191
PACIFIC REHABILITATION & SPORTS MEDICINE, INC. ANNOUNCES
DISCUSSIONS CONCERNING POSSIBLE MERGER WITH HORIZON/CMS
HEALTHCARE CORPORATION
Portland, Oregon (October 30, 1996) -- Pacific Rehabilitation & Sports
Medicine, Inc. (Nasdaq: PRHB) today announced that it is in discussions
concerning the possibility of a merger of the Company with Horizon/CMS
Healthcare Corporation (NYSE:HHC) at a price of $6.50 per share in cash.
The Company emphasized that discussions were on-going and that no
definitive agreement has been reached with respect to any terms of a
transaction. There is no assurance that any definitive agreement will be
reached, or if a definitive agreement is reached, that the potential merger
will be successfully completed. Any definitive agreement, if reached, will be
subject to the satisfaction of regulatory and other conditions.
Pacific Rehab provides outpatient physical therapy services at 70
outpatient rehabilitation clinics in Washington, Oregon, California, Hawaii,
Nevada, Arizona, Texas, Mississippi, Florida and Maryland.
<PAGE>
[Logo]
Horizon/CMS Healthcare Corporation to Acquire Pacific Rehabilitation &
Sports Medicine, Inc.
ALBUQUERQUE, N.M., Nov. 18 /PRNewswire/ -- Horizon/CMS Healthcare
Corporation ("Horizon/CMS") (NYSE: HHC) and Pacific Rehabilitation & Sports
Medicine, Inc. ("Pacific Rehab") (Nasdaq: PRHB) jointly announced today that
they have entered into a definitive merger agreement pursuant to which
Horizon/CMS will offer to purchase all of the outstanding shares of common
stock of Pacific Rehab for $6.50 per share in cash. Following the completion
of the offer and subject to the terms and conditions set forth in the
agreement, any shares of common stock not purchased in the tender offer will
be acquired at the same price in a cash merger. The consummation of the
tender offer and the merger are conditioned upon, among other things, the
valid tender of a majority of the outstanding shares of common stock of
Pacific Rehab.
Horizon/CMS intends to commence the offer no later than November 22,
1996. The full terms and conditions of the offer, as well as important
related information, will be contained in the parties' filings with the
Securities and Exchange Commission and mailings to Pacific Rehab stockholders.
Questions relating to the tender offer should be directed to Georgeson &
Company, Inc., (800-223-2064) information agent for the tender offer.
The aggregate price of the transaction is approximately $56.0 million
plus acquired debt.
Commenting on the proposed acquisition, Horizon/CMS Healthcare
Corporation's Chairman and CEO Neal Elliott stated, "We are very enthusiastic
about the acquisition of Pacific Rehab, which will significantly expand our
extensive network of outpatient rehabilitation centers. The acquisition will
increase Horizon/CMS's outpatient rehabilitation clinic network to 290
locations, enhance our market penetration of outpatient services in existing
markets such as Nevada, Washington and Florida and open several new markets,
including Oregon, Maryland, Mississippi and Hawaii to Horizon/CMS."
Paul Zimmerman, President of Eagle Rehab, Horizon/CMS's wholly owned
outpatient rehabilitation subsidiary added, "The acquisition will enable us
to broaden our base of patient referrals. It will also provide operational
synergies and cost savings and will enhance our ability to compete
effectively for insurer and managed care contracts."
Pacific Rehab provides outpatient physical therapy services at 66
outpatient rehabilitation clinics in ten states. Pacific Rehab's annualized
revenues, based on the nine months ended September 30, 1996, are
approximately $38.5 million. Pacific Rehab derived over 90% of its revenues
from insurance and private payment sources during such quarter.
- more -
<PAGE>
-2-
Smith Barney, Inc. has acted as financial advisor to Pacific Rehab in
connection with the proposed transaction.
Horizon/CMS Healthcare Corporation is a leading provider of post acute
health care services and long-term care services, principally in the Midwest,
Southwest and Northeast regions of the United States. At the completion of
this transaction Horizon/CMS will provide specialty health care services
through 37 acute rehabilitation hospitals in 16 states, (2,065 beds), 58
specialty hospitals and subacute care units in 17 states (1,925 beds), 290
patient rehabilitation clinics in 25 states and 1,800 rehabilitation therapy
contracts in 35 states. Horizon/CMS provides long-term care services through
121 owned or leased facilities (15,147 beds) and 142 managed facilities
(15,798 beds) in a total of 18 states. Other medical services offered by the
Company include pharmacy, laboratory, Alzheimer's care, physician practice
management, non-invasive medical diagnostic services, assisted living, home
respiratory, home infusion therapy, and hospice care, and CompHealth, a
physician/locum tenens services business which provides temporary physician
and allied health professional staffing services throughout the United States.
Certain of the matters discussed in this press release contain
forward-looking statements that involves risks and uncertainties. Although
Horizon/CMS believes that these assumptions accompanying such forward-looking
statements are reasonable, they cannot give any assurance that expected
results will occur. A significant variation between actual results and any of
such assumptions may cause actual results to differ materially from
expectations.
(Visit Horizon/CMS Healthcare Corporation on the World Wide Web at
hhtp: \\www.Horizon/CMS.com)
SOURCE Horizon/CMS Healthcare Corporation
-0- 11/18/96
/CONTACT: Michael H. Seeliger, Vice President, Investor and Corporate
Relations, 505-878-6351; or William A. Norris, Executive Vice President
Finance and Administration. 503-222-4191/
(HHC PRHB)
-0-
