DEFM14A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities
Exchange Act of 1934
Filed by the Registrant þ
Filed by a Party other than the Registrant
o
Check the appropriate box:
o Preliminary
Proxy Statement
o Confidential,
for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
þ Definitive
Proxy Statement
o Definitive
Additional Materials
o Soliciting
Material Pursuant to
§ 240.14a-12
Manor Care, Inc.
(Name of Registrant as Specified In
Its Charter)
(Name of Person(s) Filing Proxy
Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
o No fee required.
o Fee computed on
table below per Exchange Act
Rules 14a-6(i)(1)
and 0-11.
þ Fee paid
previously with preliminary materials.
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Check box if any part of the fee is offset as provided by
Exchange Act
Rule 0-11(a)(2)
and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its
filing.
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(1)
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Amount Previously Paid:
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(2)
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Form, Schedule or Registration Statement No.:
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Manor Care, Inc.
September 14, 2007
Dear Stockholder:
The board of directors of Manor Care, Inc. (Manor
Care, we, us or our)
has unanimously (with Paul A. Ormond and Steven L. Guillard
taking no part in the vote) approved a merger agreement
providing for the merger of Manor Care with MCHCR-CP Merger Sub,
Inc. (MergerCo), which is an affiliate of The
Carlyle Group, which is a private equity firm. If the merger is
completed, you will receive $67.00 in cash, without interest,
for each share of our common stock that you own, and Manor Care
will become wholly owned by MCHCR-CP Holdings, Inc., the sole
stockholder of MergerCo and an affiliate of The Carlyle Group.
You will be asked, at a special meeting of the Manor Care
stockholders, to consider and vote on a proposal to adopt the
merger agreement. After careful consideration, our board of
directors approved the merger agreement, the merger and the
other transactions contemplated by the merger agreement and
unanimously (with Messrs. Ormond and Guillard taking no
part in the vote due to potential conflicts of interest as a
result of their positions as officers of Manor Care and The
Carlyle Groups interest in having certain members of Manor
Cares management team participate as investors in the
merger) declared that the merger agreement, the merger and the
other transactions contemplated by the merger agreement are
advisable and in the best interests of our stockholders. THE
BOARD OF DIRECTORS UNANIMOUSLY (WITH MESSRS. ORMOND AND GUILLARD
TAKING NO PART IN THE RECOMMENDATION) RECOMMENDS THAT YOU
VOTE FOR THE ADOPTION OF THE MERGER AGREEMENT.
The time, date and place of the special meeting to consider and
vote upon the adoption of the merger agreement are as follows:
2:00 p.m., eastern time, on October 17, 2007
in the auditorium of One SeaGate, Toledo, Ohio
The proxy statement attached to this letter provides you with
information about the merger and the special meeting. A copy of
the merger agreement is attached as Annex A to this proxy
statement. We encourage you to read the entire proxy statement
carefully. You may also obtain additional information on us from
documents we have filed with the Securities and Exchange
Commission.
Your vote is very important, regardless of the number of
shares of our common stock you own. The merger cannot be
completed unless holders of a majority of the outstanding shares
of our common stock entitled to vote at the special meeting of
stockholders vote for the adoption of the merger agreement. If
you do not vote, it will have the same effect as a vote against
the adoption of the merger agreement.
Whether or not you plan to attend the special meeting of
stockholders in person, please vote your shares using one of the
three alternatives offered on your proxy card to ensure your
representation and the presence of a quorum at the special
meeting. If you attend the meeting, you may vote your shares in
person, even though you have previously voted by proxy.
Thank you in advance for your cooperation and continued support.
On behalf of your Board of Directors,
Paul A. Ormond
Chairman of the Board, President and
Chief Executive Officer
THIS PROXY STATEMENT IS DATED SEPTEMBER 14, 2007 AND IS
FIRST BEING
MAILED TO STOCKHOLDERS ON OR ABOUT SEPTEMBER 17, 2007
Manor Care, Inc.
Notice of Special Meeting of
Stockholders
October 17,
2007
Manor Care, Inc. will hold a special meeting of stockholders on
October 17, 2007 at 2:00 p.m., eastern time, in the
auditorium of One SeaGate, Toledo, Ohio. At the meeting, we will:
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Consider and vote on a proposal to adopt the Agreement and Plan
of Merger, dated as of July 2, 2007, between MCHCR-CP
Merger Sub Inc. and Manor Care, Inc., pursuant to which, upon
the merger becoming effective, each outstanding share of Manor
Care common stock, par value $0.01 per share (other than shares
held in our treasury or owned by MCHCR-CP Merger Sub Inc. or its
sole stockholder and shares held by stockholders who properly
demand statutory appraisal rights) will be converted into the
right to receive $67.00 in cash, without interest;
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Approve the adjournment or postponement of the special meeting,
if necessary or appropriate, to solicit additional proxies if
there are insufficient votes at the time of the meeting to adopt
the merger agreement; and
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Consider any other business properly presented at the special
meeting.
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Only stockholders of record at the close of business on
September 10, 2007 will be entitled to notice of and to
vote at the special meeting.
Your vote is very important, regardless of the number of
shares of our common stock you own. The adoption of the
merger agreement requires the affirmative vote of the holders of
a majority of the outstanding shares of our common stock on the
record date for the special meeting. Whether or not you
plan to attend the special meeting of stockholders in person,
please vote your shares using one of the three alternatives
offered on your proxy card to ensure your representation and the
presence of a quorum at the special meeting. If you attend the
special meeting, you may vote your shares in person, even though
you have previously voted by proxy. If you sign, date
and mail your proxy card without indicating how you wish to
vote, your vote will be counted as a vote FOR
the adoption of the merger agreement.
If you fail to vote by proxy or in person, the effect will be
that your shares will not be counted for purposes of determining
whether a quorum is present at the special meeting and, if a
quorum is present, will have the same effect as a vote against
the adoption of the merger agreement. If you are a stockholder
of record and wish to vote in person at the special meeting, you
may withdraw your proxy and vote in person.
Stockholders of Manor Care who do not vote in favor of the
adoption of the merger agreement will have the right to seek
appraisal of the fair value of their shares if the merger is
completed, but only if they submit a written demand for
appraisal to Manor Care before the vote is taken on the merger
agreement and comply with all requirements of Delaware law,
which are summarized in the accompanying proxy statement under
the caption Appraisal Rights beginning on
page 69.
By Order of the Board of Directors,
Richard A. Parr II
Secretary
September 14, 2007
TABLE OF
CONTENTS
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MANOR
CARE, INC.
333 N. Summit St.
Toledo, Ohio 43604
PROXY
STATEMENT
This proxy statement and the accompanying proxy card are being
mailed to our stockholders in connection with the solicitation
of proxies by our Board of Directors for a special meeting of
stockholders to be held on October 17, 2007, beginning at
2:00 p.m., eastern time, at One SeaGate, Toledo, Ohio, in
the auditorium adjacent to the lobby, and any adjournment or
postponement thereof. The mailing commenced on or about
September 17, 2007.
This summary highlights selected information from this proxy
statement and may not contain all of the information that is
important to you. To understand the merger fully, and for a more
complete description of the legal terms of the merger, you
should carefully read this entire proxy statement, the annexes
attached to this proxy statement and the documents referred to
or incorporated by reference in this proxy statement. We have
included page references in parentheses to direct you to the
appropriate place in this proxy statement for a more complete
description of the topics presented in this summary. In this
proxy statement, the terms Manor Care, HCR
Manor Care, we, us and
our refer to Manor Care, Inc.
The
Parties to the Merger Agreement (page 14)
Manor Care, Inc.
333 N. Summit Street
Toledo, OH
43604-2617
(419) 252-5500
Manor Care, Inc., a Delaware corporation, provides a range of
health care services, including skilled nursing care, assisted
living, post-acute medical and rehabilitation care, hospice
care, home health care and rehabilitation therapy. The most
significant portion of our business relates to long-term care,
including skilled nursing care and assisted living. Our other
segment is hospice and home health care.
We are a leading owner and operator of long-term care centers in
the United States, with the majority of our facilities operating
under the respected Heartland, ManorCare Health Services and
Arden Courts names. On September 10, 2007, we operated 280
skilled nursing facilities and 65 assisted living facilities in
30 states, with 62 percent of our facilities located
in Florida, Illinois, Michigan, Ohio and Pennsylvania.
Our hospice and home health business specializes in all levels
of hospice care, home health and rehabilitation therapy, through
122 offices in 25 states as of September 10, 2007. In
addition, we operated 10 inpatient hospice facilities at
September 10, 2007.
In addition to the rehabilitation provided in each of our
skilled nursing centers, we provide rehabilitation therapy in
our 83 outpatient therapy clinics and at work sites, schools,
hospitals and other health care settings. Our outpatient
rehabilitation therapy business primarily performs services in
Midwestern and Mid-Atlantic states, Texas and Florida.
MCHCR-CP Merger Sub Inc. (MergerCo)
In care of The Carlyle Group
1001 Pennsylvania Avenue NW
Washington, DC 20004
(202) 729-5626
MergerCo is a Delaware corporation and the wholly-owned
subsidiary of MCHCR-CP Holdings, Inc. (Holdings).
MergerCo and Holdings were formed at the direction of The
Carlyle Group in anticipation of
the merger. Subject to the terms of the merger agreement and in
accordance with Delaware law, at the effective time of the
merger, MergerCo will merge with and into Manor Care. MergerCo
has de minimis assets and no operations.
The Carlyle Group (Carlyle)
1001 Pennsylvania Avenue, NW
Washington, DC 20004
(202) 729-5626
The Carlyle Group is a global private equity firm with
$58.5 billion under management. Carlyle invests in buyouts,
venture & growth capital, real estate and leveraged
finance in Asia, Europe and North America, focusing on
aerospace & defense, automotive &
transportation, consumer & retail, energy &
power, healthcare, industrial, infrastructure,
technology & business services and
telecommunications & media. Since 1987, the firm has
invested $28.3 billion of equity in 636 transactions for a
total purchase price of $132 billion. The Carlyle Group
employs more than 800 people in 18 countries. In the
aggregate, Carlyle portfolio companies have more than
$87 billion in revenue and employ more than
286,000 people around the world.
The
Special Meeting
Time,
Place and Date (page 15)
The special meeting will be held on October 17, 2007,
beginning at 2:00 p.m., eastern time, in the auditorium of
One SeaGate, Toledo, Ohio.
Purpose
(page 15)
You will be asked to consider and vote on a proposal to adopt an
Agreement and Plan of Merger, dated as of July 2, 2007 (as
it may be amended from time to time, the merger
agreement), between MCHCR-CP Merger Sub, Inc.
(MergerCo) and Manor Care, Inc. The merger agreement
provides that MergerCo will be merged with and into Manor Care
(the merger), with Manor Care being the surviving
corporation in the merger (the surviving
corporation). Each outstanding share of Manor Care common
stock (other than shares held in our treasury or owned by
MergerCo or its sole stockholder, MCHCR-CP Holdings, Inc., and
shares held by stockholders who properly demand statutory
appraisal rights) will be converted into the right to receive
$67.00 in cash, without interest.
You will also be asked to consider and vote on a proposal to
adjourn or postpone the special meeting, if determined to be
necessary.
The persons named in the accompanying proxy card will also have
discretionary authority to vote upon other business, if any,
that properly comes before the special meeting and any
adjournments or postponements of the special meeting.
Record
Date and Quorum (page 15)
You are entitled to vote at the special meeting if you owned
shares of our common stock at the close of business on
September 10, 2007, the record date for the special
meeting. You will have one vote for each share of Manor Care
common stock that you owned on the record date. As of the record
date, there were 73,281,931 shares of our common stock
entitled to be voted.
A quorum is the number of shares that must be present to have
the special meeting. The quorum requirement for the special
meeting is a majority of the outstanding shares as of the record
date, present in person or represented by proxy. If you submit a
valid proxy card or attend the special meeting, your shares will
be counted to determine whether a quorum is present. Abstentions
and broker non-votes count toward the quorum. A broker
non-vote occurs when a nominee (such as a bank or broker)
holding shares for a beneficial owner does not have
discretionary voting power and does not receive voting
instructions from the beneficial owner before the meeting.
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Required
Vote (page 15)
Completion of the merger requires the adoption of the merger
agreement by the affirmative vote of the holders of a majority
of the outstanding shares of our common stock at the close of
business on the record date for the special meeting. A failure
to vote your shares of our common stock or an abstention will
have the same effect as voting against the merger. The proposal
to adjourn or postpone the special meeting and approval of any
other item require the affirmative vote of a majority of the
shares represented in person or by proxy and entitled to vote on
such item.
Although abstentions and broker non-votes count for quorum
purposes, in the case of the adoption of the merger agreement,
they will have the same effect as a vote against the merger.
Share
Ownership of Directors and Executive Officers
(page 72)
As of the record date for the special meeting, the directors and
executive officers of Manor Care beneficially owned, in the
aggregate, 4,204,243 shares of our common stock, or
approximately 5.6% of the outstanding shares of our common
stock. The directors and executive officers have informed us
that they intend to vote all of their shares of Manor Care
common stock FOR the adoption of the merger
agreement and FOR any adjournment or
postponement of the special meeting, if necessary or
appropriate, to solicit additional proxies.
Voting
and Proxies (page 15)
Any Manor Care stockholder of record entitled to vote may submit
a proxy by returning a signed proxy card by mail, by internet or
by telephone following the instructions on your proxy card, or
may vote in person by appearing at the special meeting. If your
shares are held in street name by your bank, broker
or other nominee, you should instruct your nominee on how to
vote your shares using the instructions provided by your
nominee. If you do not provide your nominee with instructions,
your shares will not be voted and that will have the same effect
as voting against the merger.
Revocability
of Proxy (page 15)
Any Manor Care stockholder of record who executes and returns a
proxy card may revoke the proxy at any time before it is voted
in any one of the following ways:
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submitting a new proxy card;
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giving written notice to us before the meeting that you are
revoking your proxy card to Manor Care, Inc., in care of
National City Bank, P.O. Box 535800, Pittsburgh, PA
15253;
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casting a new vote by internet at
http://www.cesvote.com
or by telephone at (888) 693-8683; or
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attending the meeting and voting your shares in person.
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If you hold your shares indirectly in the name of a bank,
broker, or other nominee, the revocation must be performed by
your nominee by submitting a new proxy card or giving us written
notice of the revocation.
When the
Merger Will be Completed (page 49)
We are working to complete the merger as soon as possible. We
anticipate completing the merger by the end of 2007, subject to
adoption of the merger agreement by our stockholders and the
satisfaction of the other closing conditions. In addition,
MergerCo is not obligated to complete the merger until the
expiration of a 30 consecutive calendar day (subject to tolling
and extension under certain circumstances) marketing
period throughout which MergerCo shall have the financial
information that we are required to provide pursuant to the
merger agreement to complete the debt financing of the merger,
our independent public accountants shall not have withdrawn any
relevant audit opinion and the conditions to closing (other than
conditions that by their nature may be satisfied only at closing
and certain conditions relating to governmental approvals and
the financing-related CMBS restructuring (as defined below under
The Merger Agreement CMBS
Restructuring beginning on page 62)) shall have
been satisfied.
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Effects
of the Merger (page 49)
If the merger agreement is adopted by our stockholders and the
other conditions to closing are satisfied, MergerCo will merge
with and into Manor Care. The separate corporate existence of
MergerCo will cease, and Manor Care will continue as the
surviving corporation, wholly owned by entities sponsored by or
co-investors with Carlyle. Upon completion of the merger, our
common stock will be converted into the right to receive $67.00
per share, without interest and less any required withholding
taxes. The surviving corporation will be a privately held
corporation, and you will cease to have any ownership interest
in the surviving corporation or any rights as its stockholder.
Recommendation
of Our Board of Directors (page 25)
After careful consideration, our board of directors unanimously
(with Messrs. Ormond and Guillard taking no part in the
vote) approved the merger agreement, the merger and the other
transactions contemplated by the merger agreement and declared
that the merger agreement, the merger and the other transactions
contemplated by the merger agreement are advisable and in the
best interests of our stockholders. ACCORDINGLY, OUR BOARD OF
DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ADOPTION
OF THE MERGER AGREEMENT AND FOR ANY PROPOSAL BY
MANOR CARE TO ADJOURN OR POSTPONE THE SPECIAL MEETING, IF
DETERMINED TO BE NECESSARY.
In reaching its decision, our board of directors considered a
variety of business, financial and market factors and, in
evaluating the merger, consulted with our management team and
legal and financial advisors. In considering the recommendation
of our board of directors with respect to the merger, you should
be aware that certain of our directors and executive officers
have interests in the merger that differ from, or are in
addition to, your interests as a stockholder. See The
Merger Interests of Our Directors and Executive
Officers in the Merger beginning on page 39.
For the factors considered by our board of directors in reaching
its decision to approve the merger agreement and the merger, see
The Merger Reasons for the Merger
beginning on page 23.
Opinion
of JPMorgan (page 25 and Annex B)
J.P. Morgan Securities Inc. (JPMorgan) delivered its
opinion to our board of directors that, as of the date of its
opinion and based upon and subject to the factors and
assumptions set forth in its opinion, the merger consideration
of $67.00 in cash per share to be received by our stockholders
in the merger was fair, from a financial point of view, to such
stockholders.
The full text of the written opinion of JPMorgan, dated
July 1, 2007, which sets forth the assumptions made,
matters considered and limitations on the review undertaken in
connection with the opinion, is attached as Annex B to this
proxy statement. Our stockholders are encouraged to read the
opinion carefully in its entirety. JPMorgans written
opinion is addressed to our board of directors, and is directed
only to the consideration to be received in the merger and does
not constitute a recommendation to any of our stockholders as to
how such stockholder should vote at the special meeting.
Pursuant to an engagement letter between Manor Care and
JPMorgan, we have agreed to pay JPMorgan a transaction fee of
0.55% of the aggregate consideration to be paid in the
transaction, or approximately $34.8 million (less the
amount of the opinion fee to Citigroup Global Markets Inc.),
$5 million of which was payable upon delivery of its
opinion and the remainder of which is payable upon and
contingent on consummation of the merger. In addition,
affiliates of JPMorgan will be entitled to receive fees from
MergerCo pursuant to debt commitment letters delivered by
affiliates of JPMorgan to MergerCo as described under
The Merger Financing Debt
Financing beginning on page 37.
Opinion
of Citi (page 31 and Annex C)
In connection with the merger, our board of directors received a
written opinion, dated July 1, 2007, from Citigroup Global
Markets Inc. (Citi), as to the fairness, from a
financial point of view and as of the date of the opinion, of
the $67.00 per share merger consideration to be received in the
merger by holders of our common stock. The full text of
Citis written opinion is attached as Annex C to this
proxy statement. Our stockholders are encouraged to read this
opinion carefully in its entirety for a description of the
assumptions made, procedures
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followed, matters considered and limitations on the review
undertaken. Citis opinion was provided to our board of
directors in connection with its evaluation of the per share
merger consideration from a financial point of view. Citis
opinion does not address any other aspects or implications of
the merger and does not constitute a recommendation to any of
our stockholders as to how such stockholder should vote or act
on any matters relating to the proposed merger. Pursuant to
an engagement letter between Manor Care and Citi, we have agreed
to pay Citi an opinion fee of $5 million, all of which was
payable upon delivery of its opinion.
Financing
(page 36)
MergerCo estimates the total amount of funds necessary to
complete the merger and the related transactions to be
approximately $6.6 billion, which includes approximately
$5.4 billion (net of the impact of certain call options
entered into in connection with Manor Cares 2.125%
convertible senior notes due 2035) to be paid out to our
stockholders and holders of other equity-based interests in
Manor Care, with the remainder to be applied to refinance
existing indebtedness and pay related fees and expenses in
connection with the merger, the financing arrangements and the
related transactions. These payments are expected to be funded
by a combination of equity contributions by entities sponsored
by or co-investors with Carlyle and debt financing, as well as
our available cash.
In connection with the execution and delivery of the merger
agreement, MergerCo has obtained commitments to provide up to
$5.5 billion in debt financing, consisting of (1) a
first lien term loan facility in an aggregate principal amount
of $700 million, (2) a revolving first lien credit
facility in an aggregate principal amount of $200 million,
(3) a secured real estate credit facility in an aggregate
principal amount of approximately $4.6 billion (subject to
reduction by amount drawn under the bridge facility described in
clause (4) below) (the CMBS facility) and
(4) a senior bridge loan facility in an aggregate principal
amount of $4.6 billion, which will be available to the
extent that any portion of the CMBS facility is not available,
to finance a portion of the merger consideration, the
refinancing of certain of our debt outstanding on the closing
date of the merger and to pay fees, commissions and expenses in
connection with the merger and, in the case of the first lien
term loan facility and the revolving first lien credit facility,
to provide cash collateral for bonds
and/or
letters of credit and for working capital and general corporate
purposes. MergerCo has agreed to use its reasonable best efforts
to consummate the debt financing on the terms and conditions
described in the commitments. In addition, MergerCo has obtained
an equity commitment from Carlyle Partners V, L.P. The
facilities contemplated by the debt financing commitments are
subject to various conditions, as described in further detail
under The Merger Financing
Conditions to the Financing beginning on page 39.
The closing of the merger is not conditioned on the receipt of
the debt financing by MergerCo. MergerCo, however, is not
required to consummate the merger until after the completion of
the marketing period, as described above under When the
Merger Will be Completed and in further detail under
The Merger Agreement Effective Time; The
Marketing Period beginning on page 49.
Treatment
of Outstanding Equity-Based Awards (page 50)
Except as otherwise agreed between MergerCo and the holder of
outstanding equity-based awards, at the effective time of the
merger:
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each outstanding option to purchase shares of our common stock
and each outstanding stock appreciation right with respect to
shares of our common stock, whether or not then exercisable,
will be canceled and converted into the right to receive a cash
payment equal to the excess (if any) of the $67.00 per share
cash merger consideration over the exercise price per share of
the option or stock appreciation right, multiplied by the number
of shares subject to the option or stock appreciation right;
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each outstanding share of restricted stock will immediately vest
and will be converted into the right to receive $67.00 per share;
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each outstanding stock award subject to performance-based
vesting criteria will immediately vest at the maximum
performance level and will be converted into the right to
receive $67.00 per share; and
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each outstanding restricted stock unit, whether or not vested,
will be canceled and will be converted into the right to receive
$67.00 per unit.
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In the case of stock equivalent units outstanding under our
deferred compensation plans, at the effective time of the
merger, each such stock equivalent unit will cease to represent
the right to receive a share of our common stock and instead
will be converted into the right to receive $67.00 per unit.
Such amounts will be credited under our deferred compensation
plans and will be notionally reinvested in the future in
accordance with the terms of the applicable plan.
Interests
of Our Directors and Executive Officers in the Merger
(page 39)
Our directors and executive officers may have interests in the
merger that are different from, or in addition to, yours,
including the following:
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our directors and executive officers will receive cash
consideration for their vested and unvested equity-based awards
in connection with the merger;
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each of Paul A. Ormond, Stephen L. Guillard, Steven M. Cavanaugh
and Richard A. Parr II is a party to an employment
agreement with us that provides for (1) vesting of
equity-based awards and payout of annual bonus plan awards and
performance award plan awards at designated levels upon a change
in control, (2) severance and other separation benefits
(including (a) cash severance payments, (b) continued
welfare benefits, (c) additional service credit under our
tax-qualified and supplemental pension, retirement and savings
plans, (d) solely in the case of Messrs. Ormond and
Cavanaugh, full funding of any split dollar life insurance
arrangements maintained by Manor Care for the executives
benefit and (e) solely in the case of Mr. Ormond,
continued use of office space) if the executives
employment terminates under certain circumstances following
completion of the merger, and
(3) gross-ups
in respect of certain golden parachute excise taxes payable by
the executive and certain other taxes, interest and penalties
that may be imposed on nonqualified deferred compensation;
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pursuant to an agreement between us and Mr. Ormond
regarding Manor Cares purchase of a life insurance policy
with premiums payable in a total amount equal to
$3.4 million, if Mr. Ormonds employment
terminates under certain circumstances following the effective
time of the merger, Manor Care will transfer ownership of the
life insurance policy to Mr. Ormond;
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the merger agreement provides that, during the one-year period
following the effective time of the merger, the surviving
corporation will maintain certain benefit plans and will
continue to provide certain compensation and benefits;
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the merger agreement provides for indemnification and liability
insurance arrangements for each of our current and former
directors and officers;
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Carlyle has informed us that it currently intends to retain the
members of our management team following the merger, and that it
expects that Mr. Ormond and our other executive officers
will remain in their current positions with the surviving
corporation following completion of the merger; and
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while no agreements have been entered into as of the date of
this proxy statement, members of our management may enter into
employment agreements with the surviving corporation and may
participate in the equity of the surviving corporation.
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Our board of directors was aware of these interests and
considered them, among other matters, in making its decisions.
Material
United States Federal Income Tax Consequences of the Merger
(page 45)
For U.S. federal income tax purposes, the merger will be
treated as a sale of the shares of our common stock for cash by
each of our stockholders. As a result, in general, each
stockholder will recognize gain or loss equal to the difference,
if any, between the amount of cash received in the merger and
such stockholders adjusted tax basis in the shares
surrendered. Such gain or loss will be capital gain or loss if
the shares of common stock surrendered are held as a capital
asset in the hands of the stockholder, and will be long-term
capital gain or loss if the shares of common stock have a
holding period of more than one year at the time of the merger.
Stockholders are urged to consult their own tax advisors as
to the particular tax consequences to them of the merger.
6
Regulatory
Approvals (page 47)
The
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the
Hart-Scott-Rodino
Act), provides that transactions such as the merger may
not be completed until certain information has been submitted to
the Federal Trade Commission and the Antitrust Division of the
U.S. Department of Justice and certain waiting period
requirements have been satisfied. Manor Care and Carlyle
Partners V MC, L.P. filed notification reports with the
Department of Justice and the Federal Trade Commission under the
Hart-Scott-Rodino
Act on August 2, 2007 and on August 1, 2007,
respectively. We received notification on August 13, 2007
that the waiting period under the
Hart-Scott-Rodino
Act has been terminated.
The merger and the CMBS restructuring are also subject to
certain health care-related local, state and federal regulatory
requirements for notice, abbreviated review or full regulatory
review and approval of the merger or related transactions as
part of the CMBS restructuring, which will encompass the need
for new permits, licenses, certificates of need, third party
payor agreements, certifications and contracts, as well as other
requirements as mandated by the applicable jurisdictions within
which Manor Care provides or owns licensed or otherwise
regulated services.
Procedure
for Receiving Merger Consideration (page 50)
Within two business days after the effective time of the merger,
a paying agent will mail a letter of transmittal and
instructions to you and the other Manor Care stockholders. The
letter of transmittal and instructions will tell you how to
surrender your stock certificates in exchange for the merger
consideration. You should not return your stock certificates
with the enclosed proxy card, and you should not forward your
stock certificates to the paying agent without a signed letter
of transmittal.
No
Solicitation of Transactions (page 56)
The merger agreement restricts our ability to solicit or engage
in discussions or negotiations with a third party regarding
specified transactions involving Manor Care. Notwithstanding
these restrictions, under certain limited circumstances required
for our board of directors to comply with its fiduciary duties,
our board of directors may respond to a bona fide written
proposal for an alternative transaction or, upon paying the
termination fee specified in the merger agreement, terminate the
merger agreement and enter into an agreement with respect to a
superior proposal.
Conditions
to Closing (page 63)
Before we can complete the merger, a number of conditions must
be satisfied. These include:
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the adoption of the merger agreement by our stockholders;
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the expiration or termination of the waiting period under the
Hart-Scott-Rodino
Act;
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the absence of governmental judgments or orders that have the
effect of enjoining or otherwise prohibiting the consummation of
the merger;
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the receipt of all consents and approvals of, and the making of
all filings with and notices to, governmental authorities
required in connection with the merger and the other
transactions contemplated by the merger agreement (including the
debt financing and the related CMBS restructuring), without the
imposition of any condition or restriction that is adverse to
Manor Care or MergerCo, except as would not, in the aggregate,
reasonably be expected to result in losses, costs, liabilities,
damages or expenses to MergerCo
and/or Manor
Care and our subsidiaries in excess of $40 million;
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the completion of the CMBS restructuring;
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the absence of any event, circumstance, development, change or
effect since the date of the merger agreement that has had, or
would reasonably be expected to have, a material adverse effect
(as defined below under The Merger
Agreement Representations and Warranties
beginning on page 51);
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performance by each of the parties of its material obligations
under the merger agreement in all material respects;
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the accuracy of the representations and warranties of each of
the parties to the merger agreement as of the closing date of
the merger as described below under The Merger
Agreement Conditions to the Merger
beginning on page 63; and
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the delivery of closing certificates by each of the parties with
respect to the satisfaction of the conditions relating to its
representations and warranties and material obligations.
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Other than the conditions pertaining to the stockholder
approval, the absence of governmental orders, the expiration or
termination of the
Hart-Scott-Rodino
Act waiting period and the receipt of the required governmental
consents and approvals and mailing of filings and notices,
either Manor Care, on the one hand, or MergerCo, on the other
hand, may elect to waive conditions to their respective
performance and complete the merger.
Termination
of the Merger Agreement (page 65)
The merger agreement may be terminated at any time prior to the
effective time of the merger, whether before or after
stockholder approval has been obtained, as follows:
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by mutual written consent of MergerCo and Manor Care;
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by either MergerCo or Manor Care, if:
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our stockholders do not adopt the merger agreement at the
special meeting or any postponement or adjournment thereof;
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a final, non-appealable governmental order prohibits the merger;
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the merger has not been consummated on or before March 31,
2008, provided that if the closing has not occurred prior
to such date solely as a result of the failure of the marketing
period to have been completed prior to such date, then such date
will be extended by an additional five business days (or, in the
event the marketing period has commenced on or before
March 31, 2008 and is then continuing, the number of days
that remain in the marketing period); provided further
that if the closing has not occurred prior to March 31,
2008 solely as a result of a governmental order or the failure
to receive the required governmental consents or approvals or
make the required filings and notices and it is reasonably
apparent that such condition may be satisfied (or waived) on or
prior to May 30, 2008, the March 31, 2008 date will be
automatically extended to May 30, 2008; or
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there is a breach by the non-terminating party of any of its
representations or warranties or failure to perform any of its
covenants or agreements in the merger agreement such that the
closing conditions would not be satisfied and which cannot be
cured prior to the termination date set forth above;
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by MergerCo, if our board of directors withdraws or adversely
modifies its recommendation or approval of the merger agreement
or recommends, or enters into or causes Manor Care or any of our
subsidiaries to enter into a definitive agreement for, another
takeover proposal; or
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by Manor Care, if
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prior to adoption of the merger agreement by our stockholders,
our board of directors determines that the failure to take such
action would be inconsistent with its fiduciary duties under
applicable law, but only after our board of directors has given
proper notice to MergerCo and taken into account any changes to
the financial terms of the merger agreement proposed by MergerCo
to us in response to such notice or otherwise; or
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all of the mutual conditions to closing and all of the
conditions to MergerCos obligations to close have been
satisfied (other than those conditions that by their terms may
only be satisfied at the closing) and, on or after the last day
of the marketing period, neither MergerCo nor the surviving
corporation has received the proceeds of the debt financing and
MergerCo shall have failed to consummate the merger.
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8
Termination
Fees and Expenses (page 66)
Under certain circumstances, in connection with the termination
of the merger agreement, we will be required to pay to MergerCo
a termination fee of $175 million and in certain
circumstances will be required to reimburse MergerCo for its
documented out-of-pocket fees and expenses incurred in
connection with the merger up to a total of $15 million,
which amount will be credited against any termination fee
payment.
MergerCo has agreed to pay us a termination fee of
$175 million if we terminate the merger agreement in
certain circumstances related to the failure of MergerCo to
receive the proceeds of the debt financing. If, in the event
that MergerCo becomes obligated to pay this termination fee,
then our termination of the merger agreement in these
circumstances and receipt of payment of such termination fee
shall be our sole and exclusive remedy against MergerCo for any
loss or damage suffered as a result of any breach of the merger
agreement by MergerCo and the failure of the merger to be
consummated.
The parties have agreed that the aggregate liability of Manor
Care and our subsidiaries, as a group, on the one hand, or
MergerCo, on the other hand, arising from any breach of the
merger agreement shall be capped at $250 million.
Market
Price of Our Stock (page 71)
Our common stock is listed on the New York Stock Exchange (the
NYSE) under the trading symbol HCR. The
closing sale price of our common stock on the NYSE on
April 10, 2007, which was the last trading day before we
announced that our board of directors was exploring strategic
alternatives, including a potential sale of Manor Care, was
$55.75. The closing sale price of our common stock on the NYSE
on June 29, 2007, which was the last trading day before we
announced the merger, was $65.29. On September 13, 2007,
the last trading day before the date of this proxy statement,
the closing price of our common stock on the NYSE was $64.56.
Appraisal
Rights (page 69 and Annex D)
Pursuant to section 262 of the Delaware General Corporation
Law, referred to as the DGCL, our stockholders have the right to
dissent from the merger and receive a cash payment for the
judicially determined fair value of their shares of our common
stock. The judicially determined fair value under
section 262 could be greater than, equal to or less than
the $67.00 per share that our stockholders are entitled to
receive in the merger. Stockholders that wish to exercise their
appraisal rights must not vote in favor of the adoption of the
merger agreement and must strictly comply with all of the
procedures required by the DGCL. A copy of section 262 of
the DGCL is attached to this proxy statement as Annex D.
9
QUESTIONS
AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER
The following questions and answers are intended to address some
commonly asked questions regarding the special meeting and the
merger. These questions and answers may not address all
questions that may be important to you as our stockholder.
Please refer to the more detailed information contained
elsewhere in this proxy statement, the annexes to this proxy
statement and the documents referred to or incorporated by
reference in this proxy statement.
What is
the proposed transaction?
The proposed transaction is the merger of Manor Care with an
affiliate of Carlyle pursuant to the merger agreement. Once the
merger agreement has been adopted by the Manor Care stockholders
and the other closing conditions under the merger agreement have
been satisfied or waived, MergerCo will merge with and into
Manor Care. Manor Care will be the surviving corporation in the
merger and will become wholly owned by an entity sponsored by or
co-investors with Carlyle.
What will
I receive in the merger?
Upon completion of the merger, you will receive $67.00 in cash,
without interest and less any required withholding taxes, for
each share of our common stock that you own. For example, if you
own 100 shares of our common stock, you will receive
$6,700.00 in cash in exchange for your shares of our common
stock, less any required withholding taxes. You will not own
shares in the surviving corporation.
Where and
when is the special meeting?
The special meeting will take place in the auditorium of One
SeaGate, Toledo, Ohio, on October 17, 2007, at
2:00 p.m., eastern time.
What vote
of our stockholders is required to adopt the merger agreement
and for the adjournment or postponement of the special meeting,
if determined to be necessary?
For us to complete the merger, holders of a majority of the
outstanding shares of our common stock at the close of business
on the record date must vote their shares FOR
the adoption of the merger agreement. Accordingly, failure
to vote or an abstention will have the same effect as a vote
against adoption of the merger agreement. The proposal to
adjourn or postpone the special meeting and approval of any
other item require the affirmative vote of a majority of the
shares represented in person or by proxy and entitled to vote on
such item.
How does
our board of directors recommend that I vote on the merger
agreement and the adjournment or postponement of the special
meeting if determined to be necessary?
Our board of directors unanimously (with Messrs. Ormond and
Guillard taking no part in the recommendation) recommends that
our stockholders vote FOR the adoption of the
merger agreement and FOR the adjournment or
postponement of the special meeting, if determined to be
necessary. You should read The Merger
Reasons for the Merger beginning on page 23 for a
discussion of the factors that our board of directors considered
in deciding to recommend the adoption of the merger agreement.
What do I
need to do now?
We urge you to read this proxy statement carefully, including
its annexes, and to consider how the merger affects you. If you
are a stockholder of record, then you can ensure that your
shares are voted at the special meeting by completing, signing,
dating and mailing each proxy card and returning it in the
envelope provided, by voting on the internet at
http://www.cesvote.com
or by telephone at (888) 693-8683. If you hold your shares
in street name, you can ensure that your shares are
voted at the special meeting by instructing to your bank, broker
or other nominee on how to vote, as discussed below.
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If my
shares are held in street name by my bank, broker or
other nominee, will my nominee vote my shares for me?
Yes, but only if you provide instructions to your bank, broker
or other nominee on how to vote. You should follow the
directions provided by your nominee regarding how to instruct
your nominee to vote your shares. Without those instructions,
your shares will not be voted, which will have the same effect
as voting against adoption of the merger agreement.
Can I
change my vote?
Yes. You can change your vote at any time before your proxy is
voted at the special meeting. If you are a registered
stockholder, you may revoke your proxy by notifying us at Manor
Care, Inc., in care of National City Bank,
P.O. Box 535800, Pittsburgh, PA 15253 in writing or by
submitting by mail a new proxy dated after the date of the proxy
being revoked or by casting a new vote by internet at
http://www.cesvote.com
or by telephone at (888) 693-8683. In addition, your proxy
may be revoked by attending the special meeting and voting in
person (you must vote in person, as simply attending the special
meeting will not cause your proxy to be revoked).
Please note that if you hold your shares in street
name and you have instructed your bank, broker or other
nominee to vote your shares, the above-described options for
changing your vote do not apply, and instead you must follow the
directions received from your nominee to change your vote.
Who
counts the votes?
Our transfer agent, National City Bank, tabulates the votes and
acts as inspector of the election.
Is my
vote confidential?
Yes. All proxy cards and vote tabulations identifying individual
stockholders are handled in a manner that protects your voting
privacy.
How do I
vote my HCR Manor Care Stock Purchase and Retirement Savings
401(k) Plan shares?
If you hold shares through the HCR Manor Care Stock Purchase and
Retirement Savings 401(k) Plan, you will receive a separate
proxy card which describes the three alternative methods for
voting. Use one of these alternatives to instruct the plan
trustee how to vote the shares allocated to your plan account.
If you do not vote by one of these methods (or you submit an
unclear voting designation or no voting designation at all), the
plan trustee will vote the shares in your account the same way
as the majority of the other plan participants voted their
shares. Any revocation of your vote must be submitted to the
plan trustee, and you will not be entitled to vote your shares
in person at the meeting.
What does
it mean if I get more than one proxy card or vote instruction
card?
If your shares are registered differently or are in more than
one account, you will receive more than one proxy card or, if
you hold your shares in street name, more than one
vote instruction card. Please complete and return all of the
proxy cards or vote instruction cards you receive to ensure that
all of your shares are voted.
Should I
send in my stock certificates now?
No. Shortly after the merger is completed, you will receive a
letter of transmittal with instructions informing you how to
send in your stock certificates to the paying agent in order to
receive the merger consideration. You should use the letter of
transmittal to exchange stock certificates for the merger
consideration to which you are entitled as a result of the
merger. DO NOT SEND ANY STOCK CERTIFICATES WITH YOUR PROXY.
11
What
happens if I sell my shares before the special
meeting?
The record date of the special meeting is earlier than the
special meeting and the date that the merger is expected to be
completed. If you transfer your shares of our common stock after
the record date but before the special meeting, you will retain
your right to vote at the special meeting, but will have
transferred the right to receive $67.00 per share in cash to be
received by our stockholders in the merger. In order to receive
the $67.00 per share, you must hold your shares through
completion of the merger.
Am I
entitled to exercise appraisal rights instead of receiving the
merger consideration for my shares?
Yes. As a holder of our common stock, you are entitled to
appraisal rights under Delaware law in connection with the
merger if you meet certain conditions, which conditions are
described in this proxy statement under the caption
Appraisal Rights beginning on page 69.
Can I
attend the meeting in person?
Yes. If you were a stockholder of record at the business on
September 10, 2007, you or your designated proxy may attend
the meeting. We may ask that you or your proxy present valid
identification for admission.
Who can
help answer my other questions?
If you have more questions about the merger, please contact our
Corporate Communications Department at
(419) 252-5500.
If you need assistance in submitting your proxy or voting your
shares or need additional copies of this proxy statement or the
enclosed proxy card, you should contact our proxy solicitation
agent, Georgeson, Inc., at (888) 605-8302. If your bank,
broker or other nominee holds your shares, you should call your
nominee for additional information.
12
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement, and the documents to which we refer you in
this proxy statement, contain forward-looking statements about
our plans, objectives, expectations and intentions.
Forward-looking statements include information concerning
possible or assumed future results of operations of Manor Care,
the expected completion and timing of the merger and other
information relating to the merger. We identify forward-looking
statements in this proxy statement by using words or phrases
such as anticipate, believe,
estimate, expect, intend,
may be, objective, plan,
predict, project, will be
and similar words or phrases, or the negative thereof. For each
of these statements, we claim the protection of the safe harbor
for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995. You should read
statements that contain these words carefully. They discuss our
future expectations or state other forward-looking information,
and may involve known and unknown risks over which we have no
control. Those risks include, without limitation:
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the satisfaction of the conditions to consummation of the
merger, including the adoption of the merger agreement by our
stockholders;
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the occurrence of any event, change or other circumstance that
could give rise to the termination of the merger agreement,
including a termination under circumstances that could require
us to pay a $175 million termination fee to MergerCo;
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the amount of the costs, fees, expenses and charges related to
the merger;
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the effect of the announcement of the merger on our business
relationships, operating results and business generally,
including our ability to retain key employees;
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the risk that the merger may not be completed in a timely manner
or at all, which may adversely affect our business and the price
of our common stock;
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the potential adverse effect on our business, properties and
operations because of certain covenants we agreed to in the
merger agreement;
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the risk that we may be subject to litigation, including the
litigation described under The Merger
Litigation Concerning the Merger beginning on
page 48, in connection with the merger;
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risks related to diverting managements attention from our
ongoing business operations; and
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other risks detailed in our filings with the Securities and
Exchange Commission (the SEC), including
Item 1A. Risk Factors in our Annual Report on
Form 10-K
for our fiscal year ended December 31, 2006. See
General Information Where You Can Find More
Information on page 75.
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We believe that the assumptions on which our forward-looking
statements are based are reasonable. However, we cannot assure
you that the actual results or developments we anticipate will
be realized or, if realized, that they will have the expected
effects on our business or operations. All subsequent written
and oral forward-looking statements concerning the merger or
other matters addressed in this proxy statement and attributable
to us or any person acting on our behalf are expressly qualified
in their entirety by the cautionary statements contained or
referred to in this section. Forward-looking statements speak
only as of the date of this proxy statement or the date of any
document incorporated by reference in this document. Except as
otherwise required by the federal securities laws, we disclaim
any obligation or undertaking to publicly release any updates or
revisions to any forward-looking statement contained in this
report to reflect any change in our expectations with regard
thereto or any change in events, conditions or circumstances on
which any such statement is based.
13
THE
PARTIES TO THE MERGER AGREEMENT
Manor
Care, Inc.
Manor Care, Inc., a Delaware corporation, provides a range of
health care services, including skilled nursing care, assisted
living, post-acute medical and rehabilitation care, hospice
care, home health care and rehabilitation therapy. The most
significant portion of our business relates to long-term care,
including skilled nursing care and assisted living. Our other
segment is hospice and home health care.
We are a leading owner and operator of long-term care centers in
the United States, with the majority of our facilities operating
under the respected Heartland, ManorCare Health Services and
Arden Courts names. On September 10, 2007, we operated 280
skilled nursing facilities and 65 assisted living facilities in
30 states, with 62 percent of our facilities located
in Florida, Illinois, Michigan, Ohio and Pennsylvania.
Our hospice and home health business specializes in all levels
of hospice care, home health and rehabilitation therapy, through
122 offices in 25 states as of September 10, 2007. In
addition, we operated 10 inpatient hospice facilities at
September 10, 2007.
In addition to the rehabilitation provided in each of our
skilled nursing centers, we provide rehabilitation therapy in
our 83 outpatient therapy clinics and at work sites, schools,
hospitals and other health care settings. Our outpatient
rehabilitation therapy business primarily performs services in
Midwestern and Mid-Atlantic states, Texas and Florida.
Manor Cares principal executive offices are at
333 N. Summit Street, Toledo, OH
43604-2617,
and our telephone number is
(419) 252-5500.
MCHCR-CP
Merger Sub Inc.
MCHCR-CP Merger Sub Inc. (MergerCo) is a Delaware
corporation and wholly-owned subsidiary of Holdings. Holdings
and MergerCo were formed at the direction of The Carlyle Group
in anticipation of the merger. Subject to the terms and
conditions of the merger agreement and in accordance with
Delaware law, at the effective time of the merger MCHCR-CP
Merger Sub Inc. will merge with and into Manor Care, Inc.
MCHCR-CP Merger Sub Inc. has de minimis assets and no
operations. Following the closing of the merger, the capital
stock of Holdings will be owned by investment funds managed by
The Carlyle Group or its affiliates and certain co-investors
designated by The Carlyle Group, as well as any members of
management of Manor Care who agree to convert their equity in
Manor Care into equity of Holdings in connection with the
merger. MCHCR-CP Merger Sub Inc. has its principal executive
offices at
c/o The
Carlyle Group, 1001 Pennsylvania Avenue, NW, Washington, DC,
20004, and its telephone number is
(202) 729-5626.
The
Carlyle Group
The Carlyle Group is a global private equity firm with
$58.5 billion under management. Carlyle invests in buyouts,
venture & growth capital, real estate and leveraged
finance in Asia, Europe and North America, focusing on
aerospace & defense, automotive &
transportation, consumer & retail, energy &
power, healthcare, industrial, infrastructure,
technology & business services and
telecommunications & media. Since 1987, the firm has
invested $28.3 billion of equity in 636 transactions for a
total purchase price of $132 billion. The Carlyle Group
employs more than 800 people in 18 countries. In the
aggregate, Carlyle portfolio companies have more than
$87 billion in revenue and employ more than
286,000 people around the world.
14
Time,
Place and Purpose of the Special Meeting
This proxy statement and the accompanying proxy card are being
mailed to our stockholders in connection with the solicitation
of proxies by our board of directors for special meeting of
stockholders to be held on October 17, 2007, beginning at
2:00 p.m., eastern time, at One SeaGate, Toledo, Ohio, in
the auditorium adjacent to the lobby, and any adjournment or
postponement thereof. The mailing commenced on or about
September 17, 2007. The purpose of the special meeting is
for our stockholders to consider and vote upon the adoption of
the merger agreement and to consider and vote on a proposal to
adjourn or postpone the special meeting, if determined to be
necessary. Our stockholders must adopt the merger agreement for
the merger to occur. If the stockholders fail to adopt the
merger agreement, the merger will not occur. A copy of the
merger agreement is attached to this proxy statement as
Annex A.
The holders of record of our common stock as of the close of
business on September 10, 2007, the record date for the
special meeting, are entitled to receive notice of, and to vote
at, the special meeting. On the record date, there were
73,281,931 shares of our common stock outstanding.
The holders of a majority of the outstanding shares of our
common stock at the close of business on the record date
represented in person or by proxy will constitute a quorum for
purposes of the special meeting. A quorum is necessary to hold
the special meeting. Once a share is represented at the special
meeting, it will be counted for the purpose of determining a
quorum at the special meeting and any postponement or
adjournment of the special meeting. However, if a new record
date is set for the adjourned special meeting, then a new quorum
will have to be established.
Completion of the merger requires the adoption of the merger
agreement by the affirmative vote of the holders of a majority
of the outstanding shares of our common stock at the close of
business on the record date for the special meeting. The
proposal to adjourn or postpone the special meeting and approval
of any other item require the affirmative vote of a majority of
the shares represented in person or by proxy and entitled to
vote on such item. Each outstanding share of our common stock is
entitled to one vote.
As of September 10, 2007, the record date for the special
meeting, the directors and executive officers of Manor Care
beneficially owned, in the aggregate, 4,204,243 shares of
Manor Care common stock, or approximately 5.6% of the
outstanding shares of Manor Care common stock. The directors and
executive officers have informed us that they intend to vote all
of their shares of our common stock FOR the
adoption of the merger agreement and FOR any
adjournment or postponement of the special meeting, if
determined to be necessary.
If you are a stockholder of record and submit a proxy by
returning a signed proxy card by mail, by internet or by
telephone, your shares will be voted at the special meeting as
you indicate on your proxy card. If no instructions are
indicated on your proxy card, your shares of Manor Care common
stock will be voted FOR the adoption of the
merger agreement and FOR any adjournment or
postponement of the special meeting, if determined to be
necessary.
If your shares are held in street name by your bank,
broker or other nominee, you should instruct your nominee how to
vote your shares using the instructions provided by your
nominee. If you have not received such voting instructions or
require further information regarding such voting instructions,
contact your nominee and they can give you directions on how to
vote your shares. Under the rules of the NYSE, nominees who hold
shares in street name for customers may not exercise
their voting discretion with respect to the approval of
non-routine matters such as the merger proposal and thus, absent
specific instructions from the beneficial owner of such shares,
brokers are not empowered to vote such shares with respect to
the adoption of the merger agreement (i.e., broker
15
non-votes). Shares of our common stock held by persons
attending the special meeting but not voting, or shares for
which we have received proxies with respect to which holders
have abstained from voting, will be considered abstentions.
Abstentions and properly executed broker non-votes, if any, will
be treated as shares that are present and entitled to vote at
the special meeting for purposes of determining whether a quorum
exists but will have the same effect as a vote
AGAINST adoption of the merger agreement and
any adjournment or postponement of the special meeting.
You may revoke your proxy at any time before the vote is taken
at the special meeting. To revoke your proxy, you must either
advise us in writing at Manor Care Inc., in care of National
City Bank, P.O. Box 535800, Pittsburgh, PA 15253,
submit by mail a new proxy card dated after the date of the
proxy you wish to revoke, cast a new vote by internet at
http://www.cesvote.com
or by telephone at
(888) 693-8683,
or attend the special meeting and vote your shares in person.
Attendance at the special meeting will not by itself constitute
revocation of a proxy.
Please note that if you hold your shares in street
name and you have instructed your bank, broker or other
nominee to vote your shares, the options for revoking your proxy
described in the paragraph above do not apply and instead you
must follow the directions provided by your nominee to change
your vote.
If you hold shares through the HCR Manor Care Stock Purchase and
Retirement Savings 401(k) Plan, you will receive a separate
proxy card which describes the three alternative methods for
voting. Use one of these alternatives to instruct the plan
trustee how to vote the shares allocated to your plan account.
If you do not vote by one of these methods (or you submit an
unclear voting designation or no voting designation at all), the
plan trustee will vote the shares in your account the same way
as the majority of the other plan participants voted their
shares. Any revocation of your vote must be submitted to the
plan trustee, and you will not entitled to vote your shares in
person at the meeting. The Manor Care, Inc. Nonqualified
Retirement Savings and Investment Plan trustee has the exclusive
right to vote the shares held in this plan.
Manor Care does not expect that any matter other than the
adoption of the merger agreement (and the approval of the
adjournment or postponement of the special meeting, if
determined to be necessary) will be brought before the special
meeting. If, however, any such other matter is properly
presented at the special meeting or any adjournment or
postponement of the special meeting, the persons appointed as
proxies will have discretionary authority to vote the shares
represented by duly executed proxies in accordance with their
discretion and judgment.
Adjournments
and Postponements
Although it is not currently expected, the special meeting may
be adjourned or postponed for the purpose of soliciting
additional proxies. Any adjournment may be made without notice
(if the adjournment is not for more than thirty days), other
than by an announcement made at the special meeting of the time,
date and place of the adjourned meeting. Whether or not a quorum
exists, holders of a majority of the shares of our common stock
present in person or represented by proxy at the special meeting
and entitled to vote thereat may adjourn the special meeting. If
no instructions are indicated on your proxy card, your shares of
our common stock will be voted FOR any
adjournment or postponement of the special meeting, if
determined necessary or appropriate, to solicit additional
proxies. Any adjournment or postponement of the special meeting
for the purpose of soliciting additional proxies will allow our
stockholders who have already sent in their proxies to revoke
them at any time prior to their use at the special meeting as
adjourned or postponed.
Manor Care will pay the cost of this proxy solicitation. In
addition to soliciting proxies by mail, directors, officers and
employees of Manor Care may solicit proxies personally and by
telephone, facsimile or other electronic means of communication.
These persons will not receive additional or special
compensation for such solicitation services. Manor Care will,
upon request, reimburse banks, brokers and other nominees for
their expenses in sending proxy materials to their customers who
are beneficial owners and obtaining their voting instructions.
Manor Care has retained Georgeson Inc. to assist it in the
solicitation of proxies for the special meeting and will pay
Georgeson Inc. a fee of approximately $25,000, plus
reimbursement of out-of-pocket expenses.
16
If you need assistance in completing your proxy card or have
questions regarding the special meeting, please contact our
proxy solicitor:
Georgeson Inc.
17 State Street
New York, New York 10004
Telephone:
(888) 605-8302
Attention: Manor Care Special Meeting
17
Our board of directors periodically reviews and assesses
strategic alternatives available to us. At a regularly scheduled
meeting of the board held on January 30, 2007,
Mr. Ormond provided an update on industry developments,
including recent transactions involving other health care
services companies. Mr. Ormond agreed to continue to
evaluate the capital markets and to update the board regarding
market conditions. In early March 2007, Mr. Ormond spoke
individually with the other members of our board of directors by
telephone to apprise them of discussions he had had with various
shareholders, analysts and investment bankers, including
JPMorgan, regarding strategic alternatives. Each of the board
members approved Mr. Ormond to provide information to
JPMorgan for the purpose of evaluating for the board a full
range of alternatives open to Manor Care in the current market
environment.
At a meeting of the board held on April 10, 2007, our board
of directors considered a review of our strategic plan and
potential alternatives to maximize shareholder value. The board
consulted with JPMorgan regarding its analysis of our strategic
alternatives, including, among other things, maintaining the
status quo, a strategic acquisition of another company, a sale
and lease-back of certain Manor Care properties, a spin-off of
Manor Cares real estate and a sale of Manor Care to a
strategic or financial buyer. After further discussions between
members of the board and our management, the board determined at
the meeting that it was advisable and in the best interests of
Manor Care and our stockholders to further explore strategic
alternatives to enhance shareholder value, including through a
potential sale of Manor Care. We retained JPMorgan as financial
advisor, and Cravath, Swaine & Moore LLP
(Cravath) as legal counsel, to Manor Care and the
board. We announced our boards determination to explore
strategic alternatives to enhance shareholder value in an
April 11, 2007 press release.
Also at the April 10, 2007 meeting of the board, JPMorgan
confirmed that, in the event that the board determined to pursue
a sale process, JPMorgan would be willing to offer debt
financing to all potential acquirors of Manor Care, noting that
no acquiror would be obligated to use JPMorgan as its debt
financing source. Representatives of Cravath discussed with the
board the nature of the potential conflict of interest that
might arise from JPMorgan acting both as the financial advisor
to Manor Care and a possible financing source in connection with
a sale of Manor Care and described to the board certain
procedures that JPMorgan undertook to institute to ensure the
separation between the financing teams and the team advising
Manor Care and the safeguards that Manor Care could undertake
with regard to such conflict, including obtaining an additional
opinion from another investment bank as to the fairness, from a
financial point of view, of the consideration to be received in
any transaction that might result from a sale process.
Representatives of JPMorgan were then excused from the board
meeting, and the board engaged in a discussion of the risks and
benefits relating to JPMorgans offer, including the
potential conflict of interest and the related safeguards, with
management and representatives of Cravath. After this
discussion, our board of directors determined that, in the
interest of facilitating any potential sale process, JPMorgan
should make a debt financing package available to all potential
acquirors, subject to the implementation of the appropriate
procedural safeguards. The board of directors also determined
that, should we enter into a transaction involving a change of
control of Manor Care, the board would request that JPMorgan be
willing to opine on the fairness, from a financial point of
view, of the consideration to be received by our stockholders
and the board would also seek to secure the opinion of another
investment bank not providing financing to the acquiror as to
the fairness, from a financial point of view, of the
consideration to be received by our stockholders.
Thereafter, and continuing into July 2007, JPMorgan refined and
updated its analysis of our strategic alternatives. JPMorgan
also began to contact potential strategic and financial
acquirors to gauge their interest in acquiring Manor Care. Over
the course of the following weeks, JPMorgan contacted 48
potential acquirors, including 10 potential strategic acquirors,
to assess their interest in acquiring Manor Care.
On April 19, 2007, the board of directors again met to
discuss the exploration of our strategic alternatives.
Representatives of JPMorgan reviewed for the board the work that
management, with the assistance of JPMorgan and Cravath,
undertook in connection with the exploration of each of our
previously identified strategic alternatives. With respect to
the sale of the company alternative, representatives of JPMorgan
updated the board on the contacts
18
made by JPMorgan to potential financial and strategic acquirors,
noting that at least 24 parties had expressed interest, but that
several of the potential strategic acquirors stated that they
were not interested in exploring further an acquisition of Manor
Care and only two potential strategic acquirors expressed any
meaningful degree of interest in an acquisition of Manor Care.
Following a discussion between the board and JPMorgan and
Cravath regarding next steps, the board directed our management,
with the assistance of JPMorgan and Cravath, to continue to
explore strategic alternatives, including a potential sale of
Manor Care.
Over the course of April 2007, JPMorgan continued to make
contacts with potential acquirors of Manor Care and to analyze
the relative merits of our other strategic alternatives. During
this period, JPMorgan distributed introductory information
materials and a form confidentiality agreement to prospective
acquirors that had expressed interest in Manor Care. We
subsequently executed confidentiality agreements with 21
potential financial acquirors and two potential strategic
acquirors.
At the regular meeting of our board of directors on May 8,
2007, the board received an update regarding the
on-going
exploration of our strategic alternatives, including, among
other things, maintaining the status quo, a strategic
acquisition of another company, a sale and lease-back of certain
Manor Care properties, a spin-off of Manor Cares real
estate and the sale of the company. Representatives of Cravath
reviewed with the board the fiduciary duties of directors in the
context of considering our strategic alternatives.
Representatives of JPMorgan reviewed and discussed with the
board JPMorgans current analysis, based on various
generally accepted valuation methods, of the value that each
strategic alternative could yield to our stockholders which
continued to show highest values for the sale of the company
alternative. Representatives of JPMorgan also updated the board
on the progress of the potential sale of the company process,
noting that, of the 23 parties that had entered into
confidentiality agreements, eight potential financial acquirors
and two potential strategic acquirors had provided preliminary
indications of interest to JPMorgan.
At its May 8, 2007 meeting, our board also received a
report of the compensation committee of the board with respect
to changes in the retention and change in control programs for
our executive officers, which were previously approved by the
compensation committee of the board at the compensation
committees meetings on April 19, 2007, and earlier on
May 8, 2007. Hewitt Associates, the compensation
committees special independent compensation consultants,
reviewed and discussed with the compensation committee its
recommendations with respect to various retention and change of
control arrangements, and Cravath reviewed with the compensation
committee a summary of the proposed retention and change in
control arrangements. In discussing these arrangements, the
compensation committee noted the increased threat posed by
competitors offering to hire our executive officers following
our announcement of the review of strategic alternatives. Based
on the compensation committees review of Manor Cares
retention and change in control arrangements, on June 13,
2007, Manor Care entered into new employment agreements with
each of Paul A. Ormond, Stephen L. Guillard, Steven M. Cavanaugh
and Richard A. Parr II. For a discussion of the impact of the
merger on Manor Cares compensation arrangements, see
The Merger Interests of Our Directors and
Executive Officers in the Merger beginning on
page 39.
Over the course of May and June 2007, the continuing potential
acquirors conducted their due diligence of Manor Care. In
mid-May 2007, we held in-depth management presentations with
each of the continuing potential acquirors, and the potential
acquirors conducted in-depth business accounting and legal due
diligence. During the course of their due diligence process and
prior to the submission of final acquisition proposals, all but
two of the potential buyers dropped out of the process.
On June 8, 2007, JPMorgan distributed a bid procedures
letter and a draft merger agreement to the seven potential
financial acquirors and one potential strategic acquiror that
were still actively engaged in the process. The bid procedures
letter requested that proposals for an acquisition of Manor
Care, accompanied by equity and debt financing commitments,
sponsor guarantees and comments on the draft merger agreement,
be submitted by June 22, 2007. A copy of the draft merger
agreement and a summary thereof was also provided to our board
of directors.
On June 11, 2007, we retained Citi to render an opinion to
our board of directors as to the fairness, from a financial
point of view, of the consideration to be received by holders of
our common stock in connection with a potential sale of the
company.
19
By June 25, 2007, Carlyle and one continuing strategic
acquiror submitted proposals for the acquisition of Manor Care,
together with debt financing commitments and comments on the
draft merger agreement and, in the case of Carlyle, an equity
financing commitment and sponsor guarantee. Carlyle offered
merger consideration of $67.00 per share in cash, while the
potential strategic acquiror offered merger consideration of
$65.00 per share divided equally between cash and the
acquirors common stock. The Carlyle offer was subject to a
condition that would have required Mr. Ormond and other
members of senior management to enter into employment and
related agreements with Carlyle prior to the execution of a
merger agreement. From June 25 to July 2, 2007, Cravath
held discussions and negotiated the terms of the acquisition
documents with counsel for each of the potential acquirors. On
June 25, 2007, Manor Care entered into a confidentiality
agreement with the continuing potential strategic acquiror so
that Manor Care could conduct due diligence on the potential
strategic acquiror to better assess the value of the stock
component of its proposal.
Our board of directors met on June 26, 2007 to further
analyze our strategic alternatives and to consider the proposals
submitted by the two potential acquirors. Representatives of
JPMorgan reviewed and discussed with the board JPMorgans
further refined analysis of our strategic alternatives.
Representatives of JPMorgan also reviewed with the board the
financial terms of each of the acquisition proposals, including
the amount of the proposed equity and debt financing and the
resulting transaction leverage. Representatives of Cravath
reviewed with the board the legal terms of each potential
acquirors proposal, including terms relating to the
conditionality of the acquirors obligation to consummate
the merger. Management discussed with the board its views of the
risks associated with each strategic alternative. In addition,
JPMorgan reviewed and discussed with the board its updated
preliminary financial analysis with respect to Manor Care,
including a review of our full range of strategic alternatives
and Citi reviewed and discussed with the board the proposed
transaction from a financial perspective. With respect to the
potential sale of the company process, representatives of
JPMorgan and Cravath discussed with the board, in light of the
proposals made by each of the potential acquirors, the process
to solicit improved terms from the potential acquirors.
Following discussion, the board determined that a sale of Manor
Care likely would provide our stockholders with greater value
than any of Manor Cares other strategic alternatives.
Nevertheless, the board directed that our management and
JPMorgan continue to conduct their analysis with respect to the
other strategic alternatives. The board also directed JPMorgan
and Cravath to seek improved terms from each of the potential
acquirors. In light of the threshold condition to Carlyles
offer, the board also authorized Mr. Ormond to meet with
Carlyle, on behalf of himself and other members of senior
management, subject to full disclosure to the board regarding
any such meeting and any agreement reached prior to the
boards consideration of a transaction with Carlyle. As a
precaution against any potential resulting conflict of interest,
the board determined that Mr. Ormond and Mr. Guillard
would thereafter be recused from any votes and certain
discussions regarding the boards consideration of
strategic alternatives.
After the June 26, 2007 board meeting, JPMorgan
communicated to each of the potential acquirors that our board
of directors was seeking that certain financial and contractual
terms be improved. At the boards direction, JPMorgan also
commenced due diligence regarding the financial condition of the
potential strategic acquiror in order to evaluate the stock
consideration offered by this potential acquiror.
On June 27, 2007, Carlyle presented to Mr. Ormond its
plans for Manor Care and described the general structure of
co-investment opportunities and equity incentive plans they had
offered in past acquisitions and that could be considered for a
transaction involving Manor Care. During that discussion,
Carlyle also indicated that it would request certain changes to
Mr. Ormonds existing employment agreement. No terms
for equity participation or employment with the surviving
corporation were offered, and no understandings or agreements
were reached with respect to any co-investment or equity
participation by Mr. Ormond or any other member of senior
management or any employment terms for Mr. Ormond or any
other member of senior management.
Prior to the meeting of the board on the morning of
June 28, 2007 described below, Carlyle orally informed
JPMorgan that it was increasing its proposal to a best and final
offer of $67.50 per share and removed the condition, contained
in Carlyles initial offer, that would have required
Mr. Ormond and other members of senior management to enter
into employment and related agreements prior to the execution of
a merger agreement. The potential strategic acquiror informed
Manor Care in writing that it was not willing to increase its
offer price any further.
20
On the morning of June 28, 2007, our board of directors met
to review our strategic alternatives and to discuss the best and
final proposals submitted by the potential acquirors.
Mr. Ormond described to the board his June 27 discussions
with Carlyle, which discussions had been authorized at the
previous board meeting. Mr. Ormond reported that, although
the parties had discussed various possibilities regarding the
general outlines of a relationship following a transaction, no
formal or informal agreements had been reached. Representatives
of JPMorgan reported to the board regarding the potential sale
of the company process, including with respect to the
negotiations that took place with the potential acquirors since
the boards meeting on June 26, 2007. JPMorgan
reviewed the terms of each of the two proposals, noting that
Carlyle had agreed not to condition the execution of a merger
agreement on any prior agreements with Mr. Ormond and other
members of senior management. JPMorgan provided the board with
an updated analysis of other strategic alternatives and
discussed with the board the relative merits of all such
alternatives. Representatives of Cravath then reviewed with the
board the legal terms of the two proposals, noting that
significant progress had been made in negotiations with Carlyle
with respect to, among other things, closing conditions and the
remedies available to Manor Care in the event that MergerCo did
not acquire Manor Care upon satisfaction of such conditions, but
that the potential strategic acquiror had not meaningfully
improved its proposed contractual terms. Representatives of
Cravath responded to questions from the board regarding the
legal terms of the offers and again discussed with the board the
fiduciary duties of directors in connection with evaluating
strategic alternatives. Additional discussions were held among
the non-management directors, JPMorgan and Cravath in the
absence of Mr. Ormond, Mr. Guillard or any other
member of management. The non-management directors, JPMorgan and
Cravath discussed the possibility of continuing negotiations
with the strategic bidder, but, in light of the superiority of
Carlyles offer and the expressed unwillingness of the
strategic bidder to improve its terms or pricing, the board
determined that this action would be productive and advisable
only in the event that negotiations with Carlyle reached an
impasse. The board also determined that, considering the
strategic alternatives available to Manor Care, the dynamics of
the bidding process, the state of the debt markets and certain
other factors, JPMorgan and Cravath should be instructed to
proceed without unnecessary delay in their efforts to finalize
the negotiation of a definitive transaction agreement with
Carlyle at the maximum obtainable price and on the best possible
terms.
On the evening of June 28, 2007, our board of directors met
to review developments that had occurred over the course of the
day. Management informed the board that a $53.2 million
jury verdict had been returned against Manor Care in litigation
relating to patient care in New Mexico, which verdict had also
been disclosed by management to Carlyle and its counsel earlier
in the day. The board discussed with representatives of JPMorgan
and Cravath the implications of this verdict for Manor Care and
the potential sale of the company process, including the request
from Carlyle to conduct further due diligence on this matter.
On the evening of June 29, 2007, our board of directors met
to review the progress of negotiations with Carlyle and other
developments that had occurred since the boards meeting on
the evening of June 28, 2007. Management and JPMorgan
informed the board that, in responding to questions raised by
Carlyle in the course of the due diligence process earlier that
week, management and JPMorgan had determined earlier that day
that a sale of Manor Care would give rise to additional costs in
connection with the termination of certain warrants issued by
Manor Care to an affiliate of JPMorgan. The warrants were issued
in July 2005 and give the JPMorgan affiliate the right to
acquire up to 8,938,960 shares of Manor Care common stock
from us. The terms of the warrants provide for termination
effective on the date of a stockholder vote approving a merger
involving Manor Care in which our stockholders receive any cash
consideration. Upon termination of the warrants, we would be
required to pay the JPMorgan affiliate an amount in cash equal
to the value of the warrants. The value of the warrants is a
combination of their intrinsic value (the difference between the
market price and the strike price) plus the time value. Also in
July 2005, we purchased options from the JPMorgan affiliate with
respect to our common stock in connection with Manor Cares
2.125% convertible senior notes due 2035 (the 2035
convertible notes). The options give Manor Care the right
to purchase from the JPMorgan affiliate approximately the number
of shares of Manor Care common stock that are issuable upon
conversion of the 2035 convertible notes (other than any
additional shares issuable in the context of a sale of Manor
Care pursuant to the make-whole provision of the 2035
convertible notes). The original terms of the options provide
that following a merger involving Manor Care, the options would
continue, but would be adjusted, substantially consistent with
the terms of the 2035 convertible notes, to substitute shares of
Manor Care with the merger consideration unless or until the
options are exercised in connection with conversion of the 2035
convertible notes. In the event of a merger, Manor Care would
not have a contractual right to terminate the options. Our
initial presentation to potential acquirors included the
intrinsic value but did not include the time value
21
of the warrants, and thus bidders had not included it in the
calculation of their respective initial bids. Following further
review by JPMorgan and management, JPMorgan and management
determined that the time value of the warrants would result in
an amount significantly in excess of $50 million due to the
JPMorgan affiliate. This additional cost would, in the context
of a sale of Manor Care, increase Manor Cares net debt by
the full time value of the warrants and directly affect the
value of Manor Care on a dollar-for-dollar basis. Manor Care
discussed with the JPMorgan affiliate the possibility of
terminating the options upon closing of the merger in a manner
that would take into account both the intrinsic value and the
time value of the options, and which would result in a cap on
the net payment owed to the JPMorgan affiliate in respect of the
time value of the options offset against the time value of the
warrants of approximately $50 million. The board
acknowledged that recent developments could have an impact on
the value of Manor Care to any potential acquiror, and the
directors discussed various approaches to minimizing the
cumulative impact of the time value cost of the warrants, the
New Mexico verdict and other concerns. Additional discussions
were held among the non-management directors, JPMorgan and
Cravath in the absence of Mr. Ormond, Mr. Guillard or
any other member of management. Following these discussions, the
board instructed JPMorgan to specifically quantify for Carlyle
the additional warrant liability, to continue negotiations with
Carlyle and to engage the strategic bidder in additional
negotiations on July 2, 2007, if successful negotiations
had not been concluded with Carlyle prior to that time.
Following the meeting of our board on June 29, 2007,
JPMorgan and Cravath engaged in extensive negotiations with
Carlyle and its counsel regarding the pricing and terms of a
potential transaction. At the same time, Manor Care negotiated
with the JPMorgan affiliate to reach an agreement to terminate
both the options and the warrants upon the closing of the merger
under which agreement the net payment to the JPMorgan affiliate
in respect of the time value of the options offset against the
time value of the warrants would be capped at $47 million.
As a result, Carlyle submitted a revised offer to purchase Manor
Care for $67.00 per share.
On the evening of July 1, 2007, our board met to review
Manor Cares strategic alternatives and the revised
financial and legal terms that had been proposed by Carlyle.
Representatives of JPMorgan reported to the board regarding the
potential sale of the company process, including with respect to
the negotiations that had taken place with Carlyle since the
boards meeting on June 29, 2007, and reviewed the
terms of Carlyles proposal. Representatives of Cravath
then reviewed with the board the contractual terms of
Carlyles proposal, noting that Carlyle had further
improved its proposed merger agreement terms with respect to
closing conditions and other matters. Representatives of Cravath
responded to questions from the board regarding the legal terms
of the offer and again discussed with the board the fiduciary
duties of directors in connection with evaluating strategic
alternatives.
After further discussions between the board and representatives
of JPMorgan and Cravath, the board requested that each of
JPMorgan and Citi render an opinion as to the fairness, from a
financial point of view, of the consideration to be received by
holders of our common stock in the proposed merger. JPMorgan and
Citi each separately delivered to the board an oral opinion, and
each such oral opinion was confirmed by delivery of a written
opinion dated July 1, 2007, to the effect that, as of the
date of such opinion and based on and subject to the matters
described in such opinion, the consideration to be received by
the holders of our common stock in the proposed merger was fair,
from a financial point of view, to such holders.
Notwithstanding that Mr. Ormond and Mr. Guillard
confirmed that they had no agreement or understanding with
Carlyle so that no potential conflict of interest existed, all
members of management, including Mr. Ormond and
Mr. Guillard, left the meeting after the delivery of
JPMorgans and Citis respective oral opinions, and
further discussions regarding the potential sale of Manor Care
were conducted by the non-management directors, JPMorgan and
Cravath.
Following additional discussion and deliberation, our board of
directors determined that, based on all information available to
the board, a sale of Manor Care to Carlyle at $67.00 per share
would provide our stockholders with greater value than any of
Manor Cares other strategic alternatives, and the board
unanimously (other than Mr. Ormond and Mr. Guillard,
who did not take part in the vote) approved the merger agreement
with an entity sponsored by Carlyle, the merger and the other
transactions contemplated by the merger agreement, authorized
Manor Care to enter into the merger agreement and resolved to
recommend that our stockholders vote to adopt the merger
agreement.
22
The merger agreement was executed by Manor Care, Inc. and
MCHCR-CP Merger Sub Inc. as of July 2, 2007. On
July 2, 2007, before the opening of trading on the NYSE,
Manor Care and Carlyle issued a joint press release announcing
the merger.
In reaching its decision to approve the merger agreement, the
merger and the other transactions contemplated by the merger
agreement and to recommend that our stockholders vote to adopt
the merger agreement, our board of directors considered a number
of potentially positive factors, including the following
material factors:
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the current and historical market prices of our common stock,
and the fact that the $67.00 per share to be paid for each share
of our common stock in the merger represents a premium of 20.2%
to the closing price of our common stock on April 10, 2007,
the last trading day before we announced exploration of our
strategic alternatives, and a premium of 22.9% to the average
closing price for the 30 days ended April 10, 2007;
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the current condition of the financial markets, including the
availability of financing for the merger at favorable rates, and
the risk of future deterioration in such conditions;
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the possible alternatives to the sale of Manor Care, including
continuing to operate Manor Care on a stand-alone basis and
various recapitalization, restructuring and acquisition
strategies, and the risks and uncertainties associated with such
alternatives, including the risks associated with our ability to
meet our projections for future results of operations, compared
to the certainty of realizing in cash a fair value to our
stockholders in the merger;
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the extensive sale process conducted by us, with the assistance
of JPMorgan and Cravath, which process involved engaging in
discussions with 48 parties to determine their interest in
acquiring Manor Care, entering into confidentiality agreements
with 23 parties and the receipt of two definitive proposals to
acquire Manor Care;
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the price proposed by Carlyle reflected extensive negotiations
between the parties, as well as all positive and negative
developments prior to the approval of the merger agreement, and
represented the highest final price that we had received for the
acquisition of Manor Care;
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the financial presentation of JPMorgan and its opinion, each
dated July 1, 2007, to our board of directors as to the
fairness, from a financial point of view and as of the date of
such opinion, of the $67.00 per share consideration to be
received in the merger by holders of our common stock, as more
fully described below under the caption Opinion of
JPMorgan beginning on page 25 (see also
Annex B to this proxy statement);
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the financial presentation of Citi and its opinion, each dated
July 1, 2007, to our board of directors as to the fairness,
from a financial point of view and as of the date of such
opinion, of the $67.00 per share consideration to be received in
the merger by holders of our common stock, as more fully
described below under the caption Opinion of
Citi beginning on page 31 (see also Annex C
to this proxy statement);
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the terms of the merger agreement and the related agreements,
including:
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the limited number and nature of the conditions to
MergerCos obligation to consummate the merger, and the
likelihood that the merger will be completed, including the
likelihood that the regulatory approvals necessary to complete
the merger will be obtained and the financing-related CMBS
restructuring required as a closing condition to the merger will
be consummated;
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our ability, under certain limited circumstances, to furnish
information to and conduct negotiations with third parties
regarding other proposals;
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our ability to terminate the merger agreement in order to accept
a financially superior proposal, subject to paying MergerCo a
$175 million termination fee, and our board of
directors belief that the $175 million termination
fee (1) is reasonable in light of the comprehensive process
undertaken by the board of directors, as well as the overall
terms of the merger agreement and the benefits of the merger,
including in particular the $175 million fee payable by
MergerCo under the circumstances described below, (2) is
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23
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within the range of termination fees provided in other
transactions of this size and nature and (3) would not
preclude another party from making a competing proposal;
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the limitation on our liability for any breaches of the merger
agreement to $250 million; and
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the limited number and nature of the conditions to funding set
forth in the debt financing commitment letter and the obligation
of MergerCo to use its reasonable best efforts (1) to
obtain the debt financing and (2) if MergerCo fails to
effect the closing because of a failure to obtain the debt
financing and we terminate the merger agreement thereafter, to
pay us a $175 million termination fee.
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the fact that the non-financial terms of the proposal received
from Carlyle were, in the aggregate, more favorable to us than
the non-financial terms of the proposal from the other potential
acquiror; and
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the availability of appraisal rights to our stockholders who
properly exercise their statutory rights (see Appraisal
Rights beginning on page 69 and Annex D to
this proxy statement).
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Our board of directors also considered and balanced against the
potentially positive factors a number of potentially negative
factors concerning the merger, including the following material
factors:
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the risk that the merger might not be completed, including as a
result of a failure by MergerCo to obtain the debt financing or
as a result of a failure to obtain the necessary approvals or
complete the CMBS restructuring;
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the fact that our stockholders will not participate in any
future earnings or growth of Manor Care;
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the fact that the merger consideration consists of cash and will
therefore be taxable to our stockholders for U.S. federal
income tax purposes;
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the restrictions on our ability to solicit or engage in
discussions or negotiations with a third party regarding other
proposals and the requirement that we pay MergerCo a
$175 million termination fee if our board of directors
accepts a superior proposal;
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the possibility of disruption to our operations associated with
the merger (including the fact that the structure of
Carlyles contemplated acquisition of Manor Care involves a
separation of Manor Cares real estate assets from its
operating business, and the potential costs, delays and risks
that may be imposed on Manor Care by such structure), and the
resulting effect thereof on us if the merger does not
close; and
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the fact that Manor Care is entering into a merger agreement
with a newly formed corporation with essentially no assets, but
for which certain obligations are being guaranteed by Carlyle
Partners V, L.P., up to a $250 million limit, and the
fact that Manor Cares remedy in connection with a breach
of the merger agreement by MergerCo, even a breach that is
deliberate or wilful, is limited to $250 million.
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During its consideration of the transaction with MergerCo, our
board of directors was also aware that all of our directors and
executive officers have interests in the merger that are, or may
be, different from, or in addition to, those of our stockholders
generally, as described under The Merger
Interests of Our Directors and Executive Officers in the
Merger beginning on page 39.
After taking into account all of the factors set forth above, as
well as others, our board of directors determined that the
potentially positive factors outweighed the potentially negative
factors. Furthermore, our board of directors determined it to be
advisable and in the best interests of our stockholders that we
enter into the merger agreement, and that the merger agreement,
the merger and the other transactions contemplated by the merger
agreement are advisable and in the best interests of our
stockholders. Our board of directors has unanimously (with
Messrs. Ormond and Guillard taking no part in the vote)
approved the merger agreement, the merger and the other
transactions contemplated by the merger agreement and recommends
that our stockholders vote to adopt the merger agreement at the
special meeting.
Our board of directors did not assign relative weights to the
above factors or the other factors considered by it. In
addition, our board of directors did not reach any specific
conclusion on each factor considered, but conducted an overall
analysis of these factors. Individual members of the board of
directors may have given different weights to different factors.
24
Recommendation
of Our Board of Directors
On July 1, 2007, after evaluating a variety of business,
financial and market factors with the assistance of our
management and our legal and financial advisors, and after due
discussion and due consideration, our board of directors
unanimously (with Messrs. Ormond and Guillard taking no
part in the vote) approved the merger agreement, the merger and
the other transactions contemplated by the merger agreement and
declared that the merger agreement, the merger and the other
transactions contemplated by the merger agreement are advisable
and in the best interests of our stockholders. ACCORDINGLY,
OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR
THE ADOPTION OF THE MERGER AGREEMENT.
Pursuant to an engagement letter, dated April 20, 2007, we
retained JPMorgan as our financial advisor in connection with
our analysis and consideration of various strategic
alternatives, including the proposed merger, and to render an
opinion to our board of directors as to the fairness, from a
financial point of view, of the consideration to be received by
our stockholders in connection with the proposed merger.
At the meeting of our board of directors on July 1, 2007,
JPMorgan rendered its oral opinion, which opinion was confirmed
by delivery of a written opinion dated July 1, 2007, to our
board of directors that, as of such date and based upon and
subject to the factors and assumptions set forth in its opinion,
the consideration to be received by our stockholders in the
proposed merger is fair, from a financial point of view, to such
stockholders. No limitations were imposed by our board of
directors upon JPMorgan with respect to the investigations made
or procedures followed by it in rendering its opinions.
The full text of JPMorgans written opinion, dated
July 1, 2007, which sets forth the assumptions made,
matters considered and limits on the review undertaken, is
attached as Annex B to this proxy statement and is
incorporated herein by reference. Our stockholders are urged
to read the opinion in its entirety. JPMorgans written
opinion is addressed to our board of directors, is directed only
to the fairness, from a financial point of view, of the
consideration to be received by our stockholders in the proposed
merger and does not constitute a recommendation to any of our
stockholders as to how such stockholder should vote at the Manor
Care special meeting. The summary of JPMorgans opinion set
forth in this proxy statement is qualified in its entirety by
reference to the full text of the opinion.
In arriving at its opinion, JPMorgan, among other things:
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reviewed a draft of the merger agreement, dated July 1,
2007;
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reviewed certain publicly available business and financial
information concerning Manor Care and the industries in which we
operate;
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compared the proposed financial terms of the merger with the
publicly available financial terms of certain transactions
involving companies JPMorgan deemed relevant and the
consideration received for those companies;
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compared our financial and operating performance with publicly
available information concerning certain other companies
JPMorgan deemed relevant and reviewed the current and historical
market prices of our common stock and certain publicly traded
securities of those other companies;
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reviewed certain internal financial analyses and forecasts
prepared by our management relating to our business; and
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performed such other financial studies and analyses and
considered such other information as JPMorgan deemed appropriate
for the purpose of its opinion.
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JPMorgan also held discussions with certain members of our
management with respect to certain aspects of the proposed
merger, and the past and current business operations of Manor
Care, our financial condition and future prospects and
operations, and certain other matters JPMorgan believed
necessary or appropriate to its inquiry.
25
JPMorgan relied upon and assumed, without assuming
responsibility or liability for independent verification, the
accuracy and completeness of all information that was publicly
available or was furnished to or discussed with JPMorgan by us
or otherwise reviewed by or for JPMorgan. JPMorgan did not
conduct, and was not provided with, any valuation or appraisal
of any of the assets or liabilities of Manor Care, nor did
JPMorgan evaluate the solvency of Manor Care under any state or
federal laws relating to bankruptcy, insolvency or similar
matters. In relying on financial analyses and forecasts provided
to it, JPMorgan assumed that they were reasonably prepared based
on assumptions reflecting the best currently available estimates
and judgments by management as to our expected future results of
operations and financial condition to which such analyses or
forecasts relate. JPMorgan expressed no view as to such analyses
or forecasts or the assumptions on which they were based.
JPMorgan also assumed that the proposed merger and the other
transactions contemplated by the merger agreement will be
consummated as described in the merger agreement and that the
definitive merger agreement would not differ in any material
respect from the draft provided to JPMorgan. JPMorgan also
assumed that the representations and warranties made by each of
the parties in the merger agreement are and will be true and
correct in all ways material to its analysis. JPMorgan relied as
to all legal matters relevant to the rendering of its opinion
upon the advice of counsel. JPMorgan further assumed that all
material governmental, regulatory or other consents and
approvals necessary for the consummation of the proposed merger
would be obtained without any adverse effect on Manor Care.
The projections furnished to JPMorgan regarding Manor Care were
prepared by our management. We do not publicly disclose internal
management projections of the type provided to JPMorgan in
connection with JPMorgans analysis of the proposed merger,
and such projections were not prepared with a view toward public
disclosure. These projections were based on numerous variables
and assumptions that are inherently uncertain and may be beyond
the control of management, including, without limitation,
factors related to general economic and competitive conditions
and prevailing interest rates. Accordingly, actual results could
vary significantly from those set forth in such projections.
JPMorgans opinion is necessarily based on economic, market
and other conditions as in effect on, and the information made
available to JPMorgan as of, the date of such opinion.
Subsequent developments may affect JPMorgans opinion and
JPMorgan does not have any obligation to update, revise, or
reaffirm such opinion. JPMorgans opinion is limited to the
fairness, from a financial point of view, of the consideration
to be received by our stockholders in the proposed merger, and
JPMorgan has expressed no opinion as to the fairness of the
proposed merger to, or any consideration of, creditors or other
constituencies of Manor Care or the underlying decision by us to
engage in the proposed merger. JPMorgan expressed no opinion as
to the price at which Manor Cares common stock will trade
at any future time, whether before or after the closing of the
proposed merger.
In accordance with customary investment banking practice,
JPMorgan employed generally accepted valuation methods in
reaching its opinion. The following is a summary of the material
financial analyses utilized by JPMorgan in connection with
providing its opinion.
Public
Trading Multiples
Using publicly available information, including filings with the
SEC and published Wall Street equity research estimates,
JPMorgan compared selected financial data of Manor Care with
similar data for selected publicly traded companies engaged in
businesses which JPMorgan judged to be similar to Manor Care.
These companies were
26
selected, among other reasons, because of their operational and
overall business similarities with our business. The companies
reviewed in connection with this analysis were classified into
three groups as follows:
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Long-Term Care Facilities
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Hospice Facilities
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Other Healthcare Facilities
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Extendicare Health Services,
Inc.
Genesis HealthCare Corporation
Kindred Healthcare, Inc.
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Chemed Corporation
Odyssey HealthCare, Inc.
VistaCare, Inc.
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DaVita, Inc.
Tenet Healthcare Corporation
Health Management Associates, Inc.
Community Health Systems, Inc.
Universal Health Services, Inc.
HealthSouth Corporation
Lifepoint Hospitals, Inc.
AmSurg Corp.
MedCath Corporation
Symbion, Inc.
NovaMed, Inc.
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For each selected company, JPMorgan computed the multiple of
firm value, which consists of the market value of the
companys equity as of June 29, 2007 (with the
exception of Genesis Healthcare Corporation, which was based on
the companys market value using an unaffected stock price
as of January 12, 2007, the last trading day prior to the
announcement of its transaction with Formation Capital LLC and
JER Partners), plus the companys net debt, to estimated
2007 and 2008 earnings before interest, taxes, depreciation and
amortization, which is referred to as EBITDA. JPMorgan also
calculated the price to earnings ratio for each selected company
as of June 29, 2007. JPMorgan then computed median and mean
multiples for each group of selected companies. These financial
statistics were calendarized for a December year-end and yielded
the following reference ranges:
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FV/2007E
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FV/2008E
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EBITDA
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EBITDA
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P/E 2007E
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P/E 2008E
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Long-term care
facilities
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High
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10.6
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x
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9.3
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x
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20.1
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x
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17.7
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x
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Mean
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8.6
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x
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7.7
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x
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18.6
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x
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16.3
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x
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Median
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8.8
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x
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8.2
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x
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19.7
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x
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16.8
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x
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Low
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6.1
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x
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5.2
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x
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15.0
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x
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13.9
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x
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Hospice facilities
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High
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11.9
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x
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10.1
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x
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22.1
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x
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26.0
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x
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Mean
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9.8
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x
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8.3
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x
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20.5
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x
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20.4
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x
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Median
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9.8
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x
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8.3
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x
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20.5
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x
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19.0
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x
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Low
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7.7
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x
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6.5
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x
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18.8
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x
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16.0
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x
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Other healthcare
facilities
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High
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11.5
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x
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11.3
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x
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26.4
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x
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21.1
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x
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Mean
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8.5
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x
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7.7
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x
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19.0
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x
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16.6
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x
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Median
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8.6
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x
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8.0
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x
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17.4
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x
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15.9
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x
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Low
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4.2
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x
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3.9
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x
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14.6
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x
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13.1
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x
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Based on the multiples of firm value computed as set forth above
and taking into account differences in our business and such
other companies and such other factors as JPMorgan deemed
appropriate, JPMorgan derived a range of multiples of firm value
to estimated 2007 and 2008 EBITDA of 9.0x to 10.5x and 8.5x to
9.5x, respectively, for Manor Care. These multiples were then
applied to our managements estimates of 2007 and 2008
EBITDA, yielding implied trading values for Manor Care of
approximately $49.50 to $58.50 and $51.50 to $58.25 per share,
respectively. In addition, based on the price to earnings
multiples as set forth above and taking into account differences
between our business and such other companies and such other
factors as JPMorgan deemed appropriate, JPMorgan derived a range
of price to estimated 2007 and 2008 earnings of 19.5x to 20.5x
and 17.0x to 18.0x, respectively. These multiples were then
applied to our managements estimates of 2007 and 2008
earnings per share, yielding implied trading values for Manor
Care of approximately $54.50 to $57.25 and $55.50 to $58.75,
respectively.
27
Discounted
Cash Flow Analysis
JPMorgan conducted a discounted cash flow analysis for the
purpose of determining the fully diluted equity value per share
for our common stock. In accordance with customary valuation
practices, JPMorgan calculated the unlevered free cash flows
that we are expected to generate during fiscal years 2007
through 2016 based upon financial projections prepared by our
management through the years ended 2012 and with management
guidance through the years ended 2016. JPMorgan also calculated
a range of terminal asset values for Manor Care at the end of
the 10-year
period ending 2016 by applying a perpetual growth rate ranging
from 2.5% to 3.5% of our unlevered free cash flow during the
final year of the
10-year
period. The 2.5% to 3.5% growth rate range corresponded to
JPMorgans assumption of organic long-term growth for Manor
Care and was chosen based on JPMorgans review of the
current and historical growth trends of both Manor Care and the
selected companies considered in JPMorgans public trading
multiples analysis, as well as the expected growth
characteristics of Manor Care in 2016. The unlevered free cash
flows and the range of terminal asset values were then
discounted to present values using a range of discount rates
from 9.75% to 10.25%, which were chosen by JPMorgan based upon
an analysis of our weighted average cost of capital. The present
value of the unlevered free cash flows and the range of terminal
asset values were then adjusted for our estimated net debt as of
July 1, 2007, option exercise proceeds, and present value
of potential future cash payments associated with litigation
damages. Based on the adjusted management projections, the
discounted cash flow analysis, on a fully-diluted basis,
indicated a range of equity values for our common stock of
approximately $56.25 to $67.50 per share.
Selected
Transaction Analysis
JPMorgan performed a selected transaction analysis, which
compares the per share merger consideration to be received in
the proposed merger to an implied range of per share values for
Manor Care derived from an analysis of selected precedent
transactions deemed by JPMorgan to be similar to the proposed
merger. Using publicly available information, JPMorgan examined
selected transactions within the skilled nursing provider and
healthcare facilities industry segments that JPMorgan, based on
its experience with mergers and acquisitions analysis, deemed
relevant to arriving at its opinion. JPMorgan selected these
transactions, among other reasons, because the targets involved
in such transactions operate in a similar industry to Manor Care
and have similar lines of business to Manor Care. However, none
of the target companies or selected transactions is identical or
directly comparable to Manor Care or the proposed merger,
respectively. Accordingly, JPMorgan made judgments and
assumptions concerning
28
differences in financial and operating characteristics of the
target companies and other factors that could affect the pricing
of the selected transactions. Specifically, JPMorgan reviewed
the following transactions:
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Acquiror
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Target
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Skilled nursing
provider transactions
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National Senior Care, Inc.
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Mariner Health Care, Inc.
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Extendicare Health Services,
Inc.
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Assisted Living Concepts, Inc.
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Onex Corporation
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Skilled Healthcare Group, Inc.
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Fillmore Capital Partners
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Beverly Enterprises, Inc.
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JER Partners/Formation Capital, LLC
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Tandem Health Care, Inc.
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Sun Healthcare Group, Inc.
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Harborside Healthcare Corporation
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Formation Capital, LLC/JER Partners
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Genesis HealthCare Corporation
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Healthcare facilities
transactions
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Welsh, Carson,
Anderson & Stowe
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Select Medical Corporation
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The Carlyle Group
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LifeCare Holdings, Inc.
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Bain Capital Partners, LLC
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CRC Health Corporation
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Vestar Capital Partners
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National Mentor Holdings, Inc.
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Bain Capital Partners, LLC,
Kohlberg Kravis Roberts & Co. and Merrill Lynch Global
Private Equity
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HCA Inc.
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Welsh, Carson,
Anderson & Stowe
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United Surgical Partners
International, Inc.
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Community Health Systems,
Inc.
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Triad Hospitals, Inc.
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JPMorgan calculated the latest-twelve-months EBITDA transaction
value multiples for the skilled nursing provider transactions
and healthcare facilities transactions by dividing the publicly
announced value of each selected transaction by the
latest-twelve-month EBITDA of the target company prior to the
announcement of the transaction, which yielded the following
reference ranges:
Firm
Value/LTM EBITDA
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High
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Median
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|
Low
|
|
Skilled nursing provider
transactions
|
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|
12.4
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x
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|
|
9.5
|
x
|
|
|
8.1
|
x
|
Healthcare facilities transactions
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|
13.0
|
x
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|
|
8.9
|
x
|
|
|
7.4
|
x
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Based on various judgments concerning the relative comparability
of each of the selected transactions to the proposed merger,
JPMorgan did not rely solely on the quantitative results of the
selected transaction analysis in developing a reference range or
otherwise applying its analysis. JPMorgan, based on its
experience with mergers and acquisitions and this segment of the
healthcare industry, and using the selected skilled nursing
provider and healthcare facilities transaction multiples as a
general guide, selected a range of multiples of transaction
values to latest-twelve-months EBITDA that it believed reflected
an appropriate range of transaction multiples applicable to
Manor Care. JPMorgan applied a range of comparable transaction
multiples of 10.0x to 12.5x to our Firm Value/LTM EBITDA
(calculated as of September 30, 2007), and arrived at an
estimated range of equity values for our common stock of $53.50
to $67.50. The range applied was narrower than that set forth in
the table above primarily because JPMorgan focused on certain
transactions that were most comparable to the proposed merger
based on the operating and financial characteristics of the
targets (specifically, transactions at the higher end of the
range in the table above, including Mariner Healthcare and
Genesis Healthcare).
29
In addition to the financial analyses performed by JPMorgan in
connection with providing its opinion, JPMorgan presented the
following additional financial analyses at the request of our
board of directors:
Historical
Stock Price Analysis
JPMorgan reviewed the historical trading prices for our common
stock for a 52-week period ended April 10, 2007. The high
and low trading prices for our common stock for such 52-week
period were $45.68 and $55.83, respectively. JPMorgan noted that
the $67.00 per share price in the proposed merger represented a
20.2% premium to our closing stock price on April 10, 2007,
the last trading day prior to the date we publicly announced
that we were exploring strategic alternatives with respect to
the business, and a 2.6% premium to our closing stock price on
June 29, 2007, the last trading day prior to the
announcement of the proposed merger.
Leveraged
Buyout Analysis
Using projections prepared by our management, JPMorgan
calculated potential returns to equity investors in connection
with a hypothetical leveraged acquisition of Manor Care. For
purposes of this analysis, JPMorgan assumed the transaction
would be completed on September 30, 2007 and that a
subsequent sale of Manor Care would occur in 2012 at a price
equal to 10.5x managements estimated 2012 EBITDA
(including public company costs). JPMorgan selected an exit
multiple of up to 10.5x as it bore consistency with the last
2 years trading multiple for Manor Care and was
greater than the mean value of Manor Cares trading
multiple for the last 10 years, and was greater than the
last years, 2 years, 5 years and
10 years trading multiples of the publicly-traded
selected companies considered in JPMorgans public trading
multiples analysis. JPMorgan also assumed that the required rate
of return would range from 17.5% to 22.5% in a transaction of
this type. Based on this analysis, JPMorgan estimated a range of
implied equity values for our common stock of $64.25 to $69.25
per share.
The foregoing summary of certain material financial analyses
does not purport to be a complete description of the analyses or
data presented by JPMorgan. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible
to partial analysis or summary description. JPMorgan believes
that the foregoing summary and its analyses must be considered
as a whole and that selecting portions of the foregoing summary
and these analyses, without considering all of its analyses as a
whole, could create an incomplete view of the processes
underlying the analyses and its opinion. In arriving at its
opinion, JPMorgan did not attribute any particular weight to any
analyses or factors considered by it and did not form an opinion
as to whether any individual analysis or factor (positive or
negative), considered in isolation, supported or failed to
support its opinion. Rather, JPMorgan considered the totality of
the factors and analyses performed in determining its opinion.
Analyses based upon forecasts of future results are inherently
uncertain, as they are subject to numerous factors or events
beyond the control of the parties and their advisors.
Accordingly, forecasts and analyses used or made by JPMorgan are
not necessarily indicative of actual future results, which may
be significantly more or less favorable than suggested by those
analyses. Moreover, JPMorgans analyses are not and do not
purport to be appraisals or otherwise reflective of the prices
at which businesses actually could be bought or sold. None of
the selected companies reviewed as described in the above
summary is identical to Manor Care and none of the selected
transactions reviewed was identical to the proposed merger.
However, the companies selected were chosen because they are
publicly traded companies with operations and businesses that,
for purposes of JPMorgans analysis, may be considered
similar to ours. The transactions selected were similarly chosen
because their participants, size and other factors, for purposes
of JPMorgans analysis, may be considered similar to the
proposed merger. The analyses necessarily involve complex
considerations and judgments concerning differences in financial
and operational characteristics of the companies involved and
other factors that could affect the companies compared to Manor
Care and the transactions compared to the proposed merger.
As a part of its investment banking business, JPMorgan and its
affiliates are continually engaged in the valuation of
businesses and their securities in connection with mergers and
acquisitions, investments for passive and control purposes,
negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements, and valuations for
estate, corporate and other purposes. JPMorgan was selected to
advise us with respect to the proposed merger and deliver an
opinion to our board of directors with respect to the proposed
merger on the basis of such experience and its familiarity with
Manor Care.
30
Pursuant to its engagement letter, JPMorgan has acted as
financial advisor to Manor Care with respect to the proposed
merger and Manor Care has agreed to pay JPMorgan (1) a fee
of $5 million upon the delivery of its opinion and
(2) a transaction fee in an amount equal to 0.55% of the
aggregate consideration to be paid in the proposed merger, or
approximately $34.8 million, which is subject to reduction
for fees associated with a second fairness opinion. The
transaction fee shall be payable upon consummation of the
proposed merger and the $5 million fee paid with respect to
JPMorgans delivery of its opinion shall be credited
towards such amount. JPMorgan will also be entitled to receive
25% of any termination fee paid to Manor Care in the event that
the proposed merger is terminated, abandoned or fails to occur
and the $5 million fee paid with respect to JPMorgans
delivery of its opinion shall be credited towards such amount.
In addition, we have agreed to reimburse JPMorgan for its
expenses incurred in connection with its services, including the
reasonable fees and disbursements of counsel, and will indemnify
JPMorgan against certain liabilities, including liabilities
arising under the Federal securities laws.
From time to time, JPMorgan and its affiliates have in the past
provided, are currently providing and in the future may provide
investment banking, commercial banking and other financial
services to Manor Care for which JPMorgan has received, and
would expect to receive, customary compensation. In particular,
in the last two years JPMorgan and its affiliates acted, on
behalf of Manor Care, as the sole bookrunner on our
$250 million issuance of 2.0% convertible senior notes due
2036 in May 2006 and our $400 million issuance of 2.125%
convertible senior notes due 2035 in August 2005. In addition,
JPMorgan and its affiliates have also provided a variety of
services to Carlyle and its affiliates. All such services were
performed for customary compensation. In connection with the
proposed merger, JPMorgan and its affiliates offered financing
terms to potential acquirors of Manor Care (including Carlyle
and its affiliates) and are arranging and providing financing of
the merger consideration for MergerCo. See The
Merger Financing beginning on
page 36. In the ordinary course of its businesses, JPMorgan
and its affiliates may actively trade the debt and equity
securities of Manor Care or affiliates of Carlyle for its own
accounts or for the accounts of customers and, accordingly,
JPMorgan may at any time hold long or short positions in such
securities. Among other transactions, an affiliate of JPMorgan
entered into an option transaction and a warrant transaction
with Manor Care in July 2005. In connection with the merger
agreement, the JPMorgan affiliate and Manor Care entered into an
agreement to terminate both the option transaction and the
warrant transaction on the closing date of the merger. Under the
agreement, the net payment to the JPMorgan affiliate in respect
of the time value of the options offset against the time value
of the warrants, which is referred to as call spread value in
JPMorgans opinion, is capped at $47 million.
Manor Care requested that Citi evaluate the fairness, from a
financial point of view, of the consideration to be received in
the merger by holders of Manor Care common stock. On
July 1, 2007, at a meeting of Manor Cares board of
directors held to evaluate the merger, Citi rendered to Manor
Cares board of directors an oral opinion, which was
confirmed by delivery of a written opinion dated July 1,
2007, to the effect that, as of that date and based on and
subject to the matters described in its opinion, the $67.00 per
share merger consideration was fair, from a financial point of
view, to the holders of Manor Care common stock.
The full text of Citis written opinion, dated
July 1, 2007, which describes the assumptions made,
procedures followed, matters considered and limitations on the
review undertaken, is attached to this proxy statement as
Annex C and is incorporated into this proxy statement by
reference. Citis opinion was provided to Manor Cares
board of directors in connection with its evaluation of the per
share merger consideration from a financial point of view.
Citis opinion does not address any other aspects or
implications of the merger and does not constitute a
recommendation to any stockholder as to how such stockholder
should vote or act on any matters relating to the proposed
merger.
In arriving at its opinion, Citi:
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reviewed a draft dated July 1, 2007 of the merger agreement;
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held discussions with certain senior officers, directors and
other representatives and advisors of Manor Care concerning
Manor Cares business, operations and prospects;
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examined certain publicly available business and financial
information relating to Manor Care;
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31
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examined certain financial forecasts, both before and after
giving effect to certain acquisitions proposed to be undertaken
by Manor Care, and other information and data relating to Manor
Care which were provided to or otherwise discussed with Citi by
Manor Cares management;
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reviewed the financial terms of the merger as set forth in the
merger agreement in relation to, among other things, current and
historical market prices and trading volumes of Manor Care
common stock, Manor Cares historical and projected
earnings and other operating data and Manor Cares
capitalization and financial condition;
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analyzed certain financial, stock market and other publicly
available information relating to the businesses of other
companies whose operations Citi considered relevant in
evaluating those of Manor Care;
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considered, to the extent publicly available, the financial
terms of certain other transactions which Citi considered
relevant in evaluating the merger; and
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conducted such other analyses and examinations and considered
such other information and financial, economic and market
criteria as Citi deemed appropriate in arriving at its opinion.
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In rendering its opinion, Citi assumed and relied, without
assuming any responsibility for independent verification, on the
accuracy and completeness of all financial and other information
and data publicly available or provided to or otherwise reviewed
by or discussed with Citi and on the assurances of Manor
Cares management that it was not aware of any relevant
information that was omitted or remained undisclosed to Citi.
With respect to financial forecasts and other information and
data relating to Manor Care provided to or otherwise reviewed by
or discussed with Citi, Citi was advised by Manor Cares
management, and Citi assumed, with Manor Cares consent,
that the forecasts and other information and data were
reasonably prepared on bases reflecting the best currently
available estimates and judgments of Manor Cares
management as to Manor Cares future financial performance
both before and after giving effect to certain acquisitions
proposed to be undertaken by Manor Care. Citi assumed, with
Manor Cares consent, that the merger would be consummated
in accordance with the terms of the merger agreement, without
waiver, modification or amendment of any term, condition or
agreement in any respect material to Citis opinion and in
compliance with all applicable laws and that, in the course of
obtaining the necessary regulatory or third party approvals,
consents, releases and waivers for the merger, no delay,
limitation, restriction or condition would be imposed that would
have an adverse effect on Manor Care or the merger.
Representatives of Manor Care advised Citi, and Citi also
assumed, with Manor Cares consent, that the final terms of
the merger agreement would not vary materially from those set
forth in the draft reviewed by Citi.
Citi did not make, and it was not provided with, an independent
evaluation or appraisal of the assets or liabilities, contingent
or otherwise, of Manor Care, and Citi did not make any physical
inspection of the properties or assets of Manor Care.
Citis opinion does not address any terms or other aspects
or implications of the merger (other than the $67.00 per share
merger consideration to the extent expressly specified in the
opinion). Citi expressed no view as to, and its opinion does not
address, Manor Cares underlying business decision to
effect the merger, the relative merits of the merger as compared
to any alternative business strategies that might exist for
Manor Care or the effect of any other transaction in which Manor
Care might engage. Citi was not requested to, and did not,
solicit third party indications of interest in the possible
acquisition of Manor Care; however, Citi held discussions with
Manor Care and its other advisors regarding the results of the
solicitation process undertaken as of the date of Citis
opinion by or on behalf of Manor Care. Citi also was not
requested to, and did not, participate in the negotiation or
structuring of the merger. Citis opinion was necessarily
based on information available to Citi, and financial, stock
market and other conditions and circumstances existing and
disclosed to Citi, as of the date of its opinion. Except as
described above, Manor Care imposed no other instructions or
limitations on Citi with respect to the investigations made or
procedures followed by Citi in rendering its opinion.
In preparing its opinion, Citi performed a variety of financial
and comparative analyses, including those described below. The
summary of these analyses is not a complete description of the
analyses underlying Citis opinion. The preparation of a
financial opinion is a complex analytical process involving
various determinations as to the most appropriate and relevant
methods of financial analysis and the application of those
methods to the particular circumstances and, therefore, a
financial opinion is not readily susceptible to summary
description. Citi arrived at its ultimate opinion based on the
results of all analyses undertaken by it and assessed as a
whole, and did
32
not draw, in isolation, conclusions from or with regard to any
one factor or method of analysis for purposes of its opinion.
Accordingly, Citi believes that its analyses must be considered
as a whole and that selecting portions of its analyses and
factors or focusing on information presented in tabular format,
without considering all analyses and factors or the narrative
description of the analyses, could create a misleading or
incomplete view of the processes underlying its analyses and
opinion.
In its analyses, Citi considered industry performance, general
business, economic, market and financial conditions and other
matters existing as of the date of its opinion, many of which
are beyond the control of Manor Care. No company, business or
transaction used in those analyses as a comparison is identical
or directly comparable to Manor Care or the merger, and an
evaluation of those analyses is not entirely mathematical.
Rather, the analyses involve complex considerations and
judgments concerning financial and operating characteristics and
other factors that could affect the acquisition, public trading
or other values of the companies, business segments or
transactions analyzed.
The estimates contained in Citis analyses and the
valuation ranges resulting from any particular analysis are not
necessarily indicative of actual values or predictive of future
results or values, which may be significantly more or less
favorable than those suggested by its analyses. In addition,
analyses relating to the value of businesses or securities do
not necessarily purport to be appraisals or to reflect the
prices at which businesses or securities actually may be sold.
Accordingly, the estimates used in, and the results derived
from, Citis analyses are inherently subject to substantial
uncertainty.
The type and amount of consideration payable in the merger was
determined through negotiations between Manor Care and Carlyle
and the decision to enter into the merger was solely that of our
board of directors. Citis opinion was only one of many
factors considered by our board of directors in its evaluation
of the merger and should not be viewed as determinative of the
views of Manor Cares board of directors or management with
respect to the merger or the merger consideration.
The following is a summary of the material financial analyses
presented to Manor Cares board of directors in connection
with Citis opinion. The financial analyses summarized
below include information presented in tabular format. In order
to fully understand Citis financial analyses, the tables
must be read together with the text of each summary. The tables
alone do not constitute a complete description of the financial
analyses. Considering the data below without considering the
full narrative description of the financial analyses, including
the methodologies and assumptions underlying the analyses, could
create a misleading or incomplete view of Citis financial
analyses.
Selected
Publicly Traded Companies Analysis
Citi reviewed financial and stock market information of Manor
Care and the following eight selected publicly held companies,
three of which are in the skilled nursing facilities industry
and five of which are hospitals:
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Skilled Nursing Facilities Companies
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Hospitals
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Kindred
Healthcare, Inc.
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Community
Health Systems, Inc.
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Skilled
Healthcare Group, Inc.
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Health
Management Associates, Inc.
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Sun
Healthcare Group, Inc.
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Lifepoint
Hospitals, Inc.
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Tenet
Healthcare Corporation
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Universal
Health Services, Inc.
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Citi reviewed, among other things, enterprise values of the
selected companies, calculated as fully diluted equity value
based on closing stock prices on June 29, 2007, plus debt,
less cash, as a multiple of latest 12 months earnings
before interest, taxes, depreciation and amortization, commonly
referred to as EBITDA, and calendar years 2007 and 2008
estimated EBITDA. Citi also reviewed equity values of the
selected companies based on closing stock prices on
June 29, 2007 as a multiple of calendar years 2007 and 2008
estimated earnings per share, commonly referred to as EPS, and
the ratio of 2007 estimated price-to-earnings to 2007 through
2012 estimated earnings growth, commonly referred to as PEG
ratio. Citi then applied a range of selected multiples of 10.0x
to 12.0x in the case of latest 12 months EBITDA, 9.0x to
11.0x in the case of calendar year 2007 estimated EBITDA, 8.0x
to 10.0x in the case of calendar year 2008 estimated EBITDA,
18.5x to 20.5x in the case of calendar year 2007
33
estimated EPS, 16.5x to 18.5x in the case of calendar year 2008
estimated EPS, and 1.20x to 1.35x in the case of 2007 estimated
PEG ratio derived from the selected companies to Manor
Cares latest 12 months (as of March 31,
2007) EBITDA, calendar years 2007 and 2008 estimated EBITDA
and EPS, and 2007 through 2012 estimated EPS growth multiplied
by its 2007 estimated EPS, respectively. Estimated financial
data of the selected companies were based on research
analysts estimates, public filings and other publicly
available information. Estimated financial data of Manor Care
were based on internal estimates of Manor Cares
management. This analysis indicated the following selected per
share equity reference range for Manor Care, as compared to the
per share merger consideration:
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Selected per Share Equity
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Per Share Merger
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Reference Range for Manor Care
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Consideration
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$52.00 - $60.00
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$67.00
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Selected
Precedent Transactions Analysis
Using publicly available information, Citi reviewed transaction
values in the following six selected transactions in the skilled
nursing facility industry:
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Announcement Date
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Acquiror
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Target
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01/16/07
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Formation
Capital, LLC and JER Partners
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Genesis
HealthCare Corporation
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10/19/06
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Sun
Healthcare Group, Inc.
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Harborside
Healthcare Corporation
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07/12/06
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Formation
Capital, LLC and JER Partners
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Tandem
Health Care, Inc.
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10/25/05
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Onex
Corporation
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Skilled
Healthcare Group, Inc.
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11/21/05
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Fillmore
Strategic Investors, LLC
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Beverly
Enterprises, Inc.
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06/29/04
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National
Senior Care, Inc.
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Mariner
Health Care, Inc.
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Citi reviewed, among other things, transaction values,
calculated as the purchase price paid for the target
companys equity, plus debt, less cash, in the selected
transactions as multiples of latest 12 months revenue and
EBITDA. In reviewing the selected transactions, Citi focused
particularly on the Formation Capital, LLC and JER
Partners/Genesis HealthCare Corporation transaction and the Sun
Healthcare Group, Inc./Harborside Healthcare Corporation
transaction given, among other things, that the target companies
involved in such transactions had operating businesses similar
to those of Manor Care and such companies, as is the case with
Manor Care, owned a substantial portion of the real estate
associated with their facilities. Citi then applied a range of
selected multiples of 1.00x to 1.10x in the case of latest
12 months revenue and 11.5x to 13.0x in the case of latest
12 months EBITDA derived from those transactions to Manor
Cares latest 12 months (as of March 31,
2007) revenue and EBITDA, respectively. Financial data for
the selected transactions were based on public filings and
publicly available financial information at the time of
announcement of the relevant transaction. Financial data for
Manor Care were based on internal estimates of Manor Cares
management. This analysis indicated the following selected per
share equity reference range for Manor Care, as compared to the
per share merger consideration:
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Selected per Share Equity
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Per Share Merger
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Reference Range for Manor Care
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Consideration
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$59.00 - $66.00
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$67.00
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Sum-of-the-Parts
Analysis
Citi performed a sum-of-the parts analysis of Manor Cares
real estate property and operating business, based on internal
estimates of Manor Cares management. The estimated value
of Manor Cares real estate property was calculated by
applying a range of capitalization rates of 7.0% to 7.5% to the
estimated maximum rent, less costs, of the property, which
capitalization rate range was derived taking into account, among
other things, the purchase prices paid in selected transactions
referred to above under Selected Precedent Transactions
Analysis. The estimated value of Manor Cares
operating business was calculated by applying a range of EBITDA
multiples of 7.5x to 8.5x to such business calendar year
2007 estimated EBITDA, adjusted for rent expense, which range of
EBITDA multiples was derived taking into account, among other
things, EBITDA trading multiples of selected companies in the
skilled nursing facility industry referred to above under
Selected Publicly Traded Companies
34
Analysis which do not own associated real estate. This
analysis indicated the following selected per share equity
reference range for Manor Care, as compared to the per share
merger consideration:
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Selected per Share Equity
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Per Share Merger
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Reference Range for Manor Care
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Consideration
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$61.72 - $66.78
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$67.00
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Discounted
Cash Flow Analysis
Citi performed a discounted cash flow analysis of Manor Care to
calculate the estimated present value of the standalone
unlevered, after-tax free cash flows that Manor Care could
generate for the last quarter of fiscal year 2007 through fiscal
year 2012, based on internal estimates of Manor Cares
management both before and after giving effect to acquisitions
(including investments in new facilities and expansions)
proposed to be undertaken by Manor Care. Estimated terminal
values for Manor Care were calculated by applying a range of
EBITDA terminal value multiples of 8.5x to 9.5x to Manor
Cares fiscal year 2013 estimated EBITDA, which range of
EBITDA terminal value multiples was derived taking into account,
among other things, EBITDA trading multiples of selected
companies in the skilled nursing facility industry referred to
above under Selected Publicly Traded Companies
Analysis. The cash flows and terminal values were then
discounted to present value using discount rates ranging from
7.6% to 8.2%, which discount rate range was derived based on a
weighted average cost of capital calculation. This analysis
indicated the following implied per share equity reference
ranges for Manor Care, both including and excluding
acquisitions, as compared to the per share merger consideration:
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Implied per Share Equity
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Reference Ranges for Manor Care
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Per Share Merger
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Including Acquisitions
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Excluding Acquisitions
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Consideration
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$60.37 - 67.93
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$60.15 - 67.20
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$67.00
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Leveraged
Buyout Analysis
Citi performed a leveraged buyout analysis of Manor Care, based
on internal estimates of Manor Cares management, to
calculate the theoretical purchase price that could be paid by a
hypothetical financial buyer in an acquisition of Manor Care,
taking into account the pro forma leverage structure of Manor
Care resulting from the proposed financing for the merger and
internal rates of return generally required of financial buyers.
Estimated financial data for Manor Care were based on internal
estimates of Manor Cares management both before and after
giving effect to acquisitions (including investments in new
facilities and expansions) proposed to be undertaken by Manor
Care and after taking into account potential cost savings which
Manor Cares management estimated could be realized by a
financial buyer by virtue of the fact that Manor Care would no
longer be a public company and change of control costs related
to Manor Cares outstanding convertible debentures. Citi
assumed that a financial buyer would attempt to realize a return
on its investment in calendar year 2012. Estimated exit values
for Manor Care were calculated by applying a range of exit value
multiples of 8.5x to 9.5x to Manor Cares fiscal year 2013
estimated EBITDA. Citi then derived a range of theoretical
purchase prices based on an assumed required internal rate of
return for a financial buyer of approximately 18.0% to 22.0%.
This analysis indicated the following implied per share equity
reference ranges for Manor Care, both including and excluding
potential acquisitions, as compared to the per share merger
consideration:
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Implied per Share Equity
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Reference Ranges for Manor Care
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Per Share Merger
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Including Acquisitions
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Excluding Acquisitions
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Consideration
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$61.49 - $66.76
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$61.10 - $66.05
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$67.00
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Miscellaneous
Under the terms of Citis engagement, Manor Care has agreed
to pay Citi for its opinion services in connection with the
merger an aggregate fee of $5 million, which fee was
payable upon delivery of Citis opinion (regardless of the
conclusion reached in such opinion). Manor Care also has agreed
to reimburse Citi for reasonable travel and other expenses
incurred by Citi in performing its services, including
reasonable fees and expenses of its legal
35
counsel, and to indemnify Citi and related persons against
liabilities, including liabilities under the federal securities
laws, arising out of its engagement.
Citi and its affiliates in the past have provided, currently are
providing and in the future may provide services to Carlyle and
certain of its affiliates unrelated to the proposed merger, for
which services Citi and its affiliates have received, and expect
to receive, compensation, including, among other things, having
acted or acting (1) as financial advisor to Carlyle and
certain of its portfolio companies in connection with certain
sale and acquisition transactions, (2) in various roles in
connection with securities offerings of certain portfolio
companies of Carlyle and (3) as a lender in connection with
credit facilities of certain portfolio companies of Carlyle. In
the ordinary course of business, Citi and its affiliates may
actively trade or hold the securities of Manor Care and certain
portfolio companies of Carlyle for its own account or for the
account of its customers and, accordingly, may at any time hold
a long or short position in such securities. In addition, Citi
and its affiliates (including Citigroup Inc. and its affiliates)
may maintain relationships with Manor Care, Carlyle and their
respective affiliates.
Manor Care selected Citi to provide certain financial advisory
services in connection with the merger based on Citis
reputation and experience. Citi is an internationally recognized
investment banking firm which regularly engages in the valuation
of businesses and their securities in connection with mergers
and acquisitions, negotiated underwritings, competitive bids,
secondary distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and
other purposes.
Certain
Projected Financial Data
During the due diligence process, Manor Care provided potential
acquirors, JPMorgan and Citi with certain projected financial
data prepared by our management, including projected revenue,
EBITDA and free cash flow after interest expense, divestitures
and investments (available cash flow), which are set
forth below for the 2007 through 2010 fiscal years. Our prior
public guidance of 2007 earnings per share of $2.70 to $2.80 is
consistent with the projected revenue and EBITDA. Both the
public guidance and the projections assumed no reductions in
anticipated reimbursement levels. These projections were
prepared for internal budgeting and other purposes, and were not
prepared with a view toward public disclosure or with a view
toward complying with the published guidelines of the SEC, the
guidelines established by the American Institute of Certified
Public Accountants with respect to prospective financial
information or generally accepted accounting principles. The
projected financial data are not facts and should not be relied
upon as being necessarily indicative of future results, and
readers of this document are cautioned not to place undue
reliance on these projections. These projections are
forward-looking statements and actual results may
differ materially from them; see Cautionary Statement
Regarding Forward-Looking Statements on page 13.
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Manor Care Summary of Financial Projections
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(all amounts are in millions and are approximate)
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2007E
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2008E
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2009E
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2010E
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EBITDA
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$
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523
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$
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575
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$
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631
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$
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694
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Revenue
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$
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3,950
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$
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4,297
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$
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4,645
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$
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5,019
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Available Cash Flow
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$
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177
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$
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200
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$
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246
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$
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283
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The total amount of funds necessary to complete the merger and
the related transactions is anticipated to be approximately
$6.6 billion, which includes approximately
$5.4 billion (net of the impact of certain call options
entered into in connection with Manor Cares 2.125%
convertible senior notes due 2035) to be paid out to our
stockholders and holders of other equity-based interests in
Manor Care, with the remainder to be applied to refinance
existing indebtedness and pay related fees and expenses in
connection with the merger, the financing arrangements and the
related transactions.
These funds are anticipated to come from the following sources:
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cash equity contributions by associated investment vehicles of
Carlyle Partners V, L.P., including
co-investors,
of $1.3 billion in the aggregate, pursuant to an equity
commitment letter;
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borrowings by OpCo, as a subsidiary of the surviving
corporation, of $700 million of term loans under senior
secured credit facilities (the senior secured credit
facilities) with aggregate commitments of
$900 million;
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(1) a secured real estate credit facility (the CMBS
facility) available to a series of special purpose
bankruptcy-remote vehicles (the PropCo borrowers)
formed by a subsidiary of the surviving corporation for the sole
purpose of owning, or owning equity in similar entities that
will own, certain of the real estate assets currently owned by
Manor Care and its subsidiaries (such properties, comprising
approximately 330 skilled nursing facilities and assisted living
facilities, referred to as the properties)
and/or
(2) with respect to those properties intended for the CMBS
facility and with respect to which the PropCo borrowers are not
able to satisfy the conditions for including such properties in
the CMBS facility (and with respect to which the CMBS lenders do
not waive the satisfaction of such conditions), a bridge credit
facility (the bridge facility) available to the
PropCo borrowers. The CMBS facility and the bridge facility
together shall be in the aggregate principal amount of
approximately $4.6 billion (with the properties that are
not able to be financed as part of the CMBS facility
shifting to the bridge facility, as reasonably
determined by CMBS lenders).
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Equity
Financing
Carlyle Partners V, L.P., delivered an equity commitment
letter for $1.3 billion to MergerCo, subject to certain
limitations. These commitments constitute all of the equity
portion of the merger financing, other than shares of Manor Care
common stock exchanged for MergerCo common stock.
The equity commitment letter provides that the equity funds will
be contributed to fund the purchase of shares of common stock of
MergerCo, solely to the extent necessary to pay the merger
consideration and payment of related fees and expenses, and for
no other purpose. The equity commitment is generally subject to
certain other terms contained in the equity commitment letter,
including the satisfaction or waiver at the closing of the
conditions precedent to the obligations of MergerCo to
consummate the merger. The equity commitment letter will expire
automatically upon the earliest to occur of (1) the closing
of the merger, (2) the termination of the merger agreement
and (3) the assertion by Manor Care or any of its
affiliates in any litigation or other proceeding of any claim or
suit under or in connection with the merger agreement.
Debt
Financing
MergerCo has entered into a debt financing commitment letter
with J.P. Morgan Securities Inc., JPMorgan Chase Bank,
N.A., Credit Suisse Securities (USA) LLC, Credit Suisse, Cayman
Islands Branch, Column Financial, Inc., Banc of America
Securities LLC, and Bank of America, N.A., providing
(1) OpCo with committed financing for $900 million in
senior secured credit facilities and (2) the PropCo
borrowers with $4.6 billion under a secured real estate
credit facility
and/or
related bridge credit facility.
The documentation governing the senior secured credit
facilities, the CMBS facility and the bridge facility has not
been finalized and, accordingly, their actual terms may differ
from those described in this proxy statement.
Senior
Secured Credit Facilities
The senior secured credit facilities are expected to be
comprised of a $700 million term loan facility and a
$200 million revolving credit facility. As a result of the
merger, MergerCo will be merged with and into Manor Care. OpCo,
as a subsidiary of Manor Care (the surviving corporation), will
be the borrower under the senior secured credit facilities. All
obligations of OpCo under the senior secured credit facilities
will be guaranteed by MergerCo, Manor Care and each existing and
future direct or indirect wholly owned material domestic
subsidiary of OpCo, subject to certain exceptions. The
obligations of OpCo and the guarantors under the senior secured
credit facilities will be secured by substantially all of the
assets of OpCo and the guarantors, including the equity
interests in certain subsidiaries.
The full amount of the term loans is expected to be used to fund
a portion of the merger consideration, to refinance our existing
indebtedness and to pay related fees and expenses. The term
loans are expected to bear
37
interest based on either the adjusted London inter-bank offered
rate (LIBOR) plus an initial spread, or the
alternate base rate (ABR) plus an initial spread, at
the option of OpCo. The term loans will mature seven years after
the effective date of the merger and will also require quarterly
interim amortization payments, with the balance payable at the
final maturity date of the term loans. The borrower may make
voluntary prepayments of the term loans at any time without
premium or penalty. In addition, the term loans are required to
be prepaid in certain circumstances, including with the net cash
proceeds of debt issuances (other than debt otherwise
permitted), the net cash proceeds of certain asset sales
(subject to reinvestment rights and other exceptions) and
specified percentages of certain cash flows.
The revolving credit facilities will be available at closing for
working capital and other general corporate purposes. The
revolving credit facilities will mature six years after the
effective date of the merger and are expected to bear interest
based on either LIBOR plus an initial spread, or ABR plus an
initial spread, at the option of OpCo.
The senior secured credit facilities will contain customary
representations and warranties and customary affirmative and
negative covenants, including, among other things, restrictions
on indebtedness, liens, investments, asset sales, mergers and
consolidations, dividends and other distributions, redemptions
and prepayments of certain indebtedness. The senior secured
facilities will also include customary events of default,
including upon a change of control.
CMBS
Facility
It is expected that the PropCo borrowers will obtain
approximately $4.6 billion in gross proceeds from the CMBS
facility, subject to the lenders ability to reduce the
amount of such CMBS facility by the amount of the bridge
facility, if any, drawn in a single drawing on the effective
date of the merger.
Interest payable by the PropCo borrowers is expected to accrue
at a rate based on
30-day LIBOR
plus an initial spread, subject to an adjustment, and calculated
on an actual/360 basis. At the option of the PropCo borrowers,
the CMBS facility will have either a
24-month
term, with the option of five consecutive
12-month
extensions thereafter, or a
48-month
term, with the option of three consecutive
12-month
extensions thereafter, following the effective date of the
merger. The PropCo borrowers will be expected to purchase a
LIBOR interest rate cap prior to funding of the CMBS facility at
a strike rate no higher than 6.0%, for a period of at least two
years after the effective date, if the term is 24 months,
or for a period of at least four years after the effective date,
if the term is 48 months.
Real
Estate Bridge Facility
With respect to those properties intended for the CMBS facility,
if and to the extent the PropCo borrowers are not able to
satisfy the conditions for including such properties in the CMBS
facility (and the CMBS lenders do not waive the satisfaction of
such conditions), JPMorgan Chase, Column and Bank of America
have committed to provide the bridge facility on the terms set
forth below, in the amount of $4.6 billion less the amount
of the CMBS facility. The bridge loans and the guarantees
thereof will be senior to all subordinated obligations of the
PropCo borrowers and the guarantors.
Interest payable by the PropCo borrowers is expected to accrue
at a rate per annum based on
30-day LIBOR
plus an initial spread, subject to an adjustment and calculated
on an actual/360 basis, and provided that the weighted average
spread of the CMBS facility and the bridge facility shall not
exceed a certain level. The term of the bridge facility will be
the same as the CMBS facility.
The real estate bridge facility will contain customary
representations and warranties and covenants for similar
financings. The real estate bridge facility will also include
customary events of default.
38
Conditions
to the Financing
The debt financing commitments will expire if not drawn on or
prior to the date which is fourteen days after the termination
date specified in the merger agreement. The facilities
contemplated by the debt and bridge financing commitments are
subject to customary closing conditions, including:
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there not having occurred, since the date of the merger
agreement, a material adverse effect as defined in
the merger agreement;
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the execution and delivery of definitive credit and security
documents;
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the merger and all related transactions must have been
consummated in accordance with the terms of the merger
agreement, without waiver or amendment thereof (other than any
such waiver or amendment as is not materially adverse to the
lenders) unless consented to by the arrangers of the facilities;
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delivery of certain specified financial statements of Manor Care;
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receipt of equity contributions in an amount equal to at least
19% of the pro forma capitalization of MergerCo after giving
effect to the merger; and
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receipt of customary closing documents.
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The CMBS facility is subject to certain additional closing
conditions, including:
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delivery of first priority mortgage liens over the
properties; and
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delivery of surveys, title insurance policies, zoning reports
and customary mortgage documentation.
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Although the debt financing described in this proxy statement is
not subject to the lenders satisfaction with their due
diligence or to a market out, such financing is
subject to certain market flex provisions and might not be
funded on the effective date because of failure to meet the
closing conditions or for other reasons.
Since the final terms of the debt financing facilities have not
been agreed upon, such terms may differ from those set forth
above and, in certain cases, such differences may be
significant. We do not intend to update or otherwise revise any
statements concerning the terms of the financing included in
this proxy statement to reflect circumstances existing after the
date when such statements were made or to reflect the occurrence
of future events even in the event that any of the statements
regarding the financing arrangements are shown to be in error or
otherwise no longer appropriate.
As of the date of this proxy statement, no alternative financing
arrangements or alternative financing plans have been made in
the event the debt financing described herein is not available
as anticipated.
Interests
of Our Directors and Executive Officers in the Merger
In addition to their interests in the merger as stockholders,
certain of our directors and executive officers have interests
in the merger that differ from, or are in addition to, your
interests as a stockholder. In considering the recommendation of
our board of directors to vote FOR the
adoption of the merger agreement, you should be aware of these
interests. Our board of directors was aware of, and considered
the interests of, our directors and executive officers in
approving the merger agreement, the merger and the transactions
contemplated by the merger agreement. Except as described below,
such persons have, to our knowledge, no material interest in the
merger that differs from your interests generally.
Treatment
of Outstanding Equity-Based Awards
As of the date of this proxy statement, certain of our directors
and executive officers held stock options, stock appreciation
rights, restricted shares, stock awards subject to
performance-based vesting criteria (which we refer to as
performance share awards), restricted stock units and stock
equivalent units.
39
Stock
Options and Stock Appreciation Rights
Except as otherwise agreed between MergerCo and the holder of an
outstanding stock option or stock appreciation right, at the
effective time of the merger, each outstanding stock option or
stock appreciation right, whether or not then exercisable, will
be canceled and the holder of each such stock option or stock
appreciation right that has an exercise price of less than
$67.00 will be entitled to receive a cash payment, without
interest and less applicable withholding taxes, equal to the
product of:
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the number of shares of our common stock subject to the option
or stock appreciation right as of the effective time of the
merger, multiplied by
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the excess of $67.00 over the exercise price per share of common
stock subject to such option or stock appreciation right.
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The following table summarizes the outstanding vested and
unvested stock options and stock appreciation rights held by our
directors and executive officers as of September 10, 2007,
and, unless otherwise agreed between MergerCo and the holder of
such stock options or stock appreciation rights, the
consideration that each of them will receive at the effective
time of the merger in connection with the cancellation of their
options and stock appreciation rights:
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(b)
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(a)
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Resulting
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(c)
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(d)
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No. of Shares
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Consideration
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No. of Shares
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Resulting
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(a) + (c)
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(b) + (d)
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Underlying
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from
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Underlying
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Consideration
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Total Shares
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Total Resulting
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Unvested
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Unvested
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Vested
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from Vested
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Underlying
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Consideration
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Options and
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Options and
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Options and
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Options and
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Options and
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from Options
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Name
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SARs
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SARs
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SARs
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SARs
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SARs
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and SARs
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Directors
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Mary Taylor Behrens
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0
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0
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0
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0
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0
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0
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Joseph F. Damico
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0
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0
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9,000
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$
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434,250
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9,000
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$
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434,250
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William H. Longfield
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0
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0
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45,000
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$
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1,972,778
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45,000
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$
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1,972,778
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John T. Schwieters
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0
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0
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36,000
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$
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1,663,403
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36,000
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$
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1,663,403
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Richard C. Tuttle
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0
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0
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0
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0
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0
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0
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Gail R. Wilensky
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0
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0
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18,000
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$
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790,110
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18,000
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$
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790,110
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Thomas L. Young
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0
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0
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9,000
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$
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228,938
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9,000
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$
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228,938
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Executive
Officers
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Paul A. Ormond
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450,000
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$
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9,663,000
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1,965,738
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$
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67,683,134
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2,415,738
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$
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77,346,134
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Stephen L. Guillard
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175,000
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$
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3,822,250
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0
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0
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175,000
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$
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3,822,250
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Steven M. Cavanaugh
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40,000
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$
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551,600
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51,500
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$
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2,352,800
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91,500
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$
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2,904,400
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Richard A. Parr II
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30,000
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$
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413,700
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0
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0
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30,000
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$
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413,700
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Nancy A. Edwards
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0
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0
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140,000
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$
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6,290,250
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140,000
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$
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6,290,250
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John K. Graham
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0
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0
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50,460
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$
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1,592,098
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50,460
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$
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1,592,098
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Lynn M. Hood
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0
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0
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2,700
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$
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88,290
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2,700
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$
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88,290
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Larry C. Lester
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0
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0
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15,000
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$
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476,700
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15,000
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$
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476,700
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Spencer C. Moler
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0
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0
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15,000
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$
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476,700
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15,000
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$
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476,700
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Susan E. Morey
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0
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0
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5,000
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$
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163,500
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5,000
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$
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163,500
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David B. Parker
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0
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0
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0
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0
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0
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0
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Michael J. Reed
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0
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0
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0
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0
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0
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0
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F. Joseph Schmitt
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0
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0
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25,000
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$
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794,500
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25,000
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$
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794,500
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Daniel Wood
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0
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0
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5,000
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$
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163,500
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5,000
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$
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163,500
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Except as otherwise agreed between MergerCo and the holder of
outstanding restricted shares, at the effective time of the
merger, each outstanding restricted share will immediately vest
and will be converted into the right to receive $67.00 per share
in cash, without interest and less applicable withholding taxes.
As of September 10, 2007, no director or executive officer
other than Mr. Guillard holds restricted shares.
Mr. Guillard currently holds 15,000 restricted shares.
Unless otherwise agreed between MergerCo and Mr. Guillard,
these shares will be converted into $1,005,000 in cash at the
effective time of the merger.
40
Except as otherwise agreed between MergerCo and the holder of
outstanding performance shares, at the effective time of the
merger, each outstanding performance share award will
immediately vest with respect to the maximum number of shares
subject to the award and will be converted into the right to
receive $67.00 per share, without interest and less any
applicable withholding taxes.
As of September 10, 2007, based on the maximum performance
level, Messrs. Ormond, Guillard, Cavanaugh and Parr held
performance share awards with respect to 401,555, 78,750, 33,750
and 22,500 shares of our common stock, respectively. Unless
otherwise agreed between MergerCo and the relevant executive, at
the effective time of the merger, these shares will be converted
into $26,904,185, $5,276,250, $2,261,250 and $1,507,500 in cash,
respectively. No other director or executive officer holds
performance share awards.
Except as otherwise agreed between MergerCo and the holder of
outstanding restricted stock units, at the effective time of the
merger, each outstanding restricted stock unit will be converted
into the right to receive $67.00 per share in cash. Except in
the case of restricted stock units held by Mr. Ormond, cash
with respect to the restricted stock units will be paid as soon
as practicable following the effective time of the merger,
without interest and less any applicable withholding taxes. In
the case of restricted stock units held by Mr. Ormond, due
to restrictions under Section 409A of the Internal Revenue
Code, in the event that the completion of the merger occurs
before January 1, 2008, payment of cash with respect to his
restricted stock units must be deferred until the first business
day of January 2008 (or the date his employment terminates, if
earlier). Cash equal to the amount payable to Mr. Ormond
will be deposited in an interest bearing money market account
immediately following the effective time of the merger, and will
be paid to him less any applicable withholding taxes.
None of our directors (other than Messrs. Ormond and Guillard)
holds restricted stock units. The following table summarizes the
outstanding restricted stock units held by our executive
officers as of September 10, 2007, and, unless otherwise
agreed between MergerCo and the holder of such restricted stock
units, the consideration that each of them will receive in
connection with the cancellation of their restricted stock units:
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No. of Shares Underlying
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Resulting
|
Name
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Outstanding RSUs
|
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Consideration
|
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Paul A. Ormond
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67,078
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$
|
4,494,226
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Stephen L. Guillard
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10,083
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$
|
675,561
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Steven M. Cavanaugh
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15,229
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$
|
1,020,343
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Richard A. Parr II
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12,679
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$
|
849,493
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Nancy A. Edwards
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10,153
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$
|
680,251
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John K. Graham
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10,153
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$
|
680,251
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Lynn M. Hood
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6,104
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$
|
408,968
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Larry C. Lester
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5,076
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$
|
340,092
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Spencer C. Moler
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6,092
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$
|
408,164
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Susan E. Morey
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7,642
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$
|
512,014
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David B. Parker
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6,104
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|
$
|
408,968
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Michael J. Reed
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7,642
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|
|
$
|
512,014
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F. Joseph Schmitt
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|
|
10,153
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|
|
$
|
680,251
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Daniel Wood
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3,561
|
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|
$
|
238,587
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Stock
Equivalent Units
Certain of our executive officers have elected to notionally
invest a portion of their account balances under our deferred
compensation plans in stock equivalent units with respect to
shares of our common stock. At the effective time of the merger,
each such stock equivalent unit will cease to represent the
right to receive a share of our common stock and instead will be
converted into the right to receive $67.00 per unit. Such
amounts will be credited under our deferred compensation plans
and will be notionally reinvested in the future in accordance
with the terms of the applicable plan.
41
None of our directors (other than Messrs. Ormond and
Guillard) holds stock equivalent units. The following table
summarizes the outstanding stock equivalent units held by our
executive officers as of September 10, 2007 and the value
of the amount that will be credited as of the effective time of
the merger to each executive officers account under our
deferred compensation plans:
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|
No. of Shares Underlying
|
|
Amount Credited Under
|
|
|
Outstanding Stock Equivalent
|
|
Deferred
|
Name
|
|
Units
|
|
Compensation Plans
|
|
Paul A. Ormond
|
|
|
30,528
|
|
|
$
|
2,045,376
|
|
Stephen L. Guillard
|
|
|
0
|
|
|
$
|
0
|
|
Steven M. Cavanaugh
|
|
|
1,403
|
|
|
$
|
94,001
|
|
Richard A. Parr II
|
|
|
0
|
|
|
$
|
0
|
|
Nancy A. Edwards
|
|
|
2,659
|
|
|
$
|
178,153
|
|
John K. Graham
|
|
|
3,114
|
|
|
$
|
208,638
|
|
Lynn M. Hood
|
|
|
2,621
|
|
|
$
|
175,607
|
|
Larry C. Lester
|
|
|
5,707
|
|
|
$
|
382,369
|
|
Spencer C. Moler
|
|
|
12,032
|
|
|
$
|
806,144
|
|
Susan E. Morey
|
|
|
465
|
|
|
$
|
31,155
|
|
David B. Parker
|
|
|
999
|
|
|
$
|
66,933
|
|
Michael J. Reed
|
|
|
0
|
|
|
$
|
0
|
|
F. Joseph Schmitt
|
|
|
59
|
|
|
$
|
3,953
|
|
Daniel Wood
|
|
|
719
|
|
|
$
|
48,173
|
|
Employment
Agreements
We have entered into an employment agreement with each of Paul
A. Ormond, Stephen L. Guillard, Steven M. Cavanaugh and Richard
A. Parr II. The completion of the merger will constitute a
change in control for purposes of these employment agreements.
The employment agreements provide that in the event that an
executives employment is terminated by us without cause or
by the executive for good reason (as defined in the
employment agreements) during the three-year period following a
change in control, in the case of Mr. Ormond, or during the
two-year period following a change in control, in the case of
the other executives, the executive will be entitled to the
payments and benefits described below. In addition, solely in
the case of Mr. Ormond, if he terminates his employment for
any reason during the
180-day
period that begins one year after a change in control, he will
also be entitled to such payments and benefits. Such payments
and benefits include: (1) a lump-sum payment equal to three
times the sum of the executives annual base salary and
annual incentive bonus (which bonus will be calculated at the
maximum level for Messrs. Ormond and Guillard, and, in the
case of Messrs. Cavanaugh and Parr, calculated at the
greater of the target level and a level based on a formula
specified in their employment agreements) and, solely in the
case of Messrs. Ormond and Guillard, the maximum award
amount under Manor Cares performance award plan for the
period that ends in the year in which the change in control
occurs; (2) three years of continued medical, dental and
vision benefits; (3) an additional 36 months of
service credit under Manor Cares tax-qualified and
supplemental pension, retirement and savings plans;
(4) solely in the case of Messrs. Ormond and
Cavanaugh, full funding by Manor Care of any split dollar life
insurance arrangements maintained by Manor Care for the
executives benefit, based on the assumption that the
executive will remain employed for three additional years; and
(5) solely in the case of Mr. Ormond, three years of
continued use of office space, support services and furnishings
provided by Manor Care.
Pursuant to the employment agreements, upon a change in control,
all outstanding stock options, stock appreciation rights,
restricted shares and restricted stock units will become fully
vested, and outstanding performance share awards will become
vested at the levels specified in the employment agreements. For
a description of the treatment of each executives
equity-based awards in connection with the merger, see
Treatment of Outstanding Equity-Based Awards
beginning at page 39. In addition, each executives
annual bonus under Manor
42
Cares annual incentive plan for the year in which the
change in control occurs will become irrevocably payable at the
greater of the target level and a level based on a formula
specified in each employment agreement. Based on current
compensation levels, the maximum annual incentive bonuses for
Messrs. Ormond, Guillard, Cavanaugh and Parr for the year
in which the merger occurs would be equal to $2,267,000,
$600,000, $270,000 and $315,000, respectively. Furthermore, any
amounts payable to the executives under Manor Cares
performance award plan for each performance period in which the
change in control occurs will become irrevocably payable at the
greater of the target level and a level based on a formula
specified in the employment agreements. Assuming that the
completion of the merger occurs in 2007, amounts payable in
respect of the periods then in effect to Messrs. Ormond,
Guillard and Cavanaugh would be $2,926,550, $360,000 and
$75,000, respectively. Mr. Parr does not participate in
Manor Cares performance award plan.
In addition to the foregoing, the employment agreements provide
that Manor Care will make certain tax
gross-up
payments to address taxes, interest and penalties that may be
imposed under applicable tax laws in connection with golden
parachute payments and non-qualified deferred compensation and
will reimburse the executives for certain legal fees and related
expenses incurred in connection with the enforcement of the
employment agreements.
The employment agreements contain non-competition,
non-solicitation and no-hire provisions that apply for a period
of two years following termination of employment, in the case of
Messrs. Ormond, Cavanaugh and Parr, and for a period of
three years following termination of employment, in the case of
Mr. Guillard.
Life
Insurance Arrangement with Mr. Ormond
Pursuant to an agreement between us and Mr. Ormond
regarding Manor Cares purchase of a life insurance policy
with premiums payable in a total amount equal to $3,400,000,
(1) if, at any time, Mr. Ormonds employment is
terminated by Manor Care without cause, (2) if, following a
change in control, Mr. Ormond terminates his employment for
good reason (within the meaning of
Mr. Ormonds employment agreement) or (3) if,
during the
180-day
period that begins one year after a change in control,
Mr. Ormond terminates his employment for any reason, Manor
Care will transfer ownership of the life insurance policy to
Mr. Ormond. The completion of the merger will constitute a
change in control for purposes of the agreement.
Benefit
Arrangements with the Surviving Corporation
Pursuant to the merger agreement, for a period of one year
following the completion of the merger, the surviving
corporation will either (1) maintain our employee benefit
plans and agreements (other than equity-based plans) at the
level in effect on the date of the merger agreement or (2)(a)
provide each employee with a base salary and bonus opportunity
that, taken as a whole, have a value (or potential value, in the
case of bonus opportunity) that is not less favorable in the
aggregate than the base salary and bonus opportunity provided to
such employee on the date of the completion of the merger and
(b) provide benefits to each such employee that, taken as a
whole, have a value that is not less favorable in the aggregate
(excluding any value attributable to equity-based compensation)
than the benefits provided to each such employee on date of the
completion of the merger.
In addition, the surviving corporation has agreed to honor and
continue, without amendment or modification (other than any
amendment required to comply with applicable law or any
amendment adopted with the consent of the affected employee),
for a period of one year following the completion of the merger,
or, if sooner, until all obligations thereunder have been
satisfied, each of our employment, severance, retention and
termination plans, policies, programs, agreements and
arrangements (including any change in control severance
agreement between Manor Care and any employee).
The surviving corporation will also, subject to specified
limitations, recognize an employees service with Manor
Care with respect to determining eligibility to participate,
level of benefits, vesting, benefit accruals and early
retirement subsidies under the surviving corporations
employee benefit plans, to the extent that such recognition
would not result in any duplication of benefits.
The surviving corporation will also recognize expenses incurred
by employees prior to the completion of the merger during the
calendar year in which the merger occurs for purposes of
satisfying such years deductible and co-
43
payment limitations under such plans. In addition, the surviving
corporation will also waive pre-existing condition limitations
with respect to the employees under its welfare benefit plans
(except to the extent that such pre-existing condition
limitations would have been applicable under our employee
benefit plans).
Following the closing of the merger, the surviving corporation
will also make payments to certain employees under the Manor
Care performance award plan as determined in the discretion of
the chief executive officer of the surviving corporation,
subject to an aggregate cap of approximately $2.1 million
and certain other limitations. Following the closing of the
merger, the surviving corporation will also allow senior
management of Manor Care to determine the level of payments to
be made to employees under Manor Cares annual cash
incentive plans for the 2007 annual performance period, subject
to certain limitations, provided that such payments do not
exceed the sum of 110% of the aggregate payments made under such
annual cash incentive plans with respect to the 2006 annual
performance period and $1 million.
Directors
and Officers Indemnification and Insurance
The merger agreement provides that all rights to indemnification
and exculpation from liabilities for acts or omissions occurring
at or prior to the effective time of the merger and rights to
advancement of expenses relating thereto now existing in favor
of any person who is or prior to the effective time of the
merger becomes, or has been at any time prior to the date of the
merger agreement, a director, officer, employee or agent
(including as a fiduciary with respect to an employee benefit
plan) of Manor Care, any of our subsidiaries or any of our or
their respective predecessors (each, an indemnified
party) as provided in the organizational documents of
Manor Care or any of our subsidiaries or any indemnification
agreement between such indemnified party and us or any of our
subsidiaries (in each case, as in effect on date of the merger
agreement or, with respect to any indemnification agreement
entered into after the date of the merger agreement, to the
extent the terms thereof are no more favorable in any material
respect to the indemnified party than those of certain
indemnification agreements existing prior to the date of the
merger agreement) shall survive the merger and shall not be
amended, repealed or otherwise modified in any manner that would
adversely affect any right thereunder of any such indemnified
party.
The merger agreement also provides that, without limiting any
right of any indemnified party pursuant to any indemnification
agreement, from and after the effective time of the merger, in
the event of any threatened or actual claim, action, suit,
proceeding or investigation, whether civil, criminal or
administrative, the surviving corporation shall, for a period of
six years after the effective time, indemnify and hold harmless,
to the fullest extent permitted by law, each such indemnified
party against any losses, claims, damages, liabilities, costs,
expenses (including reasonable attorneys fees and
expenses), judgments, fines and amounts paid in settlement of or
in connection with any such threatened or actual claim, arising
out of, or pertaining to (1) the fact that such an
indemnified party was a director (including in a capacity as a
member of any board committee), officer, employee or agent of
Manor Care, any of our subsidiaries or any of our or their
respective predecessors or (2) the merger agreement or any
of the transactions contemplated by the merger agreement,
whether in any case asserted or arising before or after the
effective time of the merger. The surviving corporation has
agreed not to settle, compromise or consent to the entry of any
judgment in any threatened or actual claim for which
indemnification could be sought by an indemnified party under
the merger agreement, unless such settlement, compromise or
consent includes an unconditional release of such indemnified
party from all liability arising out of such claim or such
indemnified party otherwise consents in writing to such
settlement, compromise or consent (which consent is not to be
unreasonably withheld). The surviving corporation has also
agreed to cooperate with an indemnified party in the defense of
any matter for which such indemnified party could seek
indemnification under the merger agreement.
The merger agreement further provides that the surviving
corporation shall obtain, at or prior to the effective time,
prepaid (or tail) directors and officers
liability insurance policies in respect of acts or omissions
occurring at or prior to the effective time of the merger for
six years from the effective time, covering each indemnified
party on terms with respect to such coverage and amounts no less
favorable than those of such policies in effect on the date of
the merger agreement. In the event the surviving corporation is
unable to obtain such tail insurance policies, then,
for a period of six years from the effective time, the surviving
corporation is required to maintain in effect our current
directors and officers liability insurance policies
in respect of acts or omissions occurring at or prior to the
effective time, covering each indemnified party on terms with
respect to such coverage and amounts no less favorable than
those of such policies in effect on the date of the merger
agreement; provided that the surviving
44
corporation may substitute policies of a reputable and
financially sound insurance company containing terms no less
favorable to any indemnified party; provided further that
in satisfying these obligations the surviving corporation is not
obligated to pay for coverage for any
12-month
period aggregate premiums for insurance in excess of 250% of the
amount paid by us for coverage for the period of 12 months
beginning on June 1 most recently commenced prior to the date of
the merger agreement, although the surviving corporation is
required to provide such coverage as may be obtained for such
amount.
Positions
with the Surviving Corporation and Arrangements with Holdings,
MergerCo and Carlyle
Holdings and MergerCo have informed us that they currently
intend to retain the members of our management team, and that
they expect that Mr. Ormond and the other executive
officers of Manor Care will remain in their current positions
with the surviving corporation following completion of the
merger. Mr. Ormond and other members of our senior
management team have also informed us that they intend to remain
employed by the surviving corporation following completion of
the merger.
As of the date of this proxy statement, no member of our
management has entered into any agreement with Holdings,
MergerCo or Carlyle regarding employment with, or the right to
purchase or participate in the equity of, Holdings, MergerCo or
the surviving corporation. In addition, as of the date of this
proxy statement, no member of our board of directors has entered
into any agreement with Holdings, MergerCo or Carlyle regarding
the right to purchase or participate in the equity of Holdings,
MergerCo or the surviving corporation. On June 27, 2007,
Mr. Ormond engaged in general discussions with
representatives of Carlyle, Holdings and MergerCo regarding
revised terms of employment and the general structure of
co-investment opportunities and equity incentive plans that
could be considered. In addition to revised terms of employment,
Holdings and MergerCo have informed us that they anticipate
offering members of management the opportunity to convert a
portion of their current equity interests in Manor Care into
equity in Holdings and that they also intend to create
equity-based incentive compensation plans for management of the
surviving corporation. Although we believe members of our
management team are likely to enter into new arrangements with
Holdings or the surviving corporation regarding employment with
the surviving corporation and the right to purchase or
participate in the equity of Holdings, such matters are subject
to negotiations and discussion and no terms or conditions have
been finalized. Any such new arrangements are expected to be
entered into prior to the completion of the merger, but are not
a condition to the consummation of the merger.
Our stockholders have the right under Delaware law to dissent
from the adoption of the merger agreement, to exercise appraisal
rights and to receive payment in cash for the fair value of
their shares of our common stock determined in accordance with
Delaware law. The fair value of shares of our common stock, as
determined in accordance with Delaware law, may be more or less
than the merger consideration to be paid to non-dissenting
stockholders in the merger. To preserve their rights,
stockholders who wish to exercise appraisal rights must not vote
in favor of the adoption of the merger agreement and must follow
specific procedures. Dissenting stockholders must precisely
follow these specific procedures to exercise appraisal rights,
or their appraisal rights may be lost. These procedures are
described in this proxy statement, and the provisions of
Delaware law that grant appraisal rights and govern such
procedures are attached as Annex D to this proxy statement.
See Appraisal Rights beginning on
page 69.
Delisting
and Deregistration of Our Common Stock
If the merger is completed, our common stock will be delisted
from the NYSE and deregistered under the Securities Exchange Act
of 1934, as amended (the Exchange Act), and we will
no longer file periodic reports with the SEC on account of our
common stock.
Material
United States Federal Income Tax Consequences of the
Merger
The following is a discussion of the material United States
federal income tax consequences of the merger to
U.S. holders whose shares of our common stock are converted
into the right to receive cash in the merger. The
45
discussion is based upon the Internal Revenue Code, Treasury
regulations, Internal Revenue Service rulings and judicial and
administrative decisions in effect as of the date of this proxy
statement, all of which are subject to change (possibly with
retroactive effect) or to different interpretations. The
following discussion does not purport to consider all aspects of
U.S. federal income taxation that might be relevant to our
stockholders. This discussion applies only to stockholders who,
on the date on which the merger is completed, hold shares of our
common stock as a capital asset. The following discussion does
not address taxpayers subject to special treatment under
U.S. federal income tax laws, such as insurance companies,
financial institutions, dealers in securities, tax-exempt
organizations, mutual funds, real estate investment trusts,
investors in pass-through entities, S corporations and
taxpayers subject to the alternative minimum tax. In addition,
the following discussion may not apply to stockholders who
acquired their shares of our common stock upon the exercise of
employee stock options or otherwise as compensation for services
or through a tax-qualified retirement plan or who hold their
shares as part of a hedge, straddle, conversion transaction or
other integrated transaction. If our common stock is held
through a partnership, the U.S. federal income tax
treatment of a partner in the partnership will generally depend
upon the status of the partner and the activities of the
partnership. Partnerships that are holders of our common stock
and partners in such partnerships are urged to consult their own
tax advisors regarding the tax consequences to them of the
merger.
The following discussion does not address potential foreign,
state, local and other tax consequences of the merger. All
stockholders are urged to consult their own tax advisors
regarding the U.S. federal income tax consequences, as well
as the foreign, state and local tax consequences, of the
disposition of their shares in the merger.
For purposes of this summary, a U.S. holder is
a holder of shares of our common stock, who or that is, for
U.S. federal income tax purposes:
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an individual who is a citizen or resident of the United States;
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a corporation (or other entity taxable as a corporation) created
or organized in or under the laws of the United States, any
state of the United States or the District of Columbia;
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an estate the income of which is subject to U.S. federal
income tax regardless of its source; or
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a trust if (1) a U.S. court is able to exercise
primary supervision over the trusts administration and one
or more U.S. persons are authorized to control all
substantial decisions of the trust; or (2) it was in
existence on August 20, 1996 and has a valid election in
place to be treated as a domestic trust for U.S. federal
income tax purposes.
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Except with respect to the backup withholding discussion below,
this discussion does not discuss the tax consequences to any
stockholder who or that, for U.S. federal income tax
purposes, is not a U.S. holder.
For U.S. federal income tax purposes, the merger will be
treated as a sale of our common stock for cash by each of our
stockholders. Accordingly, in general, the U.S. federal
income tax consequences to a stockholder receiving cash in the
merger will be as follows:
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The stockholder will recognize a capital gain or loss for
U.S. federal income tax purposes upon the disposition of
the stockholders shares of our common stock pursuant to
the merger.
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The amount of capital gain or loss recognized by each
stockholder will be measured by the difference, if any, between
the amount of cash received by the stockholder in the merger and
the stockholders adjusted tax basis in the shares of our
common stock surrendered in the merger. Gain or loss will be
determined separately for each block of shares (i.e.,
shares acquired at the same cost in a single transaction)
surrendered for cash in the merger.
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The capital gain or loss, if any, will be long-term with respect
to shares of our common stock that have a holding period for tax
purposes in excess of one year at the time of the merger.
Long-term capital gains of individuals are eligible for reduced
rates of taxation. There are limitations on the deductibility of
capital losses.
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Cash payments made pursuant to the merger will be reported to
our stockholders and the Internal Revenue Service to the extent
required by the Internal Revenue Code and applicable Treasury
regulations. These amounts
46
ordinarily will not be subject to withholding of
U.S. federal income tax. However, backup withholding of the
tax at applicable rates will apply to all cash payments to which
a U.S. holder is entitled pursuant to the merger agreement
if such holder (1) fails to supply the paying agent with
the stockholders taxpayer identification number (Social
Security number, in the case of individuals, or employer
identification number, in the case of other stockholders),
certify that such number is correct, and otherwise comply with
the backup withholding rules, (2) has received notice from
the Internal Revenue Service of a failure to report all interest
and dividends required to be shown on the stockholders
U.S. federal income tax returns, or (3) is subject to
backup withholding in certain other cases. Accordingly, each
U.S. holder will be asked to complete and sign a Substitute
Form W-9,
which is to be included in the appropriate letter of transmittal
for the shares of our common stock, in order to provide the
information and certification necessary to avoid backup
withholding or to otherwise establish an exemption from backup
withholding tax, unless an exemption applies and is established
in a manner satisfactory to the paying agent. Stockholders who
are not U.S. holders should complete and sign a
Form W-8BEN
(or other applicable tax form) and return it to the paying agent
in order to provide the information and certification necessary
to avoid backup withholding tax or otherwise establish an
exemption from backup withholding tax. Certain of our
stockholders will be asked to provide additional tax information
in the appropriate letter of transmittal for the shares of our
common stock.
Backup withholding is not an additional tax. Any amounts
withheld under the backup withholding rules will be allowed as a
refund or a credit against your U.S. federal income tax
liability provided the required information is timely furnished
to the Internal Revenue Service.
The foregoing discussion of certain material
U.S. federal income tax consequences is included for
general informational purposes only. We urge you to consult your
own tax advisor to determine the particular tax consequences to
you (including the application and effect of any state, local or
foreign income and other tax laws) of the receipt of cash in
exchange for shares of our common stock pursuant to the
merger.
Under the merger agreement, we and MergerCo have agreed to use
our reasonable best efforts to complete the transactions
contemplated by the merger agreement as promptly as practicable,
including obtaining all necessary governmental approvals. The
Hart-Scott-Rodino
Act provides that transactions such as the merger may not be
completed until certain information has been submitted to the
Federal Trade Commission and the Antitrust Division of the
U.S. Department of Justice and certain waiting period
requirements have been satisfied. Manor Care and Carlyle
Partners V MC, L.P. filed notification reports with the
Department of Justice and the Federal Trade Commission under the
Hart-Scott-Rodino
Act on August 2, 2007 and on August 1, 2007,
respectively. We received notification on August 13, 2007
that the waiting period under the Hart-Scott-Rodino Act has been
terminated.
The merger and the CMBS restructuring are also subject to
certain health care-related local, state and federal regulatory
requirements for notice, abbreviated review, or full regulatory
review and approval of the merger or related transitions as part
of the CMBS restructuring, which will encompass the need for new
permits, licenses, certificates of need, third party payor
agreements and certifications and contracts, as well as other
requirements as mandated by the applicable jurisdictions within
which Manor Care provides or owns licensed or otherwise
regulated services.
While we believe that we will receive the requisite approvals
and clearances for the merger, there can be no assurance that a
challenge to the merger on antitrust grounds will not be made
or, if a challenge is made, that the result of such challenge
would permit the merger and the CMBS restructuring to proceed.
Similarly, there can be no assurance that the parties will
obtain the other regulatory approvals necessary to complete the
merger or that the granting of these approvals will not involve
the imposition of conditions to the completion of the merger or
require changes to the terms of the merger. These conditions or
changes could result in the conditions to the merger not being
satisfied prior to the termination date or at all. Under the
merger agreement, Manor Care and MergerCo have agreed to use
reasonable best efforts to obtain the required governmental
approvals in connection with the execution of the merger
agreement and completion of the merger.
The filing of a certificate of merger in Delaware at or before
the effective date of the merger is also required for the
completion of the merger.
47
Litigation
Concerning the Merger
On July 3, 2007, Alexander Crescente filed a purported
stockholder class action in the Circuit Court of Lucas County,
Ohio. The lawsuit names as defendants Manor Care, all of our
current directors and Carlyle. The case is captioned
Crescente v. Manor Care, Inc. et al., Cause
No. CI-200704789.
The suit alleges that, in connection with the pending merger,
the defendants have breached their fiduciary duties of loyalty,
due care, independence, good faith and fair dealing, or have
aided and abetted such breaches. The plaintiff asks the court to
declare the suit a proper class action suit and to certify the
plaintiff as class representative and plaintiffs counsel
as class counsel. Among other things, the plaintiff seeks
(1) a declaration that the merger agreement violates the
individual defendants fiduciary duties, (2) an
injunction that prevents the consummation of the merger and
(3) an indeterminate amount of fees, expenses and costs to
plaintiff and plaintiffs counsel.
On September 13, 2007, counsel for Manor Care and our
directors and counsel for Carlyle entered into a memorandum of
understanding with counsel for the plaintiff providing for the
settlement of the lawsuit. Under the terms of the memorandum of
understanding, Manor Care has agreed to provide additional
disclosures related to the merger which are included in this
proxy statement. In agreeing to make these additional
disclosures, Manor Care is not admitting that our prior
disclosures were in any way materially misleading or inadequate.
Furthermore, Manor Care and the other defendants deny the
plaintiffs allegations and deny having committed, or
having aided and abetted, any breach of fiduciary duty or other
violation of law in connection with the pending merger.
The settlement will be subject to customary conditions,
including court approval following notice to members of the
proposed settlement class. If approved by the court, the
settlement will resolve all claims that were or could have been
brought on behalf of the proposed settlement class in the
actions being settled, including all claims relating to the
merger and the disclosures made in connection therewith. In
addition, as part of the proposed settlement, we have agreed to
pay up to $340,000 to the plaintiffs counsel for their
fees and expenses incurred in pursuing the action, subject to
final approval of the settlement and of such fees by the court.
The merger may be consummated prior to final court approval of
the settlement.
The memorandum of understanding will not affect the amount of
consideration to be paid to the stockholders of Manor Care in
connection with the merger.
48
The merger agreement is the legal document that governs the
merger. This section of the proxy statement describes the
material provisions of the merger agreement but may not contain
all of the information about the merger agreement that is
important to you. The merger agreement is included as
Annex A to this proxy statement and is incorporated into
this proxy statement by reference. We encourage you to read the
merger agreement in its entirety. The merger agreement is a
commercial document that establishes and governs the legal
relations between us and MergerCo with respect to the
transactions described in this proxy statement. The
representations, warranties and covenants made by us and
MergerCo are qualified and subject to important limitations
agreed to by us and MergerCo in connection with negotiating the
terms of the merger agreement. Furthermore, the representations
and warranties may be subject to standards of materiality
applicable to us and MergerCo that may be different from those
that are applicable to you.
Effective
Time; The Marketing Period
The effective time of the merger will occur at the time that we
file a certificate of merger with the Secretary of State of the
State of Delaware on the closing date of the merger (or such
later time as provided in the certificate of merger). So long as
the marketing period has expired, the closing date will occur on
the second business day after all of the conditions to the
merger set forth in the merger agreement have been satisfied or
waived (or such other date as we and MergerCo may agree). In the
event that all conditions have been satisfied but the marketing
period has not expired, then the parties are not required to
effect the closing until the earlier of:
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a date during the marketing period specified by MergerCo on no
less than three business days notice to us; and
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the final day of the marketing period.
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The marketing period is defined in the merger
agreement as the first period of 30 consecutive calendar days
following July 2, 2007, throughout which:
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MergerCo shall have financial and other pertinent information
regarding Manor Care as may be reasonably requested by it to
consummate the debt financing;
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our independent registered public accounting firm shall have not
withdrawn its audit opinions for any of our historical audited
financial statements; and
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we have received stockholder approval of the merger agreement,
no judgment or order issued by any Federal or state court is in
effect that enjoins or prohibits consummation of the merger and
the waiting period under the
Hart-Scott-Rodino
Act has terminated or has expired.
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If the marketing period would otherwise end on or after
August 1, 2007, then the marketing period will commence no
earlier than September 6, 2007. If the marketing period
would otherwise end on or after December 15, 2007, then the
marketing period will commence no earlier than January 7,
2008.
The marketing period will be extended until the earlier of
February 1, 2008 and the date on which the CMBS deliveries
(as defined under Financing Commitments;
Cooperation of Manor Care below beginning on
page 60) for properties comprising at least 90% of the
aggregate value of all properties securing the CMBS facility
have been delivered and until all filings, notices, consents and
approvals have been made or obtained without any adverse
conditions or restrictions resulting in losses, costs, damages
or expenses to MergerCo of more than $20 million.
Subject to the terms and conditions of the merger agreement and
in accordance with Delaware law, at the effective time of the
merger, MergerCo will merge with and into Manor Care. The
separate corporate existence of MergerCo will cease, and Manor
Care will continue as the surviving corporation, wholly owned by
entities sponsored by or co-investors with Carlyle. The
surviving corporation will be a privately held corporation and
our current stockholders will cease to have any ownership
interest in the surviving corporation or rights as our
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stockholders. Therefore, such current stockholders will not
participate in any future earnings or growth of the surviving
corporation and will not benefit from any appreciation in value
of the surviving corporation.
Treatment
of Common Stock and Equity-Based Awards
Common
Stock
At the effective time of the merger, each share of our common
stock issued and outstanding immediately prior to the effective
time of the merger will automatically be canceled and will cease
to exist and will be converted into the right to receive $67.00
in cash, without interest and less applicable withholding taxes,
other than shares of our common stock:
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held in our treasury immediately prior to the effective time of
the merger, which shares will be canceled without conversion or
consideration;
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owned by MergerCo or MergerCos sole stockholder
immediately prior to the effective time of the merger, which
shares will be canceled without conversion or
consideration; and
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held by stockholders who have properly demanded and perfected
their appraisal rights in accordance with Delaware law, which
shares shall be entitled to payment of the fair value of such
shares in accordance with Delaware law.
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After the effective time of the merger, each of our outstanding
stock certificates representing shares of common stock converted
in the merger will represent only the right to receive the
merger consideration of $67.00 in cash per share, without any
interest and less applicable withholding taxes, and any
dividends declared with a record date prior to the effective
time that remain unpaid at the effective time and that are due
with respect to such shares. The merger consideration (and
dividends, if any) paid upon surrender of each certificate will
be paid in full satisfaction of all rights pertaining to the
shares of our common stock represented by that certificate.
Equity-Based
Awards
Except as otherwise agreed between MergerCo and the holder of
outstanding equity-based awards, at the effective time of the
merger:
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each outstanding option to purchase shares of our common stock
and each outstanding stock appreciation right with respect to
shares of our common stock, whether or not then exercisable,
will be canceled and converted into the right to receive a cash
payment equal to the excess (if any) of the $67.00 per share
cash merger consideration over the exercise price per share of
the option or stock appreciation right, multiplied by the number
of shares subject to the option or stock appreciation right;
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each outstanding share of restricted stock will immediately vest
and will be converted into the right to receive $67.00 per share;
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each performance share award will immediately vest at the
maximum performance level and will be converted into the right
to receive $67.00 per share; and
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each outstanding restricted stock unit, whether or not vested,
will be canceled and will be converted into the right to receive
$67.00 per unit.
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In the case of stock equivalent units outstanding under our
deferred compensation plans, at the effective time of the
merger, each such stock equivalent unit will cease to represent
the right to receive a share of our common stock and instead
will be converted into the right to receive $67.00 per unit.
Such amounts will be credited under our deferred compensation
plans and will be notionally reinvested in the future in
accordance with the terms of the applicable plan.
Exchange
and Payment Procedures
At or prior to the effective time of the merger, MergerCo will
deposit, or will cause the surviving corporation to deposit,
cash in an amount sufficient to pay the merger consideration to
each holder of shares of our common stock
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and to each holder of our other equity-based interests with a
bank or trust company (the paying agent) reasonably
acceptable to us. Within two business days after the effective
time of the merger, the surviving corporation will cause the
paying agent to mail a letter of transmittal and instructions to
you and the other stockholders. The letter of transmittal and
instructions will tell you how to surrender your common stock
certificates in exchange for the merger consideration.
You should not return your stock certificates with the
enclosed proxy card, and you should not forward your stock
certificates to the paying agent without a signed letter of
transmittal.
You will not be entitled to receive the merger consideration
until you surrender your stock certificate or certificates to
the paying agent, together with a duly completed and executed
letter of transmittal and any other documents as may reasonably
be required by the paying agent. The merger consideration may be
paid to a person other than the person in whose name the
corresponding certificate is registered if the certificate is
properly endorsed or is otherwise in the proper form for
transfer. In addition, the person who surrenders such
certificate must either pay any fiduciary or surety bonds or any
transfer or other similar taxes or establish to the reasonable
satisfaction of the surviving corporation that such taxes have
been paid or are not applicable.
No interest will be paid or will accrue on the cash payable upon
surrender of the certificates. The surviving corporation or the
paying agent will be entitled to deduct and withhold, and pay to
the appropriate taxing authorities, any applicable taxes from
the merger consideration, the option amounts and the amounts for
other equity-based interests. Any sum which is withheld and paid
to a taxing authority by the surviving corporation or the paying
agent will be deemed to have been paid to the person with regard
to whom it is withheld.
At the close of business on the day on which the effective time
of the merger occurs, our stock transfer books will be closed,
and there will be no further registration of transfers of
outstanding shares of our common stock. If, after the close of
business on the day on which the effective time of the merger
occurs, certificates are presented to the surviving corporation
for transfer, they will be canceled and exchanged for the merger
consideration.
None of Manor Care, the surviving corporation, MergerCo, the
sole stockholder of MergerCo or the paying agent will be liable
to any person for any cash delivered to a public official
pursuant to any applicable abandoned property, escheat or
similar law. Any portion of the merger consideration deposited
with the paying agent that remains undistributed to the holders
of certificates evidencing shares of our common stock for twelve
months after the effective time of the merger, will be
delivered, upon demand, to the surviving corporation. Holders of
certificates who have not surrendered their certificates prior
to the delivery of such funds to the surviving corporation may
only look to the surviving corporation for, and the surviving
corporation shall remain liable for, the payment of the merger
consideration. Any portion of the merger consideration that
remains unclaimed as of a date that is immediately prior to such
time as such amounts would otherwise escheat to or become
property of any governmental authority will, to the extent
permitted by applicable law, become the property of the
surviving corporation free and clear of any claims of interest
of any person previously entitled to the merger consideration.
If you have lost a certificate, or if it has been stolen or
destroyed, then before you will be entitled to receive the
merger consideration, you will have to make an affidavit of that
fact and, if required by the surviving corporation, post a bond
or surety in such reasonable amounts as the surviving
corporation may direct as indemnity against any claim that may
be made against it with respect to that certificate.
Representations
and Warranties
We make various representations and warranties in the merger
agreement, including with respect to, among other things:
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our and our subsidiaries proper organization, good
standing and qualification to do business;
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our interests in our subsidiaries;
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our capitalization, including in particular the number of shares
of our common stock, stock options and other equity-based
interests;
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our outstanding indebtedness for borrowed money;
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our corporate power and authority to enter into the merger
agreement and to consummate the transactions contemplated by the
merger agreement;
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the approval and recommendation by our board of directors of the
merger agreement, the merger and the other transactions
contemplated by the merger agreement;
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the absence of violations of or conflicts with our and our
subsidiaries governing documents, applicable law or
certain agreements as a result of entering into the merger
agreement and consummating the merger;
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the required consents and approvals of governmental entities in
connection with the transactions contemplated by the merger
agreement;
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our SEC filings since January 1, 2004, including the
financial statements contained therein;
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the absence of undisclosed liabilities;
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the accuracy of this proxy statement;
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the absence of a material adverse effect and certain
other changes or events related to us or our subsidiaries since
December 31, 2006;
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legal proceedings and judgments;
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contracts to which we or our subsidiaries are a party;
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compliance with laws;
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possession of permits necessary to conduct our business;
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employment and labor matters affecting us or our subsidiaries,
including matters relating to our and our subsidiaries
employee benefit plans;
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taxes and environmental matters;
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real property;
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intellectual property;
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our and our subsidiaries insurance policies;
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the required vote of our stockholders in connection with the
adoption of the merger agreement;
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the inapplicability of anti-takeover statutes to the merger;
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the absence of undisclosed brokers fees;
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the receipt by us of an opinion from each of JPMorgan and Citi;
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the absence of a stockholder rights plan; and
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related party transactions.
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For the purposes of the merger agreement, material adverse
effect means any event, circumstance, development, change,
effect, occurrence or state of facts that (1) materially
impedes, interferes with, hinders or delays beyond
March 31, 2008 (or such later date as set forth in the
merger agreement) the consummation by Manor Care of the merger
or the other transactions contemplated by the merger agreement,
or (2) is materially adverse to the business, properties,
assets, financial condition or results of operations of us and
our subsidiaries.
A material adverse effect will not have occurred,
however, as a result of any change, effect, event, occurrence or
state of facts:
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relating to economic, financial market or geopolitical
conditions in general (so long as it does not have a
disproportionate impact on us and our subsidiaries, taken as a
whole, relative to other companies operating in the same
industries and geographies as us);
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relating to changes in law or applicable accounting regulations
or principles or interpretations thereof (so long as it does not
have a disproportionate impact on us and our subsidiaries, taken
as a whole, relative to other companies operating in the same
industries and geographies as us);
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relating to any change in federal or state health care program
reimbursement law, policy or procedure or interpretations
thereof applicable to the services rendered by us, including any
reduction in regulatory reimbursement rates affecting us or any
of our subsidiaries (so long as it does not have a
disproportionate impact on us and our subsidiaries, taken as a
whole, relative to other companies operating in the same
industries and geographies as us);
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relating to the industries in which we and our subsidiaries
operate generally (so long as it does not have a
disproportionate impact on us and our subsidiaries, taken as a
whole, relative to other companies operating in the same
industries and geographies as us);
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relating to any outbreak or escalation of hostilities or war or
any act of terrorism (so long as it does not have a
disproportionate impact on us and our subsidiaries, taken as a
whole, relative to other companies operating in the same
industries and geographies as us);
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consisting of any change in our stock price or trading volume,
in and of itself, or any failure, in and of itself, by us to
meet published revenue or earnings projections (it being
understood that the facts or occurrences giving rise to or
contributing to such change or failure may be deemed to
constitute, or be taken into account in determining whether
there has been or would reasonably be expected to be, a material
adverse effect, and it being further understood that any such
change or failure may be taken into account in determining
whether the facts or occurrences giving rise or contributing to
such change or failure are materially adverse to the business,
financial condition or results of operations of Manor Care and
our subsidiaries, taken as a whole); and
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relating to the announcement of the merger agreement and the
transactions contemplated thereby and performance of and
compliance with the terms of the merger agreement and the
identity of MergerCo or any of its affiliates as the acquiror of
Manor Care.
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The merger agreement also contains various representations and
warranties made by MergerCo, including with respect to, among
other things:
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its organization, valid existence and good standing;
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its corporate or other power and authority to enter into the
merger agreement and to consummate the transactions contemplated
by the merger agreement;
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the absence of any violation of or conflict with its governing
documents, applicable law or certain agreements as a result of
entering into the merger agreement and consummating the merger;
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the required consents and approvals of governmental entities in
connection with the transactions contemplated by the merger
agreement;
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the accuracy of information supplied for inclusion or
incorporation by reference in this proxy statement;
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debt and equity financing commitments;
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its purpose of formation and prior activities;
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its lack of ownership of our common stock; and
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the absence of undisclosed brokers fees.
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The representations and warranties of each of the parties to the
merger agreement will expire upon the effective time of the
merger. You should be aware that these representations and
warranties made by Manor Care to MergerCo or by MergerCo to
Manor Care, as the case may be, are subject to important
limitations and qualifications agreed to by the parties to the
merger agreement, may or may not be accurate as of the date they
were made and do not purport to be accurate as of the date of
this proxy statement.
53
Conduct
of Our Business Pending the Merger
Under the merger agreement, we have agreed that, subject to
certain exceptions and unless MergerCo gives its prior written
consent, between July 2, 2007, and the effective time of
the merger, we will, and will cause each of our subsidiaries to:
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carry on business in the ordinary course; and
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to the extent consistent therewith, use reasonable best efforts
to preserve substantially intact our and their current business
organizations, to keep available the services of our and our
subsidiaries current officers and employees and to
preserve our and our subsidiaries relationships with
significant customers, providers, suppliers and others with
which we and our subsidiaries have significant business dealings.
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We have also agreed that during the same time period, and again
subject to certain exceptions or unless MergerCo gives its prior
written consent, we will not, and will not permit any of our
subsidiaries to:
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declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, stock or property) in respect
of, any of our or its capital stock, other than:
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dividends or distributions by a direct or indirect wholly-owned
subsidiary to its parent; and
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regular quarterly cash dividends on our common stock, not to
exceed, in the case of any such quarterly dividend, $0.17 per
share;
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split, combine or reclassify any of our or our
subsidiaries capital stock or issue or authorize the
issuance of any other securities in lieu of or in substitution
for shares of our or our subsidiaries capital stock;
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purchase, redeem or otherwise acquire any shares of our or our
subsidiaries capital stock or any rights, warrants or
options to acquire any such shares, other than:
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the acquisition by us of shares of our common stock in
connection with the surrender of shares of our common stock by
holders of stock options in order to pay the exercise price of
the stock options;
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the withholding of shares of our common stock to satisfy tax
obligations with respect to awards granted pursuant to our stock
plans;
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the acquisition by us of awards granted under our stock plans in
connection with the forfeiture of such awards;
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the acquisition by the trustee of our 401(k) plan of shares of
our common stock in order to satisfy participant investment
elections under our 401(k) plan; and
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the extinguishment of rights pursuant to stock equivalent units
in connection with the change in a participants investment
election under one of our deferred compensation plans;
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issue, deliver or sell any shares of our or our
subsidiaries capital stock, any other voting securities or
any securities convertible into, or any rights, warrants or
options to acquire any such shares, voting securities or
convertible securities, or any phantom stock,
phantom stock rights, stock appreciation rights or
stock based performance units, other than:
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upon the exercise of stock options and settlement of our
restricted stock units outstanding on July 2, 2007, in each
case in accordance with their then present terms;
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as required to comply with any benefit plan or benefit agreement
of Manor Care as in effect on July 2, 2007;
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the issuance of shares of our common stock upon conversion of
our convertible notes or exercise of our warrants; and
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the issuance of stock equivalent units pursuant to our deferred
compensation plans;
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amend our or our subsidiaries certificates of
incorporation or bylaws or comparable organizational documents;
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merge or consolidate with, or purchase an equity interest in or
a substantial portion of the assets of, any person or any
division or business thereof, if the aggregate amount of the
consideration paid or transferred by us and our subsidiaries in
connection with all such transactions would exceed
$30 million, in each case other than any such action solely
between or among us and our subsidiaries;
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sell, lease or otherwise dispose of any of our or our
subsidiaries properties or assets (including capital stock
of any subsidiary) that are material, individually or in the
aggregate, to us and our subsidiaries, taken as a whole, other
than:
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sales or other dispositions of inventory and other assets in the
ordinary course of business; and
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subleases of leased real property, and voluntary terminations or
surrenders of real property leases, in each case, in the
ordinary course of business;
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pledge, encumber or otherwise subject to a lien any of our or
our subsidiaries properties or assets (including capital
stock of any subsidiary), other than in the ordinary course of
business;
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incur any indebtedness for borrowed money, issue or sell any
debt securities or warrants or other rights to acquire any debt
securities of us or our subsidiaries, guarantee any such
indebtedness or any debt securities of another person or enter
into any keep well or other agreement to maintain
any financial statement condition of another person, other than:
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indebtedness incurred in the ordinary course of business
consistent with past practice (including any borrowings under
our existing revolving credit facilities and any trade letters
of credit) not to exceed $50 million (not including any
undrawn letter of credit), provided that the amount of
such additional indebtedness may exceed $50 million but not
$75 million, only if the weighted average monthly balance
of such indebtedness does not exceed $50 million for any
month between July 2, 2007, and the closing date and that
the proceeds of such additional indebtedness may not be used to
fund payment of our quarterly dividend;
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indebtedness incurred to fund payments due under our convertible
notes only upon conversion thereof, provided that such
indebtedness does not contain terms that have an adverse effect
on the ability of MergerCo to obtain any portion of the
financing (including the CMBS financing); and
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make any loans or capital contributions to, or investments in,
any other person, other than to any of our wholly-owned
subsidiaries;
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make any capital expenditures, other than:
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in accordance with our 2007 budget and strategic plan;
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in connection with the repair or replacement of facilities
destroyed or damaged due to casualty or accident (whether or not
covered by insurance); and
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otherwise in an aggregate amount for all such capital
expenditures not covered above not to exceed $15 million;
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settle any material claim or material litigation, in each case
made or pending against us or any of our subsidiaries, or any of
our or their officers and directors in their capacities as such,
other than the settlement of claims or litigation which, in any
event:
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has been disclosed, reflected or reserved against in the most
recent financial statements (or notes thereto) included in our
filed SEC documents, for an amount not materially in excess of
the amount so disclosed, reflected or reserved;
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cancel any material indebtedness or waive any claims or rights
of substantial value, in each case other than in the ordinary
course of business;
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except (1) in the ordinary course of business consistent
with past practice; (2) as required pursuant to the terms
of any benefit plan or benefit agreement or other written
agreement in effect on July 2, 2007, or (3) as
otherwise expressly permitted by the merger agreement:
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grant to any of our or our subsidiaries officers,
directors or employees any increase in compensation or benefits;
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grant to any of our or our subsidiaries officers,
directors or employees any increase in severance or termination
pay;
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enter into any employment, consulting, severance or termination
agreement with any of our or our subsidiaries officers,
directors or employees, pursuant to which the total annual
compensation or the aggregate severance benefits per employee
exceeds $250,000;
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establish, adopt, enter into or amend in any material respect
any collective bargaining agreement, benefit agreement or
benefit plan; or
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accelerate any rights or benefits, or make any material
determinations, under any benefit plan or benefit agreement;
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make any change in accounting methods, principles or practices
materially affecting our consolidated assets, liabilities or
results of operations, other than as required by generally
accepted accounting principles or by law with respect thereto;
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make any material tax election, file any amended tax return with
respect to any material tax or change any annual tax accounting
period, in each case, other than in the ordinary course of
business and consistent with past practice;
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enter into any lease for any real or personal property, other
than in the ordinary course of business and consistent with past
practice;
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fail to maintain in full force and effect in all material
respects adequate insurance in accordance with past practice;
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adopt or enter into a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization;
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amend, modify, terminate or enter into certain contracts other
than in the ordinary course of business and consistent with past
practice or amend, modify or terminate that certain letter
agreement between us and JPMorgan Chase Bank, dated as of
July 2, 2007, relating to our warrants and certain
purchased call options;
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enter into any related party transaction; or
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authorize any of, or commit or agree to take any of, the actions
described above.
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The merger agreement requires us, as promptly as reasonably
practicable after July 2, 2007, to establish a record date
for, duly call, give notice of and hold a meeting of our
stockholders to adopt the merger agreement. Subject to limited
circumstances contemplated by the merger agreement, our board of
directors is required to recommend that our stockholders vote in
favor of adoption of the merger agreement.
No
Solicitation of Transactions
We have agreed that we will not, nor will we authorize or permit
any of our subsidiaries or any of our or their respective
directors, officers or employees to, and we will not authorize
our or our subsidiaries respective representatives to,
directly or indirectly:
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solicit, initiate or knowingly encourage, or take any other
action to knowingly facilitate, the making of any proposal that
constitutes or is reasonably likely to lead to a takeover
proposal; or
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enter into, continue or otherwise participate in any discussions
or negotiations regarding or furnish to any person any
confidential information with respect to, or otherwise actively
assist in any way with, any takeover proposal.
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A takeover proposal means any inquiry, proposal or
offer (other than the transactions contemplated by the merger
agreement) from any person or group relating to:
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any direct or indirect acquisition or purchase (by merger or
otherwise), in a single transaction or a series of transactions,
of:
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20% or more (based on the fair market value thereof, as
determined by our board of directors) of assets (including
capital stock of our subsidiaries) of us and our subsidiaries,
taken as a whole; or
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20% or more of any class of our equity securities;
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any tender offer or exchange offer that, if consummated, would
result in any person or group owning, directly or indirectly,
20% or more of any class of our equity securities; or
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any merger, consolidation, business combination,
recapitalization, liquidation, dissolution, binding share
exchange or similar transaction involving us pursuant to which
any person or group (or the shareholders of any person) would
own, directly or indirectly, 20% or more of any class of our
equity securities or the surviving corporations equity
securities in a merger or the resulting direct or indirect
parent of us or such surviving corporation.
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Prior to adoption of the merger agreement by our stockholders,
however, we may (and may authorize and permit our subsidiaries,
directors, officers, employees and representatives to), in
response to a bona fide written takeover proposal,
(1) furnish information with respect to us and our
subsidiaries to the person making such takeover proposal and its
representatives pursuant to a customary confidentiality
agreement containing confidentiality provisions not less
favorable in the aggregate to us than those set forth in the
confidentiality agreement we previously entered into with an
affiliate of MergerCo and containing a standstill provision no
less favorable in the aggregate to us, and ending
contemporaneously with, the standstill provision set forth in
our confidentiality agreement with the affiliate of MergerCo and
(2) participate in good faith in discussions and
negotiations with such person and its representatives, if, prior
to taking any such actions, our board of directors determines:
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after consultation with its financial advisor and outside
counsel, that such takeover proposal constitutes or is
reasonably likely to lead to a superior
proposal; and
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after consultation with its outside counsel, that the failure to
take such action would be inconsistent with its fiduciary duties
under applicable law.
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For purposes of the merger agreement, superior
proposal means any written bona fide takeover proposal
that:
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if consummated, would result in a person or group (or the
shareholders of any person) owning, directly or indirectly,
(1) 50% or more of any class of equity securities of Manor
Care or of the surviving corporation in a merger or the
resulting direct or indirect parent of Manor Care or such
surviving corporation or (2) 50% or more (based on the fair
market value thereof, as determined by our board of directors)
of the assets of Manor Care and our subsidiaries, taken as a
whole; and
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our board of directors determines (after consultation with its
financial advisor and outside counsel) is more favorable to our
stockholders from a financial point of view than the merger,
taking into account all financial (including the financing terms
of any such proposal), legal, regulatory and other aspects of
such proposal and of the merger agreement (including any changes
to the financial terms of the merger agreement proposed by
MergerCo to us in response to such proposal or otherwise).
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Neither our board of directors nor any committee thereof may
make an adverse recommendation change or approve or
recommend, or publicly propose to approve or recommend, or cause
or permit us or any of our subsidiaries to execute or enter
into, any letter of intent, memorandum of understanding,
agreement in principle, merger agreement, acquisition agreement
or other similar agreement related to any takeover proposal. At
any time
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prior to the adoption of the merger agreement by our
stockholders, however, our board of directors may (subject to
our obligation to pay a termination fee to MergerCo in certain
circumstances as described below), if, after consultation with
its outside legal counsel, it determines that the failure to
take such action would be inconsistent with its fiduciary duties
under applicable law, make an adverse recommendation change or,
if we have received a takeover proposal that constitutes a
superior proposal, cause or permit Manor Care to terminate the
merger agreement, but only:
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after the third business day following MergerCos receipt
of written notice from us advising MergerCo that our board of
directors intends to take such action and specifying the reasons
therefor, including the material terms and conditions of, and
the identity of the persons making, any superior proposal that
is the basis of the proposed action by our board of
directors; and
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if, in determining whether to take such action, our board of
directors takes into account any changes to the financial terms
of the merger agreement proposed by MergerCo to us in response
to such notice or otherwise.
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We have agreed that any amendment to the financial terms of a
superior proposal will require a new written notice and a new
three-day
period.
For purposes of the merger agreement, adverse
recommendation change means any action whereby our board
of directors or any committee thereof:
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withdraws (or modifies in a manner adverse to MergerCo), or
publicly proposes to withdraw (or modify in a manner adverse to
MergerCo), the approval, recommendation or declaration of
advisability by our board of directors or any such committee of
the merger agreement or the merger or the other transactions
contemplated by the merger agreement; or
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recommends the approval or adoption of, or approves or adopts,
or publicly proposes to recommend, approve or adopt, any
takeover proposal.
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We have also agreed:
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to terminate, and to cause our subsidiaries and direct our
representatives to terminate, all discussions and negotiations
with any person conducted prior to signing the merger agreement
with respect to any takeover proposal, request the prompt return
or destruction of all confidential information furnished since
April 2007 in connection therewith and refrain from terminating,
waiving, amending, or modifying any provision of any
confidentiality or standstill agreement in our or any other
subsidiaries favor to which we or any of our subsidiaries
is a party;
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to advise MergerCo as promptly as practicable, and in any event
within two business days after receipt, orally and in writing of
the receipt of any takeover proposal after July 2, 2007,
the material terms and conditions of any such takeover proposal
and the identity of the person making any such takeover proposal;
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subject to the fiduciary duties under applicable law of our
board of directors, to keep MergerCo reasonably informed of any
material developments with respect to any takeover proposal
(including any material changes thereto);
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to not take any action to exempt any person (other than
MergerCo, its sole stockholder and their respective affiliates)
from restrictions on business contributions under the Delaware
law or any similar provision of any other takeover law or
otherwise cause such restrictions not to apply unless such
actions are taken substantially concurrently with our
termination of the merger agreement to comply with our board of
directors fiduciary duties following our receipt of a
takeover proposal that constitutes a superior proposal or such
actions are taken following an adverse recommendation
change; and
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to provide to MergerCo all information provided by us to a third
party in connection with a takeover proposal.
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Pursuant to the merger agreement, for a period of one year
following the completion of the merger, the surviving
corporation will either (1) maintain our employee benefit
plans and agreements (other than equity-based plans) at the
level in effect on the date of the merger agreement or (2)(a)
provide each employee with a base salary and bonus opportunity
that, taken as a whole, have a value (or potential value, in the
case of bonus opportunity) that is not less favorable in the
aggregate than the base salary and bonus opportunity provided to
such employee on the date of the completion of the merger and
(b) provide benefits to each such employee that, taken as a
whole, have a value that is not less favorable in the aggregate
(excluding any value attributable to equity-based compensation)
than the benefits provided to each such employee on date of the
completion of the merger.
In addition, the surviving corporation has agreed to honor and
continue, without amendment or modification (other than any
amendment required to comply with applicable law or any
amendment adopted with the consent of the affected employee),
for a period of one year following the completion of the merger,
or, if sooner, until all obligations thereunder have been
satisfied, each of our employment, severance, retention,
termination and cash incentive compensation plans, policies,
programs, agreements and arrangements (including any change in
control severance agreement between Manor Care and any employee).
The surviving corporation will also, subject to specified
limitations, recognize an employees service with Manor
Care with respect to determining eligibility to participate,
level of benefits, vesting, benefit accruals and early
retirement subsidies under the surviving corporations
employee benefit plans, to the extent that such recognition
would not result in any duplication of benefits.
The surviving corporation will also recognize expenses incurred
by employees prior to the completion of the merger during the
calendar year in which the merger occurs for purposes of
satisfying such years deductible and co-payment
limitations under such plans. In addition, the surviving
corporation will also waive pre-existing condition limitations
with respect to the employees under its welfare benefit plans
(except to the extent that such pre-existing condition
limitations would have been applicable under our employee
benefit plans).
Agreement
to Use Reasonable Best Efforts
Upon the terms and subject to the conditions of the merger
agreement, each party has agreed to use its reasonable best
efforts to take, or cause to be taken, all actions, and to do,
or cause to be done, and to assist and cooperate with the other
parties in doing, all things necessary, proper or advisable to
consummate and make effective, in the most expeditious manner
practicable, the merger and the other transactions contemplated
by the merger agreement, including using reasonable best efforts
to accomplish the following:
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the taking of all acts necessary to cause the conditions to
closing to be satisfied as promptly as practicable;
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the obtaining of all necessary actions or nonactions, waivers,
consents and approvals from governmental entities and the making
of all necessary registrations and filings and the taking of all
steps as may be necessary to obtain an approval or waiver from,
or to avoid an action or proceeding by, any governmental entity;
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the obtaining of consents, approvals and waivers from third
parties reasonably requested by MergerCo to be obtained in
connection with the merger under certain contracts and real
property leases; and
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the execution and delivery of any additional instruments
necessary to consummate the transactions contemplated by, and to
fully carry out the purposes of, the merger agreement.
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We and our subsidiaries are not required to pay any fee, penalty
or other consideration to any person whose consent, approval or
waiver under certain contracts and real property leases with
respect to the merger is being solicited.
We and our board of directors have also agreed to take all
action necessary to ensure that no state takeover statute is or
becomes applicable to the merger agreement, the merger or any of
the transactions contemplated by the merger agreement and if any
state takeover statute becomes applicable to the merger
agreement, the merger or any of the transactions contemplated by
the merger agreement, to take all action necessary to ensure
that the merger and
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the other transactions contemplated by the merger agreement may
be consummated as promptly as practicable on the terms
contemplated by the merger agreement and otherwise to minimize
the effect of such statute or regulation on the merger
agreement, the merger or any of the transactions contemplated by
the merger agreement.
We have also agreed to retain a nationally recognized investment
banking or valuation firm, selected by our board of directors
and reasonably acceptable to MergerCo, to render a solvency
opinion, customary in scope and substance, as of the closing to
our board of directors.
Financing
Commitments; Cooperation of Manor Care
MergerCo has agreed to use, and to use its reasonable best
efforts to cause the general partner of its affiliate, Carlyle
Partners V, L.P., to use, reasonable best efforts to take,
or cause to be taken, all actions and to do, or cause to be
done, all things necessary, proper or advisable to arrange the
financing on the terms and conditions described in the financing
commitments, including using its reasonable best efforts:
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to negotiate and enter into the definitive agreements with
respect to the financing on the terms and conditions contained
in the financing commitments (or on other terms acceptable to
MergerCo, so long as such other terms do not expand upon the
conditions to funding on the closing date that are not set forth
in the financing commitments and would not otherwise reasonably
be expected to impair or delay or otherwise adversely affect the
ability of MergerCo to consummate the merger or the financing or
delay the merger or the financing);
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to satisfy or to cause its affiliates to satisfy on a timely
basis all conditions applicable to MergerCo set forth in such
definitive agreements; and
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to consummate the debt financing contemplated by the debt
financing commitments at the closing, including using reasonable
best efforts to satisfy the conditions to funding of the debt
financing required to consummate the merger at the closing and
to instruct the lenders and the other persons providing such
debt financing to provide such debt financing at the closing.
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In the event any portion of the financing becomes unavailable on
the terms and conditions set forth in the financing commitments,
MergerCo is required to promptly notify Manor Care, and MergerCo
is required to use its reasonable best efforts to obtain, as
promptly as practicable, any such portion from alternative
sources on terms that will still enable MergerCo to consummate
the transactions contemplated by the merger agreement and that
are not less favorable to MergerCo with respect to conditions to
funding than those contained in the debt financing commitments.
MergerCo is required to keep us reasonably informed of any
material breach by any party of the financing commitments or any
termination of the financing commitments of which it (or its
sole stockholder or Carlyle Partners V, L.P.) becomes aware
and the status of its efforts to obtain the financing and to
provide us with copies of agreements pursuant to which any
alternative source shall have committed to provide MergerCo with
any portion of the financing.
In addition, MergerCo has agreed to refrain from taking,
directly or indirectly, any action that would reasonably be
expected to result in a failure of any of the conditions
contained in the financing commitments or in any definitive
agreement related to the financing. MergerCo has also agreed to
refrain from agreeing to or permitting any amendment, supplement
or other modification of, or waiving any of its rights under,
any financing commitments or the definitive agreements relating
to the financing if such amendment, supplement or modification:
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reduces the aggregate amount of the debt financing or equity
financing;
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expands the conditions to drawdown on the debt financing or
equity financing, on the closing date;
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can reasonably be expected to delay the closing; or
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can otherwise reasonably be expected to impair or delay or
otherwise adversely affect the ability of MergerCo to consummate
the debt financing or equity financing or the merger,
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in each case, without our prior written consent (not to be
unreasonably withheld or delayed).
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We have agreed to, and have agreed to cause our subsidiaries
(and to use our reasonable best efforts to cause our and their
respective representatives) to, provide such reasonable
cooperation as may be reasonably requested by MergerCo in
connection with the arrangement of the debt financing, including:
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participation in meetings, road shows, presentations, drafting
sessions, due diligence sessions and rating agency presentations;
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furnishing MergerCo and its financing sources with financial and
other pertinent information regarding Manor Care as may be
reasonably requested by MergerCo to consummate the debt
financing;
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obtaining customary mortgages and pledges; surveys; title
insurance policies; UCC policies; zoning reports; estoppels,
amendments and other instruments in respect of ground leases to
satisfy rating agency criteria; and UCC, bankruptcy, tax lien,
judgment and litigation searches, in each case with respect to
our properties that will secure the CMBS facility (collectively,
the CMBS deliveries);
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assisting MergerCo and its financing sources in the preparation
of offering documents and other informational and marketing
materials and documents for any portion of the debt financing,
materials for rating agency presentations and business
projections and pro forma financial statements reasonably
necessary in connection with the financing (which offering
documents are to contain disclosure and financial statements
with respect to Manor Care or the surviving corporation
reflecting the surviving corporation
and/or its
subsidiaries as the obligor);
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reasonably cooperating with the marketing efforts of MergerCo
and its financing sources for any portion of the debt financing;
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in connection with the CMBS facility and bridge facility,
allowing MergerCo, its affiliates or its representatives and
MergerCos financing sources to perform reasonable and
customary due diligence related to such properties, including
appropriate appraisals, surveys, and Phase 1 environmental
assessments and other reasonable inspections and diligence (and
documentation), including as shall be reasonably necessary to
comply with any necessary rating agencies requirements;
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reasonably facilitating the execution and delivery of definitive
financing documents and customary deliverables;
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taking all actions reasonably necessary to permit the
prospective lenders involved in the financing to evaluate our
current assets, cash management and accounting systems, policies
and procedures relating thereto for the purpose of establishing
collateral arrangements, and if reasonably required in
connection with the debt financing, establish bank and other
accounts and blocked account agreements and lock box arrangement
in connection with the foregoing;
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if required in connection with the debt financing, use
reasonable best efforts to obtain waivers, consents, estoppels
and approvals from other parties to material leases,
encumbrances and contracts to which we or any of our
subsidiaries is a party and to arrange discussions among
MergerCo and its financing sources with other parties to
material leases, encumbrances and contracts;
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taking all corporate actions, subject to the occurrence of the
closing, reasonably necessary to permit the consummation of the
debt financing and to permit the proceeds thereof to be made
available to the surviving corporation immediately following
completion of the merger;
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reasonably facilitating the pledging of collateral and execution
and delivery of definitive financing documents and customary
deliverables; and
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using reasonable best efforts to obtain legal opinions, surveys,
certificates and title insurance as reasonably requested by
MergerCo.
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Actions
with Respect to Existing Debt
If requested by MergerCo, we have agreed to commence a
solicitation of the consents of holders of a majority in
principal amount of each or any series of our 6.25% senior
notes due 2013, our 2.125% convertible senior notes
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due April 2023, our 2.125% convertible senior notes due
December 2023, our 2.125% convertible senior notes due 2035 and
our 2.0% convertible senior notes due 2036 (collectively,
the notes) to amend the terms of the indentures
governing the notes or to waive or amend any registration rights
associated therewith
and/or to
commence a tender offer to purchase all or part of each or any
series of notes, in each case on such terms and conditions as
may be reasonably proposed by MergerCo. We have also agreed to
prepare the consent solicitation and tender offer documents and
execute supplemental indentures and amendments to registration
rights agreements. MergerCo has agreed to reasonably cooperate
with us in connection with such solicitations and tender offers
and the preparation of the related documentation.
The amendments contained in any such supplemental indenture or
registration rights agreement will become effective upon
signing, but not operative until the closing of the merger and,
if applicable, the acceptance of the applicable tender offer.
The closing of any tender offer will be conditioned on the
simultaneous occurrence of the closing of the merger.
Simultaneously with the closing of the merger and in accordance
with the terms of any consent solicitation or tender offer
undertaken at MergerCos request, MergerCo has agreed to
provide Manor Care with the funds reasonably necessary to
consummate such tender offer
and/or
consent solicitation (including the payment of all applicable
premiums, consent fees and all related fees and expenses).
In addition, we have agreed that prior to the closing of the
merger, will take such actions as may be reasonably requested by
MergerCo to effect termination or settlement, or any
cancellation and payment, of any interest rate swap agreement,
warrant, option or other contract or agreement executed in
respect of any hedging arrangement entered into by Manor Care in
connection with our convertible notes (including any amendment
or termination hereof) effective as of the closing date of the
merger, in each case as may be permitted by the indenture
governing such series of convertible notes.
Neither we nor any of our subsidiaries is required to make any
monetary payments or concessions or incur any other liability in
connection with any consent solicitation, tender offer or
termination of a hedging arrangement prior to the effective time
of the merger (except to the extent MergerCo agrees to reimburse
us for the amount of any such payment). MergerCo has agreed,
promptly upon our request, to reimburse Manor Care for all
reasonable
out-of-pocket
costs incurred by us or any of our subsidiaries in connection
with any such action and has also agreed to indemnify and hold
harmless Manor Care, our subsidiaries and our respective
representatives from and against any and all losses, claims
damages, liabilities, costs, expenses, judgments, fines and
other amounts suffered or incurred by them in connection with
any such action
In connection with the merger and the financing under the CMBS
facility and prior to or upon the closing date, we have agreed
to (with the reasonable assistance of MergerCo) use reasonable
best efforts to undertake a restructuring of certain of our
subsidiaries that own and operate certain skilled nursing
and/or
assisted living facilities to place the real estate assets for
those facilities in a series of special purpose bankruptcy
remote entities meeting rating agency criteria (the real
estate SPEs) and place the business consisting of the
managing and operating of those facilities (including holding
the related licenses) in another series of special purpose
bankruptcy remote entities that will indirectly lease the real
estate assets from the real estate SPEs (collectively, the
CMBS restructuring).
The parties to the merger agreement have agreed to use
reasonable best efforts to develop the specific steps necessary
to implement the CMBS restructuring and to minimize potential
incurrence or imposition of cost, expense or taxes as a result
of the CMBS restructuring, and to otherwise reduce any material
negative effect of the CMBS restructuring on Manor Care and our
business and operations; provided, however, that
neither party is required to agree to a potential modification
to, or more specific plan to effect, the CMBS restructuring if
such proposed modification or specific plan results in any
materially adverse economic or legal consequences to such party.
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The parties have agreed that the implementation of the CMBS
restructuring will not:
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be considered in determining whether a representation, warranty
or covenant of Manor Care under the merger agreement has been
breached (other than the covenants to assist with the financing
and the CMBS restructuring);
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be consummated until MergerCo confirms that it is prepared to
proceed with the closing of the merger promptly upon
consummation of the CMBS restructuring unless such
implementation can be reversed or unwound without imposing
significant or meaningful economic harm on Manor Care or
MergerCo agrees to indemnify Manor Care for the economic harm to
Manor Care resulting from such implementation;
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be consummated or effective (in whole or in part) prior to the
commencement of the marketing period unless such implementation
can be reversed or unwound without imposing significant or
meaningful economic harm on Manor Care or MergerCo indemnifies
the Company for the economic harm to Manor Care resulting from
such implementation; or
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require Manor Care or any of our subsidiaries to take any action
that would reasonably be expected to cause, individually or in
the aggregate, Manor Care and our subsidiaries to suffer
significant or meaningful economic harm or materially and
adversely affect our operations or business unless MergerCo
agrees to indemnify Manor Care for such harm.
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MergerCo has agreed, promptly upon our request, to reimburse
Manor Care for all reasonable
out-of-pocket
expenses incurred by Manor Care or any of our subsidiaries in
connection with actions taken at the request of MergerCo to
implement or effect the CMBS restructuring (other than expenses
incurred in connection with our cooperation to effect the CMBS
restructuring, expenses incurred in responding to
MergerCos reasonable information requests made in
connection with MergerCos efforts to develop with Manor
Care the specific steps necessary to implement the CMBS
restructuring or MergerCos effort to minimize the costs of
the CMBS restructuring or internal cost allocations) and, in the
event the merger is not consummated, has agreed to be
responsible for expenses of Manor Care and our subsidiaries in
reversing or unwinding (in the event the merger agreement is
terminated) the CMBS restructuring that was effected at the
request of MergerCo.
Other
Covenants and Agreements
The merger agreement also contains the following additional
agreements between Manor Care and MergerCo relating to, among
other things:
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the provision by Manor Care to MergerCo and to MergerCos
representatives of access to our and our subsidiaries
properties, books and records, employees and information
concerning Manor Care and our subsidiaries business,
properties and personnel as MergerCo may reasonably request,
subject to certain limitations; and
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coordination of press releases and other public statements about
the merger agreement and the transactions contemplated by the
merger agreement.
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The respective obligations of the parties to effect the merger
are subject to the satisfaction or (to the extent permitted by
law) waiver at or prior to the effective time of the merger of
the following mutual conditions:
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the adoption of the merger agreement by our stockholders;
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the expiration or termination of the waiting period (and any
extension thereof) applicable to the merger under the
Hart-Scott-Rodino
Act;
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no temporary restraining order, preliminary or permanent
injunction or other judgment or order issued by any Federal or
state court being in effect enjoining or otherwise prohibiting
the consummation of the merger; and
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the receipt of all consents and approvals of, and the making of
all filings with and notices to, governmental authorities
required in connection with the merger and the other
transactions contemplated by the merger agreement (including the
debt financing and the related CMBS restructuring), without the
imposition of any condition or restriction that is adverse to
Manor Care or MergerCo, except as would not, in the aggregate,
reasonably be expected to result in losses, costs, liabilities,
damages or expenses to MergerCo
and/or Manor
Care and our subsidiaries in excess of $40 million.
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The obligations of MergerCo to effect the merger are further
subject to the satisfaction or (to the extent permitted by law)
waiver by MergerCo at or prior to the effective time of the
merger of the following conditions:
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(1) our representations and warranties regarding certain
matters relating to our capital structure, authority to
consummate the merger and title to owned and licensed real
property must be true and correct in all material respects as of
the date of the merger agreement and as of the date the merger
is completed, except to the extent that a representation or
warranty expressly speaks as of an earlier date, in which case
it need be true and correct in all material respects only as of
that date and (2) all other representations and warranties
made by us (disregarding all materiality qualifications) must be
true and correct as of the date of the merger agreement and as
of the date the merger is completed, except to the extent that a
representation or warranty expressly speaks as of an earlier
date, in which case it need be true and correct only as of that
date, and except where the failure of such other representations
and warranties to be so true and correct would not, individually
or in the aggregate, reasonably be expected to have a material
adverse effect;
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our performance and compliance, in all material respects, with
all of our material obligations under the merger agreement;
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our delivery to MergerCo at closing of a certificate with
respect to the satisfaction of the conditions relating to our
representations and warranties and material obligations;
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the completion of the CMBS restructuring; and
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the absence of any event, circumstance, development, change or
effect since July 2, 2007 that has had, or would reasonably
be expected to have, a material adverse effect.
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Our obligation to effect the merger is further subject to the
satisfaction or (to the extent permitted by law) waiver by us at
or prior to the effective time of the merger of the following
conditions:
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(1) MergerCos representations and warranties
regarding certain matters relating to its authority to
consummate the merger must be true and correct in all material
respects as of the date of the merger agreement and as of the
date the merger is completed, except to the extent that a
representation or warranty expressly speaks as of an earlier
date, in which case it need be true and correct in all material
respects only as of that date and (2) all other
representations and warranties made by MergerCo (disregarding
all materiality qualifications) must be true and correct as of
the date of the merger agreement and as of the date the merger
is completed, except to the extent that a representation or
warranty expressly speaks as of an earlier date, in which case
it need be true only as of that date, and except where the
failure of such representations and warranties to be so true and
correct would not, individually or in the aggregate, reasonably
be expected to have a MergerCo material adverse effect;
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the performance, in all material respects, by MergerCo of all of
its material obligations under the merger agreement; and
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the delivery to us at closing by MergerCo of a certificate with
respect to the satisfaction of the conditions relating to its
representations and warranties and material obligations.
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Neither Manor Care nor MergerCo may rely on the failure of any
condition to be satisfied if such failure was caused by such
partys failure to perform any of its obligations under the
merger agreement, to act in good faith or to use its reasonable
best efforts to consummate the merger and the other transactions
contemplated by the merger agreement.
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The merger agreement may be terminated at any time prior to the
effective time of the merger, whether before or after
stockholder approval has been obtained, as follows:
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by mutual written consent of MergerCo and Manor Care;
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by either MergerCo or Manor Care, if:
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our stockholders do not adopt the merger agreement at the
special meeting or any postponement or adjournment thereof;
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any temporary restraining order, preliminary or permanent
injunction or other judgment or order issued by any Federal or
state court shall have become final and non-appealable, so long
as the terminating party shall have used reasonable best efforts
to prevent the entry of and to remove such judgment or order;
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the merger has not been consummated on or before March 31,
2008; provided that (1) if the marketing period has
not expired by March 31, 2008, then the March 31,
2008 day will be automatically extended by an additional
five business days (or, in the event the marketing period has
commenced on or before March 31, 2008 and is then
continuing, the number of days that remain in the marketing
period) and (2) if the closing shall not have occurred
prior to March 31, 2008 solely as a result of a
governmental judgment or order or the failure to receive the
required governmental consents or approvals or make the required
filings and notices and it is reasonably apparent that such
condition may be satisfied (or waived) on or prior to
May 30, 2008, the March 31, 2008 date will be
automatically extended to May 30, 2008; provided further
that this right to terminate the merger agreement is not
available to any party if the failure of such party to perform
any of its obligations under the merger agreement, to act in
good faith or to use its reasonable best efforts to consummate
the merger and the other transactions contemplated by the merger
agreement has been a principal cause of or resulted in the
failure of the merger to be consummated on or before such
date; or
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if the terminating party is not then in material breach and
there is a breach by the non-terminating party of any of its
representations or warranties or failure to perform any of its
covenants or agreements in the merger agreement such that the
closing conditions would not be satisfied and which cannot be
cured prior to the termination date set forth above;
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by MergerCo, if our board of directors or a committee thereof
makes an adverse recommendation change or we, our board of
directors or a committee thereof recommends a takeover proposal
or enters into, or causes Manor Care or any of our subsidiaries
to enter into, a definitive agreement for a takeover
proposal; or
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by Manor Care, if:
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prior to adoption of the merger agreement by our stockholders,
we have received a takeover proposal that constitutes a superior
proposal and our board of directors, after consultation with its
outside legal counsel, determines that the failure to take such
action would be inconsistent with its fiduciary duties under
applicable law, but only after (1) the third business day
following the MergerCos receipt of written notice from us
advising MergerCo that our board of directors intends to take
such action and specifying the reasons therefor, including the
material terms and conditions of, and the identity of the
persons making the superior proposal that is the basis of the
proposed action by our board of directors, and (2) our
board of directors has taken into account any changes to the
financial terms of the merger agreement proposed by MergerCo to
us in response to such notice or otherwise (the right to
terminate in these circumstances is referred to as the
fiduciary out right to terminate); or
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all of the mutual conditions to closing and all of the
conditions to MergerCos obligations to close have been
satisfied (other than those conditions that by their terms are
to be satisfied at the closing) and, on or after the last day of
the marketing period, neither MergerCo nor the surviving
corporation has received the proceeds of the debt financing and
MergerCo has failed to consummate the merger.
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65
Fees
Payable by Manor Care
We have agreed to pay to MergerCo an aggregate termination fee
of $175 million (less the amount of any MergerCo expenses
reimbursed by us in certain circumstances described below) if:
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the merger agreement is terminated by MergerCo upon the
occurrence of an adverse recommendation change by our board of
directors or a committee thereof or in the event we, our board
of directors or a committee thereof recommends a takeover
proposal or enters into, or causes Manor Care or any of our
subsidiaries to enter into, a definitive agreement for a
takeover proposal;
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the merger agreement is terminated by Manor Care pursuant to the
exercise of its fiduciary out right to terminate described above;
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the merger agreement is terminated by MergerCo or Manor Care due
to the failure to receive the approval of our stockholders at
the special meeting or any postponement or adjournment
thereof; and
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after July 2, 2007 and prior to the termination, a takeover
proposal has been publicly disclosed or has been made directly
to our stockholders generally or has otherwise become publicly
known and not publicly withdrawn; and
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within nine months after the termination, we enter into a
definitive agreement with respect to a takeover proposal and
such takeover proposal is subsequently consummated;
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the merger agreement is terminated by MergerCo or Manor Care
because the merger is not completed prior to March 31, 2008
(as such date may be extended as described above); and
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the special meeting of our stockholders to approve the merger
has not been held;
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after July 2, 2007 and prior to the termination, a takeover
proposal has been publicly disclosed or has been made directly
to our stockholders generally or has otherwise become publicly
known and not publicly withdrawn; and
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within nine months after the termination, we enter into a
definitive agreement with respect to a takeover proposal and
such takeover proposal is subsequently consummated; or
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the merger agreement is terminated by MergerCo due to our breach
of any of our representations or warranties or failure to
perform any of our covenants or agreements in the merger
agreement such that the closing conditions would not be
satisfied and which cannot be cured prior to March 31, 2008
(as such date may be extended as described above); and
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after July 2, 2007 and prior to the termination, a takeover
proposal has been publicly disclosed or has been made directly
to our stockholders generally or has otherwise become publicly
known; and
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within nine months after the termination, we enter into a
definitive agreement with respect to a takeover proposal and
such takeover proposal is subsequently consummated.
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For purposes of determining whether a termination fee is payable
by us, a takeover proposal means any inquiry,
proposal or offer (other than the transactions contemplated by
the merger agreement) from any person or group relating to:
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any direct or indirect acquisition or purchase (by merger or
otherwise), in a single transaction or a series of transactions,
of:
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50% or more (based on the fair market value thereof, as
determined by our board of directors) of the assets (including
capital stock of our subsidiaries) of us and our subsidiaries,
taken as a whole; or
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50% or more of any class of our equity securities;
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any tender offer or exchange offer that, if consummated, would
result in any person or group owning, directly or indirectly,
50% or more of any class of our equity securities; or
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66
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any merger, consolidation, business combination,
recapitalization, liquidation, dissolution, binding share
exchange or similar transaction involving us pursuant to which
any person or group (or the shareholders of any person) would
own, directly or indirectly, 50% or more of any class of our
equity securities or of the surviving corporations
securities in a merger or the resulting direct or indirect
parent of us or such surviving corporation.
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In the circumstances in which we become obligated to pay the
termination fee as the result of a termination of the merger
agreement by MergerCo in the event that our board of directors
or a committee thereof makes an adverse recommendation change or
we, our board of directors or a committee thereof recommends
another takeover proposal or enters into, or causes Manor Care
or any of our subsidiaries to enter into, a definitive agreement
for another takeover proposal, receipt of payment of the
termination fee shall be the sole and exclusive remedy of
MergerCo and any of its former, current or future general or
limited partners, members or stockholders or against any of
their respective former, current or future directors, officers,
employees, affiliates, general or limited partners,
stockholders, managers, members or agents (each, a
specified person) against Manor Care and any of our
specified persons for any loss or damage suffered as a result of
the breach of any representation, warranty, covenant or
agreement contained in the merger agreement by us or the failure
of the merger to be consummated, and upon payment of the
termination fee, none of Manor Care or any of our specified
persons shall have any further liability or obligation relating
to or arising out of the merger agreement or the transactions
contemplated by the merger agreement.
Expenses
Payable by Manor Care
We have agreed to pay MergerCos and its affiliates
actual and reasonably documented
out-of-pocket
fees and expenses actually incurred by MergerCo and its
Affiliates (up to $15 million) on or prior to the
termination of the merger agreement in connection with the
transaction contemplated by the merger agreement if:
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the merger agreement is terminated by MergerCo or Manor Care
because the merger is not completed prior to March 31, 2008
(as such date may be extended as described above); or
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the merger agreement is terminated by MergerCo or Manor Care due
to the failure to receive the approval of our stockholders at
the special meeting or any postponement or adjournment thereof
at a time when the agreement was terminable because the merger
is not completed prior to March 31, 2008 (as such date may
be extended as described above).
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The amount of any MergerCo expenses paid by Manor Care will be
credited against any termination fee paid by Manor Care.
Fees
Payable by MergerCo
MergerCo has agreed to pay us a termination fee of
$175 million if we terminate the merger agreement in the
event that all of the mutual conditions to closing and all of
the conditions to MergerCos obligations to close have been
satisfied (other than those conditions that by their terms may
only be satisfied at the closing) and, on or after the last day
of the marketing period, neither MergerCo nor the surviving
corporation has received the proceeds of the debt financing and
MergerCo shall have failed to consummate the merger.
In the circumstances in which MergerCo becomes obligated to pay
this termination fee, our termination of the merger agreement in
these circumstances and receipt of payment of such termination
fee shall be our sole and exclusive remedy against MergerCo and
any of its specified persons for any loss or damage suffered as
a result of the breach of any representation, warranty, covenant
or agreement contained in the merger agreement by MergerCo and
the failure of the merger to be consummated, and upon payment of
such termination fee, none of MergerCo or any of its specified
persons shall have any further liability or obligation relating
to or arising out of the merger agreement or the transactions
contemplated by the merger agreement.
Liability
Cap
The parties have agreed that in no event, whether or not the
merger agreement shall have been terminated, shall we and our
subsidiaries, as a group, on the one hand, or MergerCo and
Carlyle Partners V, L.P., as a group, on the
67
other hand, be subject to damages in excess of $250 million
in the aggregate for each such group, respectively, for all
losses and damages (including, in our case, lost stockholder
premium) arising from or in connection with breaches by
MergerCo, on the one hand, or us, on the other, of their
respective representations, warranties, covenants and agreements
contained in the merger agreement or arising from any other
claim or cause of action, and none of Manor Care, MergerCo,
Carlyle Partners V, L.P. or any of their respective
specified persons shall have any further liability or obligation
to the other parties or otherwise relating to or arising out of
the merger agreement or the transactions contemplated by the
merger agreement.
Carlyle Partners V, L.P. has guaranteed the payment by
MergerCo of its obligations to us arising under, or in
connection with, the merger agreement, including the payment of
the termination fee, up to the maximum aggregate liability of
$250 million. Our rights under the sponsor guarantee
constitute our sole and exclusive remedy against Carlyle and its
affiliates.
The merger agreement may be amended by the written agreement of
Manor Care and MergerCo at any time prior to the closing date of
the merger, whether before or after the adoption of the merger
agreement by our stockholders, provided that after the
merger agreement has been adopted by our stockholders, there
shall be no amendment that by law would require the further
approval of our stockholders without such approval having been
obtained.
The merger agreement also provides that, at any time prior to
the effective time of the merger, any party may, by written
agreement:
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extend the time for the performance of any of the obligations or
other acts of the other parties to the merger agreement;
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to the extent permitted by law, waive any inaccuracies in the
representations and warranties contained in the merger agreement
or in any document delivered pursuant to the merger
agreement; or
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to the extent permitted by law, waive compliance with any of the
agreements or conditions contained in the merger agreement,
provided that after the merger agreement has been adopted
by our stockholders, there shall be no waiver that by law would
require the further approval of our stockholders without such
approval having been obtained.
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68
The discussion of the provisions set forth below is not a
complete summary regarding your appraisal rights under Delaware
law and is qualified in its entirety by reference to the text of
the relevant provisions of Delaware law, which are attached to
this proxy statement as Annex D. Stockholders intending to
exercise appraisal rights should carefully review Annex D.
Failure to follow precisely any of the statutory procedures set
forth in Annex D may result in a termination or waiver of
these rights.
If the merger is consummated, dissenting holders of our common
stock who follow the procedures specified in Section 262 of
the DGCL within the appropriate time periods will be entitled to
have their shares of our common stock appraised by a court and
to receive the fair value of such shares in cash as
determined by the Delaware Court of Chancery in lieu of the
consideration that such stockholder would otherwise be entitled
to receive pursuant to the merger agreement.
The following is a brief summary of Section 262, which sets
forth the procedures for dissenting from the merger and
demanding statutory appraisal rights. Failure to follow the
procedures set forth in Section 262 precisely could result
in the loss of appraisal rights. This proxy statement
constitutes notice to holders of our common stock concerning the
availability of appraisal rights under Section 262. A
stockholder of record wishing to assert appraisal rights must
hold the shares of stock on the date of making a demand for
appraisal rights with respect to such shares and must
continuously hold such shares through the effective time of the
merger.
Stockholders who desire to exercise their appraisal rights must
satisfy all of the conditions of Section 262. A written
demand for appraisal of shares must be filed with us before the
special meeting. This written demand for appraisal of shares
must be in addition to and separate from a vote against the
merger. Stockholders electing to exercise their appraisal rights
must not vote FOR the merger. Any proxy or
vote against the merger will not constitute a demand for
appraisal within the meaning of Section 262.
A demand for appraisal must be executed by or for the
stockholder of record, fully and correctly, as such
stockholders name appears on the share certificate. If the
shares are owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, this demand must be executed by
or for the fiduciary. If the shares are owned by or for more
than one person, as in a joint tenancy or tenancy in common,
such demand must be executed by or for all joint owners. An
authorized agent, including an agent for two or more joint
owners, may execute the demand for appraisal for a stockholder
of record; however, the agent must identify the record owner and
expressly disclose the fact that, in exercising the demand, he
is acting as agent for the record owner. A person having a
beneficial interest in our common stock held of record in the
name of another person, such as a broker or nominee, must act
promptly to cause the record holder to follow the steps
summarized below and in a timely manner to perfect whatever
appraisal rights the beneficial owner may have.
A stockholder who elects to exercise appraisal rights should
mail or deliver his, her or its written demand to us at our
address at 333 N. Summit Street, Toledo, Ohio
43604-2617,
Attention: General Counsel. The written demand for appraisal
should specify the stockholders name and mailing address,
and that the stockholder is thereby demanding appraisal of his,
her or its share of our common stock. Within ten days after the
effective time of the merger, we must provide notice of the
effective time of the merger to all of our stockholders who have
complied with Section 262 and have not voted for the merger.
Within 120 days after the effective time of the merger (but
not thereafter), any stockholder who has satisfied the
requirements of Section 262 may deliver to us a written
demand for a statement listing the aggregate number of shares
not voted in favor of the merger and with respect to which
demands for appraisal have been received and the aggregate
number of holders of such shares. We, as the surviving
corporation in the merger, must mail such written statement to
the stockholder no later than the later of 10 days after
the stockholders request is received by us or 10 days
after the latest date for delivery of a demand for appraisal
under Section 262.
Within 120 days after the effective time of the merger (but
not thereafter), either we or any stockholder who has complied
with the required conditions of Section 262 and who is
otherwise entitled to appraisal rights may file a petition in
the Delaware Court of Chancery demanding a determination of the
fair value of the shares of our common stock owned by
stockholders entitled to appraisal rights. We have no present
intention to file such a petition if demand for appraisal is
made.
69
Upon the filing of any petition by a stockholder in accordance
with Section 262, service of a copy must be made upon us.
We must, within 20 days after service, file in the office
of the Register in Chancery in which the petition was filed, a
duly verified list containing the names and addresses of all
stockholders who have demanded payment for their shares and with
whom we have not reached agreements as to the value of their
shares. If we file a petition, the petition must be accompanied
by the verified list. The Register in Chancery, if so ordered by
the court, will give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to us
and to the stockholders shown on the list at the addresses
therein stated, and notice will also be given by publishing a
notice at least one week before the day of the hearing in a
newspaper of general circulation published in the City of
Wilmington, Delaware, or such publication as the court deems
advisable. The forms of the notices by mail and by publication
must be approved by the court, and we will bear the costs
thereof. The Delaware Court of Chancery may require the
stockholders who have demanded an appraisal for their shares
(and who hold stock represented by certificates) to submit their
stock certificates to the Register in Chancery for notation of
the pendency of the appraisal proceedings and the Delaware Court
of Chancery may dismiss the proceedings as to any stockholder
that fails to comply with such direction.
If a petition for an appraisal is filed in a timely fashion,
after a hearing on the petition, the court will determine which
stockholders are entitled to appraisal rights and will appraise
the shares owned by these stockholders, determining the fair
value of such shares, exclusive of any element of value arising
from the accomplishment or expectation of the merger, together
with a fair rate of interest to be paid, if any, upon the amount
determined to be the fair value.
Stockholders considering seeking appraisal of their shares
should note that the fair value of their shares determined under
Section 262 could be more, the same or less than the
consideration they would receive pursuant to the merger
agreement if they did not seek appraisal of their shares.
Stockholders should also be aware that investment banking
opinions as to the fairness, from a financial point of view, of
the consideration payable in a merger are not opinions as to
fair value under Section 262 of the DGCL. The costs of the
appraisal proceeding may be determined by the court and taxed
against the parties as the court deems equitable under the
circumstances. Upon application of a dissenting stockholder, the
court may order that all or a portion of the expenses incurred
by any dissenting stockholder in connection with the appraisal
proceeding, including reasonable attorneys fees and the
fees and expenses of experts, be charged pro rata against the
value of all shares entitled to appraisal. In the absence of a
determination or assessment, each party bears his, her or its
own expenses. The exchange of shares for cash pursuant to the
exercise of appraisal rights generally will be a taxable
transaction for United States federal income tax purposes and
possibly state, local and foreign income tax purposes as well.
See The Merger Material United States
Federal Income Tax Consequences of the Merger on
page 45.
Any stockholder who has duly demanded appraisal in compliance
with Section 262 will not, after the effective time of the
merger, be entitled to vote for any purpose the shares subject
to demand or to receive payment of dividends or other
distributions on such shares, except for dividends or
distributions payable to stockholders of record at a date prior
to the effective time of the merger.
At any time within 60 days after the effective time of the
merger, any stockholder will have the right to withdraw his, her
or its demand for appraisal and to accept the terms offered in
the merger agreement. After this period, a stockholder may
withdraw his, her or its demand for appraisal and receive
payment for his, her or its shares as provided in the merger
agreement only with our consent. If no petition for appraisal is
filed with the court within 120 days after the effective
time of the merger, stockholders rights to appraisal (if
available) will cease. Inasmuch as we have no obligation to file
such a petition, any stockholder who desires a petition to be
filed is advised to file it on a timely basis. No petition
timely filed in the court demanding appraisal may be dismissed
as to any stockholder without the approval of the court, which
approval may be conditioned upon such terms as the court deems
just.
Failure by any stockholder to comply fully with the procedures
of Section 262 of the DGCL (as reproduced in Annex D
to this proxy statement) may result in termination of such
stockholders appraisal rights. In view of the complexity
of Section 262, Manor Care stockholders who may wish to
dissent from the merger and pursue appraisal rights should
consult their legal advisors.
70
MARKET
PRICE OF OUR STOCK
Our common stock is listed on the NYSE under the trading symbol
HCR. The following table sets forth the high and low
sales prices per share of our common stock on the NYSE for the
periods indicated.
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High
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Low
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Fiscal Year Ended
December 31, 2005
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First Quarter
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$
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36.59
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$
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32.26
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Second Quarter
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41.16
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30.87
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Third Quarter
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40.46
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34.70
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Fourth Quarter
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41.11
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36.46
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Fiscal Year Ended
December 31, 2006
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First Quarter
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$
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44.89
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$
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38.26
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Second Quarter
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47.52
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41.95
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Third Quarter
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53.68
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47.28
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Fourth Quarter
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52.28
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46.43
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Fiscal Year Ending
December 31, 2007
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First Quarter
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$
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55.33
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$
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46.07
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Second Quarter
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68.86
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53.97
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Third Quarter (through
September 13, 2007)
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65.20
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58.88
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The closing sale price of our common stock on the NYSE on
April 10, 2007, which was the last trading day before we
announced that our board of directors was exploring strategic
alternatives, including a potential sale of Manor Care, was
$55.75. The closing sale price of our common stock on the NYSE
on June 29, 2007, which was the last trading day before we
announced the merger, was $65.29. On September 13, 2007,
the last trading day before the date of this proxy statement,
the closing price of our common stock on the NYSE was $64.56.
You are encouraged to obtain current market quotations for our
common stock in connection with voting your shares.
As of September 10, 2007, the record date for the special
meeting, there were 2,081 registered holders of our common stock.
The following table sets forth dividends announced and paid in
respect of Manor Care common stock, on a per share basis, for
the periods indicated.
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Dividends per Share
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of Common Stock
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Fiscal Year Ended
December 31, 2005
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First Quarter
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$
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0.15
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Second Quarter
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0.15
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Third Quarter
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0.15
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Fourth Quarter
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0.15
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Fiscal Year Ended
December 31, 2006
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First Quarter
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$
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0.16
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Second Quarter
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0.16
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Third Quarter
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0.16
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Fourth Quarter
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0.16
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Fiscal Year Ending
December 31, 2007
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First Quarter
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$
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0.17
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Second Quarter
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0.17
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Third Quarter
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0.17
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71
SECURITY
OWNERSHIP OF CERTAIN MANAGEMENT AND BENEFICIAL OWNERS
Security
Ownership of Directors and Executive Officers
The following table shows, as of September 10, 2007,
information concerning beneficial ownership of shares of our
common stock by our directors individually, our chief executive
officer, our chief financial officer, our three other most
highly compensated executive officers and our executive officers
and directors as a group. Except as indicated by the notes to
the table, the holders listed below have sole voting and
investment power over the shares beneficially owned by them.
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Amount and Nature
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of Beneficial
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Percent of
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Title of Class
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Name of Beneficial Owner
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Ownership(1)(2)(3)(4)
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Class
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Common Stock
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Mary Taylor Behrens
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6,705
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(6)
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Common Stock
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Steven M. Cavanaugh
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14,974
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(6)
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Common Stock
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Joseph F. Damico
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19,705
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(6)
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Common Stock
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John K. Graham
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59,186
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(4)
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(6)
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Common Stock
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Stephen L. Guillard
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33,153
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(6)
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Common Stock
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William H. Longfield
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63,741
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(6)
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Common Stock
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Paul A. Ormond
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3,668,400
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(5)
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4.9
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%
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Common Stock
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Richard A. Parr II
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(6)
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Common Stock
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John T. Schwieters
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45,205
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(6)
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Common Stock
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Richard C. Tuttle
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14,705
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(6)
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Common Stock
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Gail R. Wilensky
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|
|
27,205
|
|
|
|
|
(6)
|
Common Stock
|
|
Thomas L. Young
|
|
|
27,545
|
|
|
|
|
(6)
|
Common Stock
|
|
Executive Officers and Directors
as a group
|
|
|
4,204,243
|
|
|
|
5.6
|
%
|
|
|
|
(1) |
|
Includes shares subject to transfer restrictions granted to
non-management directors and certain executive officers under
our equity award plans, with respect to which the holders have
voting power and the right to receive dividends, but no right to
transfer the shares. |
|
|
|
(2) |
|
Includes the following number of shares which the person has a
right to acquire within 60 days of September 10, 2007,
upon the exercise of options or conversion of phantom stock
units to stock: Mr. Cavanaugh 13,500;
Mr. Damico 9,000; Mr. Graham
50,460; Mr. Longfield 45,000;
Mr. Ormond 1,965,738;
Mr. Schwieters 36,000;
Ms. Wilensky 18,000; Mr. Young
9,000; and Executive Officers and Directors as a
group 2,341,875. |
|
|
|
(3) |
|
Includes shares held by Messrs. Cavanaugh, Graham and
Ormond and by all executive officers as a group under our 401(k)
savings plan as of September 10, 2007. |
|
|
|
(4) |
|
Includes 473 shares held in spouses 401(k) account.
Mr. Graham disclaims any beneficial interest in these
shares. |
|
|
|
(5) |
|
Includes 6,282 shares held by a family member of
Mr. Ormond. Mr. Ormond disclaims any beneficial
interest in these shares. |
|
(6) |
|
Percentage of ownership does not exceed one percent of the class. |
72
Security
Ownership of Certain Beneficial Owners
The following table sets forth, as of December 31, 2006,
except as indicated by the notes to the table below, information
with respect to any person we know to be the beneficial owner of
more than 5 percent of our common stock. The information
presented is based upon filings made pursuant to the Securities
Exchange Act of 1934 and received by us.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount and Nature
|
|
|
|
|
|
|
|
|
of Beneficial
|
|
|
Percent of
|
|
Title of Class
|
|
Name of Beneficial Owner
|
|
Ownership(1)(2)(3)(4)
|
|
|
Class
|
|
|
Common Stock
|
|
Ronald Baron
767 Fifth Avenue
New York, NY 10153
|
|
|
6,022,008
|
(1)
|
|
|
8.3
|
%
|
Common Stock
|
|
Janus Capital Management LLC
151 Detroit Street
Denver, CO 80206
|
|
|
4,070,013
|
(2)
|
|
|
5.6
|
%
|
Common Stock
|
|
T. Rowe Price Associates, Inc.
100 East Pratt St.
Baltimore, MD 21202
|
|
|
6,233,969
|
(3)
|
|
|
8.6
|
%
|
Common Stock
|
|
Wellington Management Company,
LLP
75 State Street
Boston, MA 02109
|
|
|
4,164,380
|
(4)
|
|
|
5.7
|
%
|
Common Stock
|
|
Noonday Asset Management, L.P.
227 West Trade Street, Suite 2140
Charlotte, NC 28202
|
|
|
4,548,662
|
(5)
|
|
|
6.2
|
%
|
|
|
|
(1) |
|
The information received by us in a Form 13G filed
February 14, 2007 indicates that Mr. Baron has sole
voting and dispositive power over 195,908 shares and shared
voting power over 5,417,900 shares and shared dispositive
power over 5,826,100 shares; Baron Capital Group, Inc.
(BCG) has sole voting and dispositive power over
55,000 shares and shared voting power over
5,417,900 shares and shared dispositive power over
5,826,100 shares; Baron Capital Management, Inc.
(BCM), a registered investment adviser, has sole
voting and dispositive power over 55,000 shares and shared
voting power over 222,100 shares and shared dispositive
power over 251,600 shares; and BAMCO, Inc., a registered
investment adviser, has shared voting power over
5,195,800 shares and shared dispositive power over
5,574,500 shares. Mr. Baron owns a controlling
interest in BCG. BCM and BAMCO, Inc. are subsidiaries of BCG. |
|
|
|
(2) |
|
The information received by us in a Form 13G filed
August 13, 2007 indicates that the report includes the
holdings of Janus Capital Management LLC (Janus Capital);
Enhanced Investment Technologies LLC (INTECH) in
which Janus Capital has an indirect 86.5% ownership interest;
and Perkins, Wolf, McDonnell and Company, LLC (Perkins
Wolf) in which Janus Capital has an indirect 30% ownership
stake. Janus Capital, INTECH and Perkins Wolf are registered
investment advisers. Janus Capital, INTECH and Perkins Wolf have
sole voting and dispositive power over 1,411,454 shares and
shared voting and dispositive power over 2,658,559 shares. |
|
|
|
(3) |
|
The information received by us in a Form 13G filed
February 13, 2007 indicates that T. Rowe Price Associates,
Inc. (Price Associates), a registered investment adviser, has
sole voting power over 1,599,640 shares and sole
dispositive power over 6,233,969 shares; and T. Rowe Price
Mid-Cap Growth Fund, Inc. (Mid-Cap Growth) has sole voting power
over 3,850,000 shares and sole dispositive power over no
shares. These securities are owned by various individual and
institutional investors including Mid-Cap Growth for which Price
Associates serves as investment adviser with power to direct
investment
and/or sole
power to vote the securities. For purposes of the reporting
requirements of the Securities Exchange Act of 1934, Price
Associates is deemed to be the beneficial owner of such
securities; however, Price Associates expressly disclaims that
it is, in fact, the beneficial owner of such securities. |
|
(4) |
|
The information received by us in a Form 13G filed
February 14, 2007 indicates that Wellington Management
Company, LLP, an investment adviser, has shared voting power
over 3,137,400 shares and shared dispositive power over
4,164,380 shares. |
73
|
|
|
(5) |
|
The information received by us in a Form 13D filed
July 30, 2007 indicates that, as of July 30, 2007,
each of Chun R. Ding, William F. Duhamel, Richard B. Fried,
Monica R. Landry, Douglas M. MacMahon, William F. Mellin,
Stephen L. Millham, Jason E. Moment, Ashish H. Pant, Rajiv A.
Patel, Derek C. Schrier, Thomas F. Steyer and Mark C. Wehrly has
shared voting power and shared dispositive power over
4,548,662 shares; each of Noonday Asset Management, L.P.,
Noonday G.P. (U.S.), L.L.C., Noonday Capital, L.L.C., David I.
Cohen and Saurabh K. Mittal has shared voting and dispositive
power over 2,508,425 shares; Farallon Partners, L.L.C. has
shared voting and dispositive power over 2,280,900 shares;
Farallon Capital Management, L.L.C. has shared voting and
dispositive power over 2,267,762 shares; Farallon Capital
Offshore Investors II, L.P. has shared voting and
dispositive power over 1,059,700 shares; Farallon Capital
Partners, L.P. has shared voting and dispositive power over
708,600 shares; Farallon Capital Institutional Partners,
L.P. has shared voting and dispositive power over
389,700 shares; Farallon Capital Institutional
Partners II, L.P. has shared voting and dispositive power
over 41,900 shares; Noonday Capital Partners, L.L.C. has
shared voting and dispositive power over 33,300 shares;
Tinicum Partners, L.P. has shared voting and dispositive power
over 24,700 shares; Farallon Capital Institutional
Partners III, L.P. has shared voting and dispositive power
over 23,000 shares. Noonday Asset Management, L.P. and
Noonday G.P. (U.S.), L.L.C. are sub-investment advisers to each
of Noonday Capital Partners, L.L.C., Farallon Capital Partners,
L.P., Farallon Capital Institutional Partners, L.P., Farallon
Capital Institutional Partners II, L.P., Farallon Capital
Institutional Partners III, L.P., Tinicum Partners, L.P.
and Farallon Capital Offshore Investors II, L.P.
(collectively, the Funds) and certain accounts
managed by Farallon Capital Management, L.L.C. (the
Managed Accounts), and pursuant to certain
subadvisory arrangements, have investment discretion over all of
the assets of Noonday Capital Partners, L.L.C. and certain
assets of the other Funds and the Managed Accounts. Noonday
Capital, L.L.C. is the general partner of Noonday Asset
Management, L.P. David I. Cohen and Saurabh K. Mittal are the
managing members of Noonday G.P. (U.S.), L.L.C. and Noonday
Capital, L.L.C. Farallon Partners, L.L.C. is the managing member
of Noonday Capital Partners, L.L.C. and the general partner of
each of the other Funds. Chun R. Ding, William F. Duhamel,
Richard B. Fried, Monica R. Landry, Douglas M. MacMahon, William
F. Mellin, Stephen L. Millham, Jason E. Moment, Ashish H. Pant,
Rajiv A. Patel, Derek C. Schrier, Thomas F. Steyer and Mark C.
Wehrly are managing members of Farallon Partners, L.L.C. and
Farallon Capital Management, L.L.C. |
MULTIPLE
STOCKHOLDERS SHARING ONE ADDRESS
In accordance with
Rule 14a-3(e)(1)
under the Exchange Act, one proxy statement will be delivered to
two or more stockholders who share an address, unless we have
received contrary instructions from one or more of the
stockholders. We will deliver promptly upon written or oral
request a separate copy of the proxy statement to a stockholder
at a shared address to which a single copy of the proxy
statement was delivered. Requests for additional copies of the
proxy statement, and requests that in the future separate proxy
statements be sent to stockholders who share an address, should
be directed to Manor Care, Inc., P.O. Box 10086, Toledo,
Ohio 43699, Attention: Corporate Communications Department,
Telephone:
(419) 252-5500.
In addition, stockholders who share a single address but receive
multiple copies of the proxy statement may request that in the
future they receive a single copy by contacting us at the
address and phone number set forth in the prior sentence.
Submission
of Stockholder Proposals
If the merger is not completed, you will continue to be entitled
to attend and participate in our stockholder meetings and we
will hold a 2008 annual meeting of stockholders, in which case
stockholder proposals will be eligible for consideration for
inclusion in the proxy statement and form of proxy for our 2008
annual meeting of stockholders in accordance with
Rule 14a-8
under the Exchange Act.
Any stockholder submitting a proposal for inclusion in our proxy
statement for our 2008 annual meeting must ensure our receipt of
the proposal no later than December 6, 2007. Any
stockholder bringing a proposal before the 2008 annual meeting
that is not in our proxy statement for that meeting must deliver
the proposal to us not less than 60 days and not more than
90 days prior to the date of the annual meeting. If,
however, we give less than 70 days
74
notice or prior public disclosure of the date of the annual
meeting, we will consider notice of a stockholders
submission timely if we receive it within 10 days of the
date on which we first mail or publicly disclose the date of the
annual meeting. Please send all proposals to Richard A.
Parr II, Vice President, General Counsel and Secretary,
Manor Care, Inc., 333 N. Summit St., Toledo, Ohio
43604.
Where
You Can Find More Information
We file annual, quarterly and special reports, proxy statements,
and other documents with the Securities and Exchange Commission
under the Securities Exchange Act of 1934. You may also read and
copy any document we file at the SEC public reference room
located at 100 F. Street, N.E., Room 1580,
Washington, D.C., 20549. You may obtain information
regarding the operation of the Public Reference Room by calling
the SEC at
1-800-SEC-0330.
The SEC maintains an Internet site that contains reports, proxy
and information statements, and other information regarding
issuers that file electronically with the SEC. Our SEC filings
are available to the public at the SECs website at
http://www.sec.gov.
These reports are also available through our website at
http://www.hcr-manorcare.com.
The information on our website is not part of this proxy
statement.
In addition, because our common stock is listed on the New York
Stock Exchange, you may read our reports, proxy statements, and
other documents at the offices of the New York Stock Exchange at
20 Broad Street, New York, New York 10005.
We incorporate by reference into this proxy statement any
current reports on
Form 8-K
filed by us pursuant to the Exchange Act after the date of this
proxy statement and prior to the date of the special meeting.
This means that we can disclose important information to you by
referring you to those documents. The information in the
documents incorporated by reference is considered to be a part
of this proxy statement, and information in documents that we
file later with the SEC will automatically update and supersede
this information.
We will provide to you, at no charge, a copy of the documents we
incorporate by reference in this proxy statement. To request a
copy of any or all of these documents, you should write or
telephone us at the following address and telephone number:
Manor Care, Inc., 333 N. Summit Street, Toledo, Ohio,
43604-2617,
Attention: Legal Department. Our telephone number is:
(419) 252-5500.
If you need assistance in completing your proxy card or have
questions regarding the special meeting, please contact our
proxy solicitor:
Georgeson Inc.
17 State Street
New York, New York 10004
Telephone:
(888) 605-8302
Attention: Manor Care Special Meeting
No persons have been authorized to give any information or to
make any representations other than those contained in this
proxy statement and, if given or made, such information or
representations must not be relied upon as having been
authorized by us or any other person. This proxy statement is
dated September 14, 2007. You should not assume that the
information contained in this proxy statement is accurate as of
any date other than that date, and the mailing of this proxy
statement to stockholders shall not create any implication to
the contrary.
By Order of the Board of Directors,
Richard A. Parr II
Secretary
Toledo, Ohio
September 14, 2007
75
The merger agreement is a commercial document that establishes
and governs the legal relations between Manor Care and MergerCo
with respect to the transactions described in the proxy
statement. The representations, warranties and covenants made by
Manor Care and MergerCo in the merger agreement are qualified
and subject to important limitations agreed to by Manor Care and
MergerCo in connection with negotiating the terms of the merger
agreement. Furthermore, the representations and warranties may
be subject to standards of materiality applicable to Manor Care
and MergerCo that may be different from those that are
applicable to stockholders.
AGREEMENT AND PLAN OF MERGER
dated as of July 2, 2007,
between
MCHCR-CP MERGER SUB INC.
and
MANOR CARE, INC.
TABLE OF
CONTENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
ARTICLE I
The Merger
|
|
Section 1.01.
|
|
|
Merger
|
|
|
A-1
|
|
|
Section 1.02.
|
|
|
Closing
|
|
|
A-1
|
|
|
Section 1.03.
|
|
|
Effective Time
|
|
|
A-1
|
|
|
Section 1.04.
|
|
|
Effects of the Merger
|
|
|
A-1
|
|
|
Section 1.05.
|
|
|
Certificate of Incorporation and
Bylaws
|
|
|
A-1
|
|
|
Section 1.06.
|
|
|
Directors
|
|
|
A-2
|
|
|
Section 1.07.
|
|
|
Officers
|
|
|
A-2
|
|
|
ARTICLE II
Effect of the Merger on the Capital Stock of the Constituent
Corporations; Exchange Fund;
Company Equity Awards
|
|
Section 2.01.
|
|
|
Effect on Capital Stock
|
|
|
A-2
|
|
|
Section 2.02.
|
|
|
Exchange Fund
|
|
|
A-3
|
|
|
Section 2.03.
|
|
|
Company Equity Awards
|
|
|
A-4
|
|
|
ARTICLE III
Representations and Warranties
|
|
Section 3.01.
|
|
|
Representations and Warranties of
the Company
|
|
|
A-5
|
|
|
Section 3.02.
|
|
|
Representations and Warranties of
MergerCo
|
|
|
A-17
|
|
|
ARTICLE IV
Covenants Relating to Conduct of Business
|
|
Section 4.01.
|
|
|
Conduct of Business
|
|
|
A-19
|
|
|
Section 4.02.
|
|
|
No Solicitation
|
|
|
A-22
|
|
|
ARTICLE V
Additional Agreements
|
|
Section 5.01.
|
|
|
Preparation of the Proxy
Statement; Stockholders Meeting
|
|
|
A-24
|
|
|
Section 5.02.
|
|
|
Access to Information;
Confidentiality
|
|
|
A-25
|
|
|
Section 5.03.
|
|
|
Reasonable Best Efforts
|
|
|
A-25
|
|
|
Section 5.04.
|
|
|
Benefit Plans
|
|
|
A-26
|
|
|
Section 5.05.
|
|
|
Indemnification, Exculpation and
Insurance
|
|
|
A-27
|
|
|
Section 5.06.
|
|
|
Fees and Expenses
|
|
|
A-28
|
|
|
Section 5.07.
|
|
|
Public Announcements
|
|
|
A-30
|
|
|
Section 5.08.
|
|
|
Stockholder Litigation
|
|
|
A-30
|
|
|
Section 5.09.
|
|
|
Financing
|
|
|
A-30
|
|
|
Section 5.10.
|
|
|
Restructuring in Connection with
CMBS Financing
|
|
|
A-32
|
|
|
Section 5.11.
|
|
|
Actions with Respect to Existing
Debt
|
|
|
A-33
|
|
|
ARTICLE VI
Conditions Precedent
|
|
Section 6.01.
|
|
|
Conditions to Each Partys
Obligation to Effect the Merger
|
|
|
A-34
|
|
|
Section 6.02.
|
|
|
Conditions to Obligations of
MergerCo
|
|
|
A-35
|
|
|
Section 6.03.
|
|
|
Conditions to Obligation of the
Company
|
|
|
A-35
|
|
|
Section 6.04.
|
|
|
Frustration of Closing Conditions
|
|
|
A-36
|
|
A-i
|
|
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
ARTICLE VII
Termination, Amendment and Waiver
|
|
Section 7.01.
|
|
|
Termination
|
|
|
A-36
|
|
|
Section 7.02.
|
|
|
Effect of Termination
|
|
|
A-37
|
|
|
Section 7.03.
|
|
|
Amendment
|
|
|
A-37
|
|
|
Section 7.04.
|
|
|
Extension; Waiver
|
|
|
A-37
|
|
|
Section 7.05.
|
|
|
Procedure for Termination or
Amendment
|
|
|
A-37
|
|
|
ARTICLE VIII
General Provisions
|
|
Section 8.01.
|
|
|
Nonsurvival of Representations and
Warranties
|
|
|
A-38
|
|
|
Section 8.02.
|
|
|
Notices
|
|
|
A-38
|
|
|
Section 8.03.
|
|
|
Definitions
|
|
|
A-38
|
|
|
Section 8.04.
|
|
|
Interpretation
|
|
|
A-40
|
|
|
Section 8.05.
|
|
|
Consents and Approvals
|
|
|
A-40
|
|
|
Section 8.06.
|
|
|
Counterparts
|
|
|
A-40
|
|
|
Section 8.07.
|
|
|
Entire Agreement; No Third-Party
Beneficiaries
|
|
|
A-40
|
|
|
Section 8.08.
|
|
|
Governing Law
|
|
|
A-41
|
|
|
Section 8.09.
|
|
|
Assignment
|
|
|
A-41
|
|
|
Section 8.10.
|
|
|
Specific Enforcement; Consent to
Jurisdiction
|
|
|
A-41
|
|
|
Section 8.11.
|
|
|
Severability
|
|
|
A-41
|
|
|
|
|
|
|
|
|
|
|
|
Annex I
|
|
|
Index of Defined Terms
|
|
|
|
|
A-ii
AGREEMENT AND PLAN OF MERGER (this Agreement)
dated as of July 2, 2007, between MCHCR-CP MERGER SUB INC.,
a Delaware corporation (MergerCo), and MANOR
CARE, INC., a Delaware corporation (the
Company).
WHEREAS, the Board of Directors of each of the Company and
MergerCo has approved and declared advisable this Agreement and
the merger of MergerCo with and into the Company (the
Merger), upon the terms and subject to the
conditions set forth in this Agreement, whereby each issued and
outstanding share of common stock, par value $0.01 per share, of
the Company (Company Common Stock), other
than (a) shares of Company Common Stock directly owned by
the Company, as treasury stock, or by MergerCo or
MergerCos sole stockholder and (b) the Appraisal
Shares, will be converted into the right to receive the Merger
Consideration (as defined below) in cash; and
WHEREAS, MergerCo and the Company desire to make certain
representations, warranties, covenants and agreements in
connection with the Merger and also to prescribe various
conditions to the Merger.
NOW, THEREFORE, in consideration of the representations,
warranties, covenants and agreements contained in this
Agreement, and subject to the conditions set forth herein, the
parties hereto agree as follows:
ARTICLE I
The
Merger
Section 1.01. Merger. Upon
the terms and subject to the conditions set forth in this
Agreement, and in accordance with the General Corporation Law of
the State of Delaware (the DGCL), MergerCo
shall be merged with and into the Company at the Effective Time.
Following the Effective Time, the separate corporate existence
of MergerCo shall cease, and the Company shall continue as the
surviving corporation in the Merger (the Surviving
Corporation).
Section 1.02. Closing. The
closing of the Merger (the Closing) will take
place at 10:00 a.m., New York time, on the later of
(i) the second business day after satisfaction or (to the
extent permitted by Law) waiver of the conditions set forth in
Article VI (other than those conditions that by their terms
are to be satisfied at the Closing, but subject to the
satisfaction or (to the extent permitted by Law) waiver of those
conditions) and (ii) a date specified by MergerCo on not
less than three business days notice to the Company, which date
shall not be later than the last day of the Marketing Period, at
the offices of Cravath, Swaine & Moore LLP, Worldwide
Plaza, 825 Eighth Avenue, New York, New York 10019, unless
another time, date or place is agreed to in writing by MergerCo
and the Company. The date on which the Closing occurs is
referred to in this Agreement as the Closing
Date.
Section 1.03. Effective
Time. Subject to the provisions of this
Agreement, as promptly as practicable on the Closing Date, the
parties shall file a certificate of merger (the
Certificate of Merger) in such form as is
required by, and executed and acknowledged in accordance with,
the relevant provisions of the DGCL and shall make all other
filings and recordings required under the DGCL. The Merger shall
become effective at such date and time as the Certificate of
Merger is filed with the Secretary of State of the State of
Delaware or at such subsequent date and time as MergerCo and the
Company shall agree and specify in the Certificate of Merger.
The date and time at which the Merger becomes effective is
referred to in this Agreement as the Effective
Time.
Section 1.04. Effects
of the Merger. The Merger shall have the
effects set forth in Section 259 of the DGCL.
Section 1.05. Certificate
of Incorporation and Bylaws. (a) The
Certificate of Incorporation of the Company, as amended (the
Company Certificate of Incorporation), shall
be amended at the Effective Time to be in the form of
Exhibit A, with such changes thereto as may be agreed to in
writing by the Company and MergerCo, and, as so amended, shall
be the Certificate of Incorporation of the Surviving Corporation
until thereafter changed or amended as provided therein or by
applicable Law.
(b) The Amended and Restated Bylaws of the Company (the
Company Bylaws) shall be amended at the
Effective Time to be in the form of Exhibit B, with such
changes thereto as may be agreed to in writing by the Company
and MergerCo, and, as so amended, shall be the Bylaws of the
Surviving Corporation until thereafter changed or amended as
provided therein or by applicable Law.
A-1
Section 1.06. Directors. The
directors of MergerCo immediately prior to the Effective Time
shall be the directors of the Surviving Corporation until the
earlier of their resignation or removal or until their
respective successors are duly elected and qualified, as the
case may be.
Section 1.07. Officers. The
officers of the Company immediately prior to the Effective Time
shall be the officers of the Surviving Corporation, until the
earlier of their resignation or removal or until their
respective successors are duly elected and qualified, as the
case may be.
ARTICLE II
Effect of the Merger on the Capital Stock of the
Constituent Corporations; Exchange Fund;
Company Equity Awards
Section 2.01. Effect
on Capital Stock. At the Effective Time, by
virtue of the Merger and without any action on the part of the
holder of any shares of Company Common Stock or any shares of
capital stock of MergerCo:
(a) Capital Stock of MergerCo. Each share
of capital stock of MergerCo issued and outstanding immediately
prior to the Effective Time shall be converted into and become
one validly issued, fully paid and nonassessable share of common
stock, par value $0.01 per share, of the Surviving Corporation.
(b) Cancelation of Treasury Stock and MergerCo-Owned
Stock. Each share of Company Common Stock that is
directly owned by the Company, as treasury stock, or by MergerCo
or MergerCos sole stockholder immediately prior to the
Effective Time shall automatically be canceled and shall cease
to exist, and no consideration shall be delivered in exchange
therefor.
(c) Conversion of Company Common
Stock. Each share of Company Common Stock issued
and outstanding immediately prior to the Effective Time
(including shares of Company Restricted Stock, but excluding
shares to be canceled in accordance with Section 2.01(b)
and, except as provided in Section 2.01(d), the Appraisal
Shares) shall be converted into the right to receive $67.00 in
cash, without interest (the Merger
Consideration). At the Effective Time, all such shares
of Company Common Stock shall no longer be outstanding and shall
automatically be canceled and shall cease to exist, and each
holder of a certificate that immediately prior to the Effective
Time represented any such shares of Company Common Stock (each,
a Certificate) shall cease to have any rights
with respect thereto, except the right to receive the Merger
Consideration and any dividends declared in compliance with
Section 4.01(a)(i) with a record date prior to the
Effective Time that remain unpaid at the Effective Time and that
are due to such holder.
(d) Appraisal Rights. Notwithstanding
anything in this Agreement to the contrary, shares (the
Appraisal Shares) of Company Common Stock
issued and outstanding immediately prior to the Effective Time
that are held by any holder who is entitled to demand and
properly demands appraisal of such shares pursuant to, and who
complies in all respects with, the provisions of
Section 262 of the DGCL
(Section 262) shall not be converted
into the right to receive the Merger Consideration as provided
in Section 2.01(c), but instead such holder shall be
entitled to payment of the fair value of such shares in
accordance with the provisions of Section 262. At the
Effective Time, the Appraisal Shares shall no longer be
outstanding and shall automatically be canceled and shall cease
to exist, and each holder of Appraisal Shares shall cease to
have any rights with respect thereto, except the right to
receive the fair value of such shares in accordance with the
provisions of Section 262. Notwithstanding the foregoing,
if any such holder shall fail to perfect or otherwise shall
waive, withdraw or lose the right to appraisal under
Section 262 or a court of competent jurisdiction shall
determine that such holder is not entitled to the relief
provided by Section 262, then the right of such holder to
be paid the fair value of such holders Appraisal Shares
under Section 262 shall cease and such Appraisal Shares
shall be deemed to have been converted at the Effective Time
into, and shall have become, the right to receive the Merger
Consideration as provided in Section 2.01(c). The Company
shall give prompt notice to MergerCo of any demands for
appraisal of any shares of Company Common Stock, withdrawals of
such demands and any other instruments served pursuant to the
DGCL received by the Company, and MergerCo shall have the right
to participate in and direct all negotiations and proceedings
with respect to such demands. Prior to the Effective Time, the
Company shall not, without the prior written consent of MergerCo
(which consent shall
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not be unreasonably withheld or delayed), voluntarily make any
payment with respect to, or settle or offer to settle, any such
demands, or agree to do or commit to do any of the foregoing.
Section 2.02. Exchange
Fund. (a) Paying
Agent. Prior to the Closing Date, MergerCo shall
appoint a bank or trust company reasonably acceptable to the
Company to act as paying agent (the Paying
Agent) for the payment of the Merger Consideration and
the Equity Award Amounts in accordance with this Article II
and, in connection therewith, shall enter into an agreement with
the Paying Agent in the form reasonably acceptable to the
Company. At or immediately subsequent to the Effective Time,
MergerCo (or the Surviving Corporation) shall deposit with the
Paying Agent, cash in an amount sufficient to pay the aggregate
Merger Consideration and the aggregate Equity Award Amount, in
each case as required to be paid pursuant to this Agreement
(such cash being hereinafter referred to as the
Exchange Fund).
(b) Certificate Exchange Procedures. As
promptly as practicable after the Effective Time, but in any
event within two business days thereafter, the Surviving
Corporation shall cause the Paying Agent to mail to each holder
of record of a Certificate (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk
of loss and title to the Certificates shall pass, only upon
proper delivery of the Certificates to the Paying Agent and
which shall otherwise be in customary form) and
(ii) instructions for use in effecting the surrender of the
Certificates in exchange for the Merger Consideration. Each
holder of record of a Certificate shall, upon surrender to the
Paying Agent of such Certificate, together with such letter of
transmittal, duly executed, and such other documents as may
reasonably be required by the Paying Agent, be entitled to
receive in exchange therefor the amount of cash which the number
of shares of Company Common Stock previously represented by such
Certificate shall have been converted into the right to receive
pursuant to Section 2.01(c), and the Certificate so
surrendered shall forthwith be canceled. In the event of a
transfer of ownership of Company Common Stock which is not
registered in the transfer records of the Company, payment of
the Merger Consideration may be made to a person other than the
person in whose name the Certificate so surrendered is
registered if such Certificate shall be properly endorsed or
otherwise be in proper form for transfer and the person
requesting such payment shall pay any fiduciary or surety bonds
or any transfer or other similar taxes required by reason of the
payment of the Merger Consideration to a person other than the
registered holder of such Certificate or establish to the
reasonable satisfaction of the Surviving Corporation that such
tax has been paid or is not applicable. Until surrendered as
contemplated by this Section 2.02(b), each Certificate
shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the
Merger Consideration which the holder thereof has the right to
receive in respect of such Certificate pursuant to this
Article II and any dividends declared in compliance with
Section 4.01(a)(i) with a record date prior to the
Effective Time that remain unpaid at the Effective Time and that
are due to such holder. No interest shall be paid or will accrue
on any cash payable to holders of Certificates pursuant to the
provisions of this Article II.
(c) No Further Ownership Rights in Company Common
Stock. All cash paid upon the surrender of
Certificates in accordance with the terms of this
Article II shall be deemed to have been paid in full
satisfaction of all rights pertaining to the shares of Company
Common Stock formerly represented by such Certificates,
subject, however, to the Surviving
Corporations obligation to pay all dividends that may have
been declared by the Company and that remain unpaid at the
Effective Time. At the close of business on the day on which the
Effective Time occurs, the stock transfer books of the Company
shall be closed, and there shall be no further registration of
transfers on the stock transfer books of the Surviving
Corporation of the shares of Company Common Stock that were
outstanding immediately prior to the Effective Time. If, after
the Effective Time, any Certificate is presented to the
Surviving Corporation for transfer, it shall be canceled against
delivery of cash to the holder thereof as provided in this
Article II.
(d) Termination of the Exchange Fund. Any
portion of the Exchange Fund that remains undistributed to the
holders of the Certificates for 12 months after the
Effective Time shall be delivered to the Surviving Corporation,
upon demand, and any holders of the Certificates who have not
theretofore complied with this Article II shall thereafter
look only to the Surviving Corporation for, and the Surviving
Corporation shall remain liable for, payment of their claims for
the Merger Consideration pursuant to the provisions of this
Article II.
(e) No Liability. None of MergerCo, the
Company, the Surviving Corporation or the Paying Agent shall be
liable to any person in respect of any cash from the Exchange
Fund delivered to a public official in compliance with any
applicable state, Federal or other abandoned property, escheat
or similar Law. If any Certificate shall not have
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been surrendered prior to the date on which the related Merger
Consideration would escheat to or become the property of any
Governmental Entity, any such Merger Consideration shall, to the
extent permitted by applicable Law, immediately prior to such
time become the property of the Surviving Corporation, free and
clear of all claims or interest of any person previously
entitled thereto.
(f) Investment of Exchange Fund. The
Paying Agent shall invest the cash in the Exchange Fund as
directed by MergerCo, or, if after the Effective Time, the
Surviving Corporation; provided, however, that
such investments shall be in obligations of or guaranteed by the
United States of America or any agency or instrumentality
thereof and backed by the full faith and credit of the United
States of America, in commercial paper obligations rated
A-1 or
P-1 or
better by Moodys Investors Service, Inc. or
Standard & Poors Corporation, respectively, in
certificates of deposit, bank repurchase agreements or
bankers acceptances of commercial banks with capital
exceeding $1.0 billion (based on the most recent financial
statements of such bank that are then publicly available) or in
money market funds that are eligible under
Rule 2a-7
promulgated under the Investment Company Act of 1940, as
amended. Any interest and other income resulting from such
investments shall be paid solely to MergerCo or, if after the
Effective Time, the Surviving Corporation. Nothing contained
herein and no investment losses resulting from investment of the
Exchange Fund shall diminish the rights of any holder of
Certificates to receive the Merger Consideration or any holder
of a Company Stock Option, Company Performance Share Award or
Non-Deferred Company RSU to receive the Option Amount,
Performance Share Amount or Non-Deferred RSU Amount, as
applicable, in each case as provided herein.
(g) Lost Certificates. If any Certificate
shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the person claiming such Certificate
to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such person of a bond or
surety in such reasonable amount as the Surviving Corporation
may direct as indemnity against any claim that may be made
against it with respect to such Certificate, the Paying Agent
shall deliver in exchange for such lost, stolen or destroyed
Certificate the applicable Merger Consideration with respect
thereto.
(h) Withholding Rights. The Surviving
Corporation or the Paying Agent shall be entitled to deduct and
withhold from the consideration otherwise payable pursuant to
this Agreement to any holder of shares of Company Common Stock
or any holder of Company Stock Options, Company Restricted
Stock, Company SARs, Company Performance Share Award, Deferred
Company RSUs, Non-Deferred Company RSUs or Stock Equivalent
Amount such amounts as the Surviving Corporation or the Paying
Agent are required to deduct and withhold with respect to the
making of such payment under the Internal Revenue Code of 1986,
as amended (the Code), or any provision of
state, local or foreign tax Law. To the extent that amounts are
so withheld and paid over to the appropriate taxing authority by
the Surviving Corporation or the Paying Agent, such withheld
amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of the shares of Company Common
Stock or the holder of the Company Stock Options, Company
Restricted Stock, Company SARs, Company Performance Share Award,
Deferred Company RSUs or Non-Deferred Company RSUs, as the case
may be, in respect of which such deduction and withholding was
made by the Surviving Corporation or the Paying Agent.
Section 2.03. Company
Equity Awards. (a) As soon as reasonably
practicable following the date of this Agreement, and in any
event prior to the Effective Time, the Board of Directors of the
Company (or, if appropriate, any committee administering any
Company Stock Plan) shall adopt such resolutions and take such
other actions as may be required to provide that, at the
Effective Time, except as otherwise agreed by MergerCo and the
holder thereof:
(i) each unexercised Company Stock Option and Company SAR,
whether vested or unvested, that is outstanding immediately
prior to the Effective Time shall be canceled, with the holder
of each such Company Stock Option or Company SAR becoming
entitled to receive an amount in cash equal to (A) the
excess, if any, of (1) the Merger Consideration over
(2) the exercise price per share of Company Common Stock
subject to such Company Stock Option or Company SAR, multiplied
by (B) the number of shares of Company Common Stock subject
to such Company Stock Option or Company SAR (such amount, the
Option Amount);
(ii) each share of Company Restricted Stock that is
outstanding as of the Effective Time shall become fully vested,
with the holder of each such share of Company Restricted Stock
becoming entitled to receive an amount in cash equal to the
Merger Consideration;
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(iii) each Company Performance Share Award that is
outstanding immediately prior to the Effective Time shall be
canceled, with the holder of each such Company Performance Share
Award becoming entitled to receive an amount in cash equal to
the Merger Consideration multiplied by the maximum number of
shares of Company Common Stock subject to such Company
Performance Share Award as of the Effective Time (such amount,
the Performance Share Amount); and
(iv) each Non-Deferred Company RSU that is outstanding
immediately prior to the Effective Time (including any
Non-Deferred Company RSU resulting from dividend equivalents)
shall be canceled, with the holder of each such Non-Deferred
Company RSU becoming entitled to receive an amount in cash equal
to the Merger Consideration (such amount, the
Non-Deferred RSU Amount).
For purposes of this Agreement, the term Equity Award
Amounts shall mean the sum of the aggregate Option
Amounts, aggregate Performance Share Amounts and aggregate
Non-Deferred RSU Amounts. All amounts payable pursuant to this
Section 2.03(a) shall be paid as promptly as practicable
following the Effective Time, without interest.
(b) As of the Effective Time, each Company RSU (including
any Company RSU resulting from dividend equivalents) that is
outstanding immediately prior to the Effective Time and is
governed by terms providing that the shares of Company Common
Stock covered thereby shall not be delivered until the
retirement of the holder of such Company RSU (each Company RSU
governed by such terms, a Deferred Company
RSU, and each other Company RSU, a
Non-Deferred Company RSU) (including any such
Deferred Company RSU resulting from dividend equivalents) shall
be converted into the right to receive an amount in cash equal
to the Merger Consideration (such amount, the Deferred
RSU Amount). In the event that the Effective Time
occurs prior to January 1, 2008, each holder of a Deferred
Company RSU that is outstanding as of the Effective Time shall
be entitled to receive such holders Deferred RSU Amount
upon the earlier of (i) such holders separation from
service (within the meaning of Section 409A(a)(2)(A)) or
(ii) the first business day of calendar year 2008. In the
event that the Effective Time occurs on or following
January 1, 2008, each holder of a Deferred Company RSU that
is outstanding as of the Effective Time shall be entitled to
receive such holders Deferred RSU Amount within 10
business days following the Effective Time. Immediately
following the Effective Time, the Surviving Corporation shall
deposit the Deferred RSU Amounts into an interest bearing money
market account and pay such Deferred RSU Amounts in accordance
with this Section 2.03(b) together with interest credited
thereon from the Effective Time until the date of payment. Prior
to the Effective Time, the Board of Directors of the Company
(or, if appropriate, any committee administering the Company
Stock Plan under which the Deferred Company RSUs were granted)
shall adopt such resolutions and take such other action
reasonably necessary to give effect to this Section 2.03(b).
(c) As of the Effective Time, each Company Stock Equivalent
issued under a Specified Deferred Compensation Plan that is
outstanding immediately prior to the Effective Time shall cease
to represent the right to the equivalent in value and rate of
return to a share of Company Common Stock and shall instead be
converted into the right to receive an amount in cash equal to
the Merger Consideration (such amount, the Stock
Equivalent Amount). Following the Effective Time, the
Surviving Corporation shall credit such Stock Equivalent
Amounts, which credits may then be notionally reinvested, in
each case in accordance with the terms of the applicable
Specified Deferred Compensation Plan.
ARTICLE III
Representations
and Warranties
Section 3.01. Representations
and Warranties of the Company. Except
(A) as disclosed in, and reasonably apparent from, any
report, schedule, form, statement or other document (including
exhibits) filed with, or furnished to, the Securities and
Exchange Commission (the SEC) by the Company
and publicly available prior to the date of this Agreement
(collectively, the Filed SEC Documents) and,
for the avoidance of doubt, without giving effect to any change
of fact or circumstance to the extent not disclosed in, and
reasonably apparent from, any Filed SEC Document filed or
furnished prior to the date hereof (excluding any disclosure
that is predictive, cautionary or forward looking in nature) or
(B) as set forth in the Company Disclosure Letter (it being
understood that any information set forth in one section or
subsection of the Company Disclosure Letter shall be deemed to
apply to and
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qualify the Section or subsection of this Agreement to which it
corresponds in number and each other Section or subsection of
this Agreement to the extent that it is reasonably apparent that
such information is relevant to such other Section or
subsection), the Company represents and warrants to MergerCo as
follows:
(a) Organization, Standing and Corporate
Power. Each of the Company and its Subsidiaries
is duly organized and validly existing under the Laws of its
jurisdiction of organization and has all requisite corporate,
company or partnership power and authority to carry on its
business as presently conducted. Each of the Company and its
Subsidiaries is duly qualified or licensed to do business and is
in good standing (where such concept is recognized under
applicable Law) in each jurisdiction where the nature of its
business or the ownership, leasing or operation of its
properties makes such qualification or licensing necessary,
other than where the failure to be so qualified, licensed or in
good standing has not had and would not reasonably be expected
to have, individually or in the aggregate, a Material Adverse
Effect. The Company has made available to MergerCo prior to the
execution of this Agreement a true and complete copy of the
Company Certificate of Incorporation and the Company Bylaws, in
each case as in effect on the date of this Agreement.
(b) Subsidiaries. Section 3.01(b) of
the Company Disclosure Letter lists, as of the date hereof, each
Subsidiary of the Company and the jurisdiction of organization
thereof. All the outstanding shares of capital stock of, or
other equity interests in, each Subsidiary of the Company have
been validly issued and are fully paid and nonassessable and are
owned, directly or indirectly, by the Company free and clear of
all pledges, liens, charges, mortgages, encumbrances or security
interests of any kind or nature whatsoever (collectively,
Liens), other than Permitted Liens. Except
for its interests in its Subsidiaries, the Company does not own,
directly or indirectly, any capital stock of, or other equity
interests in, any corporation, partnership, joint venture,
association or other entity.
(c) Capital Structure. The authorized
capital stock of the Company consists of 300,000,000 shares
of Company Common Stock and 5,000,000 shares of preferred
stock, par value $0.01 per share (the Company Preferred
Stock). At the close of business on June 26,
2007, (i) 111,032,952 shares of Company Common Stock
were issued and 73,279,431 shares of Company Common Stock
were outstanding (which 111,032,952 number includes
(A) 37,753,521 shares of Company Common Stock held by
the Company in its treasury and (B) 15,000 shares of
Company Common Stock subject to vesting or other forfeiture
conditions or repurchase by the Company (such shares, together
with any similar shares issued after June 26, 2007, the
Company Restricted Stock)),
(ii) 8,308,271 shares of Company Common Stock were
reserved and available for issuance pursuant to the
Companys Amendment and Restatement of the Equity Incentive
Plan, Amended Stock Option Plan for Key Employees, Non-Employee
Director Stock Compensation Plan, Amended Restricted Stock Plan,
Manor Care, Inc. Non-Employee Director Stock Option and Deferred
Compensation Stock Purchase Plan, Stock Option Plan for Outside
Directors and HCR Manor Care Amended Stock Appreciation Rights
Plan (the foregoing plans, as may be amended from time to time,
collectively, the Company Stock Plans), of
which (A) 3,195,273 shares of Company Common Stock
were subject to outstanding options to acquire shares of Company
Common Stock from the Company (such options, together with any
similar options granted after June 26, 2007, the
Company Stock Options),
(B) 536,555 shares of Company Common Stock were
subject to restricted share awards granted by the Company that
were subject to performance-based vesting or delivery
requirements (such restricted share awards, together with any
similar restricted share awards granted after June 26,
2007, the Company Performance Share Awards)
and (C) 453,105 shares of Company Common Stock were
subject to a restricted stock unit award with respect to one
share of Company Common Stock granted by the Company (such
restricted stock unit awards, together with any similar
restricted stock unit awards granted after June 26, 2007,
the Company RSUs), of which
66,900 shares of Company Common Stock were subject to
Deferred Company RSUs and 386,205 shares of Company Common
Stock were subject to Non-Deferred Company RSUs,
(iii) 567,970 stock appreciation right awards with respect
to a share of Company Common Stock granted by the Company were
outstanding (such stock appreciation right awards, together with
any similar stock appreciation rights granted after
June 26, 2007, the Company SARs),
(iv) 225,682 stock equivalents with respect to a share of
Company Common Stock were outstanding under the Companys
Senior Management Savings Plan for Corporate Officers, the
Companys Nonqualified Retirement Savings and Investment
Plan, the Companys Senior Management Savings Plan, the
Manor Care, Inc. Non-employee Director Stock Option and Deferred
Compensation and Stock Purchase Plan and the Health Care and
Retirement Corporation Deferred Compensation Plan for Outside
Directors (such plans, collectively, the Specified
Deferred Compensation Plans, and such stock
equivalents, together with any similar
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stock equivalents issued after June 26, 2007, the
Company Stock Equivalents), (v)
(w) 210,540 shares of Company Common Stock were
issuable upon conversion of the Companys convertible notes
issued under an indenture dated April 15, 2003 (the
2003 Company Convertible Notes),
(x) 1,516,966 shares of Company Common Stock were
issuable upon conversion of the Companys convertible notes
issued under an indenture dated December 2004 (the 2004
Company Convertible Notes),
(y) 3,349,811 shares of Company Common Stock were
issuable upon conversion of the Companys convertible notes
issued under an indenture dated August 1, 2005 (the
2005 Company Convertible Notes) and
(z) 1,392,932 shares of Company Common Stock were
issuable upon conversion of the Companys convertible notes
issued under an indenture dated May 17, 2006 (the
2006 Company Convertible Notes and, together
with the 2003 Company Convertible Notes, the 2004 Company
Convertible Notes and the 2005 Company Convertible Notes, the
Company Convertible Notes),
(vi) 994,493 shares of Company Common Stock were
issuable under the Companys Warrant Agreement dated
July 26, 2005 (the Company Warrants) and
(vii) no shares of Company Preferred Stock were issued or
outstanding or held by the Company in its treasury. Except as
set forth above, at the close of business on June 26, 2007,
no shares of capital stock or other voting securities of the
Company, or any option, warrant or other right to acquire shares
of capital stock or other voting securities of the Company, or
securities convertible into or exchangeable for shares of
capital stock or other voting securities of the Company, were
issued, reserved for issuance or outstanding. Except for
(w) the issuance of shares of Company Common Stock in
connection with the exercise of Company Stock Options
outstanding on June 26, 2007, (x) the issuance of
shares of Company Common Stock in settlement of Company RSUs
outstanding on June 26, 2007, (y) the issuance of
Company Stock Equivalents pursuant to the Specified Deferred
Compensation Plans and (z) the issuance of shares of
Company Common Stock in connection with the conversion of
Company Convertible Notes and the exercise of Company Warrants,
since June 26, 2007 to the date of this Agreement,
(I) there have been no issuances by the Company of shares
of capital stock, Company Stock Equivalents or other voting
securities of the Company, and (II) there have been no
issuances by the Company of options, warrants, other rights to
acquire shares of capital stock, Company Stock Equivalents or
other voting securities of the Company, or securities
convertible into or exchangeable for shares of capital stock or
other voting securities of the Company, or other rights that
give the holder thereof any economic interest of a nature
accruing to the holders of Company Common Stock. All outstanding
shares of Company Common Stock (other than Company Restricted
Stock) are, and all such shares that may be issued prior to the
Effective Time will be when issued, duly authorized, validly
issued, fully paid and nonassessable and not subject to
preemptive rights. Other than the Company Convertible Notes,
there are no bonds, debentures, notes or other indebtedness of
the Company having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any
matters on which holders of Company Common Stock may vote
(Voting Company Debt). Except for any
obligations pursuant to this Agreement, any Company Stock Plan,
the HCR Manor Care Stock Purchase and Retirement Savings 401(k)
Plan (the Company 401(k) Plan), the Specified
Deferred Compensation Plans, the Company Convertible Notes and
the Company Warrants, and except for the Company Stock Options
and other rights set forth in Section 3.01(c) of the
Company Disclosure Letter as of June 26, 2007, there are no
options, warrants, rights, convertible or exchangeable
securities, stock-based performance units, Contracts or
undertakings of any kind to which the Company or any of its
Subsidiaries is a party or by which any of them is bound
(1) obligating the Company or any such Subsidiary to issue,
deliver or sell, or cause to be issued, delivered or sold,
additional shares of capital stock or other equity interests in,
or any security convertible or exchangeable for any capital
stock of or other equity interest in, the Company or of any of
its Subsidiaries or any Voting Company Debt, (2) obligating
the Company or any such Subsidiary to issue, grant or enter into
any such option, warrant, right, security, unit, Contract or
undertaking or (3) that give any person the right to
receive any economic interest of a nature accruing to the
holders of Company Common Stock. As of the date of this
Agreement, there are no outstanding contractual obligations of
the Company or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any shares of capital stock of the Company or
any such Subsidiary, other than pursuant to the Company Stock
Plans and the Company 401(k) Plan. The Company has made
available to MergerCo a true and complete list of the number of
shares of Company Common Stock issuable upon exercise of, or
represented by, the Company Stock Options, Company Common Stock
Equivalents, shares of Company Restricted Stock, Company
Performance Share Awards, Company RSUs, Company SARs, Company
Warrants and Company Convertible Notes outstanding on
June 26, 2007. The Company has made available to MergerCo a
true and complete list, as of June 26, 2007, of the name of
the record holder of each Company Stock Option, Company
Performance Share Award, share of Company Restricted Stock,
Company RSU and Company SAR, and applicable expiration date and
vesting date, whether any Company Stock Options are incentive
stock options, and the exercise
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price of each such Company Stock Option or Company SAR
(including whether the exercise price was less than the fair
market value of the underlying shares of Company Common Stock on
the date of grant) and the number of shares of Company Common
Stock issuable under or subject to each Company Stock Option,
Company Performance Share Award, share of Company Restricted
Stock, Company RSU or Company SAR and the aggregate number of
Company Stock Equivalents. From June 26, 2007 to the date
of this Agreement, there have been no changes to the information
provided to MergerCo in the immediately preceding two sentences,
except as a result of the exercise of Company Stock Options or
Company SARs or the vesting of Company RSUs or Company
Performance Share Awards outstanding on June 26, 2007, or
as a result of any change in an investment election pursuant to
a Specified Deferred Compensation Plan. No Company Stock Option
(i) has a per share exercise price lower than the fair
market value of a share of Company Common Stock on the date of
grant of such Company Stock Option, (ii) has had its grant
date backdated or (iii) has had its grant date delayed in
order to take advantage of the release or other public
announcement of material non-public information regarding the
Company or its Subsidiaries. Section 3.01(c) of the Company
Disclosure Letter sets forth a true and complete list, as of the
date hereof, of all Indebtedness for borrowed money of the
Company and its Subsidiaries (other than (x) any such
Indebtedness owed to the Company or any of its Subsidiaries,
(y) trade letters of credit and (z) any other such
Indebtedness with a principal amount not in excess of
$10.0 million in the aggregate) outstanding on the date of
this Agreement.
(d) Authority; Noncontravention. The
Company has all requisite corporate power and authority to
execute and deliver this Agreement and to consummate the
transactions contemplated by this Agreement, subject, in the
case of the Merger, to receipt of the Stockholder Approval. The
execution and delivery of this Agreement by the Company and the
consummation by the Company of the transactions contemplated by
this Agreement have been duly authorized by all necessary
corporate action on the part of the Company, subject, in the
case of the Merger, to receipt of the Stockholder Approval. This
Agreement has been duly executed and delivered by the Company
and, assuming the due authorization, execution and delivery by
each of the other parties hereto, constitutes a legal, valid and
binding obligation of the Company, enforceable against the
Company in accordance with its terms, subject, as to
enforceability, to bankruptcy, insolvency and other Laws of
general applicability relating to or affecting creditors
rights and to general equity principles. The Board of Directors
of the Company, at a meeting duly called and held at which all
directors of the Company were present, duly adopted resolutions
(i) approving and declaring advisable this Agreement, the
Merger and the other transactions contemplated by this
Agreement, (ii) declaring that it is in the best interests
of the stockholders of the Company that the Company enter into
this Agreement and consummate the Merger and the other
transactions contemplated by this Agreement on the terms and
subject to the conditions set forth herein, (iii) directing
that the adoption of this Agreement be submitted to a vote at a
meeting of the stockholders of the Company and
(iv) recommending that the stockholders of the Company
adopt this Agreement, which resolutions, as of the date of this
Agreement, have not been rescinded, modified or withdrawn in any
way. The execution and delivery by the Company of this Agreement
do not, and the consummation of the Merger and the other
transactions contemplated by this Agreement and compliance with
the provisions of this Agreement will not, conflict with, or
result in any violation of, or default (with or without notice
or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or
to the loss of a benefit under, or result in the creation of any
Lien upon any of the properties or assets of the Company or any
of its Subsidiaries under (other than any such Lien created in
connection with the Financing or otherwise from any action taken
by MergerCo), any provision of (A) the Company Certificate
of Incorporation, the Company Bylaws or the comparable
organizational documents of any of its Subsidiaries or
(B) subject to the filings and other matters referred to in
the immediately following sentence, (1) any contract,
lease, indenture, note, bond or other agreement that is in force
and effect (a Contract) to which the Company
or any of its Subsidiaries is a party or by which any of their
respective properties or assets are bound, other than any lease
of real property, under which the Company or any of its
Subsidiaries is a tenant or a subtenant, that is not a Real
Property Lease, or (2) any statute, law, ordinance, rule or
regulation of any Governmental Entity (Law)
or any judgment, order or decree of any Governmental Entity
(Judgment), in each case applicable to the
Company or any of its Subsidiaries or their respective
properties or assets, other than, in the case of clause (B)
above, any such conflicts, violations, defaults, rights, losses
or Liens that would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. No
consent, approval, order or authorization of, or registration,
declaration or filing with, or notice to, any Federal, state,
local or foreign government, any court of competent jurisdiction
or any administrative, regulatory (including any stock exchange)
or other governmental agency, commission or authority (each, a
Governmental Entity) is
A-8
required to be obtained or made by or with respect to the
Company or any of its Subsidiaries in connection with the
execution and delivery of this Agreement by the Company or the
consummation by the Company of the Merger or the other
transactions contemplated by this Agreement, except for
(I) the filing of a premerger notification and report form
by the Company under the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the HSR
Act), and the filings and receipt, termination or
expiration, as applicable, of such other approvals or waiting
periods as may be required under any other applicable
competition, merger control, antitrust or similar Law,
(II) the filing with the SEC of (x) a proxy statement
relating to the adoption by the stockholders of the Company of
this Agreement (as amended or supplemented from time to time,
the Proxy Statement) and (y) such
reports under the Securities Exchange Act of 1934, as amended
(the Exchange Act), as may be required in
connection with this Agreement and the transactions contemplated
by this Agreement, (III) the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware and
of appropriate documents with the relevant authorities of other
jurisdictions in which the Company or any of its Subsidiaries is
qualified to do business, (IV) any filings required under
the rules and regulations of the New York Stock Exchange and
(V) such other consents, approvals, orders, authorizations,
registrations, declarations, filings and notices the failure of
which to be obtained or made would not, individually or in the
aggregate, reasonably be expected (x) to have a Material
Adverse Effect or (y) to prevent the Company from
consummating the Merger.
(e) SEC Documents. The Company has timely
filed all reports, schedules, forms, statements and other
documents with the SEC required to be filed by the Company since
January 1, 2004 (the SEC Documents). As
of their respective dates of filing, the SEC Documents complied
in all material respects (including as to form) with the
requirements of the Securities Act of 1933, as amended (the
Securities Act), or the Exchange Act, as the
case may be, and the rules and regulations of the SEC
promulgated thereunder applicable thereto, and none of the SEC
Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading.
The consolidated financial statements (including the notes and
schedules thereto) of the Company included in the SEC Documents
when filed complied in all material respects with the published
rules and regulations of the SEC with respect thereto, have been
prepared in all material respects in accordance with generally
accepted accounting principles (GAAP)
(except, in the case of unaudited quarterly statements, as
permitted by
Form 10-Q
of the SEC or other rules and regulations of the SEC) applied on
a consistent basis during the periods involved (except as may be
indicated in the notes thereto) and fairly present in all
material respects the consolidated financial position of the
Company and its consolidated Subsidiaries as of the dates
thereof and the consolidated results of their operations and
cash flows for the periods then ended (subject, in the case of
unaudited quarterly statements, to normal year-end adjustments).
Except for matters reflected or reserved against in the audited
consolidated balance sheet of the Company as of
December 31, 2006 (or the notes thereto) included in the
Filed SEC Documents, neither the Company nor any of its
Subsidiaries has any liabilities or obligations (whether
absolute, accrued, contingent, fixed or otherwise) of any nature
that would be required under GAAP, as in effect on the date of
this Agreement, to be reflected on a consolidated balance sheet
of the Company (including the notes thereto), except liabilities
and obligations that (i) were incurred since
December 31, 2006 in the ordinary course of business
consistent with past practice, (ii) are incurred in
connection with the transactions contemplated by this Agreement
or (iii) have not had and would not reasonably be expected
to have, individually or in the aggregate, a Material Adverse
Effect.
(f) Information Supplied. The Proxy
Statement will comply as to form with the requirements of the
Exchange Act and will not, at the date it is first mailed to the
stockholders of the Company, at the time of any amendment
thereof or supplement thereto and at the time of the
Stockholders Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are
made, not misleading, except that no representation or warranty
is made by the Company with respect to statements made or
incorporated by reference therein based on information supplied
by MergerCo for inclusion or incorporation by reference in the
Proxy Statement.
(g) Absence of Certain Changes or
Events. Since December 31, 2006, up to and
including the date hereof, there has not been and would not
reasonably be expected to be, individually or in the aggregate,
a Material Adverse Effect, and from such date through the date
of this Agreement, the Company and its Subsidiaries have
conducted
A-9
their businesses only in the ordinary course of business
consistent with past practice, and during such period there have
not been:
(i) any declaration, setting aside or payment of any
dividend on, or making of any other distribution (whether in
cash, stock or property) with respect to, any capital stock of
the Company or any of its Subsidiaries, except for regular
quarterly cash dividends on Company Common Stock not in excess
of $0.17 per share in any quarter and dividends or other
distributions by any direct or indirect wholly-owned Subsidiary
to the Company or to any other direct or indirect wholly-owned
Subsidiary of the Company;
(ii) any split, combination or reclassification of any
capital stock of the Company or any issuance or the
authorization of any issuance of any other securities in lieu of
or in substitution for shares of capital stock of the Company;
(iii) any purchase, redemption or other acquisition by the
Company or any of its Subsidiaries of any shares of capital
stock of the Company or any of its Subsidiaries or any rights,
warrants or options to acquire any such shares, other than
(A) the acquisition by the Company of shares of Company
Common Stock in connection with the surrender of shares of
Company Common Stock by holders of options to acquire such stock
in order to pay the exercise price thereof, (B) the
withholding of shares of Company Common Stock to satisfy tax
obligations with respect to awards granted pursuant to the
Company Stock Plans, (C) the acquisition by the Company of
Company Stock Options and shares of Company Restricted Stock in
connection with the forfeiture of such awards, (D) the
acquisition by the trustee of the Company 401(k) Plan of shares
of Company Common Stock in order to satisfy participant
investment elections under the Company 401(k) Plan and
(E) the extinguishment of rights pursuant to Company Stock
Equivalents in connection with the change in a
participants investment election under a Specified
Deferred Compensation Plan;
(iv) except (A) in the ordinary course of business
consistent with past practice, (B) as required pursuant to
the terms of any Company Benefit Plan or Company Benefit
Agreement or other written agreement, in each case, in effect as
of December 31, 2006 or (C) filed as exhibits to the
Filed SEC Documents, (1) any granting to any director or
executive officer of the Company of any increase in compensation
or benefits, (2) any granting to any director or executive
officer of the Company of any increase in severance or
termination pay or (3) any entry by the Company or any of
its Subsidiaries into any employment, consulting, severance or
termination agreement with any director, executive officer or
employee of the Company or any of its Subsidiaries pursuant to
which the total annual compensation or the aggregate severance
benefits per employee exceeds $250,000;
(v) any change in accounting methods, principles or
practices by the Company or any of its Subsidiaries materially
affecting the consolidated assets, liabilities or results of
operations of the Company, except as required (A) by GAAP
(or any interpretation thereof), including as may be required by
the Financial Accounting Standards Board or any similar
organization, or (B) by Law, including
Regulation S-X
under the Securities Act; or
(vi) any material tax election or change in a material tax
election by the Company or any of its Subsidiaries, any
settlement or compromise of a material tax liability, any filing
of an amended tax return with respect to material taxes (except
as required by Law), any change in any annual tax accounting
period, any closing agreement relating to a material amount of
taxes, any waiver or extension of the statute of limitations in
respect of taxes (other than pursuant to extensions of time to
file tax returns obtained in the ordinary course of business)
other than, in each case, in the ordinary course of business and
consistent with past practice.
(h) Litigation. There is no suit, action,
arbitration, litigation, investigation or proceeding pending or,
to the Knowledge of the Company, threatened against the Company
or any of its Subsidiaries that has had or would reasonably be
expected to have, individually or in the aggregate, a Material
Adverse Effect or would reasonably be expected to prevent the
Company from consummating the Merger. There is no material
Judgment outstanding against the Company or any of its
Subsidiaries. This Section 3.01(h) does not relate to
environmental matters, which are the subject of
Section 3.01(j)(ii).
A-10
(i) Contracts. Except for this Agreement
and Contracts filed as exhibits to the Filed SEC Documents,
Section 3.01(i) of the Company Disclosure Letter sets forth
a true and complete list, as of the date of this Agreement, and
the Company has made available to MergerCo true and complete
copies, of:
(i) each Contract that would be required to be filed by the
Company as a material contract pursuant to
Item 601(b)(10) of
Regulation S-K
under the Securities Act;
(ii) each Contract to which the Company or any of its
Subsidiaries is a party that (A) materially and expressly
restricts the ability of the Company or any of its Subsidiaries
to compete in any business or with any person in any
geographical area and (B) is material to the Company and
its Subsidiaries, taken as a whole, except for any such Contract
that may be canceled, without any material penalty or other
liability to the Company or any of its Subsidiaries, upon notice
of 90 days or less;
(iii) each loan and credit agreement, note, letter of
credit, debenture, bond, indenture and other similar Contract
pursuant to which any Indebtedness of the Company or any of its
Subsidiaries, in each case in excess of $10.0 million, is
outstanding or may be incurred, other than any such Contract
between or among any of the Company and any of its Subsidiaries;
(iv) each Contract to which the Company or any of its
Subsidiaries is a party that by its terms calls for aggregate
payments by the Company or any of its Subsidiaries of more than
$20.0 million on an annual basis, except for (A) any
such Contract that may be canceled, without any material penalty
or other liability to the Company or any of its Subsidiaries,
upon notice of 90 days or less and (B) any such
Contract the payments under which are made to the Company or any
of its Subsidiaries;
(v) each Contract for, in each case, aggregate
consideration of more than $20.0 million to which the
Company or any of its Subsidiaries is a party for the
acquisition or disposition by the Company or any of its
Subsidiaries of Owned Real Property;
(vi) each material joint venture, partnership, limited
liability or other similar agreement or arrangement, in each
case other than any such Contract between or among any of the
Company and any of its Subsidiaries;
(vii) any Contract involving any swap, forward, future,
option, cap, floor or collar financial contract, or any other
interest-rate or foreign currency hedge or protection contract,
other than any such Contract under which the contractual
obligations of the Company do not exceed $20 million in the
aggregate;
(viii) any Contract providing the Company or any Subsidiary
with a call right or other right to purchase Company Common
Stock or Company Stock Equivalent, or any warrant issued by the
Company or any of its Subsidiaries, including the confirmations
and other agreements executed in respect of the hedging
arrangements entered into by the Company in connection with the
issuance of the Company Convertible Notes (including any
amendment or termination hereof);
(ix) any Contract involving any directors, executive
officers or 5% stockholders of the Company that cannot be
cancelled by the Company within 30 days notice
without liability, penalty or premium (other than any Company
Benefit Agreement and any Contract pursuant to a Company Benefit
Plan);
(x) any Contract involving any labor union or other
employee organization; and
(xi) any Contract relating to development, ownership,
licensing or use of any Intellectual Property Right that is
material to the operation of the business of the Company and its
Subsidiaries, in each case other than such Contracts with
license, maintenance, support and other fees of less than
$10 million per year in the aggregate per Contract and
other than shrink wrap, click wrap, and
other off-the-shelf software commercially available
on reasonable terms to the public generally.
Each such Contract described in clauses (i) through
(xi) above is referred to herein as a Specified
Contract. Each of the Specified Contracts is valid and
binding on the Company or the Subsidiary of the Company party
thereto and, to the Knowledge of the Company, each other party
thereto, and is in full force and effect, except for such
failures to be valid and binding or to be in full force and
effect that have not had and would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse
Effect. There is no default under any Specified Contract by the
Company or any of its Subsidiaries or, to the Knowledge of the
Company, by any other party thereto, and no event
A-11
has occurred that with the lapse of time or the giving of notice
or both would constitute a default thereunder by the Company or
any of its Subsidiaries or, to the Knowledge of the Company, by
any other party thereto, in each case except as have not had and
would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. This Section 3.01(i)
does not relate to real property leases, which are the subject
of Section 3.01(n)(ii).
(j) Compliance with Laws; Environmental
Matters. (i) Each of the Company and its
Subsidiaries is and at all times in the last three years has
been in compliance with all Laws applicable to its business or
operations (including the Sarbanes-Oxley Act of 2002 and, for
purposes of this paragraph, billing requirements of any federal
health care benefit program, including the Medicare program and
any relevant state Medicaid program and, to the Knowledge of the
Company as of the date hereof, other applicable healthcare
Laws), except for instances of possible noncompliance that would
not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect. Each of the Company and its
Subsidiaries has obtained and is in compliance with all
approvals, authorizations, certificates, franchises, licenses,
permits, certificates of need and consents of Governmental
Entities (collectively, Permits) necessary
for it to conduct its business as presently conducted, and all
such Permits are in full force and effect, except in each case
for such Permits the absence of which, or the failure of which
to be in full force and effect, would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse
Effect. This Section 3.01(j)(i) does not relate to
environmental matters, which are the subject of
Section 3.01(j)(ii), employee benefit matters, which are
the subject of Section 3.01(l), and taxes, which are the
subject of Section 3.01(m).
(ii) Except for those matters that have not had and would
not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect, (A) each of the
Company and its Subsidiaries is in compliance with all
applicable Environmental Laws, and neither the Company nor any
of its Subsidiaries has received any written communication
alleging that the Company is in violation of, or has any
liability under, any Environmental Law, (B) each of the
Company and its Subsidiaries validly possesses and is in
compliance with all Permits required under Environmental Laws to
conduct its business as presently conducted, (C) there are
no Environmental Claims pending or, to the Knowledge of the
Company, threatened against the Company or any of its
Subsidiaries and (D) none of the Company or any of its
Subsidiaries has Released, or is liable for any Release or
clean-up of,
any Hazardous Materials on, under or from any of the Owned Real
Property, the Leased Real Property or any other property,
including any offsite waste disposal location, in a manner that
would reasonably be expected to result in an Environmental Claim
against the Company or any of its Subsidiaries or is otherwise
subject to any material liability under any Environmental Law.
The Company has provided MergerCo with true and correct copies
as of the date hereof of all material environmental assessments
and reports in its possession or control, including all Phase 1
and Phase 2 reports concerning the Owned Real Property and the
Leased Real Property as well as any other property for which the
Company or any of its Subsidiaries retains actual or potential
liability arising under Environmental Law, which assessments and
reports describe matters that have had and would reasonably be
expected to have, individually or in the aggregate, a Material
Adverse Effect. The Company has provided, as of the date hereof,
MergerCo with all material information relating to Environmental
Claims asserted against the Company or any of its Subsidiaries.
The term Environmental Claims means any
administrative or judicial actions, suits, orders, claims,
proceedings or written notices of noncompliance by or from any
person alleging liability arising out of the Release of, or
exposure to, any Hazardous Material or the failure to comply
with any Environmental Law. The term Environmental
Law means any Law relating to pollution, human health,
the environment or natural resources. The term
Hazardous Materials means (1) petroleum
and petroleum by-products, asbestos in any form, radioactive
materials or medical or infectious wastes, and (2) any
other material, substance or waste that is prohibited, limited
or regulated because of its hazardous or toxic properties or
characteristics. The term Release means any
release, spill, emission, leaking, pumping, emitting,
discharging, injecting, escaping, leaching, dumping, disposing
or migrating into or through the environment.
(k) Labor and Employment Matters. Neither
the Company nor any of its Subsidiaries is a party to any
collective bargaining agreement, and, in the last three years up
to an including the date hereof there have not been, to the
Knowledge of the Company, any union organizing activities
concerning any employees of the Company or any of its
Subsidiaries that have had, or would reasonably be expected to
have, individually or in the aggregate, a
A-12
Material Adverse Effect. In the last three years up to an
including the date hereof, there have been no labor strikes,
grievances, slowdowns, work stoppages, labor disputes or
lockouts pending or, to the Knowledge of the Company, threatened
in writing, against the Company or any of its Subsidiaries that
have had, or would reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect.
(l) Employee Benefit Matters. (i)
Section 3.01(l)(i) of the Company Disclosure Letter
contains a true and complete list, as of the date of this
Agreement, of each material Company Benefit Plan that is an
employee pension benefit plan (as defined in
Section 3(2) of ERISA) (a Company Pension
Plan), each material Company Benefit Plan that is an
employee welfare benefit plan (as defined in
Section 3(1) of ERISA) and all other material Company
Benefit Plans and all material Company Benefit Agreements with
any current or former officer or director of the Company or any
of its Subsidiaries. Each Company Benefit Plan and Company
Benefit Agreement has been administered in compliance with its
terms and with applicable Law (including ERISA and the Code),
other than instances of noncompliance that have not had, and
would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. The Company has made
available to MergerCo true and complete copies, as of the date
hereof, of (A) each material Company Benefit Plan and each
material Company Benefit Agreement with any current or former
officer or director of the Company or its Subsidiaries, other
than any Company Benefit Plan or Company Benefit Agreement that
the Company or any of its Subsidiaries is prohibited from making
available to MergerCo as the result of applicable Law relating
to the safeguarding of data privacy and as listed on
Section 3.01(l)(i) of the Company Disclosure Letter,
(B) the most recent annual report on Form 5500 filed
with the Internal Revenue Service with respect to each such
Company Benefit Plan (if any such report was required by
applicable Law), (C) the most recent summary plan
description for each such Company Benefit Plan for which a
summary plan description is required by applicable Law and any
summary of material modifications concerning any such Company
Benefit Plan and (D) the most recently prepared actuarial
report and financial statement, if any, prepared in connection
with each such Company Benefit Plan.
(ii) All Company Pension Plans that are intended to be
qualified for Federal income tax purposes have been the subject
of determination letters from the Internal Revenue Service to
the effect that such Company Pension Plans are so qualified and
exempt from Federal income taxes under Sections 401(a) and
501(a), respectively, of the Code, and no such determination
letter has been revoked nor, to the Knowledge of the Company,
has revocation been threatened.
(iii) None of the Company Benefit Plans is subject to
Section 302 or Title IV of ERISA or Section 412
of the Code. None of the Company, any of its Subsidiaries or any
other person or entity under common control with the Company
within the meaning of Section 414(b), (c), (m) or
(o) of the Code (an ERISA Affiliate)
participates in, or is required to contribute to, or, within the
past six years, sponsored or maintained, any Multiemployer Plan
or any plan subject to Section 302 or Title IV of
ERISA.
(iv) Except for those matters that have not had, and would
not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect, none of the Company, any
of its Subsidiaries, any officer of the Company or any such
Subsidiary or any Company Benefit Plan that is subject to ERISA,
including any Company Pension Plan, or, to the Knowledge of the
Company, any trust created thereunder or any trustee or
administrator thereof, has engaged in a prohibited
transaction (as such term is defined in Section 406
of ERISA or Section 4975 of the Code) or any other breach
of fiduciary responsibility that could subject the Company, any
of its Subsidiaries or any officer of the Company or any such
Subsidiary to the tax or penalty on prohibited transactions
imposed by such Section 4975 of the Code or to any
liability under Section 502(i) or 502(1) of ERISA.
(v) No Company Benefit Plan provides welfare benefits
(whether or not insured) with respect to employees or former
employees (or any of their beneficiaries) of the Company or any
of its Subsidiaries after retirement or other termination of
service (other than coverage or benefits required to be provided
under Part 6 of Subtitle B of Title I of ERISA or any
other similar applicable Law).
(vi) Except for payments or benefits that may be made
pursuant to the Company Benefit Plans and Company Benefit
Agreements listed in Section 3.01(l)(vi) of the Company
Disclosure Letter, in each case, as in effect on the date of
this Agreement, no payment or other benefit that has been or may
be made to any current or former employee or independent
contractor of the Company under any employment, severance or
A-13
termination agreement, other compensation arrangement or
employee benefit plan or arrangement with the Company or any
ERISA Affiliate would be characterized as an excess
parachute payment, as such term is defined in
Section 280G of the Code or would give rise to the payment
of any amount that would not be deductible pursuant to the terms
of Section 280G of the Code as a result of the consummation
of the Merger or any other transaction contemplated by this
Agreement (alone or in connection with any other event).
(vii) No Company Benefit Plan or Company Benefit Agreement
exists that would reasonably be expected to (A) result in
any material payment to any present or former officer, employee
or director of the Company or any ERISA Affiliate of any money
or other property, (B) result in the forgiveness of
Indebtedness or (C) accelerate or provide any other rights
or benefits (including, without limitation, the acceleration of
the accrual or vesting of any material benefits under any
Company Benefit Plan or Company Benefit Agreement or the
acceleration or creation of any material rights under any
severance, parachute or change in control agreement or the right
to receive any material transaction bonus or other similar
payment) to any current or former officer, employee or director
of the Company or any ERISA Affiliate, in each case, as a result
of the consummation of the Merger or any other transaction
contemplated by this Agreement (whether alone or in connection
with any other event).
(viii) The term Company Benefit
Agreement means each employment, consulting,
indemnification, severance or termination agreement or
arrangement between the Company or any of its Subsidiaries, on
the one hand, and any current or former employee, officer or
director of the Company or any of its Subsidiaries, on the other
hand, other than any agreement or arrangement mandated by
applicable Law and other than any Company Benefit Plan. The term
Company Benefit Plan means each bonus,
pension, profit sharing, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock
appreciation right, stock option, phantom stock or other
equity-based compensation, retirement, vacation, severance,
disability, death benefit, hospitalization, medical or other
employee benefits plan, policy, program, arrangement or
understanding (but excluding any Company Benefit Agreement), in
each case (A) sponsored, maintained or contributed to, or
required to be sponsored, maintained or contributed to, by the
Company or any of its Subsidiaries for the benefit of any
current or former employee, officer, consultant or director of
the Company or any of its Subsidiaries, or (B) sponsored,
maintained or contributed to by any ERISA Affiliate within the
past six years and with respect to which the Company or any of
its Subsidiaries would reasonably be expected to incur any
liability, other than (x) any multiemployer
plan (within the meaning of Section 3(37) of the
Employee Retirement Income Security Act of 1974, as amended
(ERISA)) (a Multiemployer
Plan) or (y) any plan, policy, program,
arrangement or understanding mandated by applicable Law.
(m) Taxes.
(i) Except those matters that have not had, and would not
reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect: (A) each of the
Company and its Subsidiaries has filed or has caused to be filed
all tax returns required to be filed by it (or requests for
extensions, which requests have been granted and have not
expired), and all such returns are complete and accurate in all
material respects, (B) each of the Company and its
Subsidiaries has either paid or caused to be paid all taxes due
and owing by the Company and its Subsidiaries to any
Governmental Entity, (C) the most recent financial
statements contained in the Filed SEC Documents reflect an
adequate reserve (excluding any reserves for deferred taxes),
established in accordance with GAAP, for all taxes not yet due
and payable by the Company and its Subsidiaries, for all taxable
periods and portions thereof ending on or before the date of
such financial statements and (D) all amounts of tax
required to be withheld by the Company and its Subsidiaries have
been or will be timely withheld and paid over to the appropriate
tax authority.
(ii) No deficiencies, audit examinations, refund
litigation, proposed adjustments or matters in controversy for
any material taxes (other than taxes that are not yet due and
payable or for amounts being contested in good faith and for
which adequate reserves have been established in accordance with
GAAP) have been proposed, asserted or assessed in writing
against the Company or any of its Subsidiaries which have not
been settled and paid. All assessments for material taxes due
and owing by the Company or any of its Subsidiaries with respect
to completed and settled examinations or concluded litigation
have been paid. There is no currently effective agreement or
other document with respect to the Company or any of its
Subsidiaries
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extending the period of assessment or collection of any material
taxes. There are no Liens for any material amount of taxes on
the assets of the Company or any Subsidiary, other than Liens
for current taxes and assessments not yet past due or which are
being contested in good faith and for which the Company or the
appropriate Subsidiary has set aside adequate reserves in
accordance with GAAP.
(iii) Neither the Company nor any of its Subsidiaries has
constituted either a distributing corporation or a
controlled corporation in a distribution of stock
qualifying for tax-free treatment under Section 355 of the
Code (A) in the two years prior to the date of this
Agreement or (B) which could otherwise constitute part of a
plan or series of related transactions
(within the meaning of Section 355(e) of the Code) in
conjunction with the Merger.
(iv) There are no pending or, to the Knowledge of the
Company as of the date hereof, threatened audits, examinations,
investigations or other proceedings in respect of a material
amount of taxes of the Company or any Subsidiary with respect to
which the Company or a Subsidiary has been notified in writing,
and neither the Company nor any Subsidiary has waived any
statute of limitations in respect of a material amount of taxes
or agreed to any extension of time with respect to an assessment
or deficiency for a material amount of taxes (other than
pursuant to extensions of time to file tax returns obtained in
the ordinary course).
(v) Neither the Company nor any Subsidiary (A) has
been a member of an affiliated group filing a consolidated
federal income tax return (other than a group the common parent
of which was the Company) since January 1, 1999 or
(B) is liable for a material amount of taxes of any person
(other than the Company or any Subsidiary), as a transferee,
successor, by contract or otherwise, where the Company or any
Subsidiary became liable for such material amount of taxes after
January 1, 1999.
(vi) The term taxes means all income,
profits, capital gains, goods and services, branch, payroll,
unemployment, customs duties, premium, compensation, windfall
profits, franchise, gross receipts, capital, net worth, sales,
use, withholding, turnover, value added, ad valorem,
registration, general business, employment, social security,
disability, occupation, real property, personal property
(tangible and intangible), stamp, transfer (including real
property transfer or gains), conveyance, severance, production,
excise, withholdings, duties, levies, imposts, license,
registration and other taxes (including any and all fines,
penalties and additions attributable to or otherwise imposed on
or with respect to any such taxes and interest thereon) imposed
by or on behalf of any Governmental Entity. The term
tax return means any return, statement,
report, form, filing, customs entry, customs reconciliation and
any other entry or reconciliation, including in each case any
amendments, schedules or attachments thereto, required to be
filed with any Governmental Entity or with respect to taxes of
the Company or its Subsidiaries.
(n) Title to
Properties. (i) Section 3.01(n)(i) of
the Company Disclosure Letter sets forth, as of the date of this
Agreement, a true and complete list of all real property owned
by the Company and its Subsidiaries (individually, an
Owned Real Property), including the address
of each Owned Real Property.
(ii) Section 3.01(n)(ii) of the Company Disclosure
Letter sets forth, as of the date of this Agreement, a true and
complete list of all material leases of real property (the
Real Property Leases) under which the Company
or any of its Subsidiaries is a tenant or a subtenant
(individually, a Leased Real Property),
including the address of each Leased Real Property. True and
correct copies of the material Real Property Leases, as of the
date hereof, have been made available to MergerCo.
(iii) Except as would not be, individually or in the
aggregate, material to the Company and its business, taken as a
whole, the Company or a Subsidiary of the Company has good and
valid fee title to each Owned Real Property, in each case free
and clear of all Liens and defects in title, except for
(A) mechanics, carriers, workmens,
warehousemens, repairmens or other like Liens
arising or incurred in the ordinary course of business,
(B) Liens for taxes, assessments and other governmental
charges and levies that are not due and payable or that may
thereafter be paid without interest or penalty, (C) Liens
affecting the interest of the grantor of any easements
benefiting Owned Real Property, (D) Liens (other than liens
securing indebtedness for borrowed money), defects or
irregularities in title, easements, rights-of-way, covenants,
restrictions, and other, similar matters that would not,
individually or in the aggregate, reasonably be expected to
materially impair the continued use and operation of the assets
to which they relate in the business of the Company and its
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Subsidiaries as presently conducted, (E) zoning, building
and other similar codes and regulations and (F) any
conditions that would be disclosed by a current, accurate survey
or physical inspection (collectively, Permitted
Liens). To the Knowledge of the Company, the Owned
Real Property is not subject to any Liens that would reasonably
be expected to have a material and adverse effect on
MergerCos ability to obtain the CMBS financing described
in the Financing Commitments.
(iv) Except as would not be, individually or in the
aggregate, material to the Company and its business, taken as a
whole, the Company or a Subsidiary of the Company has a good and
valid title to a leasehold estate in each Leased Real Property,
all Real Property Leases are in full force and effect, and
neither the Company nor any of its Subsidiaries that is party to
such leases has received or given any written notice of any
material default thereunder which default continues on the date
of this Agreement.
(v) The Company has made available to MergerCo true and
complete copies of the Real Property Leases in respect of its
corporate headquarters, assisted living facilities and skilled
nursing facilities.
(o) Intellectual
Property. Section 3.01(o) of the Company
Disclosure Letter sets forth, as of the date of this Agreement,
a true and complete list of all registered trademarks, trademark
applications, registered service marks and service mark
applications (collectively, Registered Intellectual
Property Rights) that, in each case, are material to
the conduct of the business of the Company and its Subsidiaries,
taken as a whole, as presently conducted and, except as has not
had or would not reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect, the Company or a
Subsidiary of the Company owns, or is licensed or otherwise has
the right to use, each such Registered Intellectual Property
Right and all other trademarks, copyrights, proprietary rights,
know-how, rights in technology, software or other intellectual
property rights used in the business of the Company and its
subsidiaries as currently conducted (such rights, together with
the Registered Intellectual Property Rights, the
Intellectual Property Rights). No claims are
pending or, to the Knowledge of the Company, threatened that the
Company or any of its Subsidiaries is infringing the rights of
any person with regard to any Intellectual Property Right, which
claims, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect. To the Knowledge of
the Company, as of the date of this Agreement, no person is
infringing the rights of the Company or any of its Subsidiaries
with respect to any Intellectual Property Right, in a manner
that has had or would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.
(p) Insurance. Except as would not,
individually or in the aggregate, reasonably be expected to have
a Material Adverse Effect, (i) the Company and its
Subsidiaries maintain insurance in such amounts and against such
risks as is sufficient to comply with applicable Law,
(ii) all material insurance policies of the Company and its
Subsidiaries are in full force and effect, except for any
expiration thereof in accordance with the terms thereof,
(iii) neither the Company nor any of its Subsidiaries is in
breach of, or default under, any such material insurance policy
and (iv) no written notice of cancellation or termination
has been received with respect to any such material insurance
policy, other than in connection with ordinary renewals.
(q) Voting Requirements. Assuming the
accuracy of the representations and warranties of MergerCo set
forth in Section 3.02(f), the affirmative vote of holders
of a majority of the outstanding shares of Company Common Stock
entitled to vote thereon at the Stockholders Meeting or
any adjournment or postponement thereof to adopt this Agreement
(the Stockholder Approval) is the only vote
of the holders of any class or series of capital stock of the
Company necessary for the Company to adopt this Agreement and
approve the transactions contemplated hereby.
(r) State Takeover Statutes. Assuming the
accuracy of the representations and warranties of MergerCo set
forth in Section 3.02(f), the approval of the Board of
Directors of the Company of this Agreement, the Merger and the
other transactions contemplated by this Agreement represents all
the action necessary to render inapplicable to this Agreement,
the Merger and the other transactions contemplated by this
Agreement, the provisions of Section 203 of the DGCL to the
extent, if any, such Section would otherwise be applicable to
this Agreement, the Merger and the other transactions
contemplated by this Agreement, and no other
moratorium, fair price, business
combination, control share acquisition or
similar provision of any state takeover statute applies or at
the Effective Time will apply to this Agreement, the Merger or
the other transactions contemplated by this Agreement.
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(s) Brokers and Other Advisors. No
broker, investment banker, financial advisor or other person,
other than J.P. Morgan Securities Inc. and Citigroup Global
Markets Inc., the fees and expenses of which will be paid by the
Company, is entitled to any brokers, finders or
financial advisors fee or commission in connection with
the Merger and the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company. The
Company has made available to MergerCo complete and correct
copies of the letter agreements between the Company and
(i) J.P. Morgan Securities Inc. and (ii) Citigroup
Global Markets Inc. pursuant to which such parties could be
entitled to any payment from the Company or any of its
Subsidiaries in connection with the Merger or the transactions
contemplated hereby.
(t) Opinions of Financial Advisors. The
Board of Directors of the Company has received the separate
opinions of each of J.P. Morgan Securities Inc. and
Citigroup Global Markets Inc., to the effect that, as of the
date of such opinion, the Merger Consideration is fair, from a
financial point of view, to the holders of shares of Company
Common Stock (other than as set forth in such opinion), a signed
copy of each of which opinion will promptly be delivered to
MergerCo for informational purposes only after receipt thereof
by the Company.
(u) Related Party Transactions. No
present or former director, executive officer, stockholder,
partner, member, employee or Affiliate of the Company or any of
its Subsidiaries, nor any of such persons Affiliates or
immediate family members, is a party to any material Contract
with or binding upon the Company or any of its Subsidiaries or
any of their respective properties or assets or has any interest
in any material property owned by the Company or any of its
Subsidiaries or has engaged in any transaction with any of the
foregoing, in each case, that is of a type that would be
required to be disclosed in the SEC Documents pursuant
Item 404 of
Regulation S-K
that has not been so disclosed (any of the foregoing, a
Related Party Transaction).
(v) No Rights Plan. There is no
stockholder rights plan, poison pill anti-takeover
plan or other similar device in effect to which the Company is a
party or is otherwise bound.
(w) No Other Representations or
Warranties. Except for the representations and
warranties contained in this Section 3.01, MergerCo
acknowledges that neither the Company nor any person on behalf
of the Company makes any other express or implied representation
or warranty with respect to the Company or any of its
Subsidiaries or with respect to any other information provided
to MergerCo in connection with the transactions contemplated by
this Agreement. Neither the Company nor any other person will
have or be subject to any liability or indemnification
obligation to MergerCo or any other person resulting from the
distribution to MergerCo, or MergerCos use of, any such
information, including any information, documents, projections,
forecasts or other material made available to MergerCo in
certain data rooms or management presentations in
expectation of the transactions contemplated by this Agreement,
unless and then only to the extent that any such information is
expressly included in or expressly set forth in a representation
or warranty contained in this Section 3.01.
Section 3.02. Representations
and Warranties of MergerCo. Except as set
forth in the MergerCo Disclosure Letter (it being understood
that any information set forth in one section or subsection of
the MergerCo Disclosure Letter shall be deemed to apply to and
qualify the Section or subsection of this Agreement to which it
corresponds in number and each other Section or subsection of
this Agreement to the extent that it is reasonably apparent that
such information is relevant to such other Section or
subsection), MergerCo represents and warrants to the Company as
follows:
(a) Organization, Standing and Corporate
Power. MergerCo is duly organized, validly
existing and in good standing under the Laws of its jurisdiction
of organization and has all requisite corporate power and
authority to carry on its business as presently conducted.
(b) Authority; Noncontravention. MergerCo
has all requisite corporate power and authority to execute and
deliver this Agreement and to consummate the transactions
contemplated by this Agreement, including the Merger and the
Financing. The execution and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement,
including the Merger and the Financing, have been duly
authorized by all necessary corporate action on the part of
MergerCo, and no other corporate proceedings (including any
shareholder action) on the part of MergerCo are necessary to
authorize this Agreement or to consummate the transactions
contemplated hereby, including the Merger and the Financing.
This Agreement has been duly executed and delivered by MergerCo
and, assuming the due authorization, execution and delivery by
the Company, constitutes a
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legal, valid and binding obligation of MergerCo, enforceable
against MergerCo in accordance with its terms, subject, as to
enforceability, to bankruptcy, insolvency and other Laws of
general applicability relating to or affecting creditors
rights and to general equity principles. The execution and
delivery of this Agreement do not, and the consummation of the
Merger and the other transactions contemplated by this
Agreement, including the Financing, and compliance with the
provisions of this Agreement will not, conflict with, or result
in any violation or breach of, or default (with or without
notice or lapse of time, or both) under, or give rise to a right
of termination, cancellation or acceleration of any obligation
or to the loss of a benefit under, or result in the creation of
any Lien upon any of the properties or assets of MergerCo under,
any provision of (i) the certificate of incorporation or
bylaws of MergerCo or (ii) subject to the filings and other
matters referred to in the immediately following sentence,
(A) any Contract to which MergerCo is a party or by which
any of its properties or assets are bound or (B) any Law or
Judgment, in each case applicable to MergerCo or its properties
or assets, other than, in the case of clause (ii), any such
conflicts, violations, breaches, defaults, rights, losses or
Liens that would not, individually or in the aggregate,
reasonably be expected to have a MergerCo Material Adverse
Effect. No consent, approval, order or authorization of,
registration, declaration or filing with, or notice to, any
Governmental Entity is required to be obtained or made by or
with respect to MergerCo in connection with the execution and
delivery of this Agreement by MergerCo or the consummation by
MergerCo of the Merger or the other transactions contemplated by
this Agreement, including the Financing, except for (I) the
filing of a premerger notification and report form by MergerCo
under the HSR Act and the filings and receipt, termination or
expiration, as applicable, of such other approvals or waiting
periods as may be required under any other applicable
competition, merger control, antitrust or similar Law,
(II) the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware and (III) such
other consents, approvals, orders, authorizations,
registrations, declarations, filings and notices the failure of
which to be obtained or made would not, individually or in the
aggregate, reasonably be expected to have a MergerCo Material
Adverse Effect.
(c) Information Supplied. None of the
information supplied or to be supplied by MergerCo for inclusion
or incorporation by reference in the Proxy Statement will, at
the date it is first mailed to the stockholders of the Company
and at the time of the Stockholders Meeting, contain any
untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in
order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
(d) Available Funds. The financing of the
transactions contemplated hereby will consist of a combination
of equity financing (the Equity Financing)
and debt financing (the Debt Financing and,
together with the Equity Financing, the
Financing). MergerCo has delivered to the
Company true and complete copies of fully executed commitment
letters pursuant to which the parties thereto have committed to
provide MergerCo with the Financing (such agreements, as
modified pursuant to Section 5.09(a), the Equity
Financing Commitments and the Debt Financing
Commitments, respectively, and together the
Financing Commitments). Each of the Equity
Financing Commitments, in the form so delivered, is in full
force and effect and is a legal, valid and binding obligation of
MergerCo and, to the Knowledge of MergerCo, the other parties
thereto. As of the date of this Agreement, each of the Debt
Financing Commitments, in the form so delivered, is in full
force and effect and is a legal, valid and binding obligation of
MergerCo and, to the Knowledge of MergerCo, the other parties
thereto. The Financing Commitments have not been amended,
supplemented or otherwise modified in any respect, except, in
each case, with the prior written consent of the Company as
permitted by Section 5.09(a), the financing commitments
under the Equity Financing Commitments have not been withdrawn
or terminated, and, as of the date hereof, the financing
commitments under the Debt Financing Commitments have not been
withdrawn or terminated. No event has occurred that, with or
without notice, lapse of time or both, would constitute a
default or breach on the part of MergerCo under any term or
condition of the Financing Commitments, and, subject to the
accuracy of the representations and warranties of the Company
set forth herein, MergerCo has no reason to believe that it will
not be able to satisfy on a timely basis any term or condition
of closing to be satisfied by it or its Affiliates set forth in
the Equity Financing Commitments or, as of the date hereof, in
the Debt Financing Commitments, or that any portion of the
Financing to be made thereunder will otherwise not be available
to MergerCo on a timely basis to consummate the Merger and the
other transactions contemplated hereby. As of the date hereof,
MergerCo is not aware of any fact or occurrence that makes any
of the assumptions, or the representations or warranties of
MergerCo, in any of the Financing Commitments inaccurate in any
material respect. MergerCo has fully paid any and all commitment
fees or other fees required by the Financing Commitments to be
paid by it on or prior to the date of this Agreement and shall
in the future pay any such fees as they become due. The
Financing, if and when funded in accordance with the
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Financing Commitments, will provide MergerCo with funds
sufficient to satisfy all of MergerCos obligations under
this Agreement, including the payment of the Merger
Consideration, the Equity Award Amounts and any other amounts
under Article II, the repayment or refinancing of debt
contemplated in connection with the Merger or the Financing
Commitments and all associated costs and expenses. The
obligations to make the Financing available to MergerCo pursuant
to the terms of the Financing Commitments are not subject to any
conditions other than the conditions set forth in the Financing
Commitments. MergerCo has also delivered to the Company the
limited guarantee (the Guarantee) of Carlyle
Partners V, L.P. (the Guarantor),
guaranteeing, on the terms set forth therein, the payment of any
damages resulting from a breach of any representation, warranty,
covenant or agreement of MergerCo set forth herein. The
Guarantee is in full force and effect and is a legal, valid and
binding obligation of the Guarantor, subject, as to
enforceability, to bankruptcy, insolvency and other Laws of
general applicability relating to or affecting creditors
rights and to general equity principles.
(e) Operations and Assets of
MergerCo. MergerCo has been formed solely for the
purpose of engaging in the transactions contemplated hereby and,
prior to the Effective Time, will not have incurred liabilities
or obligations of any nature, other than pursuant to or in
connection with this Agreement and the Merger, the Financing and
the other transactions contemplated by this Agreement.
(f) Ownership of Company Common
Stock. Neither MergerCo nor the Guarantor, as of
the date hereof, beneficially owns (within the meaning of
Section 13 of the Exchange Act and the rules and
regulations promulgated thereunder), and neither MergerCo nor
the Guarantor will prior to the Closing Date beneficially own,
any shares of Company Common Stock, and neither MergerCo nor the
Guarantor is a party, and neither will prior to the Closing Date
become a party, to any Contract, arrangement or understanding
(other than this Agreement) for the purpose of acquiring,
holding, voting or disposing of any shares of Company Common
Stock.
(g) Brokers and Other Advisors. No
broker, investment banker, financial advisor or other person,
other than Morgan Stanley & Co. Incorporated, the fees
and expenses of which will be paid by MergerCo, is entitled to
any brokers, finders or financial advisors fee
or commission in connection with the Merger and the transactions
contemplated by this Agreement based upon arrangements made by
or on behalf of MergerCo.
(h) No Other Representations or
Warranties. Except for the representations and
warranties contained in this Section 3.02, the Company
acknowledges that neither MergerCo nor any other person on
behalf of MergerCo makes any other express or implied
representation or warranty with respect to MergerCo or with
respect to any other information provided to the Company in
connection with the transactions contemplated hereby.
ARTICLE IV
Covenants
Relating to Conduct of Business
Section 4.01. Conduct
of Business. (a) Except as set forth in
Section 4.01(a) of the Company Disclosure Letter, expressly
contemplated or required by this Agreement, required by Law or
consented to in writing by MergerCo (such consent not to be
unreasonably withheld or delayed), during the period from the
date of this Agreement to the Effective Time, the Company shall,
and shall cause each of its Subsidiaries to, carry on its
business in the ordinary course consistent with past practice
and, to the extent consistent therewith, use reasonable best
efforts to preserve substantially intact its current business
organizations, to keep available the services of its current
officers and employees and to preserve its relationships with
significant customers, providers, suppliers, and other persons
having significant business dealings with it. Without limiting
the generality of the foregoing, except as set forth in
Section 4.01(a) of the Company Disclosure Letter, expressly
contemplated or required by this Agreement, required by Law or
consented to in writing by MergerCo (such consent not to be
unreasonably withheld or delayed), during the period from the
date of this Agreement to the Effective Time, the Company shall
not, and shall not permit any of its Subsidiaries to:
(i) declare, set aside or pay any dividends on, or make any
other distributions (whether in cash, stock or property) in
respect of, any of its capital stock, other than
(A) dividends or distributions by a direct or indirect
wholly-owned Subsidiary of the Company to its parent and
(B) regular quarterly cash dividends on the Company Common
Stock, not to exceed, in the case of any such quarterly
dividend, $0.17 per share;
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(ii) split, combine or reclassify any of its capital stock
or issue or authorize the issuance of any other securities in
lieu of or in substitution for shares of its capital stock;
(iii) purchase, redeem or otherwise acquire any shares of
its capital stock or any rights, warrants or options to acquire
any such shares, other than (A) the acquisition by the
Company of shares of Company Common Stock in connection with the
surrender of shares of Company Common Stock by holders of
Company Stock Options in order to pay the exercise price of the
Company Stock Options, (B) the withholding of shares of
Company Common Stock to satisfy tax obligations with respect to
awards granted pursuant to the Company Stock Plans, (C) the
acquisition for no consideration or no more than the
awards original purchase price by the Company of Company
Stock Options, Company SARs, Company RSUs and shares of Company
Restricted Stock in connection with the forfeiture of such
awards, (D) the acquisition by the trustee of the Company
401(k) Plan of shares of Company Common Stock in order to
satisfy participant investment elections under the Company
401(k) Plan and (E) the extinguishment of rights pursuant
to Company Stock Equivalents in connection with the change in a
participants investment election under a Specified
Deferred Compensation Plan;
(iv) issue, deliver or sell any shares of its capital
stock, any other voting securities or any securities convertible
into, or any rights, warrants or options to acquire, any such
shares, voting securities or convertible securities, Company
Stock Equivalents or any phantom stock,
phantom stock rights, stock appreciation rights or
stock based performance units, other than (A) upon the
exercise of Company Stock Options and settlement of Company RSUs
outstanding on the date of this Agreement, in each case in
accordance with their present terms, (B) as required
pursuant to any Company Benefit Plan or Company Benefit
Agreement or other written agreement as in effect on the date of
this Agreement, (C) the issuance of shares of Company
Common Stock upon conversion of the Company Convertible Notes or
exercise of the Company Warrants and (D) the issuance of
Company Stock Equivalents pursuant to the Specified Deferred
Compensation Plans;
(v) amend the Company Certificate of Incorporation or the
Company Bylaws or the comparable organizational documents of any
Subsidiary of the Company;
(vi) merge or consolidate with, or purchase an equity
interest in or a substantial portion of the assets of, or any
facility of, any person or any division or business thereof, if
the aggregate amount of the consideration paid or transferred by
the Company and its Subsidiaries in connection with all such
transactions would exceed, individually or in the aggregate,
$30.0 million, other than any such action solely between or
among the Company and its wholly-owned Subsidiaries;
(vii) sell, lease or otherwise dispose of any of its
properties or assets (including capital stock of any Subsidiary
of the Company) that are material, individually or in the
aggregate, to the Company and its Subsidiaries, taken as a
whole, other than (A) sales or other dispositions of
inventory and other assets in the ordinary course of business,
and (B) subleases of Leased Real Properties, and voluntary
terminations or surrenders of Real Property Leases, in each
case, in the ordinary course of business;
(viii) pledge, encumber or otherwise subject to a Lien
(other than a Permitted Lien) any of its properties or assets
(including capital stock of any Subsidiary of the Company),
other than in the ordinary course of business;
(ix) (A) incur any indebtedness for borrowed money
(including capital leases), issue or sell any debt securities or
warrants or other rights to acquire any debt securities of the
Company or any of its Subsidiaries, guarantee any such
indebtedness or any debt securities of another person or enter
into any keep well or other agreement to maintain
any financial statement condition of another person
(collectively, Indebtedness) or amend or
modify the terms of any current Indebtedness, other than
(1) Indebtedness incurred, assumed or otherwise entered
into in the ordinary course of business consistent with past
practices under the Companys existing revolving credit
facilities (including any letters of credit) in an amount not to
exceed $50,000,000 (not including for purposes of calculating
such amount any undrawn letter of credit) (provided that
the amount of such additional Indebtedness may exceed
$50,000,000 but not $75,000,000, only if the weighted average
monthly balance of such Indebtedness does not exceed $50,000,000
for any month between the date hereof and the Closing Date and
that the proceeds of such additional Indebtedness may not be
used to fund payment of the
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Companys quarterly dividend), and (2) Indebtedness
incurred to fund payments due under the Company Convertible
Notes only upon conversion thereof; provided, that such
Indebtedness does not provide for any prepayment penalty or
premium or other breakage costs in connection with the repayment
thereof or contain terms that that have, or would reasonably be
expected to have, an adverse effect on the ability of MergerCo
to obtain any portion of the Financing (including the CMBS
financing contemplated by the Debt Commitments); or
(B) make any loans or capital contributions to, or
investments in, any other person, other than to any of the
wholly-owned Subsidiaries of the Company;
(x) make, incur or commit to incur any capital expenditures
in excess of the capital expenditures set forth in the
Companys 2007 budget and strategic plan previously
provided to MergerCo in writing, other than (A) in
connection with the repair or replacement of facilities
destroyed or damaged due to casualty or accident (whether or not
covered by insurance) or (B) otherwise in an aggregate
amount for all such capital expenditures made pursuant to this
clause (B) not to exceed $15.0 million;
(xi) settle any material claim or material litigation, in
each case made or pending against the Company or any of its
Subsidiaries, other than the settlement of claims or litigation
disclosed, reflected or reserved against in the most recent
financial statements (or the notes thereto) of the Company
included in the Filed SEC Documents for an amount not materially
in excess of the amount so disclosed, reflected or reserved;
(xii) cancel any material Indebtedness or waive any claims
or rights of substantial value, in each case other than in the
ordinary course of business;
(xiii) except (A) in the ordinary course of business
consistent with past practice, (B) as required pursuant to
the terms of any Company Benefit Plan or Company Benefit
Agreement or other written agreement as in effect on the date of
this Agreement or (C) as otherwise expressly permitted by
this Agreement, (1) grant to any officer, director or
employee of the Company or any of its Subsidiaries any increase
in compensation or benefits, (2) grant to any officer,
director or employee of the Company or any of its Subsidiaries
any increase in severance or termination pay, (3) enter
into any employment, consulting, severance or termination
agreement with any officer, director or employee of the Company
or any of its Subsidiaries pursuant to which the total annual
compensation or the aggregate severance benefits per employee
exceed $250,000, (4) establish, adopt, enter into or amend
in any material respect any collective bargaining agreement,
Company Benefit Agreement or Company Benefit Plan or
(5) accelerate any rights or benefits, or make any material
determinations, under any Company Benefit Plan or Company
Benefit Agreement; provided, however, that the
foregoing clauses (1), (2), and (3) shall not restrict the
Company or any of its Subsidiaries from entering into or making
available to newly hired employees, other than executive
officers, or to employees, other than executive officers, in the
context of promotions based on job performance or workplace
requirements, in each case in the ordinary course of business
consistent with past practice, plans, agreements, benefits and
compensation arrangements (including incentive grants) that have
a value that is consistent with the past practice of making
compensation and benefits available to newly hired or promoted
employees in similar positions;
(xiv) make any change in accounting methods, principles or
practices materially affecting the consolidated assets,
liabilities or results of operations of the Company, other than
as required (A) by GAAP (or any interpretation thereof),
including as may be required by the Financial Accounting
Standards Board or any similar organization, or (B) by Law,
including
Regulation S-X
under the Securities Act;
(xv) make or change any material tax election, file any
amended tax return with respect to any material tax or change
any annual tax accounting period, settle or compromise any
material tax liability, enter into any closing agreement
relating to a material amount of taxes or waive or extend the
statute of limitations in respect of a material amount of taxes,
in each case, other than in the ordinary course of business and
consistent with past practice;
(xvi) enter into any lease for any real or personal
property, other than in the ordinary course of business and
consistent with past practice;
(xvii) fail to maintain in full force and effect in all
material respects adequate insurance in accordance with past
practice;
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(xviii) adopt or enter into a plan of complete or partial
liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization of the Company;
(xix) amend, modify, terminate or enter into any Specified
Contract (other than any Specified Contract described in
clause (xi) of the definition thereof) other than in the
ordinary course of business and consistent with past practice or
amend, modify or terminate that certain letter agreement between
the Company and JPMorgan Chase Bank, National Association,
London Branch, dated as of the date hereof relating to the
Company Warrants and certain purchased call options;
(xx) enter into any Related Party Transaction; or
(xxi) authorize any of, or commit or agree to take any of,
the foregoing actions.
(b) Advice of Changes. The Company and
MergerCo shall promptly give written notice to the other party
upon becoming aware of any material event, development or
occurrence that would reasonably be expected to give rise to a
failure of condition precedent set forth in Section 6.02
(in the case of the Company) or Section 6.03 (in the case
of MergerCo).
Section 4.02. No
Solicitation. (a) The Company shall not,
nor shall it authorize or permit any of its Subsidiaries or any
of their respective directors, officers or employees to, and
shall not authorize any investment banker, financial advisor,
attorney, accountant or other advisor, agent or representative
(collectively, Representatives) retained by
it or any of its Subsidiaries to, directly or indirectly,
(i) solicit, initiate, cause or knowingly encourage, or
take any other action to knowingly facilitate, the making of any
proposal that constitutes or is reasonably likely to lead to a
Takeover Proposal or (ii) enter into, continue or otherwise
participate in any discussions or negotiations regarding or
furnish to any person any confidential information with respect
to, or otherwise actively assist in any way with, any Takeover
Proposal. The Company shall, and shall cause its Subsidiaries
and direct its Representatives to, immediately cease and cause
to be terminated all existing discussions and negotiations with
any person conducted heretofore with respect to any Takeover
Proposal. Notwithstanding the foregoing or anything else in this
Agreement to the contrary, at any time prior to obtaining the
Stockholder Approval, in response to an unsolicited bona fide
written Takeover Proposal, if the Board of Directors of the
Company determines in good faith (x) after consultation
with its financial advisor and outside counsel, that such
Takeover Proposal constitutes or is reasonably likely to lead to
a Superior Proposal and (y) after consultation with its
outside counsel, that the failure to take such action would be
inconsistent with its fiduciary duties under applicable Law, the
Company may (and may authorize and permit its Subsidiaries,
directors, officers, employees and Representatives to), subject
to compliance with Section 4.02(c), (A) furnish
information with respect to the Company and its Subsidiaries to
the person making such Takeover Proposal (and its
Representatives) pursuant to a customary confidentiality
agreement containing confidentiality provisions not less
favorable in the aggregate to the Company than those set forth
in the Confidentiality Agreement and which shall contain a
standstill provision no less favorable in the aggregate to the
Company, and ending contemporaneously with, the standstill
provision set forth in the Confidentiality Agreement;
provided that all such information has previously been
provided to MergerCo or is provided to MergerCo prior to or
substantially concurrently with the time it is provided to such
person, and (B) participate in discussions and negotiations
with the person making such Takeover Proposal (and its
Representatives) regarding such Takeover Proposal.
The term Takeover Proposal means any inquiry,
proposal or offer from any person or group relating to
(a) any direct or indirect acquisition or purchase (by
merger or otherwise), in a single transaction or a series of
transactions, of (1) 20% or more (based on the fair market
value thereof, as determined by the Board of Directors of the
Company) of assets (including capital stock of the Subsidiaries
of the Company) of the Company and its Subsidiaries, taken as a
whole, or (2) 20% or more of any class of equity securities
of the Company, (b) any tender offer or exchange offer
that, if consummated, would result in any person or group
owning, directly or indirectly, 20% or more of any class of
equity securities of the Company or (c) any merger,
consolidation, business combination, recapitalization,
liquidation, dissolution, binding share exchange or similar
transaction involving the Company pursuant to which any person
or group (or the shareholders of any person) would own, directly
or indirectly, 20% or more of any class of equity securities of
the Company or of the surviving entity in a merger or the
resulting direct or indirect parent of the Company or such
surviving entity, other than, in each case, the transactions
contemplated by this Agreement.
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The term Superior Proposal means any written
bona fide Takeover Proposal that if consummated would result in
a person or group (or the shareholders of any person) owning,
directly or indirectly, (A) 50% or more of any class of
equity securities of the Company or of the surviving entity in a
merger or the resulting direct or indirect parent of the Company
or such surviving entity or (B) 50% or more (based on the
fair market value thereof, as determined by the Board of
Directors of the Company) of the assets of the Company and its
Subsidiaries, taken as a whole, which the Board of Directors of
the Company determines in good faith (after consultation with
its financial advisor and outside counsel) is more favorable to
the stockholders of the Company from a financial point of view
than the Merger, taking into account all financial (including
the financing terms of any such proposal), legal, regulatory and
other aspects of such proposal and of this Agreement (including
any changes to the financial terms of this Agreement proposed by
MergerCo to the Company in response to such proposal or
otherwise).
(b) Neither the Board of Directors of the Company nor any
committee thereof shall (i)(A) withdraw (or modify in a manner
adverse to MergerCo), or publicly propose to withdraw (or modify
in a manner adverse to MergerCo), the approval, recommendation
or declaration of advisability by the Board of Directors or any
such committee of this Agreement or the Merger or the other
transactions contemplated by this Agreement or
(B) recommend the approval or adoption of, or approve or
adopt, or publicly propose to recommend, approve or adopt, any
Takeover Proposal (any action described in this clause (i)
being referred to as an Adverse Recommendation
Change) or (ii) approve or recommend, or publicly
propose to approve or recommend, or cause or permit the Company
or any of its Subsidiaries to execute or enter into, any letter
of intent, memorandum of understanding, agreement in principle,
merger agreement, acquisition agreement or other similar
agreement related to any Takeover Proposal, other than any
confidentiality agreement referred to in Section 4.02(a).
Notwithstanding the foregoing or anything else in this Agreement
to the contrary, at any time prior to obtaining the Stockholder
Approval and subject to compliance with Section 5.06(b),
the Board of Directors of the Company may, if, after
consultation with its outside counsel, it determines that the
failure to take such action would be inconsistent with its
fiduciary duties under applicable Law, (1) make an Adverse
Recommendation Change or (2) if the Company shall have
received a Takeover Proposal that constitutes a Superior
Proposal, cause or permit the Company to terminate this
Agreement; provided, however, that the Board of
Directors of the Company shall not make an Adverse
Recommendation Change, and the Company may not terminate this
Agreement pursuant to clause (2) above, until after the
third day following MergerCos receipt of written notice (a
Notice of Superior Proposal) from the Company
advising MergerCo that the Board of Directors of the Company
intends to take such action and specifying the reasons therefor,
including the material terms and conditions of, and the identity
of the persons making, any Superior Proposal that is the basis
of the proposed action by such Board of Directors (it being
understood and agreed that (I) any amendment to the
financial terms of such Superior Proposal shall require a new
Notice of Superior Proposal and a new three day period and
(II) in determining whether to make an Adverse
Recommendation Change or to cause or permit the Company to so
terminate this Agreement, the Board of Directors of the Company
shall take into account any changes to the financial terms of
this Agreement proposed by MergerCo to the Company in response
to a Notice of Superior Proposal or otherwise).
(c) In addition to the obligations of the Company set forth
in Sections 4.02(a) and 4.02(b), the Company shall as
promptly as practicable, and in any event within two business
days after receipt, advise MergerCo orally and in writing of the
receipt of any Takeover Proposal after the date of this
Agreement, the material terms and conditions of any such
Takeover Proposal and the identity of the person making any such
Takeover Proposal. The Company shall, subject to the fiduciary
duties under applicable Law of the Board of Directors of the
Company, keep MergerCo reasonably informed of any material
developments with respect to any such Takeover Proposal
(including any material changes thereto). The Company shall not
take any action to exempt any person (other than MergerCo,
MergerCos sole stockholder and their respective
Affiliates) from the restrictions on business
combinations contained in Section 203 of the DGCL (or
any similar provision of any other Takeover Law) or otherwise
cause such restrictions not to apply, or agree to do any of the
foregoing, in each case unless (i) such actions are taken
substantially concurrently with a termination of this Agreement
pursuant to Section 7.01(f) or (ii) such actions are
taken following an Adverse Recommendation Change.
(d) The Company (i) shall request the prompt return or
destruction of all confidential information furnished since
April 2007 to any person that previously engaged in discussions
with the Company or any of its representatives or Affiliates
with respect to any Takeover Proposal and (ii) shall not
terminate, waive, amend or modify any
A-23
provisions of any confidentiality or standstill agreement in its
or any of its Subsidiaries favor to which it or any of its
Subsidiaries is a party.
(e) Nothing contained in this Section 4.02 or
elsewhere in this Agreement shall prohibit the Company from
(i) taking and disclosing to its stockholders a position
contemplated by
Rule 14d-9
or
Rule 14e-2(a)
promulgated under the Exchange Act or (ii) making any
disclosure to its stockholders if the Board of Directors of the
Company determines in good faith (after consultation with its
outside counsel) that failure to do so would be inconsistent
with its fiduciary duties under applicable Law, it being
understood, however, that any such disclosure (other than a
stop, look and listen letter or a similar
communication of the type contemplated by
Rule 14d-9(f)
under the Exchange Act) shall be deemed to be an Adverse
Recommendation Change unless the Board of Directors of the
Company expressly and publicly reconfirms its Recommendation at
least two business days prior to the Stockholders Meeting.
ARTICLE V
Additional
Agreements
Section 5.01. Preparation
of the Proxy Statement; Stockholders
Meeting. (a) As promptly as reasonably
practicable following the date of this Agreement, the Company
shall prepare and file with the SEC the Proxy Statement with the
assistance of, and in consultation with, MergerCo. MergerCo
shall provide to the Company all information concerning MergerCo
as may be reasonably requested by the Company in connection with
the Proxy Statement and shall otherwise assist and cooperate
with the Company in the preparation of the Proxy Statement and
resolution of comments referred to below. The Company shall
promptly notify MergerCo upon the receipt of any comments from
the SEC or the staff of the SEC or any request from the SEC or
the staff of the SEC for amendments or supplements to the Proxy
Statement, and shall provide MergerCo with copies of all
correspondence between the Company and its Representatives, on
the one hand, and the SEC or the staff of the SEC, on the other
hand. Notwithstanding anything to the contrary stated above,
prior to filing or mailing the Proxy Statement (or any amendment
or supplement thereto) or responding to any comments of the SEC
with respect thereto, the Company shall provide MergerCo with a
reasonable opportunity to review and comment on the Proxy
Statement or such response and shall include in such documents
or response comments reasonably proposed by MergerCo. The
Company shall use its reasonable best efforts to respond as
promptly as practicable to any comments of the SEC or the staff
of the SEC with respect to the Proxy Statement and to cause the
Proxy Statement to be cleared by the SEC and mailed to the
stockholders of the Company as promptly as reasonably
practicable following the date of this Agreement. Prior to
filing or mailing the Proxy Statement (or any amendment or
supplement thereto) or responding to any comments of the SEC or
the staff of the SEC with respect thereto, the Company shall
provide MergerCo a reasonable opportunity to review and to
propose comments on such document or response. If at any time
prior to the Stockholders Meeting, any information should
be discovered by any party hereto which should be set forth in
an amendment or supplement to the Proxy Statement so that the
Proxy Statement would not include any misstatement of a material
fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not
misleading, the party which discovers such information shall
promptly notify the other parties hereto and, to the extent
required by applicable Law, as determined in good faith by the
Board of Directors of the Company after consultation with its
outside counsel, an appropriate amendment or supplement
describing such information shall be promptly filed by the
Company with the SEC and, to the extent required by applicable
Law, mailed by the Company to the stockholders of the Company.
(b) The Company shall, as promptly as reasonably
practicable following the date of this Agreement, establish a
record date for, duly call, give notice of, convene and hold a
meeting of its stockholders (the Stockholders
Meeting) for the purpose of obtaining the Stockholder
Approval and, unless and until there has been an Adverse
Recommendation Change, use its reasonable best efforts to
solicit proxies from its stockholders in favor of adoption of
this Agreement. Subject to the ability of the Board of Directors
of the Company to make an Adverse Recommendation Change pursuant
to Section 4.02(b), the Company shall, through its Board of
Directors, recommend to its stockholders adoption of this
Agreement (the Recommendation) and shall
include such Recommendation in the Proxy Statement.
A-24
Section 5.02. Access
to Information; Confidentiality. The Company
shall afford to MergerCo, and to MergerCos officers,
employees, accountants, counsel, consultants, financial advisors
and other Representatives, reasonable access during normal
business hours during the period prior to the Effective Time or
the termination of this Agreement to all of its and its
Subsidiaries properties, books and records and to those
employees of the Company to whom MergerCo reasonably requests
access, and, during such period, the Company shall furnish, as
promptly as practicable, to MergerCo all information concerning
its and its Subsidiaries business, properties and
personnel as MergerCo may reasonably request (it being agreed,
however, that the foregoing shall not permit MergerCo or any
such Representatives to conduct any environmental testing or
sampling). Notwithstanding the foregoing, neither the Company
nor any of its Subsidiaries shall be required to provide access
to or disclose information where the Company reasonably
determines that such access or disclosure would jeopardize the
attorney-client privilege of the Company or any of its
Subsidiaries or contravene any Law or any Contract to which the
Company or any of its Subsidiaries is a party (it being agreed
that the parties shall use their reasonable best efforts to
cause such information to be provided in a manner that does not
cause such violation or jeopardization; provided,
however, that none of the parties hereto nor any of their
Affiliates shall be required to make monetary payments or
concessions or incur any other liability in connection with the
foregoing). Except for disclosures expressly permitted by the
terms of the confidentiality letter agreement dated as of
April 20, 2007, between MergerCos Affiliate, Carlyle
Investment Management L.L.C., and the Company (as it may be
amended from time to time, the Confidentiality
Agreement), MergerCo shall hold, and shall cause its
officers, employees, accountants, counsel, financial advisors
and other Representatives to hold, all information received from
the Company or its Representatives, directly or indirectly, in
confidence in accordance with the Confidentiality Agreement.
Section 5.03. Reasonable
Best Efforts. (a) Upon the terms and
subject to the conditions set forth in this Agreement, each of
the parties hereto agrees to use its reasonable best efforts to
take, or cause to be taken, all actions, and to do, or cause to
be done, and to assist and cooperate with the other parties in
doing, all things necessary, proper or advisable to consummate
and make effective, in the most expeditious manner practicable,
the Merger and the other transactions contemplated by this
Agreement, including using reasonable best efforts to accomplish
the following: (i) the taking of all acts necessary to
cause the conditions to Closing to be satisfied as promptly as
practicable, (ii) the obtaining of all necessary actions or
nonactions, waivers, consents and approvals from Governmental
Entities and the making of all necessary registrations and
filings (including filings with Governmental Entities) and the
taking of all steps as may be necessary to obtain an approval or
waiver from, or to avoid an action or proceeding by, any
Governmental Entity, (iii) the obtaining of consents,
approvals and waivers from third parties reasonably requested by
MergerCo to be obtained in connection with the Merger under the
Specified Contracts and Real Property Leases, provided,
however, that in no event shall the Company or any of its
Subsidiaries be required to pay any fee, penalty or other
consideration to any landlord or other person to obtain any such
consent, approval or waiver, and (iv) the execution and
delivery of any additional instruments necessary to consummate
the transactions contemplated by, and to fully carry out the
purposes of, this Agreement. In connection with and without
limiting the foregoing, the Company and its Board of Directors
shall (A) take all action necessary to ensure that no state
takeover statute is or becomes applicable to this Agreement, the
Merger or any of the other transactions contemplated by this
Agreement and (B) if any state takeover statute becomes
applicable to this Agreement, the Merger or any of the other
transactions contemplated by this Agreement, take all action
necessary to ensure that the Merger and the other transactions
contemplated by this Agreement may be consummated as promptly as
practicable on the terms contemplated by this Agreement and
otherwise to minimize the effect of such statute or regulation
on this Agreement, the Merger and the other transactions
contemplated by this Agreement. No party shall voluntarily
extend any waiting period under the HSR Act or enter into any
agreement with any Governmental Entity to delay or not to
consummate the Merger or any of the other transactions
contemplated by this Agreement except with the prior written
consent of the other party (such consent not to be unreasonably
withheld or delayed and which reasonableness shall be determined
in light of each partys obligation to do all things
necessary, proper or advisable to consummate and make effective,
in the most expeditious manner practicable, the Merger and the
other transactions contemplated by this Agreement).
(b) The Company shall retain a nationally recognized
investment banking or valuation firm, selected by the Board of
Directors of the Company and reasonably acceptable to MergerCo,
to render a solvency opinion, customary in scope and substance,
as of the Closing to the Board of Directors of the Company.
A-25
Section 5.04. Benefit
Plans. (a) For a period of one year
following the Effective Time, the Surviving Corporation shall
either (i) assume and maintain, for the benefit of the
employees of the Company and its Subsidiaries immediately prior
to the Effective Time (the Company Employees)
while they remain active employees of the Surviving Corporation
or its Subsidiaries, the Company Benefit Plans (other than the
Company Stock Plans) and Company Benefit Agreements at the
benefit levels in effect on the date of this Agreement or (ii)
(A) provide base salary and bonus opportunity to each
Company Employee that, taken as a whole, have a value (or
potential value in the case of bonus opportunity) that is not
less favorable in the aggregate than the base salary and bonus
opportunity provided to such Company Employee immediately prior
to the Effective Time (excluding any value attributable to
equity-based compensation) and (B) provide benefits to each
Company Employee that, taken as a whole, have a value that is
not less favorable in the aggregate than the benefits provided
to such Company Employee immediately prior to the Effective Time
(excluding any value attributable to equity-based compensation).
(b) Without limiting the generality of
Section 5.04(a), from and after the Effective Time, the
Surviving Corporation shall assume, honor and continue during
the one-year period following the Effective Time or, if sooner,
until all obligations thereunder have been satisfied, all of the
Companys employment, severance, retention and termination
plans, policies, programs, agreements and arrangements
(including any change in control severance agreement between the
Company and any Company Employee), in each case, as in effect at
the Effective Time, including with respect to any payments,
benefits or rights arising as a result of the transactions
contemplated by this Agreement (either alone or in combination
with any other event), without any amendment or modification,
other than any amendment or modification required to comply with
applicable Law or with the consent of the applicable Company
Employee.
(c) With respect to any employee benefit plan,
as defined in Section 3(3) of ERISA, maintained by the
Surviving Corporation or any of its Subsidiaries (including any
vacation, paid time-off and severance plans), for all purposes,
including determining eligibility to participate, level of
benefits, vesting, benefit accruals and early retirement
subsidies, each Company Employees service with the Company
or any of its Subsidiaries (as well as service with any
predecessor employer of the Company or any such Subsidiary, to
the extent service with the predecessor employer is recognized
by the Company or such Subsidiary) (Pre-Closing
Service) shall be treated as service with the
Surviving Corporation or any of its Subsidiaries;
provided, however, that such service need not be
recognized to the extent that such recognition would result in
any duplication of benefits. Notwithstanding the foregoing, the
Surviving Corporation and its Subsidiaries shall only be
required to provide service credit for Pre-Closing Service under
a defined benefit pension plan if such plan is a Company Benefit
Plan or if such plan has assumed the assets or liabilities of a
Company Benefit Plan.
(d) The Surviving Corporation shall waive any pre-existing
condition limitations, exclusions, actively-at-work requirements
and waiting periods under any welfare benefit plan maintained by
the Surviving Corporation or any of its Affiliates in which
Company Employees (and their eligible dependents) will be
eligible to participate from and after the Effective Time,
except to the extent that such pre-existing condition
limitations, exclusions, actively-at-work requirements and
waiting periods would not have been satisfied or waived under
the comparable Company Benefit Plan immediately prior to the
Effective Time. The Surviving Corporation shall recognize the
dollar amount of all co-payments, deductibles and similar
expenses incurred by each Company Employee (and his or her
eligible dependents) during the calendar year in which the
Effective Time occurs for purposes of satisfying such
years deductible and co-payment limitations under the
relevant welfare benefit plans in which they will be eligible to
participate from and after the Effective Time.
(e) The Surviving Corporation shall take all actions
described in Section 5.04(e) of the Company Disclosure
Letter.
(f) The provisions of this Section 5.04 shall not
(i) create in any current or former employee of the Company
of any ERISA Affiliate any right to employment or continued
employment with MergerCo, the Surviving Corporation or any of
their respective Subsidiaries or Affiliates or any right to any
specific terms or conditions of employment or (ii) limit
the right of MergerCo, the Surviving Corporation or any of their
respective Subsidiaries or Affiliates to terminate the
employment of any such employee at any time and for any reason.
Notwithstanding the foregoing, nothing contained herein, whether
express or implied, shall (A) be treated as an amendment or
other modification of
A-26
any Company Benefit Plan, Company Benefit Agreement or any
employee benefit plan sponsored, maintained or contributed to by
the Surviving Corporation (including any employment, severance,
retirement or health and welfare plan, program, agreement or
arrangement) (collectively, Surviving Corporation
Plans) or (B) limit the right of MergerCo, the
Surviving Corporation or any of their Subsidiaries to amend,
terminate or otherwise modify any Company Benefit Plan, Company
Benefit Agreement or Surviving Corporation Plan following the
Closing Date. MergerCo, the Surviving Corporation and the
Company acknowledge and agree that all provisions contained in
this Section 5.04 with respect to Company Employees are
included for the sole benefit of MergerCo, the Surviving
Corporation and the Company, and that nothing herein, whether
express or implied, shall create any third-party beneficiary or
other rights (1) in any other Person, including, without
limitation, any Company Employees, former employees of the
Company or any of its Subsidiaries, any participant in any
Company Benefit Plan or Company Benefit Agreement or any
dependent or beneficiary thereof or (2) to continued
participation in any Company Benefit Plan, Company Benefit
Agreement or Surviving Corporation Plan.
(g) Prior to the Effective Time, the Company will take all
actions necessary so that no current or former employee of the
Company or any of its Subsidiaries will be permitted to acquire
equity securities of Merger Co, Surviving Corporation or any of
their then existing Affiliates (whether directly, indirectly or
notionally) on or following the Effective Time, except as
specifically agreed to by MergerCo.
Section 5.05. Indemnification,
Exculpation and Insurance. (a) All
rights to indemnification and exculpation from liabilities for
acts or omissions occurring at or prior to the Effective Time
and rights to advancement of expenses relating thereto now
existing in favor of any person who is or prior to the Effective
Time becomes, or has been at any time prior to the date of this
Agreement, a director, officer, employee or agent (including as
a fiduciary with respect to an employee benefit plan) of the
Company, any of its Subsidiaries or any of their respective
predecessors (each, an Indemnified Party) as
provided in the Company Certificate of Incorporation, the
Company Bylaws, the organizational documents of any Subsidiary
of the Company or any indemnification agreement between such
Indemnified Party and the Company or any of its Subsidiaries (in
each case, as in effect on the date hereof or, with respect to
any indemnification agreement entered into after the date
hereof, to the extent the terms thereof are no more favorable in
any material respect to the Indemnified Party that is the
beneficiary thereof than the terms of any indemnification
agreement included as an exhibit in the Filed SEC Documents)
shall survive the Merger and shall not be amended, repealed or
otherwise modified in any manner that would adversely affect any
right thereunder of any such Indemnified Party.
(b) Without limiting Section 5.05(a) or any rights of
any Indemnified Party pursuant to any indemnification agreement,
from and after the Effective Time, in the event of any
threatened or actual claim, action, suit, proceeding or
investigation (a Claim), whether civil,
criminal or administrative, based in whole or in part on, or
arising in whole or in part out of, or pertaining to
(i) the fact that the Indemnified Party is or was a
director (including in a capacity as a member of any board
committee), officer, employee or agent of the Company, any of
its Subsidiaries or any of their respective predecessors or
(ii) this Agreement or any of the transactions contemplated
hereby, whether in any case asserted or arising before or after
the Effective Time, the Surviving Corporation shall indemnify
and hold harmless, as and to the fullest extent permitted by
Law, each such Indemnified Party against any losses, claims,
damages, liabilities, costs, expenses (including reasonable
attorneys fees and expenses in advance of the final
disposition of any claim, suit, proceeding or investigation to
each Indemnified Party to the fullest extent permitted by Law
upon receipt of any undertaking required by applicable Law),
judgments, fines and amounts paid in settlement of or in
connection with any such threatened or actual Claim. The
Surviving Corporation shall not settle, compromise or consent to
the entry of any judgment in any threatened or actual Claim for
which indemnification could be sought by any Indemnified Party
hereunder without the consent of such Indemnified Party (such
consent not to be unreasonably withheld), unless such
settlement, compromise or consent includes an unconditional
release of such Indemnified Party from all liability arising out
of such Claim or such Indemnified Party otherwise consents in
writing to such settlement, compromise or consent. The Surviving
Corporation shall cooperate with each Indemnified Party in the
defense of any matter for which such Indemnified Party could
seek indemnification hereunder. The Surviving Corporations
obligations under this Section 5.05(b) shall continue in
full force and effect for a period of six years from the
Effective Time; provided, however, that all rights
to indemnification in respect of any Claim asserted or made
within such period shall continue until the final disposition of
such Claim.
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(c) The Company shall obtain, at or prior to the Effective
Time, prepaid (or tail) directors and
officers liability insurance policies in respect of acts
or omissions occurring at or prior to the Effective Time for six
years from the Effective Time, covering each Indemnified Party
on terms with respect to such coverage and amounts no less
favorable than those of such policies in effect on the date of
this Agreement; provided, however, that, without
the prior written consent of MergerCo, the Company may not
expend therefor in excess of 400% of the amount (the
Annual Amount) paid by the Company for
coverage for the period of 12 months beginning on
October 1, 2006. In the event the Company does not obtain
such tail insurance policies, then, for a period of
six years from the Effective Time, the Surviving Corporation
shall maintain in effect the Companys current
directors and officers liability insurance policies
in respect of acts or omissions occurring at or prior to the
Effective Time, covering each Indemnified Party on terms with
respect to such coverage and amounts no less favorable than
those of such policies in effect on the date of this Agreement;
provided, however, that the Surviving Corporation
may substitute therefor policies of a reputable and financially
sound insurance company containing terms, including with respect
to coverage and amounts, no less favorable to any Indemnified
Party; provided further, however, that in
satisfying its obligation under this Section 5.05(c) the
Surviving Corporation shall not be obligated to pay for coverage
for any
12-month
period aggregate premiums for insurance in excess of 250% of the
Annual Amount, it being understood and agreed that the Surviving
Corporation shall nevertheless be obligated to provide such
coverage as may be obtained for the Annual Amount.
(d) In the event that the Surviving Corporation or any of
its successors or assigns (i) consolidates with or merges
into any other person and is not the continuing or surviving
corporation or entity of such consolidation or merger or
(ii) transfers or conveys all or a substantial portion of
its properties and other assets to any person, then, and in each
such case, the Surviving Corporation shall cause proper
provision to be made so that the applicable successors and
assigns or transferees expressly assume the obligations set
forth in this Section 5.05.
(e) The provisions of this Section 5.05 are intended
to be for the benefit of, and will be enforceable by, each
Indemnified Party, his or her heirs and his or her
representatives, and are in addition to, and not in substitution
for, any other rights to indemnification or contribution that
any such person may have by contract or otherwise.
Section 5.06. Fees
and Expenses. (a) Except as otherwise
provided in this Section 5.06, all fees and expenses
incurred in connection with this Agreement, the Merger and the
other transactions contemplated by this Agreement, including the
Financing, shall be paid by the party incurring such fees or
expenses, whether or not the Merger is consummated.
(b) In the event that this Agreement is terminated
(i) by the Company pursuant to Section 7.01(f) or
(ii) by MergerCo pursuant to Section 7.01(e), then the
Company shall pay MergerCo a fee equal to $175 million (the
Termination Fee) as directed in writing by
MergerCo (A) in the case of a payment required by
clause (i) above, on the date of termination of this
Agreement, and (B) in the case of a payment required by
clause (ii) above, as promptly as possible (but in any
event within two business days) following termination of this
Agreement, in each case, by wire transfer of same day funds as
directed by MergerCo. In the event that, after the date of this
Agreement, (x) a Takeover Proposal shall have been publicly
disclosed or made directly to the stockholders of the Company
generally or shall have otherwise become publicly known and, in
the case of any termination pursuant to Section 7.01(b)(i)
or Section 7.01(b)(iii), not publicly withdrawn,
(y) thereafter, this Agreement is terminated by MergerCo
pursuant to Section 7.01(c) or by either MergerCo or the
Company pursuant to Section 7.01(b)(i) (but only if the
Stockholders Meeting has not been held) or
Section 7.01(b)(iii) and (z) within nine months after
such termination, the Company enters into a definitive agreement
with respect to a Takeover Proposal and such Takeover Proposal
is subsequently consummated, then the Company shall pay MergerCo
the Termination Fee (less any MergerCo Expenses previously
reimbursed by the Company to MergerCo pursuant to
Section 5.06(c)) as directed in writing by MergerCo as soon
as reasonably practicable (but in any event within three
business days) after the date of the consummation of the
Takeover Proposal referred to in clause (z) above, in each
case, by wire transfer of same day funds as directed by
MergerCo. For the purpose of the immediately preceding sentence,
the term Takeover Proposal shall have the meaning
assigned to such term in Section 4.02(a), except that all
references to 20% therein shall be deemed to be references to
50%. The parties understand and agree that in no event shall the
Company be required to pay the Termination Fee on more than one
occasion.
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(c) In the event that this Agreement is terminated by
MergerCo or the Company pursuant to Section 7.01(b)(iii) or
pursuant to Section 7.01(b)(i) at a time when this
Agreement was terminable pursuant to Section 7.01(b)(iii),
the Company shall promptly as possible (but in any event within
three business days) following receipt of an invoice therefor
pay all of MergerCos and its Affiliates actual and
reasonably documented out-of-pocket fees and expenses (including
reasonable legal and other third party advisors fees and
expenses) actually incurred by MergerCo and its Affiliates on or
prior to the termination of this Agreement in connection with
the transaction contemplated by this Agreement (the
MergerCo Expenses) as directed by MergerCo in
writing, which amount shall not be greater than
$15 million; provided, that payment of the MergerCo
Expenses pursuant to this Section 5.06(c) shall not relieve
the Company of its payment obligations under
Section 5.06(b), if applicable.
(d) In the event that this Agreement is terminated by the
Company pursuant to Section 7.01(g), then MergerCo shall
pay to the Company an aggregate amount equal to
$175 million (the MergerCo Termination
Fee) as promptly as reasonably practicable (and, in
any event, within two business days following such termination)
by wire transfer of
same-day
funds as directed in writing by the Company.
(e) Notwithstanding anything to the contrary in this
Agreement, (i) in the circumstances in which MergerCo
becomes obligated to pay the MergerCo Termination Fee, then the
Companys termination of this Agreement pursuant to
Section 7.01(g) and receipt of payment of the MergerCo
Termination Fee pursuant to Section 5.06(d) shall be the
sole and exclusive remedy of the Company and its Subsidiaries
against MergerCo and any of its former, current or future
general or limited partners, members or stockholders or against
any of their respective former, current or future directors,
officers, employees, Affiliates, general or limited partners,
stockholders, managers, members or agents (each, a
Specified Person) for any loss or damage
suffered as a result of the breach of any representation,
warranty, covenant or agreement contained in this Agreement by
MergerCo and the failure of the Merger to be consummated, and
upon payment of the MergerCo Termination Fee in accordance with
Section 5.06(d), none of MergerCo or any of its Specified
Persons shall have any further liability or obligation relating
to or arising out of this Agreement or the transactions
contemplated by this Agreement, (ii) in the circumstances
in which the Company becomes obligated to pay the Termination
Fee as the result of a termination of this Agreement by MergerCo
pursuant to Section 7.01(e), receipt of payment of the
Termination Fee pursuant to Section 5.06(b) shall be the
sole and exclusive remedy of MergerCo and its Specified Persons
against the Company and any of its Specified Persons for any
loss or damage suffered as a result of the breach of any
representation, warranty, covenant or agreement contained in
this Agreement by the Company or the failure of the Merger to be
consummated, and upon payment of the Termination Fee in
accordance with Section 5.06(b), none of the Company or any
of its Specified Persons shall have any further liability or
obligation relating to or arising out of this Agreement or the
transactions contemplated by this Agreement, and (iii) in
no event, whether or not this Agreement shall have been
terminated, shall the Company and its Subsidiaries, as a group,
on the one hand, or MergerCo and the Guarantor, as a group, on
the other, be subject to damages in excess of $250 million
(less, in the case of the Company, the Termination Fee if paid
pursuant to Section 5.06(b) and the MergerCo Expenses if
paid pursuant to Section 5.06(c) or, in the case of
MergerCo, the MergerCo Termination Fee if paid pursuant to
Section 5.06(d)) in the aggregate for each such group,
respectively, for all losses and damages (including, in the case
of any claim by the Company, lost stockholder premium) arising
from or in connection with breaches by MergerCo, on the one
hand, or the Company, on the other, of their respective
representations, warranties, covenants and agreements contained
in this Agreement or arising from any other claim or cause of
action, and none of the Company, MergerCo, the Guarantor or any
of their respective Specified Persons shall have any further
liability or obligation to the other parties or otherwise
relating to or arising out of this Agreement or the transactions
contemplated hereby.
(f) Each of the Company and MergerCo acknowledges and
agrees that the agreements contained in this Section 5.06
are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, neither the
Company nor MergerCo would have entered into this Agreement. If
the Company or MergerCo, as the case may be, fails promptly to
pay the Termination Fee, the MergerCo Termination Fee or the
MergerCo Expenses, as the case may be, due pursuant to this
Section 5.06 when due, and, in order to obtain such
payment, MergerCo or the Company commences a suit that results
in a judgment against the other party for any Termination Fee,
the MergerCo Termination Fee or the MergerCo Expenses, as the
case may be, the Company or MergerCo, as the case may be, shall
pay to the other party its costs and expenses (including
attorneys fees and expenses) in connection with such suit,
together with interest on the amount of the Termination Fee, the
MergerCo
A-29
Termination Fee or the MergerCo Expenses, as the case may be,
due pursuant to this Section 5.06 from the date such
payment was required to be made until the date of payment at the
prime rate of Citibank, N.A. in effect on the date such payment
was required to be made.
Section 5.07. Public
Announcements. MergerCo and the Company shall
consult with each other before issuing, and give each other the
opportunity to review and comment upon, any press release or
other public statements with respect to the transactions
contemplated by this Agreement, including the Merger and the
Financing, and shall not issue any such press release or make
any such public statement prior to such consultation, except as
may be required by applicable Law, court process or the rules
and regulations of any national securities exchange or national
securities quotation system and except for any matters referred
to in Section 4.02. The parties agree that the initial
press release to be issued with respect to the transactions
contemplated by this Agreement shall be in the form heretofore
agreed to by the parties.
Section 5.08. Stockholder
Litigation. In the event that any stockholder
litigation related to this Agreement, the Merger or the other
transactions contemplated by this Agreement is brought, or, to
the Knowledge of the Company, threatened, against the Company
and/or its
directors prior to the Effective Time, the Company shall
reasonably promptly notify MergerCo of any such stockholder
litigation brought, or threatened, against the Company
and/or its
directors and keep MergerCo reasonably informed with respect to
the status thereof. The Company shall give MergerCo the
opportunity to participate in the defense or settlement of any
stockholder litigation against the Company
and/or its
directors relating to the transactions contemplated by this
Agreement, and no such settlement shall be agreed to without
MergerCos prior written consent (such consent not to be
unreasonably withheld or delayed).
Section 5.09. Financing. (a) MergerCo
shall use, and shall use its reasonable best efforts to cause
the general partner of Guarantor to use, its reasonable best
efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary, proper or advisable to
arrange the Financing on the terms and conditions described in
the Financing Commitments, including using its reasonable best
efforts to (i) negotiate and enter into the definitive
agreements with respect thereto on the terms and conditions
contained in the Financing Commitments or on other terms
acceptable to MergerCo (provided, that such other terms
(x) shall not expand upon the conditions precedent to the
Financing as set forth in the Financing Commitments or
(y) would not reasonably be expected to impair or delay or
otherwise adversely affect the ability of MergerCo to consummate
the Merger or the Financing or delay the Merger or the
Financing), (ii) satisfy (or cause its Affiliates to
satisfy) on a timely basis all conditions applicable to MergerCo
set forth therein and (iii) consummate the Debt Financing
contemplated by the Debt Financing Commitments at the Closing,
including using its reasonable best efforts to satisfy the
conditions to funding of the Debt Financing required to
consummate the Merger at the Closing and to instruct the lenders
and the other persons providing such Debt Financing to provide
such Debt Financing at the Closing upon satisfaction of such
conditions. In the event that any portion of the Financing
becomes unavailable on the terms and conditions set forth in the
Financing Commitments, MergerCo shall promptly notify the
Company and shall use its reasonable best efforts to obtain any
such portion from alternative sources, on terms that will still
enable MergerCo to consummate the transactions contemplated by
this Agreement and on terms not less favorable to MergerCo with
respect to conditions precedent to the Financing than the terms
of the Financing, as promptly as practicable following the
occurrence of such event. MergerCo shall deliver to the Company
true and complete copies of all agreements (excluding any fee
letters and engagement letters which, by their terms are
confidential, except to the extent any such letters contain
conditions to the consummation of the Debt Financing (including
pursuant to so-called flex provisions)) pursuant to
which any such alternative source shall have committed to
provide MergerCo with any portion of the Financing. MergerCo
shall refrain from taking, directly or indirectly, any action
that would reasonably be expected to result in a failure of any
of the conditions contained in the Financing Commitments or in
any definitive agreement related to the Financing. MergerCo
shall not agree to or permit any amendment, supplement or other
modification of, or waive any of its rights under, any Financing
Commitments or the definitive agreements relating to the
Financing if such amendment, supplement or modification
(i) reduces the aggregate amount of the Debt Financing or
Equity Financing, (ii) expands the conditions to drawdown
on the Debt Financing or Equity Financing, on the Closing Date,
(iii) can reasonably be expected to delay the Closing or
(iv) can otherwise reasonably be expected to impair or
delay or otherwise adversely affect the ability of MergerCo to
consummate the Debt Financing or Equity Financing or the Merger,
in each case, without the Companys prior written consent
A-30
(which consent shall not be unreasonably withheld or delayed).
MergerCo shall give the Company prompt notice of any material
breach by any party of the Financing Commitments or any
termination of the Financing Commitments of which it (or its
sole stockholder or Guarantor) becomes aware, and MergerCo shall
keep the Company reasonably informed of the status of their
efforts to obtain the Financing. Subject to the satisfaction of
the conditions set forth in Sections 6.01 and 6.02, in the
event that all conditions to the Financing Commitments (other
than the availability of funding of the Equity Financing) have
been satisfied, MergerCo shall drawdown on the Debt Financing
required to consummate the Merger no later than the last day of
the Marketing Period.
(b) The Company shall provide, shall cause its Subsidiaries
to provide and shall use its reasonable best efforts to cause
its and their Representatives to provide such reasonable
cooperation in connection with the arrangement of the Debt
Financing as may be reasonably requested by MergerCo, including
(i) participation in meetings, road shows, presentations,
drafting sessions, due diligence sessions and rating agency
presentations, (ii) furnishing MergerCo and its financing
sources with financial and other pertinent information regarding
the Company as may be reasonably requested by MergerCo to
consummate the Debt Financing (the Required Financial
Information), (iii) obtaining the CMBS Deliveries
with respect to the CMBS Properties, (iv) assisting
MergerCo and its financing sources in the preparation of
(A) offering documents and other informational and
marketing materials and documents for any portion of the Debt
Financing, (B) materials for rating agency presentations
and (C) business projections and pro forma financial
statements reasonably necessary in connection with the
Financing; provided that any such offering documents
shall contain disclosure and financial statements with respect
to the Company or the Surviving Corporation reflecting the
Surviving Corporation
and/or its
Subsidiaries as the obligor, (v) reasonably cooperating
with the marketing efforts of MergerCo and its financing sources
for any portion of the Debt Financing, (vi) in connection
with the CMBS Facility and Bridge Facility (as such terms are
defined in the commitment letter with respect to the Debt
Financing), allow MergerCo, its Affiliates or its
Representatives and MergerCos financing sources to perform
reasonable and customary due diligence related to such
properties, including appropriate appraisals, surveys, and Phase
1 environmental assessments and other reasonable inspections and
diligence (and documentation), including as shall be reasonably
necessary to comply with any necessary rating agencies
requirements, (vii) reasonably facilitating the execution
and delivery of definitive financing documents and customary
deliverables, (viii) taking all actions reasonably
necessary to (A) permit the prospective lenders involved in
the Financing to evaluate the Companys current assets,
cash management and accounting systems, policies and procedures
relating thereto for the purpose of establishing collateral
arrangements, and (B) if reasonably required in connection
with the Debt Financing, establish bank and other accounts and
blocked account agreements and lock box arrangement in
connection with the foregoing, (ix) if required in
connection with the Debt Financing, use reasonable best efforts
to obtain waivers, consents, estoppels and approvals from other
parties to material leases, encumbrances and contracts to which
the Company or any Subsidiary is a party and to arrange
discussions among MergerCo and its Financing sources with other
parties to material leases, encumbrances and contracts,
(x) taking all corporate actions, subject to the occurrence
of the Closing, reasonably necessary to permit the consummation
of the Debt Financing and to permit the proceeds thereof to be
made available to the Surviving Corporation immediately
following the Effective Time, (xi) reasonably facilitating
the pledging of collateral and execution and delivery of
definitive financing documents and customary deliverables and
(xii) using reasonable best efforts to obtain legal
opinions, surveys, certificates and title insurance as
reasonably requested by MergerCo; provided that
(w) none of the Company or any of its Subsidiaries shall be
required to pay any commitment or other similar fee or make any
monetary payment or concession or incur any other liability in
connection with the Debt Financing prior to the Effective Time,
(x) such requested cooperation does not unreasonably
interfere with the ongoing operations of the Company and its
Subsidiaries, (y) no incurrence of indebtedness or other
obligation of the Company or any of its Subsidiaries under the
Debt Financing shall be effective until the Effective Time and
(z) none of the Company or any of its Subsidiaries shall be
required to provide access to or disclose information where the
Company reasonably determines that such access or disclosure
would jeopardize the attorney-client privilege of the Company or
any of its Subsidiaries or contravene any Law or any Contract to
which the Company or any of its Subsidiaries is a party (it
being agreed that the parties shall use their reasonable best
efforts to cause such information to be provided in a manner
that does not cause such violation or jeopardization;
provided, however, that none of the parties hereto
nor any of their Affiliates shall be required to make monetary
payments or concessions or incur any other liability in
connection with the foregoing). MergerCo shall, promptly upon
request by the Company, reimburse the Company for all reasonable
out-of-pocket costs incurred by the Company or any of its
Subsidiaries in connection with such
A-31
cooperation (as incurred). MergerCo shall indemnify and hold
harmless the Company, its Subsidiaries and their respective
Representatives from and against any and all losses, claims
damages, liabilities, costs, expense, judgments, fines and other
amounts suffered or incurred by them in connection with the
arrangement of the Debt Financing and any information utilized
in connection therewith. Subject to Section 5.09(c), all
non-public or otherwise confidential information regarding the
Company obtained by MergerCo or its Representatives pursuant to
this Section 5.09(b) shall be kept confidential in
accordance with the Confidentiality Agreement.
(c) Notwithstanding any provision of the Confidentiality
Agreement to the contrary (i) MergerCo and its Affiliates
may enter into discussions, negotiations, arrangements
and/or
understandings with third parties with respect to the Equity
Financing in connection with the Merger (including exclusivity
agreements with potential equity co-investors) to add other
equity providers and, subject to the execution of customary
confidentiality agreements or arrangements (the Equity
Confidentiality Agreements) between such parties and
MergerCo, may provide to such third parties such information as
is reasonably necessary to effectuate such negotiations,
arrangements
and/or
understandings and (ii) in connection with the syndication
of the Debt Financing, MergerCo may distribute confidential bank
books, bank presentations, Rule 144A offering memoranda,
rating agency presentations and similar materials containing
information concerning the Company and its Subsidiaries as is
customarily included in such bank books, presentations, offering
memoranda and similar materials; provided,
however, that, in each case under clause (i) or
(ii), MergerCo and such Affiliates shall keep the Company
reasonably informed with respect to each of the foregoing and
shall promptly respond to inquiries from the Company with
respect to each of the foregoing. MergerCo shall be responsible
to the Company for any breach of any such Equity Confidentiality
Agreement as though MergerCo had committed such breach itself,
and MergerCo shall indemnify and hold harmless the Company, its
Subsidiaries and their respective Representatives from and
against any and all losses, claims, damages, liabilities, costs,
expenses, judgments, fines and other amounts suffered or
incurred by them in connection with any such breach.
Section 5.10. Restructuring
in Connection with CMBS
Financing. (a) The Company shall, and
shall cause its Subsidiaries to, with the reasonable assistance
of MergerCo, use their reasonable best efforts to effect the
restructuring described in Exhibit C hereto (the
CMBS Restructuring) and prepare all
documentation and do all such other acts and things as are
reasonably necessary or desirable to give effect to such CMBS
Restructuring immediately prior to the Effective Time.
(b) The parties shall use reasonable best efforts to
develop the specific steps necessary to implement the CMBS
Restructuring and to minimize potential incurrence or imposition
of cost, expense or taxes as a result of the CMBS Restructuring,
and to otherwise reduce any material negative effect of the CMBS
Restructuring on the Company and its business and operations. If
either party proposes a potential modification to, or more
specific plan to effect, the CMBS Restructuring (a
Proposed Modification), the other party shall
consider such Proposed Modification in good faith, and such
Proposed Modification shall be implemented if consented to in
writing by the other party (which consent shall not be
unreasonably withheld, conditioned or delayed); provided,
however, that either party may withhold its consent to
any Proposed Modification if such Proposed Modification results
in any materially adverse economic or legal consequences to such
party (it being understood that, (A) in the case of
MergerCo, any such Proposed Modification will be considered to
have a materially adverse economic consequence to MergerCo in
the event that such Proposed Modification would be reasonably
likely to (i) impede the ability of MergerCo to complete
any portion of the Debt Financing (including the CMBS financing
contemplated by the Financing Commitments), (ii) result in
an increase in the cost to MergerCo or the Surviving Corporation
of any portion of the Debt Financing (including the pricing of
and/or any
fees relating to any portion of the Debt Financing (including
the CMBS financing contemplated by the Financing Commitments))
or result in any change of any material term of any portion of
the Debt Financing or (iii) result in any adverse tax
consequences to MergerCo or the Surviving Corporation or any of
its Subsidiaries, and (B) in the case of the Company, any
such Proposed Modification shall not be considered to have an
adverse economic or legal consequence to the Company if such
adverse economic or legal consequence would occur only following
the Closing or if such economic or legal consequence is
indemnified or subject to reimbursement by MergerCo). If any
Proposed Modification to the CMBS Restructuring proposed by
either party pursuant to this Section 5.10(b) is consented
to by the other party as contemplated, the term CMBS
Restructuring as used herein shall be deemed to refer
to the CMBS Restructuring as so modified by such Proposed
Modification.
A-32
(c) Notwithstanding anything to the contrary herein, the
implementation of the CMBS Restructuring shall not (i) be
considered in determining whether a representation, warranty or
covenant of the Company hereunder has been breached (other than
the covenants set forth in Section 5.09 and this
Section 5.10), (ii) be consummated until MergerCo
confirms that it is prepared to proceed with the Closing
promptly upon consummation of the CMBS Restructuring unless
(A) such implementation can be reversed or unwound without
imposing significant or meaningful economic harm on the Company
or (B) MergerCo agrees to indemnify the Company for the
economic harm to the Company resulting from such implementation,
(iii) be consummated or effective (in whole or in part)
prior to the commencement of the Marketing Period unless
(A) such implementation can be reversed or unwound without
imposing significant or meaningful economic harm on the Company
or (B) MergerCo indemnifies the Company for the economic
harm to the Company resulting from such implementation, or
(iv) require the Company or any of its Subsidiaries to take
any action under this Section 5.10 that would reasonably be
expected to cause, individually or in the aggregate, the Company
and its Subsidiaries to suffer significant or meaningful
economic harm or materially and adversely affect the operations
or business of the Company and its Subsidiaries unless MergerCo
agrees to indemnify the Company for such harm. MergerCo shall,
promptly upon request by the Company, reimburse the Company for
all reasonable out-of-pocket expenses incurred by the Company or
any of its Subsidiaries in connection with actions taken at the
request of MergerCo to implement or effect the CMBS
Restructuring (it being understood that such expenses shall not
include expenses incurred in connection with the cooperation
described in Section 5.10(a), expenses incurred in
responding to MergerCos reasonable information requests
made in connection with MergerCos efforts to develop with
the Company the specific steps necessary to implement the CMBS
Restructuring or MergerCos effort to minimize the costs of
the CMBS Restructuring or internal cost allocations) and, in the
event the Merger is not consummated, shall be responsible for
expenses of the Company and its Subsidiaries in reversing or
unwinding (in the event this Agreement is terminated) the CMBS
Restructuring that was effected at the request of MergerCo.
Section 5.11. Actions
with Respect to Existing Debt. (a) If
requested by MergerCo in writing, as promptly as reasonably
practicable after the request of MergerCo, the Company shall
commence a solicitation of the consents of holders of a majority
in principal amount of each or any series of the Company Notes
designated by MergerCo (each, a Consent
Solicitation) to an amendment to the indenture
governing the terms of such series of Company Notes or waiver or
amendment of any registration rights associated therewith as may
be reasonably requested by MergerCo pursuant to this
Section 5.10 (the Requested Consents)
and/or
tender offer for all or part of the outstanding notes with
respect to each or any series of Company Notes designated by
MergerCo (each, a Debt Tender Offer), and
shall reasonably cooperate with MergerCo in connection with one
or more Consent Solicitation(s)
and/or Debt
Tender Offer(s) by MergerCo, on such terms and conditions as may
be reasonably proposed from time to time by MergerCo.
Notwithstanding anything herein to the contrary, no Consent
Solicitation or Debt Tender Offer shall require any payment for
the Company Notes
and/or the
consents or waiver or amendment under the Consent Solicitations
to be made prior to the Effective Time. MergerCo shall provide
reasonable assistance to the Company in connection with any
Consent Solicitation or Debt Tender Offer commenced by the
Company upon the request of MergerCo hereunder.
(b) In connection with any Consent Solicitation or Debt
Tender Offer commenced by the Company upon the request of
MergerCo hereunder, the Company shall prepare all reasonably
necessary and appropriate documentation, including the offer to
purchase, the terms of the consent, related letters of
transmittal and other related documents and any Schedule TO
or other filing with the SEC (collectively, the Offer
Documents). All mailings to the holders of the Company
Notes in connection with any Consent Solicitation or Debt Tender
Offer or related filings with the SEC shall be subject to the
prior review and comment of the Company and MergerCo and shall
be reasonably acceptable to each of them. MergerCo and the
Company shall reasonably cooperate, and the Company shall cause
its Subsidiaries to reasonably cooperate, and MergerCo and the
Company shall each use its respective reasonable best efforts,
to cause its respective representatives to reasonably cooperate
with each other in connection with any Consent Solicitation or
Debt Tender Offer (including the preparation of the Offer
Documents) and use reasonable best efforts to cause the payment
for any Consent Solicitation or the initial settlement of any
Debt Tender Offer to occur simultaneously with the Effective
Time.
(c) Upon the request of MergerCo, the Company shall use its
reasonable best efforts to obtain the Requested Consents in
connection with any Consent Solicitation. Promptly upon receipt
of the Requested Consents permitting
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an amendment of the indenture governing any series of Company
Notes or any registration rights agreement related thereto and
upon the request of MergerCo, the Company shall enter into a
supplemental indenture or amended registration rights agreement
reflecting the amendments to such indenture or registration
rights agreement approved by such Requested Consents and shall
use its reasonable best efforts to cause the indenture trustee
to promptly enter into such supplemental indenture or
registration rights agreement; provided, that the
amendments contained in such supplemental indenture or
registration rights agreement shall become effective upon
signing, but not operative until the Closing and, if applicable,
the acceptance of the applicable Debt Tender Offer. The closing
of any Debt Tender Offer shall be conditioned on the
simultaneous occurrence of the Closing. Simultaneously with the
Closing and in accordance with the terms of any Consent
Solicitation or Debt Tender Offer, if the Company shall have
undertaken such Consent Solicitation or Debt Tender Offer at the
request of MergerCo, MergerCo shall provide the Company the
funds reasonably necessary to consummate such Debt Tender Offer
and/or
Consent Solicitation (including the payment of all applicable
premiums, consent fees and all related fees and expenses) and
the Company, if applicable, shall accept for purchase and use
such funds to purchase the Company Notes tendered in such Debt
Tender Offer.
(d) If requested by MergerCo, the Company shall enter into
one or more customary dealer manager agreements with such
Persons as MergerCo shall reasonably request. MergerCo shall pay
the fees and expenses of any dealer manager, information agent,
depositary or other agent retained in connection with any
Consent Solicitation or Debt Tender Offer.
(e) Prior to the Closing, the Company shall take such
actions as may be reasonably requested by MergerCo to effect
termination or settlement, or any cancellation and payment, of
any interest rate swap agreement, warrant, option or other
Contract or agreement executed in respect of any hedging
arrangement entered into by the Company in connection with the
Company Convertible Notes (including any amendment or
termination hereof) effective as of the Closing Date, in each
case as may be permitted by the indenture governing such series
of Company Convertible Notes.
(f) Notwithstanding anything to the contrary herein,
nothing in this Section 5.11 (x) shall require the
Company or any of its Subsidiaries to make any monetary payments
or concessions or incur any other liability under this
Section 5.11 prior to the Effective Time (except to the
extent MergerCo agrees to reimburse the Company for the amount
of any such payment), (y) may unreasonably interfere with
the ongoing operations of the Company and its Subsidiaries or
(z) shall impair or delay or otherwise adversely affect the
ability of MergerCo to consummate the Financing or the Merger or
delay the Financing or the Merger. MergerCo shall, promptly upon
request by the Company, reimburse the Company for all reasonable
out-of-pocket costs incurred by the Company or any of its
Subsidiaries in connection with any action by the Company
undertaken pursuant to this Section 5.11 (as incurred).
MergerCo shall indemnify and hold harmless the Company, its
Subsidiaries and their respective Representatives from and
against any and all losses, claims damages, liabilities, costs,
expenses, judgments, fines and other amounts suffered or
incurred by them in connection with any action undertaken
pursuant to this Section 5.11.
ARTICLE VI
Conditions
Precedent
Section 6.01. Conditions
to Each Partys Obligation to Effect the
Merger. The respective obligation of each
party to effect the Merger is subject to the satisfaction or (to
the extent permitted by Law) waiver at or prior to the Effective
Time of the following conditions:
(a) Stockholder Approval. The Stockholder
Approval shall have been obtained.
(b) HSR Act. The waiting period (and any
extension thereof) applicable to the Merger under the HSR Act
shall have been terminated or shall have expired.
(c) No Injunctions or Restraints. No
temporary restraining order, preliminary or permanent injunction
or other judgment or order issued by any Federal or state court
of competent jurisdiction or any other Governmental Entity
(collectively, Restraints) shall be in effect
enjoining or otherwise prohibiting the consummation of the
Merger.
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(d) Governmental Approvals. All consents
and approvals of, and all filings with and notices to, any
Governmental Entities required in connection with the Merger and
the other transactions contemplated hereby (including, without
limitation, the CMBS Restructuring and the Debt Financing) shall
have been made or obtained without the imposition of any
condition or restriction that is adverse to MergerCo or the
Company, as applicable, except to the extent that the failure to
make or obtain any such filing, notice, consent or
authorization,
and/or the
imposition of any such adverse condition or restriction, would
not, in the aggregate, reasonably be expected to result in
losses, costs, liabilities, damages or expenses to MergerCo
and/or the
Company and its Subsidiaries in excess of $40,000,000.
Section 6.02. Conditions
to Obligations of MergerCo. The obligations
of MergerCo to effect the Merger are further subject to the
satisfaction or (to the extent permitted by Law) waiver as of
the Effective Time of the following conditions:
(a) Representations and Warranties. The
representations and warranties set forth in the first sentence
of Section 3.01(c), the first two sentences of
Section 3.01(d), Section 3.01(n)(iii) and
Section 3.01(n)(iv) shall be true and correct in all
material respects (disregarding all qualifications or
limitations as to materiality, Material
Adverse Effect and words of similar import set forth
therein) as of the date of this Agreement and as of the Closing
Date as though made on the Closing Date (except to the extent
any such representation and warranty expressly speaks as of an
earlier date, in which case such representation and warranty
shall be true and correct as of such earlier date). The other
representations and warranties of the Company set forth in this
Agreement shall be true and correct (disregarding all
qualifications or limitations as to materiality,
Material Adverse Effect and words of similar import
set forth therein) as of the date of this Agreement and as of
the Closing Date as though made on the Closing Date (except to
the extent such representations and warranties expressly relate
to an earlier date, in which case such representations and
warranties shall be true and correct as of such earlier date),
except where the failure of such representations and warranties
to be so true and correct would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse
Effect. MergerCo shall have received a certificate signed on
behalf of the Company by the chief financial officer of the
Company to such effect.
(b) Performance of Obligations of the
Company. The Company shall have, in all material
respects, performed or complied with all material obligations
required to be performed or complied with by it under this
Agreement by the time of the Closing, and MergerCo shall have
received a certificate signed on behalf of the Company by the
chief financial officer of the Company to such effect.
(c) CMBS Restructuring. The CMBS
Restructuring shall have been consummated.
(d) Material Adverse Effect. Since the
date of this Agreement, there shall not have occurred any event,
circumstance, development, change or effect that has had, or
would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.
Section 6.03. Conditions
to Obligation of the Company. The obligation
of the Company to effect the Merger is further subject to the
satisfaction or (to the extent permitted by Law) waiver as of
the Effective Time of the following conditions:
(a) Representations and Warranties. The
representations and warranties of MergerCo set forth in
Section 3.02(b) shall be true and correct in all material
respects (disregarding all qualifications or limitations as to
materiality, MergerCo Material Adverse
Effect and words of similar import set forth therein) as
of the date of this Agreement and as of the Closing Date as
though made on the Closing Date (except to the extent such
representations and warranties expressly relate to an earlier
date, in which case such representations and warranties shall be
true and correct as of such earlier date). The other
representations and warranties of MergerCo set forth in this
Agreement shall be true and correct (disregarding all
qualifications or limitations as to materiality,
MergerCo Material Adverse Effect and words of
similar import set forth therein) as of the date of this
Agreement and as of the Closing Date as though made on the
Closing Date (except to the extent such representations and
warranties expressly relate to an earlier date, in which case
such representations and warranties shall be true and correct as
of such earlier date), except where the failure of such
representations and warranties to be so true and correct would
not, individually or in the aggregate, reasonably be expected to
have a MergerCo Material Adverse
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Effect. The Company shall have received a certificate signed on
behalf of MergerCo by an executive officer of MergerCo to such
effect.
(b) Performance of Obligations of
MergerCo. MergerCo shall have, in all material
respects, performed or complied with all material obligations
required to be performed or complied with by it under this
Agreement by the time of the Closing, and the Company shall have
received a certificate signed on behalf of MergerCo by an
executive officer of MergerCo to such effect.
Section 6.04. Frustration
of Closing Conditions. Neither the Company
nor MergerCo may rely on the failure of any condition set forth
in Section 6.01, 6.02 or 6.03, as the case may be, to be
satisfied if such failure was caused by such partys
failure to perform any of its obligations under this Agreement,
to act in good faith or to use its reasonable best efforts to
consummate the Merger and the other transactions contemplated by
this Agreement, including the Financing, as required by and
subject to Sections 5.03 and 5.09.
ARTICLE VII
Termination,
Amendment and Waiver
Section 7.01. Termination. This
Agreement may be terminated at any time prior to the Effective
Time, whether before or after receipt of the Stockholder
Approval:
(a) by mutual written consent of MergerCo and the Company;
(b) by either MergerCo or the Company:
(i) if the Merger shall not have been consummated on or
before March 31, 2008; provided, however,
that (A) if the Marketing Period has not expired prior to
March 31, 2008, then such March 31, 2008 date shall
automatically be extended for (x) in the event the
Marketing Period has commenced on or before March 31, 2008
and is then continuing, the number of days that remain in the
Marketing Period and (y) in all other cases, an additional
five business days or (B) in the event that each of the
conditions set forth in Article VI, other than one or more
of the conditions set forth in Section 6.01(c) or
Section 6.01(d), shall have been satisfied or waived or are
reasonably capable of being satisfied as of such date, such date
shall automatically be extended until May 30, 2008 to the
extent it is reasonably apparent that such condition may be
satisfied (or waived), as the case may be, on or prior to such
extended date (the latest applicable date, the Outside
Date); provided, further, that the right
to terminate this Agreement under this Section 7.01(b)(i)
shall not be available to any party if the failure of such party
to perform any of its obligations under this Agreement, the
failure to act in good faith or the failure to use its
reasonable best efforts to consummate the Merger and the other
transactions contemplated by this Agreement, including the
Financing, as required by and subject to Sections 5.03 and
5.09, has been a principal cause of or resulted in the failure
of the Merger to be consummated on or before such date;
(ii) if any Restraint having any of the effects set forth
in Section 6.01(c) shall have become final and nonappealable;
provided that the party seeking to terminate this
Agreement pursuant to this Section 7.01(b)(ii) shall have
used reasonable best efforts to prevent the entry of and to
remove such Restraint; or
(iii) if the Stockholder Approval shall not have been
obtained at the Stockholders Meeting duly convened
therefor or at any adjournment or postponement thereof;
(c) by MergerCo, if the Company shall have breached any of
its representations or warranties or failed to perform any of
its covenants or agreements set forth in this Agreement, which
breach or failure to perform (i) would give rise to the
failure of a condition set forth in Section 6.02(a) or
6.02(b) and (ii) is incapable of being cured prior to the
Outside Date; provided that MergerCo shall not have the
right to terminate this Agreement pursuant to this
Section 7.01(c) if MergerCo is then in material breach of
any of its representations, warranties, covenants or agreements
hereunder;
(d) by the Company, if MergerCo shall have breached any of
its representations or warranties or failed to perform any of
its covenants or agreements set forth in this Agreement, which
breach or failure to perform (i) would give rise to the
failure of a condition set forth in Section 6.03(a) or
6.03(b) and (ii) is incapable of being cured prior to the
Outside Date; provided that the Company shall not have
the right to terminate this Agreement pursuant to this
A-36
Section 7.01(d) if the Company is then in material breach
of any of its representations, warranties, covenants or
agreements hereunder;
(e) by MergerCo, in the event that (i) an Adverse
Recommendation Change shall have occurred or (ii) the
Company, the Board of Directors of the Company or a committee
thereof shall (A) recommend any Takeover Proposal or
(B) enter into or cause the Company or any of its
Subsidiaries to enter into, a definitive agreement for a
Takeover Proposal;
(f) by the Company, in accordance with
Section 4.02(b); or
(g) by the Company, if (i) all of the conditions set
forth in Section 6.01 and Section 6.02 have been
satisfied (other than those conditions that by their terms may
only be satisfied at the Closing) and (ii) on or after the
last day of the Marketing Period neither MergerCo nor the
Surviving Corporation shall have received the proceeds of the
Debt Financing and MergerCo shall have failed to consummate the
Merger.
Section 7.02. Effect
of Termination. In the event of termination
of this Agreement by either the Company or MergerCo as provided
in Section 7.01, this Agreement shall forthwith become void
and have no effect, without any liability or obligation on the
part of MergerCo or the Company, other than the provisions of
(a) the penultimate sentence of Section 5.02,
(b) Section 5.06, (c) the second and third
sentences of Section 5.09(b), (d) the last sentence of
Section 5.10(c), (e) Section 5.11(f),
(f) this Section 7.02 and (g) Article VIII,
which provisions shall survive such termination;
provided, however, that (i) subject to
Section 5.06(e), clause (ii) of this proviso and the
last two sentences of Section 7.02, nothing herein shall
relieve the Company or MergerCo from liability for any willful
and material breach of any of its representations, warranties,
covenants or agreements set forth in this Agreement and
(ii) in no event shall MergerCo be liable for any breach of
this Agreement as a result of or relating to the failure to
consummate the Merger or any other transaction contemplated
hereby, or the failure of MergerCo to make any payment or take
any action contemplated by Article I or Article II of
this Agreement, if MergerCo shall not have obtained the Debt
Financing prior to termination of this Agreement, other than any
willful and material breach of this Agreement (other than any
breach of any obligation under Article I or Article II
as a result of or caused by the failure of MergerCo to obtain
the Debt Financing) on the part of MergerCo that results in
(x) the Debt Financing being unavailable to MergerCo prior
to such termination of this Agreement or (y) any condition
set forth in Sections 6.01 and 6.02 not being satisfied,
respectively. Notwithstanding any provision hereof to the
contrary, in no event shall MergerCo be liable or responsible
for damages or losses as a result of a breach of this Agreement
in excess of (A) $250 million, less (B) the
amount of the MergerCo Termination Fee if paid pursuant to
Section 5.06(d). Notwithstanding any provision hereof to
the contrary, in no event shall the Company be liable or
responsible for damages or losses as a result of a breach of
this Agreement in excess of (1) $250 million, less
(2) the amount of the Termination Fee and MergerCo Expenses
if paid pursuant to Sections 5.06(b) and (c), respectively.
Section 7.03. Amendment. This
Agreement may be amended by the parties hereto at any time
before or after receipt of the Stockholder Approval;
provided, however, that after such approval has
been obtained, there shall be made no amendment that by Law
requires further approval by the stockholders of the Company
without such approval having been obtained. This Agreement may
not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.
Section 7.04. Extension;
Waiver. At any time prior to the Effective
Time, the parties may (a) extend the time for the
performance of any of the obligations or other acts of the other
parties, (b) to the extent permitted by Law, waive any
inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto or
(c) subject to the proviso to the first sentence of
Section 7.03 and to the extent permitted by Law, waive
compliance with any of the agreements or conditions contained
herein. Any agreement on the part of a party to any such
extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party. The
failure of any party to this Agreement to assert any of its
rights under this Agreement or otherwise shall not constitute a
waiver of such rights.
Section 7.05. Procedure
for Termination or Amendment. A termination
of this Agreement pursuant to Section 7.01 or an amendment
of this Agreement pursuant to Section 7.03 shall, in order
to be effective, require, in the case of MergerCo or the
Company, action by its Board of Directors or, with respect to
any amendment of this Agreement pursuant to Section 7.03,
the duly authorized committee of its Board of Directors to the
extent permitted by Law.
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ARTICLE VIII
General
Provisions
Section 8.01. Nonsurvival
of Representations and Warranties. None of
the representations and warranties in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive
the Effective Time. This Section 8.01 shall not limit any
covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time.
Section 8.02. Notices. Except
for notices that are specifically required by the terms of this
Agreement to be delivered orally, all notices, requests, claims,
demands and other communications hereunder shall be in writing
and shall be deemed given if delivered personally, faxed (with
confirmation) or sent by overnight courier (providing proof of
delivery) to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
if to MergerCo, to:
MCHCR-CP Merger Sub Inc.
In care of The Carlyle Group
520 Madison Avenue
New York, NY 10022
Fax No.:
(212) 381-4901
Attention: Karen Bechtel
Stephen Wise
with a copy to:
Latham & Watkins LLP
555 Eleventh Street, N.W.
Suite 1000
Washington, DC 20004
Fax No.:
(202) 637-2201
Attention: Daniel T. Lennon, Esq.
James R. Hanna, Esq.
if to the Company, to:
Manor Care, Inc.
333 North Summit Street
Toledo, OH
43604-2617
Fax No.:
(419) 252-5599
Attention: Richard A. Parr II, Esq.
with a copy to:
Cravath, Swaine & Moore LLP
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Fax No.:
(212) 474-3700
Attention: James C. Woolery, Esq.
Section 8.03. Definitions. For
purposes of this Agreement:
(a) an Affiliate of any person means
another person that directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common
control with, such first person;
(b) business day means any day on which
banks are not required or authorized to be closed in the City of
New York;
A-38
(c) CMBS Deliveries means the documents,
reports and other materials or deliveries listed on
Exhibit D hereto;
(d) CMBS Properties means the 331
skilled nursing facilities and assisted living facilities listed
on Exhibit E;
(e) Company Disclosure Letter means the
letter dated as of the date of this Agreement delivered by the
Company to MergerCo;
(f) Company Notes means, collectively,
the Companys 6.25% Senior Notes issued under the
indenture dated as of April 15, 2003 and the Company
Convertible Notes;
(g) Knowledge means (i) with
respect to the Company, the actual knowledge of any of the
persons set forth in Section 8.03(d) of the Company
Disclosure Letter and (ii) with respect to MergerCo, the
actual knowledge of any of the officers of MergerCo;
(h) Marketing Period shall mean the
first 30 consecutive calendar day period after the date hereof
throughout which (i) MergerCo shall have the Required
Financial Information that the Company is required to provide to
MergerCo pursuant to Section 5.09(b), (ii) the
conditions set forth in Sections 6.01 and 6.02 (other than
(x) those conditions that by their nature may only be
satisfied at Closing, (y) Section 6.01(d) and
(z) Section 6.02(c)) shall be satisfied and
(iii) the Companys independent registered public
accounting firm shall have not withdrawn its audit opinions for
any historical audited financial statements of the Company
included in the Required Financial Information; provided,
that (A) if such
30-day
period would otherwise end on or after August 1, 2007, then
the Marketing Period will commence no earlier than
September 6, 2007, (B) if such
30-day
period would otherwise end on or after December 15, 2007,
then the Marketing Period will commence no earlier than
January 7, 2008, (C) if the Companys independent
registered public accounting firm shall have withdrawn its
opinion with respect to any historical audited financial
statements of the Company included in the Required Financial
Information or does not consent to the use of its audit opinion
with respect to any such audited financial statements audited by
such firm in any bank book or other offering documents or other
marketing materials reasonably requested by MergerCo in
connection with the marketing of the Debt Financing, the
Marketing Period shall not be deemed to have commenced until
such firm, or such other independent registered public
accounting firm performs an audit of such audited financial
statements, (x) issues an opinion with respect to such
audited financial statements
and/or
(y) consents to the use of its audit opinion with respect
to such audited financial statements, as applicable, and
(D) in the event that the Marketing Period would otherwise
expire prior to February 1, 2008, the Marketing Period will
be extended until the earlier of (x) the date on which
(1) the Company has obtained and delivered to MergerCo the
CMBS Deliveries with respect to the CMBS Properties having an
aggregate appraised value of at least 90% of the aggregate
appraised value set forth in Exhibit E necessary for
inclusion of such properties in the CMBS Facility (as such term
is defined in the Debt Financing Commitments) and (2) all
filings with, notices to and consents and approvals from, all
Governmental Entities required in connection with or relating to
the consummation of the Merger and the other transactions
contemplated hereby (including, without limitation, the CMBS
Restructuring and the Debt Financing) shall have been made or
obtained without the imposition of any condition or restriction
that is adverse to MergerCo or the Company, except to the extent
the failure to have made or obtained such filings, notices,
consents and approvals,
and/or the
imposition of any such adverse condition or restriction, would
not reasonably be expected to result in losses, costs, damages
or expenses on the part of MergerCo
and/or the
Company and its Subsidiaries in excess of $20,000,000, and
(y) February 1, 2008;
(i) Material Adverse Effect means any
event, circumstance, development, change, effect, occurrence or
state of facts that, individually or in the aggregate with all
other events, circumstances, developments, changes, effects,
occurrences or states of facts, (i) materially impedes,
interferes with, hinders or delays the consummation by the
Company of the Merger and the other transactions contemplated
hereby beyond the Outside Date, or (ii) is, or would
reasonably be expected to be, materially adverse to the
business, properties, assets, financial condition or results of
operations of the Company and its Subsidiaries, taken as a
whole, other than any change, effect, event, occurrence or state
of facts relating to (A) economic, financial market or
geopolitical conditions in general, (B) changes in Law or
applicable accounting regulations or principles or
interpretations thereof, (C) any change in federal or state
health care program reimbursement Law, policy or procedure or
interpretations thereof applicable or potentially applicable to
the services rendered by the Company and its Subsidiaries,
including any reduction in
A-39
regulatory reimbursement rates affecting the Company or any of
its Subsidiaries, (D) the industries in which the Company
and its subsidiaries operate generally, (E) any outbreak or
escalation of hostilities or war or any act of terrorism, which,
in the case of each of the foregoing clauses (A), (B), (C),
(D) and (E) does not have a disproportionate impact on
the Company and its Subsidiaries, taken as a whole, relative to
other companies operating in the same industries and geographies
in which the Company and its Subsidiaries operate, (F) any
change in the Companys stock price or trading volume, in
and of itself, or any failure, in and of itself, by the Company
to meet internal or published revenue or earnings projections
(it being understood that the facts or occurrences giving rise
or contributing to such failure that are not otherwise excluded
from the definition of a Material Adverse Effect may
be taken into account in determining whether there has been a
Material Adverse Effect and it being further understood that any
such failure may be taken into account in determining whether
the facts or occurrences giving rise to or contributing to such
failure are materially adverse to the business, financial
conditions, assets or results of operations of the Company and
its Subsidiaries, taken as a whole), and (G) the
announcement of this Agreement and the transactions contemplated
hereby and performance of and compliance with the terms of this
Agreement and the identity of MergerCo or any of its Affiliates
as the acquiror of the Company;
(j) MergerCo Disclosure Letter means the
letter dated as of the date of this Agreement delivered by
MergerCo to the Company;
(k) MergerCo Material Adverse Effect
means any event, circumstance, development, change, effect,
occurrence or state of facts that, individually or in the
aggregate with all other events, circumstances, developments,
changes, effects, occurrences or states of facts, prevents or
materially impedes, interferes with, hinders or delays the
consummation by MergerCo of the Merger or the other transactions
contemplated by this Agreement;
(l) person means an individual,
corporation, partnership, limited liability company, joint
venture, association, trust, unincorporated organization or
other entity; and
(m) a Subsidiary of any person means
another person, an amount of the voting securities, other voting
rights or voting partnership interests of which is sufficient to
elect at least a majority of its board of directors or other
governing body (or, if there are no such voting interests, more
than 50% of the equity interests of which) is owned directly or
indirectly by such first person.
Section 8.04. Interpretation. When
a reference is made in this Agreement to an Article, a Section
or Exhibit, such reference shall be to an Article or a Section
of, or an Exhibit to, this Agreement unless otherwise indicated.
The table of contents and headings contained in this Agreement
are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. Whenever the
words include, includes or
including are used in this Agreement, they shall be
deemed to be followed by the words without
limitation. The words hereof,
herein and hereunder and words of
similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this
Agreement. The word or when used in this Agreement
is not exclusive. All terms defined in this Agreement shall have
the defined meanings when used in any certificate or other
document made or delivered pursuant hereto unless otherwise
defined therein. The definitions contained in this Agreement are
applicable to the singular as well as the plural forms of such
terms and to the masculine as well as to the feminine and neuter
genders of such term. Any agreement, instrument or statute
defined or referred to herein or in any agreement or instrument
that is referred to herein means such agreement, instrument or
statute as from time to time amended, modified or supplemented,
including (in the case of agreements or instruments) by waiver
or consent and (in the case of statutes) by succession of
comparable successor statutes and references to all attachments
thereto and instruments incorporated therein. References to a
person are also to its permitted successors and assigns.
Section 8.05. Consents
and Approvals. For any matter under this
Agreement requiring the consent or approval of any party to be
valid and binding on the parties hereto, such consent or
approval must be in writing.
Section 8.06. Counterparts. This
Agreement may be executed in one or more counterparts (including
by facsimile), all of which shall be considered one and the same
agreement and shall become effective when one or more
counterparts have been signed by each of the parties and
delivered to the other parties.
Section 8.07. Entire
Agreement; No Third-Party Beneficiaries. This
Agreement and the Confidentiality Agreement (a) constitute
the entire agreement, and supersede all prior agreements and
understandings, both written
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and oral, among the parties with respect to the subject matter
of this Agreement and the Confidentiality Agreement,
provided that the Confidentiality Agreement shall survive
the execution and delivery of this Agreement, and
(b) except for the provisions of Article II and
Sections 2.02, 2.03 and 5.05, are not intended to confer
upon any person other than the parties any legal or equitable
rights or remedies.
Section 8.08. GOVERNING
LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE,
REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER
APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
Section 8.09. Assignment. Neither
this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned, in whole or in part, by operation
of law or otherwise by any of the parties without the prior
written consent of the other parties, and any assignment without
such consent shall be null and void, provided,
however, that MergerCo may assign all of its rights
hereunder to its lenders and debt providers for collateral
security purposes only. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of, and be
enforceable by, the parties and their respective successors and
assigns; provided, however, that MergerCo may,
prior to the Effective Time, assign its rights under this
Agreement to any Affiliate (unless doing so would prevent or
materially delay or impair the Merger or the consummation of the
transactions contemplated hereby), in which event all references
herein to MergerCo shall be deemed references to such other
Affiliate, except that all representations and warranties made
herein with respect to MergerCo as of the date of this Agreement
shall be deemed to be representations and warranties made with
respect to such other Affiliate as of the date of such
designation; provided further that no such assignment
shall relieve MergerCo of any liability or obligation hereunder.
Section 8.10. Specific
Enforcement; Consent to Jurisdiction. The
parties agree that neither party shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement
or to enforce specifically the terms and provisions of this
Agreement that each partys sole and exclusive remedy shall
be the remedies set forth in Section 5.06; provided,
however, that, prior to the termination of this
Agreement, the Company shall be entitled to an injunction or
injunctions to prevent breaches by MergerCo to enforce
specifically the provisions of this Agreement solely with
respect to the confidentiality provisions of Section 5.02
and Section 5.09. In addition, each of the parties hereto
(a) consents to submit itself to the personal jurisdiction
of the Delaware Court of Chancery, any other court of the State
of Delaware and any Federal court sitting in the State of
Delaware in the event any dispute arises out of this Agreement
or the transactions contemplated by this Agreement,
(b) agrees that it will not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from
any such court and (c) agrees that it will not bring any
action relating to this Agreement or the transactions
contemplated by this Agreement in any court other than the
Delaware Court of Chancery (or, if the Delaware Court of
Chancery shall be unavailable, any other court of the State of
Delaware or any Federal court sitting in the State of Delaware).
Section 8.11. Severability. If
any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or
public policy, all other conditions and provisions of this
Agreement shall nevertheless remain in full force and effect.
Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so
as to effect the original intent of the parties as closely as
possible to the fullest extent permitted by applicable Law in an
acceptable manner to the end that the transactions contemplated
hereby are fulfilled to the extent possible
A-41
IN WITNESS WHEREOF, MergerCo and the Company have caused this
Agreement to be signed by their respective officers thereunto
duly authorized, all as of the date first written above.
MCHCR-CP MERGER SUB INC.,
Name: Karen H. Bechtel
MANOR CARE, INC.
Name: Paul A. Ormond
|
|
|
|
Title:
|
Chairman, President and Chief Executive Officer
|
A-42
ANNEX I
Index of
Defined Terms
|
|
|
Term
|
|
|
|
2003 Company Convertible Notes
|
|
Section 3.01(c)
|
2004 Company Convertible Notes
|
|
Section 3.01(c)
|
2005 Company Convertible Notes
|
|
Section 3.01(c)
|
2006 Company Convertible Notes
|
|
Section 3.01(c)
|
Adverse Recommendation Change
|
|
Section 4.02(b)
|
Affiliate
|
|
Section 8.03(a)
|
Agreement
|
|
Preamble
|
Annual Amount
|
|
Section 5.05(c)
|
Appraisal Shares
|
|
Section 2.01(d)
|
business day
|
|
Section 8.03(b)
|
Certificate
|
|
Section 2.01(c)
|
Certificate of Merger
|
|
Section 1.03
|
Claim
|
|
Section 5.05(b)
|
Closing
|
|
Section 1.02
|
Closing Date
|
|
Section 1.02
|
CMBS Deliveries
|
|
Section 8.03(c)
|
CMBS Properties
|
|
Section 8.03(d)
|
CMBS Restructuring
|
|
Section 5.10
|
Code
|
|
Section 2.02(h)
|
Company
|
|
Preamble
|
Company 401(k) Plan
|
|
Section 3.01(c)
|
Company Benefit Agreement
|
|
Section 3.01(l)(vii)
|
Company Benefit Plan
|
|
Section 3.01(l)(vii)
|
Company Bylaws
|
|
Section 1.05(b)
|
Company Certificate of
Incorporation
|
|
Section 1.05(a)
|
Company Common Stock
|
|
Recitals
|
Company Convertible Notes
|
|
Section 3.01(c)
|
Company Disclosure Letter
|
|
Section 8.03(e)
|
Company Employees
|
|
Section 5.04(a)
|
Company Notes
|
|
Section 8.03(f)
|
Company Pension Plan
|
|
Section 3.01(l)(i)
|
Company Performance Share Awards
|
|
Section 3.01(c)
|
Company Preferred Stock
|
|
Section 3.01(c)
|
Company Restricted Stock
|
|
Section 3.01(c)
|
Company RSUs
|
|
Section 3.01(c)
|
Company SARs
|
|
Section 3.01(c)
|
Company Stock Equivalents
|
|
Section 3.01(c)
|
Company Stock Options
|
|
Section 3.01(c)
|
Company Stock Plans
|
|
Section 3.01(c)
|
Company Warrants
|
|
Section 3.01(c)
|
Confidentiality Agreement
|
|
Section 5.02
|
Consent Solicitation
|
|
Section 5.10(a)
|
Contract
|
|
Section 3.01(d)
|
Debt Financing
|
|
Section 3.02(d)
|
A-43
|
|
|
Term
|
|
|
|
Debt Financing Commitment
|
|
Section 3.02(d)
|
Debt Tender Offer
|
|
Section 5.10(a)
|
Deferred Company RSU
|
|
Section 2.03(b)
|
Deferred RSU Amount
|
|
Section 2.03(b)
|
DGCL
|
|
Section 1.01
|
Effective Time
|
|
Section 1.03
|
Environmental Claims
|
|
Section 3.01(j)(ii)
|
Environmental Law
|
|
Section 3.01(j)(ii)
|
Equity Award Amounts
|
|
Section 2.03(a)
|
Equity Confidentiality Agreements
|
|
Section 5.09(c)
|
Equity Financing
|
|
Section 3.02(d)
|
Equity Financing Commitment
|
|
Section 3.02(d)
|
ERISA
|
|
Section 3.01(l)(vii)
|
ERISA Affiliate
|
|
Section 3.01(1)(iii)
|
Exchange Act
|
|
Section 3.01(d)
|
Exchange Fund
|
|
Section 2.02(a)
|
Filed SEC Documents
|
|
Section 3.01
|
Financing
|
|
Section 3.02(d)
|
Financing Commitments
|
|
Section 3.02(d)
|
GAAP
|
|
Section 3.01(e)
|
Governmental Entity
|
|
Section 3.01(d)
|
Guarantee
|
|
Section 3.02(d)
|
Guarantor
|
|
Section 3.02(d)
|
Hazardous Materials
|
|
Section 3.01(j)(ii)
|
HSR Act
|
|
Section 3.01(d)
|
Incentive Plans
|
|
Section 5.04(c)
|
Indebtedness
|
|
Section 4.01(a)(ix)
|
Indemnified Party
|
|
Section 5.05(a)
|
Intellectual Property Rights
|
|
Section 3.01(o)
|
Judgment
|
|
Section 3.01(d)
|
Knowledge
|
|
Section 8.03(g)
|
Law
|
|
Section 3.01(d)
|
Leased Real Property
|
|
Section 3.01(n)(ii)
|
Liens
|
|
Section 3.01(b)
|
Marketing Period
|
|
Section 8.03(h)
|
Material Adverse Effect
|
|
Section 8.03(i)
|
Merger
|
|
Recitals
|
Merger Consideration
|
|
Section 2.01(c)
|
MergerCo.
|
|
Preamble
|
MergerCo Expenses
|
|
Section 5.06(c)
|
MergerCo Disclosure Letter
|
|
Section 8.03(j)
|
MergerCo Material Adverse Effect
|
|
Section 8.03(k)
|
MergerCo Termination Fee
|
|
Section 5.06(d)
|
Multiemployer Plan
|
|
Section 3.01(l)(vii)
|
Non-Breaching Financial Failure
|
|
Section 5.06(e)
|
Non-Deferred Company RSU
|
|
Section 2.03(b)
|
Non-Deferred RSU Amount
|
|
Section 2.03(a)(iv)
|
A-44
|
|
|
Term
|
|
|
|
Notice of Superior Proposal
|
|
Section 4.02(b)
|
Offer Documents
|
|
Section 5.11(b)
|
Option Amount
|
|
Section 2.03(a)
|
Outside Date
|
|
Section 7.01(b)(i)
|
Owned Real Property
|
|
Section 3.01(n)(i)
|
Paying Agent
|
|
Section 2.02(a)
|
Performance Share Amount
|
|
Section 2.03(a)(iii)
|
Permits
|
|
Section 3.01(j)(i)
|
Permitted Liens
|
|
Section 3.01(n)(iii)
|
person
|
|
Section 8.03(l)
|
Pre-Closing Service
|
|
Section 5.04(d)
|
Proposed Modification
|
|
Section 5.10(b)
|
Proxy Statement
|
|
Section 3.01(d)
|
Real Property Leases
|
|
Section 3.01(n)(ii)
|
Recommendation
|
|
Section 5.01(b)
|
Registered Intellectual Property
Right
|
|
Section 3.01(o)
|
Related Party Transaction
|
|
Section 3.01(u)
|
Release
|
|
Section 3.01(j)(ii)
|
Representatives
|
|
Section 4.02(a)
|
Requested Consents
|
|
Section 5.11(a)
|
Required Financial Information
|
|
Section 5.09(b)
|
Restraints
|
|
Section 6.01(c)
|
SEC
|
|
Section 3.01
|
SEC Documents
|
|
Section 3.01(e)
|
Section 262
|
|
Section 2.01(d)
|
Securities Act
|
|
Section 3.01(e)
|
Specified Contract
|
|
Section 3.01(i)
|
Specified Deferred Compensation
Plans
|
|
Section 3.01(c)
|
Specified Person
|
|
Section 5.06(e)
|
Stock Equivalent Amount
|
|
Section 2.03(c)
|
Stockholder Approval
|
|
Section 3.01(q)
|
Stockholders Meeting
|
|
Section 5.01(b)
|
Subsidiary
|
|
Section 8.03(m)
|
Superior Proposal
|
|
Section 4.02(a)
|
Surviving Corporation
|
|
Section 1.01
|
Surviving Corporation Plans
|
|
Section 5.04(g)
|
Takeover Proposal
|
|
Section 4.02(a)
|
tax returns
|
|
Section 3.01(m)(v)
|
taxes
|
|
Section 3.01(m)(v)
|
Termination Fee
|
|
Section 5.06(b)
|
Voting Company Debt
|
|
Section 3.01(c)
|
A-45
[LETTERHEAD
OF J.P. MORGAN SECURITIES INC.]
July 1, 2007
The Board of Directors
Manor Care, Inc.
333 N. Summit Street
Toledo, OH
43604-2617
Members of the Board of Directors:
You have requested our opinion as to the fairness, from a
financial point of view, to the holders of common stock, par
value $0.01 per share (the Company Common
Stock), of Manor Care, Inc. (the Company) of
the consideration to be paid to such holders in the proposed
merger (the Merger) of the Company with MCHCR-CP
MERGER SUB INC. (MergerCo). Pursuant to the
Agreement and Plan of Merger (the Merger Agreement)
between MergerCo and the Company, MergerCo will merge with and
into the Company and the Company will continue as the surviving
corporation, and each outstanding share of the Company Common
Stock, other than (i) Appraisal Shares (as defined in the
Merger Agreement) and (ii) shares of the Company Common
Stock directly owned by the Company as treasury stock, or by
MergerCo or MergerCos sole stockholder, immediately prior
to the consummation of the Merger, will be converted into the
right to receive $67.00 per share in cash (the
Consideration).
In arriving at our opinion, we have (i) reviewed a draft,
dated July 1, 2007, of the Merger Agreement;
(ii) reviewed certain publicly available business and
financial information concerning the Company and the industries
in which it operates; (iii) compared the proposed financial
terms of the Merger with the publicly available financial terms
of certain transactions involving companies we deemed relevant
and the consideration received for such companies;
(iv) compared the financial and operating performance of
the Company with publicly available information concerning
certain other companies we deemed relevant and reviewed the
current and historical market prices of the Company Common Stock
and certain publicly traded securities of such other companies;
(v) reviewed certain internal financial analyses and
forecasts prepared by the management of the Company relating to
its business; and (vi) performed such other financial
studies and analyses and considered such other information as we
deemed appropriate for the purposes of this opinion.
In addition, we have held discussions with certain members of
the management of the Company with respect to certain aspects of
the Merger, and the past and current business operations of the
Company, the financial condition and future prospects and
operations of the Company, and certain other matters we believed
necessary or appropriate to our inquiry.
In giving our opinion, we have relied upon and assumed, without
assuming responsibility or liability for independent
verification, the accuracy and completeness of all information
that was publicly available or was furnished to or discussed
with us by the Company and MergerCo or otherwise reviewed by or
for us. We have not conducted or been provided with any
valuation or appraisal of any assets or liabilities, nor have we
evaluated the solvency of the Company or MergerCo under any
state or federal laws relating to bankruptcy, insolvency or
similar matters. In relying on financial analyses and forecasts
provided to us, we have assumed that they have been reasonably
prepared based on assumptions reflecting the best currently
available estimates and judgments by management as to the
expected future results of operations and financial condition of
the Company to which such analyses or forecasts relate. We
express no view as to such analyses or forecasts or the
assumptions on which they were based. We have also assumed that
the Merger and the other transactions contemplated by the Merger
Agreement will be consummated as described in the Merger
Agreement, and that the definitive Merger Agreement will not
differ in any material respects from the draft thereof furnished
to us. We have also assumed that the representations and
warranties made by the Company and MergerCo in the Merger
Agreement are and will be true and correct in all ways material
to our analysis. We have relied as to all legal matters relevant
to rendering our opinion upon the advice of counsel.
B-1
We have further assumed that all material governmental,
regulatory or other consents and approvals necessary for the
consummation of the Merger will be obtained without any adverse
effect on the Company.
Our opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available
to us as of, the date hereof. It should be understood that
subsequent developments may affect this opinion and that we do
not have any obligation to update, revise, or reaffirm this
opinion. Our opinion is limited to the fairness, from a
financial point of view, of the Consideration to be paid to the
holders of the Company Common Stock in the proposed Merger and
we express no opinion as to the fairness of the Merger to, or
any consideration received in connection therewith by, the
holders of any other class of securities, creditors or other
constituencies of the Company or as to the underlying decision
by the Company to engage in the Merger.
We have acted as financial advisor to the Company with respect
to the proposed Merger and will receive a fee from the Company
for our services, a substantial portion of which will become
payable only if the proposed Merger is consummated. In addition,
the Company has agreed to indemnify us for certain liabilities
arising out of our engagement.
We and our affiliates have in the past provided, are currently
providing and in the future may provide investment banking,
commercial banking and other financial services to the Company
and MergerCo as well as the private investment firm whose
affiliates are stockholders of MergerCo, and their respective
portfolio companies or other affiliates, for which we have
received, and would expect to receive, customary compensation.
Please be advised that in the past two years, we and our
affiliates acted, on behalf of the Company, as the sole
bookrunner on (i) a $250 million issuance of
Convertible Senior Notes in May, 2006 and (ii) a
$400 million issuance of Convertible Senior Notes in July,
2005. We have also been engaged on behalf of the portfolio
companies of the private investment firm whose affiliates are
stockholders of MergerCo and have received customary fees for
such engagements. In addition, we and our affiliates offered
financing terms to potential acquirors of the Company and may
arrange
and/or
provide financing of the merger consideration for MergerCo. In
the ordinary course of our businesses, we and our affiliates may
actively trade the debt and equity securities of the Company for
our own account or for the accounts of customers and,
accordingly, we may at any time hold long or short positions in
such securities. Among other transactions, JPMorgan Chase Bank,
N.A., London Branch (JPM London), entered into an
option transaction and a warrant transaction with the Company
pursuant to certain ISDA confirmations dated July 26, 2005
(the Equity Call Agreements). In connection with the
Merger Agreement, JPM London and the Company will enter into an
agreement, to be dated July 2, 2007, pursuant to which the
total amount of the call spread value payable to JPM London in
accordance with the terms and conditions of the Equity Call
Agreements will be capped at $47 million upon consummation
of the Merger.
On the basis of and subject to the foregoing, it is our opinion
as of the date hereof that the Consideration to be paid to the
holders of the Company Common Stock in the proposed Merger is
fair, from a financial point of view, to such holders.
This letter is provided to the Board of Directors of the Company
in connection with and for the purposes of its evaluation of the
Merger. This opinion does not constitute a recommendation to any
shareholder of the Company as to how such shareholder should
vote with respect to the Merger or any other matter. This
opinion may not be disclosed, referred to, or communicated (in
whole or in part) to any third party for any purpose whatsoever
except with our prior written approval. This opinion may be
reproduced in full in any proxy or information statement mailed
to shareholders of the Company but may not otherwise be
disclosed publicly in any manner without our prior written
approval.
Very truly yours,
J.P. MORGAN SECURITIES INC.
/s/ J.P.
Morgan Securities Inc.
B-2
[LETTERHEAD
OF CITIGROUP GLOBAL MARKETS INC.]
July 1, 2007
The Board of Directors
Manor Care, Inc.
333 N. Summit Street
Toledo, Ohio
43604-2617
Members of the Board:
You have requested our opinion as to the fairness, from a
financial point of view, to the holders of the common stock of
Manor Care, Inc. (Manor Care) of the Merger
Consideration (as defined below) provided for pursuant to the
terms and subject to the conditions set forth in an Agreement
and Plan of Merger (the Merger Agreement) to be
entered into between MCHCR-CP Merger Sub Inc. (Merger
Sub), an affiliate of The Carlyle Group
(Carlyle), and Manor Care. As more fully described
in the Merger Agreement, (i) Merger Sub will be merged with
and into Manor Care (the Merger) and (ii) each
outstanding share of the common stock, par value $0.01 per
share, of Manor Care (Manor Care Common Stock) will
be converted into the right to receive $67.00 in cash (the
Merger Consideration).
In arriving at our opinion, we reviewed a draft dated
July 1, 2007 of the Merger Agreement and held discussions
with certain senior officers, directors and other
representatives and advisors of Manor Care concerning the
business, operations and prospects of Manor Care. We examined
certain publicly available business and financial information
relating to Manor Care as well as certain financial forecasts,
both before and after giving effect to certain acquisitions
proposed to be undertaken by Manor Care, and other information
and data relating to Manor Care which were provided to or
otherwise discussed with us by the management of Manor Care. We
reviewed the financial terms of the Merger as set forth in the
Merger Agreement in relation to, among other things: current and
historical market prices and trading volumes of Manor Care
Common Stock; the historical and projected earnings and other
operating data of Manor Care; and the capitalization and
financial condition of Manor Care. We analyzed certain
financial, stock market and other publicly available information
relating to the businesses of other companies whose operations
we considered relevant in evaluating those of Manor Care and
considered, to the extent publicly available, the financial
terms of certain other transactions which we considered relevant
in evaluating the Merger. In addition to the foregoing, we
conducted such other analyses and examinations and considered
such other information and financial, economic and market
criteria as we deemed appropriate in arriving at our opinion.
In rendering our opinion, we have assumed and relied, without
assuming any responsibility for independent verification, upon
the accuracy and completeness of all financial and other
information and data publicly available or provided to or
otherwise reviewed by or discussed with us and upon the
assurances of the management of Manor Care that it is not aware
of any relevant information that has been omitted or that
remains undisclosed to us. With respect to the financial
forecasts and other information and data relating to Manor Care
provided to or otherwise reviewed by or discussed with us, we
have been advised by the management of Manor Care, and we have
assumed, with your consent, that such forecasts and other
information and data were reasonably prepared on bases
reflecting the best currently available estimates and judgments
of the management of Manor Care as to the future financial
performance of Manor Care (both before and after giving effect
to certain acquisitions proposed to be undertaken by Manor
Care). We have assumed, with your consent, that the Merger will
be consummated in accordance with the terms of the Merger
Agreement, without waiver, modification or amendment of any
term, condition or agreement in any respect material to our
opinion, and in compliance with all applicable laws, and that,
in the course of obtaining the necessary regulatory or third
party approvals, consents, releases and waivers for the Merger,
no delay, limitation, restriction or condition will be imposed
that would have an adverse effect on Manor Care or the Merger.
Representatives of Manor Care have advised us, and we also have
assumed, with your consent, that the final terms of the Merger
Agreement will not vary materially from those set forth in the
draft reviewed by us. We have not
C-1
The Board of Directors
Manor Care, Inc.
July 1, 2007
Page 2
made or been provided with an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise)
of Manor Care nor have we made any physical inspection of the
properties or assets of Manor Care. Our opinion does not address
any terms or other aspects or implications of the Merger (other
than the Merger Consideration to the extent expressly specified
herein) or any aspects or implications of any other agreement,
arrangement or understanding to be entered into in connection
with, or otherwise contemplated by, the Merger. We express no
view as to, and our opinion does not address, the underlying
business decision of Manor Care to effect the Merger, the
relative merits of the Merger as compared to any alternative
business strategies that might exist for Manor Care or the
effect of any other transaction in which Manor Care might
engage. We were not requested to, and we did not, solicit third
party indications of interest in the possible acquisition of
Manor Care; however, we have held discussions with Manor Care
and its other advisors regarding the results of the solicitation
process undertaken to date by or on behalf of Manor Care. We
also were not requested to, and we did not, participate in the
negotiation or structuring of the Merger. Our opinion is
necessarily based upon information available to us, and
financial, stock market and other conditions and circumstances
existing and disclosed to us, as of the date hereof.
Citigroup Global Markets Inc. has been engaged by Manor Care
solely for purposes of rendering an opinion in connection with
the proposed Merger and will receive a fee for such services in
connection with the delivery of this opinion. We and our
affiliates in the past have provided, currently are providing
and in the future may provide services to Carlyle and certain of
its affiliates unrelated to the proposed Merger, for which
services we and our affiliates have received, and expect to
receive, compensation, including, among other things, having
acted or acting (i) as financial advisor to Carlyle and
certain of its portfolio companies in connection with certain
sale and acquisition transactions, (ii) in various roles in
connection with securities offerings of certain portfolio
companies of Carlyle and (iii) as a lender in connection
with credit facilities of certain portfolio companies of
Carlyle. In the ordinary course of our business, we and our
affiliates may actively trade or hold the securities of Manor
Care and of certain portfolio companies of Carlyle for our own
account or for the account of our customers and, accordingly,
may at any time hold a long or short position in such
securities. In addition, we and our affiliates (including
Citigroup Inc. and its affiliates) may maintain relationships
with Manor Care, Carlyle and their respective affiliates.
Our advisory services and the opinion expressed herein are
provided for the information of the Board of Directors of Manor
Care in its evaluation of the proposed Merger, and our opinion
is not intended to be and does not constitute a recommendation
to any stockholder as to how such stockholder should vote or act
on any matters relating to the proposed Merger.
Based upon and subject to the foregoing, our experience as
investment bankers, our work as described above and other
factors we deemed relevant, we are of the opinion that, as of
the date hereof, the Merger Consideration is fair, from a
financial point of view, to the holders of Manor Care Common
Stock.
Very truly yours,
/s/ Citigroup Global Markets Inc.
CITIGROUP GLOBAL MARKETS INC.
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GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE
§ 262. Appraisal rights.
(a) Any stockholder of a corporation of this State who
holds shares of stock on the date of the making of a demand
pursuant to subsection (d) of this section with respect to
such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has
neither voted in favor of the merger or consolidation nor
consented thereto in writing pursuant to § 228 of this
title shall be entitled to an appraisal by the Court of Chancery
of the fair value of the stockholders shares of stock
under the circumstances described in subsections (b) and
(c) of this section. As used in this section, the word
stockholder means a holder of record of stock in a
stock corporation and also a member of record of a nonstock
corporation; the words stock and share
mean and include what is ordinarily meant by those words and
also membership or membership interest of a member of a nonstock
corporation; and the words depository receipt mean a
receipt or other instrument issued by a depository representing
an interest in one or more shares, or fractions thereof, solely
of stock of a corporation, which stock is deposited with the
depository.
(b) Appraisal rights shall be available for the shares of
any class or series of stock of a constituent corporation in a
merger or consolidation to be effected pursuant to
§ 251 (other than a merger effected pursuant to
§ 251(g) of this title), § 252,
§ 254, § 257, § 258,
§ 263 or § 264 of this title:
(1) Provided, however, that no appraisal rights under this
section shall be available for the shares of any class or series
of stock, which stock, or depository receipts in respect
thereof, at the record date fixed to determine the stockholders
entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national
securities exchange or designated as a national market system
security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or (ii) held of
record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of
the constituent corporation surviving a merger if the merger did
not require for its approval the vote of the stockholders of the
surviving corporation as provided in subsection (f) of
§ 251 of this title.
(2) Notwithstanding paragraph (1) of this
subsection, appraisal rights under this section shall be
available for the shares of any class or series of stock of a
constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to
§§ 251, 252, 254, 257, 258, 263 and 264 of this
title to accept for such stock anything except:
a. Shares of stock of the corporation surviving or
resulting from such merger or consolidation, or depository
receipts in respect thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or
depository receipts in respect thereof) or depository receipts
at the effective date of the merger or consolidation will be
either listed on a national securities exchange or designated as
a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc.
or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a.
and b. of this paragraph; or
d. Any combination of the shares of stock, depository
receipts and cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a.,
b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under § 253 of
this title is not owned by the parent corporation immediately
prior to the merger, appraisal rights shall be available for the
shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of
incorporation that appraisal rights under this section shall be
available for the shares of any class or series of its stock as
a result of an amendment to its certificate of
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incorporation, any merger or consolidation in which the
corporation is a constituent corporation or the sale of all or
substantially all of the assets of the corporation. If the
certificate of incorporation contains such a provision, the
procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply
as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which
appraisal rights are provided under this section is to be
submitted for approval at a meeting of stockholders, the
corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record
date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or
(c) hereof that appraisal rights are available for any or
all of the shares of the constituent corporations, and shall
include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of such stockholders
shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for
appraisal of such stockholders shares. Such demand will be
sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of such stockholders
shares. A proxy or vote against the merger or consolidation
shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as
herein provided. Within 10 days after the effective date of
such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not
voted in favor of or consented to the merger or consolidation of
the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to
§ 228 or § 253 of this title, then either a
constituent corporation before the effective date of the merger
or consolidation or the surviving or resulting corporation
within 10 days thereafter shall notify each of the holders
of any class or series of stock of such constituent corporation
who are entitled to appraisal rights of the approval of the
merger or consolidation and that appraisal rights are available
for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy
of this section. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also
notify such stockholders of the effective date of the merger or
consolidation. Any stockholder entitled to appraisal rights may,
within 20 days after the date of mailing of such notice,
demand in writing from the surviving or resulting corporation
the appraisal of such holders shares. Such demand will be
sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of such holders shares. If
such notice did not notify stockholders of the effective date of
the merger or consolidation, either (i) each such
constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of
the holders of any class or series of stock of such constituent
corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the
surviving or resulting corporation shall send such a second
notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first
notice, such second notice need only be sent to each stockholder
who is entitled to appraisal rights and who has demanded
appraisal of such holders shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary
or of the transfer agent of the corporation that is required to
give either notice that such notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated
therein. For purposes of determining the stockholders entitled
to receive either notice, each constituent corporation may fix,
in advance, a record date that shall be not more than
10 days prior to the date the notice is given, provided,
that if the notice is given on or after the effective date of
the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is
given prior to the effective date, the record date shall be the
close of business on the day next preceding the day on which the
notice is given.
(e) Within 120 days after the effective date of the
merger or consolidation, the surviving or resulting corporation
or any stockholder who has complied with subsections (a)
and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such
stockholders. Notwithstanding the foregoing, at any time within
60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw
such stockholders demand for appraisal
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and to accept the terms offered upon the merger or
consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied
with the requirements of subsections (a) and
(d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting
from the consolidation a statement setting forth the aggregate
number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal
have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the
stockholder within 10 days after such stockholders
written request for such a statement is received by the
surviving or resulting corporation or within 10 days after
expiration of the period for delivery of demands for appraisal
under subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder,
service of a copy thereof shall be made upon the surviving or
resulting corporation, which shall within 20 days after
such service file in the office of the Register in Chancery in
which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded
payment for their shares and with whom agreements as to the
value of their shares have not been reached by the surviving or
resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in
Chancery, if so ordered by the Court, shall give notice of the
time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting
corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1
or more publications at least 1 week before the day of the
hearing, in a newspaper of general circulation published in the
City of Wilmington, Delaware or such publication as the Court
deems advisable. The forms of the notices by mail and by
publication shall be approved by the Court, and the costs
thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall
determine the stockholders who have complied with this section
and who have become entitled to appraisal rights. The Court may
require the stockholders who have demanded an appraisal for
their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery
for notation thereon of the pendency of the appraisal
proceedings; and if any stockholder fails to comply with such
direction, the Court may dismiss the proceedings as to such
stockholder.
(h) After determining the stockholders entitled to an
appraisal, the Court shall appraise the shares, determining
their fair value exclusive of any element of value arising from
the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. In
determining such fair value, the Court shall take into account
all relevant factors. In determining the fair rate of interest,
the Court may consider all relevant factors, including the rate
of interest which the surviving or resulting corporation would
have had to pay to borrow money during the pendency of the
proceeding. Upon application by the surviving or resulting
corporation or by any stockholder entitled to participate in the
appraisal proceeding, the Court may, in its discretion, permit
discovery or other pretrial proceedings and may proceed to trial
upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name
appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and
who has submitted such stockholders certificates of stock
to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal
rights under this section.
(i) The Court shall direct the payment of the fair value of
the shares, together with interest, if any, by the surviving or
resulting corporation to the stockholders entitled thereto.
Interest may be simple or compound, as the Court may direct.
Payment shall be so made to each such stockholder, in the case
of holders of uncertificated stock forthwith, and the case of
holders of shares represented by certificates upon the surrender
to the corporation of the certificates representing such stock.
The Courts decree may be enforced as other decrees in the
Court of Chancery may be enforced, whether such surviving or
resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the
Court and taxed upon the parties as the Court deems equitable in
the circumstances. Upon application of a stockholder, the Court
may order all or a portion of the expenses incurred by any
stockholder in connection with the appraisal proceeding,
including, without limitation, reasonable attorneys fees
and the fees and expenses of experts, to be charged pro rata
against the value of all the shares entitled to an appraisal.
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(k) From and after the effective date of the merger or
consolidation, no stockholder who has demanded appraisal rights
as provided in subsection (d) of this section shall be
entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of
record at a date which is prior to the effective date of the
merger or consolidation); provided, however, that if no petition
for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a
written withdrawal of such stockholders demand for an
appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the
merger or consolidation as provided in subsection (e) of
this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal
proceeding in the Court of Chancery shall be dismissed as to any
stockholder without the approval of the Court, and such approval
may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to
which the shares of such objecting stockholders would have been
converted had they assented to the merger or consolidation shall
have the status of authorized and unissued shares of the
surviving or resulting corporation. (8 Del. C. 1953,
§ 262; 56 Del. Laws, c. 50; 56 Del. Laws, c. 186,
§ 24; 57 Del. Laws, c. 148,
§§ 27-29;
59 Del. Laws, c. 106, § 12; 60 Del. Laws, c. 371,
§§ 3-12;
63 Del. Laws, c. 25, § 14; 63 Del. Laws, c. 152,
§§ 1, 2; 64 Del. Laws, c. 112,
§§ 46-54;
66 Del. Laws, c. 136,
§§ 30-32;
66 Del. Laws, c. 352, § 9; 67 Del. Laws, c. 376,
§§ 19, 20; 68 Del. Laws, c. 337,
§§ 3, 4; 69 Del. Laws, c. 61, § 10; 69
Del. Laws, c. 299, §§ 2, 3; 70 Del. Laws, c. 349,
§ 22; 71 Del. Laws, c. 120, § 15; 71 Del.
Laws, c. 339,
§§ 49-52;
73 Del. Laws, c. 82, § 21.)
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c/o National City Bank Corporate Trust Operations Locator 5352 P. O. Box 94509 Cleveland, OH
44101-4509 VOTE BY TELEPHONE Have your proxy card available when you call the Toll-Free
Number 1-888-693-8683 using a touch-tone phone and follow the simple instructions to record your
vote. VOTE BY INTERNET Have your proxy card available when you access the website
www.cesvote.com and follow the simple instructions presented to record your vote. VOTE BY MAIL
Please mark, sign and date your proxy card and return it in the postage-paid envelope provided
or return to: National City Bank, P.O. Box 535800, Pittsburgh, PA 15253. Vote by Telephone
Vote by Internet Vote by Mail Call Toll-Free using a Access the website and Return your proxy
Touch-Tone phone: cast your vote: in the postage-paid 1-888-693-8683 www.cesvote.com
envelope provided. Vote 24 hours a day, 7 days a week! If you vote by telephone or Internet,
please do not send your proxy by mail. I If voting by mail, Proxy must be signed and dated
below. D Please fold and detach card at perforation before mailing. D Proxy Proxy This
proxy is solicited on behalf of the Board of Directors The undersigned hereby appoints Paul A.
Ormond, Steven M. Cavanaugh and Matthew S. Kang and each of them, as Proxies with full power of
substitution, and hereby authorize(s) them to represent and to vote, as designated herein, all
shares of common stock of Manor Care, Inc. held of record by the undersigned on September 10, 2007, at the
Special Meeting of Stockholders to be held on October 17, 2007, or at any adjournment thereof. |
Dated: , 2007 Signature Signature, if held jointly Please sign exactly as name appears
hereon. When shares are held by joint owners, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a corporation, please sign
in full corporate name by President or other authorized officer. If a partnership, please sign in
partnership name by authorized person. |
Please fold and detach card at perforation before mailing. D MANOR CARE,
INC. PROXY This proxy when properly executed will be voted in the manner directed by the
undersigned stockholder. If no direction is made, this proxy will be voted FOR Item 1 and FOR Item
2. Item 1 and Item 2 have been proposed by Manor Care, Inc. In their discretion the Proxies are
authorized to vote upon such other business as may properly come before the meeting. The Board
of Directors recommends a vote FOR Item 1. 1. To adopt the Agreement and Plan of Merger, dated as
of July 2, 2007, between MCHCR-CP Merger Sub Inc. and Manor Care, Inc. (the Merger Agreement):
FOR AGAINST ABSTAIN The Board of Directors recommends a vote FOR Item 2. 2. To
adjourn or postpone the Special Meeting, if necessary or appropriate: FOR AGAINST
ABSTAIN (Continued and to be signed on reverse side.)
YOUR VOTE IS IMPORTANT!
Please take a moment to vote your shares for the upcoming Manor Care, Inc. Stockholder's Meeting. Your vote is confidential. You can vote by telephone, by Internet or by mail.
To vote by telephone, call 1-888-693-8683 using a touch-tone telephone. To vote by Internet, access the website www.cesvote.com. Enter the number by the arrow in the box on the
reverse side of this form and follow the simple instructions to record your vote.
If you do not vote by telephone or Internet, please sign and date this proxy card and return it promptly in the enclosed postage-paid envelope, or otherwise to National City Bank,
P.O. Box 535800, Pittsburgh, PA 15253, so your shares may be represented at the Meeting. If you vote by telephone or Internet, it is not necessary to return this proxy card.
|
c/o National City Bank Corporate Trust Operations Locator 5352 P. O. Box 94509 Cleveland, OH
44101-4509 VOTE BY TELEPHONE Have your proxy card available when you call the Toll-Free
Number 1-888-693-8683 using a touch-tone phone and follow the simple instructions to record your
vote. VOTE BY INTERNET Have your proxy card available when you access the website
www.cesvote.com and follow the simple instructions presented to record your vote. VOTE BY MAIL
Please mark, sign and date your proxy card and return it in the postage-paid envelope provided
or return to: National City Bank, P.O. Box 535800, Pittsburgh, PA 15253. Vote by Telephone
Vote by Internet Vote by Mail Call Toll-Free using a Access the website and Return your voting instruction card
Touch-Tone phone: cast your vote: in the postage paid 1-888-693-8683 www.cesvote.com
envelope provided Vote 24 hours a day, 7 days a week! Your telephone or Internet vote must be
received by 6:00 a.m. Eastern Daylight Time on October 12, 2007 to be counted in the final tabulation.
I D Please fold and detach card at perforation before mailing. D HCR Manor Care Stock
Purchase and Retirement Savings 401(k) Plan The undersigned hereby authorizes and instructs
Fidelity Management Trust Company, as Trustee under the HCR Manor Care Stock Purchase and
Retirement Savings 401(k) Plan, to vote in person or by proxy the full common shares of Manor Care,
Inc. credited to my account under the Manor Care, Inc. Stock Fund as of September 10, 2007, if any, at the
Special Meeting of Stockholders to be held on October 17, 2007, or at any adjournment thereof. When
properly executed, these voting instructions will be voted by the Trustee in the manner directed on
the reverse side of this card by the undersigned stockholder. If no |
direction is made, these voting instructions will be voted by the Trustee in accordance with the
instructions received with respect to a majority of shares in the Manor Care, Inc. Stock Fund.
Signature Dated: , 2007 Please sign your name exactly as it appears to the
left. |
YOUR VOTE IS IMPORTANT ! Please take a moment to vote your shares for the upcoming Manor Care,
Inc. Stockholders Meeting. Your vote is confidential. You can vote by telephone, by Internet or by
mail. To vote by telephone, call 1-888-693-8683 using a touch-tone telephone. To vote by
Internet, access the website www.cesvote.com. Enter the number by the arrow in the box on the
reverse side of this form and follow the simple instructions to record your vote. If you do not
vote by telephone or Internet, please sign and date this voting instruction card and return it
promptly in the enclosed postage-paid envelope, or otherwise to National City Bank, P.O. Box
535800, Pittsburgh, PA 15253, so your shares may be represented at the Meeting. If you vote by
telephone or Internet, it is not necessary to return this voting instruction card. D Please fold
and detach card at perforation before mailing. D MANOR CARE, INC. VOTING INSTRUCTIONS
The Trustee is directed to vote as specified below. If your voting instructions are not received by
October 12, 2007 or if no instructions are given, the shares credited to your account will be voted by the
Trustee in accordance with the instructions received with respect to a majority of shares in the
Manor Care, Inc. Stock Fund. Item 1 and Item 2 have been proposed by Manor Care, Inc. In its
discretion the Trustee is authorized to vote upon such other business as may properly come before
the meeting. The Board of Directors recommends a vote FOR Item 1. 1. To adopt the Agreement and
Plan of Merger, dated as of July 2, 2007, between MCHCR-CP Merger Sub Inc. and Manor Care, Inc.
(the Merger Agreement): FOR AGAINST ABSTAIN The Board of Directors
recommends a vote FOR Item 2. 2. To adjourn or postpone the Special Meeting, if necessary or
appropriate: FOR AGAINST ABSTAIN (Continued and to be signed on reverse side.) |