EXHIBIT 2.2
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of November 9, 1995 by and among
Horizon/CMS Healthcare Corporation, a Delaware corporation ("Acquiror"), and
Pacific Rehabilitation & Sports Medicine, Inc., a Delaware corporation (the
"Company").
WHEREAS, concurrently with the execution and delivery of this
Agreement, Acquiror, the Company, and Horizon PRSM Corporation, a Delaware
corporation ("Merger Sub") are entering into an Agreement and Plan of
Merger, dated as of the date hereof (the "Merger Agreement"), which provides,
among other things, upon the terms and subject to the conditions thereof, for
the merger of the Company into Merger Sub (the "Merger"); and
WHEREAS, as a condition to Acquiror's willingness to enter into the
Merger Agreement, Acquiror has requested that the Company agree, and the
Company has so agreed, to grant to Acquiror an option with respect to certain
shares of the Company's common stock, on the terms and subject to the
conditions set forth herein.
NOW, THEREFORE, to induce Acquiror to enter into the Merger Agreement,
and in consideration of the mutual covenants and agreements set forth herein
and in the Merger Agreement, the parties hereto agree as follows:
1. GRANT OF OPTION. The Company hereby grants Acquiror an
irrevocable option (the "Company Option") to purchase from the Company upon
original issue up to a number of shares of common stock, par value $.01 per
share ("Company Common Stock"), of the Company equal to 15% of number of
shares of Common Stock outstanding on date of this Agreement, subject to
adjustment as provided in Section 11 (such shares being referred to herein as
the "Company Shares") in the manner set forth below at an exercise price of
$7.75 per Company Share (the "Exercise Price"), payable at Acquiror's option,
(a) in cash or (b), subject to the Company's having obtained the approvals of
any Governmental Entity (as defined in the Merger Agreement) required for the
Company to acquire the Acquiror Shares (as defined below) from Acquiror, which
approvals the Company shall use all reasonable efforts to obtain, in shares of
common stock, par value $.001 per share, of Acquiror ("Acquiror Shares"), in
either case in accordance with Section 4 hereof. Notwithstanding the
foregoing, in no event shall the number of shares for which the Company Option
is exercisable exceed 15% of the number of issued and outstanding Company
Shares. Capitalized terms used herein but not defined herein shall have the
meanings set forth in the Merger Agreement.
2. EXERCISE OF OPTION. The Company Option may be exercised by
Acquiror, in whole or in part, at any time or from time to time after the
Merger Agreement becomes terminable by Acquiror under circumstances that, if
the Merger Agreement were terminated as a result thereof and a Competing
Transaction (as defined in the Merger Agreement) were consummated before the
Six Month Date (as defined in the Merger Agreement), would entitle Acquiror to
actual expenses (as defined in the Merger Agreement) under Section 6.3(b) of
the Merger Agreement, any event
by which the Merger Agreement becomes so terminable by Acquiror being
referred to herein as a "Trigger Event." For purposes of the Merger Agreement,
the term "Profits" shall mean the aggregate amount received (whether in cash,
loan proceeds, securities or otherwise) by Acquiror in the sale, transfer or
other disposition ("Sale") of Company Shares less the Exercise Price of such
Company Shares sold in the Sale. The Company shall notify Acquiror promptly
in writing of the occurrence of any Trigger Event, it being understood that
the giving of such notice by the Company shall not be a condition to the right
of Acquiror to exercise the Company Option. If Acquiror wishes to exercise the
Company Option, Acquiror shall deliver to the Company a written notice (an
"Exercise Notice") specifying the total number of Company Shares it wishes to
purchase. Each closing of a purchase of Company Shares (a "Closing") shall
occur at a place, on a date and at a time designated by Acquiror in an Exercise
Notice delivered at least two business days prior to the date of the Closing.
The Company Option shall terminate upon the earlier of: (i) the Effective Time;
(ii) the termination of the Merger Agreement pursuant to Section 6.1 thereof
(other than upon or during the continuance of a Trigger Event); or (iii) 180
days following any termination of the Merger Agreement upon or during the
continuance of a Trigger Event (or if, at the expiration of such 180 day
period the Company Option cannot be exercised by reason of any applicable
judgment, decree, order, law or regulation, ten business days after such
impediment to exercise shall have been removed or shall have become final and
not subject to appeal, but in no event under this clause (iii) later than
September 1, 1996). Notwithstanding the foregoing, the Company Option may not
be exercised if Acquiror is in material breach of any of its material
representations or warranties, or in material breach of any of its covenants
or agreements, contained in this Agreement or in the Merger Agreement. Upon
the giving by Acquiror to the Company of the Exercise Notice and the tender of
the applicable aggregate Exercise Price, Acquiror shall be deemed to be the
holder of record of the Company Shares issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such Company Shares shall not then
be actually delivered to Acquiror.
3. CONDITIONS TO CLOSING. The obligation of the Company to issue
the Company Shares to Acquiror hereunder is subject to the conditions, which
(other than the conditions described in clauses (i), (iii) and (iv) below) may
be waived by the Company in its sole discretion, that (i) all waiting periods,
if any, under the HSR Act, applicable to the issuance of the Company Shares
hereunder shall have expired or have been terminated; (ii) the Company Shares,
and any Acquiror Shares which are issued in payment of the Exercise Price,
shall have been approved for listing on either the NYSE or the National
Association of Securities Dealers Automated Quotation System ("NASDAQ"), as
the case may be, upon official notice of issuance; (iii) all consents,
approvals, orders or authorizations of, or registrations, declarations or
filings with, any Governmental Entity, if any, required in connection with the
issuance of the Company Shares hereunder shall have been obtained or made, as
the case may be; and (iv) no preliminary or permanent injunction or other
order by any court of competent jurisdiction prohibiting or otherwise
restraining such issuance shall be in effect.
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4. CLOSING. At any Closing, (a) the Company will deliver to
Acquiror or its designee a single certificate in definitive form representing
the number of the Company Shares designated by Acquiror in its Exercise Notice,
such certificate to be registered in the name of Acquiror and to bear the
legend set forth in Section 11, and (b) Acquiror will deliver to the Company
the aggregate price for the Company Shares so designated and being purchased
by (i) wire transfer of immediately available funds or certified check or bank
check or (ii) subject to the condition in Section 1(b), a certificate or
certificates representing the number of Acquiror Shares being issued by
Acquiror in consideration thereof, as the case may be. For the purposes of
this Agreement, the number of Acquiror Shares to be delivered to the Company
shall be equal to the quotient obtained by dividing (i) the product of (x) the
number of Company Shares with respect to which the Company Option is being
exercised and (y) the Exercise Price by (ii) the Fair Market Value (as
hereinafter defined) of the Acquiror Shares on the date immediately preceding
the date the Exercise Notice is delivered to the Company. As used herein,
the "Fair Market Value" of any share shall be the average of the daily closing
sales price for such share on the New York Stock Exchange (the "NYSE") during
the ten NYSE trading days prior to the fifth NYSE trading day preceding the
date such Fair Market Value is to be determined. The Company shall pay all
expenses, and any and all United States federal, state and local taxes and
other charges that may be payable in connection with the preparation, issue
and delivery of stock certificates under this Section 4 in the name of
Acquiror or its designee.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to Acquiror that (a) the Company has taken all
necessary corporate action to authorize and reserve for issuance and to permit
it to issue, upon exercise of the Company Option, and at all times from the
date hereof through the expiration of the Company Option will have reserved,
1,500,000 authorized and unissued Company Shares, such amount being subject to
adjustment as provided in Section 10, all of which, upon their issuance and
delivery in accordance with the terms of this Agreement, will be validly
issued, fully paid and nonassessable, (b) upon delivery of the Company Shares
to Acquiror upon the exercise of the Company Option, Acquiror will acquire the
Company Shares free and clear of all claims, liens, charges, encumbrances and
security interests of any nature whatsoever, (c) none of the Company, any of
its affiliates or anyone acting on its or their behalf has issued, sold or
offered any security of the Company to any person under circumstances, or
taken any other action, that would cause the issuance and sale of the Option
Shares, as contemplated by this Agreement, to be subject to the registration
requirements of the Securities Act as in effect on the date hereof and,
assuming the representations of Acquiror contained in Section 6(c) are true
and correct, the issuance, sale and delivery of the Option Shares hereunder
upon exercise of the Company Option will be exempt from the registration and
prospectus delivery requirements of the Securities Act, as in effect on the
date hereof and (d) any Acquiror Shares acquired by the Company pursuant to
this Agreement will be acquired for the Company's own account and will not be
acquired by the Company with a view to the distribution thereof in violation
of any applicable provision of the Securities Act.
6. REPRESENTATIONS AND WARRANTIES OF ACQUIROR. Acquiror represents
and warrants to the Company that (a) prior to any delivery of Acquiror Shares
in consideration of the purchase of
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Company Shares pursuant hereto, Acquiror will have taken all necessary
corporate action to authorize for issuance and to permit it to issue such
Acquiror Shares, all of which, upon their issuance and delivery in accordance
with the terms of this Agreement, will be validly issued, fully paid and
nonassessable, (b) upon any delivery of such Acquiror Shares to the Company
in consideration of the purchase of Company Shares pursuant hereto, the
Company will acquire the Acquiror Shares free and clear of all claims, liens,
charges, encumbrances and security interests of any nature whatsoever, (c)
any Company Shares acquired upon exercise of the Company Option will be
acquired for Acquiror's own account, and will not be, and the Company Option
is not being, acquired by Acquiror with a view to the distribution thereof in
violation of any applicable provision of the Securities Act.
7. VOTING OF SHARES. Following the date hereof and prior to the
fifth anniversary of the date hereof (the "Expiration Date"), each party shall
vote any shares of capital stock of the other party acquired by such party
pursuant to this Agreement, including any Acquiror Shares issued pursuant to
Section 1(b) ("Restricted Shares") or otherwise beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934,
as amended (the "Exchange Act") by such party on each matter submitted to a
vote of stockholders of such other party for and against such matter in the
same proportion as the vote of all other stockholders of such other party are
voted (whether by proxy or otherwise) for and against such matter.
8. RESTRICTIONS ON TRANSFER.
(a) RESTRICTIONS ON TRANSFER. Prior to the Expiration Date,
neither party shall, directly or indirectly, by operation of law or otherwise,
sell, assign, pledge, or otherwise dispose of or transfer any Restricted
Shares beneficially owned by such party, other than in accordance with
Section 8(b) or Section 9.
(b) PERMITTED SALES. Following the termination of the Merger
Agreement, a party shall be permitted to sell any Restricted Shares
beneficially owned by it if such sale is made pursuant to a tender or exchange
offer that has been approved or recommended, or otherwise determined to be
fair to and in the best interests of the stockholders of the other party, by a
majority of the members of the Board of Directors of such other party which
majority shall include a majority of directors who were directors prior to the
announcement of such tender or exchange offer.
9. REGISTRATION RIGHTS. Following the termination of the Merger
Agreement, each party hereto (a "Designated Holder") may by written notice
(the "Registration Notice") to the other party (the "Registrant") request the
Registrant to register under the Securities Act all or any part of the
Restricted Shares beneficially owned by such Designated Holder (the
"Registrable Securities") pursuant to a bona fide firm commitment underwritten
public offering in which the Designated Holder and the underwriters shall
effect as wide a distribution of such Registrable Securities as is reasonably
practicable and shall use all reasonable efforts to prevent any Person
(including any Group) and its affiliates from purchasing through such offering
Restricted Shares
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representing more than 1% of the outstanding shares of common stock of the
Registrant on a fully diluted basis (a "Permitted Offering"). The
Registration Notice shall include a certificate executed by the Designated
Holder and its proposed managing underwriter, which underwriter shall be an
investment banking firm of nationally recognized standing (the "Manager"),
stating that (i) they have a good faith intention to commence promptly a
Permitted Offering and (ii) the Manager in good faith believes that, based on
the then prevailing market conditions, it will be able to sell the
registrable Securities at a per share price equal to at least 80% of the then
Fair Market Value of such shares. The Registrant (and/or any Person
designated by the Registrant) shall thereupon have the option exercisable by
written notice delivered to the Designated Holder within ten business days
after the receipt of the Registration Notice, irrevocably to agree to
purchase all or any part of the Registrable Securities for cash at a price
(the "Option Price") equal to the product of (i) the number of Registrable
Securities and (ii) the then Fair Market Value of such shares. Any such
purchase of Registrable Securities by the Registrant (or its designee)
hereunder shall take place at a closing to be held at the principal executive
offices of the Registrant or at the offices of its counsel at any reasonable
date and time designated by the Registrant and/or such designee in such
notice within 20 business days after delivery of such notice. Any payment
for the shares to be purchased shall be made by delivery at the time of such
closing of the Option Price in immediately available funds.
If the Registrant does not elect to exercise its option pursuant
to this Section 10 with respect to all Registrable Securities, it shall use
all reasonable efforts to effect, as promptly as practicable, the registration
under the Securities Act of the unpurchased Registrable Securities; PROVIDED,
HOWEVER, that (i) neither party shall be entitled to more than an aggregate of
two effective registration statements hereunder and (ii) the Registrant will
not be required to file any such registration statement during any period of
time (not to exceed 40 days after such request in the case of clause (A) below
or 90 days in the case of clauses (B) and (C) below) when (A) the Registrant
is in possession of material non-public information which it reasonably
believes would be detrimental to be disclosed at such time, and in the opinion
of counsel to the Registrant, such information would have to be disclosed if a
registration statement were filed at that time; (B) the Registrant is required
under the Securities Act to include audited financial statements for any
period in which registration statement and such financial statements are not
yet available for inclusion in such registration statement; or (C) the
Registrant determines, in its reasonable judgment, that such registration
would interfere with any financing, acquisition or other material transaction
involving the Registrant or any of its affiliates. The Registrant shall use
reasonable efforts to cause any Registrable Securities registered pursuant to
this Section 9 to be qualified for sale under the securities or Blue Sky laws
of such jurisdictions as the Designated Holder may reasonably request and
shall continue such registration or qualification in effect in such
jurisdiction; PROVIDED, HOWEVER, that the Registrant shall not be required to
qualify to do business in, or consent to general service of process in, any
jurisdiction by reason of this provision.
The registration rights set forth in this Section 9 are subject
to the condition that the Designated Holder shall provide the Registrant with
such information with respect to such holder's Registrable Securities, the
plans for the distribution thereof, and such other information
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with respect to such holder as, in the reasonable judgment of counsel for the
Registrant, is necessary to enable the Registrant to include in such
registration statement all material facts required to be disclosed with
respect to a registration thereunder.
A registration effected under this Section 9 shall be effected
at the Registrant's expense, except for underwriting discounts and commissions
and the fees and the expenses of counsel to the Designated Holder, and the
Registrant shall provide to the underwriters such documentation (including
certificates, opinions of counsel and "comfort" letters from auditors) as are
customary in connection with underwritten public offerings as such
underwriters may reasonably require. In connection with any such
registration, the parties agree (i) to indemnify each other and the
underwriters in the customary manner, (ii) to enter into an underwriting
agreement in form and substance customary for transactions of such type with
the Manager and the other underwriters participating in such offering and
(iii) to take all further actions which shall be reasonably necessary to
effect such registration and sale (including, if the Manager deems it
necessary, participating in road-show presentations).
The Registrant shall be entitled to include (at its expense)
additional shares of its common stock in a registration effected pursuant to
this Section 9 only if and to the extent the Manager determines that such
inclusion will not adversely affect the prospects for success of such
offering.
10. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. Without limiting any
restriction on the Company contained in this Agreement or in the Merger
Agreement, in the event of any change in Company Common Stock by reason of
stock dividends, splitups, mergers (other than the Merger),
recapitalizations, combinations, exchange of shares or the like, the type and
number of shares or securities subject to the Company Option, and the purchase
price per share provided in Section 1, shall be adjusted appropriately to
restore to Acquiror its rights hereunder, including the right to purchase from
the Company (or its successors) shares of Company Common Stock representing
15% of the outstanding Company Common Stock for the aggregate Exercise Price
calculated as of the date of this Agreement as provided in Section 1.
11. RESTRICTIVE LEGENDS. Each certificate representing shares of
Company Common Stock issued to Acquiror hereunder, and Acquiror Shares, if
any, delivered to the Company at a Closing, shall include a legend in
substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY
BE REOFFERED OR SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM
SUCH REGISTRATION IS AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT
TO ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN THE STOCK
OPTION AGREEMENT, DATED AS OF NOVEMBER 9, 1995, A COPY OF WHICH
MAY BE OBTAINED FROM THE ISSUER UPON REQUEST.
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It is understood and agreed that: (i) the reference to the resale
restrictions of the Securities Act in the above legend shall be removed by
delivery of substitute certificate(s) without such reference if Acquiror or
the Company, as the case may be, shall have delivered to the other party a
copy of a letter from the staff of the Securities and Exchange Commission, or
an opinion of counsel, in form and substance satisfactory to the other party,
to the effect that such legend is not required for purposes of the Securities
Act; (ii) the reference to the provisions to this Agreement in the above
legend shall be removed by delivery of substitute certificate(s) without such
reference if the shares have been sold or transferred in compliance with the
provisions of this Agreement and under circumstances that do not require the
retention of such reference; and (iii) the legend shall be removed in its
entirety if the conditions in the preceding clauses (i) and (ii) are both
satisfied. In addition, such certificates shall bear any other legend as may
be required by law. Certificates representing shares sold in a registered
public offering pursuant to Section 10 shall not be required to bear the
legend set forth in this Section 11.
12. BINDING EFFECT; NO ASSIGNMENT; NO THIRD PARTY BENEFICIARIES.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns. Except as
expressly provided for in this Agreement, neither this Agreement nor the rights
or the obligations of either party hereto are assignable, except by operation
of law, or with the written consent of the other party. Nothing contained in
this Agreement, express or implied, is intended to confer upon any person other
than the parties hereto and their respective permitted assigns any rights or
remedies of any nature whatsoever by reason of this Agreement. Any Restricted
Shares sold by a party in compliance with the provisions of Section 9 shall,
upon consummation of such sale, be free of the restrictions imposed with
respect to such shares by this Agreement, unless and until such party shall
repurchase or otherwise become the beneficial owner of such shares, and any
transferee of such shares shall not be entitled to the registration rights of
such party.
13. SPECIFIC PERFORMANCE. The parties hereby acknowledge and agree
that the failure of the Company to perform its agreement and covenants
hereunder will cause irreparable injury to the Acquiror for which damages,
even if available, will not be an adequate remedy. Accordingly, the Company
hereby consents to the issuance of injunctive relief by any court of competent
jurisdiction to compel performance of the Company's obligations and to the
granting by any such court of the remedy of specific performance of its
obligations hereunder.
14. ENTIRE AGREEMENT. This Agreement and the Merger Agreement
(including the exhibits and schedules thereto) constitute the entire agreement
of the parties, and supersedes all prior agreements and undertakings, both
written and oral, among the parties, with respect to the subject matter
hereof.
15. FURTHER ASSURANCES. Each party will execute and deliver all
such further documents and instruments and take all such further action as may
be necessary in order to consummate the transactions contemplated hereby.
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16. VALIDITY. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of the other
provisions of this Agreement, which shall remain in full force and effect. If
any court or other competent authority holds any provisions of this Agreement
to be null, void or unenforceable, the parties hereto shall negotiate in good
faith the execution and delivery of an amendment to this Agreement in order,
as nearly as possible, to effectuate, to the extent permitted by law, the
intent of the parties hereto with respect to such provision and the economic
effects thereof. Each party agrees that, should any court or other competent
authority hold any provision of this Agreement or part hereof to be null, void
or unenforceable, or order any party to take any action inconsistent herewith,
or not take any action required herein, the other party shall not be entitled
to specific performance of such provision or part hereof or to any other
remedy, including without limitation money damages, for breach hereof or of
any other provision of this Agreement or part hereof as the result of such
holding or order.
17. NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given in the manner provided in the Merger
Agreement.
18. 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 law.
19. HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
20. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
21. EXPENSES. Except as otherwise expressly provided herein or in
the Merger Agreement, all costs and expenses incurred in connection with the
transactions contemplated by this Agreement shall be paid by the party
incurring such expenses.
22. AMENDMENTS; WAIVER. This Agreement may be amended by the
parties hereto and the terms and conditions hereof may be waived only by
an instrument in writing signed on behalf of each of the parties hereto or,
in the case of a waiver, by an instrument signed on behalf of the party
waiving compliance.
23. EXTENSION OF TIME PERIODS. The time periods for exercise of
certain rights under Sections 2 and 6 shall be extended (i) to the extent
necessary to obtain all regulatory approvals for the exercise of such rights,
and for the expiration of all statutory waiting periods and (ii) to the extent
necessary to avoid any liability under Section 16(b) of the Exchange Act by
reason of such exercise.
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24. REPLACEMENT OF COMPANY OPTION. Upon receipt by the Company of
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of this Agreement, and (in the case of loss, theft or destruction)
of reasonably satisfactory indemnification, and upon urrender and cancellation
of this Agreement, if mutilated, the Company will execute and deliver a new
Agreement of like tenor and date.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective duly authorized officers as of the date first
above written.
HORIZON/CMS HEALTHCARE CORPORATION
By /s/ Xxxxxxx X. Xxxxxxxx
-----------------------------------
Name: Xxxxxxx X. Xxxxxxxx
Title: Senior Vice President of
Subsidiary Operations
PACIFIC REHABILITATION & SPORTS
MEDICINE, INC.
By /s/ Xxxx X. Xxxxxxxxx
-----------------------------------
Name: Xxxx X. Xxxxxxxxx
Title: Chairman of the Board and
Chief Executive Officer
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