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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
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SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
THERATX, INCORPORATED
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(NAME OF SUBJECT COMPANY)
THERATX, INCORPORATED
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(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $.001 PER SHARE (AND PREFERRED SHARE PURCHASE RIGHTS)
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(TITLE OF CLASS OF SECURITIES)
883384109
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(CUSIP NUMBER OF CLASS OF SECURITIES)
JOHN A. BARDIS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
THERATX, INCORPORATED
1105 SANCTUARY PARKWAY, SUITE 100
ALPHARETTA, GA 30201
(770) 569-1840
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(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICE AND
COMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING STATEMENT)
COPIES TO:
STEVEN J. GARTNER, ESQ.
WILLKIE FARR & GALLAGHER
ONE CITICORP CENTER
153 EAST 53RD STREET
NEW YORK, NEW YORK 10022
(212) 821-8000
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is THERATX, INCORPORATED, a Delaware
corporation (the "Company"), and the address of the principal executive
offices of the Company is 1105 Sanctuary Parkway, Suite 100, Alpharetta,
Georgia 30201. The classes of equity securities to which this Statement
relates are the common stock, $.001 par value per share of the Company (the
"Common Stock"), and the associated Preferred Share Purchase Rights (the
"Rights") to purchase shares of Series A Junior Participating Preferred Stock,
$.001 par value per share, pursuant to the Rights Agreement, dated as of July
28, 1995 (as amended, the "Rights Agreement"), between the Company and U.S.
Stock Transfer Corporation, as Rights Agent (the "Rights Agent"). Unless the
context otherwise requires, all references herein to the Common Stock shall
include the associated Rights.
ITEM 2. TENDER OFFER OF THE PURCHASER.
This Statement relates to the tender offer (the "Offer") disclosed in a
Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D-1"), dated
February 14, 1997, of Vencor, Inc., a Delaware corporation ("Vencor"), and its
wholly owned subsidiary, Peach Acquisition Corp., a Delaware corporation (the
"Purchaser"), to purchase all of the outstanding shares of Common Stock (the
"Shares") (and the associated Rights) at a price of $17.10 per Share (and the
associated Rights), net to the Seller in cash upon the terms and subject to
the conditions set forth in the Agreement and Plan of Merger, dated as of
February 9, 1997 (the "Merger Agreement"), among the Company, Vencor and the
Purchaser. The Schedule 14D-1 states that the address of the principal
executive offices of Vencor and the Purchaser is 3300 Providian Center, 400
West Market Street, Louisville, Kentucky 40202.
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) (i) Certain contracts, agreements, arrangements or understandings
between the Company or its affiliates and certain of its directors and
executive officers are, except as noted below, described in the sections
entitled "Proposal No. 2--Approval of the 1996 Stock Option/Stock Issuance
Plan," "Proposal No. 3--Approval of the Employee Stock Purchase Plan," "Stock
Ownership of Management and Principal Stockholders" and "Executive
Compensation and Related Information" in the Company's Proxy Statement for its
1996 Annual Meeting of Stockholders held on May 30, 1996 (the "Proxy
Statement"). A copy of the relevant sections of the Proxy Statement has been
filed with the Securities and Exchange Commission (the "Commission") as
Exhibit 1 to this Statement and is incorporated herein by reference. As of the
date hereof, except as described below or as set forth in Exhibit 1 to this
Statement, there exists no material contract, agreement, arrangement or
understanding and no actual or potential conflict of interest between the
Company or its affiliates and (i) the Company's executive officers, directors
or affiliates, or (ii) the Purchaser or the Purchaser's executive officers,
directors or affiliates.
(ii) The Merger Agreement
The following summary of the Merger Agreement is qualified in its entirety by
reference to the Merger Agreement:
General. The Merger Agreement provides that, promptly after expiration of
the Offer and the receipt of any required approval by the Company's
stockholders of the Merger Agreement and the satisfaction or waiver of certain
other conditions, the Purchaser will be merged with and into the Company. Upon
consummation of the Merger (the "Effective Time"), each then outstanding Share
not owned by any of Vencor, the Purchaser or any other Vencor subsidiaries
(other than Shares held by stockholders exercising appraisal rights under
Delaware law) will be converted into the right to receive $17.10 in cash,
without interest thereon, or such greater amount which may be paid pursuant to
the Offer (the "Merger Consideration").
The Merger Agreement contains customary representations and warranties of
the Company and of the Purchaser. The representations and warranties of the
Company generally are qualified so that they are deemed
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accurate so long as the inaccuracy would not have a Company Material Adverse
Effect (as defined below) although certain representations are qualified only
as being immaterial to the Company or are given without qualification. Company
Material Adverse Effect is defined in the Merger Agreement to be a material
adverse effect on the financial condition, operations, properties, business or
results of operations of the Company and its subsidiaries taken as a whole.
The Merger Agreement also contemplates the amendment, effective at the
Effective Time, of Article Four of the Company's Certificate of Incorporation
to provide that the aggregate number of shares which the Company shall have
the authority to issue is 1,000 shares of Common Stock, par value $0.001 per
share unless the Warrant Reclassification (as defined below) occurs.
Conditions. The obligations of the Company, the Purchaser and Vencor to
effect the Merger are subject to the satisfaction of certain conditions set
forth in the Merger Agreement, including (i) the purchase by the Purchaser of
Shares pursuant to the Offer, (ii) the receipt of approval of the Merger
Agreement from the holders of a majority of the Shares, (iii) the receipt of
any required governmental consents or approvals and (iv) there being no
statute, rule, regulation, judgment, decree, injunction or other order
enacted, issued, promulgated, enforced or entered by any governmental or
regulatory authority, agency, commission or other governmental entity,
domestic or foreign, which is in effect and prohibits consummation of the
transactions contemplated by the Merger Agreement or imposes material
restrictions on Vencor or the Company in connection with consummation of the
Merger or with respect to their business operations, either prior to or
subsequent to the Merger.
Termination Provisions. Pursuant to the terms of the Merger Agreement, the
Merger Agreement may be terminated at any time prior to the Effective Time,
whether before or after approval by the stockholders of the Company, by the
mutual consent of Vencor and the Company. In addition, the Merger Agreement
may be terminated by either Vencor or the Company if (i) the Purchaser shall
have terminated the Offer without purchasing any Shares pursuant thereto;
provided, in the case of termination of the Merger Agreement by Vencor, such
termination of the Offer is not in violation of the terms of the Offer, (ii)
the Merger shall not have been consummated by September 30, 1997 or (iii) the
approval of holders of Shares shall not have been obtained at a meeting duly
convened therefor. The Merger Agreement may be terminated by Vencor if (i) the
board of directors of the Company (the "Board of Directors") has withdrawn or
modified in a manner adverse to Vencor or the Purchaser its approval or
recommendation of the Offer, the Merger Agreement or the Merger, or the Board
of Directors fails to reaffirm such approval or recommendation within 10
business days after a request by Vencor to do so, (ii) the Board of Directors
or any officers, employees, agents or representatives of the Company, directly
or indirectly have any discussions with, provide any confidential information
or data to any person relating to any proposal or offer with respect to a
merger, reorganization, share exchange, consolidation or similar transaction
involving, or any purchase of all or any significant portion of the assets or
5% or more of the equity securities of, the Company or any of its subsidiaries
(any such transaction or purchase being referred to as an "Acquisition
Transaction") that, in any such case, could reasonably be expected to lead to
a breach of the Merger Agreement or otherwise interfere with the completion of
the Offer or Merger (any such proposal being an "Acquisition Proposal") or any
such person otherwise facilitates any effort or attempt to make or implement
an Acquisition Proposal, or (iii) the Company fails to comply in any material
respect with any of its covenants or agreements under the Merger Agreement,
subject to certain rights to cure.
In addition, the terms of the Merger Agreement provide that the Company may
terminate the Merger Agreement if the Board of Directors authorizes the
Company to enter into a binding written agreement concerning a transaction
that constitutes a Superior Proposal (as defined below) and the Company
notifies Vencor in writing that it intends to enter into such an agreement and
Vencor does not make, within five days of receipt of the Company's written
notification an offer that is at least as favorable, from a financial point of
view, to the stockholders of the Company as the Superior Proposal. The Merger
Agreement may also be terminated by the Company if Vencor fails to comply in
any material respect with any of its covenants or agreements under the Merger
Agreement, subject to certain rights to cure.
The Merger Agreement also provides that if (x) the Purchaser or the Company
terminates the Merger Agreement (i) after the Offer has remained open for a
minimum of at least 20 business days, (ii) after
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the date of the Merger Agreement, any corporation, partnership, person, other
entity or group (as defined in Section 13(d)(3) of the Exchange Act) other
than Vencor or the Purchaser or any of their respective subsidiaries or
affiliates (collectively, a "Person") becomes the beneficial owner of 15% or
more of the outstanding Shares or any Person commences, or publicly announces
an intention to commence, a tender offer or exchange offer for 15% or more of
the outstanding Shares, and (iii) the Minimum Condition (as defined in the
Merger Agreement) has not been satisfied and the Offer is terminated without
the purchase of any Shares thereunder, or (y) Vencor terminates the Merger
Agreement as a result of the Company's breach of the Merger Agreement, the
directors of the Company having taken actions with respect to their approval
or recommendation which would give the Purchaser the right to terminate the
Merger Agreement or taking actions that would be proscribed by the non-
solicitation provision, but for the proviso therein, then the Company will pay
to Vencor an amount equal to Vencor's out-of-pocket expenses, including fees
and expenses paid to investment bankers, lawyers and financing sources
incurred in connection with the transactions contemplated by the Merger
Agreement, in an amount not to exceed $1,500,000 ("Vencor Expenses") and, if
within 18 months of the date of such termination, the Company or any of its
subsidiaries consummates an Acquisition Transaction, the Company will pay
Vencor a fee of $10,000,000. No such fee will be paid if Vencor is in material
breach of its obligations under the Merger Agreement.
In addition, if the Merger Agreement is terminated as a result of the
provision of the Merger Agreement permitting the Company to terminate the
Merger Agreement following the Company providing notification to Vencor of its
intention to enter into a Superior Proposal, then the Company will pay Vencor
$10,000,000 upon such termination, plus the Vencor Expenses.
If the Merger Agreement is terminated by the Company as a result of a breach
of the provisions thereof by Vencor or the Purchaser, then Vencor will
promptly pay to the Company an amount equal to the Company's out-of-pocket
expenses, including fees and expenses paid to investment bankers and lawyers
incurred in connection with the transactions contemplated by the Merger
Agreement in an amount not to exceed $1,500,000. In addition, if, solely as a
result of the occurrence of events which would reasonably be expected to have
a material adverse effect on Vencor and its Subsidiaries (other than any
material adverse effect resulting from salary equivalency rates or any breach
by Vencor of the Merger Agreement and, as a result of such material adverse
effect, Vencor is not permitted to borrow funds necessary to consummate the
Offer under its credit facilities then in effect), the Purchaser and Vencor
(i) terminate the Offer without paying for Shares or (ii) extend the
expiration date of the Offer beyond September 30, 1997, then Vencor will pay
the Company a fee of $40,000,000.
Composition of the Board of Directors. The Merger Agreement provides that
promptly following the purchase by Purchaser of the Shares pursuant to the
Offer, Vencor may request that the Company take all actions necessary to cause
persons designated by Vencor to become directors of the Company so that the
total number of directorships held by such persons is proportionate to the
percentage calculated by dividing (i) the number of Shares accepted for
payment pursuant to the Offer plus Shares beneficially owned by the Purchaser
as of the date of the Merger Agreement by (ii) the total number of Shares
outstanding at the time of acceptance of the Shares for payment pursuant to
the Offer; provided that prior to the consummation of the Merger, the Board of
Directors shall always have at least two members who are neither officers,
designees, shareholders or affiliates of the Purchaser. The Company has also
agreed to increase the size of the Board of Directors or to secure the
resignation of existing directors to ensure that it has complied with this
provision of the Merger Agreement.
Treatment of Options. The Merger Agreement also provides that in the event
that Vencor does not provide, by February 24, 1997, the notice of cash out
referred to in the following paragraph, each holder of an outstanding option
to purchase Shares (an "Option") granted under any of the Company's stock
option plans other than any Option granted under the Company's Employee Stock
Purchase Plan, whether vested or unvested, will be converted into an option to
acquire, on the same terms and conditions as were applicable under such
Option, the number of shares of Common Stock, par value $0.25 per share of
Vencor (the "Vencor Common Stock") equal to (a) the number of Shares subject
to the Option multiplied by (b) (i) the Merger Consideration divided by (ii)
the average of the high and low price of Vencor Common Stock on the trading
day immediately preceding the date of the Effective Time as reported in the
New York City edition of The Wall Street Journal (rounded down to the nearest
whole number) ("Replacement Option"), at an exercise price per share (rounded
up to the nearest
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whole cent) equal to (y) the aggregate exercise price for the Shares which
were purchasable pursuant to such Option divided by (z) the number of full
shares of Vencor Common Stock subject to such Replacement Option in accordance
with the foregoing.
If Vencor provides written notice to the Company by February 24, 1997 of its
election to cash out the Options, then, at the Effective Time, each then
outstanding Option, whether vested or unvested, will be cancelled and the
holder thereof will be entitled to receive an amount of cash equal to the
product of (x) the amount, if any, by which the Merger Consideration exceeds
the exercise price per Share subject to such Option (whether vested or
unvested) and (y) the number of Shares issuable pursuant to the unexercised
portion of such Option, less any required withholding of taxes.
Indemnification of Directors and Officers. Pursuant to the Merger Agreement,
Vencor has agreed that the bylaws and the certificate of incorporation of the
Company (as the surviving corporation) shall not be amended, repealed or
otherwise modified for a period of six years after the Effective Time in any
manner that would adversely affect the rights thereunder of individuals who
immediately prior to the Effective Time were directors, officers or otherwise
entitled to indemnification thereunder or under the Company's bylaws or
indemnification agreements. Vencor and the Purchaser have also agreed to
indemnify, defend and hold harmless individuals who immediately prior to the
Effective Time were directors, officers or otherwise entitled to be
indemnified by the Company as provided in the Company's Certificate of
Incorporation, Bylaws or indemnification agreements, as in effect as of the
date of the Merger Agreement, with respect to matters occurring through the
Effective Time to the fullest extent the Company would have been permitted to
do so under Delaware law, the Company's Certificate of Incorporation and
Bylaws as in effect as of the date of the Merger Agreement. Vencor has agreed
to cause the Company, following the Merger, to maintain in effect for not less
than six years after the Effective Time the current policies of directors' and
officers' liability insurance maintained by the Company with respect to
matters occurring prior to the Effective Time; provided, however, that (i) the
Company, following the Merger, may substitute therefor policies of at least
the same coverage (with carriers comparable to the Company's existing
carriers) containing terms and conditions which are no less advantageous to
the officers, directors and employees of the Company and (ii) the Company,
following the Merger, will not be required to pay an annual premium for such
insurance in excess of two times the last annual premium paid prior to the
date hereof, but in such case shall purchase as much coverage as possible for
such amount.
Acquisition Proposals. The Company has agreed in the Merger Agreement that
neither it nor any of its subsidiaries nor any of its executive officers or
directors will, and that it will direct and use its best efforts to cause its
non-executive officers and its subsidiaries' employees, agents and
representatives (including any investment banker, attorney or accountant
retained by it or any of its subsidiaries) not to, directly or indirectly, (a)
initiate, solicit, knowingly encourage or otherwise facilitate any inquiries
or the making of any proposal or offer with respect to an Acquisition Proposal
or (b) have any discussion with or provide any confidential information or
data to any Person relating to an Acquisition Proposal or engage in any
negotiations concerning an Acquisition Proposal, or otherwise facilitate any
effort or attempt to make or implement an Acquisition Proposal; provided,
however, that nothing contained in the Merger Agreement will prevent the
Company or its Board of Directors from (A) complying with Rule 14e-2
promulgated under the Exchange Act with regard to an Acquisition Proposal; (B)
engaging in any discussions or negotiations with or providing any information
to, any person in response to an unsolicited bona fide written Acquisition
Proposal by any such person (including a new and unsolicited Acquisition
Proposal received by the Company after execution of the Merger Agreement from
a person or entity whose initial contact with the Company may have been
solicited by the Company prior to the execution of the Merger Agreement); or
(C) recommending such an unsolicited bona fide written Acquisition Proposal to
the stockholders of the Company, if and only to the extent that, in such case
referred to in (B) or (C), above, (i) the Board of Directors concludes in good
faith (after consultation with its financial advisors) that such Acquisition
Proposal is reasonably capable of being completed, taking into account all
legal, financial and other aspects of the proposal and the person making the
proposal, and would, if consummated, result in a transaction more favorable to
the Company's stockholders, from a financial point of view, than the
transaction contemplated by the Merger Agreement (a "Superior Proposal"), (ii)
the Board of Directors determines in good faith after consultation with
outside legal counsel that such action is necessary for its Board of Directors
to comply with its fiduciary duties under applicable law and (iii) prior to
providing any non-public information or
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data to any person in connection with any Acquisition Proposal by any such
person, the Board of Directors receives from such person an executed
confidentiality agreement on terms substantially similar to the
confidentiality agreement entered into with Vencor. The Company also agreed
that it will notify Vencor promptly if any such inquiries, proposals or offers
are received by, any such information is requested from, or any such
discussions or negotiations are sought to be initiated or continued with, any
of its representatives indicating, in connection with such notice, the name of
such person and the terms and conditions of any proposals or offers and
thereafter shall keep Vencor informed, on a current basis, of the status and
terms of any such proposals or offers and the status of any such discussions
or negotiations.
Covenants. The Merger Agreement also contains certain other restrictions as
to the conduct of business by the Company pending the Merger. Pursuant to the
terms of the Merger Agreement, the Company has covenanted and agreed that,
prior to the Effective Time, the Company will refrain from taking certain
actions and will take other actions that the Company would not otherwise
necessarily refrain from taking or take if it had not so agreed in the Merger
Agreement.
Pursuant to the terms of the Merger Agreement, the Company has agreed to
cause the Rights issued under the Merger Agreement to expire at the
consummation of the Merger. In addition, pursuant to the terms of the Merger
Agreement, the Company has amended the Rights Agreement to provide that none
of Purchaser, Vencor or any of Vencor's affiliates or associates will be
deemed an Acquiring Person (as defined in the Rights Agreement) with the
result that the consummation of the Offer will have no effect on the Rights
Agreement. Accordingly, the Distribution Date (as defined in the Rights
Agreement) shall not be deemed to occur, and the Rights will not separate from
the Shares or become exercisable, as a result of the commencement of the Offer
or as a result of consummation of the transactions contemplated by the Merger
Agreement. Furthermore, the Company has taken all necessary action with
respect to the Rights Agreement to ensure that the Rights Agreement will
expire at the Effective Time pursuant to Section 7(a)(iv) of the Rights
Agreement.
The Merger Agreement also requires the Company to take certain action with
respect to the Warrants (as defined in the Merger Agreement). Prior to the
Effective Time, the Company shall cause any one or more of the following
events to occur: (i) the exercise or conversion of all of the outstanding
Warrants for or into shares of Common Stock in accordance with the terms of
the applicable Warrants, (ii) the entry into agreements between the Company
and the holders of each of the outstanding Warrants providing that each
Warrant shall, following the Merger, be exercisable for, at the exercise price
of such Warrant, the securities, property or other consideration which a
holder of such Warrant would have received had the holder exchanged or
converted such Warrant for Shares immediately prior to the Effective Time or
(iii) a reclassification of the Company's shares of Common Stock in accordance
with the Delaware General Corporation Law, so that each share of Common Stock
shall be redeemable at any time at the option of the Company for an amount per
share equal to the Merger Consideration and simultaneously with the
effectiveness of such reclassification issue to Vencor or the Purchaser, at
the Purchaser's election, 1,000 shares (constituting all of the authorized
shares of such class) of a new class of Company non-redeemable common stock,
par value 0.25 per share (or, any combination of the events referred to in
clause (i), (ii) or (iii) above, which when taken together apply to all of the
outstanding Warrants so that no Warrants may be exercised for any Shares)
which are not redeemable at the Company's election.
Appraisal Rights. No appraisal rights are available in connection with the
Offer. However, if the Merger is consummated, each stockholder of the Company
who has neither voted in favor of the Merger nor consented thereto in writing
will be entitled to an appraisal by the Delaware Court of Chancery of the fair
value of such stockholder's Shares, exclusive of any element of value arising
from the accomplishment or expectation of the Merger, together with a fair
rate of interest, if any, to be paid. In determining such fair value, the
Court may consider all relevant factors. The value so determined could be more
or less than the consideration to be paid in the Offer and the Merger. Any
judicial determination of the fair value could be based upon considerations
other than or in addition to the market value of the Shares, including, among
other things, asset values and earning capacity.
There can be no assurance that the Merger will take place since the Merger
and the Offer are subject to conditions which are beyond the control of Vencor
and the Company. Vencor has disclosed in the Schedule 14D-1 that in the event
, for any reason, the Merger does not occur, depending on the results of the
Offer, Vencor
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may, subject to restrictions which may be applicable to it under the Merger
Agreement as described therein, consider the desirability of acquiring
additional Shares or the entire remaining equity interest in the Company. If
Vencor determines to do either, any such future transaction or transactions
might be by means of a merger, reverse stock split, open market or privately
negotiated purchases, one or more additional tender offers, exchange offers or
otherwise. Such transactions might involve the exchange of Shares for cash,
securities of Vencor, or some combination of cash and securities, and may be
on terms and at prices more or less favorable than those of the Offer. Vencor
has disclosed in the Schedule 14D-1 that the decision to enter into such
future transactions and the forms they might take will depend on the
circumstances then existing, including the financial resources of the Company
and Vencor and Vencor's business, tax and accounting objectives, performance
of the Shares in the market, availability and alternative sources of funds,
money market and stock market conditions, general economic conditions and
other factors.
The foregoing description of the Merger Agreement is qualified in its
entirety by reference to the text of the Merger Agreement, a copy of which has
been filed with the Commission as Exhibit 2 to this Statement.
(iii) In connection with the transactions contemplated by the Merger
Agreement, the Company amended its 1994 Stock Option/Stock Issuance Plan (the
"1994 Plan") to provide that the vesting period of options to purchase the
Common Stock issued under the 1994 Plan which do not accelerate as the result
of the transactions contemplated by the Merger Agreement, if any, shall
automatically accelerate in the event of the Involuntary Termination (as
defined in the 1994 Plan) of the employment of the holder of such options
within 24 months following the effective date of such transactions.
(iv) In connection with the transactions contemplated by the Merger
Agreement, the Company entered into non-competition and non-solicitation
agreements (the "Non-Competes") with each of John A. Bardis, Bret W.
Jorgensen, Donald R. Myll, Louis E. Hallman, III, Laura E. Cayce and William
J. Haffey, Ph.D. (the "Non-Compete Group") with respect to any Business (as
defined in each agreement) pursuant to which each member of the Non-Compete
Group may not, subject to limited exceptions, (i) own, operate, manage,
control or be employed by any entity that competes within the United States
with a Business, (ii) be an officer, director, agent, consultant, employee,
representative, stockholder, partner in any entity that engages in a Business,
(iii) solicit from the Company or any of its affiliates any business
constituting any part of the Business then conducted by the Company or any of
its affiliates, (iv) solicit or hire any person engaged by the Company or any
of its affiliates or (v) solicit any client of the Company or any of its
affiliates to retain or use any other entity for the purpose of providing
services in competition with the Company or any of its affiliates. In
addition, each member of the Non-Compete Group has agreed to keep confidential
all proprietary information obtained by such person, including customer lists.
The Non-Competes will remain in effect for Messrs. Bardis, Jorgensen, Myll and
Hallman until the later of (i) the first anniversary of termination of
employment (with respect to that individual) with the Company and any of its
affiliates and (ii) the second anniversary of the consummation of the
transactions contemplated by the Merger Agreement. The Non-Competes will
remain in effect for Ms. Cayce and Dr. Haffey until the later of (i) the first
anniversary of termination of employment (with respect to that individual)
with the Company and any of its affiliates and (ii) the date twelve months
after the consummation of the transactions contemplated by the Merger
Agreement; provided, however, that the Company has the right to extend the
twelve month period referred to in clause (ii) if the Company pays such
individual $225,000, less any amounts the individual receives during such year
as an employee of any entity (including the Company or any of its affiliates
(but excluding any severance or similar payments)) in respect of such period.
The foregoing description of the Non-Competes is qualified in its entirety
by reference to the text of the Non-Competes, forms of which have been filed
with the Commission as Exhibits 3 and 4 to this Statement.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) Recommendation of the Board Of Directors
The Board of Directors has unanimously determined that the Offer and the
Merger are fair to and in the best interests of the Company and its
stockholders and has unanimously approved the Offer and the Merger Agreement
and unanimously recommends that the Company's stockholders accept the Offer
and tender their shares pursuant to the Offer.
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(b) Background
In February 1996, the Company commenced discussions with a third party
regarding a potential acquisition of the Company by the third party. In
connection therewith, the Company engaged The Beacon Group Capital Services,
LLC ("The Beacon Group") to act as its financial advisor with respect to the
potential transaction. The Company and the third party were unable to agree to
terms, and discussions between the parties were terminated.
In July 1996, the Board of Directors decided to initiate discussions with
additional third parties regarding a possible business combination. The Board
of Directors selected three of its directors, L. John Wilkerson, John A.
Bardis and Patrick T. Hackett (the "M&A Committee") to oversee this process.
In late July, the M&A Committee and senior management of the Company met with
The Beacon Group to discuss possible strategic alternatives and logical
business combinations. At this meeting, the M&A Committee, after consideration
of the size, strategic characteristics and fit of various potential strategic
partners, authorized The Beacon Group to approach certain strategic partners
regarding a possible business combination transaction.
Beginning in late July, the Company and its financial advisor contacted
certain potential partners regarding their interest in a potential business
combination with the Company and delivered certain public information to such
parties. After the execution of confidentiality agreements, the Company and
its financial advisor entered into discussions with several interested
parties. However, no definitive proposals were made by any of the parties
regarding a business combination.
In September 1996, representatives of the Company contacted representatives
of Vencor regarding a possible transaction with the Company. Discussions
between the parties regarding possible strategic alliances or a combination of
the companies continued through early December 1996, at which time they were
suspended as the parties were unable to agree on mutually acceptable terms for
a business combination or other transaction.
During early January 1997, representatives of Vencor and representatives of
the Company, including Mr. Bardis, discussed the possibility of the
acquisition of the Company by Vencor (the "Proposed Transaction"). These
discussions focused primarily on the price Vencor would be willing to pay for
Shares, and whether the transaction would be a stock or cash transaction. On
January 17, 1997, Mr. James H. Gillenwater Jr., Senior Vice President of
Planning & Development of Vencor, called Mr. John A. Bardis concerning the
Proposed Transaction. Also on January 17, 1997, Vencor outlined for the
Company the terms of the Proposed Transaction that would be acceptable to it.
After consulting with the other members of the M&A Committee and the Company's
financial advisor, on January 21, 1997, Mr. Bardis responded to Vencor with a
counterproposal.
After discussion and negotiation, on January 21, 1997, the Company and
Vencor agreed to work toward a transaction at a price of $17.50 per Share,
subject to due diligence by Vencor on the Company, and executed an exclusivity
agreement pursuant to which the Company agreed not to discuss an acquisition
with any person other than Vencor until after February 14, 1997.
Commencing on January 24, 1997, representatives of Vencor were provided
access to non-public information concerning the Company and held a series of
due diligence meetings with senior management of the Company. This review
continued through February 9, 1997.
On January 30, 1997, the Board of Directors held a meeting with its legal
and financial advisors to consider the Proposed Transaction. Legal counsel
advised the Board of Directors regarding its fiduciary duties. Mr. Bardis
outlined the chronology of events leading to the Proposed Transaction. The
Beacon Group then made a detailed presentation to the Board of Directors
concerning the Proposed Transaction, including background information on
Vencor and various financial analyses. Certain officers of the Company
summarized the nature and status of the due diligence investigation being
conducted by Vencor. The Board of Directors then discussed with its legal
counsel the issues that were likely to be negotiated with Vencor, including
termination events and a termination fee, as well as the structure and timing
of the transaction. It was agreed that the M&A Committee would oversee the
discussions between Vencor and its advisors and the Company and its advisors
until the next meeting of the Board of Directors.
7
<PAGE>
On February 4, 1997, Vencor and the Company agreed to a price of $17.10 per
Share, subject to negotiation of a mutually satisfactory merger agreement and
approval of the respective boards of directors of Vencor and the Company.
Thereafter, representatives of Vencor and the Company and their respective
financial and legal advisors began negotiating the Merger Agreement on
February 5, 1997. Negotiations continued through the late afternoon of
February 9, 1997. The principal issues involved in the negotiations included
the scope of the representations and warranties, the conditions to the
Purchaser's obligation to complete the Offer, the circumstances under which
Vencor would be permitted to terminate the Offer if it were unable to obtain
financing, the non-compete agreements and the circumstances under which a
termination fee would be payable to Vencor or the Company and the amount
thereof.
On February 7, 1997, the Board of Directors held a meeting with its legal
and financial advisors to consider the Proposed Transaction. The Company's
legal counsel reviewed the fiduciary duties of the Board of Directors in
considering the Proposed Transaction and then made a detailed presentation to
the Board of Directors regarding the terms of the Merger Agreement, including
a summary of the representations, warranties, covenants, conditions,
termination events and termination fee provisions, as well as the structure of
the proposed Merger, including the mechanics of a tender offer followed by a
merger. The Company's financial advisor then made a presentation including
various financial analyses with respect to the Proposed Transaction and
indicated its view that, subject to the resolution of all remaining issues
relating to the Merger Agreement, the consideration to be received by holders
of Shares pursuant to the Proposed Transaction was fair from a financial point
of view. The meeting was then adjourned to Sunday, February 9, in order to
permit the Merger Agreement and related materials to be finalized.
On February 9, 1997, the Board of Directors reconvened. Mr. Bardis
summarized the negotiations that had taken place during the course of the
weekend. The Beacon Group delivered its oral opinion, which was subsequently
confirmed in writing, that as of February 9, 1997, the $17.10 per Share in
cash to be received by holders of Shares pursuant to the Offer and the Merger
was fair to such holders from a financial point of view. See Item 4(c)--
Reasons for the Recommendation. The full text of the opinion of The Beacon
Group, dated February 9, 1997, which sets forth the assumptions made,
procedures followed and matters considered in and the limitation on, the
review by The Beacon Group in rendering its opinion, is attached as Schedule I
hereto and is incorporated herein by reference. The Company's legal counsel
reviewed again the fiduciary duties of the Board of Directors. The Board of
Directors, after consideration of the fairness opinion of The Beacon Group,
presentations of management and legal counsel and the factors set forth in
Item 4(b) of this Schedule 14D-9, unanimously approved the terms of the
Proposed Transaction, unanimously approved and adopted the terms of the Merger
Agreement, unanimously approved the terms of the Offer and authorized certain
officers of the Company to take all actions necessary in connection with the
Proposed Transactions. On February 9, 1997, the board of directors of Vencor
also unanimously approved the Merger Agreement and the transactions
contemplated thereby. The terms of the Merger Agreement are set forth in Item
3 hereto.
(c) Reasons For The Recommendation
In reaching its conclusions and recommendations described above, the Board
of Directors considered a number of factors, including, without limitation,
the following:
(i) The cash price to be paid to the stockholders of the Company in
connection with the Offer represents a substantial premium over the recent
market prices for shares of Common Stock.
(ii) The Company's view that the Proposed Transaction offers attractive
terms relative to market prices and financial data relating to other
companies engaged in the same or similar businesses as the Company and
relative to the consideration paid in comparable acquisition transactions.
(iii) The Board received the oral opinion of The Beacon Group, which was
subsequently confirmed in writing, that as of February 9, 1997, the $17.10
per Share in cash to be received by holders of Shares
8
<PAGE>
pursuant to the Offer and the Merger was fair from a financial point of
view to such holders. The full text of the written opinion of The Beacon
Group, dated February 9, 1997, which sets forth the assumptions made,
procedures followed and matters considered in, and the limitation on, the
review by The Beacon Group in rendering its opinion, is attached as
Schedule I hereto and is incorporated herein by reference. HOLDERS OF
SHARES ARE ENCOURAGED TO READ THE OPINION OF THE BEACON GROUP IN ITS
ENTIRETY AND CONSIDER IT CAREFULLY.
(iv) The following financial considerations: the historical and
prospective business of the Company, including, among other things: (A) the
current financial condition, assets, liabilities, business and operations
of the Company, along with the general prospects related thereto; (B) the
current state of the industries in which the Company operates; and (C) the
views of management with respect to the foregoing.
(v) The Company's business is subject to changing competitive conditions
arising from changes in the healthcare industries, including those that may
arise from current governmental and private health care reform initiatives
and proposed changes relating to salary equivalency rates.
(vi) Potential regulatory restrictions associated with the Company's
business, including but not limited to: (a) the Company's dependence on
reimbursement by third-party payors such as Medicare and Medicaid programs
which are subject to statutory and regulatory changes potentially affecting
the Company's revenues, (b) federal and state regulation of various aspects
of the Company's business, (c) the potential impact of proposed or
contemplated federal and state laws and (d) health care reform generally.
(vii) The implementation of "salary equivalency" rates for occupational
therapy and speech language pathology services that could have a material
adverse effect on the Company and its results of operations as further
described below under the heading "Salary Equivalency".
(viii) Presentations by The Beacon Group of various financial analyses,
including, among other things: the Company's financial projections prepared
by management of the Company and the potential impact on these projections
of salary equivalency guidelines which may be implemented in the future
(based on assumptions provided by management); the various multiples and
ratios of the Company's historical and projected earnings reflected by the
proposed price of $17.10 per Share; Vencor's financial position and the
estimated pro-forma impact on Vencor of the Proposed Transaction; the
Company's stock trading history and current stock price; analysts'
estimates regarding the Company's potential earnings per share and future
prospects; current and historical financial and operating statistics and
valuations of certain publicly traded health care services companies;
analysis of the multiples and premiums paid in selected merger and
acquisition transactions in the health care services industry; and
discounted cash flow analyses at various discount rates and terminal values
of the Company's projected future performance based on management's
projections under various regulatory conditions.
(ix) The terms and conditions of the Merger Agreement including the
representations, warranties, covenants, conditions, termination events and
termination fee provisions.
(x) The fact that the Merger Agreement has been structured so that the
Board of Directors may consider certain written competing offers for the
business or the Company (although the Company would be required to pay a
termination fee to the Purchaser in the event that the Company terminated
the Merger Agreement in order to enter into such other competing
transaction).
The Board of Directors based its conclusion and recommendations on all of
the foregoing factors and did not attribute particular weight to any factor
considered by it.
Salary Equivalency
In considering whether to approve the Merger Agreement, the Board of
Directors considered the Company's projected future operating performance as
well as the potential impact of "salary equivalency" guidelines on these
projections. The Board of Directors also considered the uncertainty associated
with the adoption of these guidelines (including the timing of any such
adoption), and the impact that this uncertainty has had and may continue to
have on the trading prices for the Common Stock.
9
<PAGE>
The Health Care Financing Administration ("HCFA") is currently considering
changes to the Medicare reimbursement guidelines for various services provided
by the Company. The Company believes that HCFA intends to update the salary
equivalency guidelines for physical therapy and respiratory therapy services,
and to apply salary equivalency guidelines to speech language pathology and
occupational therapy services. Although the Company has no way to determine
when, or if, any changes will be made to the current Medicare reimbursement
guidelines for these services, the imposition of salary equivalency guidelines
on speech language pathology and occupational therapy services that results in
a significant decrease in reimbursement rates for such services, would
significantly decrease the Company's margins.
The Company does not as a matter of course publicly disclose projections as
to future revenues or earnings. The estimates of future financial performance
set forth below (the "Projections") were not prepared with a view to public
disclosure or compliance with the published guidelines of the Commission or
the guidelines established by the American Institute of Certified Public
Accountants regarding projections. None of the Company, Vencor, the Purchaser
or any of their respective financial advisors or any of their respective
directors or officers assumes any responsibility for the accuracy of the
Projections. The Company's independent auditors have not examined or compiled
the Projections presented herein and, accordingly, assume no responsibility
for them. In addition, because the estimates and assumptions, many of which
are not set forth herein, underlying the Projections are inherently subject to
significant economic, regulatory and competitive uncertainties and
contingencies which are difficult or impossible to predict accurately and are
beyond the Company's control, there can be no assurance that the Projections
will be realized. Accordingly, it is expected that there will be differences
between actual and projected results, and actual results may be materially
different than those set forth below, including with respect to the effects of
"salary equivalency" rates and the Company's response thereto.
The Company expects to have earnings before non-recurring charges of $22.7
million in 1996. Management has projected that the Company's earnings before
non-recurring charges will increase by approximately 26% and 33% in 1997 and
1998, respectively. Based on a range of likely blended hourly rates for salary
equivalency, management estimated that net income for 1997 could be reduced by
approximately 20%-40% (assuming that the new salary equivalency guidelines had
been in effect for the entire year) and net income for 1998 could be reduced
by approximately 15%-35% (assuming that the new salary equivalency guidelines
had been in effect for the entire year). The estimated reduction in net income
takes into account the anticipated effect of the Company's response plan to
the implementation of salary equivalency guidelines, which includes, among
other things, changes in billing practices to comply with anticipated salary
equivalency procedures, operating efficiencies that could be derived from
newly implemented hand held technology and possible changes in labor
configuration. Management noted that the projections, as revised to give
effect to the salary equivalency guidelines, did not include other sources of
additional revenue or cost-savings that might be achievable under the new
guidelines, since management was unable to estimate these benefits with any
degree of certainty prior to a formal proposal from HCFA. Management did
expect, however, that there would be additional opportunities for additional
revenue or cost-savings, which could reduce, in part, the negative impact of
the salary equivalency guidelines.
This Statement contains certain statements which may be regarded as
"forward-looking statements" (as that term is defined in the Private
Securities Litigation Reform Act of 1995). Such forward-looking statements
involve risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in the forward-looking statements.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Pursuant to a letter agreement, dated October 30, 1996 (the "Advisory
Agreement"), between the Company and The Beacon Group, The Beacon Group agreed
to advise and assist the Company, as financial advisor, in connection with a
possible business combination (a "Transaction"), including financial advice
and assistance with respect to identifying alternative business combinations,
performing valuation analyses, and structuring, analyzing and negotiating the
various aspects of the Transaction.
10
<PAGE>
Pursuant to the Advisory Agreement, the Company agreed to pay The Beacon
Group (i) a fee in an amount equal to .750% of the value of the consideration
paid with respect to a Transaction and (ii) an additional $250,000 if a
fairness opinion were rendered by The Beacon Group to the Company in
connection with a Transaction. In addition, the Company agreed to (i) pay The
Beacon Group a retainer fee of $50,000 (which fee was paid on June 19, 1996)
(the "Retainer Fee"), (ii) reimburse The Beacon Group for its reasonable out-
of-pocket expenses, including the reasonable fees and expenses of legal
counsel, incurred in connection with the Advisory Agreement, (iii) indemnify
The Beacon Group and its affiliates and their respective partners, principals,
officers, directors, agents, employees and controlling persons against certain
liabilities and expenses, including liabilities under the federal securities
laws and (iv) pay The Beacon Group, upon the termination of the Advisory
Agreement, an additional fee of $50,000 (the "Termination Fee"). In the event
that a Transaction is completed (including the Offer), any amounts paid by the
Company to The Beacon Group on account of the Retainer Fee or the Termination
Fee will be deducted from all other fees to which The Beacon Group is entitled
pursuant to the Advisory Agreement.
Except as disclosed herein, neither the Company nor any person acting on its
behalf currently intends to employ, retain or compensate any other person to
make solicitations or recommendations to security holders on its behalf
concerning the Offer or the Merger.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) No transactions in Shares have been effected during the past 60 days by
the Company or, to the best of the Company's knowledge, by an executive
officer, director, subsidiary or affiliate of the Company.
(b) To the best of the Company's knowledge, except for Shares the sale of
which may trigger liability for the holder(s) under Section 16(b) of the
Exchange Act, each executive officer, director and affiliate of the Company
currently intends to tender all Shares to the Purchaser over which he or she
has sole dispositive power as of the expiration date of the Offer.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as set forth above or in Item 3(b) or 4(b), no negotiation is
being undertaken or is underway by the Company in response to the Offer which
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 described above or in Item 3(b) or 4(b) above, there are no
transactions, Board of Directors resolutions, agreements in principle or
signed contracts in response to the Offer that 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 Schedule II hereto is being
furnished in connection with the possible designation by the Purchaser,
pursuant to the Merger Agreement, of certain persons to be appointed to the
Board of Directors other than at a meeting of the Company's stockholders as
described in Item 3 above.
(b) Amendment of Certificate of Incorporation of the Company
In connection with the transaction contemplated by the Merger Agreement, the
Company expects to amend its certificate of incorporation (as amended, the
"Certificate of Incorporation") to reduce the number of authorized shares of
common stock, par value $.001 per share from 50,000,000 to 1,000.
11
<PAGE>
(c) Rights Agreement.
The Company has entered into a Rights Agreement (the "Rights Agreement"),
dated as of July 28, 1995, between the Company and U.S. Stock Transfer
Corporation, as Rights Agent. Pursuant to the terms of the Rights Agreement,
the Rights which are currently attached to the Common Stock would separate
from the Shares 10 days following the commencement or announcement of an
intention to make a tender offer or exchange offer, the consummation of which
would result in the beneficial ownership by a person or group of 15% or more
of the outstanding Shares. At the time the Rights would separate from the
Shares, each holder of a Right would be entitled to purchase one one-hundredth
of a share (a "Unit") of the Series A Junior Participating Preferred Stock,
par value $.001 per share of the Company at a price of $60 per Unit, subject
to adjustment.
In addition, the Rights Agreement provides that 10 days following a public
announcement that a person or group of affiliated or associated persons have
become an Acquiring Person (as such term is defined in the Rights Agreement)
or 10 days following the date on which a majority of the Continuing Directors
(as such term is defined in the Rights Agreement), in good faith, informs the
Company by written notice of the existence of an Acquiring Person, each Right
(other than Rights owned by the Acquiring Person and such persons affiliates
and associates) would become the right to purchase a number of Shares having a
market value equal to twice the exercise price of a Right.
The Company has amended the Rights Agreement in the manner described below
to ensure that the Rights will not separate from the Shares or become
exercisable as a result of the commencement of the Offer or as a result of the
consummation of the transactions contemplated by the Merger Agreement.
The foregoing description of the Rights Agreement is qualified in its
entirety by reference to the Rights Agreement, a copy of which has been filed
with the Commission as Exhibit 5 to this Statement.
(d) Amendment to Rights Agreement.
The following is a general description only and is qualified in its entirety
by Amendment No. 1 to the Rights Agreement, dated February 9, 1997, a copy of
which has been filed with the Commission as Exhibit 6 to this Statement.
In connection with the transactions contemplated by the Merger Agreement,
the Company has amended the Rights Agreement to provide that (i) Vencor, the
Purchaser and any of their respective affiliates or associates shall not be
deemed to be an "Acquiring Person" for any purpose of the Rights Agreement by
virtue of (a) the acquisition of Shares pursuant to the Offer or the Merger,
(b) the execution, delivery and performance of the Merger Agreement, or (c)
the consummation of the transactions contemplated by the Merger Agreement in
accordance with the terms thereof, (ii) a Distribution Date (as defined in the
Rights Agreement) will not be deemed to have occurred as a result of the
announcement or occurrence of (a) the acquisition of Shares by Vencor or the
Purchaser pursuant to the Offer or the Merger (each as defined in the Merger
Agreement) (b) the execution, delivery and performance of the Merger
Agreement, or (c) the consummation of the transactions contemplated by the
Merger Agreement in accordance with the terms thereof and (iii) neither the
acquisition of Shares pursuant to the Offer or the Merger (each as defined in
the Merger Agreement), nor the execution, delivery and performance of the
Merger Agreement or the consummation of the transactions contemplated by the
Merger Agreement in accordance with the terms thereof shall cause the Rights
to be adjusted or exercisable in accordance with the Rights Agreement.
(e) Delaware Takeover Legislation
Section 203 of the Delaware General Corporation Law ("Section 203") makes it
more difficult to effect certain transactions between a corporation and a
person or group who or which owns 15% or more of the corporation's outstanding
voting stock (including any rights to acquire stock pursuant to an option,
warrant, agreement, arrangement or understanding, or upon the exercise of
conversion or exchange rights, and stock with respect to which the person has
voting rights only), or is an affiliate or associate of the corporation and
was the owner of 15% or more of such voting stock at any time within the
previous three years (excluding persons who became 15% stockholders by action
of the corporation alone). The legislation prevents, for a period of three
years following the date that a stockholder became a holder of 15% or more of
the corporation's outstanding voting stock, the following types of
transactions between the corporation and the 15% stockholder (unless certain
12
<PAGE>
conditions, described below, are met): (i) mergers or consolidations, (ii)
sales, leases, exchanges or other transfers of 10% or more of the aggregate
assets of the corporation, (iii) issuances or transfers by the corporation of
any stock of the corporation which would have the effect of increasing the 15%
stockholder's proportionate share of the stock of any class or series of the
corporation, (iv) receipt by the 15% stockholder of the benefit (except
proportionately as a stockholder) of loans, advances, guarantees, pledges or
other financial benefits provided by the corporation and (v) any other
transaction which has the effect of increasing the proportionate share of the
stock of any class or series of the corporation which is owned by the 15%
stockholder. Section 203 does not apply to transactions involving individuals
or entities who became 15% stockholders prior to December 23, 1987 or who
became 15% stockholders through a tender offer commenced prior to December 23,
1987.
The three-year ban does not apply if either the proposed transactions or the
transaction by which the 15% stockholder became a 15% stockholder is approved
by the board of directors of the corporation prior to the date such
stockholder became a 15% stockholder. Additionally, a 15% stockholder may
avoid the statutory restriction if, upon the consummation of the transaction
whereby such stockholder became a 15% stockholder, the stockholder owns at
least 85% of the outstanding voting stock of the corporation without regard to
those shares owned by directors who are officers or certain employee stock
plans. Business combinations are also permitted within the three year period
if approved by the board of directors and, at an annual or special meeting, by
the holders of 66 2/3% of the outstanding voting stock not owned by the 15%
stockholder.
A corporation may, at its option exclude itself from the coverage of Section
203 by providing in its certificate of incorporation or bylaws at any time to
exempt itself from coverage, provided that a bylaw or charter amendment cannot
become effective for 12 months after such amendment is adopted. In addition,
any transaction is exempt from the statutory ban if it is proposed at a time
when the corporation has proposed, and a majority of certain continuing
directors of the corporation have approved, a transaction with a party who is
not a 15% stockholder of the corporation (or who became such with board
approval) if the proposed transaction involves (i) certain mergers or
consolidations involving the corporation, (ii) a sale or other transfer of
over 50% of the aggregate assets of the corporation or (iii) a tender or
exchange offer for 50% or more of the outstanding voting stock of the
corporation. The Certificate of Incorporation of the Company does not contain
a provision "opting out" of the coverage of Section 203.
Because the Merger Agreement has been approved by the Board of Directors,
the provisions of Section 203 do not apply to the Offer or the Merger.
The foregoing description of Section 203 is qualified in its entirety by
reference to Section 203 of the Delaware General Corporation Law.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<C> <S>
Exhibit 1 Excerpts of the Company's Proxy Statement for the 1996 Annual
Meeting of Stockholders held on May 30, 1996.
Exhibit 2 Agreement and Plan of Merger, dated as of February 9, 1997, among
Vencor, Inc., Peach Acquisition Corp. and TheraTx, Incorporated.
Exhibit 3 Form of Non-Competition and Non-Solicitation Agreement between the
Company and each of John A. Bardis, Bret W. Jorgensen, Donald R.
Myll and Louis E. Hallman, III.
Exhibit 4 Form of Non-Competition and Non-Solicitation Agreement between the
Company and each of Laura E. Cayce and William J. Haffey, Ph.D.
Exhibit 5 Rights Agreement dated as of July 28, 1995, between the Company and
U.S. Stock Transfer Corporation.
Exhibit 6 Amendment No. 1 to the Rights Agreement, dated as of February 9,
1997 between the Company and U.S. Stock Transfer Corporation.
Exhibit 7 Form of Letter to Stockholders of the Company, dated February 14,
1997.
</TABLE>
13
<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.
Theratx, Incorporated
/s/ Donald R. Myll
-------------------------------------
Name: Donald R. Myll
Title:Senior Vice President and
Chief Financial Officer
Dated: February 14, 1997
14
<PAGE>
SCHEDULE I
399 Park Avenue
New York, New York 10022
(212) 339-9100
FAX: (212) 339-9109
The Beacon Group
Capital Services, LLC
February 9, 1997
CONFIDENTIAL
- ------------
Board of Directors
TheraTx, Incorporated
Sanctuary Park
1105 Sanctuary Parkway
Alpharetta, GA 30201
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of the outstanding shares of common stock, par value
$0.001 per share (together with the associated rights to purchase shares of
Series A Junior Participating Preferred Stock, the "Shares"), of TheraTx
Incorporated (the "Company") of the $17.10 per Share in cash proposed to be
paid by Vencor, Inc. ("Vencor") in the Tender Offer and the Merger (as defined
below) pursuant to the Agreement and Plan of Merger, dated as of February 9,
1997, among Vencor, Peach Acquisition Corp., a wholly-owned subsidiary of
Vencor, and the Company (the "Agreement").
The Agreement provides for a tender offer for all of the Shares (the "Tender
Offer") pursuant to which Peach Acquisition Corp. will pay $17.10 per Share in
cash for each Share accepted. The Agreement further provides that following
completion of the Tender Offer, Peach Acquisition Corp. will be merged with and
into Vencor (the "Merger") and each outstanding Share (other than Shares
already owned by Vencor or Peach Acquisition Corp.) will be converted into the
right to receive $17.10 in cash.
The Beacon Group Capital Services, LLC ("Beacon"), as part of its investment
banking business, is engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, principal investments,
private placements and other purposes. We are familiar with the Company having
acted as its financial advisor in connection with, and having participated in,
certain of the negotiations leading to the Agreement.
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K of
the Company for the two years ended December 31, 1995; certain interim reports
to stockholders and Quarterly Reports on Form 10-Q; certain other
communications from the Company to its stockholders; and certain internal
financial analyses and forecasts for the Company prepared by its management. We
also have held discussions with members of the senior management of the Company
regarding its past and current business operations, financial condition,
regulatory environment and future prospects. In addition, we have reviewed the
reported price and trading activity for the Shares, compared certain financial
and stock market information for the Company with similar information for
certain other companies the securities of which are publicly traded, reviewed
the financial terms of certain recent business combinations in the health care
industry specifically and in other industries generally and performed such
other studies and analyses as we considered appropriate.
<PAGE>
We have relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by us for
purposes of this opinion. In addition, we have not made an independent
evaluation or appraisal of the assets and liabilities of the Company or any of
its subsidiaries and we have not been furnished with any such evaluation or
appraisal. Our advisory services and opinion expressed herein are provided for
the information and assistance of the Board of Directors of the Company in
connection with its consideration of the transactions contemplated by the
Agreement and does not constitute a recommendation to any shareholder as to
how such shareholder should respond to the Tender Offer or Merger. This
opinion necessarily is based on market, economic, financial and other
conditions as they existed on, and could be evaluated as of, the date hereof.
Based upon and subject to the foregoing and based upon such other matters as
we consider relevant, it is our opinion that as of the date hereof the $17.10
per Share in cash to be received by the holders of Shares in the Tender Offer
and the Merger is fair to such holders from a financial point of view.
Very truly yours,
/s/ The Beacon Group Capital
Services, LLC
The Beacon Group Capital Services,
LLC
<PAGE>
SCHEDULE II
INFORMATION PURSUANT TO SECTION 14(F) OF THE SECURITIES EXCHANGE ACT OF 1934
AND RULE 14F-1 THEREUNDER
----------------
GENERAL
The following information is being furnished to holders of the common stock,
par value $.001 per share (the "Shares"), of TheraTx, Incorporated, a Delaware
corporation (the "Company"), in connection with the possible designation by
Vencor, Inc., a Delaware corporation ("Vencor"), of at least a majority of the
board of directors of the Company pursuant to the terms of an Agreement and
Plan of Merger, dated as of February 9, 1997 (the "Merger Agreement"), by and
among the Company, Vencor and Peach Acquisition Corp., a Delaware corporation
and wholly owned subsidiary of Vencor (the "Purchaser"). THIS INFORMATION IS
BEING PROVIDED SOLELY FOR INFORMATIONAL PURPOSES AND NOT IN CONNECTION WITH A
VOTE OF THE COMPANY'S STOCKHOLDERS.
The Merger Agreement provides that promptly following the purchase by
Purchaser of the Shares pursuant to the Offer, Vencor may request that the
Company take all actions necessary to cause persons designated by Vencor to
become directors of the Company (the "Purchaser Designees") so that the total
number of directorships held by such persons is proportionate to the
percentage calculated by dividing (i) the number of Shares accepted for
payment pursuant to the Offer plus Shares beneficially owned by the Purchaser
by (ii) the total number of Shares outstanding at the time of acceptance of
the Shares for payment pursuant to the Offer; provided that prior to the
consummation of the Merger, the board of directors of the Company (the "Board
of Directors") shall always have at least two members who are neither
officers, designees, shareholders or affiliates of the Purchaser. The Company
has also agreed to increase the size of the Board of Directors or to secure
the resignation of existing directors to ensure that it has complied with this
provision of the Merger Agreement.
The information contained in this Schedule II concerning the Purchaser has
been furnished to the Company by the Purchaser, and the Company assumes no
responsibility for the accuracy or completeness of any such information.
THE COMMON STOCK
The only outstanding class of voting securities of the Company is its
Shares. As of the close of business on February 12, 1997, there were
outstanding 20,823,685 Shares, each of which is entitled to one vote on each
matter to be considered at meetings of stockholders, including the election of
directors. See "Security Ownership of Certain Beneficial Owners and
Management."
<PAGE>
DESIGNEES TO THE COMPANY'S BOARD OF DIRECTORS
The Purchaser has informed the Company that it will choose the Purchaser
Designees from the individuals shown in the table below to serve on the Board
of Directors.
The following table, prepared from information furnished to the Company by
the Purchaser, sets forth the name, occupation and age of each of the
Purchaser Designees. Each of the Purchaser Designees is a citizen of the
United States of America.
<TABLE>
<CAPTION>
NAME OCCUPATION AGE
---- ---------- ---
<C> <S> <C>
Michael R. Barr........... Executive Vice President and Chief 47
Operating Officer of Vencor
W. Bruce Lunsford......... Chairman of the Board, President and Chief 49
Executive Officer of Vencor
W. Earl Reed, III......... Executive Vice President and Chief 45
Financial Officer of Vencor
Jill L. Force............. Senior Vice President, General Counsel and 44
Corporate Secretary of Vencor
Thomas T. Ladt............ Executive Vice President, Operations of 46
Vencor
Maria M. Levering......... Senior Vice President, Corporate Services 43
of Vencor
Steven L. Monaghan........ Vice President, Facility Accounting of 44
Vencor
Richard A. Lechleiter..... Vice President, Finance of Vencor 38
Brian L. Pugh............. Vice President, Program Development of 50
Vencor
Frank W. Anastasio........ Vice President, Ancillary Services of 51
Vencor
</TABLE>
Michael R. Barr, a founder of Vencor, physical therapist and certified
respiratory therapist, has served as Chief Operating Officer and Executive
Vice President of Vencor since February 1996. From November 1995 to February
1996, he was Executive Vice President of Vencor and Chief Executive Officer of
the Vencor's Hospital Division. Mr. Barr served as Vice President, Operations
from 1985 to November 1995. He has been a director of Vencor since 1985. Mr.
Barr is a director of Colorado MEDtech, Inc., a medical products and equipment
company.
W. Bruce Lunsford, a founder of Vencor, certified public accountant and
attorney, has served as Chairman of the Board, President and Chief Executive
Officer of Vencor since Vencor commenced operations in 1985. Mr. Lunsford is a
director of National City Corporation, a bank holding company; Churchill Downs
Incorporated; and Res-Care, Inc., a provider of residential training and
support services for persons with developmental disabilities and certain
vocational training services. Mr. Lunsford is a member and Chairman of the
executive committee of Vencor.
W. Earl Reed, III, a certified public accountant, has served as a director
of Vencor since 1987. He has been Chief Financial Officer and Executive Vice
President of Vencor since November 1995. From 1987 to November 1995, Mr. Reed
served as Vice President, Finance and Development of Vencor.
Jill L. Force has served as Secretary of the Purchaser since February 1997
and Senior Vice President, General Counsel and Corporate Secretary of Vencor
since December 1996. From November 1995 to December 1996, she was Vice
President, General Counsel and Corporate Secretary. From 1989 to 1995, she was
General Counsel and Corporate Secretary.
Thomas T. Ladt has served as Director and Vice President of the Purchaser
since February 1997 and Executive Vice President, Operations of Vencor since
February 1996. From November 1995 to February 1996, he served as President of
Vencor's Hospital Division. From 1993 to November 1995, Mr. Ladt was Vice
President of Vencor's Hospital Division. From 1989 to December 1993, he was
Regional Director of Operations of Vencor.
2
<PAGE>
Maria M. Levering has served as Senior Vice President of Corporate Services
of Vencor since January 1997. From November 1995 to January 1997, she was Vice
President of Administrative Services of Vencor. From 1992 to November 1995,
she served as Director of Administrative Services of Vencor.
Steven L. Monaghan has served as Vice President of Facility Accounting of
Vencor since March 1996. From 1995 to March 1996, Mr. Monaghan served as Chief
Executive Officer of San Leandro Hospital. Prior thereto, Mr. Monaghan served
as Chief Operating Officer of the Pacific Division at each of (1) Columbia/HCA
Healthcare Corporation (September 1993 to 1995), (ii) Galen Health Care, Inc.
(March 1993 to August 1993) and (iii) Humana Inc. (1992 to February 1993).
Richard A. Lechleiter, a certified public accountant, has served as Vice
President, Finance and Corporate Controller of Vencor since November 1995.
From June 1995 to November 1995, he was Director of Finance of Vencor. Prior
thereto, Mr. Lechleiter served as Vice President and Controller at each of (i)
Columbia/HCA Healthcare Corporation (September 1993 to May 1994), (ii) Galen
Health Care, Inc., (March 1993 to August 1993) and (iii) Humana Inc.
(September 1990 to February 1993).
Brian L. Pugh has served as Vice President of Program Development of Vencor
since March 1996. From November 1995 to March 1996, he was Regional Vice
President of Vencor's Hospital Division. Mr. Pugh served as Regional Director
of Operations of Vencor from 1992 to 1995.
Frank W. Anastasio has served as Vice President of Ancillary Services of
Vencor since March 1996. From November 1995 to March 1996, he was Regional
Vice President of Vencor's Hospital Division. Mr. Anastasio served as Regional
Director of Operations of Vencor from 1992 to 1995.
None of the Purchaser Designees currently is a director of, or holds any
position with, the Company. The Company has been advised by the Purchaser
that, to the best of Purchaser's knowledge, none of the Purchaser Designees or
any of their associates beneficially owns (other than by virtue of the Merger
Agreement) any equity securities, or rights to acquire any equity securities,
of the Company or has been involved in any transactions with the Company or
any of its directors, executive officers or affiliates which are required to
be disclosed pursuant to the rules and regulations of the Securities and
Exchange Commission (the "Commission").
3
<PAGE>
THE BOARD OF DIRECTORS
INFORMATION WITH RESPECT TO DIRECTORS
Set forth below, as of February 12, 1997, for each director of the Company
is information regarding his age, position(s) with the Company, the period he
has served as a director, any family relationship with any other director or
executive officer of the Company and the directorships currently held by him
in corporations whose shares are publicly registered.
DIRECTORS CONTINUING TO SERVE UNTIL 1997
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
John A. Bardis................... 40 President and Chief Executive Officer and
Director
L. John Wilkerson, Ph.D.(1)...... 53 Chairman of the Board of Directors
- --------
(1)Member of the Compensation Committee.
John A. Bardis has been President, Chief Executive Officer and a director of
the Company since November 1992. From October 1987 to November 1992, Mr. Bardis
was a senior executive with Kinetic Concepts, Inc. ("KCI"), a publicly traded
medical equipment supplier. Mr. Bardis served in various positions with KCI,
including President of KCI Medical Services and as a Senior Vice President of
the Healthcare Products and Services Group. From 1978 to 1987, Mr. Bardis held
various senior management positions with American Hospital Supply,
International Sales Corporation and Baxter International, Inc. including Vice
President of the Baxter Operating Room Division and General Manager of the
Eastern Zone.
L. John Wilkerson, Ph.D. has served as a director since June 1992 and as
Chairman of the Board of the Company since May 1994. Since March 1990, Dr.
Wilkerson has served as a General Partner of Galen Associates, a venture
capital fund. Dr. Wilkerson is a consultant to the Wilkerson Group, one of the
leading health care consulting groups in the United States. Dr. Wilkerson is a
board member of Gensia, Inc., British BioTechnology Group, plc, and several
private health care companies. Dr. Wilkerson is also a board member of
Morristown Memorial Hospital, a 650-bed hospital system.
DIRECTORS CONTINUING TO SERVE UNTIL 1998
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
W. David Holder.................. 55 Director
Donald B. Milder (1)............. 42 Director
</TABLE>
- --------
(1) Member of the Audit Committee.
W. David Holder has served as a director of the Company since April 1990.
For more than five years Mr. Holder has been an investor, director and
consultant with, and currently serves as President of, David Holder
Associates, a firm investing in and providing consulting services to a number
of emerging growth health care companies. Mr. Holder has over 18 years of
direct experience in health care sales, marketing and operations. Since its
founding in February 1994, Mr. Holder has served as the Chairman of the Board
of Edix Corporation. From January 1980 to May 1984, Mr. Holder served as Vice
President of Sales of Caremark International.
Donald B. Milder has served as a director of the Company since June 1990.
Since March 1989, Mr. Milder has served as a General Partner of Crosspoint
Venture Partners, a venture capital fund. From September 1985 to March 1989,
Mr. Milder served as Chief Executive Officer of Infusion Systems, a medical
delivery device company. Mr. Milder also serves as a director of eight
privately held companies.
4
<PAGE>
DIRECTORS CONTINUING TO SERVE UNTIL 1999
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Bret W. Jorgensen................ 38 Executive Vice President; President,
TheraTx Health Services Group and Director
Craig T. Davenport (1)........... 44 Director
Robert J. Erra (1) (2)........... 54 Director
Patrick T. Hackett (2)........... 35 Director
</TABLE>
- --------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Bret W. Jorgensen, a co-founder of the Company, has served as a director of
the Company since May 1993, Executive Vice President since May 1996 and
President, TheraTx Health Services Group since February 1995. From May 1994
until February 1995, Mr. Jorgensen served as Vice President and General
Manager, TheraTx Health Services Division and as Vice President Operations
from February 1991 to May 1994. From the Company's inception in July 1989 to
August 1991, Mr. Jorgensen served as the Company's Secretary. Mr. Jorgensen
was responsible for all operations of the Company from inception through May
1994, and has overseen the operations of TheraTx Health Services Division
since June 1994. From July 1986 to August 1990, Mr. Jorgensen served as
President of Praendex San Diego, a management consulting firm.
Craig T. Davenport has served as a director of the Company since December
1991 and has over 24 years of experience in working with a variety of both
large and small health care companies. Since 1993 he has been Chief Executive
Officer and Managing Partner for The D.W. Group, a private investment company
specializing in providing advisory services for early stage health care
ventures. From May 1985 through 1993, Mr. Davenport was the President, Chief
Operating Officer and a director of Tokos Medical Corporation ("Tokos"). Prior
to joining Tokos, Mr. Davenport was President of American Hospitex and
American Physicians' Service and Supply, Divisions of American Hospital Supply
Corporation. Mr. Davenport is a director of Matria Health Care, Chairman of
Sidelines National Support Network and a director of several privately held
companies.
Robert J. Erra has served as a director of the Company since April 1990 and
served as Chairman of the Board from June 1990 to May 1994. Since November
1993, Mr. Erra has been a partner of MCG Healthcare Consultants. From December
1988 to October 1993, Mr. Erra was the Senior Vice President and Chief
Operating Officer of the Scripps Clinic and Research Foundation. Prior to
December 1988, Mr. Erra served in a variety of positions, including as
President of Western Health Plans, as Administrator of the Santa Barbara
Medical Foundation, as Associate Vice Chancellor for the School of Medicine at
University of California at San Diego, and as a Senior Vice President with
Scripps Medical Clinic. Mr. Erra is also a director of Cardiometrics, Inc. and
one privately held company.
Patrick T. Hackett became a director of the Company effective May 31, 1994.
Mr. Hackett has served as a Managing Director of E.M. Warburg, Pincus &
Company, LLC and its predecessor since January 1994. Mr. Hackett served as
Vice President of Warburg, Pincus Ventures, Inc., a venture capital subsidiary
of E.M. Warburg, Pincus & Company, Inc. from January 1991 to December 1993 and
as an associate from May 1990 to December 1991. From February 1988 to May
1990, Mr. Hackett served as Vice President and Treasurer of Cove Capital
Associates, Inc., a private investment firm. Mr. Hackett also serves as a
director of Transition Systems, Inc. and five privately held companies.
5
<PAGE>
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors met eight (8) times during the year ended December
31, 1996. Each Director attended at least 75% of the aggregate of (i) the
total number of meetings of the Board of Directors and (ii) the total number
of meetings held by all Committees of the Board on which such Director served.
The Company has standing Audit and Compensation Committees. During 1996, the
Audit Committee was comprised of Messrs. Erra, Milder and Hackett. The Audit
Committee is primarily responsible for approving the services performed by the
Company's independent public accountants and for reviewing and evaluating the
Company's accounting principles and reporting practices and its system of
internal accounting controls. Selection of independent auditors, however, is
made by the Company's Board of Directors. The Audit Committee held two (2)
meetings during the year ended December 31, 1996.
The Company has a standing Compensation Committee which met four (4) times
during the year ended December 31, 1996. The Compensation Committee consists
of Messrs. Davenport and Erra and Dr. Wilkerson. The Compensation Committee
reviews and acts on matters relating to compensation levels and benefit plans
for key executives of the Company.
After the consummation of the Merger, it is expected that the Company's
Board of Directors will act to appoint new members to the Executive,
Compensation and Audit Committees. To the Company's knowledge, no decision has
been made by the Purchaser Designees regarding the membership of any such
committees of the Board.
The compensation of directors is described under "Compensation of Directors."
6
<PAGE>
EXECUTIVE OFFICERS
Executive officers serve at the discretion of the Board of Directors. The
following table sets forth certain information concerning the executive
officers of the Company (as of February 12, 1997) who are expected to serve in
such capacity until the consummation of the Merger (none of whom has a family
relationship with another executive officer):
<TABLE>
<CAPTION>
NAME POSITION AGE
---- -------- ---
<C> <S> <C>
John A. Bardis.......... President, Chief Executive Officer and
Director 40
Bret W. Jorgensen....... Executive Vice President; President, TheraTx
Health Services Group and Director 38
Donald R. Myll.......... Senior Vice President and Chief Financial
Officer 39
Louis E. Hallman, III... Vice President Corporate Development 38
William J. Haffey, Ph.D. Senior Vice President and Chief Clinical
Information Systems Officer 49
Laura E. Cayce.......... Senior Vice President, and President,
PersonaCare Group 43
Jonathan H. Glenn....... Vice President, General Counsel and Secretary 46
B. Wayne Clark.......... Vice President and Chief Administrative
Officer 48
</TABLE>
John A. Bardis has been President, Chief Executive Officer and a director of
the Company since November 1992. From October 1987 to November 1992, Mr.
Bardis was a senior executive with Kinetic Concepts, Inc. ("KCI"), a publicly
traded medical equipment supplier. Mr. Bardis served in various positions with
KCI, including President of KCI Medical Services and as a Senior Vice
President of the Healthcare Products and Services Group. From 1978 to 1987,
Mr. Bardis held various senior management positions with American Hospital
Supply, and Baxter International, Inc. including Vice President of the Baxter
Operating Room Division and General Manager of the Eastern Zone.
Bret W. Jorgensen, a co-founder of the Company, has served as a director of
the Company since May 1993, Executive Vice President since May 1996 and has
been President, TheraTx Health Services Group since February 1995. From May
1994 until February 1995, Mr. Jorgensen served as Vice President and General
Manager, TheraTx Health Services Division and as Vice President Operations
from February 1991 to May 1994. From the Company's inception in July 1989 to
August 1991, Mr. Jorgensen served as the Company's Secretary. Mr. Jorgensen
was responsible for all operations of the Company from inception through May
1994, and has overseen the operations of TheraTx Health Services Division
since June 1994. From July 1986 to August 1990, Mr. Jorgensen served as
President of Praendex San Diego, a management consulting firm.
Donald R. Myll has been Senior Vice President of the Company since September
1995, and Chief Financial Officer since March 1993. From June 1990 through
September 1995, Mr. Myll served as Vice President, Finance. From November 1987
to May 1990, Mr. Myll was Financial Manager and Director of Finance of
Advanced Marketing Services, Inc., a publicly traded distributor of books and
videos to the specialty retail industry.
Louis E. Hallman, III, a co-founder of TheraTx, has been Vice President
Corporate Development of the Company since February 1991 and was a Vice
President from TheraTx's inception in July 1989 to February 1991. From
December 1986 to July 1989, Mr. Hallman was an independent management
consultant to a number of emerging growth companies focusing on business
planning, operations, financial forecasting, and implementing financial and
accounting control systems.
William J. Haffey, Ph.D. joined TheraTx as Director of Clinical Services in
October 1991 and has served as Vice President and Chief Clinical Information
Systems Officer from February 1995 through May 1996. In May 1996, Mr. Haffey
was promoted to Senior Vice President. From January 1992 until February 1995,
Dr. Haffey served as TheraTx's Vice President Clinical Services. From January
1989 to September 1991, Dr. Haffey served as Executive Director,
Rehabilitation Services for Sharp HealthCare in San Diego. During his 16 years
of rehabilitation experience, Dr. Haffey has published extensively in areas of
outcomes assessment, program evaluation and patient management and is a
recognized expert in rehabilitation therapy. He is a member of the Editorial
Board of the Journal of Head Trauma Rehabilitation.
7
<PAGE>
Laura E. Cayce has been President, PersonaCare Group since September 1995
and Senior Vice President since May 1996. From May 1994 through September
1995, Ms. Cayce served as Vice President and General Manager, PersonaCare.
From July 1992 to May 1994, Ms. Cayce served as TheraTx's Southern Division
Vice President. From November 1991 to June 1992, Ms. Cayce was Vice President
of Development for ReLife, Inc. which acquired Renaissance America, Inc. where
she served as Vice President of Operations for several years. Ms. Cayce's
experience spans 19 years where she served in operations and consultant roles
in four nursing home companies, with an emphasis on subacute development. She
has been a board member of several hospitals and industry organizations,
managed a health care consulting firm, developed prototypical rehabilitation
programs and was Vice President of a large home health agency.
Jonathan H. Glenn joined TheraTx in June 1994 as General Counsel of the
Company, became Secretary in February 1995 and was made Vice President in
October 1995. Mr. Glenn served as general counsel of PersonaCare from May 1992
through May 1994. Prior to joining PersonaCare, Mr. Glenn was a principal in
the law firm of Tabor, Glenn and Betten, P.A. in Baltimore, Maryland, where he
practiced law since 1978.
B. Wayne Clark has been Vice President and Chief Administrative Officer of
the Company since September 1995. From February 1994 through September 1995,
Mr. Clark served as Vice President Administrative Services. From March 1993 to
February 1994, Mr. Clark served as Senior Director, Administrative Services.
From August 1983 to February 1993, Mr. Clark served in a variety of roles,
including Salesman, General Manager of Distributorship, District Manager,
Director of National Accounts, Director of Capital Sales, Senior Director of
Sales Administration and Vice President of Operations and Administration with
KCI.
8
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company
regarding the beneficial ownership of Common Stock as of February 12, 1997 by
(i) each Named Executive Officer (as defined below); (ii) each director; (iii)
all current directors and executive officers of the Company as a group; and
(iv) each stockholder known to the Company to be a beneficial owner of more
than five percent (5%) of the Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENTAGE OF
BENEFICIAL OUTSTANDING
NAME OF BENEFICIAL OWNER OWNERSHIP COMMON STOCK(1)
- ------------------------ ------------- ---------------
<S> <C> <C>
Crosspoint Venture Partners III.................. 23,516(2) *
18552 MacArthur Boulevard, Suite 400
Irvine, California 92715
Donald B. Milder (3)............................. 73,161(4) *
18552 MacArthur Boulevard, Suite 400
Irvine, California 92715
Galen Partners, L.P. ............................ 888,918(5) 4.3
666 Third Avenue, Suite 135
New York, New York 10017-4011
L. John Wilkerson, Ph.D. (6)..................... 33,000(7) *
666 Third Avenue, Suite 135
New York, New York 10017-4011
FMR Corp. (8).................................... 2,222,675 10.7
82 Devonshire Street
Boston, Massachusetts 02109-0614
Warburg, Pincus Investors, L.P. (9).............. 2,438,705 11.7
Patrick T. Hackett (9)(10)
466 Lexington Avenue
New York, New York 10017
John A. Bardis (11).............................. 498,904(12) 2.4
c/o TheraTx, Incorporated
400 Northridge Road, Suite 400
Atlanta, Georgia 30350
Bret W. Jorgensen (11)........................... 326,666(13) 1.5
Donald R. Myll (14).............................. 108,166(15) *
Laura E. Cayce (14).............................. 60,735(16) *
Louis E. Hallman, III (14)....................... 314,500(17) 1.5
William J. Haffey, Ph.D. (14).................... 48,000(18) *
Craig T. Davenport (10).......................... 33,000(19) *
Robert J. Erra (10).............................. 46,666(20) *
W. David Holder (10)............................. 153,046(21) *
Jonathan H. Glenn (14)........................... 24,791(22) *
B. Wayne Clark (14).............................. 21,098(23) *
All directors and executive officers as a
group (14 persons)(24)........................... 1,741,733 8.1
</TABLE>
- --------
* Less than 1%.
9
<PAGE>
(1) Shares of Common Stock subject to stock options or warrants which are
currently exercisable or which become exercisable within 60 days after
February 12, 1997 are deemed outstanding for purposes of computing the
percentage ownership of outstanding Common Stock of the person or group
holding such options or warrants, but are not deemed outstanding for
purposes of computing the percentage ownership of Common Stock of any
other person or group.
(2) Excludes 30,000 shares of Common Stock issuable upon exercise of
immediately exercisable options granted to, and 30,000 shares owned
directly by, Donald B. Milder. Also excludes 25,621 shares held by the
Milder Community Property Trust.
(3) Donald B. Milder, a director of TheraTx, is a General Partner of
Crosspoint Venture Partners III. Except to the extent of his partnership
interest, Mr. Milder disclaims beneficial ownership of the shares held by
Crosspoint Venture Partners III.
(4) Includes 30,000 shares of Common Stock issuable upon exercise of vested or
immediately exercisable options.
(5) Includes 28,113 shares of Common Stock issuable upon the exercise of
immediately exercisable warrants. Also includes 780,463 shares held by
Galen Partners, L.P. and 80,342 shares held by Galen Partners
International, L.P., of which 2,624 shares of Common Stock are issuable
upon the exercise of immediately exercisable warrants. Excludes 30,000
shares of Common Stock issuable upon exercise of immediately exercisable
options granted to, and 1,000 shares owned directly by, L. John Wilkerson.
Also excludes 2,000 shares held by The Wilkerson Family Charitable Lead
Trust.
(6) L. John Wilkerson, Ph.D., a director of TheraTx, is a General Partner of
the Galen Partnerships. Except to the extent of his partnership interest,
Dr. Wilkerson disclaims beneficial ownership of the shares held by the
Galen Partnerships.
(7) Includes 30,000 shares of Common Stock issuable upon exercise of vested or
immediately exercisable options and 2,000 shares held by the Wilkerson
Family Charitable Lead Trust.
(8) Based on a Schedule 13G dated February 14, 1997, Fidelity Management &
Research Company ("Fidelity"), a wholly-owned subsidiary of FMR Corp., is
the beneficial owner of 2,112,175 shares, as a result of acting as an
investment advisor to several investment companies. Based on a Schedule
13G dated February 14, 1997, Fidelity Management Trust Company, a wholly-
owned subsidiary of FMR Corp., beneficially owns 110,500 shares. Edward C.
Johnson, III, Chairman of FMR Corp., and family members, through their
collective ownership of voting common stock of FMR Corp. and the terms of
a shareholders' voting agreement, may be deemed to form a controlling
group with respect to FMR Corp. under the Investment Company Act of 1940.
(9) Based on a Schedule 13G dated February 13, 1995, the sole General Partner
of Warburg, Pincus Investors, L.P. ("Warburg") is Warburg, Pincus & Co., a
New York general partnership ("WP"). Lionel I. Pincus is the Managing
Partner of WP and may be deemed to control WP. E.M. Warburg, Pincus &
Company, LLC, a New York limited liability company ("E.M. Warburg"),
manages Warburg. WP has a 20% interest in the profits of Warburg. Mr.
Hackett, a director of TheraTx, is a Managing Director and Member of E.M.
Warburg and a General Partner of WP. As such, Mr. Hackett may be deemed to
have an indirect pecuniary interest, within the meaning of Rule 16a-1
under the Securities Exchange Act of 1934, in an indeterminate portion of
the shares beneficially owned by Warburg and WP. Mr. Hackett disclaims
beneficial ownership of these 2,438,705 shares within the meaning of Rule
13d-3 under the Securities Exchange Act of 1934. Includes 30,000 shares of
Common Stock issuable upon exercise of an immediately exercisable option
granted to Mr. Hackett, the economic benefit of which has been assigned to
E.M. Warburg or an affiliate thereof.
(10) Director.
(11) Named executive officer and director.
(12) Includes 86,667 shares of Common Stock issuable upon exercise of vested
or immediately exercisable options.
(13) Includes 35,833 shares of Common Stock issuable upon exercise of vested
or immediately exercisable options.
(14) Named executive officer.
(15) Includes 35,833 shares of Common Stock issuable upon exercise of vested
or immediately exercisable options.
(16) Includes 49,068 shares of Common Stock issuable upon exercise of vested
or immediately exercisable options.
(17) Includes 26,667 shares of Common Stock issuable upon exercise of vested
or immediately exercisable options. Excludes 3,333 shares held as Trustee
for the Nathaniel James Wood Trust dated May 26, 1993.
(18) Includes 28,001 shares of Common Stock issuable upon exercise of vested
or immediately exercisable options.
(19) Shares held as Trustee for the Davenport Family Trust U.T.A. dated
December 3, 1986. Includes 30,000 shares of Common Stock issuable upon
exercise of immediately exercisable options. Also includes 3,000 shares
held in trust for the benefit of Mr. Davenport's minor children.
(20) Includes 30,000 shares of Common Stock issuable upon exercise of vested
or immediately exercisable options.
(21) Includes 111,935 shares of Common Stock held with Jan C. Holder, TTEES
for the Holder Family Trust U/A DTD dated January 29, 1985. Excludes
5,847 shares of Common Stock held with Jan C. Holder as TTEES for Zachary
Cartwright Holder TR U/A DTD dated October 23, 1981, and 5,847 shares of
Common Stock for Jon David Holder TR U/A DTD dated October 23, 1981, both
of which trustors are adult children of Mr. Holder. Includes 30,000
shares of Common Stock issuable upon exercise of immediately exercisable
options.
(22) Includes 24,791 shares of Common Stock issuable upon exercise of vested
or immediately exercisable options.
(23) Includes 21,098 shares of Common Stock issuable upon exercise of vested
or immediately exercisable options.
(24) Excludes shares of Common Stock beneficially owned by Crosspoint Venture
Partners III, the Galen Partnerships and Warburg, as to which directors
of the Company have disclaimed beneficial ownership as referenced in
footnotes 3, 6 and 9 above. The percentage ownership of all directors and
executive officers as a group would be 23.7% if the shares of Common
Stock as to which such directors disclaim beneficial ownership were
included.
10
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation awarded or earned, for
services rendered to the Company in all capacities during the fiscal years
ended December 31, 1994, 1995 and 1996, by (i) the Company's Chief Executive
Officer and (ii) the Company's five other most highly compensated executive
officers who were serving as executive officers as of December 31, 1996
(together, the "Named Executive Officers"). No executive officer who would
have otherwise been includable in such table on the basis of salary and bonus
earned for the year ended December 31, 1996 resigned or terminated employment
during the fiscal year. During 1996, 1995 and 1994, no Named Executive Officer
received any restricted stock award, stock appreciation right or payment under
any long term incentive plan.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL AWARDS
COMPENSATION (SECURITIES)
------------ UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) OPTIONS/SARS(#) COMPENSATION
- --------------------------- ---- ------- -------- -------------- ------------
<S> <C> <C> <C> <C> <C>
John A. Bardis
President, Chief Executive 1996 278,000 47,000 150,000
Officer 1995 206,000 45,732 400,000 --
and Director 1994 206,000 61,800 226,667 42,858(2)
Bret W. Jorgensen 1996 172,500 33,638 110,000
Executive Vice President; 1995 150,000 28,500 160,000 --
President, TheraTx 1994 137,789 79,063 88,333 14,506(2)
Health Services Group,
and Director
Donald R. Myll 1996 160,000 20,000 80,000
Senior Vice President 1995 140,000 25,900 110,000
and Chief Financial Officer 1994 124,583 41,458 88,333 9,655(2)
Laura E. Cayce 1996 165,000 30,525 80,000
Senior Vice President 1995 150,000 30,000 90,000
and President, 1994 126,875 28,164 83,333
PersonaCare Group
Louis E. Hallman, III 1996 142,500 0 60,000
Vice President 1995 125,000 25,000 90,000 --
Corporate Development 1994 110,521 26,051 61,667 26,865(2)
William J. Haffey, Ph.D 1996 147,500 18,437 110,000 --
Senior Vice President 1995 125,000 25,000 90,000 --
and Chief Clinical 1994 108,750 26,125 63,333 --
Information Systems Officer
</TABLE>
- --------
(1) The bonuses reflected in the table for 1996 for all officers were earned
in 1996 although not paid until 1997. The bonuses reflected in the table for
1995 for all officers were earned in 1995 although not paid until 1996. The
bonuses reflected for 1994 for Messrs. Bardis, Jorgensen, Myll and Hallman,
and Ms. Cayce, and a portion of the bonus for Mr. Haffey were earned in 1994
although not paid until 1995.
(2) "Other Annual Compensation" in 1994 is comprised of (i) relocation
expenses of $42,858, $7,760 and $26,865 paid to or on behalf of Messrs.
Bardis, Jorgensen and Hallman, respectively; and (ii) in the case of Messrs.
Jorgensen and Myll, payments of $6,746 and $9,655, respectively, to
reimburse them for the tax liability attributable to the relocation expenses
previously paid to them.
11
<PAGE>
STOCK OPTIONS
The following table sets forth, for the year ended December 31, 1996,
information concerning the grant of options to purchase shares of Common Stock
under the Company's 1996 Stock Option/Stock Issuance Plan (the "1996 Plan") to
the Named Executive Officers. No stock appreciation rights have been granted
to any of the Named Executive Officers.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------------------------
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS POTENTIAL REALIZABLE VALUE
UNDERLYING GRANTED TO AT ASSUMED ANNUAL RATES OF
OPTIONS EMPLOYEE EXERCISE OR EXPIRATION STOCK PRICE APPRECIATION FOR
NAME GRANTED IN 1996 BASE PRICE DATE OPTION TERM(1)
---- ---------- ---------- ----------- ---------- -----------------------------
5% 10%
-------------- --------------
<S> <C> <C> <C> <C> <C> <C>
John A. Bardis.......... 150,000 12.20% $14.375 5/30/06 $ 1,356,054 $ 3,436,507
Bret W. Jorgensen....... 110,000 8.95 $14.375 5/30/06 994,439 2,520,105
Donald R. Myll.......... 80,000 6.51 $14.375 5/30/06 723,229 1,832,804
Louis E. Hallman, III... 60,000 4.88 $14.375 5/30/06 542,422 1,374,603
William J. Haffey, Ph.D. 90,000 7.32 $14.375 5/30/06 813,632 2,061,904
20,000 1.63 $11.000 10/23/06 138,357 350,623
Laura E. Cayce.......... 80,000 6.51 $14.375 5/30/06 732,229 1,832,804
Jonathan H. Glenn....... 50,000 4.07 $14.375 5/30/06 452,018 1,145,502
B. Wayne Clark.......... 50,000 4.07 $14.375 5/30/06 452,018 1,145,502
</TABLE>
- --------
(1) There is no assurance provided to any executive officer or any other
holder of the Company's securities that the actual stock price appreciation
over the 10-year option term will be at the assumed 5% and 10% levels or at
any other defined level. Unless the market price of the Common Stock does in
fact appreciate over the option term, no value will be realized from the
option grants.
OPTION EXERCISES AND HOLDINGS
The following table sets forth certain information concerning the exercise
of options by Messrs. Clark and Haffey during fiscal year 1996, including the
aggregate amount of gains on the date of exercise. No other Named Executive
Officer exercised options during 1996. In addition, the table includes the
number of shares covered by both exercisable and unexercisable stock options
as of December 31, 1996. Also reported are values of "in-the-money" options
that represent the difference between the respective exercise prices of
outstanding stock options and the closing selling price of the Common Stock as
of December 31, 1996, as reported on the Nasdaq National Market. No stock
appreciation rights were exercised during fiscal year 1996 nor were any
outstanding at December 31, 1996.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1996
AND OPTION VALUES AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY OPTIONS(1)
UNEXERCISED OPTIONS -------------------------
--------------------------
SHARES
NAME ACQUIRED VALUE
- ---- ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
B. Wayne Clark.......... 5,568 $70,269 21,098(2) 145,987 $83,022 --
William J. Haffey, Ph.D. 2,222 19,484 28,001(3) 243,598 91,008 --
</TABLE>
- --------
(1) Calculated based on the closing sale price at December 31, 1996 of $10.25
per share, less the applicable exercise price.
(2) As of December 31, 1996, 18,111 of the shares issuable upon exercise of
options held by Mr. Clark were vested.
(3) As of December 31, 1996, 26,403 of the shares issuable upon exercise of
options held by Dr. Haffey were vested.
12
<PAGE>
MANAGEMENT CONTRACTS AND CHANGE IN CONTROL AGREEMENTS
None of the Company's executive officers have employment agreements, and
their employment may be terminated at any time at the discretion of the Board
of Directors. On April 25, 1996, the Board of Directors approved the adoption
of the Executive Officers' Severance Policy (the "Severance Policy") for the
Company's executive officers, pursuant to which each such executive officer
will become entitled to special severance benefits in the event his or her
employment is involuntarily terminated in connection with certain changes in
control of the Company.
A change in control is defined to include: (i) an acquisition of the Company
by merger or consolidation in which the Company is not the surviving entity,
(ii) the sale, transfer or other disposition of all or substantially all of
the assets of the Company in complete liquidation or dissolution of the
Company, (iii) any reverse merger in which the Company is the surviving entity
but in which securities possessing more than fifty percent (50%) of the total
combined voting power of the Company's outstanding securities are transferred
to person or persons different from the persons holding those securities
immediately prior to such merger, (iv) the acquisition of securities
possessing fifty percent (50%) or more of the total combined voting power of
the Company's outstanding securities pursuant to a transaction effected
without the approval of the Board of Directors, (v) a change in the
composition of the Board of Directors over any period of 36 months or less
such that a majority of the Board of Directors ceases to be comprised of
individuals who either (A) have been Board members since the beginning of such
period or (B) have been elected or nominated for election as Board members
during such period by a majority of the continuing Board members described in
clause (A) or (vi) the issuance by the Company of securities possessing more
than fifty percent (50%) of the total combined voting power of the Company's
outstanding securities (determined after such issuance) in a single
transaction or a series of related transactions.
Should an executive officer's employment be involuntarily terminated (other
than for cause) within a designated period (20 months in the case of a
corporate vice president and 24 months in the case of a senior vice president
or the president) following a change in control, then that officer will become
entitled to the following severance benefits from the Company: (i) a cash lump
sum payment equal to such executive officer's base salary for a designated 20
or 24 month period, as the case may be, and (ii) a cash lump sum payment equal
to the then current monthly health care insurance premium paid by the Company
for such executive officer, multiplied by 20 or 24, as the case may be.
Involuntary termination is defined as the termination of the officer's
employment, whether voluntary or involuntary (other than for cause), following
a material reduction in the officer's level of responsibilities, a reduction
in his or her compensation or a change in job location without his or her
consent. Termination for cause includes any involuntary termination
attributable to the officer's fraudulent behavior or other intentional
misconduct adversely affecting the business reputation of the Company in a
material manner.
In addition, the Compensation Committee will have the discretionary
authority as administrator of the 1994 Plan and the 1996 Plan to provide for
the accelerated vesting of options held by executive officers in connection
with a change in control of the Company. Under both the 1994 Plan and the 1996
Plan, all options held by executive officers automatically vest in connection
with certain changes of control in which the options are not assumed by the
acquiring company. Furthermore, under the 1994 Plan and the 1996 Plan,
executive officers' options will vest in the event of an involuntary
termination (other than for cause) within certain designated periods following
a change in control.
Should the total value of all payments or benefits which vest or become due
to an executive officer in connection with his or her termination of
employment following the occurrence of a change in control, as described
above, constitute an excess parachute payment under the federal tax laws, then
the Company will provide such executive officer with a cash lump sum payment
equal to 145% of the excise tax initially payable by such executive. The
Company will not, however, provide any such payment to the extent the excise
taxes are attributable to accelerated vesting of stock option grants or
restricted stock issuances made to the executive officer within one year prior
to the change of control.
13
<PAGE>
COMPENSATION OF DIRECTORS
Effective January 1, 1995, each non-employee director became eligible to
receive an annual retainer of $6,000, payable quarterly. In addition, at the
1995 Annual Stockholders Meeting held on May 31, 1995, each of the non-
employee Board members received an option grant for 18,333 shares under the
Automatic Option Grant Program under the 1994 Stock Option/Stock Issuance
Plan, except that the automatic option grant to Mr. Hackett was for 25,000
shares. Each of these option grants become exercisable for the option shares
in 36 successive equal monthly installments over the optionee's period of
continued board service measured from the grant date. Each grant has an
exercise price of $14.00 per share, the fair market value per share on the
grant date, and a maximum term of 10 years measured from such grant date. At
the 1996 Annual Stockholders' Meeting held on May 30, 1996, each of the non-
employee Board members received an option grant for 5,000 shares under the
Automatic Option Grant Program. Each of these option grants vests in twelve
equal monthly installments over the optionee's period of Board service
measured from the option grant date. The options will vest in full should any
of the following events occur while the optionee remains in Board service: the
optionee's death or disability or certain changes in control or ownership of
the Company.
Except as set forth below under "Acquisition of PersonaCare," there are no
arrangements or understandings involving any director or any nominee regarding
such person's status as a director or nominee.
EXECUTIVE COMPENSATION AND RELATED INFORMATION
COMPENSATION COMMITTEE REPORT (1)
It is the responsibility of the Compensation Committee (the "Committee") of
the Company's Board of Directors to make recommendations to the Board of
Directors regarding the salary and bonuses to be paid to the Company's
executive officers each fiscal year. The Committee also administers the 1994
Stock Option/Stock Issuance Plan, as amended (the "1994 Plan"), and the 1996
Stock Option/Stock Issuance Program (the "1996 Plan"). Equity incentives may
be granted under both the 1994 Plan and the 1996 Plan to executive officers as
part of their long-term compensation package. The following is a summary of
the policies of the Committee which affect the compensation paid to executive
officers, as reflected in the tables and text set forth elsewhere in this
Proxy Statement.
General Compensation Policy. Under the supervision of the Committee, the
Company has developed a compensation policy which is designed to attract,
retain and reward qualified key executives critical to the Company's success
and to provide such executives with performance-based incentives tied to the
Company's financial performance. One of the Committee's primary objectives is
to have a substantial portion of each officer's compensation contingent upon
the Company's performance as well as upon the individual's contribution to the
success of the Company as measured by his or her personal performance.
Accordingly, each executive officer's compensation package is fundamentally
comprised of three elements: (i) base salary which reflects individual
experience, expertise and responsibility and is designed to be competitive
with salary levels in the industry; (ii) annual incentive compensation which
reflects individual and Company performance for the year; and (iii) long-term
stock-based incentive awards which strengthen the mutuality of interests
between the executive officers and the Company's stockholders.
Factors. The principal factors which were considered in establishing the
components of each executive officer's compensation package for the year ended
December 31, 1996 are summarized below. However, the Committee may in its
discretion apply entirely different factors, particularly different measures
of financial performance, in setting executive compensation for future fiscal
years.
- --------
(1) The material in this report is not "soliciting material," is not deemed
filed with the Securities and Exchange Commission and is not to be
incorporated by reference in any filing of the Company under the Securities
Act of 1933 as amended (the "1933 Act") or the Securities Exchange Act of
1934, as amended (the "Exchange Act").
14
<PAGE>
Base Salary. For comparative compensation purposes for the 1996 fiscal year,
the Committee has, with the assistance of an independent compensation
consultant, identified a peer group of companies which are comparable in size
with the Company, which provide healthcare services or which compete with the
Company for executive talent. The base salary for each officer is determined
on the basis of specific compensation surveys and the following factors: the
salary levels in effect for comparable positions at the peer group companies,
the experience and personal performance of the officer and internal
comparability considerations. The weight given to each of these factors
differs from individual to individual, as the Committee deems appropriate.
For purposes of the stock price performance graph which appears later in
this information statement, the Company has selected Long Term Care Composite
("LTCC") as the industry index. Four out of the eight companies included in
that index were also among the companies which the Committee surveyed as part
of the peer group for comparative compensation purposes. However, in selecting
companies to survey for such compensation purposes, the Committee considers
many factors not directly associated with stock price performance, such as
differences in organizational structure and corporate culture, geographic
location, growth rate, annual revenue and profitability, and market
capitalization.
Annual Incentive Compensation. Annual bonuses are earned by each executive
officer primarily on the basis of the Company's achievement of certain
corporate financial performance targets established for each fiscal year. For
fiscal year 1996, bonuses were earned on the basis of the following factors:
(i) the increase in the Company's earnings (before interest and taxes) over
the prior fiscal year and (ii) the personal performance level of the executive
officer. A portion of the Company's earnings for the 1996 fiscal year was
accordingly set aside for distribution under the bonus pool, and each
executive officer was awarded a share of that pool on the basis of the
executive's performance for the year, the responsibilities assigned to the
executive and the executive's relative position in the Company. The total cash
compensation paid to the Company's executive officers for the 1996 fiscal year
was, in most cases, competitive with the total cash compensation paid to
executive officers in comparable positions at the peer group companies which
compete with the Company for executive talent, based on the published data for
those companies. The actual bonus paid for the year to each of the current
executive officers named in the Summary Compensation Table is indicated in the
Bonus column.
Long-Term Incentive Compensation. Each option grant under the 1994 Plan and
the 1996 Plan is designed to align the interests of the executive officers
with those of the stockholders and provide each individual with a significant
incentive to manage the Company from the perspective of an owner with an
equity stake in the business and to remain in the service of the Company. The
Committee has established certain general guidelines in making option grants
to the executive officers in an attempt to target a fixed number of unvested
option shares based upon the individual's position with the Company and his or
her existing holdings of unvested options. The number of shares subject to
each option grant is based upon the officer's tenure, level of responsibility
and relative position in the Company. However, the Committee does not adhere
strictly to these guidelines and will vary the size of the option grant made
to each executive officer as it feels the circumstances warrant. Each grant
allows the officer to acquire shares of the Company's Common Stock at a fixed
price per share (the market price on the grant date) over a specified period
of time (up to 10 years).
Options to purchase 690,000 shares of Common Stock were granted to the
executive officers during the 1996 fiscal year. Currently, each of these
options becomes exercisable for twenty-five percent (25%) of the grant upon
completion by the optionee of one (1) year of service with the Company
measured from the grant date. The balance of the grant becomes exercisable in
a series of thirty-six (36) successive equal monthly installments upon
completion of each additional month of service over the thirty-six (36) month
period measured from the first anniversary of the grant date. The exercise
price per share is $14.375.
CEO Compensation. The base salary established for the Company's Chief
Executive Officer, Mr. John A. Bardis, for the year ended December 31, 1996
reflects the Committee's decision to maintain a level of stability and
certainty with respect to this component of his compensation from year to
year, and there was no intent to have this particular component of
compensation affected to any significant degree by the Company's
15
<PAGE>
performance factors. Because it was the Committee's intent in setting Mr.
Bardis' compensation for the 1996 fiscal year to have a greater emphasis on
long-term equity incentive compensation than cash compensation. Mr. Bardis'
base salary was maintained at a level below the median of the base salaries
paid to other chief executive officers at comparable surveyed companies. Mr.
Bardis was, however, awarded an option during 1996 to acquire 150,000 shares
of the Company's Common Stock on the terms discussed in the preceding
paragraph.
Tax Limitation. As a result of federal tax legislation enacted in 1993, a
publicly-held company such as the Company will not be allowed a federal income
tax deduction for compensation paid to certain executive officers, to the
extent that compensation exceeds $1 million per officer in any year. This
limitation will apply to all compensation paid to the covered executive
officers which is not considered to be performance-based. However,
compensation which does qualify as performance-based compensation will not
have to be taken into account for purposes of this limitation. The
compensation paid to the Company's executive officers for the year ended
December 31, 1996 did not exceed the $1 million limit per officer. In
addition, the 1994 and 1996 Plans have been structured so that any
compensation deemed paid to an executive officer in connection with the
exercise of options granted under those plans will qualify as performance-
based compensation which will not be subject to the $1 million limitation.
Because it is very unlikely that the cash compensation payable to any of the
Company's executive officers in the foreseeable future will approach the $1
million limitation, the Committee has decided not to take any other action to
limit or restructure the elements of cash compensation payable to the
Company's executive officers. The Committee will reconsider this decision
should the individual compensation of any executive officer ever approach the
$1 million level.
Compensation Committee
Craig T. Davenport
Robert J. Erra
L. John Wilkerson
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee for the year ended December 31,
1996 were Messrs. Davenport and Erra, and Dr. Wilkerson. None of these
individuals was at any time during the year ended December 31, 1996 an officer
or employee of the Company or any of its subsidiaries.
No executive officer of the Company serves as a member of the board of
directors or compensation committee of any entity which has one or more
executive officers serving as a member of the Board of Directors.
16
<PAGE>
STOCK PERFORMANCE GRAPH
The graph depicted below shows Company's stock price as an index for the
period commencing June 30, 1994 to December 31, 1996, assuming $100 invested on
June 24, 1994 (the date of the Company's initial public offering) and
reinvestment of dividends, along with the composite prices of companies listed
on the Long Term Care Composite ("LTCC"). The Company believes that the LTCC
provides a more appropriate measure of the Company's stock price performance
than the University of Chicago's Center for Research on Security Prices
("CRSP") Total Return Index for National Association of Securities Dealers
Automated Quotation ("Nasdaq") Stock Market. The LTCC listed companies are more
comparable to the Company in size and industry focus. However, the CRSP index
is also depicted for comparison purposes.
PERFORMANCE GRAPH FOR THERATX, INCORPORATED INDEXED COMPARISON OF
CUMULATIVE TOTAL RETURN CRSP TOTAL RETURN INDEX FOR NASDAQ STOCK
MARKET AND THE LONG TERM CARE COMPOSITE(1)
06/30/94 12/31/94 12/29/95 12/31/96
-------- -------- -------- --------
NASDAQ Stock Market.................... $100.00 $107.05 $151.40 $186.22
CRSP Index............................. $100.00 $115.58 $146.67 $146.93
TheraTx, Incorporated.................. $100.00 $162.50 $100.00 $ 85.42
Long Term Care Comp.................... $100.00 $113.47 $ 84.94 $ 79.76
(1) Notwithstanding anything to the contrary set forth in any of
the Company's previous filings under the 1933 Act or the
Exchange Act which might incorporate future filings, including
this Schedule II, the preceding Stock Performance Graph will
not be incorporated by reference into any of those prior
filings, nor will such report or graph be incorporated by
reference into any future filings made by the Company under
those statutes.
17
<PAGE>
CERTAIN TRANSACTIONS
LOANS TO EXECUTIVE OFFICERS
On January 4, 1993, John A. Bardis, the Company's President and Chief
Executive Officer, exercised an option to purchase an aggregate of 587,133
shares of the Company's Common Stock granted to him on August 11, 1992
pursuant to the Company's 1990 Stock Option Plan. Mr. Bardis executed a five-
year promissory note in favor of the Company, secured by 587,133 shares, in
the amount of $281,824 representing the purchase price of the shares. The
shares securing the promissory note are released as the promissory note is
paid down by Mr. Bardis. The promissory note is due on January 4, 1998, bears
interest at the rate of 6.34% compounded annually, and is currently secured by
shares issued to Mr. Bardis upon exercise of the option. As of February 12,
1997, Mr. Bardis had repaid $260,728 in principal plus accrued interest owing
under his note.
ACQUISITION OF PERSONACARE
On May 31, 1994, pursuant to an Agreement and Plan of Reorganization dated
May 6, 1994 with PersonaCare, Inc. ("PersonaCare"), PC Acquisition Corp. and
certain principal stockholders of PersonaCare, the Company acquired all of the
outstanding shares of PersonaCare (the "PersonaCare Merger"). In connection
with the PersonaCare Merger, the Company agreed to nominate one individual
designated by Warburg for election to the Board of Directors, so long as
Warburg owns between 7.5% and 17.0% of the Company's voting securities. The
designee is Patrick T. Hackett.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the Delaware General Corporation Law ("Delaware Law"),
the Company has broad powers to indemnify its directors and officers against
liabilities they may incur in such capacities, including liabilities under the
1933 Act. The Company's Bylaws provide that the Company will indemnify its
directors and officers to the fullest extent permitted by law and require the
Company to advance litigation expenses upon receipt by the Company of an
undertaking by the director or officer to repay such advances if it is
ultimately determined that the director or officer is not entitled to
indemnification. The Bylaws further provide that rights conferred under such
Bylaws shall not be deemed to be exclusive of any other right such persons may
have or acquire under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
The Company's Certificate of Incorporation provides that, pursuant to
Delaware Law, its directors shall not be liable for monetary damages for
breach of the directors fiduciary duty of care to the Company and its
stockholders. This provision in the Certificate of Incorporation does not
eliminate the duty of care, and in appropriate circumstances equitable
remedies such as injunctive or other forms of non-monetary relief will remain
available under Delaware Law. In addition, each director will continue to be
subject to liability for breach of the director's duty of loyalty to the
Company or its stockholders, for acts or omissions not in good faith or
involving intentional misconduct or knowing violations of law, for actions
leading to improper personal benefit to the director, and for payment of
dividends or approval of stock repurchases or redemptions that are unlawful
under Delaware Law. The provision also does not effect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws.
In addition, the Company has entered into agreements to indemnify its
directors and certain of its officers in addition to the indemnification
provided for in the Certificate of Incorporation and Bylaws. These agreements
will, among other things, indemnify the Company's directors and certain of its
officers for certain expenses (including attorneys' fees), judgments, fines
and settlement amounts incurred by such person in any action or proceeding,
including any action by or in the right of the Company, on account of services
as a director or officer of the Company, or as a director or officer of any
other company or enterprise that the person provides services to at the
request of the Company.
18
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than 10% of a registered class of the
Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission (the "Commission").
Officers, directors and stockholders owning greater than 10% of the Common
Stock of the Company are required by regulation of the Commission to furnish
the Company with copies of all reports filed pursuant to Section 16(a).
Based solely on a review of copies of such reports required by Section 16(a)
or written representations that no such reports were required, the Company
believes that its officers, directors and stockholders owning greater than 10%
of the Common Stock of the Company complied with all applicable Section 16(a)
filing requirements during fiscal 1996.
19
<PAGE>
EXHIBIT 1
PROPOSAL NO. 2
APPROVAL OF THE 1996 STOCK OPTION/STOCK ISSUANCE PLAN
PLAN BACKGROUND
The Company's stockholders are being asked to approve the 1996 Stock
Option/Stock Issuance Plan (the "1996 Plan") pursuant to which 2,000,000
shares of Common Stock will be reserved for issuance. The Board of Directors
has authorized the implementation of the 1996 Plan as a comprehensive equity
incentive program. As there are only limited number of shares available for
grant under the existing 1994 Stock Option/Stock Issuance Plan (the "1994
Plan"), the Board of Directors believes the adoption of the 1996 Plan is
necessary to attract and retain the services of those persons essential to the
Company's growth and financial success. The 1996 Plan became effective upon
adoption by the Board on April 25, 1996, subject to stockholder approval at
the Annual Meeting.
The following is a summary of the principal features of the 1996 Plan. The
summary, however, does not purport to be a complete description of all the
provisions of the 1996 Plan. Any stockholder of the Company who wishes to
obtain a copy of the actual plan document may do so upon written request to
the Corporate Secretary at the Company's principal executive offices in
Atlanta, Georgia.
STRUCTURE OF EQUITY INCENTIVES PROGRAM
The 1996 Plan contains three separate equity incentive programs: (i) a
Discretionary Option Grant Program; (ii) a Stock Issuance Program; and (iii)
an Automatic Option Grant Program. The principal features of these programs
are described below. The Discretionary Option Grant Program and the Stock
Issuance Program will be administered by the Compensation Committee of the
Board (the "Committee"). The Committee will have complete discretion (subject
to the provisions of the 1996 Plan) to determine which eligible individuals
are to receive option grants or stock issuances, the number of shares subject
to each such grant or issuance, the status of any granted option as either an
incentive option or a non-statutory option under the federal tax laws, the
vesting schedule to be in effect for the option grant or stock issuance and
the maximum term for which any granted option is to remain outstanding.
However, all grants under the Automatic Option Grant Program will be made in
strict compliance with the provisions of that program, and no administrative
discretion will be exercised by the Committee with respect to the grants made
thereunder.
SHARE RESERVE
A total of 2,000,000 shares of Common Stock has initially been reserved for
issuance over the ten year term of the 1996 Plan. This share reserve will
automatically increase on the first trading day of each calendar year,
beginning with the 1997 calendar year, by an amount equal to 2% of the total
number of shares of Common Stock outstanding on the last trading day of the
immediately preceding calendar year. In no event may any one participant in
the 1996 Plan be granted stock options, separately exercisable stock
appreciation rights or direct stock issuances for more than 750,000 shares in
the aggregate under the 1996 Plan per calendar year.
ELIGIBILITY
Officers and other employees of the Company and its parent or subsidiaries
(whether now existing or subsequently established), non-employee members of
the Board (other than those serving as members of the Committee) and
consultants in the service of the Company and its parent and subsidiaries will
be eligible to
1
<PAGE>
participate in the Discretionary Option Grant and Stock Issuance Programs.
Non-employee members of the Board (including members of the Committee) will
also be eligible to participate in the Automatic Option Grant Program.
As of May 1, 1996, approximately nine executive officers, 5,000 other
employees and three non-employee Board members were eligible to participate in
the Discretionary Option Grant and Stock Issuance Programs, and six non-
employee Board members were eligible to participate in the Automatic Option
Grant Program.
VALUATION
The fair market value per share of Common Stock on any relevant date under
the 1996 Plan will be the closing selling price per share on the date of grant
as reported on the Nasdaq National Market. On April 15, 1996, the closing
selling price per share was $13 3/8.
DISCRETIONARY OPTION GRANT PROGRAM
Options may be granted under the Discretionary Option Grant Program at an
exercise price per share not less than one hundred percent (100%) of the fair
market value per share of Common Stock on the option grant date. No granted
option will have a term in excess of ten years.
Upon cessation of service, the optionee will have a limited period of time
in which to exercise any outstanding option to the extent such option is
exercisable for vested shares. The Committee will have complete discretion to
extend the period following the optionee's cessation of service during which
his or her outstanding options may be exercised and/or to accelerate the
exercisability or vesting of such options in whole or in part. Such discretion
may be exercised at any time while the options remain outstanding, whether
before or after the optionee's actual cessation of service.
The Committee is authorized to issue two types of stock appreciation rights
in connection with option grants made under the Discretionary Option Grant
Program:
Tandem stock appreciation rights provide the holders with the right to
surrender their options for an appreciation distribution from the Company
equal in amount to the excess of (i) the fair market value of the vested
shares of Common Stock subject to the surrendered option over (ii) the
aggregate exercise price payable for such shares. Such appreciation
distribution may, at the discretion of the Committee, be made in cash or in
shares of Common Stock.
Limited stock appreciation rights may be granted to officers of the
Company as part of their option grants. Any option with such a limited
stock appreciation right in effect for at least six (6) months may be
surrendered to the Company upon the successful completion of a hostile
take-over of the Company. In return for the surrendered option, the officer
will be entitled to a cash distribution from the Company in an amount per
surrendered option share equal to the excess of (i) the take-over price per
share over (ii) the exercise price payable for such share.
STOCK ISSUANCE PROGRAM
Shares may be issued under the Stock Issuance Program for such valid
consideration under the Delaware General Corporation Law as the Plan
Administrator deems appropriate, including a full-recourse, interest-bearing
promissory note secured by the purchased shares. However, the value of such
consideration as determined by the Plan Administrator may not be less than one
hundred percent (100%) of the fair market value of the issued shares at the
time of issuance. Shares may also be issued solely as a bonus for past
services.
The shares issued as a bonus for past services will be fully vested upon
issuance. All other shares issued under the program will be subject to a
vesting schedule tied to the performance of service or the attainment of
performance goals. The following requirements will govern the applicable
vesting schedule:
2
<PAGE>
--For any shares which are to vest solely through the performance of
services, the Committee will impose a minimum service period of at least
three (3) years before any of the shares will vest.
--For any shares which are to vest upon the participant's performance of
services and the Company's attainment of one or more prescribed
performance milestones, the Committee will impose a minimum service period
of at least one (1) year.
The Committee will have the sole and exclusive authority, exercisable upon a
participant's termination of service, to vest any or all unvested shares of
Common Stock at the time held by that participant, to the extent the Committee
determines that such vesting provides an appropriate severance benefit under
the circumstances.
AUTOMATIC OPTION GRANT PROGRAM
The Automatic Option Grant Program will become effective upon stockholder
approval of the 1996 Plan at the Annual Meeting, and no further option grants
to non-employee Board members will be made under the Automatic Option Grant
Program currently in effect for non-employee Board members under the 1994
Plan.
Under the Automatic Option Grant Program to be in effect under the 1996
Plan, each individual who first becomes a non-employee Board member at or
after the 1996 Annual Meeting will automatically be granted at that time an
option for 25,000 shares of Common Stock. In addition, at each Annual
Stockholders Meeting beginning with the 1996 Annual Meeting, each individual
who is to continue to serve as a non-employee Board member will be granted an
option to acquire 5,000 shares of Common Stock, provided such person has
served as a non-employee Board member for at least six months. There will be
no limit on the number of such 5,000 share options which any one non-employee
Board member may receive over the period of Board service.
Each option will have an exercise price per share equal to 100% of the fair
market value per share of Common Stock on the option grant date and a maximum
term of ten years measured from such grant date. Each option will be
immediately exercisable for all the option shares, but any purchased shares
will be subject to repurchase by the Company, at the exercise price paid per
share, upon the optionee's cessation of Board service prior to vesting in
those shares. Each initial option grant for 25,000 shares will vest (and the
Company's repurchase rights will lapse) in thirty-six successive equal monthly
installments over the optionee's period of Board service measured from the
option grant date. Each 5,000 share grant will vest (and the Company's
repurchase right will lapse) in twelve successive equal monthly installments
over the optionee's period of Board service measured from the option grant
date.
The shares subject to each automatic option grant will immediately vest upon
the happening of certain events, including the optionee's death or permanent
disability while serving as a Board member, an acquisition of the Company by
merger or asset sale, or a hostile change in control of the Company effected
through a hostile tender offer for more than 50% of the Company's outstanding
voting securities or a change in the majority of the Board by reason of one or
more contested elections for Board membership. In addition, upon the
successful completion of such hostile tender-over, each automatic option grant
which has been outstanding for at least six months may be surrendered to the
Company for a cash distribution per surrendered option share in an amount
equal to the excess of (i) the highest price per share of Common Stock paid in
such tender offer over (ii) the exercise price payable per share.
GENERAL PROVISIONS
ACCELERATION
In the event the Company is acquired by merger or asset sale, each
outstanding option under the Discretionary Option Grant Program which is not
to be assumed by the successor corporation or replaced with a comparable
option will automatically accelerate in full, and all unvested shares under
the Stock Issuance Program will immediately vest, except to the extent the
Company's repurchase rights with respect to those shares are to
3
<PAGE>
be assigned to the successor corporation. Under certain circumstances, the
terminating options may be exercised on a deferred payment basis, provided the
optionee remains personally liable and interest accrues on the unpaid amount
over the deferral period. Any options assumed or replaced in connection with
such acquisition will be subject to immediate acceleration, and any unvested
shares which do not vest at the time of such acquisition will be subject to
full and immediate vesting, in the event the optionee's service with the
successor entity is subsequently terminated within 24 months following the
acquisition. The Committee also has the discretionary authority to provide for
the automatic acceleration of outstanding options under the Discretionary
Option Grant Program and the automatic vesting of unvested shares under the
Stock Issuance Program under the 1996 Plan upon such terms and conditions as
the Committee deems appropriate. This discretion may be exercised at the time
of grant or at any time an option remains outstanding and may be exercised in
a variety of events, including a transaction involving a change in ownership
or control of the Company.
The acceleration of vesting in the event of a change in the ownership or
control of the Company may be seen as an anti-takeover provision and may have
the effect of discouraging a merger proposal, a takeover attempt or other
efforts to gain control of the Company.
CHANGES IN CAPITALIZATION
In the event any change is made to the outstanding shares of Common Stock by
reason of any recapitalization, stock dividend, stock split, combination of
shares, exchange of shares or other change in corporate structure effected
without the Company's receipt of consideration, appropriate adjustments will
be made to (i) the maximum number and/or class of securities issuable under
the 1996 Plan; (ii) the maximum number and/or class of securities for which
any one person may be granted stock options, separately exercisable stock
appreciation rights and direct stock issuances under the 1996 Plan per
calendar year; (iii) the number and/or class of securities for which grants
are subsequently to be made under the Automatic Option Grant Program to new
and continuing non-employee Board members and (v) he number and/or class of
securities and the exercise price per share in effect under each outstanding
option in order to prevent the dilution or enlargement of benefits thereunder.
FINANCIAL ASSISTANCE
The Plan Administrator may institute a loan program in order to assist one
or more individuals in financing the purchase of shares under the 1996 Plan.
The form in which such assistance is to be made available (including loans or
installment payments) and the terms upon which such assistance is to be
provided will be determined by the Committee. However, all promissory notes
will be full recourse, and the maximum amount of financing provided any
individual may not exceed the amount of cash consideration payable for the
issued shares plus all applicable Federal, state and local taxes incurred in
connection with the acquisition of the shares.
SPECIAL TAX ELECTION
The Committee may provide one or more holders of outstanding options or
unvested shares with the right to have the Company withhold a portion of the
shares otherwise issuable to such individuals in satisfaction of the tax
liability incurred by such individuals in connection with the exercise of
those options or the vesting of those shares. Alternatively, the Committee may
allow such individuals to deliver previously acquired shares of Common Stock
in payment of such tax liability.
AMENDMENT AND TERMINATION
The Board may amend or modify the 1996 Plan in any or all respects
whatsoever subject to any required stockholder approval. The Board may
terminate the 1996 Plan at any time, and the 1996 Plan will in all events
terminate on April 25, 2006.
4
<PAGE>
NEW PLAN BENEFITS AND STOCK AWARDS
No option grants or stock issuances have been made to date under the 1996
Plan. The following table sets forth certain information regarding the options
which will be granted under the Automatic Option Grant Program on the date of
the Annual Meeting to each individual who is to continue to serve as a non-
employee Board member. Each option will have an exercise price per share equal
to the closing selling price per share of Common Stock on that date on the
Nasdaq National Market.
<TABLE>
<CAPTION>
NUMBER OF
NAME OPTION SHARES
---- -------------
<S> <C>
DIRECTORS
Craig T. Davenport............................................ 5,000
Robert J. Erra ............................................... 5,000
Patrick T. Hackett............................................ 5,000(1)
W. David Holder............................................... 5,000
Donald B. Milder.............................................. 5,000
L. John Wilkerson............................................. 5,000
All non-employee directors as a group (6 persons)............. 30,000
</TABLE>
- --------
(1) The economic benefit of the option to be granted to Mr. Hackett has been
assigned to E. M. Warburg, Pincus & Co., Inc., or an affiliate thereof,
for the account of Warburg, Pincus Investors, L.P.
FEDERAL INCOME TAX CONSEQUENCES
OPTION GRANT
Options granted under the 1996 Plan may be either incentive stock options
which satisfy the requirements of Section 422 of the Internal Revenue Code or
non-statutory options which are not intended to meet such requirements. The
Federal income tax treatment for the two types of options differs as follows:
Incentive Stock Options. No taxable income is recognized by the optionee at
the time of the option grant, and no taxable income is generally recognized at
the time the option is exercised. The optionee will, however, recognize
taxable income in the year in which the purchased shares are sold or otherwise
made the subject of a taxable disposition. For Federal tax purposes,
dispositions are divided into two categories: qualifying and disqualifying. A
qualifying disposition occurs if the sale or other disposition is made after
the optionee has held the shares for more than two years after the option
grant date and more than one year after the exercise date. If either of these
two holding periods is not satisfied, then a disqualifying disposition will
result.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the option exercise date over (ii) the exercise
price paid for the shares. In no other instance will the Company be allowed a
deduction with respect to the optionee's disposition of the purchased shares.
Non-Statutory Options. No taxable income is recognized by an optionee upon
the grant of a non-statutory option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by the Company in the event of the
optionee's termination of service prior to vesting in those shares, then the
optionee will not recognize any taxable income at the time of exercise but
will have to report as ordinary income, as and when the Company's repurchase
right lapses, an amount equal to the excess of (i) the fair market value of
5
<PAGE>
the shares on the date the repurchase right lapses over (ii) the exercise
price paid for the shares. The optionee may, however, elect under Section
83(b) of the Internal Revenue Code to include as ordinary income in the year
of exercise of the option an amount equal to the excess of (i) the fair market
value of the purchased shares on the exercise date over (ii) the exercise
price paid for such shares. If the Section 83(b) election is made, the
optionee will not recognize any additional income as and when the repurchase
right lapses.
The Company will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the optionee with respect to the exercised
non-statutory option. The deduction will in general be allowed for the taxable
year of the Company in which such ordinary income is recognized by the
optionee.
STOCK APPRECIATION RIGHTS
An optionee who is granted a stock appreciation right will recognize
ordinary income in the year of exercise equal to the amount of the
appreciation distribution. The Company will be entitled to an income tax
deduction equal to the appreciation distribution for the taxable year in which
such ordinary income is recognized by the optionee.
DIRECT STOCK ISSUANCES
The tax principles applicable to direct stock issuances under the 1996 Plan
will be substantially the same as those summarized above for the exercise of
non-statutory option grants.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
The Company anticipates that any compensation deemed paid by it in
connection with disqualifying dispositions of incentive stock option shares or
exercises of non-statutory options will qualify as performance-based
compensation for purposes of Internal Revenue Code Section 162(m) and will not
have to be taken into account for purpose of the $1 million limitation per
covered individual on the deductibility of the compensation paid to certain
executive officers of the Company.
ACCOUNTING TREATMENT
Option grants with an exercise price equal to the fair market value of the
option shares on the grant date will not result in any compensation expense to
be charged against the Company's earnings, but the Company must disclose, in
proforma statements to the Company's financial statements, the impact those
options would have upon the Company's reported earnings were the value of
those options to be treated as a compensation expense. In addition, the number
of outstanding options may be factor in determining the Company's earnings per
share on a fully-diluted basis.
Should one or more optionees be granted stock appreciation rights which have
no conditions upon exercisability other than a service or employment
requirement, then those rights will result in compensation expense to the
Company's earnings.
6
<PAGE>
PROPOSAL NO. 3
APPROVAL OF THE EMPLOYEE STOCK PURCHASE PLAN
PLAN BACKGROUND
The stockholders are also being asked to vote on a proposal to approve the
Company's Employee Stock Purchase Plan (the "Purchase Plan"), pursuant to
which 1,000,000 shares will be reserved for issuance. The
Purchase Plan is intended to provide eligible employees of the Company and its
participating affiliates with the opportunity to acquire a proprietary
interest in the Company through participation in a payroll-deduction based
employee stock purchase plan designed to operate in compliance with Section
423 of the Internal Revenue Code. The Purchase Plan was adopted by the Board
on April 25, 1996, and will become effective on November 1, 1996 (the
"Effective Date"), subject to approval by the stockholders at the Annual
Meeting.
The following is a summary of the principal features of the Purchase Plan.
The summary, however, does not purport to be a complete description of all the
provisions of the Purchase Plan. Any stockholder of the Company who wishes to
obtain a copy of the actual plan document may do so upon written request to
the attention of the Corporate Secretary of the Company at the Company's
corporate offices in Atlanta, Georgia.
ADMINISTRATION
The Purchase Plan will be administered by the Compensation Committee of the
Board. The Compensation Committee as the Plan Administrator will have full
authority to adopt such rules and procedures as it may deem necessary for
proper plan administration and to interpret the provisions of the Purchase
Plan. All costs and expenses incurred in plan administration will be paid by
the Company without charge to participants.
SHARE RESERVE
A total of 1,000,000 shares of Common Stock have been reserved for issuance
over the ten (10)-year term of the Purchase Plan. In the event any change is
made to the outstanding shares of Common Stock by reason of any
recapitalization, stock dividend, stock split, combination of shares, exchange
of shares or other change in corporate structure effected without the
Company's receipt of consideration, appropriate adjustments will be made to
(i) the class and maximum number of securities issuable under the Purchase
Plan, including the class and number of securities purchasable per participant
during any one (1) purchase period, and (ii) the class and maximum number of
securities subject to each outstanding purchase right and the purchase price
payable per share thereunder.
PURCHASE PERIODS
The Purchase Plan will be implemented in a series of successive six (6)-
month purchase periods. Purchase periods will run from the first business day
in April to the last business day in October each year and from the first
business day in November each year to the last business day in March in the
following year. The initial purchase period will begin on November 1, 1996 and
end on the last business day in April 1997.
ELIGIBILITY
Any individual (other than an executive officer) who is expected to work on
a regular basis for more than twenty (20) hours per week for more than five
(5) months per calendar year in the employ of the Company or any participating
affiliate ("Eligible Employee") will be eligible to participate in the Plan.
Each individual who is an Eligible Employee on the start date of any purchase
period may participate in such purchase period.
Participating affiliates include any parent or subsidiary corporations of
the Company, whether now existing or hereafter organized, which elect, with
the approval of the Committee, to extend the benefits of the Purchase Plan to
their eligible employees.
As of December 31, 1995, approximately 5,000 employees, were eligible to
participate in the Purchase Plan.
PURCHASE PROVISIONS
Each participant will be granted a separate purchase right for each purchase
period in which he or she participates. The purchase right will be granted on
the start date of that purchase period and will be automatically exercised on
the last business day of that purchase period.
7
<PAGE>
Each participant may authorize payroll deductions in any multiple of one
percent (1%) of his or her base salary, up to a maximum of the lesser of ten
percent (10%) or five thousand dollars ($5,000).
On the last business day of each purchase period, the accumulated payroll
deductions of each participant will automatically be applied to the purchase
of whole shares of Common Stock at the purchase price in effect for that
purchase period. No participant may, during any one purchase period, purchase
more than 500 shares of Common Stock.
PURCHASE PRICE
The purchase price per share at which Common Stock will be purchased on the
participant's behalf on the last day of each purchase period will be no less
than ninety-five percent (95%) of the lower of (i) the fair market value per
share of Common Stock on the start date of that purchase period or (ii) the
fair market value per share of Common Stock on the purchase date.
VALUATION
The fair market value per share of Common Stock on any relevant date will be
the closing selling price per share on such date on the Nasdaq National
Market. On April 15, 1996, the fair market value per share of Common Stock was
$133/8 per share.
SPECIAL LIMITATIONS
The Purchase Plan imposes certain limitations upon a participant's rights to
acquire Common Stock, including the following limitations:
(i) No purchase right may be granted to any individual who owns stock
(including stock purchasable under any outstanding purchase rights)
possessing five percent (5%) or more of the total combined voting power or
value of all classes of stock of the Company of any of its affiliates.
(ii) No purchase right granted to a participant may permit such
individual to purchase Common Stock at a rate greater than $25,000 worth of
such Common Stock (valued at the time such purchase right is granted) for
each calendar year the purchase right remains outstanding at any time.
TERMINATION OF PURCHASE RIGHTS
The purchase right will immediately terminate upon the participant's loss of
Eligible Employee status, and any payroll deductions collected for the
purchase period in which such termination occurs will be refunded. The
purchase right will also terminate upon the participant's affirmative
withdrawal from the purchase period, and any payroll deductions collected for
the purchase period in which the withdrawal occurs will be immediately
refunded.
STOCKHOLDER RIGHTS
No participant will have any stockholder rights with respect to the shares
of Common Stock covered by his or her purchase right until the shares are
actually purchased on the participant's behalf. No adjustment will be made for
dividends, distributions or other rights for which the record date is prior to
the date of such purchase.
ASSIGNABILITY
Purchase rights will not be assignable or transferable and will be
exercisable only by the participants.
ACQUISITION
Should the Company be acquired by merger or asset sale during any purchase
period, all outstanding purchase rights will automatically be exercised
immediately prior to the effective date of such acquisition. The
8
<PAGE>
purchase price will not be less than ninety-five percent (95%) of the lower of
(i) the fair market value per share of Common Stock on the start date of that
purchase period or (ii) the fair market value per share of Common Stock
immediately prior to such acquisition.
AMENDMENT AND TERMINATION
The Purchase Plan will terminate upon the earliest to occur of (i) the last
business day in October, 2006, (ii) the date on which all available shares are
issued or (iii) the date on which all outstanding purchase rights are
exercised in connection with an acquisition of the Company.
The Board may at any time alter, suspend or discontinue the Purchase Plan.
However, the Board may not, without stockholder approval, (i) materially
increase the number of shares issuable under the Purchase Plan or the number
of shares purchasable per participant during any one purchase period, except
in connection with certain changes in the Company's capital structure, (ii)
alter the purchase price formula so as to reduce the purchase price, (iii)
materially increase the benefits accruing to participants or (iv) materially
modify the requirements for eligibility to participate in the Purchase Plan.
FEDERAL TAX CONSEQUENCES
The Purchase Plan is intended to be an "employee stock purchase plan" within
the meaning of Section 423 of the Internal Revenue Code. Under a plan which so
qualifies, no taxable income will be recognized by a participant, and no
deductions will be allowable to the Company, in connection with the grant or
the exercise of an outstanding purchase right. Taxable income will not be
recognized until there is a sale or other disposition of the shares acquired
under the Purchase Plan or in the event the participant should die while still
owning the purchased shares.
If the participant sells or otherwise disposes of the purchased shares
within two (2) years after the start date of the purchase period in which such
shares were acquired, then the participant will recognize ordinary income in
the year of sale or disposition equal to the amount by which the fair market
value of the shares on the purchase date exceeded the purchase price paid for
those shares, and the Company will be entitled to an income tax deduction, for
the taxable year in which such sale or disposition occurs, equal in amount to
such excess. Any additional gain recognized by the participant upon the
disposition will be capital gain.
If the participant sells or disposes of the purchased shares more than two
(2) years after the start date of the purchase period in which such shares
were acquired, then the participant will recognize ordinary income in the year
of sale or disposition equal to the lesser of (i) the amount by which the fair
market value of the shares on the sale or disposition date exceeded the
purchase price paid for those shares or (ii) five percent (5%) of the fair
market value of the shares on the start date of the purchase period, and any
additional gain upon the disposition will be taxed as a long-term capital
gain. The Company will not be entitled to any income tax deduction with
respect to such sale or disposition.
If the participant still owns the purchased shares at the time of death, the
lesser of (i) the amount by which the fair market value of the shares on the
date of death exceeds the purchase price or (ii) five percent (5%) of the fair
market value of the shares on the start date of the purchase period in which
those shares were acquired will constitute ordinary income in the year of
death.
ACCOUNTING TREATMENT
Under current accounting rules, the issuance of shares of Common Stock under
the Purchase Plan will not result in a compensation expense chargeable against
the Company's reported earnings. However, the Company must disclose, in
proforma statements to the Company's financial statements, the impact the
outstanding purchase rights under the Purchase Plan would have upon the
Company's reported earnings were the value of those rights to be treated as a
compensation expense.
9
<PAGE>
STOCK OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to TheraTx
regarding the beneficial ownership of TheraTx Common Stock as of February 29,
1996 by (i) each Named Executive Officer (as defined below); (ii) each
director; (iii) all current directors and executive officers of TheraTx as a
group; and (iv) each stockholder known to TheraTx to be a beneficial owner of
more than five percent (5%) of TheraTx Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
BENEFICIAL OWNERSHIP OF CLASS
NAME OF BENEFICIAL OWNER (#)(1) (%)
- ------------------------ -------------------- --------
<S> <C> <C>
Crosspoint Venture Partners III................. 751,224(2) 3.51%
Donald B. Milder(3)............................. 52,621 *
18552 MacArthur Boulevard, Suite 400
Irvine, California 92715
Delphi BioVentures, L.P. ....................... 1,068,124(4) 5.00
3000 Sand Hill Road, Building 1, Suite 135
Menlo Park, California 94025
Galen Partners, L.P. ........................... 988,918(5) 4.63
L. John Wilkerson, Ph.D.(6)..................... 28,000 *
666 Third Avenue, Suite 135
New York, New York 10017-4011
FMR Corp.(7).................................... 3,307,347 14.68
82 Devonshire Street
Boston, Massachusetts 02109-0614
Warburg, Pincus Investors, L.P.(8).............. 2,433,705 11.39
Patrick T. Hackett(8)(9)........................
466 Lexington Avenue
New York, New York 10017
John A. Bardis(10).............................. 539,368(11) 2.52
c/o TheraTx, Incorporated
400 Northridge Road, Suite 400
Atlanta, Georgia 30350
Bret W. Jorgensen(10)........................... 377,916(12) 1.77
Donald R. Myll(13).............................. 106,916(14) *
Laura E. Cayce(13).............................. 53,374(15) *
Louis E. Hallman, III(13)....................... 351,500(16) 1.65
William J. Haffey, Ph.D.(13).................... 56,222(17) *
Craig R. Reamsnyder(13)......................... 39,723(18) *
Craig T. Davenport(9)........................... 30,066(19) *
Robert J. Erra(9)............................... 41,666(20) *
W. David Holder(9).............................. 148,046(21) *
Jonathan H. Glenn(13)........................... 16,770(18) *
B. Wayne Clark (13)............................. 20,666(18) *
All directors and executive officers as a group
(15 persons)(22)............................... 1,887,854 8.68
</TABLE>
- --------
* Less than 1%.
10
<PAGE>
(1) Except as indicated in the footnotes to this table, the persons named in
the table have sole voting and investment power with respect to all
shares shown as beneficially owned by them. Shares of Common Stock
subject to stock options or warrants which are currently exercisable or
which become exercisable within 60 days after February 29, 1996 are
deemed outstanding for purposes of computing the percentage ownership of
outstanding Common Stock of the person or group holding such options or
warrants, but are not deemed outstanding for purposes of computing the
percentage ownership of Common Stock of any other person or group.
(2) Includes 48,416 shares of Common Stock issuable upon the exercise of
immediately exercisable warrants. Excludes 25,000 shares of Common Stock
issuable upon exercise of immediately exercisable options granted to, and
2,000 shares owned directly by, Donald B. Milder. Also excludes 25,621
shares held by the Milder Community Property Trust.
(3) Donald B. Milder, a director of TheraTx, is a General Partner of
Crosspoint Venture Partners III. Except to the extent of his partnership
interest, Mr. Milder disclaims beneficial ownership of the shares held by
Crosspoint Venture Partners III.
(4) Includes 30,257 shares of Common Stock issuable upon the exercise of
immediately exercisable warrants. Also includes 3,774 shares held by
Delphi BioInvestments, L.P., of which 107 shares of Common Stock are
issuable upon the exercise of immediately exercisable warrants.
(5) Includes 25,489 shares of Common Stock issuable upon the exercise of
immediately exercisable warrants. Also includes 92,299 shares held by
Galen Partners International, L.P., of which 2,624 shares of Common Stock
are issuable upon the exercise of immediately exercisable warrants.
Excludes 25,000 shares of Common Stock issuable upon exercise of
immediately exercisable options granted to, and 1,000 shares owned
directly by, L. John Wilkerson. Also excludes 2,000 shares held by The
Wilkerson Family Charitable Lead Trust.
(6) L. John Wilkerson, Ph.D., a director of TheraTx, is a General Partner of
the Galen Partnerships. Except to the extent of his partnership interest,
Dr. Wilkerson disclaims beneficial ownership of the shares held by the
Galen Partnerships.
(7) Fidelity Management & Research Company ("Fidelity"), a wholly-owned
subsidiary of FMR Corp., is the beneficial owner of 2,447,721 shares, as
a result of acting as an investment advisor to several investment
companies, which includes 735,821 shares issuable upon conversion of the
Notes (41.66 shares for each $1,000 principal amount of Notes). Fidelity
Management Trust Company, a wholly-owned subsidiary of FMR Corp.,
beneficially owns 859,626 shares (including 443,326 issuable upon
conversion of the Notes as determined above). Edward C. Johnson, III,
Chairman of FMR Corp., and family members, through their collective
ownership of voting common stock of FMR Corp. and the terms of a
shareholders' voting agreement, may be deemed to form a controlling group
with respect to FMR Corp. under the Investment Company Act of 1940.
(8) The sole General Partner of Warburg, Pincus Investors, L.P. ("Warburg")
is Warburg, Pincus & Co., a New York general partnership ("WP"). Lionel
I. Pincus is the Managing Partner of WP and may be deemed to control WP.
E.M. Warburg, Pincus & Company, a New York general partnership, manages
Warburg. WP has a 20% interest in the profits of Warburg and, through its
wholly-owned subsidiary, E.M. Warburg, Pincus & Co., Inc. ("EMW"), owns
1.13% of the limited partnership interests in Warburg. Mr. Hackett, a
director of TheraTx, is a Managing Director of EMW and a General Partner
of WP and E.M. Warburg. As such, Mr. Hackett may be deemed to have an
indirect pecuniary interest, within the meaning of Rule 16a-1 under the
Securities Exchange Act of 1934, in an indeterminate portion of the
shares beneficially owned by Warburg, EMW and WP. Mr. Hackett disclaims
beneficial ownership of these 2,433,705 shares within the meaning of Rule
13d-3 under the Securities Exchange Act of 1934. Includes 25,000 shares
of Common Stock issuable upon exercise of an immediately exercisable
option granted to Mr. Hackett, the economic benefit of which has been
assigned to EMW or an affiliate thereof.
(9) Director.
(10) Named executive officer and director.
(11) Includes 56,667 shares of Common Stock issuable upon exercise of vested
or immediately exercisable options.
(12) Includes 24,583 shares of Common Stock issuable upon exercise of vested
or immediately exercisable options.
(13) Named executive officer.
(14) Includes 24,583 shares of Common Stock issuable upon exercise of vested
or immediately exercisable options.
(15) Includes 36,707 shares of Common Stock issuable upon exercise of vested
or immediately exercisable options.
(16) Includes 19,167 shares of Common Stock issuable upon exercise of vested
or immediately exercisable options. Excludes 3,333 shares held as Trustee
for the Nathaniel James Wood Trust dated May 26, 1993.
(17) Includes 21,223 shares of Common Stock issuable upon exercise of vested
or immediately exercisable options.
(18) All shares of Common Stock are issuable upon exercise of vested or
immediately exercisable options.
(19) Shares held as Trustee for the Davenport Family Trust U.T.A. dated
December 3, 1986. Includes 25,000 shares of Common Stock issuable upon
exercise of immediately exercisable options. Also includes 3,000 shares
held in trust for the benefit of Mr. Davenport's minor children.
(20) Includes 25,000 shares of Common Stock issuable upon the exercise of an
immediately exercisable option.
(21) Includes 111,935 shares of Common Stock held with Jan C. Holder, TTEES
for the Holder Family Trust U/A DTD dated January 29, 1985. Excludes
5,847 shares of Common Stock held with Jan C. Holder as TTEES for Zachary
Cartwright Holder TR U/A DTD dated October 23, 1981, and 5,847 shares of
Common Stock for Jon David Holder TR U/A DTD dated October 23, 1981, both
of which trustors are adult children of Mr. Holder. Includes 25,000
shares of Common Stock issuable upon exercise of immediately exercisable
options.
(22) Excludes shares beneficially owned by Crosspoint Venture Partners III,
the Galen Partnerships and Investors referenced above, as to which
directors of the Company have disclaimed beneficial ownership as
referenced in footnotes 3, 6 and 8 above. The percentage ownership of all
directors and executive officers as a group would be 27.73% if the shares
as to which directors disclaim beneficial ownership were included.
11
<PAGE>
EXECUTIVE COMPENSATION AND RELATED INFORMATION
COMPENSATION COMMITTEE REPORT(1)
It is the responsibility of the Compensation Committee (the "Committee") of
the TheraTx Board of Directors to make recommendations to the Board of
Directors regarding the salary and bonuses to be paid to the Company's
executive officers each fiscal year. The Committee also administers the 1994
Stock Option/Stock Issuance Plan, as amended (the "1994 Plan"), and will also
administer the 1996 Stock Option/Stock Issuance Program (the "1996 Plan") if
the 1996 Plan is approved by the stockholders at the Annual Meeting. Equity
incentives may be granted under both the 1994 Plan and the 1996 Plan to
executive officers as part of their long-term compensation package. The
following is a summary of the policies of the Committee which affect the
compensation paid to executive officers, as reflected in the tables and text
set forth elsewhere in this Proxy Statement.
General Compensation Policy. Under the supervision of the Committee, TheraTx
has developed a compensation policy which is designed to attract, retain and
reward qualified key executives critical to the Company's success and to
provide such executives with performance-based incentives tied to the
financial performance of TheraTx. One of the Committee's primary objectives is
to have a substantial portion of each officer's compensation contingent upon
the Company's performance as well as upon the individual's contribution to the
success of TheraTx as measured by his or her personal performance.
Accordingly, each executive officer's compensation package is fundamentally
comprised of three elements: (i) base salary which reflects individual
experience, expertise and responsibility and is designed to be competitive
with salary levels in the industry; (ii) annual incentive compensation which
reflects individual and Company performance for the year; and (iii) long-term
stock-based incentive awards which strengthen the mutuality of interests
between the executive officers and the TheraTx stockholders.
Factors. The principal factors which were considered in establishing the
components of each executive officer's compensation package for the year ended
December 31, 1995 are summarized below. However, the Committee may in its
discretion apply entirely different factors, particularly different measures
of financial performance, in setting executive compensation for future fiscal
years.
Base Salary. For comparative compensation purposes for the 1995 fiscal year,
the Committee has, with the assistance of an independent compensation
consultant, identified a peer group of companies which are comparable in size
with the Company, which provide healthcare services or which compete with the
Company for executive talent. The base salary for each officer is determined
on the basis of specific compensation surveys and the following factors: the
salary levels in effect for comparable positions at the peer group companies,
the experience and personal performance of the officer and internal
comparability considerations. The weight given to each of these factors
differs from individual to individual, as the Committee deems appropriate.
For purposes of the stock price performance graph which appears later in
this Proxy Statement, the Company has selected Long Term Care Composite
("LTCC") as the industry index. Four out of the eight companies included in
that index were also among the companies which the Committee surveyed as part
of the peer group for comparative compensation purposes. However, in selecting
companies to survey for such compensation purposes, the Committee considers
many factors not directly associated with stock price performance, such as
differences in organizational structure and corporate culture, geographic
location, growth rate, annual revenue and profitability, and market
capitalization.
- --------
(1) The material in this report is not "soliciting material," is not deemed
filed with the Securities and Exchange Commission (the "SEC") and is not to
be incorporated by reference in any filing of the Company under the
Securities Act of 1933 as amended (the "1933 Act") or the Securities
Exchange Act of 1934, as amended (the "1934 Act").
12
<PAGE>
Annual Incentive Compensation. Annual bonuses are earned by each executive
officer primarily on the basis of the Company's achievement of certain
corporate financial performance targets established for each fiscal year. For
fiscal year 1995, bonuses were earned on the basis of the following factors:
(i) the increase in the Company's earnings (before interest and taxes) over
the prior fiscal year and (ii) the personal performance level of the executive
officer. A portion of the Company's earnings for the 1995 fiscal year was
accordingly set aside for distribution under the bonus pool, and each
executive officer was awarded a share of that pool on the basis of the
executive's performance for the year, the responsibilities assigned to the
executive and the executive's relative position in the Company. The total cash
compensation paid to the Company's executive officers for the 1995 fiscal year
was, in most cases, competitive with the total cash compensation paid to
executive officers in comparable positions at the peer group companies which
compete with the Company for executive talent, based on the published 1994
fiscal year data for those companies. The actual bonus paid for the year to
each of the current executive officers named in the Summary Compensation Table
is indicated in the Bonus column.
Long-Term Incentive Compensation. Each option grant under the 1994 Plan and
the 1996 Plan is designed to align the interests of the executive officers
with those of the stockholders and provide each individual with a significant
incentive to manage the Company from the perspective of an owner with an
equity stake in the business and to remain in the service of the Company. The
Committee has established certain general guidelines in making option grants
to the executive officers in an attempt to target a fixed number of unvested
option shares based upon the individual's position with the Company and his or
her existing holdings of unvested options. The number of shares subject to
each option grant is based upon the officer's tenure, level of responsibility
and relative position in the Company. However, the Committee does not adhere
strictly to these guidelines and will vary the size of the option grant made
to each executive officer as it feels the circumstances warrant. Each grant
allows the officer to acquire shares of the Company's Common Stock at a fixed
price per share (the market price on the grant date) over a specified period
of time (up to 10 years).
Options to purchase 1,105,000 shares of Common Stock were granted to the
executive officers during the 1995 fiscal year. Currently, each of these
options does not become exercisable unless either the optionee completes seven
(7) years of service with the Company measured from the grant date or certain
performance criteria are achieved. The exercise price per share is $18.25. The
Committee is considering modifications of the terms of these options to ensure
that the options will continue to provide a meaningful equity incentive for
such officers to remain in the Company's employ. Potential modifications may
include, without limitation, changing or eliminating the performance criteria
and changing the vesting period to a mere conventional time based vesting,
although the Committee does not currently intend to change the exercise price
of these options.
CEO Compensation. The base salary established for the Company's Chief
Executive Officer, Mr. John A. Bardis, for the year ended December 31, 1995
reflects the Committee's decision to maintain a level of stability and
certainty with respect to this component of his compensation from year to
year, and there was no intent to have this particular component of
compensation affected to any significant degree by the Company's performance
factors. Because it was the Committee's intent in setting Mr. Bardis'
compensation for the 1995 fiscal year to have a greater emphasis on long-term
equity incentive compensation than cash compensation. Mr. Bardis' base salary
was maintained at a level below the median of the base salaries paid to other
chief executive officers at comparable surveyed companies. Mr. Bardis was,
however, awarded an option during 1995 to acquire 400,000 shares of the
Company's Common Stock on the terms discussed in the preceding paragraph.
Tax Limitation. As a result of federal tax legislation enacted in 1993, a
publicly-held company such as TheraTx will not be allowed a federal income tax
deduction for compensation paid to certain executive officers, to the extent
that compensation exceeds $1 million per officer in any year. This limitation
will apply to all compensation paid to the covered executive officers which is
not considered to be performance-based. However, compensation which does
qualify as performance-based compensation will not have to be taken into
account for purposes of this limitation. The compensation paid to the
Company's executive officers for the year ended December 31, 1995 did not, and
the compensation to be paid for the year ending December 31, 1996 is not
13
<PAGE>
expected to, exceed the $1 million limit per officer. In addition, the 1994
and 1996 Plans have been structured so that any compensation deemed paid to an
executive officer in connection with the exercise of options granted under
those plans will qualify as performance-based compensation which will not be
subject to the $1 million limitation. Because it is very unlikely that the
cash compensation payable to any of the Company's executive officers in the
foreseeable future will approach the $1 million limitation, the Committee has
decided not to take any other action to limit or restructure the elements of
cash compensation payable to the Company's executive officers. The Committee
will reconsider this decision should the individual compensation of any
executive officer ever approach the $1 million level.
Compensation Committee
Craig T. Davenport
Robert J. Erra L.
John Wilkerson
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee for the year ended December 31,
1995 were Messrs. Davenport and Erra, and Dr. Wilkerson. None of these
individuals was at any time during the year ended December 31, 1995 an officer
or employee of the Company or any of its subsidiaries.
No executive officer of the Company serves as a member of the board of
directors or compensation committee of any entity which has one or more
executive officers serving as a member of the Company's Board of Directors.
14
<PAGE>
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth the compensation awarded or earned, for
services rendered to the Company in all capacities during the fiscal years
ended December 31, 1993, 1994 and 1995, by (i) the Company's Chief Executive
Officer and (ii) the Company's six other most highly compensated executive
officers who were serving as executive officers as of December 31, 1995
(together, the "Named Executive Officers"). No executive officer who would
have otherwise been includable in such table on the basis of salary and bonus
earned for the year ended December 31, 1995 resigned or terminated employment
during the fiscal year. During 1995, 1994 and 1993, no Named Executive Officer
received any restricted stock award, stock appreciation right or payment under
any long term incentive plan.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------- ------------
SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION OPTIONS(#)
- --------------------------- ---- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
John A. Bardis............ 1995 $ 206,000 $ 45,732 $ -- 400,000
President, Chief
Executive 1994 206,000 61,800 42,858(2) 226,667
Officer and Director 1993 204,076 41,200 -- --
Bret W. Jorgensen......... 1995 150,000 28,500 -- 160,000
President, TheraTx Health 1994 137,789 79,063 14,506(2) 88,333
Services Group and
Director 1993 105,212 24,000 37,070(3) --
Donald R. Myll............ 1995 140,000 25,900 -- 110,000
Senior Vice President and 1994 124,583 41,458 9,655(2) 88,333
Chief Financial Officer 1993 96,689 22,000 50,768(3) --
Laura E. Cayce............ 1995 150,000 30,000 -- 90,000
President, PersonaCare
Group 1994 126,875 28,164 -- 83,333
1993 102,292 25,000 -- 16,666
Craig R. Reamsnyder....... 1995 125,000 23,125 -- 90,000
Vice President and
General 1994 116,458 24,708 -- 63,333
Manager, Hospital
Services Group 1993 94,496 19,000 -- 50,000
Louis E. Hallman, III..... 1995 125,000 25,000 -- 90,000
Vice President Corporate 1994 110,521 26,051 26,865(2) 61,667
Development 1993 86,917 17,000 4,207(3) --
William J. Haffey, Ph.D. . 1995 125,000 25,000 -- 90,000
Vice President and Chief 1994 108,750 26,125 -- 63,333
Clinical Information
Services Officer 1993 75,980 14,250 -- 33,333
</TABLE>
- --------
(1) The bonuses reflected in the table for 1995 for all officers were earned
in 1995 although not paid until 1996. The bonuses reflected for 1994 for
Messrs. Bardis, Jorgensen, Myll and Hallman, and Ms. Cayce, and a portion
of the bonus for Messrs. Reamsnyder and Haffey were earned in 1994 although
not paid until 1995.
(2) "Other Annual Compensation" in 1994 is comprised of (i) relocation
expenses of $42,858, $7,760 and $26,865 paid to or on behalf of Messrs.
Bardis, Jorgensen and Hallman, respectively; and (ii) in the case of
Messrs. Jorgensen and Myll, payments of $6,746 and $9,655, respectively,
to reimburse them for the tax liability attributable to the relocation
expenses previously paid to them.
(3) "Other Annual Compensation" in 1993 is comprised of (i) payments for
unused vacation of $4,178, $6,852 and $4,207 to Messrs. Jorgensen, Myll
and Hallman, respectively; and (ii) payments to Messrs. Jorgensen and Myll
in the amount of $32,892 and $43,916, respectively, for relocation
expenses and reimbursement of the tax liability attributable to the
relocation expenses paid directly to each.
15
<PAGE>
STOCK OPTIONS
The following table sets forth, for the year ended December 31, 1995,
information concerning the grant of options to purchase shares of Common Stock
under the Company's 1994 Plan to the Named Executive Officers. No stock
appreciation rights have been granted to any of the Named Executive Officers.
OPTION/SAR GRANTS IN YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------
POTENTIAL REALIZABLE
PERCENT VALUE AT ASSUMED
NUMBER OF OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM(3)
OPTIONS EMPLOYEES EXERCISE OR ------------------------
NAME GRANTED(1) IN 1995 BASE PRICE(2) EXPIRATION DATE 5% 10%
- ---- ---------- ---------- ------------- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
John A. Bardis.......... 400,000 19.43% $ 18.25 03/21/05 $ 4,590,931 $ 11,634,320
Bret W. Jorgensen....... 160,000 7.77 18.25 03/21/05 1,836,372 4,653,728
Donald R. Myll.......... 110,000 5.34 18.25 03/21/05 1,262,506 3,199,438
Laura E. Cayce.......... 90,000 4.37 18.25 03/21/05 1,032,959 2,617,722
Craig R. Reamsnyder..... 90,000 4.37 18.25 03/21/05 1,032,959 2,617,722
Louis E. Hallman, III... 90,000 4.37 18.25 03/21/05 1,032,959 2,617,722
William J. Haffey,
Ph.D. ................. 90,000 4.37 18.25 03/21/05 1,032,959 2,617,722
</TABLE>
- --------
(1) Each of the options was granted March 21, 1995 and will vest upon the
earlier of (i) the optionee's completion of seven (7) years of service
measured from such grant date or (ii) the attainment of certain
performance milestones based upon specific earnings per share targets or
an acquisition of the Company at certain prescribed minimum valuation
thresholds. The Company believes that the options will help ensure
continuity of management and will focus management on the long-term
enhancement of stockholder value.
(2) The exercise price per share of the options granted was equal to the
closing market price of the underlying shares of Common Stock on the date
the options were granted. The exercise price may be paid in cash, in
shares of Common Stock valued at fair market value on the exercise date or
through a cashless exercise procedure involving the same-day sale of the
purchased shares. The Company may also finance the option exercise by
loaning the optionee sufficient funds to pay the exercise price for the
purchased shares.
(3) There is no assurance provided to any executive officer or any other
holder of the Company's securities that the actual stock price
appreciation over the 10-year option term will be at the assumed 5% and
10% levels or at any other defined level. Unless the market price of the
Common Stock does in fact appreciate over the option term, no value will
be realized from the option grants.
OPTION EXERCISES AND HOLDINGS
The following table sets forth certain information concerning the exercise
of options by Messrs. Haffey, Clark and Reamsnyder and Ms. Cayce during fiscal
year 1995, including the aggregate amount of gain realized at the time of
exercise. No other Named Executive Officer exercised options during 1995. In
addition, the table includes the number of shares covered by both exercisable
and unexercisable stock options held by the Named Executive Officers as of
December 31, 1995. Also reported are values of "in-the-money" options that
represent the difference between the respective exercise prices of outstanding
stock options and the closing selling price of the Common Stock as of December
29, 1995, as reported on the Nasdaq National Market. No stock appreciation
rights were exercised during fiscal year 1995 nor were any outstanding at
December 29, 1995.
16
<PAGE>
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1995
AND OPTION VALUES AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SHARES SECURITIES UNDERLYING IN-THE-MONEY
ACQUIRED UNEXERCISED OPTIONS OPTIONS(1)
ON VALUE --------------------------- -------------------------
NAME EXERCISE REALIZED(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John A. Bardis.......... 0 $ 0 56,667(3) 570,000 $ 200,003 0
Bret W. Jorgensen....... 0 0 24,583(4) 223,570 99,998 0
Donald R. Myll.......... 0 0 24,583(5) 173,750 99,998 0
Craig Reamsnyder........ 31,110 487,166 39,723(6) 132,500 342,174 0
Laura E. Cayce.......... 8,153 158,127 34,276(7) 147,570 173,070 0
Louis E. Hallman, III... 0 0 19,167(8) 132,500 87,503 0
William J. Haffey,
Ph.D................... 48,477 712,936 21,223(9) 141,000 133,549 0
B. Wayne Clark.......... 22,000 358,690 20,666(10) 99,000 24,998 0
</TABLE>
- --------
(1) Calculated based on the closing sale price at December 29, 1995 of $12.00
per share, less the applicable exercise price.
(2) Calculated as the excess of the fair market value of the purchased shares
on the exercise date over the aggregate option exercise paid for the
shares.
(3) As of December 31, 1995, 42,778 of the shares issuable upon exercise of
options held by Mr. Bardis were vested.
(4) As of December 31, 1995, 17,639 of the shares issuable upon exercise of
options held by Mr. Jorgensen were vested.
(5) As of December 31, 1995, 17,639 of the shares issuable upon exercise of
options held by Mr. Myll were vested.
(6) As of December 31, 1995, 20,278 of the shares issuable upon exercise of
options held by Mr. Reamsnyder were vested.
(7) As of December 31, 1995, 24,205 of the shares issuable upon exercise of
options held by Ms. Cayce were vested.
(8) As of December 31, 1995, 13,090 of the shares issuable upon exercise of
options held by Mr. Hallman were vested.
(9) As of December 31, 1995, 10,458 of the shares issuable upon exercise of
options held by Dr. Haffey were vested.
(10) As of December 31, 1995, 8,512 of the shares issuable upon exercise of
options held by Mr. Clark were vested.
MANAGEMENT CONTRACTS AND CHANGE IN CONTROL AGREEMENTS
None of the Company's executive officers have employment agreements with
TheraTx, and their employment may be terminated at any time at the discretion
of the Board of Directors. On April 25, 1996, the Board of Directors approved
the adoption of the Executive Officers' Severance Policy (the "Severance
Policy") for the Company's executive officers, pursuant to which each such
executive officer will become entitled to special severance benefits in the
event his or her employment is involuntarily terminated in connection with
certain changes in control of the Company.
A change in control is defined under each agreement to include: (i) an
acquisition of the Company by merger or consolidation in which the Company is
not the surviving entity, (ii) the sale, transfer or other disposition of all
or substantially all of the assets of the Company in complete liquidation or
dissolution of the Company, (iii) any reverse merger in which the Company is
the surviving entity but in which securities possessing more than fifty
percent (50%) of the total combined voting power of the Company's outstanding
17
<PAGE>
securities are transferred to person or persons different from the persons
holding those securities immediately prior to such merger, (iv) the
acquisition of securities possessing fifty percent (50%) or more of the total
combined voting power of the Company's outstanding securities pursuant to a
transaction effected without the approval of the TheraTx Board, (v) a change
in the composition of the TheraTx Board over any period of 36 months or less
such that a majority of the Board ceases to be comprised of individuals who
either (A) have been Board members since the beginning of such period or (B)
have been elected or nominated for election as Board members during such
period by a majority of the continuing Board members described in clause (A)
or (vi) the issuance by the Company of securities possessing more than fifty
percent (50%) of the total combined voting power of the Company's outstanding
securities (determined after such issuance) in a single transaction or a
series of related transactions.
Should an executive officer's employment be involuntarily terminated (other
than for cause) within a designated period (20 or 24 months, as determined by
the Board of Directors) following a change in control, then that officer will
become entitled to the following severance benefits from the Company: (i) a
cash lump sum payment equal to such executive officer's base salary for a
designated 20 or 24 month period and (ii) a cash lump sum payment equal to the
then current monthly health care insurance premium paid by the Company for
such executive officer, multiplied by 20 or 24, as the case may be.
Involuntary termination is defined as the termination of the officer's
employment, whether voluntary or involuntary (other than for cause), following
a material reduction in the officer's level of responsibilities, a reduction
in his or her compensation or a change in job location without his or her
consent. Termination for cause includes any involuntary termination
attributable to the officer's fraudulent behavior or other intentional
misconduct adversely affecting the business reputation of the Company in a
material manner.
In addition, the Compensation Committee will have the discretionary
authority as administrator of the 1994 Plan and the 1996 Plan to provide for
the accelerated vesting of options held by executive officers in connection
with a change in control of the Company. Under both the 1994 Plan and the 1996
Plan, all options held by executive officers automatically vest in connection
with certain changes of control in which the options are not assumed by the
acquiring company. Furthermore, under the 1996 Plan, executive officers'
options will vest in the event of an involuntary termination (other than for
cause) within certain designated periods following a change in control.
Should the total value of all payments or benefits which vest or become due
to an executive officer in connection with his or her termination of
employment following the occurrence of a change in control, as described
above, constitute an excess parachute payment under the federal tax laws, then
the Company will provide such executive officer with a cash lump sum payment
equal to 145% of the excise tax initially payable by such executive. The
Company will not, however, provide any such payment to the extent the excise
taxes are attributable to accelerated vesting of stock option grants or
restricted stock issuances made to the executive officer within one year prior
to the change of control.
THE 1994 STOCK OPTION/STOCK ISSUANCE PLAN
Plan Background and Structure
The Company's 1994 Stock Option/Stock Issuance Plan (the "1994 Plan") is the
successor equity incentive program to the Company's 1990 Stock Option Plan, as
amended. The 1994 Plan was originally adopted by the Board of Directors on
March 3, 1994 and approved by the Company's stockholders on June 15, 1994. On
July 16, 1994, October 27, 1994 and March 21, 1995, the Board approved
increases in the number of shares authorized for grant under the 1994 Plan of
75,000, 900,000, and 1,800,000 shares, respectively. Such increases were
approved by the Company's stockholders at the 1995 Annual Meeting of
Stockholders held May 31, 1995.
A total of 4,495,467 shares of Common Stock has been reserved for issuance
over the ten year term of the 1994 Plan. In no event may any one participant
in the 1994 Plan be granted stock options, separately exercisable
18
<PAGE>
stock appreciation rights or direct stock issuances for more than 1,498,489
shares in the aggregate over the term of the 1994 Plan after December 31,
1994. As of February 29, 1996, a total of 1,145,590 shares had been issued
under the 1994 Plan, 3,325,239 shares were subject to outstanding options and
24,638 shares were available for future grant under the 1994 Plan.
The 1994 Plan contains three separate equity incentive programs: (i) a
Discretionary Option Grant Program under which eligible individuals may be
granted options to purchase shares of Common Stock at an exercise price not
less than 85% of the fair market value of such shares on the grant date; (ii)
a Stock Issuance Program under which such individuals may be issued shares of
Common Stock directly, either through the purchase of such shares at a price
not less than 85% of their fair market value at the time of issuance or as a
bonus tied to the performance of services or the Company's attainment of
financial objectives; and (iii) an Automatic Option Grant Program under which
eligible non-employee Board members may be granted options to purchase shares
of Common Stock at an exercise price equal to 100% of the fair market value of
such shares on the grant date. The terms of the Automatic Option Grant Program
under the 1996 Plan are identical to the terms of the Automatic Option Grant
Program under the 1996 Plan, except that the initial 25,000-share option
grants which were made under the 1994 Plan at the 1995 Annual Stockholders
Meeting were reduced by certain prior option grants made to the non-employee
Board members. No further option grants to non-employee Board members will be
made under the Automatic Option Grant Program of the 1994 Plan once the 1996
Plan is approved by the stockholders at the Annual Meeting.
The Discretionary Option Grant Program and the Stock Issuance Program are
administered by the Compensation Committee. The Committee has complete
discretion to determine which eligible individuals are to receive option
grants or stock issuances, the time or times when such option grants or stock
issuances are to be made, the number of shares subject to each such grant or
issuance, the status of any granted option as either an incentive stock option
or a non-statutory stock option under the Federal tax laws, the vesting
schedule to be in effect for the option grant or stock issuance and the
maximum term for which any granted option is to remain outstanding.
Upon an acquisition of the Company by merger or asset sale, the vesting of
outstanding options and unvested stock issuances will accelerate under certain
circumstances.
Stock appreciation rights are authorized for issuance under the
Discretionary Option Grant Program which provide the holders with the election
to surrender their outstanding options for an appreciation distribution from
the Company equal to the excess of (i) the fair market value of the vested
shares of Common Stock subject to the surrendered option over (ii) the
aggregate exercise price payable for such shares. Such appreciation
distribution may be made in cash or in shares of Common Stock.
The Committee has the authority to effect the cancellation of outstanding
options under the Discretionary Option Grant Program which have exercise
prices in excess of the then current market price of Common Stock and to issue
replacement options with an exercise price based on the market price of Common
Stock at the time of the new grant.
The Committee may permit one or more optionees to pay the exercise price of
outstanding options under the 1994 Plan by delivering a promissory note
payable in installments. The Committee will determine the terms of any such
promissory note. However, the maximum amount of financing provided any
optionee may not exceed the cash consideration payable for the purchased
shares plus all applicable taxes incurred in connection with the acquisition
of the shares. Any such promissory note may be subject to forgiveness in whole
or in part, at the discretion of the Committee, over the optionee's period of
service.
The Board may amend or modify the 1994 Plan in any or all respects
whatsoever subject to any required stockholder approval. The Board may
terminate the 1994 Plan at any time, and the 1994 Plan will in all events
terminate on March 2, 2004.
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<PAGE>
RECENT STOCK AWARDS UNDER THE 1994 PLAN
The following table sets forth certain information regarding the options
granted under the 1994 Plan since January 1, 1995 to (i) the Company's Named
Executive Officers, (ii) the Company's non-employee directors, (iii) all
executive officers as a group, (iv) all non-employee directors as a group, and
(v) all employees as a group.
<TABLE>
<CAPTION>
NUMBER OF
OPTION EXERCISE
NAME SHARES PRICE
- ---- --------- --------
<S> <C> <C>
EXECUTIVE OFFICERS
John A. Bardis...................................... 400,000(1) $18.25
Bret W. Jorgensen................................... 160,000(1) 18.25
Donald R. Myll...................................... 110,000(1) 18.25
Laura E. Cayce...................................... 90,000(1) 18.25
Craig R. Reamsnyder................................. 90,000(1) 18.25
Louis E. Hallman, III............................... 90,000(1) 18.25
William J. Haffey, Ph.D ............................ 90,000(1) 18.25
Jonathan H. Glenn................................... 10,000(1) 18.25
B. Wayne Clark...................................... 65,000(1) 18.25
DIRECTORS
Craig T. Davenport.................................. 18,333 14.00
Robert J. Erra...................................... 18,333 14.00
Patrick T. Hackett.................................. 25,000(2) 14.00
W. David Holder..................................... 18,333 14.00
Donald B. Milder.................................... 18,333 14.00
L. John Wilkerson................................... 18,333 14.00
All current executive officers as a group (9
persons)........................................... 1,105,000 18.25(3)
All non-employee directors as a group (6 persons)... 116,665 14.00(3)
All employees, including current officers who are
not executive officers as a group (374 persons) ... 789,482(2)(3) 15.28(3)
</TABLE>
- --------
(1) These options, granted March 21, 1995, will vest upon the earlier of seven
(7) years following the date of grant or on such dates as the Company
achieves certain performance criteria. The performance criteria may either
be fulfilled by the Company achieving certain earnings per share targets
or the Company being acquired at certain minimum price thresholds.
(2) The economic benefit of the option granted to Mr. Hackett has been
assigned to E. M. Warburg, Pincus & Co., Inc., or an affiliate thereof,
for the account of Warburg, Pincus Investors, L.P.
(3) Exercise price per share is equal to the weighted average exercise price
per share.
20
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (hereinafter called this "Agreement"), dated as
of February 9, 1997, among TheraTx, Incorporated a Delaware corporation (the
"Company"), Vencor, Inc., a Delaware corporation ("Purchaser"), and Peach
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Purchaser ("Merger Sub"), the Company and Merger Sub sometimes being
hereinafter collectively referred to as the "Constituent Corporations."
RECITALS
WHEREAS, the Boards of Directors of Purchaser and the Company each have
unanimously approved of this Agreement, the Offer (as defined herein) and the
Merger (as defined herein) and determined that it is in the best interests of
their respective companies and stockholders for Purchaser to acquire the
Company upon the terms and subject to the conditions set forth herein; and
WHEREAS, the Company, Purchaser and Merger Sub desire to make certain
representations, warranties, covenants and agreements in connection with this
Agreement.
NOW, THEREFORE, in consideration of the premises, and of the representation,
warranties, covenants and agreements contained herein the parties hereto
hereby agree as follows:
ARTICLE I
THE TENDER OFFER
1.1. Tender Offer.
(a) Provided that this Agreement shall not have been terminated in
accordance with Article IX hereof and none of the events set forth in Annex A
hereto shall have occurred or be existing, within five business days of the
date hereof, Merger Sub will commence a tender offer (the "Offer") for all of
the outstanding shares of Common Stock, par value $0.001 per share of the
Company (the "Shares"), together with the associated rights to purchase (the
"Rights") Series A Junior Participating Preferred Stock of the Company (the
"Series A Preferred") at a price of $17.10 per Share in cash, net to the
seller, subject only to the conditions set forth in Annex A hereto. Subject to
the terms and conditions of the Offer, Purchaser will promptly pay for all
Shares duly tendered. The Company's Board of Directors shall recommend
acceptance of the Offer to its stockholders in a Solicitation/Recommendation
Statement on Schedule 14D-9 (the "Schedule 14D-9") to be filed with the
Securities and Exchange Commission (the "SEC") upon commencement of the Offer.
(b) Purchaser agrees, as to the Offer to Purchase and related Letter of
Transmittal (which together constitute the "Offer Documents") and the Company
agrees, as to the Schedule 14D-9, that such documents shall, in all material
respects, comply with the requirements of the Securities Exchange Act of 1934,
as amended (the "Exchange Act") and the rules and regulations thereunder and
other applicable laws. The Company and its counsel, as to the Offer Documents,
and Merger Sub and its counsel, as to the Schedule 14D-9, shall be given an
opportunity to review such documents prior to their being filed with the SEC.
(c) In connection with the Offer, the Company will cause its Transfer Agent
to furnish promptly to Merger Sub a list, as of a recent date, of the record
holders of Shares and their addresses, as well as mailing labels containing
the names and addresses of all record holders of Shares and lists of security
positions of Shares held in stock depositories. The Company will furnish
Merger Sub with such additional information (including, but not limited to,
updated lists of holders of Shares and their addresses, mailing labels and
lists of security positions) and such other assistance as Purchaser or Merger
Sub or their agents may reasonably request in communicating the Offer to the
record and beneficial holders of Shares.
1
<PAGE>
ARTICLE II
THE MERGER; CLOSING; EFFECTIVE TIME
2.1. The Merger. Subject to the terms and conditions of this Agreement, at
the Effective Time (as defined in Section 2.3) Merger Sub shall be merged with
and into the Company and the separate corporate existence of Merger Sub shall
thereupon cease (the "Merger"). The Company shall be the surviving corporation
in the Merger (sometimes hereinafter referred to as the "Surviving
Corporation") and shall continue to be governed by the laws of the State of
Delaware, and the separate corporate existence of the Company with all its
rights, privileges, immunities, powers and franchises shall continue
unaffected by the Merger, except as set forth in Section 3.1. The Merger shall
have the effects specified in the Delaware General Corporation Law
(the "DGCL").
2.2. Closing. The closing of the Merger (the "Closing") shall take place (i)
at the offices of Sullivan & Cromwell, 125 Broad Street, New York, New York at
10:00 A.M. on the first business day on which the last to be fulfilled or
waived of the conditions set forth in Article VIII hereof shall be fulfilled
or waived in accordance with this Agreement or (ii) at such other place and
time and/or on such other date as the Company and Purchaser may agree.
2.3. Effective Time. As soon as practicable following the Closing, and
provided that this Agreement has not been terminated or abandoned pursuant to
Article IX hereof, the Company and the Purchaser will cause a Certificate of
Merger (the "Delaware Certificate of Merger") to be executed and filed with
the Secretary of State of Delaware as provided in Section 251 of the DGCL (or,
if permitted, Section 253 of the DGCL). The Merger shall become effective on
the date on which the Delaware Certificate of Merger has been duly filed with
the Secretary of State of Delaware, and such time is hereinafter referred to
as the "Effective Time."
ARTICLE III
CERTIFICATE OF INCORPORATION AND BY-LAWS
OF THE SURVIVING CORPORATION
3.1. The Certificate of Incorporation. The Certificate of Incorporation of
the Company (the "Certificate") in effect at the Effective Time shall be the
Certificate of Incorporation of the Surviving Corporation, until duly amended
in accordance with the terms thereof and the DGCL, except that Article IV
of the Certificate shall be amended to read in its entirety as follows unless
the event contemplated by Section 7.14(iii) shall have occurred, in which case
Article IV of the Certificate shall not be amended at the Effective Time:
"The aggregate number of shares which the Corporation shall
have the authority to issue is 1,000 shares of Common Stock,
par value $0.001 per share."
3.2. The Bylaws. The Bylaws of Merger Sub in effect at the Effective Time
shall be the Bylaws of the Surviving Corporation, until duly amended in
accordance with the terms thereof and the DGCL.
ARTICLE IV
OFFICERS AND DIRECTORS
OF THE SURVIVING CORPORATION
4.1. Officers and Directors. The directors of Merger Sub and the officers of
the Company at the Effective Time shall, from and after the Effective Time, be
the directors and officers, respectively, of the Surviving Corporation until
their successors have been duly elected or appointed and qualified or until
their earlier death, resignation or removal in accordance with the Surviving
Corporation's Certificate of Incorporation and Bylaws.
2
<PAGE>
4.2. Board of Directors; Committees.
(a) If requested by Purchaser, the Company will, promptly following the
purchase by Merger Sub of Shares pursuant to the Offer, take all actions
necessary to cause persons
designated by Purchaser to become directors of the Company so that the total
number of such persons equals that number of directors, rounded up to the next
whole number, which represents the product of (x) the total number of
directors on the board of directors of the Company (the "Board of Directors")
multiplied by (y) the percentage that the number of Shares so accepted for
payment plus any Shares beneficially owned by Purchaser or its affiliates on
the date hereof bears to the number of Shares outstanding at the time of such
acceptance for payment. In furtherance thereof, the Company will increase the
size of the Board of Directors, or use its reasonable efforts to secure the
resignation of directors, or both, as is necessary to permit Purchaser's
designees to be elected to the Board of Directors; provided, however, that
prior to the Effective Time, the Board of Directors shall always have at least
two members who are neither officers of Purchaser nor designees, shareholders
or affiliates of Purchaser ("Purchaser Insiders"). At such time, the Company,
if so requested, will use its reasonable efforts to cause persons designated
by Purchaser to constitute the same percentage of each committee of the Board
of Directors, each board of directors of each subsidiary of the Company and
each committee of each such board (in each case to the extent of the Company's
ability to elect such persons). The Company's obligations to appoint designees
to the Board of Directors shall be subject to Section 14(f) of the Exchange
Act and Rule 14f-1 thereunder. The Company shall promptly take all actions
required pursuant to such Section and Rule in order to fulfill its obligations
under this Section 4.2 and shall include in the Schedule 14D-9 such
information as is required under such Section and Schedule.
4.3. Actions by Directors. For purposes of Article IX and Sections 10.3 and
10.4, no action taken by the Board of Directors prior to the Merger shall be
effective unless such action is approved by the affirmative vote of at least a
majority of the directors of the Company who are not Purchaser Insiders.
ARTICLE V
CONVERSION OR CANCELLATION OF SHARES IN THE MERGER
5.1. Conversion or Cancellation of Shares. The manner of converting or
canceling shares of the Company and Merger Sub in the Merger shall be as
follows:
(a) At the Effective Time, each Share issued and outstanding immediately
prior to the Effective Time (other than Shares owned by Purchaser, Merger Sub
or any other subsidiary of Purchaser (collectively, the "Purchaser Companies")
or Shares which are held by stockholders ("Dissenting Stockholders")
exercising appraisal rights pursuant to Section 262 of the DGCL) shall, by
virtue of the Merger and without any action on the part of the holder thereof,
be converted into the right to receive, without interest, an amount in cash
equal to $17.10 or such greater amount which may be paid pursuant to the Offer
(the "Merger Consideration"). All such Shares, by virtue of the Merger and
without any action on the part of the holders thereof, shall no longer be
outstanding and shall be canceled and retired and shall cease to exist, and
each holder of a certificate representing any such Shares shall thereafter
cease to have any rights with respect to such Shares, except the right to
receive the Merger Consideration for such Shares upon the surrender of such
certificate in accordance with Section 5.2 or the right, if any, to receive
payment from the Surviving Corporation of the "fair value" of such Shares as
determined in accordance with Section 262 of the DGCL.
(b) At the Effective Time, each Share issued and outstanding at the
Effective Time and owned by any of the Purchaser Companies, and each Share
issued and held at the Effective Time in the Company's treasury, shall, by
virtue of the Merger and without any action on the part of the holder thereof,
cease to be outstanding, shall be canceled and retired without payment of any
consideration therefor and shall cease to exist.
(c) At the Effective Time, each share of Common Stock, par value $0.25 per
share of Merger Sub issued and outstanding immediately prior to the Effective
Time shall, by virtue of the Merger and without any action on the part of
Merger Sub or the holders of such shares, be converted into one Share.
5.2. Payment for Shares. Purchaser shall make available or cause to be made
available to a bank or trust company appointed by Purchaser with the Company's
prior approval (the "Paying Agent") amounts sufficient
3
<PAGE>
in the aggregate to provide all funds necessary for the Paying Agent to make
payments pursuant to Section 5.1(a) hereof to holders of Shares issued and
outstanding immediately prior to the Effective Time. Promptly after the
Effective Time, the Surviving Corporation shall cause to be mailed to each
person who was, at the Effective Time, a holder of record (other than any of
the Purchaser Companies) of issued and outstanding Shares a form (mutually
agreed to by Purchaser and the Company) of letter of transmittal and
instructions for use in effecting the surrender of the certificates which,
immediately prior to the Effective Time, represented any of such Shares in
exchange for payment therefor. Upon surrender to the Paying Agent of such
certificates, together with such letter of transmittal, duly executed and
completed in accordance with the instructions thereto, the Surviving
Corporation shall promptly cause to be paid to the persons entitled thereto a
check in the amount to which such persons are entitled, after giving effect to
any required tax withholdings. No interest will be paid or will accrue on the
amount payable upon the surrender of any such certificate. If payment is to be
made to a person other than the registered holder of the certificate
surrendered, it shall be a condition of such payment that the certificate so
surrendered shall be properly endorsed or otherwise in proper form for
transfer and that the person requesting such payment shall pay any transfer or
other taxes required by reason of the payment to a person other than the
registered holder of the certificate surrendered or establish to the
satisfaction of the Surviving Corporation or the Paying Agent that such tax
has been paid or is not applicable. One hundred and eighty days following the
Effective Time, the Surviving Corporation shall be entitled to cause the
Paying Agent to deliver to it any funds (including any interest received with
respect thereto) made available to the Paying Agent which have not been
disbursed to holders of certificates formerly representing Shares outstanding
on the Effective Time, and thereafter such holders shall be entitled to look
to the Surviving Corporation only as general creditors thereof with respect to
the cash payable upon due surrender of their certificates. Notwithstanding the
foregoing, neither the Paying Agent nor any party hereto shall be liable to
any holder of certificates formerly representing Shares for any amount paid to
a public official pursuant to any applicable abandoned property, escheat or
similar law. The Surviving Corporation shall pay all charges and expenses,
including those of the Paying Agent, in connection with the exchange of cash
for Shares and Purchaser shall reimburse the Surviving Corporation for such
charges and expenses.
5.3. Dissenters' Rights. If any Dissenting Stockholder shall be entitled to
or shall assert entitlement to be paid the "fair value" of his or her Shares,
as provided in Section 262 of the DGCL, the Company shall give Purchaser
notice thereof and Purchaser shall have the right to participate in all
negotiations and proceedings with respect to any such demands. Neither the
Company nor the Surviving Corporation shall, except with the prior written
consent of Purchaser, voluntarily make any payment with respect to, or settle
or offer to settle, any such demand for payment. If any Dissenting Stockholder
shall fail to perfect or shall have effectively withdrawn or lost the right to
dissent, the Shares held by such Dissenting Stockholder shall thereupon be
treated as though such Shares had been converted into the Merger Consideration
pursuant to Section 5.1.
5.4. Transfer of Shares After the Effective Time. No transfers of Shares
shall be made on the stock transfer books of the Surviving Corporation at or
after the Effective Time.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.1. Representations and Warranties of the Company. The Company hereby
represents and warrants to Purchaser and Merger Sub that, except as set forth
in the correspondingly numbered Section of the letter, dated the date hereof,
from the Company to Purchaser (the "Disclosure Letter") to the extent
specifically disclosed with respect to the representation to which such
exception applies:
(a) Corporate Organization and Qualification. Each of the Company and its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its respective jurisdiction of incorporation or
organization and is in good standing as a foreign corporation in each
jurisdiction where the properties and assets owned, leased or operated, or the
business conducted, by it require such qualification, except for such failure
to so qualify or be in such good standing, which, when taken together with all
other such failures, would
4
<PAGE>
not be reasonably likely to have a material adverse effect on the financial
condition, operations, properties, business or results of operations of the
Company and its subsidiaries taken as a whole (a "Company Material Adverse
Effect"). Each of the Company and its Significant Subsidiaries has the
requisite corporate power and authority to carry on its respective businesses
as they are now being conducted. The Company has made available to Purchaser a
complete and correct copy of the Certificate and the Amended and Restated
Bylaws of the Company (the "Bylaws"), each as amended to date and the
certificates of incorporation and Bylaws or similar governing instrument of
each of the Company's subsidiaries, each as amended to date. The Certificate
and the Bylaws and the certificates of incorporation, bylaws or similar
governing instruments of each of the Company's subsidiaries so made available
are in full force and effect.
(b) Authorized Capital. The authorized capital stock of the Company consists
of 50,000,000 Shares, of which 20,765,592 Shares were outstanding on February
5, 1997 and 5,000,000 shares of Preferred Stock par value $0.001 per share
(the "Preferred Shares"), of which no shares are outstanding. All of the
outstanding Shares have been duly authorized and are validly issued, fully
paid and nonassessable. The Company has no Shares or Preferred Shares reserved
for issuance or subject to issuance, except that, as of February 5, 1997,
there were (i) 6,495,467 Shares reserved for issuance pursuant to the
Company's Restated 1994 Stock Option/Stock Issuance Plan and the Company's
1996 Stock Option/Stock Issuance Plan (the "TheraTx Plans") of which 4,534,275
options to purchase Shares have been issued, (ii) 145,225 options to purchase
Shares issued pursuant to the 1989 Amended and Restated Stock Option Plan of
Helian Health Group, Inc., PersonaCare Inc.'s 1992 Stock Option Plan (the
"Additional Plans"), (iii) 1,000,000 Shares reserved for issuance pursuant to
the Company's Employee Stock Purchase Plan (together with the TheraTx Plans
and the Additional Plans the "Stock Plans"), (iv) 4,166,667 Shares subject to
issuance pursuant to the Company's 8% Convertible Subordinated Notes due 2002
(the "Notes"), (v) 78,925 Shares subject to issuance pursuant to the warrants
(the "Warrants") issued to the persons set forth on Section 6.1(b) of the
Disclosure Letter and (vi) 500,000 shares of Series A Preferred Stock reserved
for issuance pursuant to the Rights Agreement, dated as of July 28, 1995,
between the Company and U.S. Stock Transfer Corporation (as amended, the
"Rights Agreement"). Since February 5, 1997, no Shares have been issued except
pursuant to the exercise of options under the Stock Plans. Each of the
outstanding shares of capital stock of each of the Company's subsidiaries is
duly authorized, validly issued, fully paid and nonassessable and owned,
either directly or indirectly, by the Company free and clear of all liens,
pledges, security interests, claims or other encumbrances. Except as set forth
above, there are no shares of capital stock of the Company authorized, issued
or outstanding and except as set forth above, there are no preemptive rights
nor any outstanding subscriptions, options, warrants, rights, convertible
securities or other agreements or commitments of any character relating to the
Shares or other issued or unissued capital stock or other securities of the
Company or any of its subsidiaries. Immediately prior to the consummation of
the Offer, no Shares, Preferred Shares, Series A Preferred Stock or any other
securities of the Company will be subject to issuance pursuant to the Rights
Agreement, and after the Effective Time the Surviving Corporation will have no
obligation to issue, transfer or sell any Shares or other capital stock or
other securities of the Surviving Corporation pursuant to any Compensation and
Benefit Plan (as defined in Section 6.1(h)(i)) or pursuant to any
subscription, option, warrant, right, convertible security or other agreement
or commitment. Other than the Notes, the Company does not have outstanding any
bonds, debentures, notes or other obligations the holders of which have the
right to vote (or are convertible into or exercisable for securities having
the right to vote) with the Stockholders of the Company on any matter.
(c) Corporate Authority. Subject only to approval of this Agreement by the
holders of a majority of the outstanding Shares, the Company has the requisite
corporate power and authority and has taken all corporate action necessary in
order to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. This Agreement is a valid and binding agreement of the
Company enforceable against the Company in accordance with its terms, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally and to general
principles of equity. The Board of Directors (A) has unanimously approved this
Agreement, the Offer and the Merger and the other transactions contemplated
hereby and (B) has received the opinion of its financial advisor, The Beacon
Group, to the effect
5
<PAGE>
that the consideration to be received by holders of Shares pursuant to the
Offer and the Merger is fair from a financial point of view to such holders.
(d) Governmental Filings; No Violations; Contracts.
(i) Other than the filings provided for in Section 2.3, as required under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), and required under any healthcare licensure and certificate of
need laws and regulations, change of ownership filings pursuant to Medicare
and Medicaid laws, rules or regulations and the Exchange Act (the
"Regulatory Filings"), no notices, reports or other filings are required to
be made by the Company with, nor are any consents, registrations,
approvals, permits or authorizations required to be obtained by the Company
from, any governmental or regulatory authority, agency, commission or other
governmental entity, domestic or foreign ("Governmental Entity"), in
connection with the execution and delivery of this Agreement by the Company
and the consummation by the Company of the transactions contemplated
hereby, the failure to make or obtain any or all of which would be
reasonably likely to have a Company Material Adverse Effect, or could
prevent or materially delay the ability of the Company to consummate the
transactions contemplated by this Agreement.
(ii) The execution and delivery of this Agreement by the Company does
not, and the consummation by the Company of the transactions contemplated
by this Agreement will not, constitute or result in (i) a breach or
violation of, or a default under, the Certificate or the Bylaws or the
comparable governing instruments of the Company or any of its subsidiaries,
(ii) except as disclosed in the Company Reports filed prior to the date
hereof, a breach or violation of, a default under or the triggering of any
payment or other material obligations pursuant to, any of the Company's
existing Benefit Plans or any grant or award made under any of the
foregoing, (iii) a breach or violation of, or a default under, the
acceleration of any obligations or the creation of a lien, pledge, security
interest or other encumbrance on assets (with or without the giving of
notice or the lapse of time) pursuant to, any provision of any agreement,
lease, contract, note, mortgage, indenture, arrangement or other obligation
("Contracts") of the Company or any of its subsidiaries or any law, rule,
ordinance or regulation or judgment, decree, order, award or governmental
or non-governmental permit or license to which the Company or any of its
subsidiaries is subject or (iv) any change in the rights or obligations of
any party under any of the Contracts, except, in the case of clause (iii)
or (iv) above for Contracts other than those for the provision of
rehabilitation services or management, for such breaches, violations,
defaults, accelerations or changes that, alone or in the aggregate, would
not be reasonably likely to have a Company Material Adverse Effect or that
would not prevent or materially delay the ability of the Company to
consummate the transactions contemplated by this Agreement and, except in
the case of Contracts for the provision of rehabilitation services or
management, for such breaches, violations, defaults, accelerations or
changes that, alone or in the aggregate, are immaterial to the financial
condition, properties, operations, business or results of operations of the
Company and its subsidiaries taken as a whole or that would not prevent or
materially delay the ability of the Company to consummate the transactions
contemplated by this Agreement.
(iii) (x) No party to any rehabilitation therapy services or management
Contract with the Company or any if its subsidiaries has indicated in
writing to the Company or any of its subsidiaries or, to the knowledge of
Bret Jorgensen, Lisa Adams or Greg Bellomy, otherwise indicated any
intention to terminate, fail to renew or seek to amend in any manner
adverse to the Company, any such Contract and (y) neither the Company nor
any of its subsidiaries is a party to or bound by any Contract prohibiting
or limiting its or any of its affiliate's ability to engage in any line of
business, compete with any person or carry on or expand the nature or
geographic scope of its business, except for such prohibitions, or
limitations on the Company or its subsidiaries that would not be reasonably
likely to have, individually or in the aggregate, a Company Material
Adverse Effect.
(e) Company Reports; Financial Statements. The Company has made available to
Purchaser each registration statement, schedule, report, proxy statement or
information statement prepared by it since December 31, 1995 (the "Audit
Date"), including, without limitation, (i) the Company's Annual Report on
6
<PAGE>
Form 10-K for the year ended December 31, 1995 and (ii) the Company's
Quarterly Reports on Form 10-Q for the periods ended March 31, 1996, June 30,
1996 and September 30, 1996 each in the form (including exhibits and any
amendments thereto) filed with the Securities and Exchange Commission (the
"SEC") (collectively, including any subsequently filed reports, the "Company
Reports"). As of their respective dates, the Company Reports did not, and any
Company Reports filed with the SEC subsequent to the date hereof will not,
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances under which they were made, not
misleading. Each of the consolidated balance sheets included in or
incorporated by reference into the Company Reports (including the related
notes and schedules and the consolidated balance sheets and schedules of
PersonaCare, Inc. ("PersonaCare")) fairly presents the consolidated financial
position of the Company and its subsidiaries including, without limitation,
PersonaCare as of its date and each of the consolidated statements of income
and of changes in financial position included in or incorporated by reference
into the Company Reports (including any related notes and schedules and
including the statements of income and changes in financial position of
PersonaCare and any related notes and schedules) fairly presents the results
of operations, retained earnings and changes in financial position, as the
case may be, of the Company and its subsidiaries including, without
limitation, PersonaCare for the periods set forth therein (subject, in the
case of unaudited statements, to normal year-end audit adjustments which will
not be material in amount or effect), in each case in accordance with
generally accepted accounting principles ("GAAP") consistently applied during
the periods involved, except as may be noted therein. Other than the Company
Reports, the Company has not filed any other definitive reports or statements
with the SEC since December 31, 1995.
(f) Absence of Certain Changes. Except as disclosed in the Company Reports
filed with the SEC prior to the date hereof, since September 30, 1996 in the
case of clauses (i), (ii) and (iii) below and December 31, 1995, in the case
of clause (iv) below, the Company and its subsidiaries have conducted their
respective businesses only in, and have not engaged in any material
transaction other than according to, the ordinary and usual course of such
businesses and there has not been (i) any change that would be reasonably
likely to have, individually or in the aggregate, a Company Material Adverse
Effect other than any such change arising out of or relating to the proposal,
adoption or implementation after the date hereof of any law, statute, rule or
regulation relating to healthcare, Medicaid or Medicare, including without
limitation the proposal, adoption or implementation of "salary equivalency"
rates (including amendments to any salary equivalency rates currently in
effect) relating to the delivery of physical therapy, occupational therapy,
respiratory therapy or speech language pathology services; (ii) any material
damage or loss to any material asset or property, regardless of insurance;
(iii) any declaration, setting aside or payment of any dividend or other
distribution with respect to the capital stock of the Company; or (iv) any
change by the Company in accounting principles, practices or methods. Since
December 31, 1995, except as disclosed in the Company Reports filed with the
SEC prior to the date hereof and other than in the ordinary course, there has
not been any increase in the compensation payable or which could become
payable by the Company or its subsidiaries to their officers or key employees,
or any amendment of any Benefit Plans.
(g) Litigation and Liabilities. Except as disclosed in the Company Reports
filed with the SEC prior to the date hereof, there are no (i) civil, criminal
or administrative actions, suits, claims, hearings, investigations or
proceedings pending or, to the knowledge of the Company, threatened against
the Company or any of its subsidiaries or (ii) obligations or liabilities,
whether or not accrued, contingent or otherwise and whether or not required to
be disclosed, including, without limitation, those relating to matters
involving any Environmental Law (as hereinafter defined), or any other facts
or circumstances of which the management of the Company has knowledge that
could result in any claims against or obligations or liabilities of the
Company or any of its subsidiaries, that, alone or in the aggregate, would be
reasonably likely to have a Company Material Adverse Effect.
(h) Employee Benefits.
(i) Section 6.1(h)(i) of the Disclosure Letter contains a complete and
accurate list of all existing bonus, incentive, deferred compensation,
pension, retirement, profit-sharing, thrift, savings, employee stock
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ownership, stock bonus, stock purchase, restricted stock, stock option,
severance, welfare and fringe benefit plans, employment or severance
agreements and all similar practices, policies and arrangements in which
any employee or former employee (the "Employees"), consultant or former
consultant (the "Consultants") or director or former director (the
"Directors") of the Company or any of its subsidiaries participates or to
which any such Employees, Consultants or Directors are a party (the
"Compensation and Benefit Plans"). Neither the Company nor any of its
subsidiaries has any commitment to create any additional material
Compensation and Benefit Plan or to modify or change any existing
Compensation and Benefit Plan in any material respect.
(ii) To the best of the Company's knowledge, each Compensation and
Benefit Plan has been operated and administered in all material respects in
accordance with its terms and with applicable law, including, but not
limited to, the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), the Code (as defined in Section 6.1(o)), the Securities Act of
1933, as amended (the "Securities Act") and the Exchange Act, or any
regulations or rules promulgated thereunder, and all filings, disclosures
and notices required by ERISA, the Code, the Securities Act, the Exchange
Act or any other applicable law have been timely made. Each Compensation
and Benefit Plan which is an "employee pension benefit plan" within the
meaning of Section 3(2) of ERISA (a "Pension Plan") and which is intended
to be qualified under Section 401(a) of the Code has received a favorable
determination letter (including a determination that the related trust
under such Compensation and Benefit Plan is exempt from tax under Section
501(a) of the Code) from the Internal Revenue Service ("IRS") for "TRA" (as
defined in Rev. Proc. 93-39), or will file for such determination letter
prior to the expiration of the remedial amendment period for such
Compensation and Benefit Plan, and the Company is not aware of any
circumstances likely to result in revocation of any such favorable
determination letter. There is no material pending or, to the knowledge of
the Company, threatened legal action, suit or claim relating to the
Compensation and Benefit Plans. Neither the Company nor any of its
subsidiaries has engaged in a transaction, or omitted to take any action,
with respect to any Compensation and Benefit Plan that would reasonably be
expected to subject the Company or any of its subsidiaries to a tax or
penalty imposed by either Section 511 or 4975 of the Code or Section
502(c), 502(i), 502(l) or 4071 of ERISA in an amount which would be
reasonably likely to have a Company Material Adverse Effect, assuming for
purposes of Section 4975 of the Code that the taxable period of any such
transaction expired as of the date hereof.
(iii) Neither the Company nor any entity (an "ERISA Affiliate") which is
considered one employer with the Company under Section 4001(b) of ERISA or
Section 414(b) or (c) of the Code has sponsored, maintained or incurred any
liability under Title IV of ERISA with respect to any ongoing, frozen or
terminated "single-employer plan", within the meaning of Section
4001(a)(15) of ERISA or any Compensation and Benefit Plan subject to
Section 412 of the Code or Section 302 of ERISA. None of the Company, any
of its subsidiaries or any ERISA Affiliate has contributed, or has been
obligated to contribute, to a multiemployer plan under Subtitle E of ERISA
at any time since September 26, 1980. To the knowledge of the Company,
there is no pending investigation or enforcement action by the Department
of Labor (the "DOL") or IRS or any other governmental agency with respect
to any Compensation and Benefit Plan.
(iv) All contributions required to be made under the terms of any
Compensation and Benefit Plan or ERISA or any employee benefit arrangements
under any collective bargaining agreement to which the Company or any of
its subsidiaries is a party have been timely made or have been reflected on
the Company's financial statements.
(v) Neither the Company nor any of its subsidiaries has any obligations
to provide retiree health and life insurance or other retiree death
benefits under any Compensation and Benefit Plan, other than benefits
mandated by Section 4980B of the Code, and each such Compensation and
Benefit Plan may be amended or terminated without incurring liability
thereunder. There has been no communication to Employees by the Company or
any of its subsidiaries that would reasonably be expected to promise or
guarantee such Employees retiree health or life insurance or other retiree
death benefits on a permanent basis.
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(vi) The Company and its subsidiaries do not maintain any Compensation
and Benefit Plans covering Employees outside of the United States.
(vii) With respect to each Compensation and Benefit Plan, if applicable,
the Company has provided, made available, or will make available upon
request, to Purchaser, true and complete copies of existing:
(A) Compensation and Benefit Plan documents and amendments thereto; (B)
trust instruments and insurance contracts; (C) two most recent Forms 5500
filed with the IRS; (D) the most recent summary plan description; (E) most
recent determination letter issued by the IRS; (F) any Form 5310 or Form
5330 filed with the IRS; and (G) most recent nondiscrimination tests
performed under ERISA and the Code (including 401(k) and 401(m) tests).
(viii) The consummation of the transactions contemplated by this
Agreement would not, directly or indirectly (including, without limitation,
as a result of any termination of employment prior to or following the
Effective Time) reasonably be expected to (A) entitle any Employee,
Consultant or Director to any payment (including severance pay or similar
compensation) or any increase in compensation, (B) result in the vesting or
acceleration of any benefits under any Compensation and Benefit Plan or (C)
result in any material increase in benefits payable under any Compensation
and Benefit Plan.
(ix) Neither the Company nor any of its subsidiaries maintains any
compensation plans, programs or arrangements the payments under which would
not reasonably be expected to be deductible as a result of the limitations
under Section 162(m) of the Code and the regulations issued thereunder.
(x) As a result, directly or indirectly, of the transactions contemplated
by this Agreement (including, without limitation, as a result of any
termination of employment prior to or following the Effective Time), none
of the Purchaser, Merger Sub, the Company or the Surviving Corporation, or
any of their respective subsidiaries will be obligated to make a payment
that would be characterized as an "excess parachute payment" to an
individual who is a "disqualified individual" (as such terms are defined in
Section 280G of the Code), without regard to whether such payment is
reasonable compensation for personal services performed or to be performed
in the future.
(i) Brokers and Finders. Neither the Company nor any of its subsidiaries has
employed any broker or finder or incurred any liability for any brokerage
fees, commissions or finders fees in connection with the transactions
contemplated herein, except that the Company has employed The Beacon Group as
its financial advisor, the arrangements with which have been disclosed in
writing to Purchaser prior to the date hereof.
(j) Rights Agreement.
(i) The Company has amended the Rights Agreement to provide that none of
Purchaser, Merger Sub or any of their respective affiliates or associates
will be deemed to be an Acquiring Person (as defined in the Rights
Agreement) and that the Distribution Date (as defined in the Rights
Agreement) shall not be deemed to occur, and the Rights will not separate
from the Shares, as a result of the commencement of the Offer or as a
result of consummation of the transactions contemplated hereby.
(ii) The Company has taken all necessary action with respect to the
Rights Agreement to ensure that the Rights Agreement will expire at the
Effective Time pursuant to Section 7(a)(iv) of the Rights Agreement.
(k) Takeover Statutes. The Board of Directors has taken all necessary action
to approve the transactions contemplated by this Agreement such that the
restrictions on transactions with "interested stockholders" set forth in
Section 203 of the DGCL shall not apply to such transactions. No other state
or federal "fair price", "moratorium", "control share acquisition" or other
similar antitakeover statute or regulation (each a "Takeover Statute") is
applicable to the Company, the Shares, the Offer, the Merger or the
transactions contemplated thereby or hereby.
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(l) Environmental Matters. As of the date hereof, except as disclosed in the
Company Reports filed with the SEC prior to the date hereof, to the knowledge
of the Company, (i) the Company and its subsidiaries have complied with all
applicable Environmental Laws; (ii) the properties presently or formerly owned
or operated by the Company or its subsidiaries (including, without limitation,
soil, groundwater or surface water on, under or adjacent to the properties,
and buildings thereon) (the "Properties") do not contain any Hazardous
Substance (as hereinafter defined) other than as permitted under applicable
Environmental Laws, do not, and have not, contained any underground storage
tanks, do not have any asbestos present (and have not had any asbestos removed
therefrom) and have not been used as a sanitary landfill or hazardous waste
disposal site (provided, however, that with respect to Properties formerly
owned or operated by the Company, such representation is limited to the period
during which period the Company or one of its subsidiaries owned or operated
such Properties); (iii) neither the Company nor any of its subsidiaries has
received any notices, demand letters or request for information from any
Governmental Entity or any third party alleging that the Company may be in
violation of, or liable under, any Environmental Law and none of the Company,
its subsidiaries or the Properties are subject to any court order,
administrative order or decree arising under any Environmental Law and (iv) no
Hazardous Substance has been disposed of, released or transported from any of
the Properties during the time such Property was owned or operated by the
Company or one of its subsidiaries, other than as permitted under applicable
Environmental Law. Following the date hereof, except as would not reasonably
be expected to have a Company Material Adverse Effect, the representation in
Section 6.1(l) is true and correct without regard to any limitation as to the
date hereof or the knowledge of the Company.
"Environmental Law" means (i) any Federal, state, foreign or local law,
statute, ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, common law, order, judgment, decree, injunction,
requirement or agreement with any governmental entity, (x) relating to the
protection, preservation or restoration of the environment, (including,
without limitation, air, water vapor, surface water, groundwater, drinking
water supply, surface land, subsurface land, plant and animal life or any
other natural resource), or to human health or safety, or (y) the exposure to,
or the use, storage, recycling, treatment, generation, transportation,
processing, handling, labeling, production, release or disposal of Hazardous
Substances, in each case as amended and as now in effect. "Hazardous
Substance" means any substance presently listed, defined, designated or
classified as hazardous, toxic or radioactive (including petroleum and
regulated medical waste), under any Environmental Law, whether by type or by
quantity, including any substance containing any such substance as a
component.
(m) Real Property and Leases.
(i) The Company and its subsidiaries have sufficient title or leasehold
interests to all of their properties to conduct their respective businesses
as currently conducted or as contemplated to be conducted, except where the
failure to have such sufficient title or leasehold interest would not be
reasonably likely to have, either individually or in the aggregate, a
Company Material Adverse Effect. Section 6.1(m) of the Disclosure Letter
sets forth a true and complete list of each lease, sublease or other
agreement relating to the possession of real property to which the Company
or any of its subsidiaries is a party.
(ii) All leases of real property leased for the use or benefit of the
Company or any of its subsidiaries to which the Company or any such
subsidiary is a party and all amendments and modifications thereto are in
full force and effect except for defaults which would, in the aggregate, be
immaterial to the financial condition, operations, properties, business or
results of operations of the Company and its subsidiaries taken as a whole.
(n) Medicare and Medicaid. Except as disclosed in any state health
department surveys for 1995 or 1996, copies of which have been made available
to Purchaser, the Company and its subsidiaries have complied with all Medicare
and Medicaid laws, rules and regulations and have filed all returns, cost
reports and other filings in any manner prescribed thereby except where the
failure to so comply, together with all other such failures, would be
immaterial to the financial condition, operations, properties, business or
results of operations of the Company and its subsidiaries taken as a whole.
All returns, cost reports and other filings made by the Company and its
subsidiaries since January 1, 1992 to Medicare, Medicaid or any other
governmental health or
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welfare related entity or third party payor are true and complete except where
the failure to be so true and complete, together with all other such failures,
would be immaterial to the financial condition, operations, properties,
business or results of operations of the Company and its subsidiaries taken as
a whole. Since January 1, 1992, no deficiency in any such returns, cost
reports and other filings, including deficiencies for late filings, has been
asserted or to the best of the Company's knowledge, after reasonable
investigation, threatened by any Federal or state agency or instrumentality or
other provider reimbursement entities relating to Medicare or Medicaid or
third party payor claims and to the best of the Company's knowledge, after
reasonable investigation, there is no basis for any successful claims or
requests for reimbursement from any such agency, instrumentality, entity or
third party payor except for any deficiencies, together with all other such
deficiencies, which would be immaterial to the financial condition,
operations, properties, business or results of operations of the Company and
its subsidiaries taken as a whole. Since January 1, 1992, neither the Company
nor any of its subsidiaries has been subject to any audit or investigation
relating to fraudulent Medicare or Medicaid procedure or practices except
audits or investigations which, together with all other such audits, would be
immaterial to the financial condition, operations, properties, business or
results of operations of the Company and its subsidiaries taken as a whole.
(o) Taxes.
(i) All Tax Returns that are required to be filed by or with respect to the
Company and its subsidiaries have been duly filed, (ii) all Taxes shown to be
due on the Tax Returns referred to in clause (i) have been paid in full, (iii)
none of the Tax Returns referred to in clause (i) have been examined by the
Internal Revenue Service or the appropriate state, local or foreign taxing
authority, and the period for assessment of the Taxes in respect of which such
Tax Returns were required to be filed has expired, (iv) no deficiencies have
been asserted or have been assessed by any Taxing Authority and (v) no waivers
of statutes of limitation have been given by or requested with respect to any
Taxes of the Company or its subsidiaries. The Company has made available to
Purchaser true and correct copies of the United States federal income Tax
Returns filed by the Company and its subsidiaries for each of the three most
recent fiscal years ended on or before December 31, 1995. Neither the Company
nor any of its subsidiaries has any liability with respect to income,
franchise or similar Taxes that accrued on or before the end of the most
recent period covered by the Company Reports in excess of the amounts accrued
with respect thereto that are reflected in the financial statements included
in the Company Reports filed on or prior to the date hereof, except where the
failure to be so accrued would not be reasonably likely to have a Company
Material Adverse Effect.
(ii) No Tax is required to be withheld pursuant to Section 1445 of the Code
as a result of the transfer contemplated by this Agreement.
As used in this Agreement, the following terms shall have the indicated
meanings:
"Code" means the Internal Revenue Code of 1986, as amended.
"Tax Returns" means any return, amended return or other report (including
elections, declarations, disclosures, schedules, estimates and information
returns) required to be filed with respect to any Tax.
"Taxes" means all federal, state, local or foreign taxes, including, without
limitation, income, gross receipts, windfall profits, gains, excise,
severance, property, production, sales, use, transfer, license, franchise,
employment, withholding, environmental, customs duty, capital stock, stamp,
payroll, unemployment, disability, production, value added, occupancy and
other taxes, duties or assessments of any nature whatsoever, together with all
interest, penalties and additional imposed with respect to such amounts and
any interest in respect of such penalties and additions.
(p) Labor Matters; Non-Competition.
(i) Neither the Company nor any of its subsidiaries is a party to or
otherwise bound by any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization, nor is
the Company or any of its subsidiaries the subject of any material proceeding
asserting that the Company or any of its subsidiaries has committed an unfair
labor practice or is seeking to compel it to bargain with any
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labor union or labor organization nor is there pending or, to the knowledge of
the Company, threatened, nor has there been for the past five years, any labor
strike, dispute, walkout, work stoppage, slow-down or lockout involving the
Company or any of its subsidiaries.
(ii) The Company has entered into Non-Competition Agreements, dated the date
hereof (the "Non-Competes"), with each of John A. Bardis, Bret W. Jorgensen,
Donald R. Myll, Louis E. Hallman, III, Laura E. Cayce and William J. Haffey,
Ph.D. in the form set forth on Section 6.1(p) of the Disclosure Letter. Each
of the Non-Competes is a valid and binding agreement of the Company
enforceable against the Company in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally and to general
principles of equity.
(q) Intellectual Property.
(i) The Company and/or each of its subsidiaries owns, or is licensed or
otherwise possesses legally enforceable rights to use all patents,
trademarks, trade names, service marks, copyrights, and any applications
therefor, technology, know-how, computer software programs or applications,
and tangible or intangible proprietary information or materials that are
used in the business of the Company and its subsidiaries as currently
conducted, except for any such failures to own, be licensed or possess that
would not be reasonably likely to have, either individually or in the
aggregate, a Company Material Adverse Effect and to the knowledge of the
Company all patents, trademarks, trade names, service marks and copyrights
held by the Company and/or its subsidiaries are valid and subsisting.
(ii) The Company or one of its wholly-owned subsidiaries owns the entire
right, title and interest in and to all intellectual property subsisting in
the computer programs, software, applications (including all copies,
versions and derivative works) and related hardware used by the Company in
connection with the Company's clinical and management information system
known as "TheraSys" (the "TheraSys Program"), including all patents,
trademarks, tradenames, service marks, trade secrets and copyrights
(including, without limitation, the exclusive right to use and convey the
same) and there are no liens, security interests, licenses or other
encumbrances on the TheraSys Program or any intellectual property
subsisting therein. The Company has the right to use the TheraSys Program
and convey and disclose the TheraSys Program without violation of any law
or third party right. Copyright in the TheraSys Program has been duly
registered with the Copyright Office of the Library of Congress (Reg. No.
Txu 638-676) and such registration remains in full force and effect. No
affiliates, employees or independent contractors will, as of and after the
Closing, retain or obtain ownership of, or any rights over, any patents,
trade names, trademarks, trade secrets, services marks, or copyrights
relating to the TheraSys Program, all of which are owned solely by the
Company or one of its wholly-owned subsidiaries. To the Company's
knowledge, (i) there have been and are no claims by any person contesting
the Company's ownership of the intellectual property subsisting in the
TheraSys Program, and the use of the TheraSys Program by the Company does
not infringe on the rights of any person and no suits or proceedings are
pending or threatened against the Company or any of its respective
subsidiaries with respect to the foregoing; and (ii) no third party is
infringing the Company's intellectual property rights in the TheraSys
Program.
(r) Visitation Rights. Other than the current directors of the Company, no
person is contractually or otherwise entitled to attend any regular or special
meeting of the Board of Directors.
6.2. Representations and Warranties of Purchaser and Merger Sub. Purchaser
and Merger Sub represent and warrant to the Company that except as set forth
in the correspondingly numbered Section of the letter, dated the date hereof,
from Purchaser to the Company (the "Purchaser Disclosure Letter"):
(a) Corporate Organization and Qualification. Each of Purchaser and Merger
Sub is a corporation duly organized, validly existing and in good standing
under the laws of its respective jurisdiction of incorporation and is in good
standing as a foreign corporation in each jurisdiction where the properties
owned, leased or operated, or the business conducted, by it require such
qualification except for such failure to so qualify or to be in such good
standing, which, when taken together with all other such failures, would not
be reasonably likely to have a material adverse effect on the financial
condition, operations, properties, business or results of operations of
Purchaser and its subsidiaries, taken as a whole.
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(b) Corporate Authority. Purchaser and Merger Sub each has the requisite
corporate power and authority and has taken all corporate action necessary in
order to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. This Agreement is a valid and binding agreement of
Purchaser and Merger Sub enforceable against Purchaser and Merger Sub in
accordance with its terms subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally and to general principles of equity.
(c) Governmental Filings; No Violations.
(i) Other than the Regulatory Filings, no notices, reports or other
filings are required to be made by Purchaser or Merger Sub with, nor are
any consents, registrations, approvals, permits or authorizations required
to be obtained by Purchaser or Merger Sub from, any Governmental Entity in
connection with the execution and delivery of this Agreement by Purchaser
and Merger Sub and the consummation of the transactions contemplated hereby
by Purchaser and Merger Sub, the failure to make or obtain any or all of
which would be reasonably likely to prevent or materially delay the ability
of Purchaser or Merger Sub to consummate the transactions contemplated by
this Agreement.
(ii) The execution and delivery of this Agreement by Purchaser and Merger
Sub do not, and the consummation of the transactions contemplated hereby by
Purchaser and Merger Sub will not, constitute or result in (i) a breach or
violation of, or a default under, the certificate of incorporation or by-
laws of Purchaser or Merger Sub or (ii) a breach or violation of, a default
under, the acceleration of or the creation of a lien, pledge, security
interest or other encumbrance on assets (with or without the giving of
notice or the lapse of time) pursuant to, any provision of any Contract of
Purchaser or Merger Sub or any law, ordinance, rule or regulation or
judgment, decree, order, award or governmental or non-governmental permit
or license to which Purchaser or Merger Sub is subject, except, in the case
of clause (ii) above, for such breaches, violations, defaults or
accelerations that, alone or in the aggregate, would not prevent or
materially delay the transactions contemplated by this Agreement.
ARTICLE VII
COVENANTS
7.1. Interim Operations of the Company. The Company covenants and agrees
that, prior to the Effective Time (unless Purchaser shall otherwise agree in
writing and except as otherwise expressly contemplated by this Agreement or in
the Disclosure Letter):
(a) the business of the Company and its subsidiaries shall be conducted only
in the ordinary and usual course and, to the extent consistent therewith, each
of the Company and its subsidiaries shall use its reasonable best efforts to
preserve its business organization intact and maintain its existing relations
with customers, suppliers, employees and business associates;
(b) the Company shall not (i) sell or pledge or agree to sell or pledge any
stock owned by it in any of its subsidiaries; (ii) amend the Certificate or
the Bylaws or, except as otherwise contemplated herein (including Section
7.2), amend, modify or terminate the Rights Agreement; (iii) split, combine or
reclassify the outstanding Shares; or (iv) declare, set aside or pay any
dividend payable in cash, stock or property with respect to the Shares or
Preferred Shares;
(c) except as set forth in Section 7.1(c) of the Disclosure Letter, neither
the Company nor any of its subsidiaries shall (i) issue, sell, pledge, dispose
of or encumber any additional shares of, or securities convertible or
exchangeable for, or options, warrants, calls, commitments or rights of any
kind to acquire, any shares of its capital stock of any class of the Company
or its subsidiaries or any other property or assets other than, in the case of
the Company, Shares issuable pursuant to options outstanding on the date
hereof under the Stock Plans or upon conversion of the Notes or Warrants; (ii)
transfer, lease, license, guarantee, sell, mortgage, pledge, dispose of or
encumber any assets or incur or modify any indebtedness or other liability
other than in the ordinary
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and usual course of business; (iii) license or otherwise transfer to any third
party any rights to the TheraSys Program or related software; (iv) acquire
directly or indirectly by redemption or otherwise any shares of the capital
stock of the Company; or (v) authorize capital expenditures in excess of
$1,000,000 in the aggregate not disclosed in the Disclosure Letter or make any
acquisition of, or investment in, assets or stock of any other person or
entity other than ordinary course acquisitions of supplies used in the day-to-
day operations of the Company;
(d) neither the Company nor any of its subsidiaries shall increase in any
manner the compensation of, grant any severance or termination pay to, or
enter into or amend or renew any employment or severance agreement with, any
Director, Consultant or employee, provided, that, the Company and its
subsidiaries may in the ordinary course of business consistent with past
practice (including, without limitation, as to timing), grant increases in the
compensation of non-officer employees and increases of not more than 10% or
$15,000 in compensation of officers of the Company who are not executive
officers of the Company;
(e) neither the Company nor any of its subsidiaries shall establish, adopt,
enter into, make any Compensation and Benefit Plans, or voluntarily accelerate
the vesting of any stock options, restricted stock or other compensation or
benefit;
(f) neither the Company nor any of its subsidiaries shall settle or
compromise any claims or litigation involving payments by the Company of
$100,000 in any single instance or related instances, or that otherwise are
material or, except in the ordinary and usual course of business, modify,
amend or terminate any of its material Contracts or waive, release or assign
any material rights or claims;
(g) neither the Company nor any subsidiary shall make any Tax election or
permit any insurance policy naming it as a beneficiary or a loss payable payee
to be canceled or terminated without notice to Purchaser, except in the
ordinary and usual course of business;
(h) neither the Company nor any of its subsidiaries will authorize or enter
into an agreement to do any of the foregoing; and
(i) neither the Company nor any of its subsidiaries will amend any of the
Non-Competes.
7.2. Acquisition Proposals. The Company agrees that neither it nor any of
its subsidiaries nor any of its executive officers or directors shall, and
that it shall direct and use its best efforts to cause its non-executive
officers and its subsidiaries' employees, agents and representatives
(including any investment banker, attorney or accountant retained by it or any
of its subsidiaries) not to, directly or indirectly, (a) initiate, solicit,
knowingly encourage or otherwise facilitate any inquiries or the making of any
proposal or offer with respect to a merger, reorganization, share exchange,
consolidation or similar transaction involving, or any purchase of all or any
significant portion of the assets or 5% or more of the equity securities of,
the Company or any of its subsidiaries (any such transaction or purchase being
hereinafter referred to as an "Acquisition Transaction") that, in any such
case, could reasonably be expected to lead to a breach of this Agreement or
otherwise interfere with the completion of the Offer or Merger contemplated by
this Agreement (any such proposal or offer being hereinafter referred to as an
"Acquisition Proposal") or (b) have any discussion with or provide any
confidential information or data to any person relating to an Acquisition
Proposal or engage in any negotiations concerning an Acquisition Proposal, or
otherwise facilitate any effort or attempt to make or implement an Acquisition
Proposal; provided, however, that nothing contained in this Agreement shall
prevent the Company or the Board of Directors from (A) complying with Rule
14e-2 promulgated under the Exchange Act with regard to an Acquisition
Proposal; (B) engaging in any discussions or negotiations with or providing
any information to, any person in response to an unsolicited bona fide written
Acquisition Proposal by any such person (including a new and unsolicited
Acquisition Proposal received by the Company after execution of this Agreement
from a person or entity whose initial contact with the Company may have been
solicited by the Company prior to the execution of this Agreement); or (C)
recommending such an unsolicited bona fide written Acquisition Proposal to the
stockholders of the Company, if and only to the extent that, in such case
referred to in clause (B) or (C), (i) the Board of Directors concludes in good
faith (after consultation with its financial advisors) that such Acquisition
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Proposal is reasonably capable of being completed, taking into account all
legal, financial and other aspects of the proposal and the person making the
proposal, and would, if consummated, result in a transaction more favorable to
the Company's stockholders from a financial point of view than the transaction
contemplated by this Agreement (any such more favorable Acquisition Proposal
being referred to in this Agreement as a "Superior Proposal"), (ii) the Board
of Directors determines in good faith after consultation with outside legal
counsel that such action is necessary for the Board of Directors to comply
with its fiduciary duties under applicable law and (iii) prior to providing
any non-public information or data to any person in connection with an
Acquisition Proposal by any such person, the Board of Directors receives from
such person an executed confidentiality agreement on terms substantially
similar to those contained in the Confidentiality Agreement (as defined
below). The Company agrees that it will immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any Acquisition Proposal. The
Company agrees that it will take the necessary steps to promptly inform the
individuals or entities referred to in the first sentence hereof of the
obligations undertaken in this Section 7.2. The Company agrees that it will
notify Purchaser promptly if any such inquiries, proposals or offers are
received by, any such information is requested from, or any such discussions
or negotiations are sought to be initiated or continued with, any of its
representatives indicating, in connection with such notice, the name of such
person and the terms and conditions of any proposals or offers and thereafter
shall keep Purchaser informed, on a current basis, of the status and terms of
any such proposals or offers and the status of any such discussions or
negotiations. The Company also agrees that it will promptly request that each
person that has heretofore executed a confidentiality agreement in connection
with its consideration of any Acquisition Proposal to return all confidential
information heretofore furnished to such Person by or on behalf of the Company
or any of its subsidiaries.
7.3. Meetings of the Company's Stockholders. If required following
termination of the Offer, the Company will take, consistent with applicable
law and the Certificate and the Bylaws, all action necessary to convene a
meeting of holders of Shares as promptly as practicable to consider and vote
upon the approval of this Agreement and the Merger. Subject to fiduciary
requirements of applicable law, the Board of Directors shall recommend such
approval and the Company shall take all lawful action to solicit such
approval. At any such meeting of the Company all of the Shares then owned by
the Purchaser Companies will be voted in favor of this Agreement. The
Company's proxy or information statement with respect to such meeting of
shareholders (the "Proxy Statement"), at the date thereof and at the date of
such meeting, will not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading; provided, however, that the foregoing shall not apply to
the extent that any such untrue statement of a material fact or omission to
state a material fact was made by the Company in reliance upon and in
conformity with written information concerning the Purchaser Companies
furnished to the Company by Purchaser specifically for use in the Proxy
Statement. The Proxy Statement shall not be filed, and no amendment or
supplement to the Proxy Statement will be made by the Company, without
consultation with Purchaser and its counsel.
7.4. Filings; Other Action. Subject to the terms and conditions herein
provided, the Company and Purchaser shall: (a) promptly make their respective
filings and thereafter make any other required submissions under the HSR Act
and required under healthcare licensure and certificate of need laws and
regulations with respect to the Offer and the Merger; (b) with respect to
Purchaser, use its reasonable best efforts and with respect to the Company
commercially reasonable efforts (which shall include, among other things,
delivery of customary officers certificates and legal opinions) to obtain the
financing necessary for Purchaser and Merger Sub to purchase all Shares
pursuant to the Offer and the Merger and pay related fees and expenses, pay
for all of the outstanding Notes at the face value thereof, refinance
Purchaser's outstanding obligations under Purchaser's existing $1 Billion
Credit Agreement dated as of September 11, 1995 and the Company's outstanding
obligations under the Company's existing Amended and Restated Financing and
Security Agreement dated May 8, 1995; and (c) use reasonable best efforts to
promptly take, or cause to be taken, all other action and do, or cause to be
done, all other things necessary, proper or appropriate under applicable laws
and regulations to consummate and make effective the transactions contemplated
by this Agreement as soon as practicable.
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7.5. Access. Upon reasonable notice, the Company shall (and shall cause each
of its subsidiaries to) afford Purchaser's officers, employees, counsel,
accountants and other authorized representatives ("Representatives") access,
during normal business hours throughout the period prior to the Effective
Time, to its properties, books, Contracts and records and, during such period,
the Company shall (and shall cause each of its subsidiaries to) furnish
promptly to Purchaser all information concerning its business, properties and
personnel as Purchaser or its Representatives may reasonably request, provided
that no investigation pursuant to this Section 7.5 shall affect or be deemed
to modify any representation or warranty made by the Company and provided,
further, that the foregoing shall not require the Company to permit any
inspection, or to disclose any information, which in the reasonable judgment
of the Company (a) would result in the disclosure of any trade secrets of
third parties if the Company shall have unsuccessfully used reasonable efforts
to obtain the consent of such third party to such inspection or disclosure,
(b) would be in violation of applicable law, rules or regulation or (c)
constitutes information protected by attorney-client privilege, but only to
the extent that disclosure would impair the Company's ability to assert such
attorney-client privilege. Upon any termination of this Agreement, Purchaser
will treat all documents obtained by it or any of its Representatives in
accordance with the terms of the Confidentiality Agreement, dated as of
September 17, 1996 (the "Confidentiality Agreement") between the Company and
Purchaser.
7.6. Notification of Certain Matters. The Company shall give prompt notice
to Purchaser of: (a) any notice of, or other communication relating to, any
environmental matter, a default or event that, with notice or lapse of time or
both, would become a default, received by the Company or any of its
subsidiaries subsequent to the date of this Agreement and prior to the
Effective Time, under any Contract to which the Company or any of its
subsidiaries is a party or is subject except for defaults or events which
individually or in the aggregate would be immaterial to the financial
condition, operations, properties, business or results of operations of the
Company and its subsidiaries taken as a whole; (b) any material adverse change
in the financial condition, operations, properties, business or results of
operations of the Company and its subsidiaries taken as a whole or the
occurrence of any event which, so far as reasonably can be foreseen at the
time of its occurrence, would result in any such change. Each of the Company
and Purchaser shall give prompt notice to the other party of any notice or
other communication from any third party alleging that the consent of such
third party is or may be required in connection with the transactions
contemplated by this Agreement and (c) the occurrence or failure to occur of
an event that would, or, with the lapse of time could reasonably be expected
to cause any representation or warranty of the Company or its subsidiaries
made by the Company in this Agreement to become inaccurate in any material
respect.
7.7. Publicity. The initial press release shall be a joint press release and
thereafter the Company and Purchaser shall consult with each other prior to
issuing any press releases or otherwise making public statements with respect
to the transactions contemplated hereby and prior to making any filings with
any Governmental Entity, with any national securities exchange or with the
National Association of Securities Dealers, Inc. with respect thereto.
7.8. Stocks Plans and Options. (a) Unless Purchaser shall provide the
Company with the notice contemplated by Section 7.8(b) below, then, at the
Effective Time, each outstanding option to purchase Shares under the Stock
Plans, other than any option granted under the Company's Employee Stock
Purchase Plan (collectively, the "Options"), whether vested or unvested, shall
be converted into an option to acquire, on the same terms and conditions as
were applicable under such Option, the number of shares of Common Stock, par
value $0.25 per share of Purchaser (the "Purchaser Common Stock") equal to (a)
the number of Shares subject to the Option, multiplied by (b) (i) the Merger
Consideration, divided by (ii) the average of the high and low price of
Purchaser Common Stock on the trading day immediately preceding the date of
the Effective Time as reported in the New York City edition of The Wall Street
Journal (rounded down to the nearest whole number) (a "Replacement Option"),
at an exercise price per share (rounded up to the nearest whole cent) equal to
(y) the aggregate exercise price for the Shares which were purchasable
pursuant to such Option divided by (z) the number of full shares of Purchaser
Common Stock subject to such Replacement Option in accordance with the
foregoing. At or prior to the Effective Time, the Company shall take all
action necessary with respect to the
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Stock Plans to permit the replacement of the outstanding Options by Purchaser
pursuant to this Section and as soon as practicable after the Effective Time
Purchaser shall use its reasonable best efforts to register under the
Securities Act on Form S-8 or other appropriate form (and use its reasonable
best efforts to maintain the effectiveness thereof) shares of Purchaser Common
Stock issuable pursuant to all Replacement Options. The Company shall take all
action necessary, including obtaining any required consents from optionees, to
provide that following the Effective Time no participant in any Stock Plan or
other plans, programs or arrangements shall have any right thereunder to
acquire equity securities of the Company, the Surviving Corporation or any
subsidiary thereof and to permit Purchaser to assume the Stock Plans (other
than the Company's Employee Stock Purchase Plan, with respect to which the
Company shall take all action necessary to terminate such plan immediately
prior to the Effective Time). The Company shall further take all action
necessary to amend the Stock Plans, to eliminate automatic grants or awards
thereunder following the Effective Time. At the Effective Time, Purchaser
shall assume the Stock Plans (other than the Company's Employee Stock Purchase
Plan); provided, that such assumption shall be only in respect of the
Replacement Options and that Purchaser shall have no obligation with respect
to any awards under the Stock Plans other than the Replacement Options or to
make any additional grants or awards under such assumed Stock Plans.
(b) If Purchaser shall provide written notice to the Company by February 24,
1997 of its election to treat the Options in accordance with the provisions of
this Section 7.8(b), then, at the Effective Time, each then outstanding
Option, whether vested or unvested, shall be cancelled and the holder thereof
shall be entitled to receive an amount of cash equal to the product of (x) the
amount, if any, by which the Merger Consideration exceeds the exercise price
per Share subject to such Option (whether vested or unvested) and (y) the
number of Shares issuable pursuant to the unexercised portion of such Option,
less any required withholding of taxes (such amount being hereinafter referred
to as the "Option Consideration"). The Option Consideration shall be paid as
soon as practicable following the Effective Time, but in any event within five
(5) days following the Effective Time. Prior to the Effective Time, the
Company shall take such actions as may be necessary to effectuate the
foregoing, including without limitation obtaining all applicable consents. The
cancellation of an Option in exchange for the Option Consideration shall be
deemed a release of any and all rights the holder had or may have had in
respect of such Option, and any required consents received from Option holders
shall so provide. All Stock Plans and Options shall terminate as of the
Effective Time and the provisions in any other plan, program or arrangement
providing for the issuance or grant of any other interest in respect of the
capital stock of the Company or any subsidiary thereof, shall be canceled as
of the Effective Time, and the Company shall take all action necessary,
including receiving applicable consents from optionees, to terminate all such
plans and to ensure that following the Effective Time no participant in any
Stock Plan or other plans, programs or arrangements shall have any right
thereunder to acquire equity securities of the Purchaser, the Company, the
Surviving Corporation or any subsidiary thereof. If Purchaser does not provide
the written notice referred to in the first sentence of Section 7.8(b), this
Section 7.8(b) shall be inapplicable.
Section 7.9. Indemnification; Directors' and Officers' Insurance.
(a) The bylaws and the certificate of incorporation of the Surviving
Corporation shall not be amended, repealed or otherwise modified for a period
of six years after the Effective Time in any manner that would adversely
affect the rights thereunder of individuals who immediately prior to the
Effective Time were directors, officers, or otherwise entitled to
indemnification thereunder or under the Bylaws or indemnification agreements
(the "Indemnified Parties"). Purchaser and the Surviving Corporation shall
jointly and severally indemnify, defend and hold harmless the Indemnified
Parties (in the case of Purchaser, subject to the provisions of subsection (b)
below) as provided in the Certificate, Bylaws or indemnification agreements,
as in effect as of the date hereof, with respect to matters occurring through
the Effective Time to the fullest extent the Company would have been permitted
to do so under Delaware law, the Certificate and Bylaws as in effect as of the
date hereof. Purchaser shall cause Surviving Corporation to maintain in effect
for not less than six years after the Effective Time the current policies of
directors' and officers' liability insurance maintained by the Company with
respect to matters occurring prior to the Effective Time; provided, however,
that (i) the Surviving Corporation may substitute therefor policies of at
least the same coverage (with carriers comparable to the Company's existing
carriers) containing terms and conditions which are no less advantageous to
the officers, directors and employees
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of the Company and (ii) the Surviving Corporation shall not be required to pay
an annual premium for such insurance in excess of two times the last annual
premium paid prior to the date hereof, but in such case shall purchase as much
coverage as possible for such amount. Purchaser shall cause the Surviving
Corporation to reimburse all expenses including reasonable attorney's fees,
incurred by any person to enforce successfully the obligations of Purchaser
and the Surviving Corporation under this Section 7.9.
(b) Any Indemnified Party wishing to claim indemnification under paragraph
(a) of Section 7.9 from Purchaser, upon learning of any such claim, action,
suit, proceeding or investigation, shall promptly notify Purchaser thereof. In
the event of any such claim, action, suit, proceeding or investigation
(whether arising before or after the Effective Time), (i) Purchaser or the
Surviving Corporation shall have the right to assume the defense thereof and
Purchaser 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 unless counsel for the Indemnified Parties reasonably
advises the Indemnified Parties that there are issues that raise conflicts of
interest between Purchaser and the Indemnified Parties that make such
assumption unadvisable, in which case the Indemnified Parties may retain
counsel, reasonably satisfactory to Purchaser and Purchaser shall pay the
reasonable legal expenses of such Indemnified Party, (ii) the Indemnified
Parties will cooperate in the defense of any such matter and (iii) Purchaser
shall not be liable for any settlement effected without its prior written
consent; and provided further that Purchaser shall not have any obligation
hereunder to any Indemnified Party when and if a court of competent
jurisdiction shall ultimately determine, and such determination shall have
become final, that the indemnification of such Indemnified Party in the manner
contemplated hereby is prohibited by applicable law.
7.10. Notes. If Merger Sub or any other Purchaser Company shall have
purchased Shares pursuant to the Offer, the Company shall take all necessary
action prior to the Effective Time, to enter into a supplemental indenture
with the Trustee pursuant to the Indenture under which the Notes were issued,
to provide, among other things, that on and after the Effective Time the Notes
will be convertible only into the Merger Consideration.
7.11. Benefit Plans. It is the intention of Purchaser that within a
reasonable period of time following the Effective Time (a) it will provide
employees of the Surviving Corporation with employee benefit plans
substantially similar in the aggregate to those provided to similarly situated
employees of Purchaser, (b) any such employees will receive credit for years
of service with the Company or any or its subsidiaries prior to the Effective
Time for the purpose of eligibility and vesting and (c) Purchaser shall cause
any and all pre-existing condition limitations (to the extent such limitations
did not apply to a pre-existing condition under the Compensation and Benefit
Plans) and eligibility waiting periods under group health plans to be waived
with respect to such participants and their eligible dependents. All
discretionary awards and benefits under any employee benefit plans of
Purchaser or the Surviving Corporation shall be subject to the discretion of
the persons or committee administering such plans.
7.12. Takeover Statute. If any Takeover Statute shall become applicable to
the transactions contemplated hereby, the Company and the members of the Board
of Directors shall grant such approvals and take such actions as are necessary
so that the transactions contemplated hereby may be consummated as promptly as
practicable on the terms contemplated hereby and otherwise act to eliminate or
minimize the effects of such statute or regulation on the transactions
contemplated hereby.
7.13. 1996 10-K. The Company will periodically provide Purchaser with
current draft versions of the Company's Annual Report on Form 10-K, including
documents incorporated therein by reference, for the year ended December 31,
1996. The consolidated balance sheets included in or incorporated by reference
into the Company's Annual Report on Form 10-K for the year ended December 31,
1996 (the "1996 10-K") (including the related notes and schedules) will fairly
present the consolidated financial position of the Company and its
subsidiaries as of their respective dates and each of the consolidated
statements of income and of changes in financial position included in or
incorporated by reference into the 1996 10-K (including any related notes and
schedules) will fairly present the results of operations, retained earnings
and changes in financial position, as the case may be, of the Company and its
subsidiaries for the periods set forth therein in each case in accordance with
GAAP consistently applied during the periods involved.
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7.14. Warrants. Prior to the Effective Time, the Company shall cause any one
or more of the following events to occur: (i) the exercise or conversion of
all of the outstanding Warrants for or into Shares in accordance with the
terms of the applicable Warrants, (ii) the entry into agreements between the
Company and the holders of each of the outstanding Warrants providing that
each Warrant shall, following the Merger, be exercisable for, at the exercise
price of such Warrant, the securities, property or other consideration which a
holder of such Warrant would have received had the holder exchanged or
converted such Warrant for Shares immediately prior to the Effective Time or
(iii) a reclassification of the Company's Shares in accordance with the DGCL,
so that each Share shall be redeemable at any time at the option of the
Company for an amount per share equal to the Merger Consideration and
simultaneously with the effectiveness of such reclassification issue to
Purchaser or Merger Sub, at Purchaser's election, 1,000 shares (constituting
all of the authorized shares of such class) of a new class of Company non-
redeemable common stock, par value 0.25 per share (or, any combination of the
events referred to in clauses (i), (ii) or (iii) above, which when taken
together apply to all of the outstanding Warrants so that no Warrants may be
exercised for any Shares which are not redeemable at the Company's election).
7.15 Orders. In the event that any Order (as defined in Section 8.1(d))
shall come into effect, the parties shall use their reasonable best efforts to
cause any such Order to be lifted.
ARTICLE VIII
CONDITIONS
8.1. Conditions to Obligations of Purchaser and Merger Sub. The respective
obligations of Purchaser and Merger Sub to consummate the Merger are subject
to the fulfillment of each of the following conditions, any or all of which
may be waived in whole or in part by Purchaser or Merger Sub, as the case may
be, to the extent permitted by applicable law:
(a) Stockholder Approval. This Agreement shall have been duly approved by
the holders of a majority of the Shares, in accordance with applicable law and
the Certificate and the Bylaws and, if necessary, the reclassification shall
have been effected in accordance with Section 7.14;
(b) Purchase of Shares. Merger Sub (or one of the Purchaser Companies) shall
have purchased Shares pursuant to the Offer;
(c) Governmental and Regulatory Consents. The waiting period applicable to
the consummation of the Merger under the HSR Act shall have expired or been
terminated, all necessary approvals under healthcare licensure and certificate
of need laws and regulations shall have been received and, other than the
filings provided for in Section 2.3, all filings required to be made prior to
the Effective Time by the Company with, and all consents, approvals and
authorizations required to be obtained prior to the Effective Time by the
Company from, any Governmental Entity in connection with the execution and
delivery of this Agreement by the Company and the consummation of the
transactions contemplated hereby by the Company, Purchaser and Merger Sub
shall have been made or obtained (as the case may be), except where the
failure to be so obtained would be immaterial to the financial condition,
operations, properties, business or results of operations of each of Purchaser
and the Company and their respective subsidiaries, in each case, taken as a
whole;
(d) Litigation. No court or other Governmental Entity of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
statute, rule, regulation, judgment, decree, injunction or other order
(whether temporary, preliminary or permanent) which is in effect and prohibits
consummation of the transactions contemplated by this Agreement or imposes
material restrictions on Purchaser or the Company in connection with
consummation of the Merger or with respect to their business operations,
either prior to or subsequent to the Merger (collectively, an "Order");
provided, that, Purchaser and Merger Sub shall have complied with Section
7.15;
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(e) Compliance; Consents. The representations and warranties contained in
Section 6.1 shall be true in all material respects as of the Effective Time as
though made at and as of the Effective Time, except for changes contemplated
by this Agreement; and
(f) Rights Agreement. The Rights Agreement shall have expired.
8.2. Conditions to Obligations of the Company. The obligations of the
Company to consummate the Merger are subject to the fulfillment of each of the
following conditions, any or all of which may be waived in whole or in part by
the Company to the extent permitted by applicable law:
(a) Stockholder Approval. This Agreement shall have been duly approved by
the holders of a majority of the Shares, in accordance with applicable law and
the Certificate and By-Laws of the Company;
(b) Purchase of Shares. Merger Sub (or one of the Purchaser Companies) shall
have purchased Shares pursuant to the Offer;
(c) Governmental Consents. The waiting period applicable to the consummation
of the Merger under the HSR Act shall have expired or been terminated and,
other than the filings provided for in Section 2.3, all filings required to be
made prior to the Effective Time by Purchaser and Merger Sub with, and all
consents, approvals, permits and authorizations required to be obtained prior
to the Effective Time by Purchaser and Merger Sub from, any Governmental
Entity in connection with the execution and delivery of this Agreement by
Purchaser and Merger Sub and the consummation of the transactions contemplated
hereby by Purchaser, Merger Sub and the Company shall have been made or
obtained (as the case may be); and
(d) Order. There shall be in effect no Order.
ARTICLE IX
TERMINATION
9.1. Termination by Mutual Consent. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, before or
after the approval by holders of Shares, by the mutual consent of Purchaser,
Merger Sub and the Company, by action of their respective Boards of Directors.
9.2. Termination by either Purchaser or the Company. This Agreement may be
terminated and the Merger may be abandoned by action of either the board of
directors of Purchaser or the Board of Directors if (i) Merger Sub, or any
Purchaser Company, shall have terminated the Offer without purchasing any
Shares pursuant thereto; provided, in the case of termination of this
Agreement by Purchaser, such termination of the Offer is not in violation of
the terms of the Offer or (ii) the Merger shall not have been consummated by
September 30, 1997 whether or not such date is before or after the approval by
holders of Shares or (iii) the approval of shareholders required by Section
8.1(a) shall not have been obtained at a meeting duly convened therefor.
9.3. Termination by Purchaser. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, before or
after the approval by holders of Shares, by action of the board of directors
of Purchaser, if (x) the Company shall have failed to comply in any material
respect with any of the covenants or agreements contained in this Agreement to
be complied with or performed by the Company at or prior to such date of
termination which failure is incapable of being cured or has not been cured by
the earlier to occur of 10 days after the giving of written notice to the
Company and the scheduled expiration date of the Offer, (y) the Board of
Directors shall have withdrawn or modified in a manner adverse to Purchaser or
Merger Sub its approval or recommendation of the Offer, this Agreement or the
Merger or the Board of Directors shall fail to reaffirm such approval or
recommendation within 10 business days after a request by Purchaser to do so,
or shall have resolved to do any of the foregoing, or (z) if the Company or
any of the other persons or entities described in Section 7.2 shall take any
actions that would be proscribed by Section 7.2 but for the exception
contained in the proviso to the first sentence of Section 7.2 allowing certain
actions to be taken in response to an unsolicited bona fide Acquisition
Proposal.
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9.4. Termination by the Company. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, before or
after the approval by holders of Shares by action of the Board of Directors,
(a) if Purchaser or Merger Sub (or another Purchaser Company) (i) shall have
failed to comply in any material respect with any of the covenants or
agreements contained in this Agreement to be complied with or performed by
Purchaser or Merger Sub at or prior to such date of termination which failure
is incapable of being cured or has not been cured by the earlier to occur of
10 days after the giving of written notice to Purchaser or the scheduled
expiration date of the Offer or (ii) shall have failed to commence the Offer
within the time required in Section 1.1 or (b) if the Board of Directors
authorizes the Company, subject to complying with the terms of this Agreement,
to enter into a binding written agreement concerning a transaction that
constitutes a Superior Proposal and the Company notifies Parent in writing
that it intends to enter into such an agreement, attaching the most current
version of such agreement to such notice, and Purchaser does not make, within
five days of receipt of the Company's written notification of its intention to
enter into a binding agreement for a Superior Proposal an offer that is at
least as favorable, from a financial point of view, to the stockholders of the
Company as the Superior Proposal; provided that the Company has complied with
all provisions of Section 7.2 and that it complies with all applicable
provisions of Section 9.5. The Company agrees (i) that it will not enter into
a binding agreement referred to in clause (b) above until at least the sixth
day after it has provided the notice to Parent required thereby and (ii) to
notify Purchaser promptly if its intention to enter into the written agreement
referred to in its notification shall change at any time after giving such
notification.
9.5. Effect of Termination and Abandonment.
(a) In the event of termination of this Agreement and abandonment of the
Merger pursuant to this Article IX, no party hereto (or any of its directors,
officers, employees, agents or advisors (financial, legal or accounting) shall
have any liability or further obligation to any other party to this Agreement,
except as provided in Section 9.5(b) below and Section 10.2 and except that
nothing herein will relieve any party from liability for any breach of this
Agreement.
(b) If this Agreement is terminated (x) by the Company pursuant to Section
9.4(b) then the Company shall at or prior to the time of such termination, pay
Purchaser a fee of $10,000,000 (the "Termination Fee"), which amount shall be
payable in same day funds, plus an amount equal to Purchaser's out-of-pocket
expenses, including fees and expenses paid to investment bankers, lawyers and
financing sources, incurred in connection with the transactions contemplated
by this Agreement in an amount not to exceed $1,500,000 (the "Purchaser
Expenses") or (y) by the Company or Purchaser at any time after (i) the Offer
shall have remained open for a minimum of at least 20 business days, (ii)
after the date hereof any corporation, partnership, person, other entity or
group (as defined in Section 13(d)(3) of the Exchange Act) other than
Purchaser or Merger Sub or any of their respective subsidiaries or affiliates
(collectively, a "Person") shall have become the beneficial owner of 15% or
more of the outstanding Shares or any Person shall have commenced, or shall
have publicly announced an intention to commence, a tender offer or exchange
offer for 15% or more of the outstanding Shares, and (iii) the Minimum
Condition (as defined in Annex A) shall not have been satisfied and the Offer
is terminated without the purchase of any Shares thereunder, or by Purchaser
pursuant to Section 9.3 then, if terminated pursuant to Section 9.3, the
Company shall promptly pay to Purchaser the Purchaser Expenses and, if within
18 months of the date of any termination referred to in clause (y) of this
Section 9.5(b), the Company or any of its subsidiaries shall consummate an
Acquisition Transaction, the Company shall, promptly, but in no event later
than two days after the entry into such agreement, pay Purchaser the
Termination Fee and shall also pay to Purchaser the Purchaser Expenses, if not
previously paid. The Company agrees that it will not structure any transaction
or agreement for the purpose of avoiding payment of the Termination Fee. The
Company acknowledges that the agreements contained in this Section 9.5(b) are
an integral part of the transactions contemplated in this Agreement, and that,
without these agreements, Purchaser and Merger Sub would not enter into this
Agreement; accordingly, if the Company fails to promptly pay the amount due
pursuant to this Section 9.5(b), and, in order to obtain such payment,
Purchaser or Merger Sub commences a suit which results in a judgment against
the Company for the fee set forth in this paragraph (b), the Company shall pay
to Purchaser or Merger Sub its costs and expenses (including attorneys' fees)
in connection with such suit, together with interest on the amount of the fee
at the prime rate of Citibank, N.A. on the date such payment was required to
be made.
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(c) If this Agreement is terminated by the Company pursuant to Section
9.4(a)(i) or (ii) then Purchaser shall promptly pay to the Company an amount
equal to the Company's out-of-pocket expenses, including fees and expenses
paid to investment bankers and lawyers incurred in connection with the
transactions contemplated by this Agreement in an amount not to exceed
$1,500,000. If, solely as a result of the occurrence of any of the events
specified in paragraph (h) of Annex A, Merger Sub and Purchaser (i) terminate
the Offer without paying for Shares or (ii) extend the expiration date of the
Offer beyond September 30, 1997, then Purchaser shall, prior to or at the time
of such termination in the case of clause (i) above or on September 30, 1997
in the case of clause (ii) above, pay to the Company a fee of $40,000,000 in
same day funds, less any amounts paid pursuant to the preceding sentence.
Purchaser acknowledges that the agreements contained in this Section 9.5(c)
are an integral part of the transactions contemplated by this Agreement, and
that, without these agreements, the Company would not enter into this
Agreement; accordingly, if Purchaser fails to promptly pay the amount due
pursuant to this Section 9.5(c), and, in order to obtain such payment, the
Company commences a suit which results in a judgment against Purchaser for the
fee set forth in this paragraph (c), Purchaser shall pay to the Company its
costs and expenses (including attorneys' fees) in connection with such suit,
together with interest on the amount of such payment at the prime rate of
Citibank, N.A. on the date such payment was required to be made.
ARTICLE X
MISCELLANEOUS AND GENERAL
10.1. Payment of Expenses. Except as otherwise set forth in Section 9.5,
whether or not the Merger shall be consummated, each party hereto shall pay
its own expenses incident to preparing for, entering into and carrying out
this Agreement and the consummation of the Merger.
10.2. Survival. The agreements of the Company, Purchaser and Merger Sub
contained in Sections 5.2 (but only to the extent that such Section expressly
relates to actions to be taken after the Effective Time), 5.3, 5.4 ,7.8, 7.9,
7.10, 7.11 and 10.1 shall survive the consummation of the Merger. The
agreements of the Company, Purchaser and Merger Sub contained in Sections 7.5,
9.5 and 10.1 shall survive the termination of this Agreement. Except as
provided in Section 9.5(a), all other representations, warranties, agreements
and covenants in this Agreement shall not survive the consummation of the
Merger or the termination of this Agreement.
10.3. Modification or Amendment. Subject to the applicable provisions of the
DGCL, at any time prior to the Effective Time, the parties hereto may modify
or amend this Agreement, by written agreement executed and delivered by duly
authorized officers of the respective parties.
10.4. Waiver of Conditions. The conditions to each of the parties'
obligations to consummate the Merger are for the sole benefit of such party
and may be waived by such party in whole or in part to the extent permitted by
applicable law.
10.5. Counterparts. For the convenience of the parties hereto, this
Agreement may be executed in any number of counterparts, each such counterpart
being deemed to be an original instrument, and all such counterparts shall
together constitute the same agreement.
10.6. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
10.7. Notices. Any notice, request, instruction or other document to be
given hereunder by any party to the others shall be in writing and delivered
personally or sent by registered or certified mail, postage prepaid, if to
Purchaser or Merger Sub, addressed to Purchaser or Merger Sub, as the case may
be, at Vencor, Inc., 400 West Market Street, Suite 3300, Louisville, Kentucky
40202, Attention: President (with a copy to Joseph B. Frumkin, Esq., Sullivan
& Cromwell, 125 Broad Street, New York, New York 10004); and if to the
Company, addressed to the Company at TheraTx, Incorporated, 1105 Sanctuary
Parkway, Suite 100, Alpharetta, Georgia 30201, Attention: President (with a
copy to Steven J. Gartner, Esq., Willkie Farr & Gallagher, 153 East 53rd
Street, New York, New York 10022), or to such other persons or addresses as
may be designated in writing by the party to receive such notice.
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10.8. Entire Agreement, etc. This Agreement (including any schedules,
exhibits or Annexes hereto) and the Confidentiality Agreement (a) constitute
the entire agreement, and supersedes all other prior agreements,
understandings, representations and warranties both written and oral, among
the parties, with respect to the subject matter hereof, and (b) shall not be
assignable by operation of law or otherwise and is not intended to create any
obligations to, or rights in respect of, any persons other than the parties
hereto, except as provided in Section 7.9); provided, however, that Purchaser
may designate, by written notice to the Company, another wholly-owned direct
or indirect subsidiary to be a Constituent Corporation in lieu of Merger Sub,
in the event of which, all references herein to Merger Sub shall be deemed
references to such other subsidiary except that all representations and
warranties made herein with respect to Merger Sub as of the date of this
Agreement shall be deemed representations and warranties made with respect to
such other subsidiary as of the date of such designation.
10.9. Definition of "Subsidiary" and "Significant Subsidiary". When a
reference is made in this Agreement to a subsidiary of a party, the word
"subsidiary" means any corporation or other organization whether incorporated
or unincorporated of which at least a majority of the securities or interests
having by the terms thereof ordinary voting power to elect at least a majority
of the board of directors or others performing similar functions with respect
to such corporation or other organization is directly or indirectly owned or
controlled by such party or by any one or more of its subsidiaries, or by such
party and one or more of its subsidiaries. When a reference is made in this
Agreement to a "Significant Subsidiary," the term "Significant Subsidiary"
shall have the meaning set forth in Rule 1-02 of Regulation S-X.
10.10. Obligation of Purchaser. Whenever this Agreement requires Merger Sub
to take any action, such requirement shall be deemed to include an undertaking
on the part of Purchaser to cause Merger Sub to take such action.
10.11. Captions. The Article, Section and paragraph captions herein are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto on the date first
hereinabove written.
VENCOR, INC.
By: /s/ James H. Gillenwater, Jr.
-------------------------------
Name: James H. Gillenwater, Jr.
Title: Senior Vice President
PEACH ACQUISITION CORP.
By: /s/ W. Earl Reed, III.
-------------------------------
Name: W. Earl Reed, III.
Title: Vice President
THERATX, INCORPORATED
By: /s/ John A. Bardis
-------------------------------
Name: John A. Bardis
Title: President and C.E.O.
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ANNEX A
Certain Conditions of the Offer. Notwithstanding any other provision of the
Offer, until (i) expiration or termination of all applicable waiting periods
under the HSR Act and (ii) receipt of all necessary approvals under change of
ownership, healthcare licensure and certificate of need laws and regulations,
Merger Sub shall not be required to accept for payment or, subject to any
applicable rules and regulations of the SEC, including Rule 14e-1(c)
promulgated under the Exchange Act (relating to Purchaser's obligation to pay
for or return tendered shares promptly after termination or withdrawal of the
Offer), Merger Sub shall not be required to pay for, or may delay the
acceptance for payment of or payment for, any tendered Shares, or may, in its
sole discretion (subject to the Merger Agreement), terminate or amend the
Offer as to any Shares not then accepted for payment if a majority of the
total Shares outstanding on a fully diluted basis shall not have been properly
and validly tendered pursuant to the Offer and not withdrawn prior to the
expiration of the Offer (the "Minimum Condition"), or, if on or after February
9, 1997, and at or before the time of acceptance for payment for any of such
Shares, any of the following events shall occur:
(a) there shall have occurred (i) any general suspension of, or limitation
on prices for, trading in securities on the New York Stock Exchange or Nasdaq
or in the over-the-counter market, (ii) a declaration of a banking moratorium
or any suspension of payments in respect of banks in the United States, (iii)
any limitation (whether or not mandatory) by any governmental or regulatory
authority, agency, commission or other entity, domestic or foreign
("Governmental Entity"), on, or any other event which might adversely affect,
the extension of credit by banks or other lending institutions or (iv) or in
the case of any of the foregoing existing at the time of the commencement of
the Offer, a material acceleration or worsening thereof;
(b) the Company shall have breached or failed to perform in any material
respect any of its obligations, covenants or agreements under the Merger
Agreement which failure is incapable of being cured or has not been cured by
the earlier to occur of 10 days after the giving of written notice to the
Company and the scheduled expiration date of the Offer or any representation
or warranty of the Company set forth in the Merger Agreement shall have been
inaccurate or incomplete in any material respect when made or thereafter shall
become inaccurate or incomplete in any material respect;
(c) there shall be threatened, instituted or pending any action, litigation,
proceeding, investigation or other application (hereinafter, an "Action")
before any court or other Governmental Entity by any Governmental Entity: (i)
challenging the acquisition by Purchaser or Merger Sub of Shares, seeking to
restrain or prohibit the consummation of the transactions contemplated by the
Offer or the Merger, seeking to obtain any material damages or otherwise
directly or indirectly relating to the transactions contemplated by the Offer
or the Merger; (ii) seeking to prohibit, or impose any material limitations
on, Purchaser's or Merger Sub's ownership or operation of all or any material
portion of their or the Company's business or assets (including the business
or assets of their respective affiliates and subsidiaries), or to compel
Purchaser or Merger Sub to dispose of or hold separate all or any material
portion of Purchaser's or Merger Sub's or the Company's business or assets
(including the business or assets of their respective affiliates and
subsidiaries) as a result of the transactions contemplated by the Offer or the
Merger; (iii) seeking to make the acceptance for payment, purchase of, or
payment for, some or all of the Shares illegal or render Merger Sub unable to,
or restrict, the ability of Merger Sub to accept for payment, purchase or pay
for some or all of the Shares; (iv) seeking to impose material limitations on
the ability of Purchaser or Merger Sub effectively to acquire or hold or to
exercise full rights of ownership of the Shares including, without limitation,
the right to vote the Shares purchased by them on an equal basis with all
other Shares on all matters properly presented to the stockholders; or (v)
that, in any event, in the judgment of Purchaser, would be reasonably likely
to have, individually or in the aggregate, a Company Material Adverse Effect
as a result of consummation of the transactions contemplated by the Offer and
the Merger, other than any such effect arising out of or relating to the
proposal, adoption or implementation after the date of the Merger Agreement of
any law, statute, rule or regulation relating to healthcare, Medicaid or
Medicare, including without limitation the proposal, adoption or
implementation of "salary equivalency" rates (including amendments to any
salary equivalency rates currently in effect) relating to the delivery of
physical therapy, occupational therapy, respiratory therapy or speech language
pathology services;
<PAGE>
(d) any statute, rule, regulation, order or injunction shall be sought,
proposed, enacted, promulgated, entered, enforced or deemed or become
applicable to the Offer or the Merger by any Governmental Entity that results
in any of the effects of, or have any of the consequences referred to in
clauses (i) through (v) of paragraph (c) above, other than any such effect or
consequence arising out of or relating to the proposal, adoption or
implementation after the date of the Merger Agreement of any law, statute,
rule or regulation relating to healthcare, Medicaid or Medicare, including
without limitation the proposal, adoption or implementation of "salary
equivalency" rates (including amendments to any salary equivalency rates
currently in effect) relating to the delivery of physical therapy,
occupational therapy, respiratory therapy or speech language pathology
services;
(e) any person, entity or group shall have entered into a definitive
agreement with the Company with respect to a tender offer or exchange offer
for some portion or all of the Shares or a merger, consolidation or other
business combination with or involving the Company;
(f) any court or other Governmental Entity of competent jurisdiction shall
have enacted, issued, promulgated, enforced or entered any Order, provided,
that, Purchaser shall have used reasonable best efforts to cause any such
Order to be lifted;
(g) any event, change or development shall have occurred or been discovered
that would reasonably be expected to have a Company Material Adverse Effect,
other than any such Company Material Adverse Effect arising out of any law,
statute, rule or regulation relating to healthcare, Medicaid or Medicare,
including without limitation the proposal, adoption or implementation after
the date of the Merger Agreement of "salary equivalency" rates (including
amendments to any salary equivalency rates currently in effect) relating to
the delivery of physical therapy, occupational therapy, respiratory therapy or
speech language pathology services;
(h) (i) any event, change or development shall have occurred or been
discovered that would reasonably be expected to have a material adverse effect
(a "Purchaser Material Adverse Effect") on the financial condition,
operations, properties, business or results of operations of Purchaser and its
subsidiaries, taken as a whole, other than any such material adverse effect
arising out of or relating to (a) the proposal, adoption or implementation
after the date of the Merger Agreement of "salary equivalency" rates
(including amendments to any salary equivalency rates currently in effect)
relating to the delivery of physical therapy, occupational therapy,
respiratory therapy or speech language pathology services, or (b) any breach
by Purchaser of the Merger Agreement and (ii) as a result of such Purchaser
Material Adverse Effect, Purchaser is not permitted to borrow funds necessary
to consummate the Offer under its credit facilities then in effect.
(i) the Board of Directors (or a committee thereof) shall have amended,
modified or withdrawn its recommendation of the Offer or the Merger, or shall
have failed to publicly reconfirm such recommendation within ten business days
upon request by Purchaser or Merger Sub, or shall have endorsed, approved or
recommended any other Acquisition Proposal, or shall have resolved to do any
of the foregoing; or
(j) the Merger Agreement shall have been terminated by the Company or
Purchaser or Merger Sub in accordance with its terms or Purchaser or Merger
Sub shall have reached an agreement or understanding in writing with the
Company providing for termination or amendment of the Offer or delay in
payment for the Shares;
which, in the reasonable judgment of Purchaser and Merger Sub, in any such
case, and regardless of the circumstances (including any action or inaction by
Purchaser or Merger Sub) giving rise to any such conditions, makes it
inadvisable to proceed with the Offer and/or with such acceptance for payment
of or payment for Shares.
2
<PAGE>
The foregoing conditions are for the sole benefit of Purchaser and Merger
Sub and may be asserted by Purchaser or Merger Sub regardless of the
circumstances (including any action or inaction by Purchaser or Merger Sub)
giving rise to such condition or may be waived by Purchaser or Merger Sub, by
express and specific action to that effect, in whole or in part at any time
and from time to time in its sole discretion. Any determination by Purchaser
and Merger Sub concerning any event described in this Annex A shall be final
and binding upon all parties except to the extent not permitted under the
Merger Agreement.
3
<PAGE>
EXHIBIT 3
FORM OF NON-COMPETITION AND NON-SOLICITATION AGREEMENT
[FOR EACH OF JOHN A. BARDIS, BRET W. JORGENSEN, DONALD R. MYLL AND LOUIS E.
HALLMAN, III]
This NON-COMPETITION AND NON-SOLICITATION AGREEMENT (the "Agreement") made
this 9th day of February, 1997, among Vencor, Inc. a Delaware corporation
("Purchaser"), TheraTx, Incorporated, a Delaware corporation (the "Company"),
and , a resident of ("Shareholder").
WHEREAS, concurrently herewith the Company, Purchaser and Peach Acquisition
Corp. ("Merger Sub") are entering into an Agreement and Plan of Merger dated
as of the date hereof (the "Merger Agreement"), pursuant to which Merger Sub,
at the Effective Time (as defined in the Merger Agreement) will be merged with
and into the Company, and the Company will become a wholly-owned subsidiary of
Purchaser; and
WHEREAS, Shareholder is the holder of shares of Common Stock (including
shares subject to options), par value $0.001, of the Company ("Shares"); and
WHEREAS, as part of the transactions contemplated by the Merger Agreement,
Shareholder has the right to tender of all of his Shares to Purchaser at a
price of $17.10 per Share and intends to so tender; and
WHEREAS, the Company and Purchaser would not be willing to enter into the
Merger Agreement or to consummate the transactions contemplated thereby unless
Shareholder had agreed to execute and deliver this Agreement pursuant to the
terms hereof.
NOW THEREFORE, in consideration of the mutual covenants and undertakings
contained herein, the payments to be made to Shareholder pursuant to the Offer
(as defined in the Merger Agreement), and in order to induce Purchaser to
enter into the Merger Agreement and to consummate the transactions
contemplated thereby, the parties hereto agree, upon the terms and subject to
the conditions herein set forth, as follows:
1. Definitions. For purposes of this Agreement, the following terms shall
have the meanings described below:
a. "Business" means, at any time, any business or line of business which is
the same as or similar to the business of providing rehabilitation and
respiratory therapy program management services to skilled nursing facilities
or occupational health facilities.
b. "Excluded Business" shall mean any Entity that derives less than 10% of
its revenue from a Business, provided that Shareholder is not engaged in the
portion of such Entity which is engaged in a Business.
c. "Noncompetition/Nonsolicitation Period" means the period commencing on
the Effective Time (as defined in the Merger Agreement) and ending on the
later of (i) the date 12 months following Shareholder's termination of
employment with the Company and its affiliates or (ii) the date 24 months
following the Effective Time.
2. Agreement Not to Compete. During the Noncompetition/Nonsolicitation
Period, Shareholder shall not:
a. directly or indirectly own, operate, manage, control, be employed by or
participate in any corporation, partnership, sole proprietorship, limited
liability company or any other type of entity (collectively, "Entities") that
competes within the United States of America with a Business other than an
Excluded Business; or
b. participate as an officer, director, agent, consultant, employee,
adviser, sole proprietor, independent contractor, representative, stockholder
or partner of, or otherwise have any direct or indirect legal, financial or
other beneficial interest as a creditor or otherwise in, any Entity that
engages within the United States of America in a Business, except for
ownership of less than 1% of any class of securities or interests registered
pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as
amended or an Excluded Business; or
1
<PAGE>
c. solicit, divert or attempt to solicit or divert from the Company or any
of its subsidiaries, any business constituting any part of the Business then
conducted by the Company or any of its subsidiaries.
3. Agreement Not to Solicit or Hire.
a. Shareholder shall not, so long as Shareholder is employed by the Company
or any of its affiliates and, during the Noncompetition/Nonsolicitation
Period, directly or indirectly, individually or on behalf of other persons or
Entities, solicit or induce or attempt to solicit or induce or hire any person
engaged or employed (whether part-time or full-time) by the Company or any of
its subsidiaries, including as an independent contractor, adviser or
consultant (other than a person whose duties were limited to a secretarial,
clerical or similar capacity) to leave the employ of, or cease providing
services to, the Company or any of its subsidiaries, as the case may be, or in
any other manner seek to engage or employ any such person (whether or not for
compensation) as an officer, employee, consultant, adviser, independent
contractor or otherwise, such that such person would thereafter be unable to
devote the same business time, attention, energies, abilities and efforts to
the business then conducted by the Company or any of its subsidiaries, as the
case may be, as was theretofore devoted.
b. Shareholder shall not, so long as Shareholder is employed by the Company
or any of its affiliates and, during the Noncompetition/Nonsolicitation
Period, directly or indirectly, individually or on behalf of other persons or
Entities, (i) solicit or induce or attempt to solicit or induce any client of
the Company or any of its subsidiaries to retain or use any other person or
Entity for the purpose of providing services, provided, that, such client is a
client of the Company or any of its subsidiaries, as of the date hereof, as of
the Effective Time (as defined in the Merger Agreement) or within six months
to the time Shareholder's employment with the Company shall terminate or (ii)
provide services in competition with the Business.
4. Confidential Information. All information furnished by the Company or any
of its affiliates to Shareholder and all information obtained by Shareholder
in the performance of Shareholder's employment or functions with the Company
or any of its affiliates including, without limitation, all information with
respect to clients of the Company or any of its affiliates, shall be treated
by Shareholder as confidential and shall not be communicated or disclosed by
Shareholder without the prior written consent of Purchaser or any of its
affiliates, except (i) as is necessary for the performance of Shareholder's
employment with the Company or any of its affiliates, (ii) as otherwise
required by applicable law or (iii) if such information becomes generally
known to or available for use by the public otherwise than by communication or
disclosure by Shareholder or any of his representatives. Information of the
Company or any of its affiliates includes, without limitation, technical,
marketing, business or financial information, material proprietary processes,
analytical models or formulas, customer lists, information relating to
personnel or former personnel of the Company or any of its affiliates, or any
other material confidential or non-public information or material concerning
the business, affairs, patents, trademarks, trade secrets, service marks,
products, services, suppliers, or customers of or provided by (or proposed to
be provided by) the Company or any of its affiliates thereof. Shareholder
shall assign to the Company all rights to inventions, trade secrets and other
products developed by him alone or in conjunction with others at any time
while employed by the Company or any of its affiliates and will cooperate in
filing applications for letters patent and in executing assignments upon the
Company's request. At the request of the Company or any of its affiliates, or
if earlier upon termination of Shareholder's employment with the Company or
any of its affiliates, Shareholder shall promptly deliver to the Company,
without retaining any copies thereof, all such confidential information in any
medium or form, and all material based or derived from such confidential
information, including files, software, records, computer access codes,
business equipment (including fax machines, telephones, and personal
computers) and instruction manuals of the Company and its affiliates which are
in the possession of Shareholder.
5. Injunctive Relief. In the event that Shareholder breaches or threatens to
breach any of the covenants contained herein, the Company or Purchaser shall
be entitled to seek a temporary or permanent injunction against Shareholder
prohibiting any further violation of any such covenants, it being acknowledged
and agreed that any such breach of the covenants will cause irreparable harm
to the Company and Purchaser, and that the remedy at
2
<PAGE>
law for any breach or threatened breach of such covenants would be inadequate
to protect the interests of Purchaser or the Company. The injunctive or
equitable relief provided herein shall be in addition to any award of damages,
compensatory, exemplary or otherwise, to which the Company or Purchaser may be
entitled and shall not be construed to limit the right of the Company or
Purchaser to collect such damages.
6. Acknowledgment. The parties acknowledge that this Agreement has been
negotiated at arms length by the parties, none of whom being under any
compulsion to enter into this Agreement and that the restrictive covenants
contained herein do not inhibit Shareholder's ability to earn a livelihood in
his chosen profession without violating the restrictive covenants. The Company
has attempted to limit Shareholder's rights to compete only to the extent
necessary to protect Purchaser and the Company from unfair competition, it
being acknowledged that Purchaser's and the Company's operations are not
geographically limited and are conducted throughout the United States of
America.
7. Severability; Blue-Penciling.
(a) If any court determines that any of the restrictive covenants contained
herein is invalid, illegal or unenforceable, the remainder of the restrictive
covenants shall, to the extent enforceable under applicable law, not thereby
by affected and shall be given full effect, without regard to the portions
which have been declared invalid, illegal or unenforceable; provided, however,
that if the economic or legal substance of the principles and transactions
contemplated by this Agreement and the Merger Agreement is affected in a
manner materially adverse to any party as a result of the determination that a
provision hereof is invalid, illegal or unenforceable, the parties hereto
agree to negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible and to ensure that the
principles and transactions contemplated hereby and by the Merger Agreement
are fulfilled to the closest extent possible.
(b) If any court determines that any of the restrictive covenants contained
herein is unenforceable because of the duration or geographic scope of such
provision, it is the intention of the parties that such court shall have the
power to modify any such provision to the extent necessary to render the
provision enforceable, and such provision as so modified shall be enforced.
8. Governing Law. All questions concerning the construction, validity and
interpretation of this Agreement shall be governed by the law of the State of
Delaware.
9. Notices. All notices, requests or other communications hereunder shall be
in writing and shall be deemed to have been duly given if delivered by hand,
facsimile transmission or by United States mail (certified, return receipt
requested), properly addressed and postage prepaid:
If to Shareholder to:
---------------------------------------
---------------------------------------
---------------------------------------
If to Purchaser or the Company to:
Vencor, Inc.
3300 Providian Center
400 West Market Street
Louisville, Kentucky 40202
Attention: General Counsel
3
<PAGE>
10. Entire Agreement. This Agreement contains the entire understanding of
the parties hereto with respect to the subject matter contained herein, and
supersedes and cancels all prior agreements, negotiations, correspondences,
undertakings and communications of the parties, oral or written, regarding
such subject matter.
11. Amendments. This Agreement may be amended only by a written instrument
executed by the parties or their respective successors or assigns.
12. Cumulative Remedies. Each of the several rights and remedies provided in
this Agreement, or by law or in equity, shall be cumulative, and no one of
them shall be exclusive of any other right or remedy, and the exercise of any
one of such rights or remedies shall not be deemed a waiver of, or an election
to exercise, any other such right or remedy.
13. Termination in accordance with the Merger Agreement. Notwithstanding
anything to contrary in this Agreement, in the event that the Merger Agreement
shall terminate in accordance with its terms prior to Purchaser's purchase of
Shares in the Offer, this Agreement shall terminate.
14. Assignability. This Agreement and the various rights and obligations
arising hereunder shall inure to the benefit of and be binding upon the
parties hereto and their respective heirs, successors and permitted assigns.
This Agreement may not be assigned by any party without the prior written
consent of the other party and any attempt to assign this Agreement without
such consent shall be void and of no effect.
15. Headings; References. The section headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. All references herein to "Sections" shall be
deemed to be references to Sections hereof unless otherwise indicated.
16. Waiver of Jury Trial. Shareholder and the Company hereby irrevocably and
unconditionally waive trial by jury in any legal action or proceeding relating
to this Agreement and for any counterclaim in respect thereof.
17. Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original but all of which shall constitute
one and the same instrument.
IN WITNESS WHEREOF, this Agreement has been executed as of the day and year
set forth at the beginning hereof.
VENCOR, INC.
By: ___________________________________
Title:
THERATX, INCORPORATED
By: ___________________________________
Title:
---------------------------------------
[Shareholder]
4
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EXHIBIT 4
FORM OF NON-COMPETITION AND NON-SOLICITATION AGREEMENT
[FOR EACH OF LAURA E. CAYCE AND WILLIAM J. HAFFEY, PH.D.]
This NON-COMPETITION AND NON-SOLICITATION AGREEMENT (the "Agreement") made
this 9th day of February, 1997, among Vencor, Inc. a Delaware corporation
("Purchaser"), TheraTx, Incorporated, a Delaware corporation (the "Company"),
and , a resident of ("Shareholder").
WHEREAS, concurrently herewith the Company, Purchaser and Peach Acquisition
Corp. ("Merger Sub") are entering into an Agreement and Plan of Merger dated
as of the date hereof (the "Merger Agreement"), pursuant to which Merger Sub,
at the Effective Time (as defined in the Merger Agreement) will be merged with
and into the Company, and the Company will become a wholly-owned subsidiary of
Purchaser; and
WHEREAS, Shareholder is the holder of shares of Common Stock (including
shares subject to options), par value $0.001, of the Company ("Shares"); and
WHEREAS, as part of the transactions contemplated by the Merger Agreement,
Shareholder has the right to tender of all of her Shares to Purchaser at a
price of $17.10 per Share and intends to so tender; and
WHEREAS, the Company and Purchaser would not be willing to enter into the
Merger Agreement or to consummate the transactions contemplated thereby unless
Shareholder had agreed to execute and deliver this Agreement pursuant to the
terms hereof.
NOW THEREFORE, in consideration of the mutual covenants and undertakings
contained herein, the payments to be made to Shareholder pursuant to the Offer
(as defined in the Merger Agreement), and in order to induce Purchaser to
enter into the Merger Agreement and to consummate the transactions
contemplated thereby, the parties hereto agree, upon the terms and subject to
the conditions herein set forth, as follows:
1. Definitions. For purposes of this Agreement, the following terms shall
have the meanings described below:
a. "Business" means, at any time, any business or line of business which is
the same as or similar to the business of providing rehabilitation and
respiratory therapy program management services to skilled nursing facilities
or occupational health facilities that are not owned, operated or leased by
the person or Entity (as defined herein) or any affiliate thereof providing
such services.
b. "Excluded Business" shall mean any Entity that derives less than 10% of
its revenue from a Business, provided that Shareholder is not engaged in the
portion of such Entity which is engaged in a Business.
c. "Noncompetition/Nonsolicitation Period" means the period commencing on
the Effective Time (as defined in the Merger Agreement) and ending on the
later of (i) the date 12 months following Shareholder's termination of
employment with the Company and its affiliates or (ii) the date 12 months
following the Effective Time or at such later time as such period may be
extended pursuant to Section 17 hereof.
2. Agreement Not to Compete. During the Noncompetition/Nonsolicitation
Period, Shareholder shall not:
a. directly or indirectly own, operate, manage, control, be employed by or
participate in any corporation, partnership, sole proprietorship, limited
liability company or any other type of entity (collectively, "Entities") that
competes within the United States of America with a Business other than an
Excluded Business; or
b. participate as an officer, director, agent, consultant, employee,
adviser, sole proprietor, independent contractor, representative, stockholder
or partner of, or otherwise have any direct or indirect legal, financial or
other beneficial interest as a creditor or otherwise in, any Entity that
engages within the United States of America in a Business, except for
ownership of less than 1% of any class of securities or interests registered
pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as
amended or an Excluded Business; or
c. solicit, divert or attempt to solicit or divert from the Company or any
of its subsidiaries, any business constituting any part of the Business then
conducted by the Company or any of its subsidiaries.
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3. Agreement Not to Solicit or Hire.
a. Shareholder shall not, so long as Shareholder is employed by the Company
or any of its affiliates and, during the Noncompetition/Nonsolicitation
Period, directly or indirectly, individually or on behalf of other persons or
Entities, solicit or induce or attempt to solicit or induce or hire any person
engaged or employed (whether part-time or full-time) by the Company or any of
its subsidiaries, including as an independent contractor, adviser or
consultant (other than a person whose duties were limited to a secretarial,
clerical or similar capacity) to leave the employ of, or cease providing
services to, the Company or any of its subsidiaries, as the case may be, or in
any other manner seek to engage or employ any such person (whether or not for
compensation) as an officer, employee, consultant, adviser, independent
contractor or otherwise, such that such person would thereafter be unable to
devote the same business time, attention, energies, abilities and efforts to
the business then conducted by the Company or any of its subsidiaries, as the
case may be, as was theretofore devoted.
b. Shareholder shall not, so long as Shareholder is employed by the Company
or any of its affiliates and, during the Noncompetition/Nonsolicitation
Period, directly or indirectly, individually or on behalf of other persons or
Entities, (i) solicit or induce or attempt to solicit or induce any client of
the Company or any of its subsidiaries to retain or use any other person or
Entity for the purpose of providing services which are the same as or similar
to services provided by the Company and its subsidiaries, provided, that, such
client is a client of the Company or any of its subsidiaries, as of the date
hereof, as of the Effective Time (as defined in the Merger Agreement) or
within six months to the time Shareholder's employment with the Company shall
terminate or (ii) provide services in competition with the Business.
4. Confidential Information. All information furnished by the Company or any
of its affiliates to Shareholder and all information obtained by Shareholder
in the performance of Shareholder's employment or functions with the Company
or any of its affiliates including, without limitation, all information with
respect to clients of the Company or any of its affiliates, shall be treated
by Shareholder as confidential and shall not be communicated or disclosed by
Shareholder without the prior written consent of Purchaser or any of its
affiliates, except (i) as is necessary for the performance of Shareholder's
employment with the Company or any of its affiliates, (ii) as otherwise
required by applicable law or (iii) if such information becomes generally
known to or available for use by the public otherwise than by communication or
disclosure by Shareholder or any of his representatives. Information of the
Company or any of its affiliates includes, without limitation, technical,
marketing, business or financial information, material proprietary processes,
analytical models or formulas, customer lists, information relating to
personnel or former personnel of the Company or any of its affiliates, or any
other material confidential or non-public information or material concerning
the business, affairs, patents, trademarks, trade secrets, service marks,
products, services, suppliers, or customers of or provided by (or proposed to
be provided by) the Company or any of its affiliates thereof. Shareholder
shall assign to the Company all rights to inventions, trade secrets and other
products developed by him alone or in conjunction with others at any time
while employed by the Company or any of its affiliates and will cooperate in
filing applications for letters patent and in executing assignments upon the
Company's request. At the request of the Company or any of its affiliates, or
if earlier upon termination of Shareholder's employment with the Company or
any of its affiliates, Shareholder shall promptly deliver to the Company,
without retaining any copies thereof, all such confidential information in any
medium or form, and all material based or derived from such confidential
information, including files, software, records, computer access codes,
business equipment (including fax machines, telephones, and personal
computers) and instruction manuals of the Company and its affiliates which are
in the possession of Shareholder.
5. Injunctive Relief. In the event that Shareholder breaches or threatens to
breach any of the covenants contained herein, the Company or Purchaser shall
be entitled to seek a temporary or permanent injunction against Shareholder
prohibiting any further violation of any such covenants, it being acknowledged
and agreed that any such breach of the covenants will cause irreparable harm
to the Company and Purchaser, and that the remedy at law for any breach or
threatened breach of such covenants would be inadequate to protect the
interests of
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<PAGE>
Purchaser or the Company. The injunctive or equitable relief provided herein
shall be in addition to any award of damages, compensatory, exemplary or
otherwise, to which the Company or Purchaser may be entitled and shall not be
construed to limit the right of the Company or Purchaser to collect such
damages.
6. Acknowledgment. The parties acknowledge that this Agreement has been
negotiated at arms length by the parties, none of whom being under any
compulsion to enter into this Agreement and that the restrictive covenants
contained herein do not inhibit Shareholder's ability to earn a livelihood in
his chosen profession without violating the restrictive covenants. The Company
has attempted to limit Shareholder's rights to compete only to the extent
necessary to protect Purchaser and the Company from unfair competition, it
being acknowledged that Purchaser's and the Company's operations are not
geographically limited and are conducted throughout the United States of
America.
7. Severability; Blue-Penciling.
(a) If any court determines that any of the restrictive covenants contained
herein is invalid, illegal or unenforceable, the remainder of the restrictive
covenants shall, to the extent enforceable under applicable law, not thereby
by affected and shall be given full effect, without regard to the portions
which have been declared invalid, illegal or unenforceable; provided, however,
that if the economic or legal substance of the principles and transactions
contemplated by this Agreement and the Merger Agreement is affected in a
manner materially adverse to any party as a result of the determination that a
provision hereof is invalid, illegal or unenforceable, the parties hereto
agree to negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible and to ensure that the
principles and transactions contemplated hereby and by the Merger Agreement
are fulfilled to the closest extent possible.
(b) If any court determines that any of the restrictive covenants contained
herein is unenforceable because of the duration or geographic scope of such
provision, it is the intention of the parties that such court shall have the
power to modify any such provision to the extent necessary to render the
provision enforceable, and such provision as so modified shall be enforced.
8. Governing Law. All questions concerning the construction, validity and
interpretation of this Agreement shall be governed by the law of the State of
Delaware.
9. Notices. All notices, requests or other communications hereunder shall be
in writing and shall be deemed to have been duly given if delivered by hand,
facsimile transmission or by United States mail (certified, return receipt
requested), properly addressed and postage prepaid:
If to Shareholder to:
---------------------------------------
---------------------------------------
---------------------------------------
If to Purchaser or the Company to:
Vencor, Inc.
3300 Providian Center
400 West Market Street
Louisville, Kentucky 40202
Attention: General Counsel
10. Entire Agreement. This Agreement contains the entire understanding of
the parties hereto with respect to the subject matter contained herein, and
supersedes and cancels all prior agreements, negotiations, correspondences,
undertakings and communications of the parties, oral or written, regarding
such subject matter.
11. Amendments. This Agreement may be amended only by a written instrument
executed by the parties or their respective successors or assigns.
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<PAGE>
12. Cumulative Remedies. Each of the several rights and remedies provided in
this Agreement, or by law or in equity, shall be cumulative, and no one of
them shall be exclusive of any other right or remedy, and the exercise of any
one of such rights or remedies shall not be deemed a waiver of, or an election
to exercise, any other such right or remedy.
13. Termination in accordance with the Merger Agreement. Notwithstanding
anything to contrary in this Agreement, in the event that the Merger Agreement
shall terminate in accordance with its terms prior to Purchaser's purchase of
Shares in the Offer, this Agreement shall terminate.
14. Assignability. This Agreement and the various rights and obligations
arising hereunder shall inure to the benefit of and be binding upon the
parties hereto and their respective heirs, successors and permitted assigns.
This Agreement may not be assigned by any party without the prior written
consent of the other party and any attempt to assign this Agreement without
such consent shall be void and of no effect.
15. Headings; References. The section headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. All references herein to "Sections" shall be
deemed to be references to Sections hereof unless otherwise indicated.
16. Waiver of Jury Trial. Shareholder and the Company hereby irrevocably and
unconditionally waive trial by jury in any legal action or proceeding relating
to this Agreement and for any counterclaim in respect thereof.
17. Option to Extend. Shareholder agrees that Purchaser shall have the
option (but not the obligation) to extend the period in Section 1(b)(ii) from
12 months to 24 months if, prior to the expiration of such 12-month period,
the Company pays Shareholder $225,000, in cash, payable in equal monthly
installments during such additional 12-month period, less any amounts that
Shareholder shall receive as an employee of any Entity (including the Company
or any of its affiliates (but excluding any severance or similar payments)) in
respect of such period.
18. Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original but all of which shall constitute
one and the same instrument.
IN WITNESS WHEREOF, this Agreement has been executed as of the day and year
set forth at the beginning hereof.
VENCOR, INC.
By: ___________________________________
Title:
THERATX, INCORPORATED
By: ___________________________________
Title:
---------------------------------------
[Shareholder]
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<PAGE>
EXHIBIT 5
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THERATX, INCORPORATED
AND
U.S. STOCK TRANSFER CORPORATION
RIGHTS AGENT
RIGHTS AGREEMENT
DATED AS OF JULY 28, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
Section 1. Certain Definitions........................................
Section 2. Appointment of Rights Agent................................
Section 3. Issue of Right Certificates................................
Section 4. Form of Right Certificates.................................
Section 5. Countersignature and Registration..........................
Section 6. Transfer, Split-Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right
Certificates...............................................
Exercise of Rights; Purchase Price; Expiration Date of
Section 7. Rights.....................................................
Section 8. Cancellation and Destruction of Right Certificates.........
Section 9. Availability of Preferred Shares...........................
Section 10. Preferred Shares Record Date...............................
Adjustment of Purchase Price, Number of Shares or Number of
Section 11. Rights.....................................................
Section 12. Certificate of Adjusted Purchase Price or Number of Shares.
Consolidation, Merger or Sale or Transfer of Assets or
Section 13. Earning Power..............................................
Section 14. Fractional Rights and Fractional Shares....................
Section 15. Rights of Action...........................................
Section 16. Agreement of Right Holders.................................
Section 17. Right Certificate Holder Not Deemed a Stockholder..........
Section 18. Concerning the Rights Agent................................
Section 19. Merger or Consolidation or Change of Name of Rights Agent..
Section 20. Duties of Rights Agent.....................................
Section 21. Change of Rights Agent.....................................
Section 22. Issuance of New Right Certificates.........................
Section 23. Redemption.................................................
Section 24. Exchange...................................................
Section 25. Notice of Certain Events...................................
Section 26. Notices....................................................
Section 27. Supplements and Amendments.................................
Section 28. Successors.................................................
Section 29. Determinations and Actions by the Board of Directors.......
Section 30. Benefits of this Agreement.................................
Section 31. Severability...............................................
Section 32. Governing Law..............................................
Section 33. Counterparts...............................................
Section 34. Descriptive Headings.......................................
Exhibit A-- Form of Certificate of Designation of Series A Junior
Participating Preferred Stock of TheraTx, Incorporated
Exhibit B-- Form of Right Certificate
Exhibit C-- Summary of Rights to Purchase Preferred Shares
</TABLE>
(i)
<PAGE>
RIGHTS AGREEMENT
Rights Agreement, dated as of July 28, 1995, between TheraTx, Incorporated,
a Delaware corporation (the "Company"), and U.S. Stock Transfer Corporation
(the "Rights Agent").
The Board of Directors of the Company has authorized and declared a dividend
of one right (a "Right") for each Common Share (as hereinafter defined) of the
Company outstanding as of the Close of Business (as hereinafter defined) on
August 14, 1995 (the "Record Date"), each Right representing the right to
purchase one one-hundredth of a Preferred Share (as hereinafter defined) upon
the terms and subject to the conditions herein set forth, and has further
authorized and directed the issuance of one Right with respect to each Common
Share that shall become outstanding between the Record Date and the earliest
of the Distribution Date, the Redemption Date or the Final Expiration Date (as
such terms are hereinafter defined); provided, however, that Rights may be
issued with respect to Common Shares that shall become outstanding after the
Distribution Date and prior to the earlier of the Redemption Date or the Final
Expiration Date in accordance with the provisions of Section 22.
Accordingly, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person who or which, together with all
Affiliates and Associates of such Person, shall be the Beneficial Owner of 15%
or more of the Common Shares of the Company then outstanding, but shall not
include (i) the Company, any Subsidiary of the Company, any employee benefit
plan of the Company or any Subsidiary of the Company, or any Person holding
Common Shares for or pursuant to the terms of any such plan, (ii) Warburg,
Pincus Investors, L.P., together with all Affiliates and Associates
(collectively "Warburg"), but only to the extent that Warburg is the
Beneficial Owner of no more than 20% of the Common Shares of the Company then
outstanding, or (iii) any Person, together with all Affiliates and Associates
of such Person, who or which would be an Acquiring Person solely by reason of
(A) being the Beneficial Owner of Common Shares, the Beneficial Ownership of
which was acquired by such Person (and the Affiliates and Associates of such
Person) pursuant to any action or transaction, or such series of related
actions or transactions approved by the Board of Directors and a majority of
the Continuing Directors prior to the earlier to occur of (1) the Distribution
Date or (2) any exchange made pursuant to Section 24 hereof, or (B), a
reduction in the number issued and outstanding Common Shares pursuant to a
transaction or series or related transactions approved by the Board of
Directors and a majority of the Continuing Directors; provided further that in
the event that such Person described in clause (ii) or (iii) does not become
an Acquiring Person by reason of clause (ii) or (iii), such Person nonetheless
shall become an Acquiring Person in the event such Person, together with all
Affiliates and Associates, thereafter acquires Beneficial Ownership of any
additional Common Shares unless the acquisition of such Beneficial Ownership
would not result in such Person becoming an Acquiring Person by reason of
clause (ii) or subclause (A) or (B) of clause (iii). Notwithstanding the
foregoing, if the Board of Directors of the Company determines (upon approval
by a majority of the Continuing Directors) in good faith that a Person who
would otherwise be an Acquiring Person, as defined pursuant to the foregoing
provisions of this paragraph (a), is eligible to file and did file a Schedule
13G and such Person divests (and/or causes such Person's Affiliates and/or
Associates to divest) as promptly as practicable a sufficient number of Common
Shares so that such Person would no longer be an Acquiring Person as defined
pursuant to the foregoing provisions of this paragraph (a), then such Person
shall not be deemed to be an "Acquiring Person" for any purpose of this
Agreement.
(b) "Affiliate" and "Associate" shall have the respective meanings ascribed
to such terms in Rule 12b-2 of the General Rules and Regulations under the
Exchange Act.
(c) A Person shall be deemed the "Beneficial Owner" of and shall be deemed
to "Beneficially Own," and have "Beneficial Ownership" of, any securities:
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<PAGE>
(i) which such Person or any of such Person's Affiliates or Associates
Beneficially Owns, directly or indirectly;
(ii) which such Person or any of such Person's Affiliates or Associates
has (A) the right to acquire (whether such right is exercisable immediately
or only after the passage of time or fulfillment of a condition or both)
pursuant to any agreement, arrangement or understanding, or upon the
exercise of conversion rights, exchange rights, rights (other than these
Rights), warrants or options, or otherwise; provided, however that a Person
shall not be deemed the Beneficial Owner of, or to Beneficially Own, (1)
securities tendered pursuant to a tender or exchange offer made by or on
behalf of such Person or any of such Person's Affiliates or Associates
until such tendered securities are accepted for purchase or exchange or (2)
securities which a Person or any Person's Affiliates or Associates may be
deemed to have the right to acquire pursuant to any merger or other
acquisition agreement between the Company and such Person (or one or more
of such Person's Affiliates or Associates) if such agreement has been
approved by the Board of Directors of the Company, upon the affirmative
vote of a majority of the Continuing Directors, prior to there being an
Acquiring Person; or (B) the right to vote alone or in concert with others
pursuant to any agreement, arrangement or understanding; provided, however,
that a Person shall not be deemed the Beneficial Owner of, or to
Beneficially Own, any security if the agreement, arrangement or
understanding to vote such security (1) arises solely from a revocable
proxy or consent given to such Person in response to a public proxy or
consent solicitation made pursuant to, and in accordance with, the
applicable rules and regulations promulgated under the Exchange Act and (2)
is not also then reportable on Schedule 13D under the Exchange Act (or any
comparable or successor report) other than by reference to a proxy or
consent solicitation being conducted by such Person; or
(iii) which are Beneficially Owned, directly or indirectly, by any other
Person with which such Person or any of such Person's Affiliates or
Associates has any agreement, arrangement or understanding (other than
customary agreements with and between underwriters and selling group
members with respect to a bona fide public offering of securities) for the
purpose of acquiring, holding, voting (except to the extent contemplated by
the proviso to Section 1(c)(ii)(B)) or disposing of any securities of the
Company.
Notwithstanding anything in this definition of Beneficial Ownership to the
contrary, (x) the phrase "then outstanding," when used with reference to a
Person's Beneficial Ownership of securities of the Company, shall mean the
number of such securities then issued and outstanding together with the number
of such securities not then actually issued and outstanding which such Person
would be deemed to own beneficially hereunder, (y) for purposes of determining
Beneficial Ownership, officers and directors of the Company solely by reason
of their status as such shall not constitute a group (notwithstanding that
they may be Associates of one another or may be deemed to constitute a group
for purposes of Section 13(d) of the Exchange Act and shall not be deemed to
own shares owned by another officer or director of the Company.
(d) "Business Day" shall mean any day other than a Saturday, a Sunday, or a
day on which banking institutions in the State of Georgia are authorized or
obligated by law or executive order to close.
(e) "Company" shall have the meaning set forth in the first paragraph at the
beginning of this Agreement.
(f) "Close of Business" on any given date shall mean 5:00 P.M., Atlanta,
Georgia time, on such date; provided, however, that if such date is not a
Business Day it shall mean 5:00 P.M., Atlanta, Georgia time, on the next
succeeding Business Day.
(g) "Common Shares" when used with reference to the Company shall mean the
shares of common stock, par value $.001 per share, of the Company. "Common
Shares" when used with reference to any Person other than the Company shall
mean the capital stock with the greatest voting power, or the equity
securities or other equity interest having power to control or direct the
management, of such other Person or, if such other Person is a Subsidiary of
another Person, the Person or Persons which ultimately control such first-
mentioned Person.
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<PAGE>
(h) "Common Stock Equivalents" shall have the meaning set forth in Section
11(a)(iii) hereof.
(i) "Continuing Director" shall mean any person who is a member of the Board
of Directors of the Company who, while such person is a member of the Board of
Directors, is not an Acquiring Person, or an Affiliate or Associate of an
Acquiring Person, or a representative, nominee or agent of an Acquiring Person
or of any such Affiliate or Associate, and who either (i) was a member of the
Board of Directors prior to the time that any Person became an Acquiring
Person or (ii) who subsequently became a member of the Board of Directors and
who, while such person is a member of the Board of Directors, is not an
Acquiring Person, or an Affiliate or Associate of an Acquiring Person, or a
representative, nominee or agent of an Acquiring Person or of any such
Affiliate or Associate, if such Person's nomination for election or such
Person's election to the Board of Directors is recommended or approved by a
majority of the Continuing Directors then on the Board of Directors.
(j) "Current Per Share Market Price" shall have the meaning set forth in
Section 11(d) hereof.
(k) "Current Value" shall have the meaning set forth in Section 11(a)(iv).
(l) "Distribution Date" shall have the meaning set forth in Section 3
hereof.
(m) "Equivalent Preferred Shares" shall have the meaning set forth in
Section 11(b) hereof.
(n) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, as in effect on the date of this Agreement.
(o) "Final Expiration Date" shall have the meaning set forth in Section 7
hereof.
(p) "Issuer" shall have the meaning set forth in Section 13 hereof.
(q) "Person" shall mean any individual, firm, corporation or other entity,
and shall include any successor (by merger or otherwise) of such entity.
(r) "Preferred Shares" shall mean shares of Series A Junior Participating
Preferred Shares, par value $.001 per share, of the Company having the rights
and preferences set forth in the Form of Certificate of Designation attached
to this Agreement as Exhibit A.
(s) "Purchase Price" shall have the meaning set forth in Section 4 hereof.
(t) "Record Date" shall have the meaning set forth in the second paragraph
at the beginning of this Agreement.
(u) "Redemption Date" shall have the meaning set forth in Section 7 hereof.
(v) "Redemption Price" shall have the meaning set forth in Section 23
hereof.
(w) "Right" shall have the meaning set forth in the second paragraph at the
beginning of this Agreement.
(x) "Right Certificate" shall have the meaning set forth in Section 3
hereof.
(y) "Rights Agent" shall have the meaning set forth in the first paragraph
at the beginning of this Agreement.
(z) "Securities Act" shall mean the Securities Act of 1933, as amended.
(aa) "Shares Acquisition Date" shall mean the earlier of (i) the first date
of public announcement (which, for purposes of this definition, shall include,
without limitation, a report filed pursuant to Section 13(d) of the Exchange
Act) by the Company or an Acquiring Person that an Acquiring Person has become
such, or (ii) the
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<PAGE>
date on which a majority of the Continuing Directors, in good faith, informs
the Company by written notice of the existence of an Acquiring Person.
(bb) "Spread" shall have the meaning set forth in Section 11(a)(iv) hereof.
(cc) "Subsidiary" of any Person shall mean any corporation or other entity
of which a majority of the voting power of the voting equity securities or
equity interest is owned, directly or indirectly, by such Person.
(dd) "Substitution Period" shall have the meaning set forth in Section
11(a)(iv) hereof.
(ee) "Summary of Rights" shall have the meaning set forth in Section 3
hereof.
(ff) "Trading Day" shall have the meaning set forth in Section 11 hereof.
Section 2. Appointment of Rights Agent. The Company hereby appoints the
Rights Agent to act as agent for the Company in accordance with the terms and
conditions hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint such Co-Rights Agents as it may deem
necessary or desirable.
Section 3. Issue of Right Certificates.
(a) Until the earlier of (i) the tenth Business Day after the Shares
Acquisition Date or (ii) the tenth Business Day (or such later date as may be
determined by action of the Board of Directors (upon approval by a majority of
the Continuing Directors) prior to such time as any Person becomes an
Acquiring Person) after the date of the commencement by any Person (other than
the Company, any Subsidiary of the Company, any employee benefit plan of the
Company or of any Subsidiary of the Company or any Person holding Common
Shares for or pursuant to the terms of any such plan) of, or of the first
public announcement of the intention of any Person (other than the Company,
any Subsidiary of the Company, any employee benefit plan of the Company or of
any Subsidiary of the Company or any Person holding Common Shares for or
pursuant to the terms of any such plan) to commence, a tender or exchange
offer the consummation of which would result in any Person becoming the
Beneficial Owner of Common Shares aggregating 15% or more of the then
outstanding Common Shares (including any such date which is after the date of
this Agreement and prior to the issuance of the Rights; the earlier of such
dates being herein referred to as the "Distribution Date"), (x) the Rights
will be evidenced (subject to the provisions of Section 3(b) hereof) by the
certificates for Common Shares registered in the names of the holders thereof
(which certificates shall also be deemed to be Right Certificates) and not by
separate Right Certificates, and (y) the right to receive Right Certificates
will be transferable only in connection with the transfer of Common Shares. As
soon as practicable after the Distribution Date, the Company will notify the
Rights Agent thereof and the Company will prepare and execute, the Rights
Agent will countersign, and the Company will send or cause to be sent (and the
Rights Agent will, if requested, send) by first-class, insured, postage-
prepaid mail, to each record holder of Common Shares as of the Close of
Business on the Distribution Date, at the address of such holder shown on the
records of the Company, a Right Certificate, in substantially the form of
Exhibit B hereto (a "Right Certificate"), evidencing one Right for each Common
Share so held. As of the Distribution Date, the Rights will be evidenced
solely by such Right Certificates.
(b) On the Record Date, or as soon as practicable thereafter, the Company or
the Rights Agent will send a copy of a Summary of Rights to Purchase Preferred
Shares, in substantially the form of Exhibit C hereto (the "Summary of
Rights"), by first-class, postage-prepaid mail, to each record holder of
Common Shares as of the Close of Business on the Record Date, at the address
of such holder shown on the records of the Company. With respect to
certificates for Common Shares outstanding as of the Record Date, until the
Distribution Date, the Rights will be evidenced by such certificates
registered in the names of the holders thereof together with a copy of the
Summary of Rights attached thereto. Until the Distribution Date (or the
earlier of the Redemption Date or the Final Expiration Date), the surrender
for transfer of any certificate for Common Shares outstanding on the Record
Date, with or without a copy of the Summary of Rights attached thereto, shall
also constitute the transfer of the Rights associated with the Common Shares
represented thereby.
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(c) Certificates issued for Common Shares which become outstanding
(including, without limitation, reacquired Common Shares referred to in the
last sentence of this paragraph (c)) after the Record Date but prior to the
earliest of the Distribution Date, the Redemption Date or the Final Expiration
Date shall have impressed on, printed on, written on or otherwise affixed to
them the following legend:
This certificate also evidences and entitles the holder hereof to
certain rights as set forth in a Rights Agreement between TheraTx,
Incorporated and U.S. Stock Transfer Corporation dated as of July 28,
1995 (the "Rights Agreement"), the terms of which are hereby
incorporated herein by reference and a copy of which is on file at the
principal executive offices of TheraTx, Incorporated. Under certain
circumstances, as set forth in the Rights Agreement, such Rights will
be evidenced by separate certificates and will no longer be evidenced
by this certificate. TheraTx, Incorporated will mail to the holder of
this certificate a copy of the Rights Agreement without charge after
receipt of a written request therefor. Under certain circumstances, as
set forth in the Rights Agreement, Rights issued to any Person who
becomes an Acquiring Person (as defined in the Rights Agreement) may
become null and void.
With respect to such certificates containing the foregoing legend, until the
Distribution Date, the Rights associated with the Common Shares represented by
such certificates shall be evidenced by such certificates alone, and the
surrender for transfer of any such certificate shall also constitute the
transfer of the Rights associated with the Common Shares represented thereby.
In the event that the Company purchases or acquires any Common Shares after
the Record Date but prior to the Distribution Date, any Rights associated with
such Common Shares shall be deemed cancelled and retired so that the Company
shall not be entitled to exercise any Rights associated with the Common Shares
which are no longer outstanding.
Section 4. Form of Right Certificates. The Right Certificates (and the forms
of assignment, certification and election to purchase Preferred Shares to be
printed on the reverse thereof) shall be substantially the same as Exhibit B
hereto and may have such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
or as may be required to comply with any applicable law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange or transaction reporting system on which the Rights may from time to
time be listed, or to conform to usage. Subject to the provisions of Sections
11 and 22 hereof, the Right Certificates shall entitle the holders thereof to
purchase such number of one one-hundredths of a Preferred Share as shall be
set forth therein at the price per one one-hundredth of a Preferred Share set
forth therein (the "Purchase Price"), but the number of such one one-
hundredths of a Preferred Share and the Purchase Price shall be subject to
adjustment as provided herein.
Section 5. Countersignature and Registration.
(a) The Right Certificates shall be executed on behalf of the Company by its
Chairman of the Board, its President, any of its Vice Presidents, or its
Treasurer, either manually or by facsimile signature, shall have affixed
thereto the Company's seal or a facsimile thereof, and shall be attested by
the Secretary or an Assistant Secretary of the Company, either manually or by
facsimile signature. The Right Certificates shall be manually countersigned by
the Rights Agent and shall not be valid for any purpose unless countersigned.
In case any officer of the Company who shall have signed any of the Right
Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Right Certificates, nevertheless, may be countersigned by the Rights
Agent and issued and delivered by the Company with the same force and effect
as though the person who signed such Right Certificates had not ceased to be
such officer of the Company. Any Right Certificate may be signed on behalf of
the Company by any person who, at the actual date of the execution of such
Right Certificate, shall be a proper officer of the Company to sign such Right
Certificate, although at the date of the execution of this Rights Agreement
any such person was not such an officer.
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(b) Following the Distribution Date, the Rights Agent will keep or cause to
be kept, at its office designated for such purpose, books for registration and
transfer of the Right Certificates issued hereunder. Such books shall show the
names and addresses of the respective holders of the Right Certificates, the
number of Rights evidenced on its face by each of the Right Certificates and
the date of each of the Right Certificates.
Section 6. Transfer, Split-Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates.
(a) Subject to the provisions of Section 14 hereof, at any time after the
Close of Business on the Distribution Date, and at or prior to the Close of
Business on the earlier of the Redemption Date or the Final Expiration Date,
any Right Certificate or Right Certificates (other than Right Certificates
representing Rights that have become void pursuant to Section 11(a)(ii) hereof
or that have been exchanged pursuant to Section 24 hereof) may be transferred,
split up, combined or exchanged for another Right Certificate or Right
Certificates, entitling the registered holder to purchase a like number of one
one-hundredths of a Preferred Share (or other securities or property) as the
Right Certificate or Right Certificates surrendered then entitled such holder
to purchase. Any registered holder desiring to transfer, split up, combine or
exchange any Right Certificate or Right Certificates shall make such request
in writing delivered to the Rights Agent, and shall surrender the Right
Certificate or Right Certificates to be transferred, split up, combined or
exchanged at the principal office of the Rights Agent with the form of
certification and assignment on the reverse side thereof duly endorsed (or
enclosed with such Rights Certificate a written instrument of transfer in form
satisfactory to the Company and the Rights Agent), duly executed by the
registered holder thereof or his attorney duly authorized in writing, and with
such signature duly guaranteed. Thereupon the Rights Agent shall countersign
and deliver to the person entitled thereto a Right Certificate or Right
Certificates, as the case may be, as so requested. The Company may require
payment of a sum sufficient to cover any tax or governmental charge that may
be imposed in connection with any transfer, split up, combination or exchange
of Right Certificates.
(b) Upon receipt by the Company and the Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a Right
Certificate, and (in case of loss, theft or destruction) of indemnity or
security reasonably satisfactory to them, and, at the Company's request,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Company will make and deliver a new
Right Certificate of like tenor to the Rights Agent for delivery to the
registered holder in lieu of the Right Certificate so lost, stolen, destroyed
or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights.
(a) The registered holder of any Right Certificate may exercise the Rights
evidenced thereby (except as otherwise provided herein) in whole or in part at
any time after the Distribution Date upon surrender of the Right Certificate,
with the form of election to purchase and certification on the reverse side
thereof duly executed, to the Rights Agent at the office of the Rights Agent
designated for such purpose, together with payment of the Purchase Price for
each one one-hundredth of a Preferred Share as to which the Rights are
exercised, at or prior to the earliest of (i) the Close of Business on July
27, 2005 (the "Final Expiration Date"), (ii) the time at which the Rights are
redeemed as provided in Section 23 hereof (the "Redemption Date"), (iii) the
time at which such Rights are exchanged as provided in Section 24 hereof, or
(iv) the consummation of any merger or other acquisition involving the Company
pursuant to an agreement described in Section 1(c)(ii)(A)(2) hereof.
(b) The Purchase Price for each one one-hundredth of a Preferred Share
pursuant to the exercise of a Right shall initially be sixty dollars ($60),
and shall be subject to adjustment from time to time as provided in
Sections 11 and 13 hereof and shall be payable in lawful money of the United
States of America in accordance with paragraph (c) below.
(c) Except as otherwise provided herein, upon receipt of a Right Certificate
representing exercisable Rights, with the form of certification and election
to purchase duly executed, accompanied by payment of the Purchase Price for
the shares to be purchased and an amount equal to any applicable transfer tax
required to be
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paid by the holder of such Right Certificate in accordance with Section 9
hereof by certified check, cashier's check or money order payable to the order
of the Company, the Rights Agent shall thereupon promptly (i) (A) requisition
from any transfer agent of the Preferred Shares certificates for the number of
Preferred Shares to be purchased and the Company hereby irrevocably authorizes
its transfer agent to comply with all such requests, or (B) requisition from a
depositary agent properly appointed by the Company depositary receipts
representing such number of one one-hundredths of a Preferred Share as are to
be purchased (in which case certificates for the Preferred Shares represented
by such receipts shall be deposited by the transfer agent with the depositary
agent) and the Company hereby directs the depositary agent to comply with such
request, (ii) when appropriate, requisition from the Company the amount of
cash to be paid in lieu of issuance of fractional shares in accordance with
Section 14 hereof, (iii) after receipt of such certificates or depositary
receipts, cause the same to be delivered to or upon the order of the
registered holder of such Right Certificate, registered in such name or names
as may be designated by such holder and (iv) when appropriate, after receipt,
deliver such cash to or upon the order of the registered holder of such Right
Certificate. In the case of a purchase of securities, other than Preferred
Shares, pursuant to Section 13 hereof, the Rights Agent shall promptly take
the appropriate actions corresponding in such case to that referred to in the
foregoing clauses (i) through (iv) of this Section 7(c). In the event that the
Company is obligated to issue other securities of the Company, and/or
distribute other property or consideration as provided for herein, the Company
shall make all arrangements necessary so that such other securities, and/or
property or other consideration are available for distribution by the Rights
Agent, if and when appropriate.
(d) In case the registered holder of any Right Certificate shall exercise
less than all the Rights evidenced thereby, a new Right Certificate evidencing
Rights equivalent to the Rights remaining unexercised shall be issued by the
Rights Agent to the registered holder of such Right Certificate or to his duly
authorized assigns, subject to the provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the contrary, neither the
Rights Agent nor the Company shall be obligated to undertake any action with
respect to a registered holder upon the occurrence of any purported exercise
as set forth in this Section 7 unless such registered holder shall have (i)
completed and signed the form of certification and election to purchase set
forth on the reverse side of the Right Certificate surrendered for such
exercise, and (ii) provided such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as the Company shall reasonably request.
Section 8. Cancellation and Destruction of Right Certificates. All Right
Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in cancelled
form, or, if surrendered to the Rights Agent, shall be cancelled by it, and no
Right Certificates shall be issued in lieu thereof except as expressly
permitted by any of the provisions of this Rights Agreement. The Company shall
deliver to the Rights Agent for cancellation and retirement, and the Rights
Agent shall so cancel and retire, any other Right Certificate purchased or
acquired by the Company otherwise than upon the exercise thereof. The Rights
Agent shall deliver all cancelled Right Certificates to the Company, or shall,
at the written request of the Company, destroy such cancelled Right
Certificates, and in such case shall deliver a certificate of destruction
thereof to the Company.
Section 9. Availability of Preferred Shares.
(a) The company covenants and agrees that it will use its best efforts to
cause to be reserved and kept available out of and to the extent of its
authorized and unissued shares of Preferred Stock not reserved for another
purpose, or any Preferred Shares held in its treasury (and, following the
occurrence of an event described in Section 11(a)(ii) or Section 13(a), out of
its authorized and unissued shares of Common Stock and/or other securities),
the number of Preferred Shares (and, following the occurrence of any such
event, Common Stock and/or other securities) that will be sufficient to permit
the exercise in full of all outstanding Rights.
(b) If the Preferred Shares (or, following the occurrence of an event
described in Section 11(a)(ii) or Section 13(a), the Common Shares and/or
other securities) are at any time listed on a national securities exchange or
included for quotation on any transaction reporting system, then so long as
the Preferred Shares (and,
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following the occurrence of any such event described in Section 11(a)(ii) or
Section 13(a), the Common Shares and/or other securities) issuable and
deliverable upon exercise of the Rights may be listed on such exchange or
included for quotation on any such transaction reporting system, the Company
shall use its best efforts to cause, from and after such time as the Rights
become exercisable (but only to the extent that it is reasonably likely that
the Rights will be exercised), all shares reserved for such issuance to be
listed on such exchange or included for quotation on any such transaction
reporting system upon official notice of issuance upon such exercise.
(c) The Company shall use its best efforts to (i) file, as soon as
practicable following the earliest date after the first occurrence of an event
described in Section 11(a)(ii) in which the consideration to be delivered by
the Company upon exercise of the Rights has been determined in accordance with
Section 11(a)(iv) hereof, or as soon as is required by law following the
Distribution Date, as the case may be, a registration statement under the
Securities Act with respect to the securities purchasable upon exercise of the
Rights on an appropriate form, (ii) cause such registration statement to
become effective as soon as practicable after such filing and (iii) cause such
registration statement to remain effective (with a prospectus at all times
meeting the requirements of the Securities Act) until the earlier of (A) the
date as of which the Rights are no longer exercisable for such securities or
(B) the date of expiration of the Rights. The Company may temporarily suspend,
for a period not to exceed ninety (90) days after the date set forth in clause
(i) of the first sentence of this Section 9(c), the exercisability of the
Rights in order to prepare and file such registration statement and permit it
to become effective. Upon any such suspension, the Company shall issue a
public announcement stating, and notify the Rights Agent, that the
exercisability of the Rights has been temporarily suspended, as well as a
public announcement and notification to the Rights Agent at such time as the
suspension is no longer in effect. The Company will also take such action as
may be appropriate under, or to ensure compliance with, the securities or
"blue sky" laws of the various states in connection with the exercisability of
the Rights. Notwithstanding any provision of this Agreement to the contrary,
the Rights shall not be exercisable in any jurisdiction, unless the requisite
qualification in such jurisdiction shall have been obtained, or an exemption
therefrom shall be available and until a registration statement has been
declared effective.
(d) The Company covenants and agrees that it will take all such action as
may be necessary to ensure that all Preferred Shares delivered upon exercise
of Rights shall, at the time of delivery of the certificates for such
Preferred Shares (subject to payment of the Purchase Price), be duly and
validly authorized and issued and fully paid and nonassessable shares.
(e) The Company further covenants and agrees that it will pay when due and
payable any and all federal and state transfer taxes and charges which may be
payable in respect of the issuance or delivery of the Right Certificates or of
any Preferred Shares upon the exercise of Rights. The Company shall not,
however, be required to pay any transfer tax which may be payable in respect
of any transfer or delivery of Right Certificates to a person other than, or
the issuance or delivery of certificates or depositary receipts for the
Preferred Shares in a name other than that of, the registered holder of the
Right Certificate evidencing Rights surrendered for exercise or to issue or to
deliver any certificates or depositary receipts for Preferred Shares upon the
exercise of any Rights until any such tax shall have been paid (any such tax
being payable by the holder of such Right Certificate at the time of
surrender) or until it has been established to the Company's reasonable
satisfaction that no such tax is due.
Section 10. Preferred Shares Record Date. Each person in whose name any
certificate for Preferred Shares is issued upon the exercise of Rights shall
for all purposes be deemed to have become the holder of record of the
Preferred Shares represented thereby on, and such certificate shall be dated,
the date upon which the Right Certificate evidencing such Rights was duly
surrendered and payment of the Purchase Price (and any applicable transfer
taxes) was made; provided, however, that if the date of such surrender and
payment is a date upon which the Preferred Shares transfer books of the
Company are closed, such person shall be deemed to have become the record
holder of such shares on, and such certificate shall be dated, the next
succeeding Business Day on which the Preferred Shares transfer books of the
Company are open. Prior to the exercise of the Rights evidenced thereby, the
holder of a Right Certificate shall not be entitled to any rights of a holder
of Preferred Shares for which the Rights shall be exercisable, including,
without limitation, the right to vote, to receive dividends or
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other distributions or to exercise any preemptive rights, and shall not be
entitled to receive any notice of any proceedings of the Company, except as
provided herein.
Section 11. Adjustment of Purchase Price, Number of Shares or Number of
Rights. The Purchase Price, the number of Preferred Shares covered by each
Right and the number of Rights outstanding are subject to adjustment from time
to time as provided in this Section 11.
(a)(i) In the event the Company shall at any time after the date of this
Agreement (A) declare a dividend on the Preferred Shares payable in
Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C)
combine the outstanding Preferred Shares into a smaller number of Preferred
Shares or (D) issue any shares of its capital stock in a reclassification
of the Preferred Shares (including any such reclassification in connection
with a consolidation or merger in which the Company is the continuing or
surviving corporation), except as otherwise provided in this Section 11(a),
the Purchase Price in effect at the time of the record date for such
dividend or of the effective date of such subdivision, combination or
reclassification, and the number and kind of shares of capital stock
issuable on such date, shall be proportionately adjusted so that the holder
of any Right exercised after such time shall be entitled to receive the
aggregate number and kind of shares of capital stock which, if such Right
had been exercised immediately prior to such date and at a time when the
Preferred Shares transfer books of the Company were open, such holder would
have owned upon such exercise and been entitled to receive by virtue of
such dividend, subdivision, combination or reclassification; provided,
however, that in no event shall the consideration to be paid upon the
exercise of one Right be less than the aggregate par value of the shares of
capital stock of the Company issuable upon exercise of one Right. If an
event occurs which would require an adjustment under both Section 11(a)(i)
and Section 11(a)(ii), the adjustment provided for in this Section 11(a)(i)
shall be in addition to, and shall be made prior to any adjustment required
pursuant to Section 11(a)(ii).
(ii) Subject to Section 24 of this Agreement, in the event that any
Person becomes an Acquiring Person, each holder of a Right shall thereafter
have a right to receive, upon exercise thereof at a price equal to the then
current Purchase Price multiplied by the number of one one-hundredths of a
Preferred Share for which a Right is then exercisable, in accordance with
the terms of this Agreement and in lieu of Preferred Shares, such number of
Common Shares of the Company as shall equal the result obtained by (x)
multiplying the then current Purchase Price by the number of one one-
hundredths of a Preferred Share for which a Right is then exercisable and
dividing that product by (y) 50% of the then Current Per Share Market Price
of the Company's Common Shares (determined pursuant to Section 11(d)
hereof) on the date of the occurrence of such event. In the event that any
Person shall become an Acquiring Person and the Rights shall then be
outstanding, the Company shall not take any action which would eliminate or
diminish the benefits intended to be afforded by the Rights.
Notwithstanding anything in this Agreement to the contrary, from and
after the first occurrence of an event in which any Person shall become an
Acquiring Person, any Rights beneficially owned by (A) an Acquiring Person
or an Associate or Affiliate of an Acquiring Person, (B) a transferee of an
Acquiring Person (or of any such Associate or Affiliate) who becomes a
transferee after the Acquiring Person becomes such, or (C) a transferee of
an Acquiring Person (or of any such Associate or Affiliate) who becomes a
transferee prior to or concurrently with the Acquiring Person becoming such
and receives such Rights pursuant to either (1) a transfer (whether or not
for consideration) from the Acquiring Person to holders of equity interests
in such Acquiring Person or to any Person with whom the Acquiring Person
has any continuing agreement, arrangement or understanding regarding the
transferred Rights or (2) a transfer which the Board of Directors, upon
approval by a majority of the Continuing Directors, has determined is part
of a plan, arrangement or understanding which has as a primary purpose or
effect the avoidance of this Section 11(a)(ii), shall become null and void
without any further action and no holder of such Rights shall have any
rights whatsoever with respect to such Rights, whether under any provision
of this Agreement or otherwise. No Right Certificate shall be issued
pursuant to Section 3 that represents Rights beneficially owned by an
Acquiring Person whose Rights would be void pursuant to the preceding
sentence or any Associate or Affiliate thereof; no Right Certificate shall
be issued at any time upon the transfer of any Rights to an Acquiring
Person whose Rights would be void pursuant to the preceding sentence or any
Associate or
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Affiliate thereof or to any nominee or agent of such Acquiring Person,
Associate or Affiliate; and any Right Certificate delivered to the Rights
Agent for transfer to an Acquiring Person whose Rights would be void
pursuant to the preceding sentence shall be cancelled. The Company shall
use all reasonable efforts to ensure that the provisions of this Section
11(a)(ii) are complied with, but shall have no liability to any holder of
Right Certificates or other Person as a result of its failure to make any
determinations with respect to an Acquiring person or its Affiliates,
Associates or transferees hereunder.
(iii) The right to buy Common Shares of the Company pursuant to
subparagraph (ii) of this paragraph (a) shall not arise if the event
causing such Person to become an Acquiring Person (A) is a consolidation,
merger, sale, transfer or similar transaction subject to Section 13 hereof,
or (B) is an acquisition of shares of Common Shares pursuant to a tender
offer or an exchange offer for all outstanding Common Shares at a price and
on terms determined by the Board of Directors and at least a majority of
the Continuing Directors, and after receiving advice from one or more
investment banking firms, to be (1) at a price which is fair to
stockholders (taking into account all factors which such members of the
Board of Directors deem relevant including, without limitation, prices
which could reasonably be achieved if the Company or its assets were sold
in an orderly basis designed to realize maximum value) and (2) otherwise in
the best interests of the Company and its stockholders.
(iv) In lieu of issuing Common Shares in accordance with Section
11(a)(ii) hereof, the Company may, if the Board of Directors of the
Company, upon approval by a majority of the Continuing Directors,
determines that such action is necessary or appropriate and not contrary to
the interest of holders of Rights (and/or in the event that the number of
Common Shares which are authorized by the Company's Certificate of
Incorporation but not outstanding or reserved for issuance for purposes
other than upon exercise of the Rights are not sufficient to permit the
exercise in full of the Rights, or if any necessary regulatory approval for
such issuance has not been obtained by the Company), the Company shall: (A)
determine the excess of (1) the value of the Common Shares issuable upon
the exercise of a Right (determined as provided in the last sentence of
this subclause (iv), hereinafter referred to as the "Current Value") over
(2) the Purchase Price (such excess being referred to as the "Spread") and
(B) with respect to each Right, make adequate provision to substitute for
such Common Shares, upon exercise of the Rights, (1) cash, (2) a reduction
in the Purchase Price, (3) other equity securities of the Company
(including, without limitation, shares or units of shares of any series of
preferred stock which the Board of Directors of the Company, upon approval
by a majority of the Continuing Directors, has deemed to have the same
value as Common Shares (such shares or units of shares of preferred stock
are herein called "Common Stock Equivalents")), except to the extent that
the Company has not obtained any necessary regulatory approval for such
issuance, (4) debt securities of the Company, except to the extent that the
Company has not obtained any necessary regulatory approval for such
issuance, (5) other assets or (6) any combination of the foregoing, having
an aggregate value equal to the Current Value, where such aggregate value
has been determined by the Board of Directors of the Company, upon approval
by a majority of the Continuing Directors, based upon the advice of a
nationally recognized investment banking firm selected by the Board of
Directors of the Company, upon approval by a majority of the Continuing
Directors; provided, however, if the Company shall not have made adequate
provision to deliver value pursuant to clause (B) above within thirty (30)
days following the occurrence of an event described in Section 11(a)(ii),
then the Company shall be obligated to deliver, upon the surrender for
exercise of a Right and without requiring payment of the Purchase Price,
Common Shares (to the extent available), except to the extent that the
Company has not obtained any necessary regulatory approval for such
issuance, and then, if necessary, cash, which shares and/or cash have an
aggregate value equal to the Spread. If the Board of Directors, upon
approval by a majority of the Continuing Directors, shall determine in good
faith that it is likely that sufficient additional Common Shares could be
authorized for issuance upon exercise in full of the Rights or that any
necessary regulatory approval for such issuance will be obtained, the
thirty (30) day period set forth above may be extended to the extent
necessary, but not more than ninety (90) days after the occurrence of an
event described in Section 11(a)(ii), in order that the Company may seek
stockholder approval for the authorization of such additional shares or
take action to obtain such regulatory approval (such period, as it may be
extended, the "Substitution Period"). To the extent that the
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Company determines that some action need be taken pursuant to the first
and/or second sentences of this Section 11(a)(iv), the Company (x) shall
provide that such action shall apply uniformly to all outstanding Rights
held by holders entitled to receive Common Shares or other securities or
property upon exercise of such Rights and (y) may suspend the
exercisability of the Rights until the expiration of the Substitution
Period in order to seek any authorization of additional shares, to take any
action to obtain any required regulatory approval and/or to decide the
appropriate form of distribution to be made pursuant to such first sentence
and to determine the value thereof. In the event of any such suspension,
the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a
public announcement at such time as the suspension is no longer in effect
and shall promptly notify the Rights Agent of such suspension. For purposes
of this Section 11(a)(iv), the value of the Common Shares shall be the
Current Per Share Market Price (as determined pursuant to Section 11(d)
hereof) of the Common Shares at the Close of Business on the date of the
occurrence of one of the events described in Section 11(a)(ii) and the
value of any "Common Stock Equivalent" shall be deemed to have the same
value as the Common Shares on such date.
(b) In the event that the Company shall fix a record date for the issuance
of rights, options or warrants to all holders of Preferred Shares entitling
them (for a period expiring within 45 calendar days after such record date) to
subscribe for or purchase Preferred Shares (or shares having the same rights,
privileges and preferences as the Preferred Shares ("Equivalent Preferred
Shares")) or securities convertible into Preferred Shares or Equivalent
Preferred Shares at a price per Preferred Share or equivalent preferred share
(or having a conversion price per share, if a security convertible into
Preferred Shares or Equivalent Preferred Shares) less than the then Current
Per Share Market Price of the Preferred Shares (as defined in Section 11(d))
on such record date, the Purchase Price to be in effect after such record date
shall be determined by multiplying the Purchase Price in effect immediately
prior to such record date by a fraction, the numerator of which shall be the
number of Preferred Shares outstanding on such record date plus the number of
Preferred Shares which the aggregate offering price of the total number of
Preferred Shares and/or Equivalent Preferred Shares so to be offered (and/or
the aggregate initial conversion price of the convertible securities so to be
offered) would purchase at such current market price and the denominator of
which shall be the number of Preferred Shares outstanding on such record date
plus the number of additional Preferred Shares and/or Equivalent Preferred
Shares to be offered for subscription or purchase (or into which the
convertible securities so to be offered are initially convertible). In case
such subscription price may be paid in a consideration part or all of which
shall be in a form other than cash, the value of such consideration shall be
as determined in good faith by the Board of Directors of the Company, upon
approval by a majority of the Continuing Directors, whose determination shall
be described in a statement filed with the Rights Agent and shall be binding
on the Rights Agent and the holders of the Rights. Preferred Shares owned by
or held for the account of the Company shall not be deemed outstanding for the
purpose of any such computation. Such adjustment shall be made successively
whenever such a record date is fixed; and in the event that such rights,
options or warrants are not so issued, the Purchase Price shall be adjusted to
be the Purchase Price which would then be in effect if such record date had
not been fixed.
(c) In case the Company shall fix a record date for the making of a
distribution to all holders of the Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of
indebtedness or assets (other than a regular quarterly cash dividend or a
dividend payable in Preferred Shares) or subscription rights or warrants
(excluding those referred to in Section 11(b) hereof), the Purchase Price to
be in effect after such record date shall be determined by multiplying the
Purchase Price in effect immediately prior to such record date by a fraction,
the numerator of which shall be the then Current Per Share Market Price of the
Preferred Shares on such record date, less the fair market value (as
determined in good faith by the Board of Directors of the Company, upon
approval by a majority of the Continuing Directors, whose determination shall
be described in a statement filed with the Rights Agent) of the portion of the
assets or evidences of indebtedness so to be distributed or of such
subscription rights or warrants applicable to one Preferred Share and the
denominator of which shall be such Current Per Share Market Price of the
Preferred Shares; provided, however, that in no event shall the consideration
to be paid upon the exercise of one Right be less than the aggregate par value
of the
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shares of capital stock of the Company to be issued upon exercise of one
Right. Such adjustments shall be made successively whenever such a record date
is fixed; and in the event that such distribution is not so made, the Purchase
Price shall again be adjusted to be the Purchase Price which would then be in
effect if such record date had not been fixed.
(d)(i) For the purpose of any computation hereunder, the "Current Per Share
Market Price" of any security on any date shall be deemed to be the average
of the daily closing prices per share of such security for the thirty (30)
consecutive Trading Days (as such term is hereinafter defined) immediately
prior to such date; provided, however, that in the event that the Current
Per Share Market Price of the security is determined during a period
following the announcement by the Issuer of such security of (A) a dividend
or distribution on such security payable in shares of such security or
securities convertible into such shares, or (B) any subdivision,
combination or reclassification of such security and prior to the
expiration of thirty (30) Trading Days after the ex-dividend date for such
dividend or distribution, or the record date for such subdivision,
combination or reclassification, then, and in each such case, the Current
Per Share Market Price shall be appropriately adjusted to reflect the
current market price per share equivalent of such security. The closing
price for each day shall be the last sale price, regular way, or, in case
no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed
or admitted to trading on the National Association of Securities Dealers,
Inc. Automated Quotation System/National Market System ("NASDAQ/ NMS"), if
the security is not listed or admitted to trading on the NASDAQ/NMS, as
reported in the principal consolidated transaction reporting system with
respect to securities listed on the principal national securities exchange
on which the security is listed or admitted to trading or, if the security
is not listed or admitted to trading on any national securities exchange,
the last quoted price or, if not so quoted, the average of the high bid and
low asked prices in the over-the-counter market, as reported by the
NASDAQ/NMS or such other system then in use, or, if on any such date the
security is not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker making a
market in the security selected by the Board of Directors of the Company,
upon approval by a majority of the Continuing Directors. If on any such
date no market maker is making a market in the security, the "Current Per
Share Market Price" of such security on such date as determined in good
faith by the Board of Directors of the Company as provided for above shall
be used. The term "Trading Day" shall mean a day on which the principal
national securities exchange on which the security is listed or admitted to
trading is open for the transaction of business or, if the security is not
listed or admitted to trading on any national securities exchange, a
Business Day.
(ii) For the purpose of any computation hereunder, the "Current Per Share
Market Price" of the Preferred Shares shall be determined in accordance
with the method set forth in Section 11(d)(i). If the Preferred Shares are
not publicly traded, the "Current Per Share Market Price" of the Preferred
Shares shall be conclusively deemed to be the Current Per Share Market
Price of the Common Shares as determined pursuant to Section 11(d)(i)
(appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the date hereof), multiplied by one
hundred. If neither the Common Shares nor the Preferred Shares are publicly
held or so listed or traded, "Current Per Share Market Price" shall mean
the fair value per share as determined in good faith by the Board of
Directors of the Company, upon approval by a majority of the Continuing
Directors, whose determination shall be described in a statement filed with
the Rights Agent.
(e) No adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the
Purchase Price; provided, however, that any adjustments which by reason of
this Section 11(e) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
Section 11 shall be made to the nearest cent or to the nearest one one-
millionth of a Preferred Share or one ten-thousandth of any other share or
security as the case may be. Notwithstanding the first sentence of this
Section 11(e), any adjustment required by this Section 11 shall be made no
later than the earlier of (i) three years from the date of the transaction
which requires such adjustment or (ii) the date of the expiration of the right
to exercise any Rights.
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(f) If as a result of an adjustment made pursuant to Section 11(a) hereof,
the holder of any Right thereafter exercised shall become entitled to receive
any shares of capital stock of the Company other than Preferred Shares,
thereafter the number of such other shares so receivable upon exercise of any
Right shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to
the Preferred Shares contained in Section 11(a) through (c), inclusive, and
the provisions of Sections 7, 9, 10, 13 and 14 with respect to the Preferred
Shares shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any adjustment
made to the Purchase Price hereunder shall evidence the right to purchase, at
the adjusted Purchase Price, the number of one one-hundredths of a Preferred
Share purchasable from time to time hereunder upon exercise of the Rights, all
subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided in
Section 11(i), upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11(b) and (c), each Right outstanding
immediately prior to the making of such adjustment shall thereafter evidence
the right to purchase, at the adjusted Purchase Price, that number of one one-
hundredths of a Preferred Share (calculated to the nearest one one-millionth
of a Preferred Share) obtained by (i) multiplying (x) the number of one one-
hundredths of a share covered by a Right immediately prior to this adjustment
by (y) the Purchase Price in effect immediately prior to such adjustment of
the Purchase Price and (ii) dividing the product so obtained by the Purchase
Price in effect immediately after such adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any adjustment of the
Purchase Price to adjust the number of Rights, in substitution for any
adjustment in the number of one one-hundredths of a Preferred Share
purchasable upon the exercise of a Right. Each of the Rights outstanding after
such adjustment of the number of Rights shall be exercisable for the number of
one one-hundredths of a Preferred Share for which a Right was exercisable
immediately prior to such adjustment. Each Right held of record prior to such
adjustment of the number of Rights shall become that number of Rights
(calculated to the nearest one ten-thousandth) obtained by dividing the
Purchase Price in effect immediately prior to adjustment of the Purchase Price
by the Purchase Price in effect immediately after adjustment of the Purchase
Price. The Company shall make a public announcement of its election to adjust
the number of Rights, indicating the record date for the adjustment, and, if
known at the time, the amount of the adjustment to be made. This record date
may be the date on which the Purchase Price is adjusted or any day thereafter,
but, if the Right Certificates have been issued, shall be at least 10 days
later than the date of the public announcement. If Right Certificates have
been issued, upon each adjustment of the number of Rights pursuant to this
Section 11(i), the Company shall, as promptly as practicable, cause to be
distributed to holders of record of Right Certificates on such record date
Right Certificates evidencing, subject to Section 14 hereof, the additional
Rights to which such holders shall be entitled as a result of such adjustment,
or, at the option of the Company, shall cause to be distributed to such
holders of record in substitution and replacement for the Right Certificates
held by such holders prior to the date of adjustment, and upon surrender
thereof, if required by the Company, new Right Certificates evidencing all the
Rights to which such holders shall be entitled after such adjustment. Right
Certificates so to be distributed shall be issued, executed and countersigned
in the manner provided for herein and shall be registered in the names of the
holders of record of Right Certificates on the record date specified in the
public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or the
number of one one-hundredths of a Preferred Share issuable upon the exercise
of the Rights, the Right Certificates theretofore and thereafter issued may
continue to express the Purchase Price and the number of one one-hundredths of
a Preferred Share which were expressed in the initial Right Certificates
issued hereunder.
(k) Before taking any action that would cause an adjustment reducing the
Purchase Price below one one-hundredth of the then par value, if any, of the
Preferred Shares issuable upon exercise of the Rights, the Company shall take
any corporate action which may, in the opinion of its counsel, be necessary in
order that the Company may validly and legally issue fully paid and
nonassessable Preferred Shares at such adjusted Purchase Price.
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(l) In any case in which this Section 11 shall require that an adjustment in
the Purchase Price be made effective as of a record date for a specified
event, the Company may elect to defer until the occurrence of such event the
issuing to the holder of any Right exercised after such record date of the
Preferred Shares and other capital stock or securities of the Company, if any,
issuable upon such exercise over and above the Preferred Shares and other
capital stock or securities of the Company, if any, issuable upon such
exercise on the basis of the Purchase Price in effect prior to such
adjustment; provided, however that the Company shall deliver to such holder a
due bill or other appropriate instrument evidencing such holder's right to
receive such additional shares upon the occurrence of the event requiring such
adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the Company
shall be entitled to make such reductions in the Purchase Price, in addition
to those adjustments expressly required by this Section 11, as and to the
extent that it in its sole discretion shall determine to be advisable in order
that any consolidation or subdivision of the Preferred Shares, issuance wholly
for cash of any Preferred Shares at less than the current market price,
issuance wholly for cash of Preferred Shares or securities which by their
terms are convertible into or exchangeable for Preferred Shares, dividends on
Preferred Shares payable in Preferred Shares or issuance of rights, options or
warrants referred to hereinabove in Section 11(b), hereafter made by the
Company to holders of its Preferred Shares shall not be taxable to such
stockholders.
(n) In the event that at any time after the date of this Agreement and prior
to the Distribution Date, the Company shall (i) declare or pay any dividend on
the Common Shares payable in Common Shares or (ii) effect a subdivision,
combination or consolidation of the Common Shares (by reclassification or
otherwise than by payment of dividends in Common Shares) into a greater or
lesser number of Common Shares, then in any such case (A) the number of one
one-hundredths of a Preferred Share purchasable after such event upon proper
exercise of each Right shall be determined by multiplying the number of one
one-hundredths of a Preferred Share so purchasable immediately prior to such
event by a fraction, the numerator of which is the number of Common Shares
outstanding immediately before such event and the denominator of which is the
number of Common Shares outstanding immediately after such event, and (B) each
Common Share outstanding immediately after such event shall have issued with
respect to it that number of Rights which each Common Share outstanding
immediately prior to such event had issued with respect to it. The adjustments
provided for in this Section 11(n) shall be made successively whenever such a
dividend is declared or paid or such a subdivision, combination or
consolidation is effected.
Section 12. Certificate of Adjusted Purchase Price or Number of
Shares. Whenever an adjustment is made as provided in Sections 11 and 13
hereof, the Company shall promptly (a) prepare a certificate setting forth
such adjustment, and a brief statement of the facts accounting for such
adjustment, (b) file with the Rights Agent and with each transfer agent for
the Common Shares or the Preferred Shares a copy of such certificate and (c)
mail a brief summary thereof to each holder of a Right Certificate in
accordance with Section 25 hereof. Notwithstanding the foregoing sentence, the
failure by the Company to make such certification or give such notice shall
not affect the validity of or the force or effect of the requirement for such
adjustment. The Rights Agent shall be fully protected in relying on any such
certificate and on any adjustment contained therein and shall not be deemed to
have knowledge of such adjustment unless and until it shall have received such
certificate.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning
Power.
(a) Except as provided in Section 13(b) hereof, in the event, directly or
indirectly, (1) the Company shall consolidate with, or merge with and into,
any other Person, (2) any Person shall consolidate with the Company, or merge
with and into the Company and the Company shall be the continuing or surviving
corporation of such consolidation or merger and, in connection with such
consolidation or merger, all or part of the Common Shares shall be changed
into or exchanged for stock or other securities of any other Person (or the
Company) or cash or any other property, or (3) the Company shall sell or
otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise
transfer), in one or more transactions, directly or indirectly, assets or
earning power aggregating 50% or more of the assets or earning power of the
Company and its Subsidiaries (taken as a whole) to any other Person other than
the Company or one or more of its wholly-owned Subsidiaries, then, and in each
such case,
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proper provision shall be made so that (i) each holder of a Right (except as
otherwise provided herein) shall thereafter have the right to receive, upon
the exercise thereof at a price equal to the then current Purchase Price
multiplied by the number of one one-hundredths of a Preferred Share for which
a Right is then exercisable, in accordance with the terms of this Agreement
and in lieu of Preferred Shares, such number of capital stock of such other
Person (including the Company as successor thereto or as the surviving
corporation) as shall equal the result obtained by (A) multiplying the then
current Purchase Price by the number of one one-hundredths of a Preferred
Share for which a Right is then exercisable and dividing that product by (B)
50% of the then Current Per Share Market Price of the Common Shares of such
other Person (determined pursuant to Section 11(d) hereof) on the date of
consummation of such consolidation, merger, sale or transfer; (ii) the Issuer
of such Common Shares shall thereafter be liable for, and shall assume, by
virtue of such consolidation, merger, sale or transfer, all the obligations
and duties of the Company pursuant to this Agreement; (iii) the term "Company"
shall thereafter be deemed to refer to such Issuer; and (iv) such Issuer shall
take such steps (including, but not limited to, the reservation of a
sufficient number of its Common Shares in accordance with Section 9 hereof) in
connection with such consummation as may be necessary to assure that the
provisions hereof shall thereafter be applicable, as nearly as reasonably may
be, in relation to the Common Shares thereafter deliverable upon the exercise
of the Rights. The Company shall not consummate any such consolidation,
merger, sale or transfer unless prior thereto the Company and such Issuer
shall have executed and delivered to the Rights Agent a supplemental agreement
so providing. The Company shall not enter into any transaction of the kind
referred to in this Section 13 if at the time of such transaction there are
any rights, warrants, instruments or securities outstanding or any agreements
or arrangements which, as a result of the consummation of such transaction,
would eliminate or substantially diminish the benefits intended to be afforded
by the Rights. The provisions of this Section 13 shall similarly apply to
successive mergers or consolidations or sales or other transfers.
The supplemental agreement referred to above in this Section 13(a) to be
entered into by the Company and the Rights Agent shall also provide that, as
soon as practicable after the date of any of the events described in Section
13(a), such Issuer shall:
(i) prepare and file a registration statement under the Securities Act
with respect to the Rights and the securities purchasable upon exercise of
the Rights on an appropriate form, use its best efforts to cause such
registration statement to become effective as soon as practicable after
such filing and use its best efforts to cause such registration statement
to remain effective (with a prospectus at all times meeting the
requirements of the Securities Act) until the Final Expiration Date, and
similarly comply with applicable state securities laws;
(ii) use its best efforts to list (or continue the listing of) the Rights
and the securities purchasable upon exercise of the Rights on a national
securities exchange or to meet the eligibility requirements for quotation
on the NASDAQ/NMS; and
(iii) deliver to holders of the Rights historical financial statements
for such Issuer which comply in all respects with the requirements for
registration on Form 10 (or any successor form) under the Exchange Act.
(b) In the event of any merger or other acquisition transaction involving
the Company pursuant to an agreement described in Section 1(c)(ii)(A)(2), the
provisions of Section 13(a) hereof shall not be applicable to such transaction
and this Rights Agreement and the rights of holders of Rights hereunder shall
be terminated in accordance with Section 7(a) hereof.
(c) The term "Issuer," for purposes of this Section 13, shall refer to the
Person (or Affiliate or Associate) referred to in Section 13(a); provided,
however, that (i) if such Person (or Affiliate or Associate) is a direct or
indirect Subsidiary of another Person, the term "Issuer" shall refer to such
other Person, and (ii) in case such Person is a Subsidiary, directly or
indirectly, of more than one Person, the term "Issuer" shall refer to
whichever of such Persons is the Issuer of such Common Shares having the
greatest aggregate value.
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(d) If, for any reason, the Rights cannot be exercised for Common Shares of
such Issuer as provided in Section 13(a), then each holder of Rights shall
have the right to exchange its Rights (without payment of the Purchase Price)
for cash from such Issuer in an amount equal to the product of (1) one-half (
1/2) of the number of Common Shares of the Issuer that it would otherwise be
entitled to purchase pursuant to Section 13(a) hereof multiplied by (2) the
Current Per Share Market Price (as determined pursuant to Section 11(d)
hereof) of such Common Shares of such Issuer. If, for any reason, the
foregoing provision cannot be applied to determine the cash amount into which
the Rights are exchangeable, then the Board of Directors of the Company, upon
approval by a majority of the Continuing Directors, based upon the advice of
one or more nationally recognized investment banking firms, shall determine
such amount reasonably and with good faith to the holders of Rights. Any such
determination shall be final and binding on the Rights Agent and the holders
of Rights.
Section 14. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue fractions of Rights or to
distribute Right Certificates which evidence fractional Rights. In lieu of
such fractional Rights, there shall be paid to the registered holders of the
Right Certificates with regard to which such fractional Rights would otherwise
be issuable, an amount in cash equal to the same fraction of the current
market value of a whole Right. For the purposes of this Section 14(a), the
current market value of a whole Right shall be the closing price of the Rights
for the Trading Day immediately prior to the date on which such fractional
Rights would have been otherwise issuable. The closing price for any day shall
be the last sale price, regular way, or, in case no such sale takes place on
such day, the average of the closing bid and asked prices, regular way, in
either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the
NASDAQ/NMS or, if the Rights are not listed or admitted to trading on the
NASDAQ/NMS, as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national securities
exchange on which the Rights are listed or admitted to trading or, if the
Rights are not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by the
NASDAQ/NMS or such other system then in use or, if on any such date the Rights
are not quoted by any such organization, the average of the closing bid and
asked prices as furnished by a professional market maker making a market in
the Rights selected by the Board of Directors of the Company, upon approval by
a majority of the Continuing Directors. If on any such date no such market
maker is making a market in the Rights, the fair value of the Rights on such
date as determined in good faith by the Board of Directors of the Company,
upon approval by a majority of the Continuing Directors, shall be used.
(b) The Company shall not be required to issue fractions of Preferred Shares
(other than fractions which are integral multiples of one one-hundredth of a
Preferred Share) upon exercise of the Rights or to distribute certificates
which evidence fractional Preferred Shares (other than fractions which are
integral multiples of one one-hundredth of a Preferred Share). Fractions of
Preferred Shares in integral multiples of one one-hundredth of a Preferred
Share may, at the election of the Company, be evidenced by depositary
receipts, pursuant to an appropriate agreement between the Company and a
depositary selected by it; provided, that such agreement shall provide that
the holders of such depositary receipts shall have all the rights, privileges
and preferences to which they are entitled as beneficial owners of the
Preferred Shares represented by such depositary receipts. In lieu of
fractional Preferred Shares that are not integral multiples of one one-
hundredth of a Preferred Share, the Company shall pay to the registered
holders of Right Certificates at the time such Rights are exercised as herein
provided an amount in cash equal to the same fraction of the current market
value of one Preferred Share. For the purposes of this Section 14(b), the
current market value of a Preferred Share shall be the closing price of a
Preferred Share (as determined pursuant to the second sentence of Section
11(d)(i) hereof) for the Trading Day immediately prior to the date of such
exercise.
(c) The holder of a Right by the acceptance of the Right expressly waives
his right to receive any fractional Rights or any fractional shares upon
exercise of a Right (except as provided above).
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Section 15. Rights of Action. All rights of action in respect of this
Agreement, excepting the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the
Right Certificates (and, prior to the Distribution Date, the registered
holders of the Common Shares); and any registered holder of any Right
Certificate (or, prior to the Distribution Date, of the Common Shares),
without the consent of the Rights Agent or of the holder of any other Right
Certificate (or, prior to the Distribution Date, of the Common Shares), may,
in such holder's own behalf and for such holder's own benefit, enforce, and
may institute and maintain any suit, action or proceeding against the Company
to enforce, or otherwise act in respect of, such holder's right to exercise
the Rights evidenced by such Right Certificate in the manner provided in such
Right Certificate and in this Agreement. Without limiting the foregoing or any
remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any
breach of this Agreement and will be entitled to specific performance of the
obligations hereunder, and injunctive relief against actual or threatened
violations of the obligations of any Person subject to, this Agreement.
Section 16. Agreement of Right Holders. Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable only in
connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Right Certificates are transferable
only on the registry books of the Rights Agent if surrendered at the principal
office of the Rights Agent, duly endorsed or accompanied by a proper
instrument of transfer; and
(c) subject to Sections 6 and 7(f) hereof, the Company and the Rights Agent
may deem and treat the person in whose name the Right Certificate (or, prior
to the Distribution Date, the associated Common Shares certificate) is
registered as the absolute owner thereof and of the Rights evidenced thereby
(notwithstanding any notations of ownership or writing on the Right
Certificates or the associated Common Shares certificate made by anyone other
than the Company or the Rights Agent) for all purposes whatsoever, and neither
the Company nor the Rights Agent shall be affected by any notice to the
contrary.
(d) notwithstanding anything in this Agreement to the contrary, neither the
Company nor the Rights Agent shall have any liability to any holder of a Right
or other Person as a result of its inability to perform any of its obligations
under this Agreement by reason of any preliminary or permanent injunction or
other order, decree or ruling issued by a court of competent jurisdiction or
by a governmental, regulatory or administrative agency or commission, or any
statute, rule, regulation or executive order promulgated or enacted by any
governmental authority, prohibiting or otherwise restraining performance of
such obligation; provided, however, the Company must use its best efforts to
have any such order, decree or ruling lifted or otherwise overturned as soon
as possible.
Section 17. Right Certificate Holder Not Deemed a Stockholder. No holder, as
such, of any Right Certificate shall be entitled to vote, receive dividends or
be deemed for any purpose the holder of the Preferred Shares or any other
securities of the Company which may at any time be issuable on the exercise of
the Rights represented thereby, nor shall anything contained herein or in any
Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25 hereof), or to receive
dividends or subscription rights, or otherwise, until the Right or Rights
evidenced by such Right Certificate shall have been exercised in accordance
with the provisions hereof.
Section 18. Concerning the Rights Agent. The Company agrees to pay to the
Rights Agent reasonable compensation for all services rendered by it hereunder
and, from time to time, on demand of the Rights Agent,
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its reasonable expenses and counsel fees and other disbursements incurred in
the administration and execution of this Agreement and the exercise and
performance of its duties hereunder. The Company also agrees to indemnify the
Rights Agent for, and to hold it harmless against, any loss, liability, or
expense, incurred without gross negligence, bad faith or willful misconduct on
the part of the Rights Agent, for any action taken, suffered or omitted by the
Rights Agent in connection with the execution, acceptance and administration
of this Agreement and the exercise and performance hereunder of its duties,
including the costs and expenses of defending against and appealing any claim
of liability in the premises. The indemnity provided herein shall survive the
termination of this Agreement and the expiration of the Rights.
The Rights Agent shall be protected and shall incur no liability for, or in
respect of any action taken, suffered or omitted by it in connection with, its
administration of this Agreement and the exercise and performance of its
duties hereunder in reliance upon any Right Certificate or certificate for the
Preferred Shares or Common Shares or for other securities of the Company,
instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate, statement, or
other paper or document believed by it to be genuine and to be signed,
executed and, where necessary, verified or acknowledged, by the proper person
or persons, or otherwise upon the advice of counsel as set forth in Section 20
hereof.
Section 19. Merger or Consolidation or Change of Name of Rights Agent. Any
corporation into which the Rights Agent or any successor Rights Agent may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which the Rights Agent or any successor Rights
Agent shall be a party, or any corporation succeeding to the stock transfer or
corporate trust business of the Rights Agent or any successor Rights Agent,
shall be the successor to the Rights Agent under this Agreement without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, provided that such corporation would be eligible for
appointment as a successor Rights Agent under the provisions of Section 21
hereof. In case at the time such successor Rights Agent shall succeed to the
agency created by this Agreement any of the Right Certificates shall have been
countersigned but not delivered, any such successor Rights Agent may adopt the
countersignature of the predecessor Rights Agent and deliver such Right
Certificates so countersigned; and in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor
Rights Agent or in the name of the successor Rights Agent; and in all such
cases such Right Certificates shall have the full force provided in the Right
Certificates and in this Agreement.
In case at any time the name of the Rights Agent shall be changed and at
such time any of the Right Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior
name and deliver Right Certificates so countersigned; and in case at that time
any of the Right Certificates shall not have been countersigned, the Rights
Agent may countersign such Right Certificates either in its prior name or in
its changed name; and in all such cases such Right Certificates shall have the
full force provided in the Right Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the duties
and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Right Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel of its choice (who may
be legal counsel for the Company), and the opinion of such counsel shall be
full and complete authorization and protection to the Rights Agent as to any
action taken, suffered or omitted by it in good faith and in accordance with
such opinion.
(b) Whenever in the administration, exercise and performance of its duties
under this Agreement the Rights Agent shall deem it necessary or desirable
that any fact or matter be proved or established by the Company prior to
taking, suffering or omitting any action hereunder, such fact or matter
(unless other evidence in respect thereof be herein specifically prescribed)
may be deemed to be conclusively proved and established by a certificate
signed by any one of the Chairman of the Board, the Chief Executive Officer,
the President, any
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Vice President, the Treasurer or the Secretary of the Company and delivered to
the Rights Agent; and such certificate shall be full authorization to the
Rights Agent for any action taken, suffered or omitted in good faith by it
under the provisions of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder to the Company and any other
Person only for its own negligence, bad faith or willful misconduct. Anything
in this agreement to the contrary notwithstanding, in no event shall the
Rights Agent be liable for special, indirect or consequential loss or damage
of any kind whatsoever (including but not limited to lost profits), even if
the Rights Agent has been advised of the likelihood of such loss or damage and
regardless of the form of action.
(d) The Rights Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the Right
Certificates (except its countersignature thereof) or be required to verify
the same, but all such statements and recitals are and shall be deemed to have
been made by the Company only.
(e) The Rights Agent shall not be under any liability or responsibility in
respect of the legality, validity or enforceability of this Agreement or the
execution and delivery hereof (except the due execution hereof by the Rights
Agent) or in respect of the legality, validity or enforceability or the
execution of any Right Certificate (except its countersignature thereof); nor
shall it be liable or responsible for any breach by the Company of any
covenant or condition contained in this Agreement or in any Right Certificate;
nor shall it be responsible for any change in the exercisability of the Rights
(including the Rights becoming void pursuant to Section 11(a)(ii) hereof) or
any adjustment in the terms of the Rights (including the manner, method or
amount thereof) provided for in Section 3, 11, 13, 23 or 24, or the
ascertaining of the existence of facts that would require any such change or
adjustment (except with respect to the exercise of Rights evidenced by Right
Certificates after receipt of the certificate described in Section 12 hereof);
nor shall it by any act hereunder be deemed to make any representation or
warranty as to the authorization or reservation of any Preferred Shares to be
issued pursuant to this Agreement or any Right Certificate or as to whether
any Preferred Shares will, when issued, be validly authorized and issued,
fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all
such further and other acts, instruments and assurances as may reasonably be
required by the Rights Agent for the carrying out or performing by the Rights
Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the administration, exercise and performance of
its duties hereunder from any one of the Chairman of the Board, the Chief
Executive Officer, the President, any Vice President, the Secretary or the
Treasurer of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and it shall not be responsible or
liable for any action taken, suffered or omitted by it in good faith in
accordance with instructions of any such officer or for any delay in acting
while waiting for those instructions. Any application by the Rights Agent for
written instructions from the Company may, at the option of the Rights Agent,
set forth in writing any action proposed to be taken or omitted by the Rights
Agent under this Rights Agreement and the date on and/or after which such
action shall be taken or such omission shall be effective. The Rights Agent
shall not be liable for any action taken by, or omission of, the Rights Agent
in accordance with a proposal included in any such application on or after the
date specified in such application (which date shall not be less than five (5)
Business Days after the date any officer of the Company actually received such
application, unless any such officer shall have consented in writing to an
earlier date) unless, prior to taking any such action (or the effective date
in the case of an omission), the Rights Agent shall have received written
instructions in response to such application specifying the action to be taken
or omitted.
(h) The Rights Agent and any stockholder, director, officer or employee of
the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction
in which the Company may be interested, or contract with or lend money to the
Company or
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otherwise act as fully and freely as though it were not Rights Agent under
this Agreement. Nothing herein shall preclude the Rights Agent from acting in
any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or powers
hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable
or accountable for any act, default, neglect or misconduct of any such
attorneys or agents or for any loss to the Company resulting from any such
act, default, neglect or misconduct, provided reasonable care was exercised in
the selection and continued employment thereof.
(j) No provision of this Agreement shall require the Rights Agent to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of its rights if
there shall be reasonable grounds for believing that repayment of such funds
or adequate indemnification against such risk or liability is not reasonably
assured to it.
(k) If, with respect to any Right Certificate surrendered to the Rights
Agent for exercise, transfer, split up, combination or exchange, the
certification on the form of assignment or form of election to purchase, as
the case may be, that the Rights evidenced by the Right Certificate are not
owned by an Acquiring Person, or an Affiliate or Associate thereof, has either
not been completed or in any manner indicates any other response thereto, the
Rights Agent shall not take any further action with respect to such requested
exercise, transfer, split up, combination or exchange, without first
consulting with the Company.
Section 21. Change of Rights Agent. The Rights Agent or any successor Rights
Agent may resign and be discharged from its duties under this Agreement upon
thirty (30) days' notice in writing mailed to the Company and to each transfer
agent of the Common Shares or Preferred Shares (as to which the Rights Agent
has received prior written notice) by registered or certified mail, and the
Company shall mail notice thereof to the holders of the Right Certificates by
first-class mail. The Company may remove the Rights Agent or any successor
Rights Agent upon thirty (30) days' notice in writing, mailed to the Rights
Agent or successor Rights Agent, as the case may be, and to each transfer
agent of the Common Shares or Preferred Shares (as to which the Rights Agent
has received prior written notice) by registered or certified mail, and to the
holders of the Right Certificates by first-class mail. If the Rights Agent
shall resign or be removed or shall otherwise become incapable of acting, the
Company shall appoint a successor to the Rights Agent. If the Company shall
fail to make such appointment within a period of thirty (30) days after giving
notice of such removal or after it has been notified in writing of such
resignation or incapacity by the resigning or incapacitated Rights Agent or by
the holder of a Right Certificate (who shall, with such notice, submit such
holder's Right Certificate for inspection by the Company), then the registered
holder of any Right Certificate may apply to any court of competent
jurisdiction for the appointment of a new Rights Agent. Any successor Rights
Agent, whether appointed by the Company or by such a court, shall be a
corporation organized and doing business under the laws of the United States
or of any state of the United States so long as such corporation is in good
standing, and is authorized under such laws to exercise corporate trust or
stock transfer powers. After appointment, the successor Rights Agent shall be
vested with the same powers, rights, duties and responsibilities as if it had
been originally named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver
any further assurance, conveyance, act or deed necessary for the purpose. Not
later than the effective date of any such appointment the Company shall file
notice thereof in writing with the predecessor Rights Agent and each transfer
agent of the Common Shares or Preferred Shares, and mail a notice thereof in
writing to the registered holders of the Right Certificates. Failure to give
any notice provided for in this Section 21, however, or any defect therein,
shall not affect the legality or validity of the resignation or removal of the
Rights Agent or the appointment of the successor Rights Agent, as the case may
be.
Section 22. Issuance of New Right Certificates. Notwithstanding any of the
provisions of this Agreement or of the Rights to the contrary, the Company
may, at its option, issue new Right Certificates evidencing Rights in such
form as may be approved by its Board of Directors, upon approval by a majority
of the Continuing Directors, to reflect any adjustment or change in the
Purchase Price and the number or kind or class of shares or
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other securities or property purchasable under the Right Certificates made in
accordance with the provisions of this Agreement. In addition, in connection
with the issuance or sale of Common Shares following the Distribution Date and
prior to the redemption or expiration of the Rights, the Company (a) shall,
with respect to Common Shares so issued or sold pursuant to the exercise of
stock options or under any employee benefit plan or arrangement or upon the
exercise, conversion or exchange of securities of the Company currently
outstanding or issued at any time in the future by the Company and (b) may, in
any other case, if deemed necessary or appropriate by the Board of Directors
of the Company, upon approval by a majority of the Continuing Directors, issue
Right Certificates representing the appropriate number of Rights in connection
with such issuance or sale; provided, however, that (i) no such Right
Certificate shall be issued and this sentence shall be null and void ab initio
if, and to the extent that, such issuance or this sentence would create a
significant risk of or result in material adverse tax consequences to the
Company or the Person to whom such Right Certificate would be issued or would
create a significant risk of or result in such options' or employee plans' or
arrangements' failing to qualify for otherwise available special tax treatment
and (ii) no such Right Certificate shall be issued if, and to the extent that,
appropriate adjustment shall otherwise have been made in lieu of the issuance
thereof.
Section 23. Redemption.
(a) The Company may, at its option, upon approval of the Board of Directors
and a majority of the Continuing Directors, at any time prior to the earliest
of (i) the expiration of ten (10) Business Days following the Shares
Acquisition Date, or (ii) the Final Expiration Date, redeem all but not less
than all the then outstanding Rights at a redemption price of $.01 per Right,
appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof (such redemption price being
hereinafter referred to as the "Redemption Price"), and the Company may, at
its option, pay the Redemption Price either in cash, Common Shares (based on
the Current Per Share Market Price thereof (as determined pursuant to Section
11(d) hereof) at the time of redemption), or any other form of consideration
deemed appropriate by the Board of Directors. The redemption of the Rights by
the Board of Directors may be made effective at such time on such basis and
with such conditions as the Board of Directors in its sole discretion may
establish, upon approval by a majority of the Continuing Directors.
(b) Immediately upon the action of the Board of Directors of the Company
ordering the redemption of the Rights pursuant to paragraph (a) of this
Section 23, and without any further action and without any notice, the right
to exercise the Rights will terminate and the only right thereafter of the
holders of Rights shall be to receive the Redemption Price. The Company shall
promptly give public notice of any such redemption; provided, however, that
the failure to give, or any defect in, any such notice shall not affect the
validity of such redemption. Within 10 days after such action of the Board of
Directors ordering the redemption of the Rights, the Company shall give notice
of such redemption to the Rights Agent and shall mail a notice of redemption
to all the holders of the then outstanding Rights at their last addresses as
they appear upon the registry books of the Rights Agent or, prior to the
Distribution Date, on the registry books of the transfer agent for the Common
Shares. Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such notice
of redemption will state the method by which the payment of the Redemption
Price will be made. Neither the Company nor any of its Affiliates or
Associates may redeem, acquire or purchase for value any Rights at any time in
any manner other than that specifically set forth in this Section 23 or in
Section 24 hereof, and other than in connection with the purchase of Common
Shares prior to the Distribution Date.
Section 24. Exchange.
(a) Notwithstanding any other provision herein to the contrary, the Company,
at its option, upon approval by the Board of Directors and a majority of the
Continuing Directors, at any time after any Person becomes an Acquiring
Person, may mandatorily exchange all or part of the then outstanding and
exercisable Rights (which shall not include Rights that have become void
pursuant to the provisions of Section 11(a)(ii) hereof) for (i) Common Shares
at an exchange ratio per each Right equal to one-half ( 1/2) of the Common
Shares that a holder would be eligible to receive upon exercise of the Right
pursuant to Section 11(a)(ii) hereof (the "Exchange Shares") or (ii)
Substitute Consideration (as that term is defined below). The Board of
Directors may determine, in its sole discretion, whether to deliver Exchange
Shares or Substitute Consideration.
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(b) In the event the Board of Directors shall determine to deliver
Substitute Consideration in exchange for Rights, the Company shall (1)
determine the value of the Exchange Shares (the "Exchange Value"), and
(2) with respect to each Right to be exchanged, make adequate provision to
substitute for Exchange Shares the following (the "Substitute Consideration"):
(v) cash, (w) Common Stock or Common Stock Equivalents (as that term is
defined in Section 11(a)(iii) hereof) or Preferred Shares or Equivalent
Preferred Stock (as that term is defined in Section 11(b) hereof), (x) debt
securities of the Company, (y) other assets, or (z) any combination of the
foregoing, having an aggregate value equal to the Exchange Value, where such
aggregate value has been determined by the Board of Directors of the Company
based upon the advice of a nationally recognized investment banking firm
selected by the Board of Directors of the Company. For purposes of this
Section 24(b), the value of the Common Shares shall be the Current Per Share
Market Price (as determined pursuant to Section 11(d) hereof) on the day that
is the later of (x) the first occurrence of an event described in Section
11(a)(ii) hereof and (y) the date on which the Company's right of redemption
pursuant to Section 24(a) expires; and the value of any Common Stock
Equivalent shall be deemed to have the same value as the Common Shares on such
date.
(c) Immediately upon the action of the Board of Directors of the Company
ordering the exchange of any Rights pursuant to this Section 24, and without
any further action and without any notice, the right to exercise such Rights
shall terminate and the only right thereafter of a holder of such Rights shall
be to receive Exchange Shares or Substitute Consideration for each Right
exchanged by such holder. The Company shall promptly give public notice of any
such exchange; provided, however, that the failure to give, or any defect in,
such notice shall not affect the validity of such exchange. The Company
promptly shall mail a notice of any such exchange to all of the holders of
such Rights at their last address as they appear upon the registry books of
the Rights Agent. Any notice which is mailed in the manner herein provided
shall be deemed given, whether or not the holder receives the notice. Each
such notice of exchange will state the method by which the exchange of Common
Shares for Rights will be effected and, in the event of any partial exchange,
the number of Rights which will be exchanged. Any partial exchange shall be
effected pro rata based on the number of Rights (other than Rights which have
become void pursuant to the provisions of Section 11(a)(ii) hereof) held by
each holder of Rights.
(d) In the event that there shall not be sufficient shares of Common Stock
or Preferred Stock issued but not outstanding or authorized but unissued to
permit any exchange of Rights as contemplated in accordance with this Section
24(c), the Company shall take all such action as may be necessary to authorize
additional shares of Common Stock or Preferred Stock for issuance upon
exchange of the Rights. Notwithstanding the foregoing, the Board of Directors
shall not be empowered to effect such exchange at any time after any Person
(other than the Company, any Subsidiary of the Company, any employee benefit
plan of the Company or any such Subsidiary, or any entity holding Common
Shares for or pursuant to the terms of any such plan), together with all
Affiliates and Associates of such Person, becomes the Beneficial Owner of 50%
or more of the Common Shares then outstanding.
(e) The Company shall not be required to issue fractions of Common Shares or
to distribute certificates which evidence fractional Common Shares. In lieu of
such fractional Common Shares, the Company shall pay to the registered holders
of the Right Certificates with regard to which such fractional Common Shares
would otherwise be issuable an amount in cash equal to the same fraction of
the current market value of a whole Common Share. For the purposes of this
paragraph (e), the current market value of a whole Common Share shall be the
closing price of a Common Share (as determined pursuant to the second sentence
of Section 11(d)(i) hereof) for the Trading Day immediately prior to the date
of exchange pursuant to this Section 24.
Section 25. Notice of Certain Events.
(a) In case the Company shall propose (i) to pay any dividend payable in
stock of any class to the holders of its Preferred Shares or to make any other
distribution to the holders of its Preferred Shares (other than a regular
quarterly cash dividend), (ii) to offer to the holders of its Preferred Shares
rights or warrants to subscribe for or to purchase any additional Preferred
Shares or shares of stock of any class or any other securities, rights or
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options, (iii) to effect any reclassification of its Preferred Shares (other
than a reclassification involving only the subdivision of outstanding
Preferred Shares), (iv) to effect any consolidation or merger into or with, or
to effect any sale or other transfer (or to permit one or more of its
Subsidiaries to effect any sale or other transfer), in one or more
transactions, of 50% or more of the assets or earning power of the Company and
its Subsidiaries (taken as a whole) to, any other Person, (v) to effect the
liquidation, dissolution or winding up of the Company, or (vi) to declare or
pay any dividend on the Common Shares payable in Common Shares or to effect a
subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares),
then, in each such case, the Company shall give to each holder of a Right
Certificate, in accordance with Section 26 hereof, a notice of such proposed
action, which shall specify the record date for the purposes of such stock
dividend, or distribution of rights or warrants, or the date on which such
reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution, or winding up is to take place and the date of participation
therein by the holders of the Common Shares and/or Preferred Shares, if any
such date is to be fixed, and such notice shall be so given in the case of any
action covered by clause (i) or (ii) above at least ten (10) days prior to the
record date for determining holders of the Preferred Shares for purposes of
such action, and in the case of any such other action, at least ten (10) days
prior to the date of the taking of such proposed action or the date of
participation therein by the holders of the Common Shares and/or Preferred
Shares, whichever shall be the earlier.
(b) In case any of the events set forth in Section 11(a)(ii) hereof shall
occur, then the Company shall as soon as practicable thereafter give to each
holder of a Right Certificate, in accordance with Section 26 hereof, a notice
of the occurrence of such event, which notice shall describe such event and
the consequences of such event to holders of Rights under Section 11(a)(ii)
hereof. In the event any Person becomes an Acquiring Person, the Company will
promptly notify the Rights Agent thereof.
Section 26. Notices. Notices or demands authorized by this Agreement to be
given or made by the Rights Agent or by the holder of any Right Certificate to
or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing
with the Rights Agent) as follows:
TheraTx, Incorporated
400 Northridge Road, Suite 400
Atlanta, Georgia 30350
Attention: Jonathan H. Glenn
Subject to the provisions of Section 21 hereof, any notice or demand
authorized by this Agreement to be given or made by the Company or by the
holder of any Right Certificate to or on the Rights Agent shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed (until another address is filed in writing with the Company) as
follows:
U.S. Stock Transfer Corporation
1745 Gardena Avenue
Glendale, California 91204-2891
Attention: Richard C. Brown
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the
registry books of the Company.
Section 27. Supplements and Amendments. Prior to the Distribution Date, the
Company may supplement or amend this Agreement in any respect, including,
without limitation, any amendment to increase the Purchase Price, without the
approval of any holders of Rights, by action of its Board of Directors upon
approval by a majority of the Continuing Directors, and the Rights Agent
shall, if the Company so directs, execute such supplement or amendment. From
and after the Distribution Date, the Company may from time to time
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supplement or amend this Agreement without the approval of any holders of
Rights, by action of its Board of Directors, upon approval by a majority of
the Continuing Directors, in order to cure any ambiguity, to correct or
supplement any provision contained herein which may be defective or
inconsistent with any other provisions herein, or to make any other provisions
with respect to the Rights which the Company may deem necessary or desirable
and which shall be consistent with, and for the purpose of fulfilling, the
objectives of the Board of Directors in adopting this Agreement, including,
without limitation, to change the Purchase Price, the Redemption Price, any
time periods herein specified, and any other term hereof, any such supplement
or amendment to be evidenced by a writing signed by the Company and the Rights
Agent; provided, however, that from and after the Distribution Date, this
Agreement shall not be amended in any manner which would adversely affect the
interests of the holders of Rights. Upon receipt of a certificate from an
appropriate officer of the Company that the proposed supplement or amendment
is consistent with this Section 27 and, after the Distribution Date, that the
proposed supplement or amendment does not adversely affect the interests of
the holders of Rights, the Rights Agent shall execute such supplement or
amendment. Without limiting the foregoing, the Company may at any time prior
to the Distribution Date, by action of its Board of Directors, upon approval
by a majority of the Continuing Directors, amend this Agreement to lower the
thresholds set forth in Sections 1(a) and 3(a) to not less than the greater of
(i) any percentage greater than the largest percentage of the outstanding
Common Shares then known by the Company to be beneficially owned by any Person
(other than the Company, any Subsidiary of the Company, any employee benefit
plan of the Company or any Subsidiary of the Company, or any entity holding
Common Shares for or pursuant to the terms of any such plan) and (ii) 10%.
Section 28. Successors. All the covenants and provisions of this Agreement
by or for the benefit of the Company or the Rights Agent shall bind and inure
to the benefit of their respective successors and assigns hereunder.
Section 29. Determinations and Actions by the Board of Directors. For all
purposes of this Agreement, any calculation of the number of Common Shares
outstanding at any particular time, including for purposes of determining the
particular percentage of such outstanding Common Shares of which any Person is
the Beneficial Owner, shall be made in accordance with the last sentence of
Rule 13d-3(d)(1)(i) of the General Rules and Regulations under the Exchange
Act. The Board of Directors of the Company (and, where specifically provided
for herein, only upon approval by a majority of the Continuing Directors)
shall have the exclusive power and authority to administer this Agreement and
to exercise all rights and powers specifically granted to the Board, or the
Company, or as may be necessary or advisable in the administration of this
Agreement, including, without limitation, the right and power to (i) interpret
the provisions of this Agreement and (ii) make all determinations deemed
necessary or advisable for the administration of this Agreement (including a
determination to redeem or not redeem the Rights or to amend the Agreement).
All such actions, calculations, interpretations and determinations (including,
for purposes of clause (y) below, all omissions with respect to the
foregoing), which are done or made by the Board (or, where specifically
provided for herein, upon approval by a majority of the Continuing Directors)
in good faith, shall (x) be final, conclusive and binding on the Company, the
Rights Agent, the holders of the Right Certificates and all other parties and
(y) not subject the Board or the Continuing Directors to any liability to the
holders of the Rights.
Section 30. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any Person other than the Company, the Rights Agent and
the registered holders of the Right Certificates (and, prior to the
Distribution Date, the Common Shares) any legal or equitable right, remedy or
claim under this Agreement; but this Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders
of the Right Certificates (and, prior to the Distribution Date, the Common
Shares).
Section 31. Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction or other authority
to be invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated; provided,
however, that notwithstanding anything in this Agreement to the contrary, if
any such term, provision, covenant or restriction is held by such court or
authority to be invalid, void or unenforceable and the Board of Directors of
the Company, upon approval by a majority of the Continuing
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Directors, determines in its good faith judgment that severing the invalid
language from this Agreement would adversely affect the purpose or effect of
this Agreement, the right of redemption set forth in Section 23 hereof shall
be reinstated and shall not expire until the tenth business day following the
date of such determination by the Board of Directors of the Company.
Section 32. Governing Law. This Agreement and each Right Certificate issued
hereunder shall be deemed to be a contract made under the laws of the State of
Delaware and for all purposes shall be governed by and construed in accordance
with the laws of such State applicable to contracts to be made and performed
entirely within such State.
Section 33. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one
and the same instrument.
Section 34. Descriptive Headings. Descriptive headings of the several
Sections of this Agreement are inserted or convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and attested, all as of the day and year first above written.
ATTEST: THERATX, INCORPORATED
/s/ Jonathan H. Glenn /s/ Donald R. Myll
By___________________________________ By___________________________________
Name: Jonathan H. Glenn Name: Donald R. Myll
Title: General Counsel & Secretary Title: Vice President, Finance &
CFO
ATTEST: RIGHTS AGENT
/s/ Carter G. McIntyre /s/ Richard C. Brown
By___________________________________ By___________________________________
Name: Carter G. McIntyre Name: Richard C. Brown
Title: Vice President Title: Vice President
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (hereinafter called this "Agreement"), dated as
of February 9, 1997, among TheraTx, Incorporated a Delaware corporation (the
"Company"), Vencor, Inc., a Delaware corporation ("Purchaser"), and Peach
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Purchaser ("Merger Sub"), the Company and Merger Sub sometimes being
hereinafter collectively referred to as the "Constituent Corporations."
RECITALS
WHEREAS, the Boards of Directors of Purchaser and the Company each have
unanimously approved of this Agreement, the Offer (as defined herein) and the
Merger (as defined herein) and determined that it is in the best interests of
their respective companies and stockholders for Purchaser to acquire the
Company upon the terms and subject to the conditions set forth herein; and
WHEREAS, the Company, Purchaser and Merger Sub desire to make certain
representations, warranties, covenants and agreements in connection with this
Agreement.
NOW, THEREFORE, in consideration of the premises, and of the representation,
warranties, covenants and agreements contained herein the parties hereto
hereby agree as follows:
ARTICLE I
THE TENDER OFFER
1.1. Tender Offer.
(a) Provided that this Agreement shall not have been terminated in
accordance with Article IX hereof and none of the events set forth in Annex A
hereto shall have occurred or be existing, within five business days of the
date hereof, Merger Sub will commence a tender offer (the "Offer") for all of
the outstanding shares of Common Stock, par value $0.001 per share of the
Company (the "Shares"), together with the associated rights to purchase (the
"Rights") Series A Junior Participating Preferred Stock of the Company (the
"Series A Preferred") at a price of $17.10 per Share in cash, net to the
seller, subject only to the conditions set forth in Annex A hereto. Subject to
the terms and conditions of the Offer, Purchaser will promptly pay for all
Shares duly tendered. The Company's Board of Directors shall recommend
acceptance of the Offer to its stockholders in a Solicitation/Recommendation
Statement on Schedule 14D-9 (the "Schedule 14D-9") to be filed with the
Securities and Exchange Commission (the "SEC") upon commencement of the Offer.
(b) Purchaser agrees, as to the Offer to Purchase and related Letter of
Transmittal (which together constitute the "Offer Documents") and the Company
agrees, as to the Schedule 14D-9, that such documents shall, in all material
respects, comply with the requirements of the Securities Exchange Act of 1934,
as amended (the "Exchange Act") and the rules and regulations thereunder and
other applicable laws. The Company and its counsel, as to the Offer Documents,
and Merger Sub and its counsel, as to the Schedule 14D-9, shall be given an
opportunity to review such documents prior to their being filed with the SEC.
(c) In connection with the Offer, the Company will cause its Transfer Agent
to furnish promptly to Merger Sub a list, as of a recent date, of the record
holders of Shares and their addresses, as well as mailing labels containing
the names and addresses of all record holders of Shares and lists of security
positions of Shares held in stock depositories. The Company will furnish
Merger Sub with such additional information (including, but not limited to,
updated lists of holders of Shares and their addresses, mailing labels and
lists of security positions) and such other assistance as Purchaser or Merger
Sub or their agents may reasonably request in communicating the Offer to the
record and beneficial holders of Shares.
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ARTICLE II
THE MERGER; CLOSING; EFFECTIVE TIME
2.1. The Merger. Subject to the terms and conditions of this Agreement, at
the Effective Time (as defined in Section 2.3) Merger Sub shall be merged with
and into the Company and the separate corporate existence of Merger Sub shall
thereupon cease (the "Merger"). The Company shall be the surviving corporation
in the Merger (sometimes hereinafter referred to as the "Surviving
Corporation") and shall continue to be governed by the laws of the State of
Delaware, and the separate corporate existence of the Company with all its
rights, privileges, immunities, powers and franchises shall continue
unaffected by the Merger, except as set forth in Section 3.1. The Merger shall
have the effects specified in the Delaware General Corporation Law
(the "DGCL").
2.2. Closing. The closing of the Merger (the "Closing") shall take place (i)
at the offices of Sullivan & Cromwell, 125 Broad Street, New York, New York at
10:00 A.M. on the first business day on which the last to be fulfilled or
waived of the conditions set forth in Article VIII hereof shall be fulfilled
or waived in accordance with this Agreement or (ii) at such other place and
time and/or on such other date as the Company and Purchaser may agree.
2.3. Effective Time. As soon as practicable following the Closing, and
provided that this Agreement has not been terminated or abandoned pursuant to
Article IX hereof, the Company and the Purchaser will cause a Certificate of
Merger (the "Delaware Certificate of Merger") to be executed and filed with
the Secretary of State of Delaware as provided in Section 251 of the DGCL (or,
if permitted, Section 253 of the DGCL). The Merger shall become effective on
the date on which the Delaware Certificate of Merger has been duly filed with
the Secretary of State of Delaware, and such time is hereinafter referred to
as the "Effective Time."
ARTICLE III
CERTIFICATE OF INCORPORATION AND BY-LAWS
OF THE SURVIVING CORPORATION
3.1. The Certificate of Incorporation. The Certificate of Incorporation of
the Company (the "Certificate") in effect at the Effective Time shall be the
Certificate of Incorporation of the Surviving Corporation, until duly amended
in accordance with the terms thereof and the DGCL, except that Article IV
of the Certificate shall be amended to read in its entirety as follows unless
the event contemplated by Section 7.14(iii) shall have occurred, in which case
Article IV of the Certificate shall not be amended at the Effective Time:
"The aggregate number of shares which the Corporation shall
have the authority to issue is 1,000 shares of Common Stock,
par value $0.001 per share."
3.2. The Bylaws. The Bylaws of Merger Sub in effect at the Effective Time
shall be the Bylaws of the Surviving Corporation, until duly amended in
accordance with the terms thereof and the DGCL.
ARTICLE IV
OFFICERS AND DIRECTORS
OF THE SURVIVING CORPORATION
4.1. Officers and Directors. The directors of Merger Sub and the officers of
the Company at the Effective Time shall, from and after the Effective Time, be
the directors and officers, respectively, of the Surviving Corporation until
their successors have been duly elected or appointed and qualified or until
their earlier death, resignation or removal in accordance with the Surviving
Corporation's Certificate of Incorporation and Bylaws.
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4.2. Board of Directors; Committees.
(a) If requested by Purchaser, the Company will, promptly following the
purchase by Merger Sub of Shares pursuant to the Offer, take all actions
necessary to cause persons
designated by Purchaser to become directors of the Company so that the total
number of such persons equals that number of directors, rounded up to the next
whole number, which represents the product of (x) the total number of
directors on the board of directors of the Company (the "Board of Directors")
multiplied by (y) the percentage that the number of Shares so accepted for
payment plus any Shares beneficially owned by Purchaser or its affiliates on
the date hereof bears to the number of Shares outstanding at the time of such
acceptance for payment. In furtherance thereof, the Company will increase the
size of the Board of Directors, or use its reasonable efforts to secure the
resignation of directors, or both, as is necessary to permit Purchaser's
designees to be elected to the Board of Directors; provided, however, that
prior to the Effective Time, the Board of Directors shall always have at least
two members who are neither officers of Purchaser nor designees, shareholders
or affiliates of Purchaser ("Purchaser Insiders"). At such time, the Company,
if so requested, will use its reasonable efforts to cause persons designated
by Purchaser to constitute the same percentage of each committee of the Board
of Directors, each board of directors of each subsidiary of the Company and
each committee of each such board (in each case to the extent of the Company's
ability to elect such persons). The Company's obligations to appoint designees
to the Board of Directors shall be subject to Section 14(f) of the Exchange
Act and Rule 14f-1 thereunder. The Company shall promptly take all actions
required pursuant to such Section and Rule in order to fulfill its obligations
under this Section 4.2 and shall include in the Schedule 14D-9 such
information as is required under such Section and Schedule.
4.3. Actions by Directors. For purposes of Article IX and Sections 10.3 and
10.4, no action taken by the Board of Directors prior to the Merger shall be
effective unless such action is approved by the affirmative vote of at least a
majority of the directors of the Company who are not Purchaser Insiders.
ARTICLE V
CONVERSION OR CANCELLATION OF SHARES IN THE MERGER
5.1. Conversion or Cancellation of Shares. The manner of converting or
canceling shares of the Company and Merger Sub in the Merger shall be as
follows:
(a) At the Effective Time, each Share issued and outstanding immediately
prior to the Effective Time (other than Shares owned by Purchaser, Merger Sub
or any other subsidiary of Purchaser (collectively, the "Purchaser Companies")
or Shares which are held by stockholders ("Dissenting Stockholders")
exercising appraisal rights pursuant to Section 262 of the DGCL) shall, by
virtue of the Merger and without any action on the part of the holder thereof,
be converted into the right to receive, without interest, an amount in cash
equal to $17.10 or such greater amount which may be paid pursuant to the Offer
(the "Merger Consideration"). All such Shares, by virtue of the Merger and
without any action on the part of the holders thereof, shall no longer be
outstanding and shall be canceled and retired and shall cease to exist, and
each holder of a certificate representing any such Shares shall thereafter
cease to have any rights with respect to such Shares, except the right to
receive the Merger Consideration for such Shares upon the surrender of such
certificate in accordance with Section 5.2 or the right, if any, to receive
payment from the Surviving Corporation of the "fair value" of such Shares as
determined in accordance with Section 262 of the DGCL.
(b) At the Effective Time, each Share issued and outstanding at the
Effective Time and owned by any of the Purchaser Companies, and each Share
issued and held at the Effective Time in the Company's treasury, shall, by
virtue of the Merger and without any action on the part of the holder thereof,
cease to be outstanding, shall be canceled and retired without payment of any
consideration therefor and shall cease to exist.
(c) At the Effective Time, each share of Common Stock, par value $0.25 per
share of Merger Sub issued and outstanding immediately prior to the Effective
Time shall, by virtue of the Merger and without any action on the part of
Merger Sub or the holders of such shares, be converted into one Share.
5.2. Payment for Shares. Purchaser shall make available or cause to be made
available to a bank or trust company appointed by Purchaser with the Company's
prior approval (the "Paying Agent") amounts sufficient
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[LOGO] TheraTx(R)
February 14, 1997
To Our Stockholders:
We are pleased to inform you that on February 9, 1997, TheraTx, Incorporated
(the "Company") entered into an Agreement and Plan of Merger (the "Merger
Agreement") with Vencor, Inc. ("Vencor") and Peach Acquisition Corp., a wholly
owned subsidiary of Vencor (the "Purchaser"), pursuant to which the Purchaser
has today commenced a tender offer to purchase all of the outstanding shares
of the Company's common stock, par value $0.001 per share (the "Shares") (and
the associated rights to purchase Series A Junior Participating Preferred
Stock (the "Rights")), at a cash price of $17.10 per Share (the "Offer"). The
Offer is conditioned upon the tender of at least a majority of the Shares (and
the associated Rights) outstanding on a fully diluted basis. Subject to the
conditions of the Offer, the Merger Agreement provides that the Offer will be
followed by a merger (the "Merger") in which the Purchaser will be merged with
and into the Company and those Shares that are not acquired in the Offer will
be converted into the right to receive $17.10 per share in cash.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE OFFER AND THE
MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY AND ITS
STOCKHOLDERS AND HAS UNANIMOUSLY APPROVED THE OFFER AND THE MERGER AGREEMENT
AND UNANIMOUSLY RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS ACCEPT THE OFFER
AND TENDER THEIR SHARES PURSUANT TO THE OFFER. The Board of Directors has
reached these conclusions after consideration of the terms of the Merger
Agreement, the opinion of The Beacon Group Capital Services, LLC ("The Beacon
Group") (the financial advisor to the Board of Directors) dated as of February
9, 1997, that the consideration to be received by the stockholders of the
Company pursuant to the Offer and the Merger Agreement was fair from a
financial point of view to such stockholders as of such date and the other
factors described in the attached Schedule 14D-9 filed today by the Company
with the Securities and Exchange Commission. A copy of The Beacon Group's
written opinion, which sets forth the assumptions made, procedures followed
and matters considered in, and the limitation on, the review by The Beacon
Group in rendering its opinion is attached to the Schedule 14D-9 as Schedule
I.
Accompanying this letter, in addition to the Schedule 14D-9, is the Offer to
Purchase of the Purchaser, dated February 14, 1997, together with related
materials including a letter of transmittal for use in 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
materials carefully in making your decision whether to tender your shares to
the Purchaser.
Very truly yours,
/s/ John A. Bardis
John A. Bardis
President and Chief Executive
Officer
TheraTx, Inc. . 1105 Sanctuary Parkway . Suite 100 . Alpharetta, Ga 30201 .
770-569-1840 . FAX 569-4499 . 1-800-THERATX
