AMENDED AND RESTATED
MEMORANDUM OF UNDERSTANDING
November 28, 2001
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THIS AMENDED AND RESTATED MEMORANDUM OF UNDERSTANDING (this "Agreement")
confirms the agreements among Anam LLC, a Delaware limited liability company
("Parent"), TRIOD LLC, a Delaware limited liability company ("TRIOD"), ODE,
L.L.C., a Delaware limited liability company ("ODE"), ▇▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇▇▇, ▇▇.,
in his individual capacity ("▇▇. ▇'▇▇▇▇▇▇▇"), and ▇▇▇▇▇▇ ▇. ▇▇▇▇, in his
individual capacity ("▇▇. ▇▇▇▇"), in connection with Parent's agreement to
acquire NextHealth, Inc., a Delaware corporation ("NextHealth"), pursuant to an
Agreement and Plan of Merger dated as of April 16, 2001 by and among Parent, NHI
Acquisition Corp., a Delaware corporation which is a wholly-owned subsidiary of
Parent ("NHI"), and NextHealth, as amended by a First Amendment to Agreement and
Plan of Merger dated as of the date hereof among NextHealth, Parent and NHI
(such Agreement and Plan of Merger as so amended, the "Merger Agreement").
Capitalized terms used but not defined herein shall have the respective meanings
ascribed to such terms in the Merger Agreement.
1. General Statement of Purpose. Parent, TRIOD and NHI were formed by Mr.
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▇'▇▇▇▇▇▇▇ and ▇▇. ▇▇▇▇ (collectively, the "Initial Investors") to acquire all of
the stock and assets of NextHealth and its subsidiaries through a series of
transactions, including the Merger, as contemplated in the Merger Agreement and
this Agreement (collectively, with the other transactions discussed below, the
"Acquisition/Merger Transactions"). The Initial Investors, Parent, NHI and ODE
have concluded that it would be desirable to effect the Acquisition/Merger
Transactions. To that end, the parties hereto have executed a Memorandum of
Understanding dated as of April 16, 2001 (the "Original Agreement") to confirm
their binding agreements. This Agreement amends and restates the Original
Agreement as set forth herein. The Initial Investors, Parent, NHI and ODE agree
that this Agreement shall terminate and cease to be of effect upon the
termination of the Merger Agreement or upon the execution of definitive
agreements with respect to the matters set forth herein.
2. Capitalization of Parent; Amended and Restated Voting and Contribution
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Agreement. Each of the Initial Investors have acquired a membership interest in
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Parent (a "Parent Interest") in exchange for an initial capital contribution.
Parent has entered into an Amended and Restated Voting and Contribution
Agreement dated as of the date hereof (the "Amended and Restated Voting and
Contribution Agreement") with the NextHealth stockholders named therein,
including the Initial Investors. Pursuant to the Amended and Restated Voting and
Contribution Agreement, each of the NextHealth stockholders who has executed, or
are joined to, the Amended and Restated Voting and Contribution Agreement
(collectively, the "Stockholders") has agreed, subject to the terms and
conditions set forth therein, to (i) grant Parent an irrevocable proxy to vote
such Stockholder's Shares (as defined in the Amended and Restated Voting and
Contribution Agreement) in favor of the Merger, the Merger Agreement and the
transactions contemplated thereby, (ii) contribute such Stockholder's Shares to
Parent immediately prior to the Effective Date of the Merger in exchange for a
proportionate Parent Interest and (iii) have
such Stockholder's Options (as defined in the Amended and Restated Voting and
Contribution Agreement) cancelled pursuant to Section 2.4 of the Merger
Agreement. The parties hereto anticipate that Parent's total capitalization will
consist of the initial capital contributions of the Initial Investors and the
Shares contributed by the Stockholders to Parent pursuant to the Amended and
Restated Voting and Contribution Agreement.
3. Capitalization of TRIOD. Each of the Initial Investors has directly or
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indirectly acquired a membership interest in TRIOD (a "TRIOD Interest") in
exchange for an initial capital contribution. ODE and ▇▇. ▇▇▇▇ agree to
contribute to TRIOD capital in exchange for a proportionate TRIOD Interest
which, in the case of ODE, shall consist of its ownership interest in the
buildings and improvements in which Sierra Tucson, LLC's business is operated
(valued at $5 million by the parties hereto) and, in the case of ▇▇. ▇▇▇▇, shall
consist of $3 million in cash. As of the date hereof, the parties hereto expect
that the initial capital contributed by the Initial Investors, together with the
capital to be contributed by ▇▇▇ and ▇▇. ▇▇▇▇ described above and the capital to
be contributed by the Surviving Corporation described in clause (iv) of
paragraph 5 below, will constitute the total capitalization of TRIOD.
4. Acquisition Debt. As of the date hereof, the parties hereto expect that
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senior secured and mezzanine debt financing in an aggregate principal amount of
between $62 million and $66 million (the "Acquisition Debt") will be obtained by
Parent and TRIOD from three or more third party lenders to finance a portion of
the Merger Consideration. The parties hereto believe that the Acquisition Debt,
together with the capital to be contributed to Parent pursuant to the Amended
and Restated Voting and Contribution Agreement and the capital to be contributed
to TRIOD discussed in paragraph 3 above, will be sufficient to consummate the
Acquisition/Merger Transactions. To the extent that such amounts (together with
any cash held by NextHealth and acquired in the Merger) are insufficient to
consummate the Acquisition/Merger Transactions, Parent and TRIOD shall seek to
obtain the necessary additional funds from debt financing arrangements with
other third party lenders and/or additional equity financing in TRIOD by non-
affiliated investors.
5. Acquisition/Merger Transactions. As contemplated in the Merger Agreement
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and this Agreement, the Acquisition/Merger Transactions will consist of (i) the
purchase by TRIOD of (a) AP NH, LLC's 2% minority interest in Sierra Tucson, LLC
for $545,000 and (b) certain NextHealth assets selected by TRIOD with a purchase
price of up to $50 million (such purchase to be structured in a manner to
utilize NextHealth's available net operating losses to achieve certain tax
benefits for Parent and TRIOD following the completion of the Merger); (ii) the
Merger (with NextHealth as the surviving corporation (the "Surviving
Corporation")); (iii) the merger of Health-Styles Inc. with and into a newly-
formed limited liability company which will be a wholly-owned subsidiary of the
Surviving Corporation (with such limited liability company as the surviving
entity); (iv) the contribution by the Surviving Corporation of all of its assets
(including its interests in its subsidiaries) to TRIOD in exchange for a
proportionate TRIOD Interest; (v) the dissolution of Parent and the distribution
of the stock of the Surviving Corporation held by Parent to the holders of
Parent Interests; and (vi) the election by the Surviving Corporation (with the
consent of its stockholders) to be treated as a "small business corporation" for
Federal income tax purposes under Section 1362 of the Code, effective for the
taxable year beginning January 1, 2003. Each of the transactions described in
the preceding
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sentence (other than the transaction listed in clause (vi)) shall occur on the
Closing Date in the order listed, with each transaction occurring immediately
before the transaction listed immediately after it.
6. Certain Governance Matters. Subject to an agreement by the parties hereto
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to the contrary (such agreement shall be set forth in the applicable definitive
organizational documents and agreements), until the completion of the
Acquisition/Merger Transactions, each of Parent and TRIOD will be governed by
the Initial Investors, acting as the sole managers, and NHI will be governed by
a board of directors consisting of the Initial Investors. After the completion
of the Acquisition/Merger Transactions, Parent will be dissolved and the
Surviving Corporation (whose board of directors shall, by virtue of the Merger,
consist of the Initial Investors) and TRIOD shall be governed as follows:
(a) Surviving Corporation. At the request of ▇▇. ▇'▇▇▇▇▇▇▇, ▇▇. ▇▇▇▇
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shall resign from the board of directors of the Surviving Corporation prior to
the dissolution of Parent (and in connection therewith, ▇▇. ▇'▇▇▇▇▇▇▇ shall be
entitled to purchase ▇▇. ▇▇▇▇'▇ Parent Interest for the amount of ▇▇. ▇▇▇▇'▇
capital contribution to Parent).
(b) TRIOD. ▇▇ ▇'▇▇▇▇▇▇▇ and ▇▇. ▇▇▇▇ shall continue to be the sole
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managers of TRIOD (the "TRIOD Managers"). Except as otherwise provided in the
definitive operating agreement for TRIOD (the "TRIOD LLC Agreement") or by
Delaware law, the management and control of TRIOD and its business shall be
vested exclusively in the TRIOD Managers, and the non-managing members will not
have any right, power or authority to take part in the management or conduct of
TRIOD and its business. Notwithstanding the foregoing, the approval of the
members shall be required for (i) consolidations, mergers or joint ventures;
(ii) admitting new members or substitute members (other than as expressly
permitted in the TRIOD LLC Agreement); (iii) any act in contravention of the
TRIOD LLC Agreement; (iv) changing TRIOD's purpose or business; or (v) amending
the TRIOD LLC Agreement or TRIOD's certificate of formation.
7. Compliance With Securities Laws. In connection with their execution and
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delivery of this Agreement, the parties hereto acknowledge and agree to comply
with all applicable Federal and state securities laws.
8. ▇▇▇▇▇▇▇ Money Deposit. The parties hereto acknowledge that, in accordance
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with Section 7.5(a) of the Merger Agreement, ▇▇. ▇'▇▇▇▇▇▇▇ has obtained and
delivered to the Special Committee an irrevocable letter of credit in the amount
of $3 million (the "Letter of Credit") which names the Special Committee as the
beneficiary thereof. In the event that the Special Committee draws funds under
the Letter of Credit for the benefit of NextHealth pursuant to the terms and
conditions set forth in the Merger Agreement that are not subsequently refunded,
▇▇. ▇▇▇▇ shall promptly reimburse ▇▇. ▇'▇▇▇▇▇▇▇ an amount, payable in
immediately available funds, equal to 12.5% of the amount so drawn.
9. Participation Fee. In the event that additional equity financing in TRIOD
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is obtained from non-affiliated investors (the "Additional Equity Holders") in
order to complete the Acquisition/Merger Transactions, the parties hereto
anticipate that the Additional Equity Holders
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will pay a fee (a "Participation Fee") in connection with their participation in
the Acquisition/Merger Transactions. At Closing, the Participation Fee, if any,
received from the Additional Equity Holders shall be paid to the Initial
Investors in the following order of priority: (i) first, to ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ &
Company, LLC ("▇▇▇▇▇▇▇"), an Affiliate of ▇▇. ▇▇▇▇, an amount up to and
including $500,000 as an investment advisory fee in connection with the
Acquisition/Merger Transactions, (ii) second, to ▇▇. ▇'▇▇▇▇▇▇▇, the excess
amount of such fee up to and including $500,000, and (iii) third, in the event
that such fee exceeds $1 million, 50% of such excess amount to ▇▇▇▇▇▇▇, and 50%
of such excess amount to ▇▇. ▇'▇▇▇▇▇▇▇.
10. Termination Fee; Reimbursed Fees and Expenses. The parties hereto agree
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that in the event that Parent is entitled to receive the Termination Fee
pursuant to Section 7.4 of the Merger Agreement, such fee shall be paid to the
Initial Investors as follows: (i) 66.67% of the Termination Fee shall be paid to
▇▇. ▇'▇▇▇▇▇▇▇ and (ii) 33.33% of the Termination Fee shall be paid to ▇▇▇▇▇▇▇ as
an investment advisory fee in connection with the Acquisition/Merger
Transactions. In the event that the Company is entitled to receive Fees and
Expenses pursuant to Section 7.4 of the Merger Agreement, Parent shall promptly
use such monies to pay all fees and expenses incurred by it, TRIOD, NHI and
their Affiliates in connection with this Agreement and the Merger Agreement and
the transactions contemplated hereby and thereby.
11. Fees and Expenses. Except as set forth in paragraph 10 hereof, in the
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event that the Merger is not consummated, all fees and expenses incurred in
connection with the Merger Agreement and this Agreement and the transactions
contemplated thereby and hereby (which in the case of ▇▇▇▇▇▇▇, shall consist
solely of ▇▇▇▇▇▇▇'▇ out-of-pocket expenses) shall be paid by the Initial
Investors as follows: (i) 66.67% of such fees and expenses shall be paid by ▇▇.
▇'▇▇▇▇▇▇▇ and (ii) 33.33% of such fees and expenses shall be paid by ▇▇. ▇▇▇▇.
12. Binding Agreement; Standard of Conduct. The terms of the agreements herein
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shall be more fully set forth in definitive documentation, which each of the
parties hereto agrees to negotiate in good faith. Subject to the negotiation and
execution of such definitive documentation and the reaching of agreement on
other matters contemplated but not specifically addressed herein, each of the
parties hereto acknowledges and agrees that this Agreement is intended as a
binding agreement among them with respect to the matters set forth herein.
13. Parties in Interest. This Agreement shall be binding upon and inure solely
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to the benefit of each party hereto, and nothing in this Agreement, express or
implied, is intended to confer upon any other person any rights or remedies of
any nature whatsoever under or by reason of Agreement. 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. Subject to the preceding
sentence, this Agreement shall be binding upon, inure to the benefit of, and be
enforceable by, the parties and their respective successors and assigns.
14. Governing Law. This Agreement shall be governed by, and construed in
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accordance with, the laws of the State of Illinois, without regard to any
applicable conflicts of law.
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15. Counterparts. This Agreement may be executed in one or more counterparts,
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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.
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IN WITNESS WHEREOF, each of the parties hereto has executed this Amended
and Restated Memorandum of Understanding as of the date first above written.
ANAM LLC,
a Delaware limited liability company
/s/ ▇▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇▇▇, ▇▇.
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By: ▇▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇▇▇, ▇▇.
President and Chief Executive Officer
TRIOD LLC,
a Delaware limited liability company
/s/ ▇▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇▇▇, ▇▇.
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By: ▇▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇▇▇, ▇▇.
President and Chief Executive Officer
ODE, L.L.C.,
a Delaware limited liability company
/s/ ▇▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇▇▇, ▇▇.
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By: ▇▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇▇▇, ▇▇.
/s/ ▇▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇▇▇, ▇▇.
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▇▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇▇▇, ▇▇.,
in his individual capacity
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇
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▇▇▇▇▇▇ ▇. ▇▇▇▇,
in his individual capacity
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