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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 9, 1997
THERATX, INCORPORATED
(Exact name of registrant as specified in charter)
Delaware 0-24292 33-0359338
(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification No.)
incorporation)
105 Sanctuary Parkway, Suite 100, Alpharetta, Georgia 30201
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 569-1840
Not Applicable
(Former name or former address, if changed from last report)
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Item 5. Other Events
(a) On February 9, 1997, TheraTx, Incorporated (the "Company") executed
an Agreement and Plan of Merger (the "Merger Agreement") with Vencor, Inc., a
Delaware corporation ("Vencor"), and Peach Acquisition Corp., a Delaware
corporation and wholly owned subsidiary of Vencor ("Merger Sub"), pursuant to
which, subject to the terms and conditions of the Merger Agreement, (i) Merger
Sub will commence a tender offer (the "Offer") for all of the outstanding shares
of the common stock, par value $.001 per share, of the Company (the "Common
Stock"), together with the associated rights (the "Rights") to purchase Series A
Junior Participating Preferred Stock of the Company at a price of $17.10 per
share in cash (net to the seller) and (ii) Merger Sub will merge with and into
the Company (the "Merger"), pursuant to which each share of Common Stock (and
the associated Rights) will be converted into the right to receive $17.10 per
share, in cash. Consummation of the Offer and the Merger is subject to the
satisfaction or waiver of certain conditions including, among others, the
expiration or termination of any applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, the receipt of
any other required regulatory approvals, and the absence of certain material
adverse changes related to the Company or Vencor. Consummation of the Offer is
also subject to the valid tender of a majority of the total shares of Common
Stock outstanding on a fully diluted basis. The closing is expected to occur as
soon as practicable after the satisfaction of the conditions set forth in the
Merger Agreement. The description of the Merger Agreement contained herein is
qualified in its entirety by reference to the Merger Agreement, which is
attached hereto as Exhibit 2.1 and is incorporated herein by reference.
On February 10, 1997, Vencor and the Company issued a joint press
release relating to the execution of the Merger Agreement. A copy of the press
release is attached hereto as Exhibit 99.1 and is incorporated herein by
reference.
(b) As of February 9, 1997, the Company and U.S. Stock Transfer
Corporation (the "Rights Agent") executed Amendment No. 1 ("Amendment No.
1") to that certain Rights Agreement, dated as of July 28, 1995, between the
Company and the Rights Agent (the "Rights Agreement"). Amendment No. 1
relates to changes in the Rights Agreement required as a result of the
execution of the Merger Agreement and the transactions contemplated
thereby. The description of Amendment No. 1 contained herein is
qualified in its entirety by reference to Amendment No. 1, which is attached
hereto as Exhibit 4.1 and is incorporated herein by reference.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of businesses acquired:
None.
(b) Pro Forma financial information:
None.
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(c) Exhibits:
2.1 Agreement and Plan of Merger, dated as of February 9,
1997, by and among Vencor, Inc., a Delaware corporation
("Vencor"), Peach Acquisition Corp., a Delaware
corporation and a wholly owned subsidiary of Vencor,
and TheraTx, Incorporated, a Delaware corporation (the
"Company").
4.1 Amendment No. 1 to Rights Agreement, dated as of
February 9, 1997, between the Company and U.S. Stock
Transfer Corporation.
99.1 Joint Press Release of Vencor and the Company
dated February 10, 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THERATX, INCORPORATED
/s/ Donald R. Myll
Name: Donald R. Myll
Title: Senior Vice President and
Chief Financial Officer
Dated: February 10, 1997
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EXHIBIT INDEX
Exhibit
2.1 Agreement and Plan of Merger, dated as of February 9,
1997, by and among Vencor, Inc., a Delaware corporation
("Vencor"), Peach Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of Vencor,
and TheraTx, Incorporated, a Delaware corporation (the
"Company"). *
4.1 Amendment No. 1 to Rights Agreement, dated as of
February 9, 1997, between the Company and U.S. Stock
Transfer Corporation.
99.1 Joint Press Release of Vencor and the Company
dated February 10, 1997.
- --------
* The Registrant hereby agrees to furnish supplementally a copy of any
omitted schedules to this Agreement to the Securities and Exchange
Commission upon its request.
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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
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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.
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
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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
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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.
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:
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(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 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,
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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.
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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 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
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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
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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 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
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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
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
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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
<PAGE>
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 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
<PAGE>
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.
(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
<PAGE>
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
<PAGE>
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.
(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.
<PAGE>
"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
<PAGE>
health or 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.
<PAGE>
(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 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
<PAGE>
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
<PAGE>
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.
(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
<PAGE>
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 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
<PAGE>
$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
<PAGE>
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
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
<PAGE>
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
<PAGE>
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.
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
<PAGE>
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 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
<PAGE>
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
<PAGE>
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 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
<PAGE>
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
<PAGE>
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.
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
<PAGE>
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;
(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.
<PAGE>
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.
<PAGE>
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.
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
<PAGE>
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
<PAGE>
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.
(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
<PAGE>
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.
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
<PAGE>
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.
<PAGE>
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 Chief
Executive Officer
<PAGE>
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;
<PAGE>
(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,
<PAGE>
occupational therapy, respiratory therapy or speech language pathology
services;
(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;
<PAGE>
(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.
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.
<PAGE>
AMENDMENT NO. 1 TO RIGHTS AGREEMENT
AMENDMENT NO. 1 TO RIGHTS AGREEMENT, dated as of February 9,
1997 (the "Amendment") by and between TheraTx, Incorporated, a Delaware
corporation (the "Company"), and U.S. Stock Transfer Corporation (the "Rights
Agent").
RECITALS
WHEREAS, the Company and the Rights Agent are parties to a
Rights Agreement dated as of July 28, 1995 (the "Rights Agreement");
WHEREAS, Vencor, Inc., a Delaware corporation ("Vencor"),
Peach Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Vencor ("Vencor Sub"), and the Company have entered into an Agreement and Plan
of Merger dated as of February 9, 1997 (the "Vencor Merger Agreement") pursuant
to which Vencor Sub will commence a tender offer for all outstanding shares of
the Company's Common Stock on the terms set forth in the Vencor Merger Agreement
(the "Offer") and, thereafter, will merge with and into the Company (the
"Merger");
WHEREAS, the Board of Directors of the Company (including a
majority of the Continuing Directors (as defined in the Rights Agreement)) has
approved the Vencor Merger Agreement, the Offer and the Merger; and
WHEREAS, pursuant to Section 27 of the Rights Agreement, the
Board of Directors of the Company has determined that an amendment to the Rights
Agreement as set forth herein is necessary and desirable to reflect the
foregoing and the Company and the Rights Agent desire to evidence such amendment
in writing.
Accordingly, the parties agree as follows:
1. Amendment of Section 1(a). Section 1(a) of the Rights
Agreement is hereby amended by adding the word "(i)" after the word "foregoing,"
in the third line on page 2 and by adding the following after the word
"Agreement" in the tenth line on page 2:
", and (ii) none of Vencor, Vencor Sub or any of their
respective Affiliates or Associates shall be deemed to be an "Acquiring
Person" for any purpose of this Agreement by virtue of (x) the
acquisition of Common Shares pursuant to the Offer or the Merger (each
as defined in the Vencor Merger Agreement), (y) the execution, delivery
and performance of the Vencor Merger Agreement, or (z) the consummation
of the transactions contemplated by the Vencor Merger Agreement in
accordance with the terms thereof."
<PAGE>
2. Amendment of Section 1(l). Section 1(l) of the
Rights Agreement is hereby amended by adding the following sentence at the end
thereof:
"Notwithstanding anything in this Agreement to the contrary, a
Distribution Date shall not be deemed to have occurred as a result of
the announcement or occurrence of (i) the acquisition of Common Shares
by Vencor or Vencor Sub pursuant to the Offer or the Merger (each as
defined in the Vencor Merger Agreement), (ii) the execution, delivery
and performance of the Vencor Merger Agreement, or (iii) the
consummation of the transactions contemplated by the Vencor Merger
Agreement in accordance with the terms thereof."
3. Sections 1(gg), (hh) and (ii). The following
subsections are hereby added after Section 1(ff) of the Rights Agreement:
"(gg) "Vencor" shall mean Vencor, Inc., a Delaware corporation.
(hh) "Vencor Merger Agreement" shall mean the Agreement and
Plan of Merger dated as of February 9, 1997 by and among Vencor, Vencor
Sub and the Company, as it may be amended from time to time.
(ii) "Vencor Sub" shall mean Peach Acquisition Corp., a
Delaware corporation and a wholly-owned subsidiary of Vencor, or any
other direct or indirect wholly-owned subsidiary of Vencor that is
substituted for Vencor Sub pursuant to the Vencor Merger Agreement."
4. Amendment of Section 7(a). Section 7(a) of the Rights
Agreement is hereby amended by deleting the word "or" before the word "(iv)" in
the tenth line thereof and by adding the following words at the end of Section
7(a) "or (v) immediately prior to the Effective Time (as such term is defined in
the Vencor Merger Agreement)."
5. Amendment of Section 13. Section 13 of the Rights
Agreement is hereby amended by adding the following after subsection (d)
thereof:
"(e) Notwithstanding anything in this Section 13 or in this
Agreement to the contrary, neither the acquisition of Common Shares
pursuant to the Offer or the Merger (each as defined in the Vencor
Merger Agreement), nor the execution, delivery and performance of the
Vencor Merger Agreement or the consummation of the transactions
contemplated by the Vencor Merger Agreement in accordance with the
terms thereof (each, an "Excluded Transaction"), shall be deemed to be
a transaction described in clause (1), (2) or (3) of Section 13(a)
hereof and no Excluded Transaction shall cause the
<PAGE>
Rights to be adjusted or exercisable in accordance with this Section
13."
6. Effectiveness. This Amendment shall be deemed
effective as of the date hereof. Except as amended hereby, the Rights
Agreement shall remain in full force and effect and shall be otherwise
unaffected by this Amendment.
7. Miscellaneous. This Amendment 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.
This Amendment may be executed in any number of counterparts, 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. If any
provision, covenant or restriction of this Amendment is held by a court of
competent jurisdiction or other authority to be invalid, illegal or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Amendment shall remain in full force and effect and shall
in no way be effected, impaired or invalidated.
[Remainder of page intentionally left blank]
<PAGE>
EXECUTED as of the date set forth above.
Attest: THERATX, INCORPORATED
/s/ Jonathan H. Glenn /s/ Donald R. Myll
- ------------------------- ------------------------
Name: Jonathan H. Glenn Name: Donald R. Myll
Title: Vice President, Counsel Title: Senior Vice President and
and Secretary Chief Financial Officer
Attest: U.S. STOCK TRANSFER CORPORATION
/s/ Enrique Artaza /s/ Richard C. Brown
- ------------------------- ------------------------
Name: Enrique Artaza Name: Richard C. Brown
Title: Vice President Title: Vice President
<PAGE>
Contact: AT VENCOR:
W. Earl Reed, III
Executive Vice President and
Chief Financial Officer
(502) 596-7380
AT THERATX:
Donald R. Myll
Sr. Vice President and
Chief Financial Officer
(770) 569-1840
VENCOR TO ACQUIRE THERATX
ACQUISITION TO BROADEN VENCOR ANCILLARY SERVICES
LOUISVILLE, Kentucky (February 10, 1997) Vencor, Inc. (NYSE:VC) ("Vencor") and
TheraTx, Incorporated (Nasdaq/NM:THTX) ("Theratx") jointly announced that they
have signed a definitive merger agreement for Vencor to acquire all the
outstanding shares of TheraTx. Pursuant to the agreement, Vencor will pay $17.10
per share for each outstanding share of TheraTx common stock. TheraTx currently
has approximately 20.7 million shares of common stock outstanding.
The transaction will be a cash tender offer followed by a cash
merger to acquire any shares not previously tendered. As a result of the
transaction, TheraTx will become a wholly-owned subsidiary of Vencor. The
transaction has been recommended by the Boards of Directors of Vencor and
TheraTx. Vencor expects to commence its cash tender offer on February 14, 1997.
The cash tender offer is subject to Vencor receiving at least a majority of the
fully diluted shares of TheraTx as well as the receipt of the required
regulatory approvals, and is expected to be completed within 90 days.
W. Bruce Lunsford, Chief Executive Officer of Vencor, remarked,
"The acquisition of TheraTx will significantly broaden our menu of Vencare
contract services. TheraTx has successfully developed a range of
outcomes-oriented healthcare services focused on rehabilitation care and
occupational health. Combining these services with Vencor's existing base of
contract services will enable Vencor to offer a comprehensive, integrated
program of contract services to healthcare providers. The efficiency of these
services will be further enhanced by TheraTx's proprietary TheraSys clinical
information system which measures clinical outcomes and the clinical efficiency
of care. By incorporating TheraSys with our ProTouch system, we will be able to
offer to the Vencare network of over 4,000 nursing homes an integrated ancillary
services information system that is unavailable to the industry today."
Lunsford added, "This acquisition signals the successful
completion of our integration of the Hillhaven acquisition and the beginning of
our rededication to the growth of Vencor. TheraTx has added value to the
customers it serves which, in turn, has led to an impressive record of growth.
The inclusion of TheraTx is expected to be accretive to earnings based on
projected synergies. We believe that the strategic value as well as the
operating efficiencies resulting from this
<PAGE>
transaction will support our plans to accelerate Vencor's growth from that
achieved in recent quarters."
John A. Bardis, Chief Executive Officer of TheraTx, stated,
"This merger creates the nation's premier integrated ancillary services
provider, and one that is uniquely positioned to capitalize on current and
emerging opportunities in post-acute healthcare. We believe that this offer is
attractive to our shareholders and that the combination of these two innovative,
outcomes-oriented healthcare companies will benefit our customers, patients and
employees."
TheraTx combines an outcomes-oriented approach with its
proprietary information systems to provide cost-effective quality care in 216
Rehabilitation Centers of Excellence, 28 nursing centers and 16 occupational
health clinics. For the nine months ended September 30, 1996, TheraTx reported
revenues of $288.6 million and net income of $17.2 million, or $0.82 per fully
diluted share. For the same period, Vencor reported revenues of $1.91 billion
and net income of $92.0 million, or $1.30 per fully diluted share.
Vencor operates an integrated, long-term healthcare network
consisting of 38 long-term acute care hospitals and 279 nursing centers, 41
institutional pharmacies and, through its Atria Communities affiliate, 23
independent and assisted living communities. The Company also provides contract
subacute, rehabilitation and respiratory therapy services to nursing and
subacute centers.
