<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 18, 1996
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
UNISON HEALTHCARE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
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<S> <C> <C>
DELAWARE 8050 86-0684011
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
7272 EAST INDIAN SCHOOL ROAD, SUITE 214
SCOTTSDALE, ARIZONA 85251
(602) 423-1954
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JERRY M. WALKER
UNISON HEALTHCARE CORPORATION
7272 EAST INDIAN SCHOOL ROAD, SUITE 214
SCOTTSDALE, ARIZONA 85251
(602) 423-1954
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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<S> <C>
P. ROBERT MOYA, ESQ. GEORGE T. JOHNS, ESQ.
QUARLES & BRADY TRACY & HOLLAND, L.L.P.
ONE EAST CAMELBACK ROAD 306 WEST SEVENTH STREET
SUITE 400 SUITE 500
PHOENIX, ARIZONA 85012-1649 FORT WORTH, TEXAS 76102-4982
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement and certain
other conditions under the Agreement and Plan of Merger are met or waived.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: / /
------------------------
CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE FEE
- --------------------------------------------------------------------------------------------------
Common Stock, $.001 par value..... 540,000 shares $3.22(1) $1,737,000(1) $599(1)
==================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee and
computed pursuant to Rule 457(f)(2) of the Securities Act of 1933 based on
the book value of the securities of American Professional Holding, Inc.
("Ampro") and of Memphis Clinical Laboratory, Inc. ("Memphis") to be
received by Unison HealthCare Corporation ("Unison") in the proposed mergers
(the "Ampro Merger" and the "Memphis Merger," respectively) of wholly-owned
subsidiaries of Unison into Ampro and Memphis, respectively.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K AND RULE 404(A) SHOWING
LOCATION IN PROSPECTUS/PROXY AND INFORMATION STATEMENT,
AND PROSPECTUS/INFORMATION STATEMENT SUPPLEMENT OF INFORMATION REQUIRED BY FORM
S-4
<TABLE>
<CAPTION>
LOCATION IN PROSPECTUS/PROXY LOCATION IN
FORM S-4 ITEM AND CAPTION AND INFORMATION STATEMENT PROSPECTUS/INFORMATION STATEMENT SUPPLEMENT
--------------------------------- --------------------------------- --------------------------------------------
<S> <C> <C> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus....... Facing Page; Outside Front Cover Prospectus/Information Statement Supplement:
Page Facing Page; Outside Front Cover Page
2. Inside Front and Outside Back
Cover Pages of Prospectus...... Inside Front Cover Page of Inside Front Cover Page; Available
Prospectus/Proxy and Information; Table of Contents
Information Statement;
Available Information; Table of
Contents
3. Risk Factors, Ratio of Earnings
to Fixed Charges and Other
Information.................... Summary; Summary -- The Company; Summary; Summary -- The Companies
Risk Factors
(a).............................. Summary -- The Company Summary -- The Companies
(b).............................. Summary -- The Company Summary -- The Companies
(c).............................. * Summary -- The Ampro and Memphis Merger
Agreements
(d).............................. Summary -- Summary Historical and Summary -- Selected Historical and Pro Forma
Pro Forma Combined Financial Financial Data
Data
(e).............................. Summary -- Summary Historical and Summary -- Selected Historical and Pro Forma
Pro Forma Combined Financial Financial Data
Data
(f).............................. Summary -- Summary Historical and Summary -- Selected Historical and Pro Forma
Pro Forma Combined Financial Financial Data
Data
(g).............................. Summary -- Market Price Data and Summary -- Market Price Data and Dividends
Dividends
(h).............................. * Summary -- Shareholder Approvals
(i).............................. * Summary -- Regulatory Requirements
(j).............................. * Summary -- Dissenters' Rights
(k).............................. * Summary -- Certain Federal Income Tax
Consequences
4. Terms of the Transaction
(a)(1)........................... Recent and Pending Unison The Ampro and Memphis Mergers
Acquisitions and Other
Commitments -- Pending
Acquisitions
(2).............................. * The Ampro and Memphis Mergers -- Reasons for
the Ampro and Memphis Mergers,
Recommendation of Boards of Directors
(3).............................. Description of Unison Capital *
Stock
(4).............................. * Comparison of Shareholder Rights
(5).............................. * Summary -- Anticipated Accounting Treatment;
The Ampro and Memphis Mergers --
Anticipated Accounting Treatment
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
LOCATION IN PROSPECTUS/PROXY LOCATION IN
FORM S-4 ITEM AND CAPTION AND INFORMATION STATEMENT PROSPECTUS/INFORMATION STATEMENT SUPPLEMENT
--------------------------------- --------------------------------- --------------------------------------------
<S> <C> <C> <C>
(6).............................. * Summary -- Certain Federal Income Tax
Consequences; The Ampro and Memphis
Mergers -- Certain Federal Income Tax
Consequences
(b).............................. * *
5. Pro Forma Financial
Information.................... Unison Unaudited Pro Forma Summary -- Selected Historical and Pro Forma
Condensed Combined Financial Financial Data; Unaudited Pro Forma
Statements Condensed Combined Financial Statements
6. Material Contracts with the
Company Being Acquired......... * The Ampro and Memphis Mergers: Material
Contracts
7. Additional Information Required
for Reoffering by Persons and
Parties Deemed to be
Underwriters................... * *
8. Interests of Named Experts and
Counsel........................ * *
9. Disclosure of Commission Position
on Indemnification for
Securities Act Liabilities..... * *
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3
Registrants.................... * *
11. Incorporation of Certain
Information by Reference....... * *
12. Information with Respect to S-2
or S-3 Registrants............. * *
13. Incorporation of Certain
Information by Registrants..... * *
14. Information with Respect to
Registrants Other Than S-3 or
S-2 Registrants
(a).............................. Business of Unison *
(b).............................. Business of Unison -- Properties *
(c).............................. Business of Unison -- Legal *
Proceedings
(d).............................. Summary -- Market Price Data and Summary -- Market Price Data and Dividends
Dividends
(e).............................. Financial Statements -- Unison *
HealthCare Corporation;
Financial
Statements -- BritWill
HealthCare Company; Financial
Statements -- American
Professional Holding, Inc.;
Financial Statements -- Memphis
Clinical Laboratory, Inc.;
Financial Statements --
Signature Health Care
Corporation; Financial
Statements -- Arkansas, Inc.,
Cornerstone Care, Inc., Douglas
Manor, Inc., and Safford Care,
Inc.; Financial
Statements -- The Oaks of
Boise; Financial
Statements -- Nightingale West,
Inc.; Financial Statements --
Henderson and Associates
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
LOCATION IN PROSPECTUS/PROXY LOCATION IN
FORM S-4 ITEM AND CAPTION AND INFORMATION STATEMENT PROSPECTUS/INFORMATION STATEMENT SUPPLEMENT
--------------------------------- --------------------------------- --------------------------------------------
<S> <C> <C> <C>
Rehabilitation and Sunbelt
Therapy Management Services,
Inc.; Financial Statement
Schedules -- Unison HealthCare
Corporation; Financial
Statement Schedules -- BritWill
HealthCare Company; Financial
Statement
Schedules -- Signature Health
Care Corporation; Financial
Statement
Schedules -- Arkansas, Inc.,
Cornerstone Care, Inc., Douglas
Manor, Inc., and Safford Care,
Inc.
(f).............................. Summary -- Summary Unaudited Pro *
Forma Condensed Combined
Financial Statements
(g).............................. * *
(h).............................. Unison Management's Discussion *
and Analysis of Financial
Condition and Results of
Operations
(i).............................. * *
C. INFORMATION ABOUT THE COMPANY
BEING ACQUIRED
15. Information with Respect to S-3
Companies...................... * *
16. Information with Respect to S-2
or S-3 Companies............... * *
17. Information with Respect to
Companies Other Than
S-2 or S-3
(a).............................. * *
(b)(1)........................... * Business of Ampro and Memphis
(2).............................. * Summary -- Market Price Data and Dividends
(3).............................. * Ampro and Memphis Selected Financial Data
(4).............................. * *
(5).............................. * Ampro Management's Discussion and Analysis
of Financial Condition and Results of
Operations; Memphis Management's
Discussion and Analysis of Financial
Condition and Results of Operations
(6).............................. * *
(7).............................. * *
(8).............................. * *
(9).............................. * *
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents
or Authorizations are to be
Solicited...................... * *
19. Information if Proxies, Consents
or Authorizations are not to be
Solicited in an Exchange
Offer..........................
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
LOCATION IN PROSPECTUS/PROXY LOCATION IN
FORM S-4 ITEM AND CAPTION AND INFORMATION STATEMENT PROSPECTUS/INFORMATION STATEMENT SUPPLEMENT
--------------------------------- --------------------------------- --------------------------------------------
<S> <C> <C> <C>
(a)(1)........................... * Outside Front Cover Page
(2).............................. * Notice of Special Combined Meeting of
Shareholders
(3).............................. * Summary -- Dissenters' Rights; Rights of
Dissenting Shareholders
(4).............................. * Summary -- Interests of Certain Persons in
the Ampro and Memphis Mergers; Conflicts of
Interest; The Ampro and Memphis Mergers --
Interests of Certain Persons in the Ampro
and Memphis Mergers
(5).............................. Principal Stockholders Principal Shareholders of Ampro and Memphis
(6).............................. * Notice of Special Combined Meeting of
Shareholders; Summary -- Purpose of Ampro/
Memphis Special Meeting, Votes Required
and Quorum
(7)(i)........................... Unison Management -- Directors *
and Executive Officers
(ii)............................. Unison Management -- Executive *
Compensation
(iii)............................ Certain Transactions *
(b).............................. * *
(c).............................. * *
</TABLE>
<PAGE> 6
AMERICAN PROFESSIONAL HOLDING, INC.
10925 ESTATE LANE, SUITE 390
DALLAS, TEXAS 75238
MEMPHIS CLINICAL LABORATORY, INC.
4088 BARTON
MEMPHIS, TENNESSEE 38116
, 1996
Dear Shareholder:
The documents following this letter are a Notice of Special Combined
Meeting of Shareholders, a Prospectus/Information Statement Supplement and a
Prospectus/Proxy and Information Statement for a special combined meeting of
shareholders of both American Professional Holding, Inc. ("Ampro") and Memphis
Clinical Laboratory, Inc. ("Memphis") to be held at 10:00 a.m., local time, on
, 1996 at the offices of Ampro. This meeting is of great importance to
the shareholders of Ampro and Memphis. Ampro shareholders will be asked to
consider and approve an Agreement and Plan of Merger among Unison HealthCare
Corporation ("Unison"), Labco Acquisition Co., a wholly-owned subsidiary of
Unison ("Labco"), and Ampro as a part of an overall pooling transaction in which
Unison will acquire Ampro and Memphis. Memphis shareholders will be asked to
consider and approve a similar Agreement and Plan of Merger among Unison,
Memphis Acquisition Co., ("Memco") and Memphis.
If shareholder approval is obtained, and subject to satisfaction of other
conditions precedent, Ampro and Memphis will both become wholly-owned
subsidiaries of Unison. In the mergers, the outstanding capital stock of Ampro
will be converted into the right to receive shares of the $.001 par value common
stock of Unison (the "Unison Common Stock"), with shareholders of Ampro entitled
to receive a pro rata number of such shares, and the outstanding capital stock
of Memphis will be converted either into the right to receive Unison Common
Stock or, for one Memphis shareholder, the right to receive cash and a
promissory note. As described in greater detail in the Prospectus/Information
Statement Supplement, the total number of shares of Unison Common Stock to be
issued by Unison in the Ampro Merger, subject to the adjustments provided for in
the agreements, will be 521,000, while 19,000 shares of Unison Common Stock, a
$250,000 promissory note, and cash of approximately $240,000 will be issued and
paid in the Memphis Merger.
Information regarding the proposed transaction, as well as other recent and
pending acquisitions by Unison, and information concerning Unison is set forth
in the accompanying Prospectus/Information Statement Supplement and
Prospectus/Proxy and Information Statement, which we urge you to examine
carefully.
The Boards of both Ampro and Memphis believe that the mergers will benefit
their respective shareholders in that the transactions will permit them to serve
a greater number of facilities. Ampro Shareholders may also benefit by
exchanging their shares in Ampro, in a tax-free transaction, for a marketable
security, inasmuch as Unison Common Stock is quoted on the Nasdaq National
Market. The Boards of Directors of Ampro and Memphis have unanimously approved
the terms of the mergers and recommend that shareholders vote to approve and
adopt the Agreements and Plans of Merger. HOWEVER, THE BOARD OF DIRECTORS IS NOT
ASKING YOU FOR A PROXY, AND YOU ARE REQUESTED NOT TO SEND THE BOARD OF DIRECTORS
A PROXY. Holders of at least 89% of Ampro's outstanding
<PAGE> 7
common stock have indicated that they intend to attend the Special Meeting and
to vote "for" the merger, so Ampro shareholder approval is assured. All of the
shareholders of Memphis have expressed support for the Memphis Merger and the
overall transaction. The consummation of the Mergers is subject to the
satisfaction or waiver of certain other conditions as described herein including
a condition that dissenters' rights are exercised in respect of no more than 5%
of Ampro's outstanding shares. See "The Ampro and Memphis Merger
Agreements -- Conditions of the Ampro and Memphis Mergers" and "Rights of
Dissenting Shareholders."
Sincerely,
John L. Maguire
President,
American Professional Holding, Inc.
Harold N. McKinney
Vice President,
Memphis Clinical Laboratory, Inc.
<PAGE> 8
AMERICAN PROFESSIONAL HOLDING, INC.
10925 ESTATE LANE, SUITE 390
DALLAS, TEXAS 75238
MEMPHIS CLINICAL LABORATORY, INC.
4088 BARTON
MEMPHIS, TENNESSEE 38116
NOTICE OF SPECIAL COMBINED MEETING OF SHAREHOLDERS
TO BE HELD ON , 1996
You are invited to attend a Special Combined Meeting of Shareholders (the
"Ampro/Memphis Special Meeting") of American Professional Holding, Inc., a Utah
corporation ("Ampro"), and Memphis Clinical Laboratory, Inc., a Tennessee
corporation ("Memphis"), to be held on , 1996 at 10:00 a.m. (local
time) at the offices of Ampro.
The purpose of the Ampro/Memphis Special Meeting is to consider and vote
upon:
(1) A proposal to approve and adopt an overall proposal consisting of
(a) the Agreement and Plan of Merger dated as of July 3, 1996 (the "Ampro
Merger Agreement") among Ampro, Unison HealthCare Corporation, a Delaware
corporation ("Unison") and Labco Acquisition Co., a newly formed Delaware
corporation ("Labco") which is a newly formed, wholly-owned subsidiary of
Unison, and (b) the Agreement and Plan of Merger dated as of July 3, 1996
(the "Memphis Merger Agreement") among Memphis, Unison and Memphis
Acquisition Co. ("Memco") which is also a newly formed and wholly-owned
subsidiary of Unison. Pursuant to the Ampro Merger Agreement, (i) Labco
will be merged with and into Ampro (the "Ampro Merger"), (ii) Ampro will
continue as the surviving corporation and a wholly-owned subsidiary of
Unison, and the separate existence of Labco will cease, and (iii) each of
the shares of the common stock ("Ampro Common Stock") of Ampro (the "Ampro
Shares") outstanding at the effective time of the Ampro Merger (other than
Shares held in Ampro's treasury or by Unison, Labco or a direct or indirect
subsidiary of Ampro) will be converted into the right to receive
approximately 0.051 of a share of the $.001 par value common stock of
Unison ("Unison Common Stock") all as more fully described in the
accompanying Prospectus/Information Statement Supplement. Pursuant to the
Memphis Merger Agreement, (i) Memco will be merged with and into Memphis
(the "Memphis Merger"), (ii) Memphis will continue as the surviving
corporation and a wholly-owned subsidiary of Unison, and the separate
existence of Memco will cease, and (iii) each of the shares of common stock
(the "Memphis Common Stock") of Memphis (the "Memphis Shares") outstanding
at the effective time of the Memphis Merger will be converted into the
right to receive approximately 54 shares of Unison Common Stock, except
that the 648 Memphis Shares owned by William R. Seals will instead be
converted into the right to receive a Unison promissory note in the
principal amount of $250,000 and cash in the amount of approximately
$240,000. An option for the Memphis Shares owned by Mr. Seals which he gave
to the other Memphis shareholders will be allowed to lapse unexercised.
(2) Such other matters relating to the foregoing as may be properly
brought before the meeting or any adjournment or postponement thereof.
Ampro's Board of Directors has approved the Ampro Merger as being in the
best interests of Ampro and its shareholders and unanimously recommends that you
vote for adoption of the Ampro Merger Agreement. Likewise, Memphis' Board of
Directors has approved the Memphis Merger as being in the best interests of
Memphis and its shareholders and unanimously recommends its approval.
The Boards of Directors of Ampro and Memphis have fixed the close of
business on , 1996 as the record date for determining the
shareholders of Ampro and Memphis entitled to notice of and to vote at the
Ampro/Memphis Special Meeting and any adjournment thereof. Only shareholders of
record at the close
<PAGE> 9
of business on that date will be entitled to notice and to vote. The Board of
Directors is not soliciting proxies for use at the Special Meeting. The
affirmative vote of a majority of the outstanding Ampro Shares is required to
approve the Ampro Merger Agreement. The affirmative vote of a majority of the
outstanding Memphis shares is required to approve the Memphis Merger Agreement.
BY ORDER OF THE BOARDS OF DIRECTORS
John L. Maguire
President,
American Professional Holding, Inc.
Harold N. McKinney
Vice President,
Memphis Clinical Laboratory, Inc.
Dallas, Texas and Memphis, Tennessee
, 1996
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION OR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<PAGE> 10
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED SEPTEMBER 18, 1996
INFORMATION STATEMENT SUPPLEMENT
FOR THE SPECIAL COMBINED MEETING OF SHAREHOLDERS
OF
AMERICAN PROFESSIONAL HOLDING, INC.
AND MEMPHIS CLINICAL LABORATORY, INC.
TO BE HELD ON , 1996
------------------------
PROSPECTUS SUPPLEMENT
OF
UNISON HEALTHCARE CORPORATION
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED
NOT TO SEND US A PROXY
This Prospectus/Information Statement Supplement is being furnished to the
shareholders of American Professional Holding, Inc., a Utah corporation
("Ampro") and Memphis Clinical Laboratory, Inc., a Tennessee corporation
("Memphis"), in connection with the Special Combined Meeting of Shareholders of
Ampro and Memphis to be held on , 1996, including any adjournment or
postponement thereof (the "Ampro/Memphis Special Meeting"). At the Ampro/Memphis
Special Meeting, the Ampro shareholders will be asked to approve and adopt an
Agreement and Plan of Merger dated as of July 3, 1996, as it may be amended from
time to time (the "Ampro Merger Agreement"), among Ampro, Unison HealthCare
Corporation, a Delaware corporation ("Unison"), and Labco Acquisition Co., a
newly formed Delaware corporation ("Labco") which is a wholly-owned subsidiary
of Unison. Memphis shareholders will be asked to consider and approve a similar
Agreement and Plan of Merger among Unison, Memphis Acquisition Co. ("Memco") and
Memphis.
The Ampro Merger Agreement provides that, subject to the approval of the
Ampro Merger Agreement at a special meeting of shareholders and subject to
satisfaction of the other conditions contained in the Ampro Merger Agreement,
Labco will be merged with and into Ampro (the "Ampro Merger") with Ampro being
the surviving corporation, and each outstanding share of common stock of Ampro
(the "Ampro Shares") other than any Ampro Shares then held by Ampro as treasury
shares, or by a direct or indirect subsidiary of Ampro, will be converted into
the right to receive approximately 0.051 of a share of $.001 par value common
stock of Unison ("Unison Common Stock"). The Memphis Merger Agreement provides
that Memco will be merged with and into Memphis (the "Memphis Merger") with
Memphis being the surviving corporation, and each outstanding share of common
stock of Memphis (the "Memphis Shares") will be converted into the right to
receive approximately 54 shares of Unison Common Stock, except that the 648
Memphis Shares owned by William R. Seals will instead be converted into the
right to receive a Unison promissory note in the principal amount of $250,000
and cash in the amount of approximately $240,000. An option for the Memphis
Shares owned by Mr. Seals which he gave to the other Memphis shareholders will
be allowed to lapse unexercised. The Ampro Merger and the Memphis Merger are
mutually contingent transactions. See "The Ampro and Memphis Merger
Agreements -- General; Effective Time." Unison and its subsidiaries currently
own no Ampro Shares or Memphis Shares and do not expect to acquire any prior to
the mergers. See "The Ampro and Memphis Merger Agreements -- General; Effective
Time." The number of shares of Unison Common Stock to be issued in the Ampro
Merger is referred to herein as the "Ampro Merger Consideration."
This Prospectus/Information Statement Supplement, together with the
Prospectus/Proxy and Information Statement, also constitutes a Prospectus of
Unison under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the shares of Unison Common Stock to be issued to the shareholders of
Ampro in the Ampro Merger and to the shareholders of Memphis in the Memphis
Merger.
Unison Common Stock is traded on the Nasdaq National Market under the symbol
UNHC. On September 17, 1996 the closing sale price for Unison Common Stock on
the Nasdaq National Market was $13.25 per share.
THE UNISON COMMON STOCK OFFERED HEREBY AND BY THE PROSPECTUS/PROXY AND
INFORMATION
STATEMENT INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 9
OF THE
PROSPECTUS/PROXY AND INFORMATION STATEMENT.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS/INFORMATION STATEMENT SUPPLEMENT
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY AMPRO, MEMPHIS, UNISON, LABCO, MEMCO OR THEIR
RESPECTIVE AFFILIATES. THE DELIVERY OF THIS PROSPECTUS/INFORMATION STATEMENT
SUPPLEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
PURCHASE THE SECURITIES OFFERED HEREBY WITHIN ANY JURISDICTION TO ANY PERSON TO
WHOM SUCH OFFER OR SOLICITATION OF AN OFFER WOULD BE UNLAWFUL.
The information contained in this Prospectus/Information Statement
Supplement concerning Ampro has been supplied by Ampro, the information
concerning Memphis has been supplied by Memphis, and the information concerning
Unison, Labco and Memco has been supplied by Unison. This Prospectus/Information
Statement Supplement should be used only in conjunction with the related
Prospectus/Proxy and Information Statement.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THE INFORMATION CONTAINED IN THIS PROSPECTUS/INFORMATION
STATEMENT SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus/Information Statement Supplement is ,
1996.
<PAGE> 11
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
INTRODUCTION........................................................................ 5
SUMMARY............................................................................. 6
The Companies..................................................................... 6
Time, Place and Date of the Ampro/Memphis Special Meeting......................... 6
Record Date; Voting Rights........................................................ 6
Purpose of Ampro/Memphis Special Meeting, Votes Required and Quorum............... 6
The Ampro and Memphis Merger Agreements........................................... 7
Dissenters' Rights................................................................ 7
Recommendations of the Board of Directors of Ampro and Memphis.................... 8
Certain Conditions to the Ampro and Memphis Mergers; Termination and Amendment.... 8
Shareholder Approvals............................................................. 8
Regulatory Requirements........................................................... 9
Expense Reimbursement............................................................. 9
Certain Effects of the Ampro and Memphis Mergers.................................. 9
Effective Time of the Ampro and Memphis Mergers................................... 9
Procedures for Exchange of Certificates........................................... 9
Interests of Certain Persons in the Ampro and Memphis Mergers; Conflicts of
Interest....................................................................... 10
Certain Federal Income Tax Consequences........................................... 10
Anticipated Accounting Treatment.................................................. 10
Restrictions on Resales by Affiliates............................................. 10
Comparison of Shareholder Rights.................................................. 10
Market Price Data and Dividends................................................... 10
Other Acquisitions................................................................ 11
Summary Unaudited Pro Forma Condensed Combined Financial Information.............. 12
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS......................... 14
THE AMPRO AND MEMPHIS MERGERS....................................................... 25
Background........................................................................ 25
Reasons for the Ampro and Memphis Mergers, Recommendation of Boards of
Directors...................................................................... 26
Interests of Certain Persons in the Ampro and Memphis Mergers..................... 27
Material Contracts between Unison, Memphis and Ampro.............................. 27
Certain Effects of the Ampro and Memphis Mergers.................................. 27
Certain Federal Income Tax Consequences........................................... 28
Resale of Unison Common Stock..................................................... 29
Accounting Treatment.............................................................. 30
THE AMPRO AND MEMPHIS MERGER AGREEMENTS............................................. 30
General; Effective Time........................................................... 30
Required Vote..................................................................... 30
Exchange of Shares................................................................ 31
Conditions of the Ampro and Memphis Mergers....................................... 31
Representations and Warranties.................................................... 32
Covenants......................................................................... 32
No Solicitation................................................................... 32
Amendment......................................................................... 33
Termination....................................................................... 33
Expenses.......................................................................... 34
RIGHTS OF DISSENTING SHAREHOLDERS................................................... 34
</TABLE>
2
<PAGE> 12
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNISON, AMPRO AND MEMPHIS SHARES.................................................... 35
Unison Common Stock............................................................... 35
Ampro Shares...................................................................... 35
Memphis Shares.................................................................... 35
COMPARISON OF SHAREHOLDER RIGHTS.................................................... 35
Authorized Shares of Capital Stock................................................ 36
Certain Charter and By-law Provisions............................................. 36
Directors......................................................................... 36
Special Meetings of Shareholders; Shareholder Action by Written Consent........... 37
Certain Business Combinations..................................................... 37
Certain Statutory Provisions...................................................... 38
AMPRO AND MEMPHIS SELECTED FINANCIAL DATA........................................... 44
COMPARISON OF HISTORICAL AND EQUIVALENT PER SHARE DATA (UNAUDITED).................. 45
AMPRO MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS........................................................................ 46
General........................................................................... 46
Results of Operations............................................................. 46
Liquidity and Capital Resources................................................... 48
MEMPHIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS........................................................................ 48
General........................................................................... 48
Results of Operations............................................................. 48
Liquidity and Capital Resources................................................... 49
BUSINESS OF AMPRO AND MEMPHIS....................................................... 50
Introduction...................................................................... 50
Market Overview................................................................... 51
Operations........................................................................ 52
Revenue Sources................................................................... 52
Insurance......................................................................... 52
Employees......................................................................... 52
Properties........................................................................ 52
Legal Proceedings................................................................. 53
MANAGEMENT OF AMPRO AND MEMPHIS..................................................... 54
Directors and Executive Officers.................................................. 54
PRINCIPAL SHAREHOLDERS OF AMPRO AND MEMPHIS......................................... 55
LEGAL MATTERS....................................................................... 55
EXPERTS............................................................................. 55
</TABLE>
------------------------
AVAILABLE INFORMATION
Unison is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy and information statements and other information
with the Securities Exchange Commission (the "Commission"). Unison Common Stock
is listed on the Nasdaq National Market under the symbol UNHC. Reports, proxy
statements and other information filed by Unison can be inspected at the
National Association of Securities Dealers, Inc. at 1735 K Street, N.W.,
Washington, D.C. 10006 and can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following Regional Offices of
the Commission: Midwest Regional Office, Citicorp Center, Suite 1400,
3
<PAGE> 13
500 West Madison Street, Chicago, Illinois 60661; and Northeast Regional Office,
7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
Additionally, the Commission maintains a Web site that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the Commission, and the address of the Commission's site is:
http//www.sec.gov.
Unison has filed with the Commission a Registration Statement on Form S-4
(together with any amendments, schedules and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the shares of Unison Common
Stock to be issued in the Ampro Merger and the Memphis Merger. This
Prospectus/Proxy and Information Statement, as supplemented, does not contain
all of the information contained in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. The Registration Statement is available for inspection and copying
as set forth above. Statements contained in this Prospectus/Proxy and
Information Statement, as supplemented, or in any document incorporated by
reference into this Prospectus/Proxy and Information Statement, as supplemented,
as to the contents of any contract or other document referred to herein or
therein are not necessarily complete, and in each instance reference is made to
the copy of such contract or other document filed as an exhibit to the
Registration Statement or such other document, each such statement being
qualified in all respects by such reference.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
CRAIG R. CLARK, CHIEF FINANCIAL OFFICER, UNISON HEALTHCARE CORPORATION, 7272
EAST INDIAN SCHOOL ROAD, SUITE 214, SCOTTSDALE, ARIZONA 85251 (TELEPHONE
602-423-1954). IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUESTS
SHOULD BE MADE BY , 1996. SUCH DOCUMENTS WILL BE PROVIDED WITHOUT
CHARGE TO ANY BENEFICIAL OWNER MAKING SUCH A REQUEST. SEE "THE AMPRO MERGER AND
MEMPHIS AGREEMENTS."
4
<PAGE> 14
INTRODUCTION
This Prospectus/Information Statement Supplement is being furnished to the
shareholders of Ampro and Memphis in connection with a special combined meeting
of shareholders of Ampro and Memphis to be held at the offices of Ampro on
, 1996, or any adjournment thereof (the "Ampro/Memphis Special
Meeting"). The purpose of the Ampro/Memphis Special Meeting is to obtain Ampro
shareholder approval of an Agreement and Plan of Merger (the "Ampro Merger
Agreement") among Ampro, Unison HealthCare Corporation, a Delaware corporation
("Unison"), and Labco Acquisition Co., a newly formed Delaware corporation
("Labco") which is a wholly-owned subsidiary of Unison and to obtain Memphis
shareholder approval of a similar Agreement and Plan of Merger among Memphis,
Unison and Memphis Acquisition Co., a newly formed Delaware corporation
("Memco") which is a wholly-owned subsidiary of Unison.
The Ampro Merger Agreement provides that, subject to the approval of the
Ampro Merger Agreement at a special meeting of shareholders and subject to
satisfaction of the other conditions contained in the Ampro Merger Agreement,
Labco will be merged with and into Ampro (the "Ampro Merger") with Ampro being
the surviving corporation, and each outstanding share of common stock of Ampro
(the "Ampro Shares"), other than any Ampro Shares then held by Ampro as treasury
shares, by Unison or by direct or indirect subsidiary of Ampro or Unison, will
be converted into the right to receive approximately 0.051 of a share of $.001
par value common stock of Unison ("Unison Common Stock"). The Memphis Merger
Agreement provides that Memco will be merged with and in to Memphis (the
"Memphis Merger") with Memphis being the surviving corporation, and each
outstanding share of common stock of Memphis (the "Memphis Shares") will be
converted into the right to receive approximately 54 shares of Unison Common
Stock, except that the 648 Memphis Shares owned by William R. Seals will instead
be converted into the right to receive a Unison promissory note in the principal
amount of $250,000 and cash in the amount of approximately $240,000. An option
for the Memphis Shares owned by Mr. Seals, which he gave to the other Memphis
shareholders, will be allowed to lapse unexercised. The Ampro Merger and the
Memphis Merger are mutually contingent transactions. See "The Ampro and Memphis
Merger Agreements -- General; Effective Time." Unison and its subsidiaries
currently own no Ampro Shares or Memphis Shares and do not expect to acquire any
prior to the mergers. See "The Ampro and Memphis Merger Agreements -- General;
Effective Time." The number of shares of Unison Common Stock to be issued in the
Ampro Merger is referred to herein as the "Ampro Merger Consideration."
The Boards of Directors of Ampro and Memphis have each fixed the close of
business on , 1996 as the record date for determining the
shareholders entitled to notice of and to vote at the Ampro/ Memphis Special
Meeting and any adjournment thereof. Only shareholders of record at the close of
business on that date will be entitled to notice and to vote. At such date,
there were 10,200,000 Ampro Shares and 1,000 Memphis Shares outstanding. The
affirmative vote of a majority of the outstanding Ampro Shares is required to
approve the Ampro Merger Agreement and the affirmative vote of a majority of the
outstanding Memphis Shares is required to approve the Memphis Merger Agrement.
Because the Ampro Merger and the Memphis Merger are mutually contingent
transactions, it is not likely that either merger will occur unless both of them
occur.
While the Boards of Directors of Ampro and Memphis unanimously recommend
approval of the proposed transaction, the individuals comprising Ampro's Board
of Directors beneficially or of record own, in the aggregate, approximately 89%
of the issued and outstanding Ampro Shares and the individuals comprising the
Memphis Board of Directors of record own an aggregate of approximately 88% of
the outstanding Memphis Shares. Accordingly, the Boards of Directors are not
soliciting proxies for use at the Ampro/ Memphis Special Meeting. The Boards of
Directors do not intend to present any other matter before the Ampro/Memphis
Special Meeting.
The information contained in the Prospectus/Information Statement
Supplement and Prospectus/Proxy and Information Statement concerning Ampro,
Memphis and Unison has been supplied by each of them.
5
<PAGE> 15
SUMMARY
The following is a summary of certain information contained elsewhere in
this Prospectus/Information Statement Supplement. This summary does not purport
to be complete and is qualified in its entirety by reference to the more
detailed information contained elsewhere in this Prospectus/Information
Statement Supplement, the Prospectus/Proxy and Information Statement and the
annexes hereto. Capitalized terms used but not defined in this Summary shall
have the meanings given to them elsewhere in this Prospectus/Information
Statement Supplement. Shareholders are urged to read this Prospectus/Information
Statement Supplement, the Prospectus/Proxy and Information Statement and the
annexes in their entirety.
THE COMPANIES
Ampro, which has its principal executive offices at 10925 Estate Lane,
Suite 390, Dallas, Texas 75238 (telephone 214-340-9294), is a Utah corporation
engaged in the operation of medical reference laboratories in Dallas, Texas and
Poplar Bluff, Missouri. As of September 1, 1996, Ampro provided medical
laboratory services (primarily the testing of body fluids and tissues for
disease or chemical concentrations) to approximately 275 nursing homes and other
health care facilities in Texas and Missouri.
Memphis, which has offices at 4088 Barton, Memphis, Tennessee (telephone
901-346-1633), is a Tennessee corporation that operates a medical reference
laboratory in Memphis, serving, as of September 1, 1996 approximately 20 nursing
homes and other facilities in Tennessee.
Unison, which has its principal executive offices at 7272 East Indian
School Road, Suite 214, Scottsdale, Arizona 85251 (telephone 602-423-1954), is a
Delaware corporation that provides traditional long-term and specialty health
care services and ancillary services, including pharmacy and physical,
occupational and speech therapy services. As of September 1, 1996, Unison
operated 45 skilled nursing facilities, of which 40 are leased and five are
managed, operated two pharmacy outlets serving 32 non-affiliated services and
provided therapy services to 41 non-affiliated entities.
Labco and Memco, whose address and telephone numbers are the same as
Unison's, are Delaware corporations organized by Unison for the purpose of
effecting the Ampro Merger and the Memphis Merger, respectively.
TIME, PLACE AND DATE OF THE AMPRO/MEMPHIS SPECIAL MEETING
The Ampro/Memphis Special Meeting will be held at 10:00 a.m. (local time)
on , 1996 at the offices of Ampro.
RECORD DATE; VOTING RIGHTS
The close of business on , 1996 has been fixed as the Record
Date for the determination of those Ampro and Memphis shareholders entitled to
notice of and to vote at the Ampro/Memphis Special Meeting. On such date, there
were 10,200,000 shares of Ampro Common Stock and 1,000 shares of Memphis Common
Stock outstanding, each of which is entitled to one vote. As of the Record Date,
there were approximately 116 record holders of Ampro Common Stock and four (4)
record holders of Memphis Common Stock. Neither Ampro nor Memphis has any other
classes of equity securities outstanding.
PURPOSE OF AMPRO/MEMPHIS SPECIAL MEETING, VOTES REQUIRED AND QUORUM
At the Ampro/Memphis Special Meeting, holders of Ampro Shares will be asked
to consider and vote upon a proposal to approve and adopt the Ampro Merger
Agreement and holders of Memphis Shares will be asked to consider and vote upon
a proposal to consider and adopt the Memphis Merger Agreement. Holders of a
majority of the Ampro Shares, represented in person or by proxy, will constitute
a quorum. Under the Utah Revised Business Corporation Act ("URBCA") and Ampro's
Articles of Incorporation, as amended, the affirmative vote of the holders of a
majority of the Ampro Shares outstanding on the Record Date will be required to
approve and adopt the Ampro Merger Agreement. Similarly, holders of a majority
of the Memphis Shares, represented in person or by proxy, will constitute a
quorum of the Memphis shares, and the affirmative
6
<PAGE> 16
vote of the holders of a majority of the Memphis Shares outstanding on the
Record Date will be required to approve and adopt the Memphis Merger Agreement.
See "The Ampro and Memphis Merger Agreements -- Required Vote." Since holders of
all of the outstanding shares of Memphis and at least 89% of Ampro's outstanding
common stock have indicated an intention to attend the Ampro/Memphis Special
Meeting and to vote "for" the Memphis Merger Agreement and the Ampro Merger
Agreement, shareholder approval is assured.
THE AMPRO AND MEMPHIS MERGER AGREEMENTS
Ampro, Unison and Labco have entered into the Ampro Merger Agreement, a
copy of which is attached hereto as Annex A and Memphis, Unison and Memco have
entered into the Memphis Merger Agreement, a copy of which is attached hereto as
Annex B. Generally, the Ampro Merger Agreement provides that, subject to the
satisfaction or waiver of certain conditions to the Ampro Merger, Labco will be
merged with and into Ampro and Ampro will be the surviving corporation, then as
a wholly-owned subsidiary of Unison. Upon the effectiveness of the Ampro Merger,
each Ampro Share (other than Ampro Shares held in Ampro's treasury or by a
direct or indirect subsidiary of Ampro) will be converted into a portion of a
share of Unison Common Stock equal to that fraction (the "Per Share Conversion
Ratio") of which the numerator is 521,000 and the denominator is the number of
Ampro Shares outstanding at the effective time of the Ampro Merger. Fractional
Unison shares will not be issued; instead, the holder of a fractional interest
therein will be paid in cash based on the average per share closing price on the
Nasdaq National Market of Unison Common Stock during the 20 consecutive trading
days ending on the fifth trading day prior to the effective time of the Ampro
Merger (the "Unison/Ampro Average Closing Price"). Pursuant to the Memphis
Merger Agreement, (i) Memco will be merged with and into Memphis (the "Memphis
Merger"), (ii) Memphis will continue as the surviving corporation and a
wholly-owned subsidiary of Unison, and the separate existence of Memco will
cease, and (iii) each of the shares of common stock (the "Memphis Common Stock")
of Memphis (the "Memphis Shares") outstanding at the effective time of the
Memphis Merger will be converted into the right to receive approximately 54
shares of Unison Common Stock (rounded to the nearest whole Unison share) except
that the 648 Memphis Shares owned by William R. Seals will instead be converted
into the right to receive a Unison promissory note in the principal amount of
$250,000 and cash in the amount of approximately $240,000. An option for the
Memphis Shares owned by Mr. Seals, which he gave to the other Memphis
shareholders, will be allowed to lapse unexercised. If the Ampro Merger and the
Memphis Merger are both consummated, the Ampro Shares and Memphis Shares will be
converted into shares representing approximately 11.9% of the outstanding Unison
Common Stock (8.9% if the Signature Mergers are also consummated) upon
completion of the Ampro and Memphis Mergers and assuming no exercise of options
or warrants or conversion of securities convertible into shares of Unison Common
Stock. See "The Ampro and Memphis Merger Agreements -- General; Effective Date"
and Annex A and B to this Prospectus/ Information Statement Supplement.
DISSENTERS' RIGHTS
Subject to the terms of the Ampro Merger Agreement, holders of Ampro Shares
who do not vote in favor of the Ampro Merger and who comply with certain
statutory procedures will be entitled to certain dissenters' rights with respect
to their shares upon consummation of the Ampro Merger. Failure to take any step
in connection with the exercise of such rights may result in termination or
waiver of such rights. See "Rights of Dissenting Shareholders" and Annex C to
this Prospectus/Information Statement Supplement which sets forth the text of
Section 16-10a-1301 et seq. of the URBCA. It is a condition of Unison's
obligation to consummate the Ampro Merger that dissenter's rights be exercised
in respect of no more than 5% of the outstanding Ampro Common Stock (i.e., by
holders of no more than 510,000 shares). Although holders of Memphis Shares who
do not vote in favor of the Memphis Merger Agreement would have dissenters
rights under applicable law, all shareholders of Memphis have indicated that
they intend to vote in favor of the Memphis Merger Agreement.
7
<PAGE> 17
RECOMMENDATIONS OF THE BOARD OF DIRECTORS OF AMPRO AND MEMPHIS
The Boards of Directors of both Ampro and Memphis have approved and adopted
their respective merger agreements. Ampro's Board of Directors has concluded
that the Ampro Merger is fair to, and in the best interests of, the shareholders
of Ampro and has unanimously recommended a vote for the proposal to approve and
adopt the Ampro Merger Agreement. Ampro's Board of Directors, however, is not
asking shareholders of Ampro for proxies, and shareholders of Ampro are
requested not to send proxies to Ampro's Board of Directors. Ampro's Board of
Directors believes that the Ampro Merger Consideration provides a higher value
to Ampro shareholders than is likely to be realizable through continued
operations or from other available alternatives. The Board of Directors of
Memphis has reached the same conclusion about the proceeds from the Memphis
Merger. See "The Ampro and Memphis Mergers -- Reasons for the Ampro and Memphis
Mergers, Recommendation of the Boards of Directors." If the Ampro Merger and the
Memphis Merger are not approved, the Boards currently intend that Ampro and
Memphis will continue to operate as though the proposal consisting of the Ampro
Merger and the Memphis Merger had not occurred.
CERTAIN CONDITIONS TO THE AMPRO AND MEMPHIS MERGERS; TERMINATION AND AMENDMENT
The obligations of Ampro, Unison and Labco to consummate the Ampro Merger
are subject to a number of conditions, including (among others): (i) the
approval of the Ampro Merger Agreement by the shareholders of Ampro; (ii) the
listing on the Nasdaq National Market of the shares of Unison Common Stock to be
issued in the Ampro Merger; (iii) the absence of certain litigation or court
orders; (iv) the consummation of a similar merger with Memphis; and (v) the
exercise of dissenters' rights by holders of not more than 5% of Ampro Shares
(i.e., by holders of not more than 510,000 shares). Any of the conditions can be
waived by the parties. In addition to the foregoing, the Ampro Merger Agreement
may be terminated by mutual written consent of Unison and Ampro and by either
Unison or Ampro if the Ampro Merger shall not have been consummated by October
30, 1996, by Unison if the per share closing price on the Nasdaq National Market
of Unison Common Stock during the 20 consecutive trading days ending on the
fifth trading day prior to the effective time of the Ampro Merger (the
"Unison/Ampro Average Closing Price") exceeds $15.00 and by Ampro if the
Unison/Ampro Average Closing Price is less than $11.00, or under certain other
circumstances. Likewise, the obligations of Memphis, Unison and Memco to
consummate the Memphis Merger are subject to a number of similar conditions,
including (among others): (i) approval of the Memphis Merger Agreement by the
Shareholders of Memphis; (ii) the listing on the Nasdaq National Market of the
shares of Unison Common Stock to be issued in the Memphis Merger; (iii) the
absence of certain litigation and court orders; and (iv) the consummation of a
similar merger with Ampro. The Memphis Merger Agreement may be terminated by
mutual written consent of Memphis and Memco and by either Memphis or Memco if
the Merger shall not have been consummated by October 30, 1996. The Ampro Merger
Agreement and the Memphis Merger Agreement may each be amended by mutual consent
of the parties thereto at any time prior to the closing. See "The Ampro and
Memphis Merger Agreements -- Conditions of the Ampro and Memphis Mergers,"
"-- Amendment" and "-- Termination."
SHAREHOLDER APPROVALS
The Ampro Merger is subject to the approval of the shareholders of Ampro
and the Memphis Merger is subject to the approval of the shareholders of
Memphis, but neither requires the approval of the stockholders of Unison. The
affirmative vote, in person or by proxy, of the holders of a majority of the
Ampro Shares outstanding on the Record Date is required for approval of the
Ampro Merger and the affirmative vote of the holders of a majority of the
Memphis Shares outstanding on the Record Date is required for approval of the
Memphis Merger. Unison and its subsidiaries currently own no Ampro Shares and no
Memphis Shares, and they do not expect to own any prior to the mergers. As of
the Record Date, directors and executive officers of Ampro beneficially or of
record owned 89% of the outstanding Ampro Shares entitled to vote at the Ampro
Special Meeting, all of whom have indicated that they will vote in favor of the
Ampro Merger. The holders of 100% of the Memphis Shares outstanding on the
Record Date have indicated that they intend to vote in favor of the Memphis
Merger. The directors and executive officers of Unison beneficially own no Ampro
or Memphis shares and Unison and its subsidiaries own no such shares. See "The
Ampro and Memphis
8
<PAGE> 18
Mergers -- Interests of Certain Persons in the Ampro and Memphis Mergers," "The
Ampro and Memphis Merger Agreements -- Required Vote," and "Principal
Shareholders of Ampro and Memphis."
REGULATORY REQUIREMENTS
No advance approval of the Ampro Merger or the Memphis Merger is required
from any federal or state agency or body.
EXPENSE REIMBURSEMENT
Although there is no termination fee, Ampro has agreed that if the Ampro
Merger is not consummated and certain other conditions are satisfied (such as
the existence of a third party tender offer or merger proposal for Ampro at a
higher price) Ampro will reimburse Unison for its fees and expenses (up to an
aggregate of $100,000) incurred in connection with the Ampro Merger. Under
similar circumstances, Memphis is required to reimburse Unison for fees and
expenses (up to $50,000) incurred in connection with the Memphis Merger. See
"The Ampro and Memphis Merger Agreements -- Expenses."
CERTAIN EFFECTS OF THE AMPRO AND MEMPHIS MERGERS
Upon the effectiveness of the Ampro Merger and the Memphis Merger, current
shareholders of Ampro and Memphis will no longer have any continuing interest as
shareholders in the surviving corporation in the Ampro Merger and the Memphis
Merger, respectively, but will instead become stockholders in Unison. The Ampro
Shares will no longer be traded in the over-the-counter market and price quotes
will not be available on the OTC Bulletin Board. See "The Ampro and Memphis
Mergers -- Certain Effects of the Ampro and Memphis Mergers."
EFFECTIVE TIME OF THE AMPRO AND MEMPHIS MERGERS
The Ampro Merger will be effective as of the date and time (the "Ampro
Effective Time") that Articles of Merger are filed with the Division of
Corporations and Commercial Code of the State of Utah in accordance with the
URBCA and the Ampro Certificate of Merger is filed with the Secretary of State
of the State of Delaware in accordance with the Delaware General Corporation
Law. The Memphis Merger will be effective as of the date and time (the "Memphis
Effective Time") that Articles of Merger are filed with the Secretary of State
of the State of Tennessee as required by Tennessee law and the Memphis
Certificate of Merger is filed with the Delaware Secretary of State. If the
Ampro Merger and the Memphis Merger are approved by their respective
shareholders at the Ampro/Memphis Special Meeting, it is currently anticipated
that the Ampro Merger and the Memphis Merger will become effective as soon
thereafter as practical (subject to compliance with or waiver of the other
conditions contained in the Ampro Merger Agreement and the Memphis Merger
Agreement). See "The Ampro and Memphis Merger Agreements -- General; Effective
Time" and Annex A and Annex B to this Prospectus/Information Statement
Supplement.
PROCEDURES FOR EXCHANGE OF CERTIFICATES
Promptly after the effective time of the Ampro Merger and the Memphis
Merger, Harris Trust and Savings Bank, the Exchange Agent under the Ampro and
Memphis Merger Agreements (the "Exchange Agent") and the transfer agent for
Unison, will mail to each record holder of an outstanding certificate or
certificates which immediately prior to the effective time represented
outstanding Ampro Shares (the "Certificates"), other than Ampro Shareholders who
perfected their dissenters' rights under Utah law (see "Dissenting Rights of
Ampro Shareholders"), a form of letter of transmittal and instructions for use
in effecting the surrender of the Certificates in exchange for certificates
representing shares of Unison Common Stock plus cash in lieu of fractional
shares. Similar procedures will be followed for the Memphis Shares. Until
surrendered as contemplated in the Ampro and Memphis Merger Agreements, and
except for holders who dissent, each Certificate will only represent the right
to receive shares of Unison Common Stock as provided in the Ampro and Memphis
Merger Agreements. See "The Ampro and Memphis Merger Agreements -- Exchange of
Shares."
9
<PAGE> 19
INTERESTS OF CERTAIN PERSONS IN THE AMPRO AND MEMPHIS MERGERS; CONFLICTS OF
INTEREST
In considering the Ampro and Memphis Mergers, shareholders of Ampro and
Memphis should be aware that in addition to continuing to receive ordinary
compensation and benefits from Ampro through the date of the Ampro Merger, two
officers of Ampro and Memphis, Mr. McGee and Mr. McKinney, will assume
managerial roles in Ampro following the Ampro Merger, which may present them
with inherent conflicts of interest in connection with the Ampro and Memphis
Mergers. Under the terms of the Ampro Merger Agreement, existing directors of
Ampro will no longer serve as directors of Ampro following the Ampro Merger, and
existing executive officers of Ampro will not continue in those capacities
following consummation of the Ampro Merger. The Memphis Merger Agreement has
similar provisions for the Memphis officers and directors. The Memphis Merger
and the Ampro Merger are each contingent on the other. See "The Ampro and
Memphis Mergers -- Interests of Certain Persons in the Ampro and Memphis
Mergers." The Boards of Directors of Ampro and Memphis were aware of these
interests and considered them among the other matters described under "The Ampro
and Memphis Mergers -- Background" and " -- Reasons for the Ampro and Memphis
Mergers, Recommendation of Boards of Directors."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Ampro Merger is intended to be a tax-free reorganization so that no
gain or loss will be recognized by Ampro or Unison and no gain or loss will be
recognized by shareholders of Ampro, except in respect of cash received in lieu
of fractional shares of Unison Common Stock. However, no request has been or
will be made for a ruling from the Internal Revenue Service. The Memphis Merger
will be treated as a taxable purchase of the Memphis stock by Unison and as a
result Memphis shareholders will recognize a taxable gain or loss, but no gain
or loss will be recognized by Unison, Memco or Memphis. Shareholders of Ampro or
Memphis are urged to consult their own tax advisors regarding all tax
consequences of the Ampro Merger and the Memphis Merger, respectively. See "The
Ampro and Memphis Mergers -- Certain Federal Income Tax Consequences."
ANTICIPATED ACCOUNTING TREATMENT
The overall transaction comprised of the Ampro Merger and the Memphis
Merger is expected to qualify as a "pooling-of-interests" for accounting and
financial reporting purposes. See "The Ampro and Memphis Mergers -- Anticipated
Accounting Treatment."
RESTRICTIONS ON RESALES BY AFFILIATES
As a condition to the Ampro Merger and the Memphis Merger, each affiliate
of Ampro and Memphis will have agreed not to sell shares of Unison Common Stock
received pursuant to the Ampro Merger and the Memphis Merger except in
compliance with Rule 145 under the Securities Act or otherwise in compliance
with the Securities Act and not to sell the shares of Unison Common Stock
received in the Ampro Merger and the Memphis Merger until after financial
results that include at least 30 days of post-merger operations have been
publicly disclosed. Ampro Affiliates are also required to indicate that they
have no present plan or intention to sell more than 40% of the shares of Unison
Common Stock received pursuant to the Ampro Merger. See "The Ampro and Memphis
Mergers -- Resale of Unison Common Stock."
COMPARISON OF SHAREHOLDER RIGHTS
See "Comparison of Shareholder Rights" for a summary of the material
differences between the rights of the holders of Ampro Shares, Memphis Shares
and Unison Common Stock.
MARKET PRICE DATA AND DIVIDENDS
Unison Common Stock is traded on the Nasdaq National Market under the
symbol UNHC. The common stock of Ampro is traded over-the-counter and is quoted
on the OTC Bulletin Board under the symbol APRH. The securities of Memphis are
not traded. The following tables set forth, for the fiscal quarter indicated,
the high and low sale prices of Unison Common Stock, as reported on the Nasdaq
National Market
10
<PAGE> 20
and the high and low bid prices of the common stock of Ampro, as reported by the
National Quotation Bureau, Inc. Quotations for the Common Stock of Ampro are
limited and sporadic. There is no established public trading market for the
Memphis Shares.
<TABLE>
<CAPTION>
UNISON
---------------------
HIGH LOW
------- -------
<S> <C> <C>
Year Ended December 31, 1995
Fourth Quarter (commencing December 19, 1995)................ $ 9.375 $ 9.000
Year Ending December 31, 1996
First Quarter................................................ 11.750 8.875
Second Quarter............................................... 15.500 10.250
Third Quarter (through September 17, 1996)................... 14.750 10.875
</TABLE>
<TABLE>
<CAPTION>
AMPRO
-------------------
HIGH LOW
------ ------
<S> <C> <C>
Year Ended December 31, 1994
First Quarter.................................................. $3.125 $2.000
Second Quarter................................................. 3.000 2.000
Third Quarter.................................................. 2.500 .500
Fourth Quarter................................................. 1.750 .375
Year Ended December 31, 1995
First Quarter.................................................. 1.250 .500
Second Quarter................................................. .750 .250
Third Quarter.................................................. .500 .125
Fourth Quarter................................................. .250 .125
Year Ending December 31, 1996
First Quarter.................................................. .125 .125
Second Quarter................................................. .125 .125
Third Quarter (through September 16, 1996)..................... .125 .125
</TABLE>
Pursuant to the Ampro Merger Agreement, each Ampro Share will be converted
into approximately 0.051 of a share of Unison Common Stock. Pursuant to the
Memphis Merger Agreement, each Memphis Share will be converted into
approximately 54 shares of Unison Common Stock, except that the 648 Memphis
Shares owned by William R. Seals will instead by converted into the right to
receive a Unison promissory note in the principal amount of $250,000 and cash in
the amount of approximately $240,000. On June 5, 1996, the last trading day
prior to the announcement by Unison of the proposed mergers, the closing sale
prices of Unison Common Stock was $14.00, and the closing bid and asking price
for Ampro Common Stock was $0.125 and $0.625, respectively. On September 17,
1996, the closing sale price of Unison Common Stock was $13.25, and on September
17, 1996 the closing bid and asking price for Ampro Common Stock was $0.125 and
$0.625, respectively.
Unison has not paid any dividends on its Common Stock. Ampro and Memphis
have not paid any dividends on their respective Common Stock.
OTHER ACQUISITIONS
In August 1995, Unison acquired BritWill Healthcare Company, a long-term
health care company operating 28 facilities in Texas and Indiana. The
transaction was accounted for as a purchase.
On March 28, 1996, Unison entered into a definitive purchase and sale
agreement for the acquisition, effective February 1, 1996, of 90% of the common
stock of four rehabilitation therapy centers which provide physical, speech and
occupational therapy services to 41 non-affiliated entities primarily in the
southeastern United States. The transaction was accounted for as a purchase.
11
<PAGE> 21
Effective August 1, 1996, Unison acquired the leasehold rights to two
skilled nursing facilities located in the State of Washington with an aggregate
of 222 beds. These facilities, Enumclaw and Walla Walla, were previously
operated by Unison under management contracts.
On August 2, 1996, Unison entered into agreements for the acquisition of
Signature Health Care Corporation ("Signature Health Care") and four affiliated
companies, Douglas Manor, Inc. ("Douglas"), Safford Care, Inc. ("Safford"),
Arkansas, Inc. ("Arkansas") and Cornerstone Care, Inc. ("Cornerstone" and
together with Signature Health Care, Douglas, Safford and Arkansas,
"Signature"). The closing of these acquisitions is conditioned on Unison having
entered into a definitive agreement for the acquisition of RehabWest, Inc.
("RehabWest"), which was previously affiliated with Signature. As of the date
hereof, Unison has not reached an agreement for the acquisition of RehabWest.
Signature operates 11 long-term care facilities in Colorado and Arizona. See
"Recent and Pending Unison Acquisitions and Other Commitments" in the
Prospectus/Proxy and Information Statement.
Unison has also acquired leasehold rights to other facilities that were not
material to Unison, including Homestead of McKinney, in McKinney, Texas, and
Valley Vista, in Sandpoint, Idaho.
SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following selected pro forma financial information of Unison, Ampro and
Memphis has been derived from their respective historical financial statements,
and should be read in conjunction with such financial statements and the notes
thereto, some of which are included in or incorporated by reference into this
Prospectus/Information Statement Supplement and in the related Prospectus/Proxy
and Information Statement. All information shown is in thousands except per
share amounts.
SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION
(IN THOUSANDS EXCEPT PER SHARE)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------------------- ------------------------------
1996(1)(2) 1995(1)(2) 1995(1)(2) 1994(2) 1993(2)
---------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues................................ $ 74,019 $ 57,444 $127,106 $18,406 $7,011
Expenses:
Wages and related........................... 37,297 33,881 72,752 9,594 3,689
Other operating............................. 24,646 14,857 36,439 6,462 2,629
Rent........................................ 7,263 6,361 13,226 1,406 206
Interest.................................... 1,533 1,143 2,555 147 44
Depreciation and amortization............... 1,167 1,299 2,745 285 157
---------- ---------- ---------- ------- -------
Total expenses...................... 71,906 57,541 127,717 17,894 6,725
---------- ---------- ---------- ------- -------
Income (loss) before income taxes............. 2,113 (97) (611) 512 286
Income taxes (benefit)........................ 823 (70) (252) 172 177
---------- ---------- ---------- ------- -------
Net income (loss)............................. $ 1,290 $ (27) $ (359) $ 340 $ 109
======== ======== ======== ======= ======
Per share data:
Net income (loss) per share................. $ .28 $ (.01) $ (.19) $ .19 $ .06
Weighted average shares outstanding......... 4,672 1,806 1,889 1,806 1,806
</TABLE>
12
<PAGE> 22
<TABLE>
<CAPTION>
JUNE 30,
1996(3)
----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................... $ 750
Working capital............................. 4,740
Lease operating rights and other assets..... 42,907
Goodwill.................................... 12,138
Total assets................................ 89,113
Total debt.................................. 32,697
Stockholders' equity........................ 24,006
</TABLE>
- ---------------
(1) Gives effect to the BritWill Acquisition and other acquisitions in 1995 and
1996 (see "Recent and Pending Unison Acquisitions and Other Commitments" in
the Prospectus/Proxy and Information Statement) as if such transactions had
occurred on January 1, 1995.
(2) Gives effect to the Ampro and Memphis Mergers as if they had occurred on
January 1, 1993.
(3) Gives effect to the Ampro and Memphis Mergers (see "Recent and Pending
Unison Acquisitions and Other Commitments" in the Prospectus/Proxy and
Information Statement) as if they had occurred on June 30, 1996. See the
Unaudited Pro Forma Condensed Combined Financial Statements and Notes
thereto.
13
<PAGE> 23
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Combined Financial Statements
are presented assuming that the transaction comprised of the Ampro and Memphis
Mergers will be accounted for as a pooling-of-interests. Accordingly, the
Unaudited Pro Forma Condensed Combined Financial Statements give retroactive
effect to the Ampro and Memphis Mergers and include the combined operations of
Unison, Ampro and Memphis for all periods presented. The Unaudited Pro Forma
Condensed Combined Balance Sheet has been prepared as if the business
combinations had been consummated as of June 30, 1996.
The Unaudited Pro Forma Condensed Combined Statements of Operations also
include the results of operations of BritWill and Sunbelt for the periods from
January 1, 1995 through the respective dates of acquisition. BritWill was
acquired on August 10, 1995 in a business combination accounted for as a
purchase. Sunbelt was acquired effective February 1, 1996 in a business
combination accounted for as a purchase.
The pro forma information is based on the historical statements of
operations of the acquired businesses giving effect to the assumptions and
adjustments described in the accompanying Notes to Unaudited Pro Forma Condensed
Combined Financial Statements.
The Unaudited Pro Forma Condensed Combined Financial Statements do not
purport to present the results of operations of Unison had the business
combinations taken place on the dates specified, nor are they necessarily
indicative of the results of operations that may be achieved in the future. The
Unaudited Pro Forma Condensed Combined Financial Statements should be read in
conjunction with "Unison Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the separate historical financial
statements and notes thereto of Unison, BritWill, Ampro and Memphis included in
the Prospectus/Proxy and Information Statement.
14
<PAGE> 24
UNISON HEALTHCARE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
----------------------------------------------
PRO FORMA PRO FORMA
UNISON AMPRO(A) ADJUSTMENTS COMBINED
------- -------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 847 $ 30 $(127)(b) $ 750
Accounts and notes receivable, net................ 22,152 2,149 -- 24,301
Other current assets.............................. 2,413 399 -- 2,812
------- ------ ----- -------
Total current assets...................... 25,412 2,578 (127) 27,863
Lease operating rights and other assets, net........ 42,588 319 -- 42,907
Goodwill, net....................................... 11,195 943 -- 12,138
Property and equipment, net......................... 5,548 657 -- 6,205
------- ------ ----- -------
Total assets.............................. $84,743 $4,497 $(127) $89,113
======= ====== ===== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt................. $ 3,576 $ 895 $ -- $ 4,471
Other current liabilities......................... 16,988 1,664 -- 18,652
------- ------ ----- -------
Total current liabilities................. 20,564 2,559 -- 23,123
Long-term debt...................................... 27,535 691 -- 28,226
Deferred taxes...................................... 9,030 -- -- 9,030
Other long-term liabilities......................... 4,728 -- -- 4,728
------- ------ ----- -------
Total liabilities......................... 61,857 3,250 -- 65,107
------- ------ ----- -------
Stockholders' equity:
Common stock...................................... 3 10 (10)(c) 3
Additional paid-in capital........................ 21,804 90 10(c) 21,904
Retained earnings................................. 1,079 1,147 (127)(b) 2,099
------- ------ ----- -------
Total stockholders' equity................ 22,886 1,247 (127) 24,006
------- ------ ----- -------
Total liabilities and stockholders'
equity.................................. $84,743 $4,497 $(127) $89,113
======= ====== ===== =======
Common shares outstanding........................... 3,871 540(d) 4,411
Book value per common share......................... $5.91 $5.44
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
15
<PAGE> 25
UNISON HEALTHCARE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
UNISON ACQUISI- ADJUST- UNISON ADJUST- PRO FORMA
HISTORICAL TIONS(E) MENTS PRO FORMA AMPRO(I) MENTS COMBINED
---------- -------- --------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Net patient..................... $63,442 $5,140 $ -- $68,582 $ -- $ -- $68,582
Other........................... 1,555 569 (249)(f) 1,875 3,562 -- 5,437
------- ------ ----- ------- ------ ------- -------
Total revenues.......... 64,997 5,709 (249) 70,457 3,562 -- 74,019
Expenses:
Wages and related............... 32,447 3,336 -- 35,783 1,514 37,297
Other operating................. 21,172 2,230 (249)(f) 23,153 1,493 24,646
Rent............................ 6,653 21 538 (f) 7,212 51 -- 7,263
Interest........................ 1,452 249 (247)(f)
23 (g) 1,477 56 -- 1,533
Depreciation and amortization... 1,054 121 (113)(f)
7 (h) 1,069 98 --
-- 1,167
------- ------ ----- ------- ------ ------- -------
Total expenses.......... 62,778 5,957 (41) 68,694 3,212 -- 71,906
------- ------ ----- ------- ------ ------- -------
Income (loss) before income
taxes........................... 2,219 (248) (208) 1,763 350 -- 2,113
Income tax expense (benefit)...... 932 -- (227) 705 118 -- 823
------- ------ ----- ------- ------ ------- -------
Net income (loss)................. $ 1,287 $ (248) $ 19 $ 1,058 $ 232 $ -- $ 1,290
======= ====== ===== ======= ====== ======= =======
Net income per share:
Primary......................... $ 0.32 $ 0.26 $ .28
Fully diluted................... 0.31 0.26 .28
Weighed average shares used in per
share calculation:
Primary......................... 4,070 4,070 540(d) 4,610
Fully diluted................... 4,132 4,132 540(d) 4,672
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements
16
<PAGE> 26
UNISON HEALTHCARE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
OTHER PRO FORMA PRO FORMA
ACQUISI- ADJUST- UNISON ADJUST- PRO FORMA
UNISON BRITWILL TIONS(E) MENTS PRO FORMA AMPRO(I) MENTS COMBINED
------- ------- -------- --------- --------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Net patient.................. $12,415 $32,723 $7,591 $ -- $52,729 $ -- $ -- $52,729
Other........................ 1,029 269 22 (249)(f) 1,071 3,644 -- 4,715
------- ------- ------ ----- ------- ------ ------- -------
Total revenues........ 13,444 32,992 7,613 (249) 53,800 3,644 -- 57,444
Expenses:
Wages and related............ 7,486 19,813 5,164 -- 32,463 1,418 -- 33,881
Other operating.............. 4,587 7,422 2,302 (249)(f)
(750)(j) 13,312 1,545 -- 14,857
Rent......................... 1,151 4,448 75 538(f)
94(k) 6,306 55 -- 6,361
Interest, net................ 183 603 289 (338)(f)
140(g)
247(l) 1,124 19 -- 1,143
Depreciation and
amortization............... 88 500 127 (183)(f)
43(h)
589(m) 1,164 135 --
-- 1,299
------- ------- ------ ----- ------- ------ ------- -------
Total expenses........ 13,495 32,786 7,957 131 54,369 3,172 -- 57,541
------- ------- ------ ----- ------- ------ ------- -------
Income (loss) before income
taxes........................ (51) 206 (344) (380) (569) 472 -- (97)
Income tax expense (benefit)... 1 26 -- (254) (227) 157 -- (70)
------- ------- ------ ----- ------- ------ ------- -------
Net income (loss).............. $ (52) $ 180 $ (344) $(126) $ (342) $ 315 -- $ (27)
======= ======= ====== ===== ======= ====== ======= =======
Net income per share........... $ (0.04) $ (0.27) $ (0.01)
Weighed average shares used in
per share calculation........ 1,266 1,266 540(d) 1,806
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements
17
<PAGE> 27
UNISON HEALTHCARE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO
OTHER PRO FORMA UNISON PRO FORMA FORMA
UNISON BRITWILL ACQUISITIONS(E) ADJUSTMENTS PRO FORMA AMPRO(I) ADJUSTMENTS COMBINED
------- ------- --------------- ----------- --------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Net patient........... $57,743 $38,378 $20,190 $ -- $116,311 $ -- $ -- $116,311
Other................. 3,542 476 73 (499)(f) 3,592 7,203 -- 10,795
------- ------- ------- ------ -------- ------ ---- --------
Total
revenues..... 61,285 38,854 20,263 (499) 119,903 7,203 -- 127,106
Expenses:
Wages and related..... 31,811 23,280 14,427 -- 69,518 3,234 -- 72,752
Other operating....... 20,777 8,923 4,857 (499)(f)
(875) (j) 33,183 3,256 -- 36,439
Rent.................. 6,565 5,223 364 1,076 (f)
(110)(k) 13,118 108 -- 13,226
Interest, net......... 1,058 793 693 (675)(f)
280 (g)
288 (l) 2,437 118 -- 2,668
Depreciation and
amortization........ 1,050 592 434 (366)(f)
86 (h)
687 (m) 2,483 262 -- 2,745
------- ------- ------- ------ -------- ------ ---- --------
Total
expenses..... 61,261 38,811 20,775 (108) 120,739 6,978 -- 127,717
------- ------- ------- ------ -------- ------ ---- --------
Income (loss) before
income taxes.......... 24 43 (512) (391) (836) 225 -- (611)
Income tax expense
(benefit)............. 50 30 -- (414) (334) 82 -- (252)
------- ------- ------- ------ -------- ------ ---- --------
Net income (loss)....... $ (26) $ 13 $ (512) $ 23 $ (502) $ 143 $ -- $ (359)
======= ======= ======= ====== ======== ====== ==== ========
Net loss per share...... $ (0.02) $ (0.37) $ (0.19)
Weighed average shares
used in per share
calculation........... 1,349 1,349 540(d) 1,889
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements
18
<PAGE> 28
UNISON HEALTHCARE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
UNISON AMPRO(I) ADJUSTMENTS COMBINED
------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Net patient................................ $11,070 $ -- $ -- $11,070
Other...................................... 1,336 6,000 -- 7,336
------- ------ ---- -------
Total revenues..................... 12,406 6,000 -- 18,406
Expenses:
Wages and related.......................... 7,149 2,445 9,594
Other operating............................ 3,902 2,560 -- 6,462
Rent....................................... 1,299 107 1,406
Interest................................... 84 63 -- 147
Depreciation and amortization.............. 51 234 -- 285
------- ------ ---- -------
Total expenses..................... 12,485 5,409 -- 17,894
------- ------ ---- -------
Income (loss) before income taxes............ (79) 591 -- 512
Income tax expense........................... 1 171 -- 172
------- ------ ---- -------
Net income (loss)............................ $ (80) $ 420 $ -- $ 340
======= ====== ==== =======
Net income (loss) per share.................. $ (0.06) $ 0.19
Weighed average shares used in per share
calculation................................ 1,266 540(d) 1,806
</TABLE>
See Notes to Unaudited Condensed Combined Financial Statements
19
<PAGE> 29
UNISON HEALTHCARE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
UNISON AMPRO(I) ADJUSTMENTS COMBINED
------ ------------ ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Net patient....................................... $1,076 $ -- $ -- $1,076
Other............................................. 880 5,055 -- 5,935
------ ------ ----- ------
Total revenues................................. 1,956 5,055 -- 7,011
Expenses:
Wages and related................................. 1,455 2,234 3,689
Other operating................................... 545 2,084 -- 2,629
Rent.............................................. 99 107 206
Interest.......................................... 11 33 -- 44
Depreciation and amortization..................... 7 150 -- 157
------ ------ ----- ------
Total expenses................................. 2,117 4,608 -- 6,725
------ ------ ----- ------
Income (loss) before income taxes................... (161) 447 -- 286
Income tax expense (benefit)........................ (20) 197 -- 177
------ ------ ----- ------
Net income (loss)................................... $ (141) $ 250 $ -- $ 109
====== ====== ===== ======
Net income (loss) per share......................... $(0.11) $ 0.06
Weighed average shares used in per share
calculation....................................... 1,266 540(d) 1,806
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements
20
<PAGE> 30
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
NOTE 1. PRO FORMA ADJUSTMENTS
The pro forma results do not purport to present the results of operations
of Unison had the business combinations taken place on the dates specified, nor
are they necessarily indicative of the financial position or results of
operations that may be achieved in the future. The Unaudited Pro Forma Condensed
Combined Financial Statements have been prepared under the assumptions set forth
in the following notes.
The adjustments to the pro forma statements of operations are discussed
below.
(a) Represents the combined balance sheets of Ampro and Memphis, as
follows:
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
------------------------------------------
PRO FORMA PRO FORMA
AMPRO MEMPHIS ADJUSTMENTS COMBINED
------ ------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 14 $ 16 $ -- $ 30
Accounts and notes receivable, net.................... 2,048 101 -- 2,149
Other current assets.................................. 385 14 -- 399
------ ----- ----- ------
Total current assets.......................... 2,447 131 -- 2,578
Lease operating rights and other assets, net............ 319 -- -- 319
Goodwill, net........................................... 943 -- -- 943
Property and equipment, net............................. 497 160 -- 657
------ ----- ----- ------
Total assets.................................. $4,206 $ 291 $ -- $4,497
====== ===== ===== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt..................... $ 395 $ 10 $ 490(1) $ 895
Other current liabilities............................. 1,585 79 -- 1,664
------ ----- ----- ------
Total current liabilities..................... 1,980 89 490 2,559
Long-term debt.......................................... 669 22 -- 691
Stockholders' equity:
Common stock.......................................... 10 1 (1) 10
Additional paid-in capital............................ 400 -- (310) 90
Retained earnings..................................... 1,147 179 (179) 1,147
------ ----- ----- ------
Total stockholders' equity.................... 1,557 180 (490) 1,247
------ ----- ----- ------
Total liabilities and stockholders' equity.... $4,206 $ 291 $ -- $4,497
====== ===== ===== ======
</TABLE>
- ---------------
(1) Represent the consideration paid for Memphis, comprised of cash in the
amount of $240,000 (assumed to be borrowed) and the issuance of a promissory
note in the amount of $250,000.
(b) In connection with the Ampro and Memphis Mergers, Unison paid a
financial advisory fee to Trouver Capital Partners, L.P. in the amount of
approximately $127,000.
(c) To record the Ampro and Memphis Mergers under pooling of interests
accounting based on 4,411,000 pro forma combined common shares outstanding with
a par value of $.001 per share.
(d) To record 540,000 common shares to be issued in connection with the
Ampro and Memphis Mergers.
21
<PAGE> 31
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS -- (CONTINUED)
(e) Other Acquisitions: The following table summarizes the operating
results for the following leases entered into from January 1, 1995 through the
later of the date of lease inception or the period of the statement of
operations.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED DECEMBER
JUNE 30, 1996 31, 1995
ACQUISITION -------------------- --------------------
ACQUISITION DATE REVENUES EXPENSES REVENUES EXPENSES
- ---------------------------------------- ----------- -------- -------- -------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Nightingale Oct. 1995 $ -- $ -- $ 4,438 $ 4,506
The Oaks of Boise July 1995 -- -- 815 911
Sunbelt Therapy Feb. 1996 544 568 5,942 5,725
Franciscan Enumclaw Aug. 1996 2,060 2,294 3,860 4,313
Franciscan Walla Walla Aug. 1996 969 999 1,371 1,507
Other acquisitions(1) July 1996 2,136 2,096 3,837 3,813
------ ------ ------- -------
$5,709 $5,957 $20,263 $20,775
====== ====== ======= =======
</TABLE>
- ---------------
(1) Represents less than 10% of Unison pro forma net income.
(f) Operating lease pro forma adjustments represent adjustments to the
pre-lease operating results of the facilities identified in note (e). The
historical results have been adjusted to include the lease expense incurred by
Unison, elimination of management fee income to Unison and elimination of the
lessor's depreciation, interest expense and management fees.
(g) Effective as of February 1, 1996, Unison purchased 90% of the
outstanding common stock of Sunbelt. In consideration for the $3,600,000
purchase price, Unison paid cash in the amount of $800,000, issued promissory
notes in the aggregate amount of $1,000,000 (the "Sunbelt Notes") and issued
subordinated convertible debentures in the aggregate amount of $1,800,000 (the
"Sunbelt Debentures"). The Sunbelt Notes and Sunbelt Debentures bear interest at
10.0%, which amounts to approximately $23,000 for the one month ended January
31, 1996, $140,000 for the six months ended June 30, 1995 and $280,000 annually.
The Sunbelt Notes and Sunbelt Debentures are convertible at the option of the
holder into shares of Unison common stock based on the average market price (85%
of the average market price with respect to the Sunbelt Notes) of Unison's stock
for the 20 trading days prior to the date of conversion. Effect of conversion of
the Sunbelt Notes and Sunbelt Debentures is not included in the calculation of
historical or pro forma net income per share because the effect is antidilutive.
(h) To record amortization of goodwill related to the acquisition of
Sunbelt. Under the purchase method of accounting, assets acquired and
liabilities assumed were recorded at the estimated fair value. The excess of the
$3,600,000 purchase price over the net assets acquired was recorded as goodwill
in the amount of $3,433,000 and amortized over 40 years. Such amortization
amounts to approximately $7,000 for the one month ended January 31, 1996,
$43,000 for the six months ended June 30, 1995 and $86,000 annually.
22
<PAGE> 32
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS -- (CONTINUED)
(i) Represents the combined income statements of Ampro and Memphis, as
follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1996 1995
---------------------------- ----------------------------
PRO FORMA PRO FORMA
AMPRO MEMPHIS COMBINED AMPRO MEMPHIS COMBINED
------ ------- --------- ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Net patient.................... $ -- $ -- $ -- $ -- $ -- $ --
Other.......................... 3,088 474 3,562 3,225 419 3,644
------ ----- ------ ------ ---- ------
Total revenues......... 3,088 474 3,562 3,225 419 3,644
Expenses:
Wages and related.............. 1,341 173 1,514 1,273 145 1,418
Other operating................ 1,309 184 1,493 1,359 186 1,545
Rent........................... 37 14 51 40 15 55
Interest....................... 56 -- 56 19 -- 19
Depreciation and
amortization................ 81 17 98 112 23 135
------ ----- ------ ------ ---- ------
Total expenses......... 2,824 388 3,212 2,803 369 3,172
------ ----- ------ ------ ---- ------
Income before income taxes....... 264 86 350 422 50 472
Income tax expense............... 94 24 118 143 14 157
------ ----- ------ ------ ---- ------
Net income....................... $ 170 $ 62 $ 232 $ 279 $ 36 $ 315
====== ===== ====== ====== ==== ======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 YEAR ENDED DECEMBER 31, 1994
---------------------------- ----------------------------
PRO FORMA PRO FORMA
AMPRO MEMPHIS COMBINED AMPRO MEMPHIS COMBINED
------ ------- --------- ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Net patient.................... $ -- $ -- $ -- $ -- $ -- $ --
Other.......................... 6,421 782 7,203 5,152 848 6,000
------ ----- ------ ------ ---- ------
Total revenues......... 6,421 782 7,203 5,152 848 6,000
Expenses:
Wages and related.............. 2,913 321 3,234 2,119 326 2,445
Other operating................ 2,864 392 3,256 2,159 401 2,560
Rent........................... 79 29 108 77 30 107
Interest....................... 118 -- 118 63 -- 63
Depreciation and
amortization................ 194 68 262 147 87 234
------ ----- ------ ------ ---- ------
Total expenses......... 6,168 810 6,978 4,565 844 5,409
------ ----- ------ ------ ---- ------
Income (loss) before income
taxes.......................... 253 (28) 225 587 4 591
Income tax expense (benefit)..... 86 (4) 82 170 1 171
------ ----- ------ ------ ---- ------
Net income (loss)................ $ 167 $ (24) $ 143 $ 417 $ 3 $ 420
====== ===== ====== ====== ==== ======
</TABLE>
23
<PAGE> 33
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
----------------------------
PRO FORMA
AMPRO MEMPHIS COMBINED
------ ------- ---------
<S> <C> <C> <C>
Revenues:
Net patient............................................. $ -- $ -- $ --
Other................................................... 4,190 865 5,055
------ ----- ------
Total revenues.................................. 4,190 865 5,055
Expenses:
Wages and related....................................... 1,872 362 2,234
Other operating......................................... 1,681 403 2,084
Rent.................................................... 77 30 107
Interest................................................ 33 -- 33
Depreciation and amortization........................... 81 69 150
------ ----- ------
Total expenses.................................. 3,744 864 4,608
------ ----- ------
Income before income taxes................................ 446 1 447
Income tax expense........................................ 197 -- 197
------ ---- ------
Net income................................................ $ 249 $ 1 $ 250
====== ==== ======
</TABLE>
(j) On August 10, 1995, Unison purchased all of the outstanding common
stock of BritWill, a long-term care company operating approximately 28
facilities located in Texas and Indiana (the "BritWill Acquisition"). In
connection with the BritWill Acquisition, other operating expenses have been
reduced to give effect to the following estimated annual cost savings to be
realized (in thousands):
<TABLE>
<S> <C>
Elimination of duplicate corporate compensation and benefits........ $ 710
Reduction of insurance costs........................................ 300
Reduction of corporate office rent and operating costs.............. 468
Other............................................................... 22
------
---
$1,500
======
</TABLE>
(k) To record amortization of a lease liability incurred in connection with
the BritWill Acquisition. The lease liability represents the excess of the value
of BritWill's lease obligations over market lease rates, based on independent
appraisals. Amortization expense related to the lease liability amounts to
approximately $188,000 annually.
(l) To record interest on debt incurred to acquire BritWill. In connection
with the BritWill Acquisition, Unison issued an $8,000,000 senior subordinated
note bearing interest initially at 8.0%, or $640,000 annually. Interest expense
related to other debt obligations was reduced by $147,000 based on the
anticipated replacement of the accounts receivable sales program with BritWill's
receivables financing program.
(m) Under the purchase method of accounting, the BritWill assets acquired
and liabilities assumed were recorded at the estimated fair value as determined
by an independent appraisal. The excess of the purchase price over the fair
value of net assets acquired is being amortized over 40 years, the noncompete
agreement and assembled work force intangible assets are being amortized over
five years, and the lease operating rights intangible assets are being amortized
over the respective lease terms, not to exceed 25 years. Such amortization is
approximately $2,007,000 annually. Amortization expense was reduced by $830,000
annually to eliminate BritWill's historical amortization of intangible assets.
NOTE 2. INCOME TAXES
Estimated provisions for income taxes related to pro forma adjustments are
based on an assumed combined federal and state income tax rate of 40%.
24
<PAGE> 34
THE AMPRO AND MEMPHIS MERGERS
BACKGROUND
The terms of the Ampro and Memphis Merger Agreements are the result of
arm's-length negotiations between representatives of Unison, Ampro and Memphis.
The following is a brief discussion of the events that led to the negotiations,
the Ampro and Memphis Merger Agreements and related transactions.
In November 1995, Mr. Harold McKinney and Mr. Jay McGee,
Secretary-Treasurer and Vice President, respectively, of Ampro and Vice
President and Secretary, also respectively, of Memphis, met with Mr. John Lynch
of Trouver Capital Partners, L.P. to discuss the possible merger of Ampro with
Unison. After initial discussions with Mr. Lynch, Mr. Walker, Unison's Chief
Executive Officer and President, became involved in the possible merger
discussions. On March 26, 1996, the parties signed a letter of intent to merge.
On May 2, 1996, Mr. Walker, Mr. Maguire, President of Ampro, Mr. McKinney and
Mr. McGee met in Phoenix to negotiate more definitive terms of the proposed
merger. During May 1996, Unison completed its due diligence review of the
records and operations of Ampro and Memphis. On May 22, 1996 the parties reached
an understanding of the general terms of the acquisition, subject to preparation
and negotiation of a definitive agreement by attorneys for the parties. On June
6, 1996 an agreement in principle was reached and the following press release
was issued:
Scottsdale, Arizona (June 6, 1996) -- Unison HealthCare Corporation
(Nasdaq/NM:UNHC) announced today that they have reached an agreement to
acquire three clinical reference laboratories which provide lab services
primarily to nursing homes. The three labs are located in Dallas, Texas;
Memphis, Tennessee; and Poplar Bluff, Missouri, and currently serve over
280 facilities. The transaction is expected to be accounted for as a
pooling of interests. The consideration will be Unison common stock valued
at approximately $7 million. The Company expects the acquisition to be
accretive to earnings and anticipates closing before September 30, 1996,
subject to due diligence, regulatory review, and the approval of the Boards
of Directors of the parties. Presently, the three laboratories are
generating annual revenues of over $7,000,000.
Craig R. Clark, executive vice president and chief financial officer
of Unison HealthCare Corporation, commented, "We are pleased to announce
this major transaction which we expect to have a positive impact on our
company in 1996. In addition to strong historic market trends, these
reference labs are ideally situated to provide services to existing Unison
nursing homes, thereby further improving the Company's profitability."
In closing Mr. Clark added, "This transaction is another important
step in our strategy to control the delivery of ancillary services to our
nursing homes. Such an approach enables us to cost-effectively provide high
quality care which is essential for success in what is increasingly
becoming a managed care environment."
Representing the laboratories being acquired, W. Jerome McGee, one of
the principals, commented, "We are pleased to join a growing organization
such as Unison. Our customers and employees will be better served now that
we are part of a larger organization with a reputation for delivering
cost-effective, high quality service."
Unison HealthCare Corporation is a provider of quality long-term and
specialty health care services. The Company provides a broad range of
health care services including nursing care, rehabilitation therapy,
pharmacy and other specialized services primarily to subacute patients. The
Company currently operates 46 skilled nursing facilities and five
independent living facilities, representing 4,912 beds.
On July 3, 1996, definitive agreements for the Ampro and Memphis Mergers
were signed. The definitive agreements have been approved by the boards of
Unison, Ampro and Memphis. Unison filed copies of the Ampro and Memphis Merger
Agreements as exhibits to a Current Report on Form 8-K dated July 19, 1996.
25
<PAGE> 35
REASONS FOR THE AMPRO AND MEMPHIS MERGERS; RECOMMENDATIONS OF THE BOARDS OF
DIRECTORS
The Boards of Directors of both Ampro and Memphis believe that the Ampro
Merger Agreement and the Memphis Merger Agreement are fair to, and in the best
interests of, Ampro and its shareholders on the one hand, and Memphis and its
shareholders on the other hand, and therefore unanimously recommend that the
shareholders vote for approval of the Ampro Merger Agreement and the Memphis
Merger Agreement. In reaching these conclusions, various factors were considered
by the Board of Directors. The material factors considered were:
1. The financial condition, indebtedness, historical earnings and
operations of Ampro and Memphis, and prospects for future growth in its
earnings, and the corresponding attributes of Unison.
2. The access to additional capital and the potential use of Unison
Common Stock with which to make additional acquisitions and grow the
laboratory business.
3. The knowledge of the Boards of Directors of the reference
laboratory industry.
4. The limited liquidity of the Ampro Common Stock, and the lack of
liquidity of Memphis Common Stock, as compared with the Unison Common
Stock.
5. The premium represented by the Ampro Merger Consideration in
relation to recent prices for Ampro's Common Stock.
6. The determination by the Boards of Directors of Ampro and Memphis
that the consideration to be received by holders of the Ampro Shares and
Memphis Shares pursuant to the Ampro and Memphis Merger Agreements is fair
to such holders from a financial point of view.
7. The terms of the Ampro and Memphis Merger Agreements preventing
solicitation of other offers but permitting the respective Boards of
Directors to withdraw their approval or recommendations of the Ampro and
Memphis Merger Agreements or the Ampro and Memphis Mergers and to provide
information to other prospective acquirors to the extent required by their
fiduciary duties under applicable law. See "The Ampro and Memphis Merger
Agreements -- No Solicitation."
8. The absence in the final Merger Agreements of any termination fee
payable to Unison and a $150,000 maximum expense reimbursement in the Ampro
and Memphis Merger Agreements for failing to complete the Ampro and Memphis
Mergers under certain conditions, which the respective Boards of Directors
believed was reasonable under the circumstances and would not unduly limit
the possibility of a transaction at a higher price with any other potential
acquiror. See "The Ampro and Memphis Merger Agreements -- Expenses."
No special relative weight was given by the Boards of Directors to any one
of the various factors considered in reaching its determination to recommend the
proposed transaction, although the premium represented by the Merger
Consideration in light of the prospects for future growth in the earnings of
Ampro and Memphis and the liquidity of the Unison Common Stock to be received in
the Ampro and Memphis Mergers received special emphasis in the analysis.
Although the factors are interrelated, the Boards believe that factors 1
through 6 generally support the fairness of the Merger Consideration to the
shareholders of Ampro and Memphis and that factors 7 and 8 tend to help assure
that shareholders of Ampro and Memphis will be presented with any other
available alternatives and will have an opportunity to make an informed choice
among them. The Boards of Directors also believe that all of the factors support
its recommendation that the shareholders approve both the Ampro Merger and the
Memphis Merger. The information considered by the Boards of Directors and their
evaluations which support these conclusions are described in the following
paragraphs.
In the judgment of the Boards of Directors of Ampro and Memphis, the Ampro
and Memphis Mergers offer holders of Ampro Shares and Memphis Shares their best
available opportunity to realize an appropriate value on their investment in
Ampro and Memphis. If the Mergers are not approved, the Boards currently intend
that Ampro and Memphis will each continue to operate as an independent company
as though the proposal for the mergers had not occurred. However, Messrs. McGee,
McKinney and Maguire collectively own 9,100,133 shares (89%) of Ampro's Common
Stock and Messrs. McGee, McKinney, Maguire and Seals
26
<PAGE> 36
own 100% of the outstanding stock of Memphis, and all of them have indicated an
intention to vote in favor of the Ampro and Memphis Mergers, so shareholder
approval of both mergers is assured.
The Boards of Directors unanimously recommend that the shareholders of
Ampro and Memphis vote for the proposal to approve and adopt the Merger
Agreements. The Boards of Directors are not asking for proxies, however, and
shareholders are requested not to send proxies to the Boards of Directors.
INTERESTS OF CERTAIN PERSONS IN THE AMPRO AND MEMPHIS MERGERS
In considering the recommendations of the Ampro Board of Directors with
respect to the Ampro Merger, shareholders of Ampro should be aware that certain
members of the Board of Directors and Ampro's management have interests which
present them with actual or potential conflicts of interest. W. Jerome McGee and
Harold N. McKinney, Directors of Ampro, Ampro's current Vice President and
Secretary-Treasurer, respectively, and beneficial owners of 29.57% and 29.70% of
the issued and outstanding Ampro Common Stock, respectively, will each enter
into employment agreements (the "Employment Agreements") with Ampro immediately
following the Ampro Merger. Mr. McGee and Mr. McKinney, however, will not serve
as directors or as executive officers of Ampro following the Ampro Merger.
Pursuant to the Employment Agreements, Mr. McGee and Mr. McKinney will each
serve as a Senior Manager of Ampro on a majority-time basis for initial terms of
two years each. Each of the Employment Agreements provides for a base salary of
$125,000 and a bonus during the initial term of the Employment Agreement equal
to a portion, to be allocated between and by Messrs. McGee and McKinney, of 50%
of the net income of Ampro and Memphis, less $600,000 and certain other
adjustments, for the twelve months ending December 31, 1996 and December 31,
1997.
Mr. McGee, Mr. McKinney and John L. Maguire, each directors, officers and
shareholders of Ampro, are also shareholders of Memphis, and Mr. McGee and Mr.
McKinney are additionally officers and directors of Memphis. Memphis has entered
into an Agreement and Plan of Merger (the "Memphis Merger Agreement") with
Unison and Memphis Acquisition Co., a Delaware corporation and a newly formed
wholly-owned subsidiary of Unison. Pursuant to the Memphis Merger Agreement the
approximately 35% equity interest held by Messrs. McGee, McKinney and Maguire
will be converted into the right to receive pro rata portions of 19,000 shares
of Unison Common Stock. Messrs. McGee, McKinney and Maguire will allow an option
to acquire the remaining approximate 65% equity of Memphis to lapse. In the
Memphis Merger Agreement, the 65% interest, held by William R. Seals, the
president and manager of Memphis, will be converted into the right to receive
cash in the estimated amount of $240,000 and a promissory note in the amount of
$250,000 (subject to adjustment based on the Federal capital gains tax rate),
bearing interest at the rate of 6% per annum and requiring a $200,000 principal
installment on July 1, 1997 and a final principal installment on April 15, 1998
(both subject to adjustment as provided in the Memphis Merger Agreement).
The Ampro Merger Agreement and the Memphis Merger Agreement are mutually
contingent.
MATERIAL CONTRACTS BETWEEN UNISON, AMPRO AND MEMPHIS
As of the date hereof, Ampro provides medical laboratory services to five
Unison facilities in Texarkana, Texas. Unison and Memphis also are evaluating
service of Unison facilities in Indiana by Memphis. No agreement, however, has
been reached for such service, and the completion of such an agreement cannot be
assured.
CERTAIN EFFECTS OF THE AMPRO AND MEMPHIS MERGERS
As a result of the Ampro and Memphis Mergers, current shareholders of Ampro
and Memphis will not have an opportunity to continue their equity interests in
Ampro and Memphis as ongoing corporations, but (except for one Memphis
shareholder) they will have an opportunity to participate in the earnings and
growth of Unison through their receipt and ownership of shares of Unison Common
Stock pursuant to the Ampro and Memphis Mergers.
Upon consummation of the Ampro and Memphis Mergers, Unison will own all of
the outstanding shares of Ampro and Memphis and will be entitled to all of the
benefits and be subject to all the risks that will result from such ownership.
Upon consummation of the Ampro Merger, Ampro shares will no longer be traded in
the over-the-counter market and quoted on the OTC Bulletin Board.
27
<PAGE> 37
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Quarles & Brady, counsel to Unison, has given its opinion concerning
certain tax consequences of the Ampro Merger, a copy of which has been filed as
an Exhibit to the Registration Statement. The opinion does not address the
federal income tax consequences applicable to special classes of taxpayers
including, without limitation, foreign persons, tax-exempt entities, retirement
plans, financial institutions, and persons who acquired their Ampro Shares
pursuant to the exercise of employee options or otherwise as compensation. The
opinion also does not address any state, local or foreign income, property,
transfer or other tax consequences of the Ampro Merger. The tax opinion is based
upon certain customary representations and assumptions (including satisfaction
of the continuity of interest requirement). The obligation of the parties to
consummate the Ampro Merger is not subject to the receipt of a tax opinion in
respect thereof. No rulings have been or will be requested from the Internal
Revenue Service as to the federal income tax consequences of the Ampro and
Memphis Mergers. The opinion of counsel is not binding on the Internal Revenue
Service and the Internal Revenue Service is not precluded from taking a
different position. The opinion is based on the federal income tax laws in
effect on the date of the opinion, and there can be no assurance that future
legislation, regulations, administrative rulings or pronouncements or court
decisions will not adversely affect the accuracy of the opinions contained
therein.
According to the opinion of Quarles & Brady, the Ampro Merger will qualify
as a "reorganization" for federal income tax purposes under Section 368(a)(1)(A)
and 368(a)(2)(E) of the Internal Revenue Code of 1986, as amended (the "Code"),
and as a result thereof:
(a) the Ampro Merger will not result in recognition of gain or loss by
Unison, Labco or Ampro;
(b) no gain or loss will be recognized by an Ampro shareholder who
receives solely shares of Unison Common Stock in exchange for Ampro Shares;
(c) the aggregate basis of the shares of Unison Common Stock received
by an Ampro shareholder in the transaction (including any fractional share
interest) will be the same as the basis of the Ampro Shares surrendered in
exchange therefor;
(d) the holding period of the shares of Unison Common Stock received
by an Ampro shareholder in the exchange (including any fractional share
interest) will include the holding period for the Ampro Shares exchanged
therefor, provided the Ampro Shares are held as capital assets as of the
effective time of the Ampro Merger;
(e) an Ampro shareholder who receives cash in the Ampro Merger in lieu
of fractional share interests in Unison Common Stock will be treated for
federal income tax purposes as if the fractional shares were issued in the
transaction and then redeemed by Unison. These cash payments will be
treated as having been received as distributions in full payment in
exchange for the stock redeemed as provided in Section 302(a) of the Code.
An Ampro shareholder will recognize capital gain or loss thereon, provided
the Ampro Shares surrendered for such fractional share interests are held
as capital assets as of the effective time of the Ampro Merger, in an
amount equal to the difference between the amount of cash received and the
portion of such shareholder's adjusted tax basis in the Ampro Shares
allocable to such fractional share interests. Such capital gain or loss
will be long-term capital gain or loss if the holding period for such
shares is more than one year.
The following summary also discusses certain federal income tax
consequences of the Ampro Merger and the Memphis Merger. This summary is
provided for general information only and is also based upon the provisions of
the Code, the applicable regulations thereunder, judicial authority and current
administrative rulings and practices as of the date hereof.
The applicable Treasury Regulations require an Ampro shareholder who
receives shares of Unison Common Stock in the Ampro Merger to include in the
shareholder's tax return for the taxable year in which the Ampro Merger occurs a
complete statement of all facts pertinent to the shareholder's nonrecognition of
gain or loss in the Ampro Merger, including the basis in the Ampro Shares
surrendered in the Ampro Merger and the amount of shares of Unison Common Stock
received in the Ampro Merger. In addition, the Ampro
28
<PAGE> 38
shareholder must keep permanent records in order to determine gain or loss on
the subsequent disposition of the shares of Unison Common Stock received in the
Ampro Merger.
The Memphis Merger will not qualify as a reorganization for federal income
tax purposes under Section 368(a) of the Code. Rather, the Memphis Merger will
be treated for federal income tax purposes as a taxable purchase of the Memphis
Shares by Unison (i) for Unison shares in the case of three Memphis
shareholders, and (ii) for cash and a promissory note of Unison in the case of
one Memphis shareholder. A Memphis shareholder who receives Unison shares or
cash and a promissory note in the Memphis Merger will recognize capital gains or
losses thereon, provided the Memphis Shares surrendered therefor are held as
capital assets as of the effective time of the Memphis Merger, in an amount
equal to the difference between the fair market value of the Unison shares or
the amount of cash and the promissory note received, as the case may be, and
such shareholder's adjusted basis in the Memphis Shares. Such capital gains or
loss will be long-term capital gains or loss if the holding period for such
shares is more than one year. The Memphis shareholder who receives cash and a
promissory note should be entitled to use the installment method of accounting
with respect to the sale of his Memphis Shares. No gain or loss will be
recognized by Unison, Memco or Memphis in the Memphis Merger.
Backup withholding at the rate of thirty-one percent (31%) may apply to the
proceeds from the taxable sale, exchange or other disposition by an Ampro
shareholder of Ampro Shares or fractional share interests of Unison Common
Stock, or by a Memphis shareholder of Memphis shares, unless the shareholder is
a corporation or other exempt recipient or provides certain certifications,
including a correct taxpayer identification number. Backup withholding is not an
additional tax; rather, the amount withheld is creditable against the
shareholder's federal income tax liability.
THE FEDERAL INCOME TAX CONSEQUENCES DISCUSSED ABOVE DEPEND UPON EACH AMPRO
OR MEMPHIS SHAREHOLDER'S PARTICULAR TAX STATUS, AND FURTHER DEPEND ON FEDERAL
INCOME TAX LAWS, REGULATIONS, RULINGS AND DECISIONS WHICH ARE SUBJECT TO CHANGE
(WHICH CHANGES MAY BE RETROACTIVE IN EFFECT). ACCORDINGLY, EACH SHAREHOLDER IS
URGED TO CONSULT SUCH SHAREHOLDER'S OWN TAX ADVISOR FOR A COMPLETE DESCRIPTION
OF THE TAX CONSEQUENCES TO SUCH SHAREHOLDER, INCLUDING THE APPLICABILITY AND
EFFECT OF ANY STATE, LOCAL OR FOREIGN INCOME, PROPERTY, TRANSFER OR OTHER TAX
LAWS.
RESALE OF UNISON COMMON STOCK
The shares of Unison Common Stock to be issued to shareholders of Ampro and
Memphis in the Ampro and Memphis Mergers have been registered under the
Securities Act and may be freely traded by shareholders who, at the time of the
Ampro/Memphis Special Meeting, are not "affiliates" of Ampro or Memphis (and are
not affiliates of Unison at the time of a proposed resale).
Under the Securities Act, Unison shares received by affiliates of Ampro or
Memphis may be resold by them only (i) pursuant to a further registration under
the Securities Act of the shares to be sold, (ii) in conformity with the resale
provisions of Rule 145, or (iii) in accordance with another available exemption
from the registration requirements. Unison's obligation to consummate the Ampro
and Memphis Mergers is conditioned upon the receipt of an executed Affiliate
Agreement to comply with such resale restrictions from each person who may be
deemed to be an "affiliate" of Ampro and Memphis within the meaning of the
Securities Act and Rule 145 and to whom shares of Unison Common Stock are issued
in the Ampro and Memphis Mergers. An "affiliate" is defined under the rules
promulgated pursuant to the Securities Act as a person that directly, or
indirectly through one or more intermediaries, controls, or is controlled by, or
is under common control with, the company in question. For this purpose, Unison
will treat each executive officer and each director of Ampro or Memphis as an
"affiliate," and shares of Unison Common Stock issued to such persons in the
Ampro and Memphis Mergers will be transferable only in compliance with the
Affiliate Agreement. Unison is not obligated to register Unison Common Stock
owned by affiliates of Ampro or Memphis under the Securities Act for resale.
Those persons who have been identified as affiliates of Ampro or Memphis have
been so advised.
29
<PAGE> 39
ACCOUNTING TREATMENT
The Agreements contemplate that the overall transaction comprised of the
Ampro Merger and the Memphis Merger combined will be treated as a
"pooling-of-interests" for accounting purposes.
THE AMPRO AND MEMPHIS MERGER AGREEMENTS
The following is a summary of certain provisions of the Ampro Merger
Agreement and the Memphis Merger Agreement, a copies of which are attached as
Annex A and Annex B, respectively, to this Prospectus/Information Statement
Supplement. Such summaries are is qualified in their entirety by reference to
the full text of such Agreements. Capitalized terms not otherwise defined herein
shall have the meanings assigned to them in the Agreements, which are
incorporated into this Prospectus/Information Statement Supplement by this
reference.
GENERAL; EFFECTIVE TIME
The Ampro Merger Agreement provides that, subject to the approval by the
holders of a majority of Ampro's Shares outstanding on the Record Date, and upon
the satisfaction or waiver of certain other conditions set forth in the Ampro
Merger Agreement, Labco will be merged with and into Ampro, which will be the
surviving corporation of the Ampro Merger and will become a wholly-owned
subsidiary of Unison. At the Effective Time, each of the outstanding Ampro
Shares, other than shares held by Ampro as treasury stock, will be converted
into the right to receive the Ampro Merger Consideration upon surrender of the
certificate representing such share. Cash will be paid in lieu of fractional
shares of Unison Common Stock. At the Effective Time, each outstanding share of
Common Stock of Labco will be converted into one share of Common Stock of the
surviving corporation to the Ampro Merger.
If the Ampro Merger Agreement is approved by the required vote of Ampro's
shareholders and if the other conditions to the Ampro Merger are satisfied or
waived, the Ampro Merger will become effective when Articles of Merger are filed
with the Division of Corporations and Commercial Code of the State of Utah and
the Labco Certificate of Merger is filed with the Secretary of the State of
Delaware. It is expected that such Effective Time will be as soon as practicable
after the approval and adoption of the Ampro Merger Agreement by Ampro's
shareholders (subject to compliance with, or waiver of, the other conditions
contained in the Ampro Merger Agreement).
The Memphis Merger Agreement provides that Memco will be merged with and
into Memphis (the "Memphis Merger") with Memphis being the surviving
corporation, and each outstanding share of common stock of Memphis (the "Memphis
Shares") will be converted into the right to receive approximately 54 shares of
Unison Common Stock, except that the 648 Memphis Shares owned by William R.
Seals will instead be converted into the right to receive a Unison promissory
note in the principal amount of $250,000 and cash in the amount of approximately
$240,000. An option for the Memphis Shares owned by Mr. Seals which he gave to
the other Memphis shareholders will be allowed to lapse unexercised. The Ampro
Merger and the Memphis Merger are mutually contingent transactions.
If the Memphis Merger Agreement is approved by the required vote of the
Memphis shareholders and if the other conditions to the Memphis Merger are
satisfied or waived, the Memphis Merger will become effective when Articles of
Merger are filed with the Secretary of State of the State of Tennessee and the
Memco Certificate of Merger is filed with the Secretary of State of the State of
Delaware. It is expected that such Effective Time will be as soon as practicable
after the approval and adoption of the Memphis Merger Agreement by the Memphis
shareholder (subject to compliance with, or waiver of, the other conditions
contained in the Memphis Merger Agreement).
REQUIRED VOTE
Under Ampro's Articles of Incorporation, as amended, and the URBCA, the
Ampro Merger will be approved if it receives the affirmative vote of the holders
of at least a majority of the outstanding Ampro Shares. Similarly, under the
Memphis Articles of Incorporation, as amended, and the Tennessee Business
30
<PAGE> 40
Corporation Act, the Memphis Merger will be approved if it receives the
affirmative vote of the holders of at least a majority of the Memphis Shares. No
vote of Unison stockholders is required, or will be sought, to consummate the
transaction.
As of both June 5, 1996, the last trading day prior to the announcement by
Unison of the proposed Ampro and Memphis Mergers, and the date hereof, the Ampro
and Memphis directors and officers and their affiliates owned beneficially or of
record 89% of the outstanding Ampro Shares and 100% of the Memphis Shares
entitled to vote at the Ampro/Memphis Special Meeting. See "Principal
Shareholders of Ampro and Memphis." All of such persons have indicated that they
intend for vote for the Ampro and Memphis Mergers, so approval by the Ampro and
Memphis shareholders is assured. The directors and executive officers of Unison
and their affiliates beneficially own no such Shares, and Unison and its
subsidiaries own no such Shares.
EXCHANGE OF SHARES
Promptly after the effective time of the Ampro and Memphis Mergers, Harris
Trust and Savings Bank, the Exchange Agent under the Ampro and Memphis Merger
Agreements (the "Exchange Agent"), will mail to each record holder of an
outstanding certificate or certificates which immediately prior to the effective
time represented outstanding Ampro Shares (the "Certificates"), other than
holders who have perfected their dissenters' rights as described herein (see
"Rights of Dissenting Shareholders"), a form of letter of transmittal and
instructions for use in effecting the surrender of the Certificates in exchange
for certificates representing shares of Unison Common Stock plus cash in lieu of
fractional shares. Upon surrender to the Exchange Agent of a Certificate,
together with such letter of transmittal duly executed and any other required
documents, the holder of such Certificate will be entitled to receive in
exchange therefor that number of whole shares of Unison Common Stock into which
such holder's shares of Ampro Common Stock or Memphis Common Stock were
converted and, if applicable, payment for any fractional shares in cash (without
interest) in an amount equal to the Unison/Ampro Average Closing Price
multiplied by the fraction of a share of Unison Common Stock the holder would
otherwise be entitled to receive. Until so surrendered for exchange, each
Certificate shall represent for all purposes solely the right to receive the
Merger Consideration, without any interest thereon.
CONDITIONS OF THE AMPRO AND MEMPHIS MERGERS
The Ampro and Memphis Mergers will occur only if the Ampro and Memphis
Merger Agreements are approved at the Ampro/Memphis Special Meeting by the
required vote of the shareholders of Ampro and Memphis, respectively, in
accordance with applicable law. In addition, the obligations of Unison, on the
one hand, and of Ampro and Memphis, on the other, to consummate the transactions
contemplated by the Ampro and Memphis Merger Agreements are subject to the
satisfaction of certain conditions (any of which may be waived by the party or
parties entitled to the benefit thereof), including (i) the absence of any order
or injunction directing that the transactions contemplated by the Ampro and
Memphis Merger Agreements not be consummated, (ii) the receipt of all necessary
governmental consents and approvals required for consummation of the Ampro and
Memphis Mergers and the transactions contemplated hereby, (iii) the continued
effectiveness of the registration statement covering the shares of Unison Common
Stock to be issued pursuant to the Ampro and Memphis Mergers and the absence of
any stop order by the Commission with respect thereto, (iv) the approval for
listing on the Nasdaq National Market of the shares of Unison Common Stock to be
issued pursuant to the Ampro and Memphis Mergers, (v) the accuracy of the
representations and warranties of each party to the Ampro and Memphis Merger
Agreements, (vi) the performance by the other party in all material respects of
all obligations required to be performed by it under the Ampro and Memphis
Merger Agreements, (vii) in the case of the Ampro Merger Agreement, there not
being more than five percent of the Ampro Shares (i.e., by holders of not more
than 510,000 Ampro Shares) dissenting to the Ampro Merger under the URBCA,
(viii) the receipt of certain tax and securities representation letters by
affiliates of Ampro and Memphis, and (ix) the receipt of certain customary
closing certificates and legal opinions.
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Except as described above, Ampro and Memphis are not aware of any license
or regulatory permit that is material to their business that might be adversely
affected by the Ampro and Memphis Mergers, nor of any approval or other action
by any governmental, administrative or regulatory agency or authority that would
be required prior to the Ampro and Memphis Mergers, other than certain filings
under the state securities laws required for the registration of the Unison
Common Stock to be issued pursuant to the Ampro and Memphis Mergers.
REPRESENTATIONS AND WARRANTIES
The Ampro and Memphis Merger Agreements contain representations,
warranties, covenants and agreements by each of the parties regarding, among
other things, their organization, authority to enter into the transaction, and
requisite consents and approvals. In addition, Ampro and Memphis make certain
representations and warranties regarding, among other things, their respective
capitalization, litigation, employment agreements, employee benefit plans, tax
matters, compliance with applicable laws, title to properties and environmental
matters. The representations and warranties of each of the parties to the Ampro
and Memphis Merger Agreements will expire on consummation of the Ampro and
Memphis Mergers.
COVENANTS
Ampro and Memphis have each agreed that pending the Ampro and Memphis
Mergers they will conduct their business in the ordinary course, seek to
preserve their current business organization, seek to keep available the
services of their current officers and employees and seek to preserve their
relationships with customers and suppliers. In addition, Ampro and Memphis have
each agreed to a number of specific limitations respecting their activities
prior to the effective time of the Ampro and Memphis Mergers. Except as
contemplated by or provided in the Ampro and Memphis Merger Agreements or as
otherwise agreed by Unison, Ampro and Memphis have each promised that they will
not, among other things: change its authorized or issued capital stock,
including through a grant of a stock option or other right to purchase shares of
capital stock, through issuance of a security convertible into such capital
stock or grant of registration rights, the purchase, redemption, retirement or
acquisition of any shares of any such capital stock or the declaration or
payment of any dividend or other distribution or payment in respect of shares of
capital stock; amend their Articles of Incorporation of Bylaws; pay any bonuses,
or increase salaries or other compensation to any employee, or enter into any
employment, severance, or similar contract with any director, officer, or
employee other than in the ordinary course of business; adopt or increase the
payments to or benefits under any profit sharing, bonus, deferred compensation,
savings, insurance, pension, retirement, or other employee benefit plan for or
with any employees; sell (other than sales of inventory in the ordinary course
of business), lease, or otherwise dispose of any asset or property or mortgage,
pledge, or allow the imposition of any lien or other encumbrance on any material
asset or property; or change their accounting methods.
NO SOLICITATION
The Ampro and Memphis Merger Agreements provide that Ampro, Memphis and
their officers may not initiate or continue discussions or negotiations in
respect of any of the following events (a "Third Party Acquisition"): (i) the
acquisition of Ampro or Memphis by merger, consolidation or other business
combination transactions by anyone other than Unison or its affiliates (a "Third
Party"); (ii) the acquisition by any Third Party of, or any divestiture or other
transaction resulting in Ampro or Memphis owning less than, fifty percent (50%)
or more (in book value or market value) of its total assets as of the date of
the Ampro and Memphis Merger Agreements; (iii) the acquisition by a Third Party
of fifty percent (50%) or more of the outstanding shares of Ampro or Memphis,
whether by tender offer, exchange offer or otherwise; or (iv) the adoption by
Ampro or Memphis of a plan of liquidation or recapitalization or the declaration
of payment of any extraordinary dividend. Ampro and Memphis may, however,
furnish information and access in response to requests that were not solicited
by Ampro or Memphis after the date of the Ampro and Memphis Merger Agreements
and may participate in discussions and negotiate with such entities or groups
concerning any merger, sale of assets, sales of stock or similar transactions
involving Ampro or Memphis if the affected company's Board of Directors
determines, in its good faith reasonable judgment after consultation with
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counsel, that failing to take such action would be a breach of the Board of
Directors' fiduciary duties to its shareholders. Additionally, Ampro's Board of
Directors may take and disclose to Ampro shareholders a position contemplated by
Commission rules 14d-9 and 14e-2 under the Securities Exchange Act of 1934, as
amended, (the "Exchange Act") with respect to a tender offer for Ampro Shares.
No requests for information or sale discussions with any Third Party have
occurred since the date of the Ampro and Memphis Merger Agreements and prior to
the date of this Prospectus/Information Statement Supplement.
AMENDMENT
Subject to the provisions of applicable law, the Ampro and Memphis Merger
Agreements may be amended by the written agreement of the parties at any time
prior to the Effective Time.
TERMINATION
The Ampro Merger Agreement may be terminated and the Ampro Merger may be
abandoned at any time prior to the effective time of the Ampro Merger by the
mutual written consent of Unison and Ampro. In addition, the Ampro Merger
Agreement may be terminated:
(i) by Unison if the Unison/Ampro Average Closing Price is greater
than $15.00 or by Ampro if the Unison/Ampro Average Closing Price is less
than $11.00;
(ii) by either Unison or Ampro if the closing shall not have taken
place on or prior to October 30, 1996;
(iii) by either Unison or Ampro if a material breach of any provision
of the Ampro Merger Agreement has been committed by the other party and
such breach has not been waived;
(iv) by either Unison or Ampro if the other party's conditions to
closing have not been satisfied as of the closing date or if satisfaction
of such a condition is or becomes impossible and such condition has not
been waived;
(v) by Unison or Ampro if the Board of Directors of Ampro withdraws or
materially modifies or changes its favorable recommendation of the Ampro
Merger Agreement or the Ampro Merger, provided that Ampro may terminate on
this basis only if there exists at such time a proposal for a Third Party
Acquisition and the Ampro Board of Directors determines that the failure to
take such action would be a breach of its fiduciary duties to the Ampro
shareholders or other constituencies under applicable law, and provided
that Ampro has reimbursed Unison for its Ampro Merger related expenses in
an amount not to exceed $100,000; or
(vi) by mutual consent of Unison and Ampro.
Ampro may elect not to terminate the Ampro Merger Agreement even if the
Unison/Ampro Average Closing Price falls below $11.00 per share. In determining
whether to elect to terminate the Ampro Merger Agreement in these circumstances,
Ampro's Board of Directors will take into account, consistent with its fiduciary
duties, all relevant facts and circumstances existing at the time, including,
without limitation, the market for reference laboratory stocks in general, the
relative value of Unison Common Stock in the market and the advice of its
advisors and legal counsel. By approving the Ampro Merger Agreement, Ampro
shareholders would permit the Board of Directors of Ampro to determine, in the
exercise of its fiduciary duties, to proceed with the Ampro Merger even though
the Unison/Ampro Average Closing Price was below $11.00 per share.
Similarly, the Memphis Merger Agreement may be terminated and the Memphis
Merger may be abandoned at any time prior to the effective time of the Memphis
Merger by the mutual written consent of Unison and Memphis. In addition, the
Memphis Merger Agreement may be terminated:
(i) by either Unison or Memphis if the closing shall not have taken
place on or prior to October 30, 1996;
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(ii) by either Unison or Memphis if a material breach of any provision
of the Memphis Merger Agreement has been committed by the other party and
such breach has not been waived;
(iii) by either Unison or Memphis if the other party's conditions to
Closing have not been satisfied as of the closing date or if satisfaction
of such a condition is or becomes impossible and such condition has not
been waived;
(iv) by Unison or Memphis if the Board of Directors of Memphis
withdraws or materially modifies or changes its favorable recommendation of
the Memphis Merger Agreement or the Memphis Merger, provided that Memphis
may terminate on this basis only if there exists at such time a proposal
for a Third Party Acquisition and the Memphis Board of Directors determines
that the failure to take such action would be a breach of its fiduciary
duties to the Ampro shareholders or other constituencies under applicable
law, and provided that Ampro has paid Unison for its Memphis Merger related
expenses in an amount not to exceed $50,000; or
(v) by mutual consent of Unison and Memphis.
EXPENSES
The Ampro Merger Agreement provides that if it is terminated because the
Ampro Merger has not become effective prior to October 30, 1996, or if it is
terminated by either party because Ampro's Board of Directors has withdrawn its
favorable recommendation of the Ampro Merger, and within nine months thereafter
a Third Party Acquisition occurs or there is a letter of intent or public
announcement of intent to effect a Third Party Acquisition, or if any person or
group effects a tender or exchange offer which will result in such persons or
group owning more than twenty percent (20%) of the outstanding Ampro Shares or
substantially all of the assets of Ampro for a consideration greater than the
consideration to be received in the Ampro Merger, Ampro is required to pay
Unison's Ampro Merger related expenses up to $100,000. The Memphis Merger
Agreement includes a similar provision, but its limit on repayment of Unison
expenses is $50,000.
RIGHTS OF DISSENTING SHAREHOLDERS
Pursuant to Sections 16-10a-1301 through 16-10a-1331 of the URBCA, copies
of which are attached to this Prospectus/Information Statement Supplement as
Annex C, shareholders of Ampro may dissent from, and obtain payment of the fair
value of their Ampro Shares in the event of the consummation of the Ampro
Merger. An Ampro shareholder who wishes to assert dissenters' rights in
connection with the Ampro Merger must: (i) deliver to Ampro, before a vote is
taken with respect to the Ampro Merger, written notice of the shareholder's
intent to demand payment for the shareholders' Ampro Shares if the Ampro Merger
is effectuated; and (ii) not vote in favor of the Ampro Merger.
If the Ampro Merger is authorized at the Ampro Special Meeting and if the
other conditions of the Ampro Merger are satisfied or waived, Ampro will deliver
a written dissenters' notice to all Ampro shareholders who have satisfied the
requirements described above to assert those rights. Ampro will send the
dissenters' notice no later than ten days after the Ampro Merger is effectuated.
The dissenters' notice delivered by Ampro will: (i) state that the Ampro
Merger was authorized and the effective date of the Ampro Merger; (ii) state an
address at which Ampro will receive payment demands and an address at which
certificates for Ampro Shares must be deposited; (iii) include a form for
demanding payment; and (iv) set a date by which Ampro must receive the payment
demand and by which certificates for Ampro Shares must be deposited at the
address for such deposits in the dissenters' notice, which dates may not be
fewer than 30 days nor more than 70 days after the date the dissenter's notice
is given. Additionally, Ampro may require that when a record holder of Ampro
Shares dissents with respect to the shares held by any one or more beneficial
holders of Ampro Shares, each beneficial holder of Ampro Shares must certify to
Ampro that both such beneficial owner and the record holder of Ampro Shares
beneficially owned by such beneficial owner have asserted dissenters' rights as
to all the Ampro Shares. If Ampro so requires, the
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dissenter's notice will state this requirement. The dissenter's notice will
include a copy of URBCA Sections 16-10a-1301 through 16-10a-1331.
An Ampro shareholder to whom a dissenter's notice is sent must: (i) demand
payment on the form provided and within the time period set forth in the
dissenter's notice; (ii) deposit certificates for Ampro Shares in accordance
with the terms of the dissenter's notice; and (iii) if required by Ampro,
certify in writing whether the dissenting Ampro Shares were acquired before the
date of the first announcement to news media or to Ampro shareholders of the
terms of the Ampro Merger. A shareholder of Ampro who demands payment as
described above retains all rights of a shareholder of Ampro except the right to
transfer the shares until the effective time of the Ampro Merger and thereafter
has only the right to receive the fair value of his or her Ampro Shares.
A SHAREHOLDER OF AMPRO WHO DOES NOT DEMAND PAYMENT AND DEPOSIT CERTIFICATES
AS REQUIRED IS NOT ENTITLED TO PAYMENT UNDER URBCA SECTIONS 16-10A-1301 THROUGH
16-10A-1331.
Since all of the shareholders of Memphis have indicated that they intend to
vote in favor of the Memphis Merger Agreement, they will not be entitled to
dissenters' rights under applicable law.
UNISON, AMPRO AND MEMPHIS SHARES
UNISON COMMON STOCK
For a description of Unison Common Stock and Unison's authorized but
unissued preferred stock, see "Description of Unison Capital Stock" in the
Prospectus/Proxy and Information Statement.
For information as to market prices of and dividends on Unison Common
Stock, see "Summary -- Market Price Data" in this Prospectus/Information
Statement Supplement and "Description of Unison Capital Stock -- Market Price
Data" in the Prospectus/Proxy and Information Statement. On June 5, 1996, the
last trading day prior to the announcement by Unison of the proposed Ampro and
Memphis Mergers, the closing sale price of Unison Common Stock was $14.00, and
the closing bid and asking price for Ampro Common Stock was $0.125 and $0.625,
respectively. On September 17, 1996, the closing sale price of Unison Common
Stock was $13.25, and the closing bid and asking price for Ampro Common Stock
was $0.125 and $0.625, respectively.
AMPRO SHARES
Shares of Ampro are traded over-the-counter and are quoted on the OTC
Bulletin Board (under the symbol APRH). To Ampro's knowledge, no dealer makes a
market in Ampro's Shares. Quotes for Ampro Shares on the OTC Bulletin Board are
infrequent and do not constitute an established market for Ampro Shares. Ampro
has not paid any dividends on its Common Stock. The Ampro Merger Agreement
provides that Ampro will not declare payment of any extraordinary dividend.
MEMPHIS SHARES
There is no trading in or market for the Memphis Shares. Memphis did not
pay any dividends in 1993, 1994 or 1995. The Memphis Merger Agreement provides
that Memphis will not declare payment of any extraordinary dividend.
COMPARISON OF SHAREHOLDER RIGHTS
Unison is incorporated in the State of Delaware under the Delaware General
Corporation Law ("DGCL"), Ampro is incorporated in the State of Utah under the
URBCA and Memphis is incorporated in the State of Tennessee under the Tennessee
Business Corporation Act ("TBCA"). Ampro and Memphis shareholders will, upon
consummation of the Ampro and Memphis Mergers, become shareholders of Unison and
their rights will be governed by Unison's Amended Certificate of Incorporation
(the "Unison Certifi
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cate") cate") and By-laws (the "Unison By-laws"). Neither the directors nor the
executive officers of Unison will change as a result of the transaction.
Certain material differences between the rights of stockholders of Unison
and shareholders of Ampro and Memphis are set forth below. This summary is not
intended to be relied upon as an exhaustive list or detailed description of the
provisions discussed and is qualified entirely by the DGCL, the URBCA, the TBCA,
the Unison Certificate, Unison By-laws, the Ampro Articles of Incorporation, as
amended (the "Ampro Articles"), the Ampro By-laws (the "Ampro By-laws"), the
Memphis Charter of Incorporation (the "Memphis Charter") and the Memphis By-laws
(the "Memphis By-laws") to which Ampro and Memphis shareholders are referred.
AUTHORIZED SHARES OF CAPITAL STOCK
The Unison Certificate authorizes the issuance of (i) 10,000,000 shares of
Common Stock, par value $.001 per share, (ii) 1,000,000 shares of Preferred
Stock, $.001 par value per share, none of which have been issued. As of August
31, 1996, there were outstanding (a) 3,989,815 shares of Unison Common Stock,
and (b) employee options to purchase an aggregate of 292,012 shares of Common
Stock. While the Ampro Merger Agreement will not require a vote by the
stockholders of Unison, Unison will seek stockholder approval at a special
meeting of Unison stockholders to increase the number of authorized shares of
Unison Common Stock from 10,000,000 to 25,000,000. See "The Certificate
Amendment."
The authorized capital stock of Ampro consists of 50,000,000 shares of
Common Stock, $.001 par value. As of the Record Date ( , 1996),
10,200,000 shares of Common Stock of Ampro were issued and outstanding.
The authorized capital stock of Memphis consists of 1,000 shares, with no
par value. As of the Record Date, 1,000 shares of Memphis common stock were
issued and outstanding.
Based upon the number of shares outstanding as noted above and the number
of shares of Unison Common Stock to be issued in the Ampro and Memphis Mergers,
upon consummation of the Ampro and Memphis Mergers former shareholders of Ampro
and Memphis are expected to own approximately 11.9% of the outstanding Unison
Common Stock immediately after the Ampro and Memphis Mergers (approximately 8.9%
if the Signature Mergers are also consummated -- see "Recent and Pending
Acquisitions and Other Commitments" in the Prospectus/Proxy and Information
Statement).
CERTAIN CHARTER AND BY-LAW PROVISIONS
Although it is not practical to compare all of the provisions of the Unison
Certificate and the Unison By-laws with the Ampro Articles and Ampro By-laws and
with the Memphis Charter and Memphis By-laws, the following is a summary of a
comparison of certain provisions which may be important to Ampro Shareholders.
DIRECTORS
Unison. The Unison Certificate provides that the Board of Directors of
Unison shall consist of not less than three nor more than eleven directors
(subject to any rights of the holders of shares of any series of Unison
Preferred Stock to elect additional directors), with the number of directors
currently being fixed at nine. The exact number of directors within such range
may be changed from time-to-time by an amendment to the Unison By-laws duly
adopted in accordance with the Unison Certificate.
The Unison Certificate provides for a classified Board of Directors. The
Board of Directors is divided into three classes, designated as Class I, Class
II and Class III Directors. Directors are elected for terms of three years. The
Unison Certificate does not provide for cumulative voting. Cumulative voting for
the election of directors is not required by the DGCL. Accordingly, the holders
of a majority of the outstanding shares of Unison Common Stock may elect all of
the directors of Unison.
Subject to the rights of any series of Preferred Stock, the Unison
Certificate and Unison By-laws provide that any vacancies existing on the Board
of Directors, as well as any newly created directorships resulting from
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any increase in the number of directors, shall be filled only by the Board of
Directors, acting by a majority of the directors then in office although less
than a quorum, and any directors so chosen shall hold office for a term
coinciding with the term of the class for which such director shall have been
chosen and until their successors shall be elected and qualified. The Unison
By-laws provide that, subject to the rights of any series of Preferred Stock,
directors can be removed only for cause.
Ampro. The Ampro Articles provide that the Board of Directors of Ampro
will consist of no less than two nor more than five directors, with the number
of directors currently being fixed at three. The exact number of directors
within the range may be changed from time-to-time by an amendment to the Ampro
By-laws.
The Ampro Articles do not provide for cumulative voting. Pursuant to the
Ampro By-laws, any vacancies on the Board of Directors may be filled by the
remaining directors (though less than a quorum) until the next election of
directors by the shareholders.
Memphis. The Memphis By-laws provide for a Board of Directors consisting
of three directors. They also provide for cumulative voting for directors.
SPECIAL MEETINGS OF SHAREHOLDERS; SHAREHOLDER ACTION BY WRITTEN CONSENT
Unison. Under the Unison Certificate and Unison By-laws and subject to the
rights of the holders of any series of Unison Preferred Stock, stockholders may
not call a special meeting of stockholders. Special meetings of the stockholders
may only be called by the Chairman of the Board, the President, a majority of
the Board of Directors or by the President when requested in writing by
stockholders owning twenty-five percent (25%) or more in amount of the capital
stock issued and outstanding and entitled to vote.
The DGCL provides that, unless specially prohibited by the certificate of
incorporation, any action required or permitted to be taken by the stockholders
of a corporation may be taken without a meeting, without prior notice and
without a stockholder vote, if a written consent or consents setting forth the
action to be taken is signed by the holders of outstanding shares of capital
stock having the requisite number of votes that would be necessary to authorize
or take such action at a meeting of stockholders. The Unison Certificate
expressly provides that no action shall be taken by the stockholders of Unison
except at an annual or special meeting of stockholders, and no action may be
taken by the written consent of the stockholders.
Ampro. Under the Ampro By-laws and the URBCA, special meetings of the
shareholders may be called by either the President or the Board of Directors and
must be called by the President at the request of the holders of at least 1/3 of
the outstanding shares entitled to vote at the meeting. Shareholders may take
action without a meeting if a written consent is signed by all of the
shareholders entitled to vote with respect to the subject matter thereof.
Memphis. Under the Memphis By-laws, special meetings of the shareholders
may be called by either the President or the Board of Directors and must be
called by the President at the request of the holders of not less than sixty
percent (60%) of the outstanding shares entitled to vote at the meeting.
Shareholders may take action without a meeting if a written consent is signed by
all of the shareholders entitled to vote with respect to the subject matter
thereof.
CERTAIN BUSINESS COMBINATIONS
Unison. The Unison Certificate provides that certain mergers,
consolidations, sales or other transfers of assets of, issuances or
reclassification of securities of, or adoptions of, plans of liquidation by,
Unison (individually, a "Business Combination") must be approved by the
affirmative vote of the holders of not less than sixty-six and two-thirds
percent (66 2/3%) of the voting power of the outstanding stock, voting as a
single class, when such action involves a person (an "Interested Person") who,
together with all affiliates or associates of such Interested Person,
beneficially owns five percent (5%) or more of the voting power of the
outstanding stock, excluding any person, firm or corporation which owned,
beneficially or of record, twenty-five percent (25%) or more of any class of
voting securities of Unison on or before August 10, 1995. Such stockholder vote
is not required if the Business Combination is approved in writing by resolution
of the
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Continuing Directors (as defined in the Unison Certificate). The Ampro and
Memphis Mergers are not a Business Combination and are not subject to this
provision.
The affirmative vote of the holders of sixty-six and two-thirds percent
(66 2/3%) or more of the voting power of the then outstanding shares of Unison
Voting Stock, voting as a single class, is required to amend, alter or repeal
the foregoing provisions of the Unison Certificate relating to certain business
combinations.
Ampro and Memphis. Neither Ampro nor Memphis have any provisions in their
charter documents or by-laws regarding business combinations.
CERTAIN STATUTORY PROVISIONS
In addition to the changes described above in respect of the charters and
by-laws of Unison, Ampro and Memphis, the Ampro and Memphis Mergers will effect
several changes in the rights of holders of Ampro Shares and the Memphis Shares
as a result of differences between the corporate laws of the states of Delaware,
Utah and Tennessee. The following discussion summarizes certain of the principal
differences affecting the rights of holders of Ampro Shares and the Memphis
Shares. This summary does not purport to be a complete statement of differences
affecting such shareholders' rights under the URBCA, the TBCA and the DGCL and
is qualified in its entirety by reference to the provisions thereof.
Voting Rights with Respect to Extraordinary Corporate Transactions
DELAWARE. Approval of mergers and consolidations and sales, leases or
exchanges of all or substantially all of the property or assets of a
corporation, requires the affirmative vote or consent of the holders of a
majority of the outstanding shares entitled to vote, except that, unless
required by the certification of incorporation, no vote of stockholders of the
corporation surviving a merger is necessary if: (i) the merger does not amend
the certificate of incorporation of the corporation; (ii) either no common stock
of the corporation and no securities or obligations convertible into common
stock are to be issued in the merger; (iii) or the common stock to be issued in
the merger plus that initially issuable on conversion of other securities issued
in the merger does not exceed 20% of the common stock of the corporation
outstanding immediately before the merger.
UTAH. A merger, share exchange or sale of all or substantially all of the
assets of a corporation (other than in the ordinary course of the corporation's
business) requires the approval of a majority (unless the articles of
incorporation, the by-laws or a resolution of the board of directors requires a
greater number) of the outstanding shares of the corporation (voting in voting
groups, if applicable). No vote of the shareholders of the surviving corporation
in a merger is required if: (i) the articles of incorporation of the surviving
corporation will not be changed; (ii) each shareholder of the surviving
corporation whose shares were outstanding immediately before the effective date
of the merger will hold the same number of shares, with identical designations,
preferences, limitations, and relative rights, immediately after the merger;
(iii) the number of voting shares outstanding immediately after the merger, plus
the number of voting shares issuable as a result of the merger (either by the
conversion of securities issued pursuant to the merger or the exercise of rights
and warrants issued pursuant to the merger), will not exceed by more than 20%
the total number of voting shares of the surviving corporation outstanding
immediately before the merger; and (iv) the number of participating shares
(shares that entitle their holders to participate without limitation in
distributions) outstanding immediately after the merger, plus the number of
participating shares issuable as a result of the merger (either by the
conversion of securities issued pursuant to the merger or the exercise of rights
and warrants issued pursuant to the merger), will not exceed by more than 20%
the total number of participating shares of the surviving corporation
outstanding immediately before the merger.
TENNESSEE. The sale, lease, exchange or disposal of all, or substantially
all, of the assets of a Tennessee corporation, not in the ordinary course of
business, as well as any merger, consolidation, or share exchange, generally
must be recommended by the board of directors and approved by the vote of a
majority of the shares entitled to vote on such matters. Under Tennessee law,
the vote of the shareholders of a corporation surviving a merger is not required
if: (i) shareholders of the surviving corporation who held shares before the
merger will hold the same number of shares, with identical rights, immediately
after the merger; (ii) the number of
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voting shares outstanding immediately after the merger plus the number of shares
to be issued in the merger do not exceed 20% of the total number of voting
shares of the surviving corporation outstanding immediately before the merger;
and (iii) the merger effects no material amendments to the charter of the
surviving corporation.
Consent to Action without a Meeting
DELAWARE. Unless otherwise provided in the certificate of incorporation,
action requiring the vote of stockholders may be taken without a meeting,
without prior notice and without a vote, by the written consent of stockholders
having not less than the minimum number of votes that would be necessary to take
such action at a meeting at which all shares entitled to vote were present and
acted. The Unison Certificate currently prohibits action by written consent of
the stockholders.
UTAH. Unless otherwise provided in the articles of incorporation, action
requiring the vote of shareholders may be taken without a meeting and without
prior notice by one or more written consents of the shareholders having not less
than the minimum number of votes that would be necessary to take such action at
a meeting at which all shares entitled to vote thereon were present and voted
(if shareholder action is by less than unanimous written consent, notice shall
be provided to the shareholders who did not consent at least ten days before the
consummation of the transaction, action or event authorized by the
shareholders). In addition, any written consent for the election of directors
must be unanimous, and the shareholders of any corporation in existence prior to
July 1, 1992 are required to adopt a resolution permitting action by less than
unanimous written consent (otherwise, the shareholders are only permitted to act
by unanimous written consent).
TENNESSEE. Tennessee law provides that, unless otherwise provided in the
charter, shareholders may execute an action by written consent in lieu of a
meeting of shareholders. The Memphis Charter does not prohibit action by written
consent.
Dissenters' Rights
DELAWARE. Stockholders are entitled to demand appraisal of their shares in
the case of mergers or consolidations, except where: (i) they are stockholders
of the surviving corporation and the merger did not require their approval under
the DGCL; (ii) the corporation's shares are 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 (iii) the corporation's shares are held of record by more than 2,000
stockholders. Appraisal rights are available in either (i), (ii) or (iii) above,
however, if the stockholders are required by the terms of the merger or
consolidation to accept any consideration other than (a) stock of the
corporation surviving or resulting from the merger or consolidation, (b) shares
of stock of another corporation which are 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 stockholders, (c) cash in lieu of fractional
shares, or (d) any combination of the foregoing. Appraisal rights are not
available in the case of a sale, lease, exchange or other disposition by a
corporation of all or substantially all of its property and assets.
UTAH. In connection with a merger, share exchanges or sale, lease,
exchange or other disposition of all or substantially all of the assets of a
corporation (other than in the ordinary course of the corporation's business), a
dissenting shareholder, after complying with certain procedures, is entitled to
payment from the corporation of the fair value of the shareholder's shares. The
fair value is estimated by the corporation. However, if the shareholder is
unwilling to accept the corporation's estimate, the shareholder may provide the
corporation with an estimate of the fair value and demand payment of that
amount. If the corporation is unwilling to pay that amount, the corporation
shall apply for judicial determination of the fair value. Unless the articles of
incorporation, by-laws or a resolution of the board of directors provide
otherwise, shareholders are not entitled to dissenters' rights when the shares
are listed on a national securities exchange or the Nasdaq National Market, or
are held of record by more than 2,000 holders. However, this exception does not
apply if, pursuant to the corporate action, the shareholder will receive
anything except: (i) shares of the surviving corporation; (ii) shares of a
corporation that is or will be listed on a national securities exchange, the
Nasdaq
39
<PAGE> 49
National Market, or held of record by more than 2,000 holders; (iii) cash in
lieu of fractional shares; or (iv) any combination of the foregoing.
TENNESSEE. Although dissenters' rights are provided under Tennessee law,
the Memphis Merger Agreement has received the unanimous consent of the Memphis
shareholders. In connection with a merger, share exchange, sale or exchange of
all, or substantially all, of the property of the corporation other than in the
usual and regular course of business or certain charter amendments which
materially and adversely affect rights of shareholders, shareholders may, by
complying with Chapter 23 of Title 48 of the TBCA, be entitled to exercise
dissenters' rights as described therein. To exercise dissenters' rights: (i) the
shareholder must deliver to the corporation, before a vote is taken on the
proposed corporate action, written notice of intent to demand payment; and (ii)
the shareholder must not vote in favor of the merger (or other corporate action
triggering such rights). Within 10 days following the earlier to occur of (i)
the approval of the merger or (ii) the actual merger, the corporation is
required to mail to each holder of shares of the corporation who has satisfied
the foregoing requirements paragraph a written dissenters' notice which sets
forth, among other things: (i) where demand for payment must be sent and where
and when certificates for certificated shares must be deposited; (ii)
information to holders of uncertificated shares stating to what extent transfer
of the shares will be restricted after the payment demand is received; (iii) a
form for demanding payment which includes the date of the first announcement to
news media or to shareholders of the principal terms of the proposed corporate
action and requires the person asserting dissenters' rights to certify whether
or not he or she acquired beneficial ownership of the shares before that date;
and (iv) a date by which the corporation must receive a payment demand, which
date may not be fewer than one month nor more than two months after the date on
which the notice is delivered.
A shareholder who receives the dissenters' notice must demand payment for
his or her shares, certify whether he or she acquired beneficial ownership of
the shares before the date required to be set forth in the dissenters' notice,
and deposit his or her certificates in accordance with the terms of the notice
or lose the right to demand payment for his or her shares. A demand for payment
by a dissenting shareholder may not be withdrawn, unless the corporation
consents to such request for withdrawal. Upon the later to occur of (i) the
merger or (ii) its receipt of a demand for payment, the corporation shall make
payment to each dissenting shareholder who has complied with the requirements of
the TBCA the amount the corporation estimates to be the fair market value of the
shares, plus accrued interest. The payment shall be accompanied by the
corporation's balance sheet as of the end of the most recent fiscal year, an
income statement for that year, a statement of changes in stockholders' equity
for that year, and the latest interim financial statements available, if any,
along with a statement of the corporation's estimate of the fair value of the
shares, a statement of the dissenting shareholder's right to demand payment of
his or her own estimate of his or her shares if he or she is dissatisfied with
the payment offered, and certain other matters.
A dissenting shareholder may notify the corporation of his or her own
estimate of the fair value of his or her shares and the amount of interest due
and demand payment therefor: (i) if the dissenting shareholder believes that the
amount paid or offered by the corporation is less than the fair value of the
shares or that the interest due was incorrectly calculated; (ii) if the
corporation fails to make payment of the amount such dissenting shareholder
believes is due within two months after the date set for demanding payment; and
(iii) under certain other circumstances. If such demand for payment remains
unsettled for two months after the corporation receives the demand for payment,
the corporation is required to bring an action in a Tennessee court to determine
the fair value of the shares and accrued interest.
Dividends
DELAWARE. Dividends may be paid either (i) out of surplus (the excess at
any time of the net assets of the corporation over the amount of its capital),
or (ii) in case there is no surplus, out of the corporation's net profits for
the fiscal year in which the dividend is declared and/or its net profits for the
preceding fiscal year.
UTAH. A corporation is prohibited from making a distribution to its
shareholders if, after giving effect to the distribution, the corporation would
not be able to pay its debts as they became due in the usual course of
40
<PAGE> 50
business, or the corporation's total assets would be less than its total
liabilities (plus any amounts necessary to satisfy any preferential rights).
TENNESSEE. The TBCA generally allows a Tennessee corporation, subject to
any restrictions set forth in its charter, to declare and pay a dividend on the
corporation's stock so long as, after giving the effect to the dividends, the
corporation is able to pay its debts as they become due in the usual course of
business and the corporation's total assets would be more than the sum of its
total liabilities plus the amount that would be needed, if the corporation were
to be dissolved at the time of the distribution, to satisfy the preferential
rights upon dissolutions of shareholders whose preferential rights are superior
to those receiving a dividend.
Inspection of Books and Records
DELAWARE. Any stockholder of record, upon written demand under oath
stating the purpose thereof, has the right during the usual hours for business
to inspect for any proper purpose, the corporation's stock ledger, a list of its
stockholders, and its other books and records, and to make copies or extracts
therefrom.
UTAH. Upon providing the corporation with a written demand at least five
business days before the date the shareholder wishes to make an inspection, a
shareholder and his agent and attorneys are entitled to inspect and copy, during
regular business hours, (i) the articles of incorporation, by-laws, minutes of
shareholders meetings for the previous three years, written communications to
shareholders for the previous three years, names and business addresses of the
officers and directors, the most recent annual report delivered to the State of
Utah, and financial statements for the previous three years, and (ii) if the
shareholder is acting in good faith and for a proper purpose, excerpts from the
records of the board of directors and the shareholders (including minutes of
meetings, written consents and waivers of notices), accounting records and
shareholder lists.
TENNESSEE. Any stockholder of a Tennessee corporation has the right to
inspect and copy to corporation's charter, by-laws, minutes of the proceedings
of shareholders and certain communications with shareholders and other documents
and, in certain circumstances, may inspect and copy the corporation's books of
account and stock ledger and demand a statement of the corporation's affairs.
Derivative Suits
DELAWARE. The plaintiff must have been a stockholder of the corporation at
the time of the transaction of which he complains or his stock thereafter must
have devolved upon him by operation of law.
UTAH. A person may not commence a derivative action unless the person was
a shareholder of the corporation at the time when the transactions complained of
occurred (unless the person became a shareholder through transfer by operation
of law from a person who was a shareholder at that time). The complaint must be
verified and allege with particularity (i) the demand made on the board of
directors and that either the demand was refused or ignored by the board of
directors, or (ii) if no demand was made on the board of directors, why the
person did not make the demand. If a court finds that a proceeding was commenced
without reasonable cause, the court may require the plaintiff to pay the
defendant's reasonable expenses, including counsel fees.
TENNESSEE. A person may not commence a derivative action unless the person
was a shareholder of the corporation when the transaction complained of occurred
(unless the person became a shareholder through transfer by operation of law
from a person who was a shareholder at that time. The complaint must be verified
and allege with particularity the demand made, if any, to obtain action by the
board of directors and either that the demand was refused or ignored by the
board or why the shareholder did not make the demand. A derivative action may
not be discontinued or settled without the court's approval. The court may
require the plaintiff to pay the defendant's reasonable expenses if the court
determines that the action was commenced without reasonable cause.
Special Meetings of Stockholders and Shareholders
DELAWARE. Stockholders generally do not have the right to call meetings of
stockholders unless such right is granted in the certificate of incorporation or
by-laws. However, if a corporation fails to hold its annual
41
<PAGE> 51
meeting within a period of 30 days after the date designated therefor, or if no
date has been designated for a period of 13 months after its last annual
meeting, the Delaware Court of Chancery may order a meeting to be held upon the
application of a stockholder.
UTAH. Special meetings of the shareholders may be called by: (i) the board
of directors; (ii) the person or persons authorized by the by-laws to call a
special meeting; or (iii) the holders of shares representing at least 10% of all
vote entitled to be cast on any issue proposed to be considered at the special
meeting. The corporation shall give notice of the date, time and place of the
meeting no fewer than ten and no more than 60 days before the meeting (unless
otherwise required by law or the articles of incorporation). Notice of a special
meeting must include a description of the purposes for which the special meeting
is called.
TENNESSEE. The TBCA provides that special meetings of shareholders may be
called by the board of directors and, unless the charter provides otherwise, by
the holders of at least 10% of the shares entitled to vote at the meeting who
sign, date and deliver to the corporation's secretary one or more written
demands for the meeting describing the purpose or purposes for which it is to be
held.
Amendments to Charter
DELAWARE. Amendments to the certificate of incorporation require the
affirmative vote of the holders of a majority of the outstanding shares entitled
to vote thereon, except that if the certificate of incorporation requires the
vote of a greater number or proportion of the directors or of the holders of any
class of stock than is required by the DGCL with respect to any matter, the
provision of the certificate of incorporation may not be amended, altered or
repealed except by such greater vote.
UTAH. The board of directors may propose amendments to the articles of
incorporation for submission to the shareholders. For an amendment to be
adopted, (i) the board of directors must recommend the amendment to the
shareholders (unless the board determines that because of a conflict of interest
or other special circumstances it should not make a recommendation and
communicates the basis for its determination to the shareholders), and (ii)
unless the articles of incorporation, by-laws (if authorized by the articles of
incorporation), or a resolution of the board of directors require a greater
number, the amendment must be approved by (a) a majority of the votes entitled
to be cast on the amendment by any voting group as to which the amendment would
create dissenters' rights, (b) a majority of the votes entitled to be cast on
the amendment by any voting group as to which the amendment would materially and
adversely affect the voting group's rights in shares (including preferential
rights, rights in redemption, preemptive rights, voting rights or rights in
certain reverse splits), and (c) a majority of the votes cast for all other
voting groups (voting separate, as applicable).
TENNESSEE. Under the TBCA, the board of directors of a corporation may
adopt certain amendments to the corporation's charter including, but not limited
to, (i) deleting or changing the name and address of the initial registered
agent or registered office, (ii) changing issued and unissued authorized shares
of an outstanding class into a greater number of whole shares if the corporation
has only shares of that class outstanding, (iii) designating or changing the
address of the principal office of the corporation, or (iv) making certain
changes to the corporation's name. All other amendments to the charter of a
Tennessee corporation must be approved by a majority of the votes entitled to be
cast on the amendment by any voting group, unless the charter requires a greater
vote.
Anti-Takeover Statutes
DELAWARE. Delaware has adopted an anti-takeover statute governing
takeovers of Delaware corporations. Effective December 31, 1987, a Delaware
corporation may not engage in a business combination with any person acquiring
15% or more of the voting stock of such Delaware corporation (an "interested
stockholder") for a period of three years following the date of such
acquisition, unless: (i) prior to the date the stockholder became an interested
stockholder, the board of directors of the corporation approved either the
business combination or the transaction which resulted in the stockholder
becoming an interested stockholder; (ii) the interested stockholder acquired 85%
or more of the corporation's voting stock in the transaction in which he became
an interested stockholder; or (iii) on or subsequent to the date the stockholder
became an
42
<PAGE> 52
interested stockholder, the board of directors and stockholders owning
two-thirds of the outstanding voting stock, other than the interested
stockholder's stock, approve the business combination. The corporation may opt
out of the effect of this statute by: (i) including a provision to such effect
in the corporation's original certificate of incorporation; (ii) amendment to
the corporation's by-laws made by the board of directors within 90 days after
the effective date of the statute; or (iii) amendment of the corporation's
certificate of incorporation or by-laws approved by holders of a majority of the
shares entitled to vote; provided that such amendment shall not take effect
until 12 months after its adoption and shall not effect any business
combinations with interested stockholders which are effected during such 12
months.
UTAH. The Utah Control Share Acquisitions Act, set forth in Sections
61-6-1 through 61-6-12 of the Utah Code Annotated, generally provides that, when
any person obtains shares (or the power to direct the voting of shares) of "an
issuing public corporation" such that the person's voting power equals or
exceeds any of three levels (20%, 33 1/3% or 50%), the ability to vote (or to
direct the voting of) the "control shares" is conditioned on the approval by a
majority of the corporation's shares (voting in voting groups, if applicable),
excluding the "interested shares." Shareholder approval may occur at the next
annual meeting of the shareholders, or, if the acquiring person requests and
agrees to pay the associated costs of the corporation, at a special meeting of
the shareholders (to be held within 50 days of the corporation's receipt of the
request by an acquiring person). If authorized by the articles of incorporation
or the by-laws, the corporation may redeem "control shares" at the fair market
value if the acquiring person fails to file an "acquiring person statement" or
if the shareholders do not grant voting rights to control shares. If the
shareholders grant voting rights to the control shares, and if the acquiring
person obtained a majority of the voting power, shareholders may be entitled to
dissenters' rights under the URBCA. An acquisition of shares does not constitute
a control share acquisition if (i) the corporation's articles of incorporation
of by-laws provide that this Act does not apply (ii) the acquisition is
consummated pursuant to a merger in accordance with the URBCA, or (iii) under
certain other specified circumstances.
TENNESSEE. The TBCA contains a provision that restricts certain business
combination transactions with an interested shareholder for a period of five
years following the date that such shareholder became an interested shareholder,
unless prior to such date the board of directors of the corporation approved
either the business combination or the transaction which resulted in the
shareholder becoming an interested shareholder. The TBCA defines an interested
shareholder generally, to mean: any person that is the beneficial owner, or any
affiliate or associate of the corporation who has been the beneficial owner,
either directly or indirectly, of ten percent or more of the voting power of any
class or series of the corporation's stock at any time within the five-year
period preceding the date in question. Unless otherwise provided in the charter,
the Tennessee business combination statute does not apply, however, if the
corporation did not have a class of voting stock traded on a national securities
exchange or registered with the Commission pursuant to Section 12(g) of the
Exchange Act at the time of the transaction. Because Memphis is a privately held
company and the Memphis Charter does not contain a provision electing to be
covered by the statute, Memphis is not presently subject to the Tennessee
business combination statute.
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<PAGE> 53
AMPRO AND MEMPHIS SELECTED FINANCIAL DATA
The following selected financial data have been derived from the financial
statements of American Professional Holding, Inc. and Memphis Clinical
Laboratory, Inc. The information set forth below should be read in conjunction
with the discussion contained in "Ampro Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Memphis Management's
Discussion and Analysis of Financial Condition and Results of Operations" as
well as the financial statements and notes thereto contained elsewhere in this
Prospectus/Information Statement Supplement and in the Prospectus/Proxy and
Information Statement.
AMPRO
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED JUNE 30, -----------------------------------------------
--------------- PREDECESSOR
1996 1995 1995 1994 1993 1992 1991(1)
------ ------ ------ ------ ------ ------ -----------
(IN THOUSANDS, EXCEPT PER SHARE)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues......................... $3,088 $3,225 $6,421 $5,152 $4,190 $3,397 $ 2,181
Net income (loss).................... 170 279 167 417 249 154 (94)
Net income (loss) per common share... $ .02 $ .03 $ .02 $ .04 $ .02 $ .02 $ (.01)
Total assets......................... $4,206 $3,102 $3,541 $2,876 $1,101 $ 729 $ 561
Long-term debt....................... 669 695 674 470 83 125 270
</TABLE>
- ---------------
(1) Effective January 15, 1992 Ampro purchased substantially all of the assets
of Northlake Professional Laboratories, Inc. in a transaction accounted for
as a purchase. The selected historical financial data for the year ended
December 31, 1991 reflects the operating and balance sheet data of the
predecessor Northlake prior to acquisition by Ampro.
MEMPHIS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE
30, YEAR ENDED DECEMBER 31,
----------- --------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues...................................... $474 $419 $782 $848 $865 $747 $666
Net income (loss)................................. 62 36 (24) 3 1 46 25
Net income (loss) per common share................ $ 61 $ 36 $(24) $ 3 $ 2 $ 46 $ 25
Total assets...................................... $290 $285 $229 $295 $262 $141 $159
Long-term debt.................................... 22 30 25 35 -- -- --
</TABLE>
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<PAGE> 54
COMPARISON OF HISTORICAL AND EQUIVALENT PER SHARE DATA (UNAUDITED)
The following table summarizes certain unaudited selected financial
information on a pro forma and pro forma equivalent per share basis and is
derived from, and should be read in conjunction with, the Unaudited Pro Forma
Condensed Combined Financial Statements included elsewhere in this
Prospectus/Information Statement Supplement and the historical financial
statements of Unison, Ampro and Memphis which are included in the
Prospectus/Proxy and Information Statement. The information presented in this
table does not purport to present the financial position or results of
operations of Unison had the Ampro and Memphis Mergers taken place on the dates
specified, nor is such information necessarily indicative of the results of
operations that may be achieved in the future.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEARS ENDED
JUNE 30, DECEMBER 31,
--------------- -------------------------
1996 1995 1995 1994 1993
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
UNISON
Historical net income (loss) per common share,
fully diluted.................................... $ .31 $(.04) $(.02) $(.06) $(.11)
Pro forma combined income (loss) per common share,
fully diluted (Unison and previous
acquisitions).................................... .26 (.27) (.37)
Pro forma combined income (loss) per common share,
fully diluted.................................... .28 (.01) (.19) .19 .06
Historical book value per common share(1).......... 5.91 5.41
Pro forma combined book value per common
share(1)......................................... 5.44 5.05
Historical cash dividends per common share(2)...... -- -- -- -- --
AMPRO
Historical net income (loss) per common share...... .02 .03 .02 .04 .02
Pro forma combined income per common share (Ampro
and Memphis)..................................... .02 .03 .01 .04 .02
Equivalent pro forma combined income per common
share............................................ .01 .00 (.01) .01 .00
Historical book value per common share(3).......... .15 .14
Pro forma combined book value per common share(3)
(Ampro and Memphis).............................. .17 .15
Equivalent pro forma combined book value per common
share............................................ .29 .27
</TABLE>
- ---------------
(1) This calculation is based on the number of shares of Unison Common Stock
outstanding at the end of the period.
(2) Unison has not paid a common dividend and does not anticipate paying a
common dividend in the near future.
(3) This calculation is based on the number of shares of Ampro Common Stock
outstanding at the end of the period.
(4) Equivalent pro forma data were calculated by multiplying the pro forma
combined per share data of Unison by an assumed weighted average Per Share
Conversion Ratio of .0529 for Ampro and Memphis common stock.
45
<PAGE> 55
AMPRO MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
GENERAL
American Professional Holding, Inc. ("Ampro") is a holding company which
acquired Northlake Laboratory, Inc. ("Northlake") in 1992 and Gamma Laboratory,
Inc. ("Gamma") in 1994. Through the acquisition of Northlake and Gamma, Ampro
has positioned itself as a competitive provider of laboratory services to the
health care industry in Texas and Missouri. At June 30, 1996, Northlake and
Gamma provided laboratory services for approximately 275 facilities in the
Dallas, Texas and the Poplar Bluff, Missouri areas.
RESULTS OF OPERATIONS
Six Months ended June 30, 1996 versus six months ended June 30, 1995
REVENUES. Revenues for the six months ended June 30, 1996 decreased
$137,000 (4.2%) to $3,088,000. This decrease is principally the result of a 4%
across the board decrease in Medicare and Medicaid reimbursement fee schedules
and reductions in fees paid for multiple tests profiles starting in 1996, offset
by the addition of two new nursing homes.
DIRECT COSTS. Direct costs decreased $40,000 to $1,427,000 in 1996
principally as a result of lower supply costs for the six-month period. This
decrease resulted in a slight decrease in direct costs in 1996.
GENERAL AND ADMINISTRATIVE. Total general and administrative costs
increased $60,000 (4.5%) to $1,396,000 for the period ended June 30, 1996. This
increase was the result of higher indirect wages and related taxes of $51,000
and higher mileage costs of $41,000. These costs reflected the higher cost of
collecting specimens and samples as a result of higher personnel and gasoline
costs.
In addition, additional marketing personnel were added in order to increase
sales to offset the loss of revenues as a result of Medicare and Medicaid
reimbursement cuts. These higher costs were partially offset by decreases in
printing costs of $24,000 and lower depreciation expense of $33,000.
NET INCOME. Net income decreased in the first half of 1996 by $108,000
(38.8%) to $170,000. This decrease reflects the $137,000 decrease in revenues,
the slight increase in total general and administrative costs of $59,000 offset
by the slight decrease in direct costs and a $49,000 decrease in tax provision
compared to the period ended June 30, 1995.
Year ended December 31, 1995 versus Year Ended December 31, 1994
REVENUES. Revenues for the year ended December 31, 1995 increased to
$6,421,000 from $5,152,000 for the year ended December 31, 1994, an increase of
$1,269,000 (24.6%). Revenues at Northlake increased to $4,620,000 from
$4,313,000, an increase of $307,000 (7.1%) for the year ended December 31, 1995.
Gamma's revenues increased to $1,801,000 for the full year ended December 31,
1995 compared to revenues of $839,000 for the last six months in 1994. The
increase in revenues of Northlake is primarily attributable to an increase in
the number of major customers serviced from 110 to 150. Gamma's revenues for
1994 were only included in the consolidated revenues of Ampro for six months in
1994 versus the entire year of 1995. Revenues per month at Gamma increased to
$150,000 in 1995, up from $140,000 in 1994 resulting in an actual increase of
approximately $120,000 for the year ended December 31, 1995. Gamma increased the
number of its major customers from 90 in 1994 to 100 in 1995. Revenue gains at
Northlake and Gamma were partially offset by a 4% decrease in fee reimbursement
schedules by Medicare and Medicaid in 1995.
DIRECT COSTS. Direct costs for the year ended December 31, 1995 increased
to $3,226,000 from $2,607,000 for the year ended December 31, 1994, a $619,000
increase (23.7%). As a percentage of revenues, direct costs decreased to 50.3%
for the year ended December 31, 1995 compared to 50.6% for the year ended
December 31, 1994.
Wages increase to $2,040,000 for the year ended December 31, 1995 from
$1,685,000 for the year ended December 31, 1994. This increase of $355,000
(21.1%) reflected higher costs due to including wages at
46
<PAGE> 56
Gamma for the entire year in 1995 and for six months of 1994. Payroll costs
increased at both Northlake and Gamma as a result of servicing more homes in
each service area.
Supply costs increased to $1,039,000 for the year ended December 31, 1995
as compared to $734,000 for the year ended December 31, 1994, a $305,000 (41.6%)
increase. Supply costs increased principally due to higher volumes of tests
performed, which is reflected in the increase in revenues at each entity and the
related increase caused by including Gamma for the full year in 1995. The
increase in Gamma's costs were $72,000 for the year ended December 31, 1995.
GROSS PROFIT. Gross profit for the year ended December 31, 1995 was
$3,195,000 vs. $2,554,000 for the year ended December 31, 1994. This increase of
$641,000 was primarily the result of higher sales as a result of the Gamma
acquisition being included in all of 1995 versus 6 months of 1994. Gross profit
percentages for the year ended December 31, 1995 were 49.8% versus 49.3% for the
year ended December 31, 1994.
GENERAL AND ADMINISTRATIVE. Operating expenses for the year ended December
31, 1995 increased to $2,942,000 as compared to $1,958,000 for the year ended
December 31, 1994. This $984,000 increase is primarily due to including Gamma
general and administrative costs $881,000 in the consolidated operations of
Ampro for 1995 versus $345,000 for the six months consolidated in 1994.
Wages and related taxes increased $440,000 for the year ended December 31,
1995, of which $235,000 was the result of including Gamma wages paid for a full
year in 1995. Additional couriers and employees in marketing caused the
additional increases at Northlake.
Mileage increased from $214,000 to $314,000 from December 31, 1994 to
December 31, 1995. The increase was the result of mileage costs at Gamma of
$48,000 and $52,000 at Northlake.
Additional costs incurred in 1995 for printing, utilities and interest were
the result of Gamma costs being included for a full year and higher debt for
Northlake and Gamma.
NET INCOME. Net income for the year ended December 31, 1995 was $167,000
as compared to $416,000 for the year ended December 31, 1994. This decrease of
$249,000 was the result of higher general and administrative costs at Gamma and
Northlake, primarily wages, insurance and mileage costs.
Year ended December 31, 1994 versus Year Ended December 31, 1993
REVENUES. Revenues for the year ended December 31, 1994 increased to
$5,152,000 from $4,190,000 for the year ended December 31, 1993. This increase
of $962,000 is the result of adding new customers in East Texas at Northlake and
including six months of revenues for Gamma in the amount of $839,000 for the
period ended December 31, 1994 versus 1993.
DIRECT COSTS. Direct costs for the year ended December 31, 1994 were
$2,607,000 as compared to $2,355,000 for the year ended December 31, 1993. As a
percentage of revenues direct costs for 1994 were 49.4% versus 43.8% for 1993.
The increase in direct costs of $253,000 was the result of higher supply
reference lab costs and higher costs related to Gamma's operations for the last
half of 1994.
GROSS PROFIT. Gross profit for the year ended December 31, 1994 was
$2,544,000 versus $1,836,000 for the year ended December 31, 1993. This increase
of $708,000 is the result of higher revenues offset by higher direct costs
caused primarily by including Gamma operations in the last six months of 1994.
Gross profit percentages improved from 43.8% in 1993 to 49.4% in 1994.
GENERAL AND ADMINISTRATIVE. General and administrative costs were
$1,958,000 for the year ended December 31, 1994 as compared to $1,390,000 for
the year ended December 31, 1993. This increase of $568,000 (40.8%) is the
result of including Gamma costs in the year ended December 31, 1994 of $334,000
and increases in wages, insurance and management fees at Northlake.
47
<PAGE> 57
NET INCOME. Net income for the year ended December 31, 1994 was $416,000
versus $249,000 for the year ended December 31, 1993. Of this increase, Gamma
contributed $61,000, while increased revenues offset by higher costs contributed
$188,000 in higher net income at Northlake.
LIQUIDITY AND CAPITAL RESOURCES
Ampro's primary source of cash has been operating activities and
borrowings. Cash flow from operations was $282,000 for the six months ended June
30, 1996 and $37,000 for the same period in 1995. Cash flows from operations
were $291,000, $271,000 and $227,000 for the years ended December 31, 1995, 1994
and 1993, respectively.
Net cash used in investing activities amounted to $80,000, $76,000,
$490,000, $541,000 and $57,000 for the six months ended June 30, 1996 and 1995
and the years ended December 31, 1995, 1994 and 1993, respectively, primarily
for purchases of fixed assets. Loans to stockholders totalled $61,000 in the
six-month period ended June 30, 1996 and $257,000 in the year ended December 31,
1995.
Net cash provided by (used in) financing activities amounted to $(5,000),
$(292,000) $89,000, $264,000 and $(92,000) for the six months ended June 30,
1996 and 1995 and the years ended December 31, 1995, 1994 and 1993,
respectively, due primarily to net increases and decreases in debt incurred to
finance capital expenditures, working capital and loans to stockholders. In
1994, Ampro expended $300,000 to purchase Gamma.
Ampro's management estimates that Ampro will incur direct transaction costs
of approximately $90,000 associated with the Ampro Merger, consisting of legal
and accounting fees and other direct costs of the merger. These non-recurring
costs will be charged to operations as incurred, principally in the second and
third quarters of 1996.
MEMPHIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Memphis Clinical Laboratory, Inc. is a clinical laboratory in Memphis,
Tennessee which tests blood and other specimens and bills the cost to Medicare
and other third party providers. Memphis provides its services to twelve nursing
homes and various doctors and clinics.
RESULTS OF OPERATIONS
Six months ended June 30, 1996 versus six months ended June 30, 1995
REVENUES. Revenues for the six months ended June 30, 1996 were $474,000
versus $419,000 for the six months ended June 30, 1995. This $55,000 increase is
due to the increase in number of nursing homes serviced from ten to twelve
offset by decreases in Medicare and Medicaid reimbursements of 4%.
DIRECT COSTS. Direct costs for the six months ended June 30, 1996 were
$238,000 as compared to $211,000 for the six months ended June 30, 1995. This
$27,000 was the result of higher direct labor costs. Total direct costs
decreased to 50.2% for the six months ended June 30, 1996 versus 50.4% for the
six months ended June 30, 1995.
INDIRECT EXPENSES. Indirect expenses for the six months ended June 30,
1996 were $151,000 as compared to $158,000 for the six months ended June 30,
1995. This slight decrease was caused by lower depreciation; rent and insurance
costs offset by higher costs for indirect labor and supplies.
NET INCOME. Net income for the six months ended June 30, 1996 was $62,000
compared to $36,000 for the six month period ended June 30, 1995. This $26,000
improvement was principally the result of improved gross profit and a slight
decrease in indirect expenses.
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<PAGE> 58
Year ended December 31, 1995 versus December 31, 1994
REVENUES. Revenues for the year ended December 31, 1995 were $781,000 as
compared to $827,000 for the year ended December 31, 1994. This $46,000 decrease
was the result of a 4% decrease in Medicare reimbursement fees for 1995 and a
slight decrease in the number of tests performed in the year.
DIRECT COSTS. Direct costs for the year ended December 31, 1995 were
$423,000 versus $545,000 for the year ended December 31, 1994. This $122,000
decrease in costs was primarily the result of lower supply costs of $78,000 and
slightly lower direct costs of $18,000 for the year. Direct costs were 54.2% of
revenues for the year ended December 31, 1995 versus 65.8% for the year ended
December 31, 1994.
Gross profit increased $75,000 as a net result of the lower revenues offset
by larger decreased in direct costs.
INDIRECT EXPENSES. Indirect expenses for the year ended December 31, 1995
were $387,000 as compared to $300,000 for the year ended December 31, 1994.
Higher indirect labor costs of $13,000; higher legal and accounting costs of
$15,000 and higher management fees of $54,000 were the primary reasons 1995
indirect expenses incurred over 1994 costs.
NET INCOME. The Company incurred a $24,000 net loss for the year ended
December 31, 1995 as compared to income of $3,000 for the year ended December
31, 1994. This decrease is net income of $27,000 was the result of both lower
revenues and higher indirect expenses.
Year ended December 31, 1994 versus December 31, 1993
REVENUES. Revenues decrease slightly to $827,000 from $864,000 for the
year ended December 31, 1994 versus December 31, 1993. This slight decrease was
the result of lower Medicare reimbursement fee schedule of approximately 4%
offset by an increase in the number of tests performed during the year.
DIRECT COSTS. Direct costs for the year ended December 31, 1994 were
$545,000, a $39,000 decrease for the $584,000 expended for the year ended
December 31, 1993. This slight decrease is the result of lower direct labor
costs of $46,000 for the year ended December 31, 1994.
INDIRECT EXPENSES. Indirect expenses for the year ended December 31, 1994
were $300,000 as compared to $279,000 for the year ended December 31, 1993. The
indirect expense increase of $21,000 is the result of higher wages of $10,000
and higher depreciation expenses of $6,000; these higher costs were offset by
lower other indirect costs of $10,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of cash has been operating activities. Cash
flows operations was $20,000 for the six months ended June 30, 1996 and $25,000,
$78,000 and $48,000 for the years ended December 31, 1995, 1994 and 1993,
respectively. The Company borrowed funds to purchase fixed assets in 1994 and
1993. Cash uses have primarily been for the purchase of fixed asset and
repayments of debt.
At June 30, 1996, and December 31, 1995 the Company had debt of $32,000 and
$35,000, respectively. This compares to debt of $47,000 at December 31, 1994.
The Company believes that working capital needs will be sufficiently met
through profitable operations. The Company does not believe that inflation has
had a material effect on its operations, historically.
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<PAGE> 59
BUSINESS OF AMPRO AND MEMPHIS
INTRODUCTION
Ampro
Ampro is a holding company which was formed in February 1984 under the name
Technomedical Properties, Inc. In 1993 Ampro's name was changed to American
Professional Holding, Inc.
Through two subsidiaries acquired in 1992 and 1994, Ampro Medical Services
Inc. and Gamma Laboratory Inc., respectively, Ampro operates two medical
reference laboratories, Northlake Professional Laboratory located in Dallas,
Texas and Gamma Laboratory located in Poplar Bluff, Missouri. The Northlake
laboratory has three satellite offices located in Tyler, Austin, and Fort Worth,
Texas. These laboratories (one in existence over 29 years and the other in
existence over 15 years) provide high quality clinical laboratory services to
approximately 275 long-term care nursing homes, as of September 1, 1996, as well
as to other health care facilities, such as hospice providers, home health
agencies, MHMR facilities, physicians and clinics located in Texas and Missouri.
The laboratories provide bodily fluid testing services to assist in
detecting, diagnosing and monitoring diseases. These tests, performed as ordered
by each patient's attending physician, include testing for complete blood count,
blood chemistry testing, coagulation studies, urinalysis, microbiology tests,
and therapeutic drug level tests. Upon completion of these tests, the
laboratories communicate the results of such testing back to the applicable
facility for inclusion on each patient's medical chart for review by the
attending physician. The two laboratories provide laboratory results for more
than 31,000 residents of long-term care nursing homes and other health care
providers in Texas and Missouri.
Ampro management believes that both the Northlake and Gamma laboratories
have excelled in their respective markets by providing a high level of service,
including assisting clients in complying with applicable government regulations,
furnishing regular comprehensive reports on medical testing results, maintaining
superior patient care and providing single-shift turnaround of quality results
for critical medical testing.
Ampro has emerged as the long-term care leader in the clinical laboratory
services industry in each of its local service markets, in large part due to its
strategic management, state-of-the-art equipment, timely and unique combinations
of services, solid reputation in the industry and commitment to excellence by an
experienced technical staff and management team.
The clinical laboratory services industry has rapidly expanded despite
major regulations and restrictions placed on the medical industry within the
last few years. The federal government and all states in which Ampro operates
regulate various aspects of Ampro's business. Both the Northlake laboratory and
the Gamma laboratory have received a registration number in accordance with the
Clinical Laboratory Improvement Act ("CLIA") and have all necessary state
regulatory approvals to conduct business in Texas and Missouri. A CLIA
registration number is required for clinical laboratories to receive
reimbursement for charges to patients covered by Medicare and Medicaid.
Memphis
Memphis was incorporated in 1986 for purposes of continuing the medical
reference laboratory services that had been provided to the Memphis, Tennessee
area for 8 years prior to 1986 by an unincorporated business. Mr. Maguire, Mr.
McKinney, and Mr. McGee acquired their Memphis shares in July 1995 from the sole
shareholder William R. Seals. Memphis's laboratory provides high quality
clinical laboratory services to approximately 20 long-term care nursing homes,
as of September 1, 1996, in Tennessee with approximately 2,200 residents. It
also provides services to other health care facilities, such as hospice
providers, home health agencies, MHMR facilities, physicians and clinics located
in the Memphis, Tennessee area.
The laboratory provides bodily fluid testing services to assist in
detecting, diagnosing, and monitoring diseases. These tests, performed as
ordered by each patient's attending physician, include testing for complete
blood count, blood chemistry testing, coagulation studies, urinalysis,
microbiology tests and therapeutic drug
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<PAGE> 60
level tests. Upon completion of these tests, the laboratory communicates the
results of such testing back to the applicable facility for inclusion on each
patient's medical chart for review by the attending physician.
Memphis management believes that Memphis has excelled in its market by
providing a high level of service, including assisting clients in complying with
applicable government regulations, furnishing regular comprehensive reports on
medical testing results, maintaining superior patient care and providing
single-shift turnaround of quality results for critical medical testing.
The clinical laboratory services industry has rapidly expanded despite
major regulations and restrictions placed on the medical industry within the
last few years. The federal government and the State of Tennessee regulate
various aspects of Memphis's business. The Memphis laboratory has received a
registration number in accordance with the Clinical Laboratory Improvement Act
("CLIA") and have all necessary state regulatory approvals to conduct business
in Tennessee. A CLIA registration number is required for clinical laboratories
to receive reimbursement for charges to patients covered by Medicare and
Medicaid.
MARKET OVERVIEW
Ampro
The Northlake laboratory is headquartered in Dallas, Texas with satellite
offices in Fort Worth, Tyler, and Austin and services north and central Texas.
The Gamma laboratory is headquartered in Poplar Bluff, Missouri and services
southern and central Missouri and northern Arkansas.
Memphis
Memphis's laboratory is located in Memphis, Tennessee and services the
Memphis, Tennessee area.
Ampro and Memphis believe that growth opportunities continue to exist in
providing medical laboratory services to long-term care facilities in their
respective markets for the following reasons.
OUTSOURCING TREND. Traditionally, it has been the responsibility of the
long-term care facilities to collect laboratory specimens, keep up with routine
physician orders as well as provide the laboratory with all patient and billing
demographic information. In a rapidly growing outsourcing trend, long-term care
facilities have begun to contract with outside laboratories, such as Northlake,
Gamma and Memphis to provide laboratory services and coordinate the tests for
their residents.
NATIONAL LABORATORY CHAINS. National laboratory chains have been unable to
compete with local laboratories in that many national laboratory chains are
unable to maintain the level of service necessary for a large long-term care
client base. A particular factor in this regard is the ability of a local
laboratory to perform "STAT" services, which large national chains do not
provide on a routine basis.
AGING POPULATION. Most of the patients in long-term care facilities are
over the age of 65, and this age group is increasing dramatically in the United
States. Recent health surveys project that two out of every five people who live
beyond 65 years of age will spend a portion of their lives in a long-term care
facility.
LONG-TERM CARE FACILITIES. Ampro management believes that opportunities
for growth in Texas exist, in part, because of the large size of that market.
Texas has approximately 1,100 licensed nursing facilities in the size range of
over 120 beds and 640 licensed mental retardation facilities with over 6,780
total beds. Texas long-term care facilities spend over $7 billion annually for
residence maintenance services, with more than 94,000 Texans residing in
long-term care facilities.
INCREASE IN MEDICAID. Medicaid reimbursements are projected to increase
substantially in future years, and Medicaid is only a portion of the
governmental entitlements for healthcare. Medicare spending alone will have this
increase from 11.3% in 1990 to 20.6% by the year 2000. Part of this dramatic
growth rate is due to an increase in the number of eligible participants as a
result of higher unemployment rates among eligible participants. Additionally,
recent legislation has extended Medicaid services to additional groups and has
increased the services Medicaid covers, thus providing a larger market for
laboratory services in the Medicaid market.
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OPERATIONS
In connection with the management of the medical laboratories, Ampro and
Memphis hire and train all necessary personnel and directs all other activities
associated with operating a medical laboratory, including billing, collection,
and other accounting functions. Quality assurance is provided by laboratory
managers located at each facility. The marketing staff of each facility is
responsible for promoting higher occupancy levels and penetration in their
respective local markets.
REVENUE SOURCES
Ampro and Memphis derive revenues from the Medicaid and Medicare programs
and also from private pay patients and long-term care facilities. Payments from
those who pay directly for services without governmental assistance are
classified as private pay revenues by Ampro. The private pay classification also
includes revenues from sources such as commercial insurers and health
maintenance organizations.
Ampro and Memphis bill Medicare, Medicaid and other third party payors for
laboratory services at different rates. Since 1992 Ampro and Memphis have
derived approximately 85% of its revenues from Medicare. Changes in the mix of
patients among Medicaid, Medicare and private pay sources and with respect to
different types of private pay sources can significantly affect the revenues and
profitability of Ampro's and Memphis' operations. There can be no assurance that
payments under governmental and third party payor programs will remain at
current levels or that Ampro or Memphis will continue to attract and retain
private pay patients or maintain its current payor or revenue mix. In an attempt
to reduce the federal budget deficit, there have been, and Ampro and Memphis
expects there will continue to be, a number of proposals to limit Medicare and
Medicaid reimbursement for long-term services. Ampro and Memphis cannot at this
time predict whether any of these pending proposals will be adopted or, if
adopted and implemented, what effect such proposals would have on Ampro or
Memphis.
INSURANCE
Ampro and Memphis carry general liability, professional liability,
comprehensive property damage, auto and other insurance coverage that management
considers adequate for the protection of its assets and operations. There can be
no assurance, however, that the coverage limits of such policies will be
adequate or that insurance will continue to be available to Ampro or Memphis on
commercially reasonable terms in the future. A successful claim in excess of
insurance coverage could have a material adverse effect on Ampro or Memphis, as
applicable, and its financial condition and/or results of operations. Claims
against Ampro and Memphis, regardless of their merit or outcome, may also have
an adverse effect on Ampro's and Memphis' reputation and business.
EMPLOYEES
As of June 30, 1996, Ampro and Memphis employed approximately 120 and 10,
respectively, full time equivalent employees. Management believes that employee
relations are good. None of the employees are represented by a labor union or
other collective bargaining association.
PROPERTIES
Ampro
Ampro leases, pursuant to month-to-month leases, all of its laboratory
facilities in Texas and owns the laboratory facility in Poplar Bluff. The leased
laboratory facilities consist of approximately 5,000 square foot of space and
the rent payable thereunder is $4,000 per month. Management believes that these
properties are adequate for its current level of operations and any anticipated
new business.
Memphis
Memphis leases its laboratory facility in Memphis. The leased facility
consists of approximately 2,700 square foot of space and the rent payable
thereunder is $2,250 per month during the initial three year term of
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the lease (ending June 30, 1998, with three year renewal options running through
June 30, 2004). Management believes that this property is adequate for its
current level of operations and any anticipated new business.
LEGAL PROCEEDINGS
Neither Ampro nor Memphis is a party to any litigation at June 30, 1996.
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MANAGEMENT OF AMPRO AND MEMPHIS
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
directors and executive officers of Ampro and Memphis. For similar information
with respect to Unison, see "Unison Management -- Directors and Executive
Officers" in the Prospectus/Proxy and Information Statement.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH AMPRO POSITION WITH MEMPHIS
- ----------------------------------- --- ------------------------------ ---------------------
<S> <C> <C> <C>
John L. Maguire.................... 65 President, Director
W. Jerome McGee.................... 52 Vice President, Director Secretary, Director
Harold N. McKinney................. 63 Secretary-Treasurer, Director Vice-President,
Treasurer, Director
William R. Seals................... 55 President, Director
</TABLE>
John L. Maguire has been President of Ampro since January 1992. Mr. Maguire
is a Certified Public Accountant, and he is a member of the American Institute
of Certified Public Accountants and the Arkansas Society of CPA's. Mr. Maguire
is a Director of Ampro and several other companies. Mr. Maguire was formally the
Chief Financial Officer of Tyson Foods.
Mr. Jerome McGee has been a Vice President of Ampro since January 1992 and
the Secretary of Memphis since July 1995. Mr. McGee has 15 years experience in
corporate startups and turnaround ventures.
Mr. Harold N. McKinney has been Vice President of Ampro since January 1992
and a Vice President and Treasurer of Memphis since July 1995. Mr. McKinney
owned and operated McKinney Dental Laboratories with facilities in Dallas and
Fort Worth which generated business from 20 states. McKinney Dental Laboratories
was acquired by American Hospital Supply Corporation in a stock-for-stock
transaction. After the merger, Mr. McKinney assisted in the acquisitions of
dental laboratories on behalf of Denticon, a wholly-owned subsidiary of American
Hospital Supply Corporation. Mr. McKinney later assisted corporations in
turnarounds and acquisitions while founding and funding various health care
companies prior to becoming involved with Memphis.
William R. Seals has been President of Memphis since its formation in 1986,
and he currently manages all of its laboratory operations on a day-to-day basis.
Mr. Seals has 36 years experience in the medical reference laboratory area.
Prior to his association with Memphis, Mr. Seals was employed by United Medical
Laboratories from 1970 to 1979. Mr. Seals has a Bachelors and Masters degree
from Memphis State University, and he is certified as a High Complexity
Laboratory Director and as a Medical Laboratory Director.
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PRINCIPAL SHAREHOLDERS OF AMPRO AND MEMPHIS
The following table sets forth at September 1, 1996 certain information
with respect to the beneficial ownership of the Common Stock of Ampro and
Memphis by (i) each person known by Ampro or Memphis to be the beneficial owner
of more than five percent of the Ampro Shares or Memphis Shares, (ii) each
director of Ampro and Memphis, (iii) the executive officers of Ampro and
Memphis, and (iv) all directors and executive officers of Ampro as a group and
all directors and executive officers of Memphis as a group. Except where
otherwise noted, each party included in the table has sole voting power and
investment power with respect to the Shares beneficially owned, except as the
same may be shared with spouses under state community property laws.
<TABLE>
<CAPTION>
AMPRO MEMPHIS
------------------------------ ------------------------------
AMOUNT AND NATURE AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER OWNERSHIP CLASS OWNERSHIP CLASS
- ------------------------------------------ ----------------- ---------- ----------------- ----------
<S> <C> <C> <C> <C>
John L. Maguire(1)........................ 3,055,334 29.95% 117.33 11.73%
W. Jerome McGee(2)........................ 3,015,666 29.57 117.33 11.73
Harold N. McKinney(3)..................... 3,029,133 29.70 117.33 11.73
William R. Seals.......................... 642.00 64.20
All Executive Officers and Directors as a
Group (three persons for Ampro; three
persons for Memphis).................... 9,100,133 89.22 876.66 87.66
</TABLE>
- ---------------
(1) 66,666 Ampro Shares held of record by Lorene Maguire, Mr. Maguire's wife,
and 2,988,668 held of record by Maguire Limited Partnership, an Arkansas
limited partnership of which Mr. Maguire is the sole general partner and has
the sole voting power.
(2) 774,967 Ampro Shares held of record by Mr. McGee, 66,000 Ampro Shares held
of record by Cindy McGee (Mr. McGee's wife), and 2,188,166 Ampro Shares held
of record by the McGee Trust of which Mr. McGee is the sole trustee and
exercises all voting rights.
(3) 963,333 Ampro Shares held of record by Mr. McKinney, 60,000 Ampro Shares
held of record by Jackie McKinney (Mr. McKinney's wife), and 1,992,333 Ampro
Shares held of record by the McKinney Trust of which Mr. McKinney is the
sole trustee and exercises all voting rights.
LEGAL MATTERS
Certain legal matters in connection with the Ampro and Memphis Mergers will
be passed upon by Tracy & Holland, L.L.P., counsel for Ampro. Law firms in Utah,
Missouri, and Tennessee will provide legal opinions in connection with legal
matters involving the laws of such states. No shares of either Ampro or Memphis
stock are held by any attorney with the firm of Tracy & Holland, L.L.P.
EXPERTS
The consolidated financial statements of Ampro at December 31, 1995, 1994,
and 1993, and the related financial statement schedules, appearing or referred
to in this Prospectus/Information Statement Supplement have been audited by
Ronald H. Ridgers, P.C., independent auditors as set forth in their report
herein, and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
The balance sheets of Memphis as of December 31, 1994 and 1995 and the
related statements of income and cash flows for each of the three years in the
period ended December 31, 1995 appearing or referred to in this
Prospectus/Information Statement Supplement have been audited by Ronald H.
Ridgers, P.C., independent auditors as set forth in their report herein, and are
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
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ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
UNISON HEALTHCARE CORPORATION
LABCO ACQUISITION CO.
AND
AMERICAN PROFESSIONAL HOLDING, INC.
DATED JULY 3, 1996
<PAGE> 66
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
RECITALS................................................................................ A-1
SECTION 1 DEFINITIONS.................................................................. A-1
SECTION 2 THE MERGER AND EFFECTIVE TIME; SURVIVING CORPORATION; CLOSING................
A-7
Section 2.1 The Merger............................................................ A-7
Section 2.2 Effective Time........................................................ A-7
Section 2.3 Articles of Incorporation And Bylaws.................................. A-7
Section 2.4 Board Of Directors.................................................... A-7
Section 2.5 Closing............................................................... A-7
Section 2.6 Closing Obligations................................................... A-8
SECTION 3 CONVERSION OF SHARES......................................................... A-8
Section 3.1 Per Share Consideration............................................... A-8
Section 3.2 Conversion Of Shares In The Merger.................................... A-9
Section 3.3 Adjustments to Per Share Consideration................................ A-9
Section 3.4 Exchange of Certificates.............................................. A-10
SECTION 4 REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................ A-11
Section 4.1 Organization and Good Standing; Capitalization; Agreements Regarding
Capital Stock......................................................... A-11
Section 4.2 Authority; No Conflict................................................ A-11
Section 4.3 Capitalization........................................................ A-12
Section 4.4 Financial Statements.................................................. A-12
Section 4.5 Books and Records..................................................... A-13
Section 4.6 Title to Properties; Encumbrances..................................... A-13
Section 4.7 Condition and Sufficiency of Assets................................... A-13
Section 4.8 Accounts Receivable................................................... A-13
Section 4.9 Prepaid Supplies...................................................... A-14
Section 4.10 No Undisclosed Liabilities............................................ A-14
Section 4.11 Taxes................................................................. A-14
Section 4.12 No Material Adverse Change............................................ A-14
Section 4.13 Employee Benefits..................................................... A-14
Section 4.14 Compliance with Legal Requirements; Governmental Authorizations....... A-17
Section 4.15 Legal Proceedings; Orders............................................. A-18
Section 4.16 Absence of Certain Changes and Events................................. A-18
Section 4.17 Contracts; No Defaults................................................ A-19
Section 4.18 Insurance............................................................. A-20
Section 4.19 Environmental Matters................................................. A-22
Section 4.20 Employees............................................................. A-23
Section 4.21 Labor Relations; Compliance........................................... A-23
Section 4.22 Intellectual Property................................................. A-23
Section 4.23 Certain Payments...................................................... A-25
Section 4.24 Disclosure............................................................ A-25
Section 4.25 Relationships with Related Persons.................................... A-25
Section 4.26 Accounting Matters.................................................... A-25
Section 4.27 Brokers or Finders.................................................... A-26
</TABLE>
i
<PAGE> 67
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 5 REPRESENTATIONS AND WARRANTIES OF UNISON AND LABCO........................... A-26
Section 5.1 Organization and Good Standing........................................ A-26
Section 5.2 Authority; No Conflict................................................ A-26
Section 5.3 Certain Proceedings................................................... A-26
Section 5.4 SEC Documents; Financial Statements................................... A-26
Section 5.5 Information Supplied.................................................. A-27
Section 5.6 Interim Operations of LABCO........................................... A-27
Section 5.7 Brokers or Finders.................................................... A-27
Section 5.8 Activities After Closing.............................................. A-27
Section 5.9 Disclosure............................................................ A-27
Section 5.10 Legal Proceedings; Orders............................................. A-28
Section 5.11 Capitalization........................................................ A-28
Section 5.12 Merger Consideration.................................................. A-28
SECTION 6 FURTHER COVENANTS PRIOR TO CLOSING DATE...................................... A-28
Section 6.1 Access and Investigation.............................................. A-28
Section 6.2 Operation of the Businesses of the Acquired Companies................. A-28
Section 6.3 Negative Covenant..................................................... A-28
Section 6.4 Required Approvals.................................................... A-28
Section 6.5 Shareholders' Meeting, Merger Information Statement and Registration
Statement............................................................. A-29
Section 6.6 Tax Representation Letter of the Company; No Disqualifying Action..... A-30
Section 6.7 Tax Representation Letters of Shareholders............................ A-30
Section 6.8 Agreements of Affiliates.............................................. A-30
Section 6.9 Delivery of Disclosure Schedules...................................... A-30
Section 6.10 Notification by the Company........................................... A-31
Section 6.11 Notification by Unison or LABCO....................................... A-31
Section 6.12 No Negotiation........................................................ A-31
Section 6.13 Tax Representation Letter of Unison and LABCO......................... A-31
Section 6.14 Pooling-of-Interests.................................................. A-32
Section 6.15 Nasdaq Listing........................................................ A-32
Section 6.16 Approvals of Governmental Bodies...................................... A-32
Section 6.17 Best Efforts.......................................................... A-32
SECTION 7 CONDITIONS PRECEDENT TO UNISON'S AND LABCO'S OBLIGATION TO CLOSE.............
A-32
Section 7.1 Accuracy of Representations........................................... A-32
Section 7.2 Company's Performance................................................. A-32
Section 7.3 Shareholder Approval.................................................. A-32
Section 7.4 Board Approval........................................................ A-32
Section 7.5 Effectiveness of Registration Statement............................... A-32
Section 7.6 Listing Approval...................................................... A-32
Section 7.7 Consents.............................................................. A-33
Section 7.8 Additional Documents.................................................. A-33
Section 7.9 No Proceedings........................................................ A-33
Section 7.10 No Claim Regarding Stock Ownership or Merger Consideration............ A-33
Section 7.11 No Prohibition........................................................ A-33
Section 7.12 Termination of Agreements............................................. A-34
Section 7.13 Dissenters' Rights.................................................... A-34
Section 7.14 Agreement for Acquisition of Memphis Clinical Laboratory Inc.......... A-34
</TABLE>
ii
<PAGE> 68
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 8 CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATION TO CLOSE.................... A-34
Section 8.1 Accuracy of Representations........................................... A-34
Section 8.2 Unison's and LABCO's Performance...................................... A-34
Section 8.3 Board Approval........................................................ A-34
Section 8.4 Shareholder Approval.................................................. A-34
Section 8.5 Effectiveness of Registration Statement............................... A-34
Section 8.6 Listing Approval...................................................... A-34
Section 8.7 Consents.............................................................. A-34
Section 8.8 Additional Documents.................................................. A-34
Section 8.9 No Proceeding......................................................... A-35
Section 8.10 No Prohibition........................................................ A-35
Section 8.11 Agreement for Acquisition of Memphis Clinical Laboratory Inc.......... A-35
SECTION 9 TERMINATION.................................................................. A-35
Section 9.1 Termination Events.................................................... A-35
Section 9.2 Special Fees.......................................................... A-36
Section 9.3 Effect of Termination................................................. A-36
SECTION 10 GENERAL PROVISIONS.......................................................... A-37
Section 10.1 Expenses.............................................................. A-37
Section 10.2 Public Announcements.................................................. A-37
Section 10.3 Confidentiality....................................................... A-37
Section 10.4 Notices............................................................... A-37
Section 10.5 Jurisdiction; Service of Process...................................... A-38
Section 10.6 Further Assurances.................................................... A-38
Section 10.7 Combined Operating Results............................................ A-38
Section 10.8 Waiver................................................................ A-38
Section 10.9 Entire Agreement and Modification..................................... A-38
Section 10.10 Disclosure Schedules.................................................. A-39
Section 10.11 Assignments, Successors, and No Third-Party Rights.................... A-39
Section 10.12 Severability.......................................................... A-39
Section 10.13 Section Headings, Construction........................................ A-39
Section 10.14 Time of Essence....................................................... A-39
Section 10.15 Governing Law......................................................... A-39
Section 10.16 Counterparts.......................................................... A-39
</TABLE>
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AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger ("Agreement") is made as of July 3, 1996,
among UNISON HEALTHCARE CORPORATION, a Delaware corporation ("Unison"), LABCO
ACQUISITION CO., a Delaware corporation ("LABCO"), and AMERICAN PROFESSIONAL
HOLDING, INC., a Utah corporation (the "Company").
RECITALS
A. Unison HealthCare Corporation, a Delaware corporation ("Unison"), is
engaged in the business of owning, leasing and managing nursing homes and other
types of care facilities and the delivery of ancillary services, and LABCO is a
wholly-owned subsidiary of Unison;
B. LABCO and the Company desire that LABCO be merged into the Company
pursuant to this Agreement and in accordance with the applicable statutes of the
State of Utah;
C. The Company is principally engaged in the business of owning and
operating medical laboratories for the commercial processing and evaluation of
various types of human tissues;
D. The respective Boards of Directors of LABCO and the Company have each
approved the merger of LABCO with and into the Company pursuant to the
provisions of this Agreement;
E. The Board of Directors of the Company has duly resolved that this
Agreement be submitted to a vote of the Company's shareholders in accordance
with the Utah Revised Business Corporation Act;
F. Unison shall prepare a Registration Statement on Form S-4 to be filed
with the Securities and Exchange Commission registering the shares of Unison
Common Stock to be issued to the Company shareholders in the Merger, which
Registration Statement shall include an information statement of the Company to
be used in connection with the vote of the shareholders of the Company
authorizing the Merger;
G. For federal income tax purposes, it is intended that the Transaction
shall constitute a reorganization within the meaning of Sections 368(a)(2)(E) of
the Internal Revenue Code of 1986, as amended; and
H. Unison and certain shareholders of the Company are separately
negotiating for the acquisition by Unison of all of the issued and outstanding
capital stock of Memphis Clinical Laboratory Inc.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
SECTION 1 DEFINITIONS
For purposes of this Agreement, the following terms have the meanings set
forth below:
"ACQUIRED COMPANIES" shall mean the Company and its Subsidiaries,
collectively.
"AFFILIATE AGREEMENTS" shall have the meaning set forth in Section 6.8.
"APPLICABLE CONTRACT" shall mean any Contract involving $5,000 or more or
which are not cancelable within 30 days (a) under which any Acquired Company has
or may acquire any rights, (b) under which any Acquired Company has or may
become subject to any obligation or liability, or (c) by which any Acquired
Company or any of the assets owned or used by it is or may become bound.
"ARTICLES OF MERGER" shall have the meaning set forth in Section 2.2.
"AVERAGE CLOSING PRICE" shall mean the average per share closing price on
the Nasdaq National Market of Unison Common Stock during the 20 consecutive
trading days ending on the fifth trading day prior to the Effective Time.
"BALANCE SHEET" shall have the meaning set forth in Section 4.4.
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"BEST EFFORTS" shall mean the efforts that a prudent Person desirous of
achieving a result would use in similar circumstances to ensure that such result
is achieved as expeditiously as possible, without incurring unreasonable
expense.
"BREACH" of a representation, warranty, covenant, obligation, or other
provision of this Agreement or any instrument delivered pursuant to this
Agreement, shall mean any inaccuracy in or breach of, or any failure to perform
or comply with, such representation, warranty, covenant, obligation, or other
provision.
"CLOSING" shall have the meaning set forth in Section 2.5.
"CLOSING DATE" shall mean the date and time as of which the Closing
actually takes place.
"COMPANY" shall have the meaning set forth in the first paragraph of this
Agreement.
"CONSENT" shall mean any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
"CONTEMPLATED TRANSACTIONS" shall mean all of the transactions contemplated
by this Agreement, including:
(a) the Merger;
(b) the execution, delivery, and performance of the Affiliate Agreements,
Employment Agreements, the Releases and the Escrow Agreement; and
(c) the performance by the Company and LABCO of their respective covenants
and obligations under this Agreement.
"CONTRACT" shall mean any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied) that is
legally binding.
"DGCL" shall mean the Delaware General Corporation Law.
"DISCLOSURE SCHEDULES" shall mean the disclosure schedules delivered by the
Company to Unison and LABCO in connection with the execution and delivery of
this Agreement.
"EFFECTIVE TIME" shall have the meaning set forth in Section 2.2 hereof.
"EMPLOYMENT AGREEMENTS" shall mean employment agreements between the
Company and each of the Senior Managers (collectively, the "Employment
Agreements") in the form of Exhibit 2.6(a)(iv).
"ENCUMBRANCE" shall mean any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest, right of
first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income, or exercise of any other attribute of
ownership.
"ENVIRONMENT" shall mean soil, land surface or subsurface strata, surface
waters (including navigable waters, ocean waters, streams, ponds, drainage
basins, and wetlands), groundwaters, drinking water supply, stream sediments,
ambient air (including indoor air), plant and animal life, and any other
environmental medium or natural resource.
"ENVIRONMENTAL, HEALTH, AND SAFETY LIABILITIES" shall mean any cost,
damages, expense, liability, obligation, or other responsibility arising from or
under Environmental Law or Occupational Safety and Health Law and consisting of
or relating to:
(a) any environmental, health, or safety matters or conditions (including
on-site or off-site contamination, occupational safety and health, and
regulation of chemical substances or products);
(b) fines, penalties, judgments, awards, settlements, legal or
administrative proceedings, damages, losses, claims, demands and response,
investigative, remedial, or inspection costs and expenses arising under
Environmental Law or Occupational Safety and Health Law;
(c) financial responsibility under Environmental Law or Occupational Safety
and Health Law for cleanup costs or corrective action, including any
investigation, cleanup, removal, containment, or other
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remediation or response actions ("Cleanup") required by applicable Environmental
Law or Occupational Safety and Health Law (whether or not such Cleanup has been
required or requested by any Governmental Body or any other Person) and for any
natural resource damages; or
(d) any other compliance, corrective, investigative, or remedial measures
required under Environmental Law or Occupational Safety and Health Law.
The terms "removal," "remedial," and "response action," include the types
of activities covered by the United States Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. sec. 9601 et seq., as amended
("CERCLA").
"ENVIRONMENTAL LAW" shall mean any Legal Requirement that requires or
relates to:
(a) advising appropriate authorities, employees, and the public of intended
or actual releases of pollutants, medical waste or hazardous substances or
materials, violations of discharge limits, or other prohibitions and of the
commencements of activities, such as resource extraction or construction, that
could have significant impact on the Environment;
(b) preventing or reducing to acceptable levels the release of pollutants
or hazardous substances or materials into the Environment;
(c) reducing the quantities, preventing the release, or minimizing the
hazardous characteristics of wastes that are generated;
(d) assuring that products are designed, formulated, packaged, and used so
that they do not present unreasonable risks to human health or the Environment
when used or disposed of;
(e) protecting resources, species, or ecological amenities;
(f) reducing to acceptable levels the risks inherent in the transportation
of hazardous substances, pollutants, oil, or other potentially harmful
substances;
(g) cleaning up pollutants that have been released, preventing the threat
of release, or paying the costs of such clean up or prevention; or
(h) making responsible parties pay private parties, or groups of them, for
damages done to their health or the Environment, or permitting self-appointed
representatives of the public interest to recover for injuries done to public
assets.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974 or
any successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"ESCROW AGENT" shall mean Harris Trust and Savings Bank.
"ESCROW AGREEMENT" shall have the meaning set forth in Section 2.6(a)(v).
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended.
"EXCHANGE AGENT" shall mean Harris Trust and Savings Bank.
"FACILITIES" shall mean any real property, leaseholds, or other interests
currently or formerly owned or operated by any Acquired Company and any
buildings, plants, structures, or equipment (including motor vehicles and
rolling stock) currently or formerly owned or operated by any Acquired Company.
"GAAP" shall mean generally accepted United States accounting principles,
applied on a basis consistent with the basis on which the Balance Sheet and the
other financial statements referred to in Section 4.4 were prepared.
"GOVERNMENTAL AUTHORIZATION" shall mean any approval, consent, license,
permit, waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
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"GOVERNMENTAL BODY" shall mean any:
(a) nation, state, county, city, town, village, district, or other
jurisdiction of any nature;
(b) federal, state, local, municipal, foreign, or other government;
(c) governmental or quasi-governmental authority of any nature (including
any governmental agency, branch, department, official, or entity and any court
or other tribunal);
(d) multi-national organization or body; or
(e) body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory, or taxing authority or
power of any nature.
"HAZARDOUS ACTIVITY" shall mean the distribution, generation, handling,
importing, management, manufacturing, processing, production, refinement,
Release, storage, transfer, transportation, treatment, or use (including any
withdrawal or other use of groundwater) of Hazardous Materials in, on, under,
about, or from the Facilities or any part thereof into the Environment, and any
other act, business, operation, or thing that increases the danger, or risk of
danger, or poses an unreasonable risk of harm to persons or property on or off
the Facilities, or that may affect the value of the Facilities or the Acquired
Companies.
"HAZARDOUS MATERIALS" shall mean any waste or other substance that is
listed, defined, designated, or classified as, or otherwise determined to be,
hazardous, radioactive, or toxic or a pollutant or a contaminant under or
pursuant to any Environmental Law, including any admixture or solution thereof,
and specifically including petroleum and all derivatives thereof or synthetic
substitutes therefor and asbestos or asbestos-containing materials.
"INTELLECTUAL PROPERTY ASSETS" shall have the meaning set forth in Section
4.22.
"INTERIM BALANCE SHEET" shall have the meaning set forth in Section 4.4.
"IRC" shall mean the Internal Revenue Code of 1986, as amended, or any
successor law, and regulations issued by the IRS pursuant to the Internal
Revenue Code or any successor law.
"IRS" shall mean the United States Internal Revenue Service or any
successor agency, and, to the extent relevant, the United States Department of
the Treasury.
"KNOWLEDGE" of a particular fact or other matter shall mean such individual
is actually aware of such fact or other matter. A Person (other than an
individual) will be deemed to have "Knowledge" of a particular fact or other
matter if any individual who is serving as a director, or executive or operating
officer of such Person (or in any similar capacity) has Knowledge of such fact
or other matter.
"LEGAL REQUIREMENT" shall mean any federal, state, local, municipal,
foreign, international, multinational, or other administrative order,
constitution, law, ordinance, principle of common law, regulation, statute, or
treaty.
"LETTER OF TRANSMITTAL" shall have the meaning set forth in Section 3.4(b)
hereof.
"MEMPHIS" shall mean Memphis Clinical Laboratory Inc.
"MERGER" shall mean the merger of LABCO with and into the Company with the
Company being the surviving corporation pursuant to this Agreement.
"OBJECTING SHARES" shall have the meaning set forth in Section 3.2(d).
"OCCUPATIONAL SAFETY AND HEALTH LAW" shall mean any Legal Requirement
designed to provide safe and healthful working conditions and to reduce
occupational safety and health hazards, and any program, whether governmental or
private (including those promulgated or sponsored by industry associations and
insurance companies), designed to provide safe and healthful working conditions.
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"ORDER" shall mean any award, decision, injunction, judgment, order,
ruling, subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
"ORDINARY COURSE OF BUSINESS" shall mean an action taken by a Person which:
(a) is consistent with the past practices of such Person and is taken in
the ordinary course of the normal day-to-day operations of such Person;
(b) is not required to be authorized by the board of directors of such
Person (or by any Person or group of Persons exercising similar authority); and
(c) is similar in nature and magnitude to actions customarily taken,
without any authorization by the board of directors (or by any Person or group
of Persons exercising similar authority), in the ordinary course of the normal
day-to-day operations of other Persons that are in the same line of business as
such Person.
"ORGANIZATIONAL DOCUMENTS" shall mean: (a) the articles or certificate of
incorporation and the bylaws of a corporation; (b) the partnership agreement and
any statement of partnership of a general partnership; (c) the limited
partnership agreement and the certificate of limited partnership of a limited
partnership; (d) any charter or similar document adopted or filed in connection
with the creation, formation, or organization of a Person; and (e) any amendment
to any of the foregoing.
"PER SHARE CONSIDERATION" shall have the meaning set forth in Section 3.1.
"PERSON" shall mean any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"PLAN" shall have the meaning set forth in Section 4.13(a).
"PROCEEDING" shall mean any action, arbitration, audit, hearing,
investigation, litigation, or suit (whether civil, criminal, administrative,
investigative, or informal) commenced, brought, conducted, or heard by or
before, or otherwise involving, any Governmental Body or arbitrator.
"RELATED PERSON" shall mean with respect to a particular individual:
(a) each other member of such individual's Family;
(b) any Person that is directly or indirectly controlled by such individual
or one or more members of such individual's Family;
(c) any Person in which such individual or members of such individual's
Family hold (individually or in the aggregate) a Material Interest; or
(d) any Person with respect to which such individual or one or more members
of such individual's Family serves as a director, officer, partner, executor, or
trustee (or in a similar capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is directly or
indirectly controlled by, or is directly or indirectly under common control with
such specified Person;
(b) any Person that holds a Material Interest in such specified Person;
(c) each Person that serves as a director, officer, partner, executor, or
trustee of such specified Person (or in a similar capacity);
(d) any Person in which such specified Person holds a Material Interest;
(e) any Person with respect to which such specified Person serves as a
general partner or a trustee (or in a similar capacity); or
(f) any Related Person of any individual described in clause (b) or (c).
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For purposes of this definition, (a) the "Family" of an individual includes
(i) the individual, (ii) the individual's spouse and (iii) any other natural
person who is related to the individual or the individual's spouse within the
second degree, and (b) "Material Interest" means direct or indirect beneficial
ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934)
of voting securities or other voting interests representing at least 10% of the
outstanding voting power of a Person or equity securities or other equity
interests representing at least 10% of the outstanding equity securities or
equity interests in a Person.
"RELEASE" shall mean any spilling, leaking, emitting, discharging,
depositing, escaping, leaching, dumping, or other releasing into the
Environment, whether intentional or unintentional.
"RELEASES" shall have the meaning set forth in Section 2.6(a)(iii).
"REPRESENTATIVE" shall mean with respect to a particular Person, any
director, officer, employee, agent, consultant, advisor, or other representative
of such Person, including legal counsel, accountants, and financial advisors.
"RESERVE SHARES" shall have the meaning set forth in Section 3.2(a).
"SEC" shall mean the Securities and Exchange Commission.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"SENIOR MANAGERS" shall mean W. Jerome McGee and Harold N. McKinney.
"SHAREHOLDERS" shall mean all holders of the Shares.
"SHARES" shall mean all issued and outstanding shares of capital stock of
the Company.
"SUBSIDIARY" shall mean with respect to any Person (the "Owner"), any
corporation or other Person of which securities or other interests having the
power to elect a majority of that corporation's or other Person's board of
directors or similar governing body, or otherwise having the power to direct the
business and policies of that corporation or other Person (other than securities
or other interests having such power only upon the happening of a contingency
that has not occurred) are held by the Owner or one or more of its Subsidiaries;
when used without reference to a particular Person, "Subsidiary" means a
Subsidiary of the Company.
"TAX" shall mean any tax (including any income tax, capital gains tax,
value-added tax, sales tax, property tax, gift tax or estate tax), levy,
assessment, tariff, duty (including any customs duty), deficiency or other fee,
and any related charge or amount (including any fine, penalty, interest or
addition to tax), imposed, assessed or collected by or under the authority of
any Governmental Body or payable pursuant to any tax-sharing agreement or any
other Contract relating to the sharing or payment of any such tax, levy,
assessment, tariff, duty, deficiency or fee.
"TAX RETURN" shall mean any return (including any information return),
report, statement, schedule, notice, form, or other document or information
filed with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection,
or payment of any Tax or in connection with the administration, implementation,
or enforcement of or compliance with any Legal Requirement relating to any Tax.
"THIRD PARTY" shall mean a Person other than Unison, LABCO or any affiliate
thereof.
"THIRD PARTY ACQUISITION" shall mean the occurrence of any of the following
events: (i) the acquisition of any of the Acquired Companies by merger,
consolidation, or other business combination transaction by a Third Party; (ii)
the acquisition by any Third Party of, or any divestiture or other transaction
resulting in the Company owning less than, 50% or more (in book value or market
value) of the total assets of the Company and its subsidiaries, taken as a whole
as of the date hereof; (iii) the acquisition by a Third Party of 50% or more of
the outstanding Shares, whether by tender offer, exchange or otherwise; or (iv)
the adoption by the Company of a plan of liquidation or a plan of
recapitalization or the declaration or payment of an extraordinary dividend.
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"THREAT OF RELEASE" shall mean a substantial likelihood of a Release that
may require action in order to prevent or mitigate damage to the Environment
that may result from such Release.
"THREATENED" in respect of any claim, Proceeding, dispute, action, or other
matter shall mean that any demand or statement has been made (orally or in
writing) or any notice has been given (orally or in writing).
"TRANSACTION EXPENSES" shall mean all out-of-pocket expenses and fees up to
$150,000 in the aggregate (including, without limitation, legal fees and
expenses, fees and expenses payable to all banks, investment banking firms,
other financial institutions and other persons and their respective agents and
counsel for arranging, committing to provide or providing any financing or
services for the Merger and any transactions contemplated thereby or structuring
the transactions, and all fees of counsel, accountants, experts, consultants and
soliciting or information firms to Unison and LABCO, and all printing, mailing
and advertising expenses) actually incurred and paid by Unison or LABCO or on
their behalf in connection with the transactions, including, without limitation,
any litigation related thereto and the financing thereof, and actually incurred
and paid by banks, investment banking firms, other financial institutions and
other persons and assumed by Unison or LABCO in connection with the negotiation,
preparation, execution and performance of this Agreement, the structuring and
financing of the Merger and any transactions contemplated hereby and thereby and
any litigation and any financing commitments or agreements relating thereto.
"URBCA" shall mean the Utah Revised Business Corporation Act.
"UNISON COMMON STOCK" shall mean the $.001 par value per share common stock
of Unison.
SECTION 2 THE MERGER AND EFFECTIVE TIME;
SURVIVING CORPORATION; CLOSING
SECTION 2.1 The Merger. At the Effective Time, and subject to the terms
and conditions set forth herein, LABCO shall be merged with and into the Company
and the separate existence of LABCO shall thereupon cease, in accordance with
the applicable provisions of the URBCA. The Company shall be the surviving
corporation in the Merger (sometimes referred to herein as the "Surviving
Corporation") and will continue to be governed by the State of Utah and all of
its rights, privileges, immunities and franchises, public or private, and all of
its duties and liabilities as a corporation organized under the URBCA, will
continue unaffected by the Merger. The Merger will have the effects specified by
the URBCA.
SECTION 2.2 Effective Time. At the Closing, the Company and LABCO will
execute and deliver articles of merger (the "Articles of Merger") and a
certificate of merger (the "Certificate of Merger") substantially in the forms
of Exhibits 2.2(A) and 2.2(B), respectively, and will, as promptly as
practicable thereafter, cause the Articles of Merger to be filed with the
Division of Corporations and Commercial Code of the State of Utah, as provided
in Section 16-10a-1105 of the URBCA and the Certificate of Merger to be filed
with the Secretary of State of the State of Delaware as provided in Section
252(c) of the DGCL. Subject to and in accordance with the URBCA and DGCL, the
Merger shall become effective at the date and time specified in the Articles of
Merger and Certificate of Merger (the "Effective Time").
SECTION 2.3 Articles of Incorporation And Bylaws. The Articles of
Incorporation and Bylaws of the Company as in effect immediately prior to the
Effective Time shall be the Articles of Incorporation and Bylaws of the
Surviving Corporation.
SECTION 2.4 Board Of Directors. From and after the Effective Time, the
Board of Directors of LABCO shall be the Board of Directors of the Surviving
Corporation.
SECTION 2.5 Closing. The closing of the transactions contemplated herein
(the "Closing") shall take place at the offices of Quarles & Brady, One East
Camelback, Suite 400, Phoenix, Arizona at 10:00 a.m. (local time) on September
30, 1996 or at such other time and place as the parties may agree. Subject to
the provisions of Section 9, failure to consummate the Contemplated Transactions
on the date and time and at the place determined pursuant to this Section 2.5
will not result in the termination of this Agreement and will not relieve any
party of any obligation under this Agreement.
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SECTION 2.6 Closing Obligations. At the Closing:
(a) The Company will deliver to Unison and LABCO:
(i) two copies of the Articles of Merger, each duly executed on behalf
of the Company;
(ii) two copies of the Certificate of Merger, each duly executed on
behalf of the Company;
(iii) releases in the form of Exhibit 2.6(a)(iii) executed by each of
the Senior Managers and the Maguire Limited Partnership (collectively, the
"Releases");
(iv) the Employment Agreements, executed by the Senior Managers;
(v) an escrow agreement in the form of Exhibit 2.6(a)(v), executed by
the Company and the Escrow Agent (the "Escrow Agreement");
(vi) a certificate executed by the Company representing and warranting
to Unison and LABCO that each of the Company's representations and
warranties in this Agreement was accurate in all respects as of the date of
this Agreement and is accurate in all respects as of the Closing Date as if
made on the Closing Date (giving full effect to any supplements to the
Disclosure Schedules that were delivered by the Company to Unison and LABCO
prior to the Closing Date in accordance with Section 6.10);
(vii) a certificate executed by the Company representing and
warranting to Unison and LABCO that there has been no change to the Company
Tax Representation Letter delivered pursuant to Section 6.6;
(viii) one or more certificates executed by the Shareholders listed on
Schedule 6.7 representing and warranting to Unison and LABCO that there has
been no change to the Shareholder Tax Representation Letter delivered
pursuant to 6.7; and
(ix) copies of the resolutions of the Company's Board of Directors and
Shareholders duly authorizing the Contemplated Transactions.
(b) Unison and LABCO will deliver or cause to be delivered:
(i) to the Company two copies of the Articles of Merger, each duly
executed on behalf of LABCO;
(ii) to the Company two copies of the Certificate of Merger, each duly
executed on behalf of LABCO;
(iii) to the Company a certificate executed by Unison and LABCO
representing and warranting to the Company that each of Unison's and
LABCO's representations and warranties in this Agreement was accurate in
all respects as of the date of this Agreement and is accurate in all
respects as of the Closing Date as if made on the Closing Date (giving full
effect to any supplements to the schedules, delivered by Unison and LABCO
to the Company pursuant to Section 5, prior to the Closing Date in
accordance with Section 6.10);
(iv) to the Company the Escrow Agreement executed by Unison and LABCO;
(v) to the Senior Managers the Employment Agreements executed by
LABCO;
(vi) to the Company, the Unison/LABCO Tax Representation Letter
pursuant to Section 6.13; and
(vii) copies of the resolutions of Unison's and LABCO's Board of
Directors and shareholders duly authorizing the Contemplated Transactions.
SECTION 3 CONVERSION OF SHARES
SECTION 3.1 Per Share Consideration. If the Average Closing Price is
$11.00 or greater but not more than $15.00, the "Per Share Consideration"
(expressed in shares of Unison Common Stock) shall be a fraction the numerator
of which shall be, subject to adjustment as set forth in Section 3.2(f) and
Section 3.3, 521,000 and the denominator of which shall be the number of Shares
outstanding immediately prior to the
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Effective Time. Unison and LABCO may terminate this Agreement if the Average
Closing Price is greater than $15.00, and the Company may terminate this
Agreement if the Average Closing Price is less than $11.00.
SECTION 3.2 Conversion Of Shares In The Merger. At the Effective Time, by
virtue of the Merger and without any action on the part of any holder of capital
stock of the Company:
(a) Each Share issued and outstanding immediately prior to the Effective
Time (other than Shares referred to in Section 3.2(b) below and Objecting
Shares) shall be canceled and extinguished and be converted into the Per Share
Consideration determined pursuant to Section 3.1, which shares shall be
distributed by the Exchange Agent to each Shareholder pursuant to Section 3.4
hereof; provided, however, that an amount corresponding to fractional shares
that are paid in cash pursuant to Section 3.2(e) need not be delivered and a
number of shares of Unison Common Stock equal to 10% of the aggregate Per Share
Consideration shall be reserved from the shares otherwise to be delivered to the
McKinney Trust, the McGee Trust and the Maguire Limited Partnership and
delivered by the Exchange Agent directly to the Escrow Agent pursuant to Section
3.4 hereof (all such shares to be delivered to the Escrow Agent are collectively
referred to herein as the "Reserve Shares"), which Reserve Shares shall be
available to satisfy those contingencies of the Company specifically identified
in the Escrow Agreement;
(b) Each share of the Company's capital stock issued and outstanding and
owned by any of the Acquired Companies and all unissued shares of the Company's
capital stock held by the Company immediately prior to the Effective Time shall
cease to be outstanding, be canceled and retired without payment of any
consideration therefor and cease to exist;
(c) Each share of Common Stock, par value $.01 per share, of LABCO issued
and outstanding immediately prior to the Effective Time shall be converted into
one validly issued, fully paid and nonassessable share of Common Stock, par
value $.01 per share, of the Surviving Corporation;
(d) Notwithstanding anything in this Agreement to the contrary, each Share
which is issued and outstanding immediately prior to the Effective Time and
which is held by a Shareholder who has caused the Company to receive, before the
vote of the Shareholders is taken with respect to the Merger, written notice of
such Shareholder's intent to demand payment for such Shares if the Merger is
effectuated, who has not voted such Shares in favor of the Merger or consented
thereto in writing, and who has demanded appraisal rights with respect thereto
in the manner provided in Section 16-10a-1323 of the URBCA or any successor
statute (collectively, the "Objecting Shares"), shall not be converted into or
represent the right to receive the Per Share Consideration provided for in the
Section 3.2(a). Holders of Objecting Shares, however, will be entitled, assuming
compliance by them with all applicable provisions of the URBCA, to receive the
appraised value of such shares in accordance with the applicable provisions of
the URBCA;
(e) No fractional shares of Unison Common Stock shall be issued in
connection with the Merger. In lieu of any such fractional shares, including any
fractional shares resulting from the calculation of the Reserve Shares, each
Shareholder who would otherwise be entitled to receive a fraction of a share of
Unison Common Stock shall be entitled to receive instead an amount in cash equal
to such fraction multiplied by the Average Closing Price.
(f) If, between the date of this Agreement and the Effective Time, the
outstanding number of shares of Unison Common Stock shall have been changed into
a different number of shares by reason of a split-up or combination of shares of
Unison Common Stock, or with respect to such split-up or combination there shall
be declared a record date within said period with a distribution date after the
Effective Time or a stock dividend on Unison Common Stock shall be declared with
a record date within such period, the Per Share Consideration to be delivered
pursuant to Section 3.1, the adjustment as provided in Section 3.3 and the
$11.00 to $15.00 price range set forth in Section 3.1 shall be appropriately
adjusted.
SECTION 3.3 Adjustments to Per Share Consideration.
(a) The aggregate number of shares to be delivered under Section 3.1 shall
be subject to reduction based on net income of the Company for the quarter
ending June 30, 1996 (the "Second Quarter Net Income").
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(b) As soon as reasonably practicable after the receipt of an income
statement for the Company for the quarter ending June 30, 1996, in accordance
with GAAP consistently applied throughout the period, which the Company shall
use its Best Efforts to furnish to Unison and LABCO within 30 days of the end of
such quarter, Unison shall:
(i) subtract from (1) the Second Quarter Net Income (2) that portion
("Unison Testing Net Income") of Second Quarter Net Income attributable to
testing by the Company at or for residents of long-term care facilities
owned, leased or managed by Unison or by any of its Subsidiaries ("Revised
Second Quarter Net Income"). Unison shall calculate Unison Testing Net
Income by multiplying (X) the revenue from testing by the Company at or for
residents of long-term care facilities owned, leased or managed by Unison
or by any of its Subsidiaries by (Y) the Acquired Companies' average margin
and subtracting from such product (Z) an amount for tax based on an
effective rate of 34%;
(ii) divide (1) Revised Second Quarter Net Income by (2) the numerator
of the Per Share Consideration under Section 3.1.
(c) To the extent that the amount obtained in Section 3.3(b)(ii) is less
than .22, Unison shall deduct from that number of shares of Unison Common Stock
to be delivered pursuant to Section 3.1 a number of shares sufficient such that
the calculation in Section 3.3(b)(ii) shall yield not less than .22.
SECTION 3.4 Exchange of Certificates.
(a) As of the Effective Time, LABCO shall deposit with a bank or trust
company to be designated by LABCO (the "Exchange Agent"), for the benefit of the
holders of Shares, for exchange in accordance with this Section 3, through the
Exchange Agent, (i) certificates representing the shares of Unison Common Stock
issuable pursuant to Section 3.2(a) in exchange for issued and outstanding
Shares, less the amount of such Shares to be delivered directly to the Escrow
Agent pursuant to such Section 3.2(a) and (ii) cash in an amount sufficient for
the consideration owed for fractional shares. Unison Common Stock into which
Shares shall be converted pursuant to the Transaction shall be deemed to have
been issued at the Effective Time.
(b) As soon as reasonably practicable after the Effective Time, Unison and
LABCO shall cause the Exchange Agent to mail to each record holder of Shares (i)
a letter of transmittal (the "Letter of Transmittal"), which shall specify that
delivery shall be effected, and risk of loss and title to the certificates
representing the Shares held by such record holder (the "Certificates") shall
pass, only upon delivery of the Certificates to the Exchange Agent and which
shall be in such form and have such other provisions as LABCO shall reasonably
specify and (ii) instructions for surrendering the Certificates in exchange for
certificates representing shares of Unison Common Stock and for receiving cash
payments in lieu of fractional shares of Unison Common Stock. Upon surrender of
a Certificate for cancellation to the Exchange Agent, together with such Letter
of Transmittal duly executed and such other documents as LABCO or the Exchange
Agent shall reasonably request: (x) the holder of such Certificate shall be
entitled to receive promptly in exchange therefor a certificate representing the
shares of Unison Common Stock described in Section 3.2(a) hereof (rounded down
to the nearest whole share) and a cash payment for fractional shares calculated
on the basis of the Average Closing Price; and (y) Unison and LABCO shall cause
the Exchange Agent to prepare and deliver to the Escrow Agent, in the name of
the Escrow Agent, a certificate or certificates representing the Reserve Shares
(rounded down to the nearest whole share). The Certificates so surrendered shall
forthwith be canceled. From and after the Effective Time, Unison shall be
entitled to treat such Certificates for Shares which have not yet been
surrendered for exchange as evidencing the ownership of that number of shares of
Unison Common Stock into which the Shares represented by such Certificates shall
have been converted, notwithstanding any failure to surrender such certificates.
(c) Until surrendered as contemplated by this Section 3.4, each Certificate
shall be deemed at any time after the Effective Time to represent only the right
to receive upon such surrender such shares of Unison Common Stock and cash
payment for fractional shares as provided in this Section 3.
(d) If any certificate for shares of Unison Common Stock is to be issued in
a name other than that in which the Certificate for Shares surrendered therefor
is registered, it shall be a condition of such issuance that the person
requesting such issuance shall pay any transfer or other tax required by the
reason of the issuance of
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such shares of Unison common stock in a name other than that of the registered
holder of the Certificate surrendered, or shall establish to the satisfaction of
Unison or the Exchange Agent that such tax has been paid or is not applicable.
(e) Neither Unison, LABCO nor the Company shall be liable to the holder of
Shares for any shares of Unison Common Stock delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
SECTION 4 REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Unison and LABCO as follows:
SECTION 4.1 Organization and Good Standing; Capitalization; Agreements
Regarding Capital Stock.
(a) Schedule 4.1(a) hereto contains a complete and accurate list for each
Acquired Company of its name, its jurisdiction of incorporation, each other
jurisdiction in which it is authorized to do business, and its capitalization
(including the number of shares of each class authorized and outstanding, the
identity of each stockholder and each Person who has any right to acquire
capital stock from such Acquired Company and the number of shares of each class
of stock held by each Person or which such Person has the right to acquire from
such Acquired Company, all on an actual basis and fully-diluted basis as of the
Effective Time). Each Acquired Company is a corporation duly organized, validly
existing, and in good standing under the laws of its jurisdiction of
incorporation, with full corporate power and authority to conduct its business
as it is now being conducted, to own or use the properties and assets that it
purports to own or use, and to perform all its obligations under Applicable
Contracts. Each Acquired Company is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each state or other
jurisdiction in which either the ownership or use of the properties owned or
used by it, or the nature of the activities conducted by it, requires such
qualification, except where the failure to be so qualified would not have a
material adverse effect on the assets, financial condition or results of
operations of such Acquired Company.
(b) Attached as Schedule 4.1(b) are true and correct copies of the
Organizational Documents of each Acquired Company, as currently in effect.
(c) Set forth on Schedule 4.1(c) is a true and correct description of all
agreements, rights or other Contracts pursuant to which any Person has the right
to: (i) acquire from any Acquired Company, by purchase, exercise, exchange,
conversion or otherwise, any equity or other security of any Acquired Company or
the right to acquire any such security; (ii) cause any Acquired Company to
register, under the Securities Act or otherwise, any securities of any Acquired
Company; or (iii) vote or direct the voting of any class of capital stock of any
Acquired Company or appoint any member of any Acquired Company's board of
directors.
SECTION 4.2 Authority; No Conflict.
(a) This Agreement constitutes the legal, valid, and binding obligation of
the Company, enforceable against the Company in accordance with its terms. The
Company has the absolute and unrestricted right, power, authority and capacity
to execute and deliver this Agreement and to perform its obligations hereunder.
(b) Except as set forth on Schedule 4.2(b), neither the execution and
delivery of this Agreement nor the consummation or performance of any of the
Contemplated Transactions will, directly or indirectly (with or without notice
or lapse of time):
(i) contravene, conflict with, or result in a violation of (A) any
provision of the Organizational Documents of the Acquired Companies, or (B)
any resolution adopted by the board of directors or the stockholders of any
Acquired Company;
(ii) to Company's knowledge, contravene, conflict with, or result in a
violation of, or give any Governmental Body or other Person the right to
challenge any of the Contemplated Transactions or to exercise any remedy or
obtain any relief under, any Legal Requirement or any Order to which any
Acquired Company, or any of the assets owned or used by any Acquired
Company, may be subject;
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(iii) to Company's knowledge, contravene, conflict with, or result in
a violation of any of the terms or requirements of, or give any
Governmental Body the right to revoke, withdraw, suspend, cancel,
terminate, or modify, any Governmental Authorization that is held by any
Acquired Company or that otherwise relates to the business of, or any of
the assets owned or used by, any Acquired Company;
(iv) to Company's knowledge, cause any Acquired Company to become
subject to, or to become liable for the payment of, any Tax;
(v) except as set forth on Schedule 4.2(b)(v), contravene, conflict
with, or result in a violation or breach of any provision of, or give any
Person the right to declare a default or exercise any remedy under, or to
accelerate the maturity or performance of, or to cancel, terminate, or
modify, any Applicable Contract to the extent any of the foregoing would
have a material adverse effect on the financial condition of the Acquired
Companies or the Acquired Companies' business operations; or
(vi) to Company's knowledge, result in the imposition or creation of
any Encumbrance upon or with respect to any of the assets owned or used by
any Acquired Company to the extent any of the foregoing would have a
material adverse effect on the financial condition of the Acquired
Companies or the Acquired Companies' business operations.
(c) Other than obtaining the requisite vote of the Shareholders, no
Acquired Company is or will be required to give any notice to or obtain any
Consent from any Person in connection with the execution and delivery of this
Agreement or the consummation or performance of any of the Contemplated
Transactions.
SECTION 4.3 Capitalization. The authorized and outstanding equity
securities of the Company are as set forth on Schedule 4.1(a) hereto. All of the
outstanding equity securities of each Subsidiary of the Company are owned of
record and beneficially by the Company, free and clear of all Encumbrances,
except the Encumbrances noted on Schedule 4.1(a). Schedule 4.1(a) also sets
forth whether or not such Encumbrances will be satisfied at or prior to the
Closing. No legend or other reference to any purported Encumbrance appears upon
any certificate representing equity securities of any Acquired Company. All of
the outstanding equity securities of each Acquired Company have been duly
authorized and validly issued and are fully paid and nonassessable, and no such
security was issued in violation of any preemptive right or other right to
subscribe to or purchase any securities of the Company. None of the outstanding
equity securities or other securities of any Acquired Company was issued in
violation of the Securities Act or any other Legal Requirement. No Acquired
Company owns, or has any Contract to acquire, any equity securities or other
securities of any Person (other than Acquired Companies) or any direct or
indirect equity or ownership interest in any other business.
SECTION 4.4 Financial Statements. The Company has delivered to LABCO: (a)
consolidated balance sheets of the Acquired Companies as at December 31, 1994,
and the related consolidated statements of income, changes in stockholders'
equity, and cash flow for each of the prior fiscal years then ended, together
with the report thereon of Ronald H. Ridgers, PC, CPA, independent certified
public accountant; (b) a consolidated balance sheet of the Acquired Companies as
at December 31, 1995 (including the notes thereto, the "Balance Sheet"), and the
related consolidated statements of income, changes in stockholders' equity, and
cash flow for the fiscal year then ended, together with the report thereon of
Ronald H. Ridgers, PC, CPA, independent certified public accountant, and (c) an
unaudited consolidated balance sheet of the Acquired Companies as at March 31,
1996 (the "Interim Balance Sheet") and the related unaudited consolidated
statements of income, changes in stockholders' equity, and cash flow for the
three months then ended. Such financial statements (and notes where applicable)
fairly present the financial condition and the results of operations, changes in
stockholders' equity, and cash flow of the Acquired Companies as at the
respective dates of and for the periods referred to in such financial
statements, all in accordance with GAAP consistently applied throughout the
periods involved, subject, in the case of interim financial statements, to
normal recurring year-end adjustments (the effect of which will not,
individually or in the aggregate, be materially adverse) and the absence of
notes (that, if presented, would not differ materially from those included in
the Balance Sheet). No financial statements of any Person other than the
Acquired Companies are required by GAAP to be included in the consolidated
financial statements of the Company.
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SECTION 4.5 Books and Records. Except as set forth on Schedule 4.5 hereto
(which disclosure shall not be considered for purposes of calculating the right
to or amount of damages or other amounts to be paid to LABCO under the Escrow
Agreement), the books of account, minute books, stock record books, and other
records of the Acquired Companies, all of which have been made available to
LABCO, are complete and correct and have been maintained in accordance with
sound business practices. The minute books of the Acquired Companies contain
accurate and complete records of all meetings held of, and corporate action
taken by, the stockholders, the Boards of Directors, and committees of the
Boards of Directors of the Acquired Companies, and no meeting of any such
stockholders, Board of Directors, or committee in which material matters have
been acted upon has been held for which minutes have not been prepared and are
not contained in such minute books. At the Closing, all of those books and
records will be in the possession of the Acquired Companies.
SECTION 4.6 Title to Properties; Encumbrances. Except as set forth on
Schedule 4.6 hereto, the Acquired Companies do not own, directly or indirectly,
any real property. Set forth on Schedule 4.6 hereto is a complete and accurate
list of all real property leases, or other real property interests owned by any
Acquired Company. The Acquired Companies own all the properties and assets
(whether real, personal, or mixed and whether tangible or intangible) that they
purport to own, including all of the properties and assets reflected in the
Balance Sheet and the Interim Balance Sheet (except for assets held under
capitalized leases disclosed on Schedule 4.6 and personal property sold since
the date of the Balance Sheet and the Interim Balance Sheet, as the case may be,
in the Ordinary Course of Business), and all of the properties and assets
purchased or otherwise acquired by the Acquired Companies since the date of the
Balance Sheet (except for personal property acquired and sold since the date of
the Balance Sheet in the Ordinary Course of Business and consistent with past
practice). All material properties and assets reflected in the Balance Sheet and
the Interim Balance Sheet are free and clear of all Encumbrances except (a)
mortgages or security interests shown on the Balance Sheet or the Interim
Balance Sheet as securing specified liabilities or obligations, with respect to
which no default (or event that, with notice or lapse of time or both, would
constitute a default) exists, (b) mortgages or security interests incurred in
connection with the purchase of property or assets after the date of the Interim
Balance Sheet (such mortgages and security interests being limited to the
property or assets so acquired), with respect to which no default (or event
that, with notice or lapse of time or both, would constitute a default) exists,
and (c) liens for current taxes not yet due.
SECTION 4.7 Condition and Sufficiency of Assets. Set forth on Schedule
4.7 hereto is a complete and accurate list of all equipment owned or leased by
the Acquired Companies with an acquisition cost of $1,000 or more (the
"Equipment"), showing whether each item is owned or leased. All items of
Equipment are in good operating condition and repair, and are adequate for the
uses to which they are being put, and none of such items is in need of
maintenance or repairs except for ordinary, routine maintenance and repairs that
are not material in nature or cost. The items of Equipment are sufficient for
the continued conduct of the Acquired Companies' businesses immediately after
the Closing in substantially the same manner as conducted prior to the Closing.
SECTION 4.8 Accounts Receivable. All accounts receivable of the Acquired
Companies that are reflected on the Balance Sheet or the Interim Balance Sheet
or on the accounting records of the Acquired Companies as of the Closing Date
(collectively, the "Accounts Receivable") represent or will represent valid
obligations arising from sales actually made or services actually performed in
the Ordinary Course of Business. Unless paid prior to the Closing Date, the
Accounts Receivable are or will be as of the Closing Date collectible net of the
respective reserves shown on the Balance Sheet or the Interim Balance Sheet
(which reserves are adequate and calculated consistent with past practice).
Subject to such reserves, each of the Accounts Receivable either has been or
will be collected in an amount which is not less than 95% of the face amount of
the receivable, within 120 days after the day on which it first becomes due and
payable. To the Company's Knowledge, there is no material contest, claim, or
right of set-off under any Contract with any obligor of an Accounts Receivable
relating to the amount or validity of such Accounts Receivable. Set forth on
Schedule 4.8 is a complete and accurate list of all Accounts Receivable as of
the date of the Interim Balance Sheet, which list sets forth the aging of such
Accounts Receivable.
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SECTION 4.9 Prepaid Supplies. Set forth on Schedule 4.9 is a complete and
accurate description of all prepaid supplies of the Acquired Companies with a
book value of $100 or more (the "Prepaid Supplies"). The Prepaid Supplies,
whether or not reflected in the Balance Sheet or the Interim Balance Sheet,
consists of a quality and quantity usable in the Ordinary Course of Business.
The quantities of Prepaid Supplies are not excessive and are reasonable in the
present circumstances of the Acquired Companies.
SECTION 4.10 No Undisclosed Liabilities. Except as set forth on Schedule
4.10, the Acquired Companies have no liabilities or obligations of any nature
(whether known or unknown and whether absolute, accrued, contingent, or
otherwise) except for liabilities or obligations reflected or reserved against
in the Balance Sheet or the Interim Balance Sheet and current liabilities
incurred in the Ordinary Course of Business since the date thereof.
SECTION 4.11 Taxes.
(a) The Acquired Companies have filed or caused to be filed all income tax
and other material Tax Returns that are or were required to be filed by or with
respect to any of them, either separately or as a member of a group of
corporations, pursuant to applicable Legal Requirements. The Company has
delivered to LABCO copies of, and Schedule 4.11 hereto contains a complete and
accurate list of, all such income tax and other material Tax Returns filed since
April 1, 1990. The Acquired Companies have paid all Taxes due in respect of such
tax returns.
(b) No United States federal or state income Tax Return of any Acquired
Company has been audited by the IRS or relevant state tax authorities and all
such Tax Returns are closed by the applicable statute of limitations for all
taxable years through December 31, 1992. No Acquired Company has given or been
requested to give waivers or extensions (or is or would be subject to a waiver
or extension given by any other Person) of any statute of limitations relating
to the payment of Taxes of any Acquired Company or for which any Acquired
Company may be liable.
(c) The charges, accruals, and reserves with respect to Taxes on the
respective books of each Acquired Company are adequate (determined in accordance
with GAAP) and are at least equal to that Acquired Company's liability for
Taxes. To the Company's Knowledge, there exists no proposed tax assessment
against any Acquired Company except as disclosed in the Balance Sheet. No
consent to the application of Section 341(f)(2) of the IRC has been filed with
respect to any property or assets held, acquired, or to be acquired by any
Acquired Company. All Taxes that any Acquired Company is or was required by
Legal Requirements to withhold or collect have been duly withheld or collected
and, to the extent required, have been paid to the proper Governmental Body or
other Person.
(d) To the Company's Knowledge, all income tax and other material Tax
Returns filed by (or that include on a consolidated basis) any Acquired Company
are true, correct, and complete. There is no tax sharing agreement that will
require any payment by any Acquired Company after the date of this Agreement. No
Acquired Company is, or within the five-year period preceding the Closing Date
has been, an "S" corporation.
SECTION 4.12 No Material Adverse Change. Since the date of the Balance
Sheet, there has not been any material adverse change in the business,
operations, properties, prospects, assets, or condition of any Acquired Company,
and no event has occurred or circumstance exists that may result in such a
material adverse change.
SECTION 4.13 Employee Benefits.
(a) As used in this Section 4.13, the following terms have the meanings set
forth below.
"COMPANY OTHER BENEFIT OBLIGATION" shall mean an Other Benefit Obligation
owed, adopted, or followed by an Acquired Company or an ERISA Affiliate of an
Acquired Company.
"COMPANY PLAN" shall mean all Plans of which an Acquired Company or an
ERISA Affiliate of an Acquired Company is or was a Plan Sponsor, or to which an
Acquired Company or an ERISA Affiliate of an Acquired Company otherwise
contributes or has contributed, or in which an Acquired Company or an ERISA
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Affiliate of an Acquired Company otherwise participates or has participated. All
references to Plans are to Company Plans unless the context requires otherwise.
"COMPANY VEBA" shall mean a VEBA whose members include employees of any
Acquired Company or any ERISA Affiliate of an Acquired Company.
"ERISA AFFILIATE" shall mean, with respect to an Acquired Company, any
other person that, together with the Company, would be treated as a single
employer under IRC sec. 414.
"MULTI-EMPLOYER PLAN" shall have the meaning set forth in ERISA
sec. 3(37)(A).
"OTHER BENEFIT OBLIGATIONS" shall mean all obligations, arrangements, or
customary practices, whether or not legally enforceable, to provide benefits,
other than salary, as compensation for services rendered, to present or former
directors, employees, or agents, other than obligations, arrangements, and
practices that are Plans. Other Benefit Obligations include consulting
agreements under which the compensation paid does not depend upon the amount of
service rendered, sabbatical policies, severance payment policies, and fringe
benefits within the meaning of IRC sec. 132.
"PENSION PLAN" shall have the meaning set forth in ERISA sec. 3(2)(A).
"PLAN" shall have the meaning set forth in ERISA sec. 3(3).
"PLAN SPONSOR" shall have the meaning set forth in ERISA sec. 3(16)(B).
"QUALIFIED PLAN" shall mean any Plan that meets or purports to meet the
requirements of IRC sec. 401(a).
"TITLE IV PLANS" shall mean all Pension Plans that are subject to Title IV
of ERISA, 29 U.S.C. sec. 1301 et seq., other than Multi-Employer Plans.
"VEBA" shall mean a voluntary employees' beneficiary association under IRC
sec. 501(c)(9).
"WELFARE PLAN" shall have the meaning set forth in ERISA sec. 3(1).
(b) (i) Schedule 4.13(b)(i) contains a complete and accurate list of
all Company Plans, Company Other Benefit Obligations, and Company VEBAs,
and identifies as such all Company Plans that are (A) Qualified Plans or
(B) Title IV Plans. No Acquired Company or ERISA Affiliate participates in
or has ever participated in or had any obligation to contribute to any
defined benefit Pension Plan or Multi-Employer Plan nor does any Acquired
Company or ERISA Affiliate have any liability under Title IV of ERISA or
Part 3 of Subtitle B of Title I of ERISA in connection with any defined
benefit Pension Plan or Multi-Employer Plan.
(ii) Schedule 4.13(b)(ii) contains a complete and accurate list of (A)
all ERISA Affiliates of each Acquired Company, and (B) all Plans of which
any such ERISA Affiliate is or was a Plan Sponsor, in which any such ERISA
Affiliate participates or has participated, or to which any such ERISA
Affiliate contributes or has contributed.
(iii) No Acquired Company is liable for post-retirement benefits.
(c) The Company has delivered to LABCO:
(i) all documents that set forth the terms of each Company Plan,
Company Other Benefit Obligation, or Company VEBA and of any related trust,
including (A) all plan descriptions and summary plan descriptions of
Company Plans for which the Acquired Companies are required to prepare,
file, and distribute plan descriptions and summary plan descriptions, and
(B) all summaries and descriptions furnished to participants and
beneficiaries regarding Company Plans, Company Other Benefit Obligations
and Company VEBAs for which a plan description or summary plan description
is not required;
(ii) all personnel, payroll, and employment manuals and policies;
(iii) a written description of any Company Plan or Company Other
Benefit Obligation that is not otherwise in writing;
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(iv) all insurance policies purchased by or to provide benefits under
any Company Plan;
(v) all reports submitted within the four years preceding the date of
this Agreement by third party administrators, actuaries, investment
managers, consultants, or other independent contractors with respect to any
Company Plan, Company Other Benefit Obligation, or Company VEBA;
(vi) all notifications to employees of their rights under ERISA
sec. 601 et seq. and IRC sec. 4980B;
(vii) the Form 5500 filed in each of the most recent three plan years
with respect to each Company Plan, including all schedules thereto and the
opinions of independent accountants;
(viii) all notices that were given by the IRS, the Pension Benefit
Guaranty Corporation (the "PBGC"), or the Department of Labor to any
Acquired Company, any ERISA Affiliate of an Acquired Company, or any
Company Plan within the four years preceding the date of this Agreement;
and
(ix) with respect to Qualified Plans and VEBAs, the most recent
determination letter for each Plan of the Acquired Companies that is a
Qualified Plan.
(d) Except as set forth on Schedule 4.13(d):
(i) The Acquired Companies have performed in all material respects all
of their respective obligations under all Company Plans, Company Other
Benefit Obligations and Company VEBAs. The Acquired Companies have made
appropriate entries in their financial records and statements for all
obligations and liabilities under such Plans, VEBAs and Obligations that
have accrued but are not due.
(ii) To the knowledge of the Acquired Companies, no statement, either
written or oral, has been made by any Acquired Company to any Person with
regard to any Plan or Other Benefit Obligation that was not in accordance
with the Plan or Other Benefit Obligation and that could have a material
adverse economic consequence to any Acquired Company or to LABCO.
(iii) The Acquired Companies, with respect to all Company Plans,
Company Other Benefits Obligations, and Company VEBAs, are, and each
Company Plan, Company Other Benefit Obligation, and Company VEBA is, in
compliance in all material respects with ERISA, the IRC, and other
applicable Laws including the provisions of such Laws expressly mentioned
in this Section 4.13.
(A) No non-exempt transaction prohibited by ERISA sec. 406 and no
non-exempt "prohibited transaction" under IRC sec. 4975(c) have occurred
with respect to any Company Plan.
(B) To the knowledge of the Acquired Companies, no Acquired Company
has any liability to the IRS with respect to any Plan, including any
liability imposed by Chapter 43 of the IRC.
(C) To the knowledge of the Acquired Companies, no Acquired Company
has any liability to the PBGC with respect to any Plan or has any
liability under ERISA sec. 502 or sec. 4071.
(D) All filings required by ERISA and the IRC as to each Plan have
been timely filed, and all notices and disclosures to participants
required by either ERISA or the IRC have been timely provided.
(E) All contributions and payments made or accrued with respect to
all Company Plans, Company Other Benefit Obligations and Company VEBAs
are deductible under IRC sec. 162 or sec. 404. No amount, or any asset
of any Company Plan or Company VEBA, is subject to tax as unrelated
business taxable income.
(iv) Each Company Plan can be terminated without payment of any
additional contribution or amount and without the vesting or acceleration
of any benefits promised by such Plan.
(v) Since January 1, 1996, there has been no establishment or
amendment of any Company Plan, Company VEBA or Company Other Benefit
Obligation.
(vi) To the knowledge of the Acquired Companies, no event has occurred
or circumstance exists that could result in a material increase in premium
costs of Company Plans and Company Other Benefit
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Obligations that are insured, or a material increase in benefit costs of
such Plans and Obligations that are self-insured.
(vii) Other than claims for benefits submitted by participants or
beneficiaries, no claim against, or legal proceeding involving, any Company
Plan, Company Other Benefit Obligation or Company VEBA or fiduciary of the
same is pending or, to the Knowledge of the Acquired Companies, is
Threatened.
(viii) No Company Plan is a stock bonus, pension, or profit-sharing
plan within the meaning of IRC sec. 401(a).
(ix) To the knowledge of the Acquired Companies: (A) each Qualified
Plan of each Acquired Company is qualified in form and operation under IRC
sec. 401(a); each trust for each such Plan is exempt from federal income
tax under IRC sec. 501(a); and (B) no event has occurred or circumstance
exists that will or could give rise to disqualification or loss of
tax-exempt status of any such Plan or trust.
(x) Each Acquired Company and each ERISA Affiliate of an Acquired
Company has met the minimum funding standard, and has made all
contributions required, under ERISA sec. 302 and IRC sec. 412.
(xi) No Company Plan is subject to Title IV of ERISA.
(xii) Except to the extent required under ERISA sec. 601 et seq. and
IRC sec. 4980B and applicable state law, no Acquired Company provides
health or welfare benefits for any retired or former employee or is
obligated to provide health or welfare benefits to any active employee
following such employee's retirement or other termination of service.
(xiii) To the extent any Acquired Company provides any benefit to
retirees, such Acquired Company has the right to modify and terminate
benefits to retirees (other than pensions) with respect to both retired and
active employees.
(xiv) All Acquired Companies have complied with the provisions of
ERISA sec. 601 et seq. and IRC sec. 4980B in all material respects.
(xv) No payment that is owed or may become due to any director,
officer, employee, or agent of any Acquired Company will be non-deductible
to the Acquired Companies or subject to tax under IRC sec. 280G or
sec. 4999; nor will any Acquired Company be required to "gross up" or
otherwise compensate any such person because of the imposition of any
excise tax on a payment to such person.
(xvi) The consummation of the Contemplated Transactions will not: (i)
give rise to any liability or obligation of any Acquired Company pursuant
to any Company Plan; (ii) accelerate the time of payment or vesting, or
increase the amount of compensation due under any Company Plan; (ii) cause
any individual to accrue or receive additional benefits, service or
accelerated rights to payment of benefits under any Company Plan; or (iv)
directly or indirectly cause the Company or any ERISA Affiliate to transfer
or set aside any assets to fund or otherwise provide for benefit for any
individual.
SECTION 4.14 Compliance with Legal Requirements; Governmental
Authorizations.
(a) Except as set forth on Schedule 4.14(a):
(i) to Company's Knowledge, each Acquired Company is, and at all times
since December 31, 1994 has been, in compliance in all material respects
with each Legal Requirement that is or was applicable to it or to the
conduct or operation of its business or the ownership or use of any of its
assets;
(ii) to Company's Knowledge, no event has occurred or circumstance
exists that (with or without notice or lapse of time) (A) may constitute or
result in a violation by any Acquired Company of, or a failure on the part
of any Acquired Company to comply in all material respects with, any Legal
Requirement, or (B) may give rise to any obligation on the part of any
Acquired Company to undertake, or to bear all or any portion of the cost
of, any remedial action of any nature; and
(iii) no Acquired Company has received, at any time since December 31,
1994, any notice or other communication (whether oral or written) from any
Governmental Body or any other Person regarding
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(A) any actual or alleged violation of, or failure to comply with, any
Legal Requirement, or (B) any actual or alleged obligation on the part of
any Acquired Company to undertake, or to bear all or any portion of the
cost of, any remedial action of any nature.
(b) Schedule 4.14(b) contains a complete and accurate list of each
Governmental Authorization that is held by any Acquired Company or that
otherwise relates to the business of, or to any of the assets owned or used by,
any Acquired Company. Each Governmental Authorization listed or required to be
listed in Schedule 4.14(b) is, to Company's Knowledge, valid and in full force
and effect, and such Governmental Authorizations collectively constitute all of
the Governmental Authorizations necessary to permit the Acquired Companies to
lawfully conduct and operate their businesses in the manner they currently
conduct and operate such businesses and to permit the Acquired Companies to own
and use their assets in the manner in which they currently own and use such
assets.
SECTION 4.15 Legal Proceedings; Orders.
(a) There is no pending Proceeding that has been commenced by or against
any Acquired Company or that otherwise relates to or may affect the business of,
or any of the assets owned or used by, any Acquired Company or that challenges,
or that may have the effect of preventing, delaying, making illegal, or
otherwise interfering with, any of the Contemplated Transactions. To the
Knowledge of the Acquired Companies, except as set forth on Schedule 4.15, (1)
no such Proceeding has been Threatened, and (2) the Company has no Knowledge of
any event that has occurred or circumstance that exists that may give rise to or
serve as a basis for the commencement of any such Proceeding. The Company has
delivered to LABCO copies of all pleadings, correspondence, and other documents
relating to each Proceeding listed on Schedule 4.15. The Proceedings listed on
Schedule 4.15 will not have a material adverse effect on the business,
operations, assets, condition, or prospects of any Acquired Company.
(b) There is no Order to which any of the Acquired Companies, or any of the
assets owned or used by any Acquired Company, is subject and no officer,
director, agent, or employee of any Acquired Company is subject to any Order
that prohibits such officer, director, agent, or employee from engaging in or
continuing any conduct, activity, or practice relating to the business of any
Acquired Company.
SECTION 4.16 Absence of Certain Changes and Events. Except as set forth
on Schedule 4.16, since the date of the Interim Balance Sheet, the Acquired
Companies have conducted their businesses only in the Ordinary Course of
Business and there has not been any:
(a) change in any Acquired Company's authorized or issued capital stock;
grant of any stock option or right to purchase shares of capital stock of any
Acquired Company; issuance of any security convertible into such capital stock;
grant of any registration rights; purchase, redemption, retirement, or other
acquisition by any Acquired Company of any shares of any such capital stock; or
declaration or payment of any dividend or other distribution or payment in
respect of shares of capital stock;
(b) amendment to the Organizational Documents of any Acquired Company;
(c) payment by any Acquired Company of any bonuses, or increase by any
Acquired Company in salaries or other compensation to any employee, or entry
into any employment, severance, or similar Contract with any director, officer,
or employee;
(d) adoption of, or increase in the payments to or benefits under, any
profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement, or other employee benefit plan for or with any employees of any
Acquired Company;
(e) damage to or destruction or loss of any asset or property of any
Acquired Company, whether or not covered by insurance, materially and adversely
affecting the properties, assets, business, financial condition, or prospects of
the Acquired Companies, taken as a whole;
(f) entry into, termination of, or receipt of notice of termination of any
license, distributorship, dealer, sales representative, joint venture, credit,
or similar agreement, or any Contract or transaction involving a total remaining
commitment by or to any Acquired Company of at least $50,000;
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(g) sale (other than sales of inventory in the Ordinary Course of
Business), lease, or other disposition of any asset or property of any Acquired
Company or mortgage, pledge, or imposition of any lien or other encumbrance on
any material asset or property of any Acquired Company, including the sale,
lease, or other disposition of any of the Intellectual Property Assets;
(h) cancellation or waiver of any claims or rights with a value to any
Acquired Company in excess of $50,000;
(i) material change in the accounting methods used by any Acquired Company;
or
(j) agreement, whether oral or written, by any Acquired Company to do any
of the foregoing.
SECTION 4.17 Contracts; No Defaults.
(a) Schedule 4.17(a) contains a complete and accurate list, and the Company
has delivered to LABCO true and complete copies, of:
(i) each Applicable Contract that involves performance of services or
delivery of goods or materials by one or more Acquired Companies of an
amount or value in excess of $50,000, including and, in the case of any
service contract entered into by any Acquired Company, setting forth the
following information: name and location of institution; circumstances
under which such contract may be terminated; term of contract; and annual
service charge;
(ii) each Applicable Contract that involves performance of services or
delivery of goods or materials to one or more Acquired Companies of an
amount or value in excess of $50,000;
(iii) each Applicable Contract that was not entered into in the
Ordinary Course of Business and that involves expenditures or receipts of
one or more Acquired Companies in excess of $50,000;
(iv) each lease, rental or occupancy agreement, license, installment
and conditional sale agreement, and other Applicable Contract affecting the
ownership of, leasing of, title to, use of, or any leasehold or other
interest in, any real or personal property (except personal property leases
and installment and conditional sales agreements having a value per item or
aggregate payments of less than $25,000 and with terms of less than one
year);
(v) each licensing agreement or other Applicable Contract with respect
to patents, trademarks, copyrights, or other intellectual property,
including agreements with current or former employees, consultants, or
contractors regarding the appropriation or the non-disclosure of any of the
Intellectual Property Assets;
(vi) each joint venture, partnership, and other Applicable Contract
(however named) involving a sharing of profits, losses, costs, or
liabilities by any Acquired Company with any other Person;
(vii) each Applicable Contract containing covenants that in any way
purport to restrict the business activity of any Acquired Company or any
Affiliate of an Acquired Company or limit the freedom of any Acquired
Company or any Affiliate of an Acquired Company to engage in any line of
business or to compete with any Person;
(viii) each Applicable Contract providing for payments to or by any
Person based on sales, purchases, or profits, other than direct payments
for goods;
(ix) each power of attorney that is currently effective and
outstanding;
(x) each Applicable Contract entered into other than in the Ordinary
Course of Business that contains or provides for an express undertaking by
any Acquired Company to be responsible for consequential damages;
(xi) each Applicable Contract for capital expenditures in excess of
$50,000;
(xii) each written warranty, guaranty, and or other similar
undertaking with respect to contractual performance extended by any
Acquired Company other than in the Ordinary Course of Business; and
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(xiii) each amendment, supplement, and modification (whether oral or
written) in respect of any of the foregoing.
(b) Except as set forth on Schedule 4.17(b), to the Company's Knowledge, no
officer, director, agent, employee, consultant, or contractor of any Acquired
Company is bound by any Contract that purports to limit the ability of such
officer, director, agent, employee, consultant, or contractor to (A) engage in
or continue any conduct, activity, or practice relating to the business of any
Acquired Company, or (B) assign to any Acquired Company or to any other Person
any rights to any invention, improvement, or discovery.
(c) Each Contract identified or required to be identified on Schedule
4.17(a) is in full force and effect and to Company's knowledge is valid and
enforceable in accordance with its terms. Except as set forth on Schedule
4.17(c) hereto:
(i) Each Acquired Company is, and at all times since December 31, 1994
has been, in compliance in all material respects with all applicable terms
and requirements of each Contract under which such Acquired Company has or
had any obligation or liability or by which such Acquired Company or any of
the assets owned or used by such Acquired Company is or was bound;
(ii) each other Person that has or had any obligation or liability
under any Contract under which an Acquired Company has or had any rights
is, and at all times since December 31, 1994 has been, in compliance in all
material respects with all applicable terms and requirements of such
Contract;
(iii) to the Company's Knowledge, no event has occurred or
circumstance exists that (with or without notice or lapse of time) may
contravene, conflict with, or result in a violation or breach of, or give
any Acquired Company or other Person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance of,
or to cancel, terminate, or modify, any Applicable Contract; and
(iv) no Acquired Company has given to or received from any other
Person, at any time since December 31, 1994, any notice or other
communication (whether oral or written) regarding any actual or alleged
violation or breach of, or default under, any Applicable Contract.
(d) There are no renegotiations of, attempts to renegotiate, or outstanding
rights to renegotiate any material amounts paid or payable to any Acquired
Company under current or completed Contracts with any Person other than in the
Company's Ordinary Course of Business and, to the Knowledge of the Acquired
Companies, no such Person has made written demand for such renegotiation.
(e) The Contracts relating to the sale, design, manufacture, or provision
of products or services by the Acquired Companies have been entered into in the
Ordinary Course of Business and have been entered into without the commission of
any act alone or in concert with any other Person, or any consideration having
been paid or promised, that is or would be in violation of any Legal
Requirement.
(f) Except as set forth on Schedule 4.17(f), none of the Acquired Companies
has any agreement, Contract or understanding, written or oral, with any Person
obligating any Acquired Company to proceed with any acquisition or to take any
other action. Any agreement, Contract or understanding set forth on Schedule
4.17(f) may be terminated by the Acquired Company without penalty or cost to the
Acquired Company.
SECTION 4.18 Insurance.
(a) The Company has delivered to LABCO:
(i) true and complete copies of all policies of insurance to which any
Acquired Company is a party or under which any Acquired Company, or any
director of any Acquired Company in such director's capacity as a director
of such Acquired Company, is or has been covered at any time within the
three years preceding the date of this Agreement;
(ii) true and complete copies of all pending applications for policies
of insurance; and
(iii) any statement by the auditor of any Acquired Company's financial
statements with regard to the adequacy of such entity's coverage or of the
reserves for claims.
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(b) Schedule 4.18(b) hereto describes:
(i) any self-insurance arrangement by or affecting any Acquired
Company, including any reserves established thereunder;
(ii) any contract or arrangement, other than a policy of insurance,
for the transfer or sharing of any risk by any Acquired Company; and
(iii) all obligations of the Acquired Companies under Applicable
Contracts to third parties with respect to insurance (including such
obligations under leases and service agreements) and identifies the policy
under which such coverage is provided.
(c) Schedule 4.18(c) hereto sets forth, by year, for the current policy
year and each of the two preceding policy years:
(i) a summary of the loss experience under each policy for liability,
property or casualty insurance;
(ii) a statement describing each claim under an insurance policy for
an amount in excess of $25,000, which sets forth:
(A) the name of the claimant;
(B) a description of the policy by insurer, type of insurance, and
period of coverage; and
(C) the amount and a brief description of the claim; and
(iii) a statement describing the loss experience for all claims that
were self-insured, including the number and aggregate cost of such claims.
(d) Except as set forth on Schedule 4.18(d) hereto:
(i) All policies to which any Acquired Company is a party or that
provide coverage to any Acquired Company, or any director or officer of an
Acquired Company:
(A) to Company's Knowledge, are valid, outstanding, and
enforceable;
(B) to Company's Knowledge, are issued by an insurer that is
financially sound and reputable;
(C) taken together, provide adequate insurance coverage for the
assets and the operations of the Acquired Companies for all risks
normally insured against by a Person carrying on the same business or
businesses as the Acquired Companies;
(D) are sufficient for compliance with all Legal Requirements (to
the Company's Knowledge) and Contracts to which any Acquired Company is
a party or by which any of them is bound;
(E) will not be terminated as a result of the consummation of the
Contemplated Transactions; and
(F) do not provide for any retrospective premium adjustment or
other experienced-based liability on the part of any Acquired Company,
exclusive of audit adjustments for workers compensation coverage.
(ii) No Acquired Company has received (A) any refusal of coverage or
any notice that a defense will be afforded with reservation of rights, or
(B) any notice of cancellation or any other indication that any insurance
policy is no longer in full force or effect or will not be renewed or that
the issuer of any policy is not willing or able to perform its obligations
thereunder.
(iii) The Acquired Companies have paid all premiums due, and have
otherwise performed all of their respective obligations, under each policy
to which any Acquired Company is a party or that provides coverage to any
Acquired Company or director thereof.
(iv) The Acquired Companies have given notice to the insurer of all
claims that may be insured thereby.
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SECTION 4.19 Environmental Matters. Except as set forth on Schedule
4.19(d) hereto:
(a) To the Knowledge of the Acquired Companies, each Acquired Company is,
and at all times has been, in full compliance with, and has not been and is not
in violation of or liable under, any Environmental Law. No Acquired Company has
any basis to expect, nor has any of them or any other Person for whose conduct
they are or may be held to be responsible received, any actual or Threatened
order, notice, or other communication from (i) any Governmental Body or private
citizen acting in the public interest, or (ii) the current or prior owner or
operator of any Facilities, of any actual or potential violation or failure to
comply with any Environmental Law, or of any actual or Threatened obligation to
undertake or bear the cost of any Environmental, Health, and Safety Liabilities
with respect to any of the Facilities or any other properties or assets (whether
real, personal, or mixed) in which any Acquired Company has had an interest, or
with respect to any property or Facility at or to which Hazardous Materials were
generated, manufactured, refined, transferred, imported, used, or processed by
any Acquired Company, or any other Person for whose conduct they are or may be
held responsible, or from which Hazardous Materials have been transported,
treated, stored, handled, transferred, disposed, recycled, or received.
(b) There are no pending or, to the Knowledge of the Acquired Companies,
Threatened claims, Encumbrances or other restrictions of any nature resulting
from any Environmental, Health, and Safety Liabilities or arising under or
pursuant to any Environmental Law, with respect to or affecting any of the
Facilities or any other properties and assets (whether real, personal, or mixed)
in which any Acquired Company has or had an interest.
(c) No Acquired Company has any basis to expect, nor has any of them or any
other Person for whose conduct they are or may be held responsible, received,
any citation, directive, inquiry, notice, Order, summons, warning, or other
communication that relates to Hazardous Activity, Hazardous Materials, or any
alleged, actual, or potential violation or failure to comply with any
Environmental Law, or of any alleged, actual, or potential obligation to
undertake or bear the cost of any Environmental, Health, and Safety Liabilities
with respect to any of the Facilities or any other properties or assets (whether
real, personal, or mixed) in which any Acquired Company had an interest, or with
respect to any property or facility to which Hazardous Materials generated,
manufactured, refined, transferred, imported, used, or processed by any Acquired
Company, or any other Person for whose conduct they are or may be held
responsible, have been transported, treated, stored, handled, transferred,
disposed, recycled, or received.
(d) To the Knowledge of the Acquired Companies, no Acquired Company, or any
other Person for whose conduct they are or may be held responsible, has any
Environmental, Health, and Safety Liabilities with respect to the Facilities or
with respect to any other properties and assets (whether real, personal, or
mixed) in which any Acquired Company (or any predecessor) has or had an
interest, or at any property geologically or hydrologically adjoining the
Facilities or any such other property or assets.
(e) There are no Hazardous Materials present on or in the Environment at
the Facilities or, to the Knowledge of the Acquired Companies, at any
geologically or hydrologically adjoining property, including any Hazardous
Materials contained in barrels, above or underground storage tanks, landfills,
land deposits, dumps, equipment (whether moveable or fixed) or other containers,
either temporary or permanent, and deposited or located in land, water, sumps,
or any other part of the Facilities or such adjoining property, or incorporated
into any structure therein or thereon. To the Knowledge of the Acquired
Companies, no Acquired Company, any other Person for whose conduct they are or
may be held responsible, or any other Person, has permitted or conducted, or is
aware of, any Hazardous Activity conducted with respect to the Facilities or any
other properties or assets (whether real, personal, or mixed) in which any
Acquired Company has or had an interest except in full compliance with all
applicable Environmental Laws.
(f) To the Knowledge of the Acquired Companies, there has been no Release
or, to the Knowledge of the Acquired Companies, Threat of Release, of any
Hazardous Materials at or from the Facilities or at any other locations where
any Hazardous Materials were generated, manufactured, refined, transferred,
produced, imported, used, or processed from or by the Facilities, or from or by
any other properties and assets (whether real, personal, or mixed) in which any
Acquired Company has or had an interest, or any geologically or hydrologically
adjoining property, whether by any Acquired Company, or any other Person.
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(g) The Company has delivered to LABCO true and complete copies and results
of any reports, studies, analyses, tests, or monitoring possessed or initiated
by any Acquired Company pertaining to Hazardous Materials or Hazardous
Activities in, on, or under the Facilities, or concerning compliance by any
Acquired Company, or any other Person for whose conduct they are or may be held
responsible, with Environmental Laws.
SECTION 4.20 Employees.
(a) Except as set forth on Schedule 4.20, there has been provided to LABCO
a complete and accurate list of the following information for each employee or
director of the Acquired Companies, including each employee on leave of absence
or layoff status: employer; name; job title; current compensation paid or
payable and any change in compensation since December 31, 1995; vacation
accrued; and service credited for purposes of vesting and eligibility to
participate under any Acquired Company's pension, retirement, profit-sharing,
thrift-savings, deferred compensation, stock bonus, stock option, cash bonus,
employee stock ownership (including investment credit or payroll stock
ownership), severance pay, insurance, medical, welfare, or vacation plan, other
Employee Pension Benefit Plan or Employee Welfare Benefit Plan, or any other
employee benefit plan or any Director Plan.
(b) Except as set forth on Schedule 4.17(a), no employee or director of any
Acquired Company is a party to, or is otherwise bound by, any agreement or
arrangement, including any confidentiality, noncompetition, or proprietary
rights agreement, between such employee or director and any other Person
("Proprietary Rights Agreement") that in any way adversely affects or will
affect (i) the performance of his duties as an employee or director of the
Acquired Companies, or (ii) the ability of any Acquired Company to conduct its
business, including any Proprietary Rights Agreement with the Acquired Companies
by any such employee or director. To the Acquired Companies' Knowledge, no
officer or other key employee of any Acquired Company intends to terminate his
employment with such Acquired Company.
(c) There has been provided to LABCO a complete and accurate list of the
following information for each retired employee or director of the Acquired
Companies, or their dependents, receiving benefits or scheduled to receive
benefits in the future: name, pension benefit, pension option election, retiree
medical insurance coverage, retiree life insurance coverage, and other benefits.
SECTION 4.21 Labor Relations; Compliance. No Acquired Company has been or
is a party to any collective bargaining or other labor Contract. There has not
been, there is not presently pending or existing, and there is not Threatened,
(a) any strike, slowdown, picketing, work stoppage, or employee grievance
process, (b) any Proceeding against or affecting any Acquired Company relating
to the alleged violation of any Legal Requirement pertaining to labor relations
or employment matters, including any charge or complaint filed by an employee or
union with the National Labor Relations Board, the Equal Employment Opportunity
Commission, or any comparable Governmental Body, organizational activity, or
other labor or employment dispute against or affecting any of the Acquired
Companies or their premises, or (c) any application for certification of a
collective bargaining agent. No event has occurred or circumstance exists that
could provide the basis for any work stoppage or other labor dispute. There is
no lockout of any employees by any Acquired Company, and no such action is
contemplated by any Acquired Company. Each Acquired Company has complied in all
material respects with all Legal Requirements relating to employment, equal
employment opportunity, nondiscrimination, immigration, wages, hours, benefits,
collective bargaining, the payment of social security and similar taxes,
occupational safety and health, and plant closing. No Acquired Company is liable
for the payment of any compensation, damages, taxes, fines, penalties, or other
amounts, however designated, for failure to comply with any of the foregoing
Legal Requirements.
SECTION 4.22 Intellectual Property.
(a) The term "Intellectual Property Assets" includes the following to the
extent owned, used or licensed by any Acquired Company as licensee or licensor:
(i) the name, "American Professional Holding, Inc.," all fictional
business names, trading names, registered and unregistered trademarks,
service marks, and applications (collectively, "Marks");
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(ii) all patents, patent applications, and inventions and discoveries
that may be patentable (collectively, "Patents");
(iii) all copyrights in both published works and unpublished works
(collectively, "Copyrights");
(iv) all rights in mask works, if any, (collectively, "Rights in Mask
Works"); and
(v) all know-how, trade secrets, confidential information, customer
lists, software, technical information, data, process technology, plans,
drawings, and blue prints (collectively, "Trade Secrets").
(b) Agreements. Schedule 4.22(b) hereto contains a complete and accurate
list and summary description, including any royalties paid or received by the
Acquired Companies, of all Contracts relating to the Intellectual Property
Assets to which any Acquired Company is a party or by which any Acquired Company
is bound, except for any license implied by the sale of a product and perpetual,
paid-up licenses for commonly available software programs with a value of less
than $10,000 under which an Acquired Company is the licensee. There are no
outstanding and, to Acquired Company's Knowledge, no Threatened disputes or
disagreements with respect to any such agreement.
(c) Know-How Necessary for the Business
(i) The Intellectual Property Assets are all those necessary for the
operation of the Acquired Companies' businesses as they are currently
conducted. Except as described on Schedule 4.22(c)(i) hereto, one or more
of the Acquired Companies is the owner of all right, title, and interest in
and to each of the Intellectual Property Assets, free and clear of all
liens, security interests, charges, encumbrances, equities, and other
adverse claims, and has the right to use without payment to a third party
all of the Intellectual Property Assets.
(ii) Schedule 4.22(c)(ii) sets forth all current employees of the
Acquired Companies who have executed a confidentiality agreement with such
Acquired Company, copies of the forms of which are attached to such
Schedule.
(d) Trademarks
(i) Schedule 4.22(d) hereto contains a complete and accurate list and
summary description of all Marks. One or more of the Acquired Companies is
the owner of all right, title, and interest in and to each of the Marks,
free and clear of all liens, security interests, charges, encumbrances,
equities, and other adverse claims.
(ii) All Marks that have been registered with the United States Patent
and Trademark Office are currently in compliance with all formal legal
requirements (including the timely post-registration filing of affidavits
of use and incontestability and renewal applications), are valid and
enforceable, and are not subject to any maintenance fees or taxes or
actions falling due within ninety days after the Closing Date.
(iii) No Mark has been or is now involved in any opposition,
invalidation, or cancellation and, to Acquired Company's Knowledge, no such
action is Threatened with the respect to any of the Marks.
(iv) To Acquired Company's Knowledge, there is no potentially
interfering trademark or trademark application of any third party.
(v) No Mark is infringed or, to Acquired Company's Knowledge, has been
challenged or threatened in any way. None of the Marks used by any Acquired
Company infringes or is alleged to infringe any trade name, trademark, or
service mark of any third party.
(vi) All products and materials containing a Mark bear the proper
federal registration notice where permitted by law.
(e) Trade Secrets
(i) With respect to each Trade Secret, the documentation relating to
such Trade Secret is current, accurate, and sufficient in detail and
content to conduct the business operations of the Acquired Companies as
presently conducted.
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(ii) The Acquired Companies have taken reasonable precautions to
protect the secrecy, confidentiality, and value of their Trade Secrets.
(iii) One or more of the Acquired Companies has good title and an
absolute (but not necessarily exclusive) right to use the Trade Secrets. To
the Knowledge of the Acquired Companies, the Trade Secrets have not been
used, divulged, or appropriated either for the benefit of any Person (other
than one or more of the Acquired Companies) or to the detriment of the
Acquired Companies. No Trade Secret is subject to any adverse claim or has
been challenged or threatened in any way.
SECTION 4.23 Certain Payments. No Acquired Company or director, officer,
agent, or employee of any Acquired Company, or to the Knowledge of the Acquired
Companies any other Person associated with or acting for or on behalf of any
Acquired Company, has directly or indirectly (a) made any contribution, gift,
bribe, rebate, payoff, influence payment, kickback, or other payment to any
Person, private or public, regardless of form, whether in money, property, or
services (i) to obtain favorable treatment in securing business, (ii) to pay for
favorable treatment for business secured or (iii) to obtain special concessions
or for special concessions already obtained, for or in respect of any Acquired
Company or any Affiliate of an Acquired Company, in each case in violation of
any Legal Requirement, or (b) established or maintained any fund or asset that
has not been recorded in the books and records of the Acquired Companies.
SECTION 4.24 Disclosure.
(a) No representation or warranty of the Company in this Agreement omits to
state a material fact necessary to make the statements herein or therein, in
light of the circumstances in which they were made, not misleading.
(b) No notice given pursuant to Section 6.10 will contain any untrue
statement or omit to state a material fact necessary to make the statements
therein or in this Agreement, in light of the circumstances in which they were
made, not misleading.
(c) Any material distributed to the Shareholders in connection with the
Merger, including the Merger Information Statement (and any amendments or
supplements thereto) will comply in all material respects with applicable
federal securities laws and laws of Utah and at the time that they or amendments
or supplements thereto, are filed with the SEC and are first published or sent
or given to holders of Shares, will not 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 made therein, in light of the
circumstances under which they were made, not misleading, except that no
representation is made by the Company with respect to information supplied by
Unison or LABCO for inclusion in the Merger Information Statement.
SECTION 4.25 Relationships with Related Persons. Except as set forth on
Schedule 4.25, no Shareholder or any Related Person of any Shareholder or of any
Acquired Company has, or since December 31, 1994, has had, any interest in any
property (whether real, personal, or mixed and whether tangible or intangible),
used in or pertaining to the Acquired Companies' businesses. No Shareholder or
any Related Person of Shareholder or of any Acquired Company is, or since
December 31, 1994 has owned (of record or as a beneficial owner) an equity
interest or any other financial or profit interest in, a Person that has (i) had
business dealings or a material financial interest in any transaction with any
Acquired Company or (ii) engaged in competition with any Acquired Company with
respect to any line of the products or services of such Acquired Company (a
"Competing Business") in any market presently served by such Acquired Company
except for less than one percent of the outstanding capital stock of any
Competing Business that is publicly traded on any recognized exchange or in the
over-the-counter market. Except as set forth on Schedule 4.25, no Shareholder or
any Related Person of Shareholder or of any Acquired Company is a party to any
Contract with, or has any claim or right against, any Acquired Company.
SECTION 4.26 Accounting Matters. None of the Acquired Companies has taken
or agreed to take any action or has knowledge of any fact or circumstances
relating to the Acquired Companies that would prevent accounting for the Merger
as a pooling-of-interests.
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SECTION 4.27 Brokers or Finders. None of the Shareholders, the Acquired
Companies or their agents have incurred any obligation or liability, contingent
or otherwise, for brokerage or finders' fees or agents' commissions or other
similar payment in connection with this Agreement or the Contemplated
Transactions.
SECTION 5 REPRESENTATIONS AND WARRANTIES OF UNISON AND LABCO
Each of Unison and LABCO, as applicable, represent and warrant to the
Company as follows:
SECTION 5.1 Organization and Good Standing. Each of Unison and LABCO is a
corporation duly organized, validly existing, and in good standing under the
laws of its jurisdiction of incorporation, with full corporate power and
authority to conduct its business as it is now being conducted, to own or use
the properties and assets that it purports to own or use and to perform all of
its obligations as required by its agreements and contracts. Each of Unison and
LABCO is duly qualified to do business as a foreign corporation and is in good
standing under the laws of each state or other jurisdiction in which either the
ownership or use of the properties owned or used by it, or the nature of the
activities conducted by it, requires such qualification, except where the
failure to be so qualified would not have a material adverse effect on its
assets, financial condition or results of operations.
SECTION 5.2 Authority; No Conflict.
(a) This Agreement constitutes the legal, valid, and binding obligation of
Unison and LABCO, enforceable against each of them in accordance with its terms.
Upon the execution and delivery by Unison and LABCO of the Escrow Agreement, the
Employment Agreements and the Unison/LABCO Tax Representation Letter
(collectively, "LABCO's Closing Documents"), LABCO's Closing Documents will
constitute legal, valid, and binding obligations of each of Unison and LABCO,
enforceable against them in accordance with their respective terms. Each of
Unison and LABCO has the absolute and unrestricted right, power, and authority
to execute and deliver this Agreement and, as applicable, LABCO's Closing
Documents and to perform its obligations under this Agreement and, as
applicable, LABCO's Closing Documents.
(b) Neither the execution and delivery of this Agreement or LABCO's Closing
Documents by Unison or LABCO nor the consummation or performance of any of the
Contemplated Transactions by Unison or LABCO will, directly or indirectly (with
or without notice or lapse of time):
(i) contravene, conflict with, or result in a violation of (A) any
provision of the Organizational Documents of Unison or LABCO, as
applicable, or (B) any resolution adopted by the board of directors or the
stockholders of Unison or LABCO, as applicable;
(ii) to either Unison's or LABCO's knowledge, contravene, conflict
with, or result in a violation of, or give any Governmental Body or other
Person the right to challenge any of the Contemplated Transactions or to
exercise any remedy or obtain any relief under, any Legal Requirement or
any Order to which Unison or LABCO, or any of the assets owned or used by
Unison or LABCO, may be subject; or
(iii) give any Person the right to prevent, delay, or otherwise
interfere with any of the Contemplated Transactions.
(c) Neither Unison nor LABCO is nor will be required to obtain any Consent
from any Person in connection with the execution and delivery of this Agreement
or the consummation or performance of any of the Contemplated Transactions.
SECTION 5.3 Certain Proceedings. There is no pending Proceeding that has
been commenced against Unison or LABCO and that challenges, or may have the
effect of preventing, delaying, making illegal, or otherwise interfering with,
any of the Contemplated Transactions. To neither of Unison's or LABCO's
Knowledge, no such Proceeding has been Threatened.
SECTION 5.4 SEC Documents; Financial Statements.
(a) Unison filed a registration statement on Form S-1 with the SEC, which
registration statement was declared effective by the SEC on December 18, 1995.
At December 18, 1995, such registration statement did
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not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
made therein, in light of the circumstances under which they were made, not
misleading. Since December 19, 1995 Unison has filed all forms, reports and
documents required to be filed by it with the SEC pursuant to the Exchange Act
and the SEC rules and regulations thereunder, all of which as of their
respective dates complied in all material respects with all applicable
requirements of the Exchange Act (collectively, the "Unison SEC Documents").
None of the Unison SEC Documents, including, without limitation, any financial
statements or schedules included therein, as of their respective dates 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.
(b) The consolidated balance sheets and the related statements of
consolidated income, shareholders equity and cash flows (including the related
notes thereto) of Unison included in the Unison SEC Documents complied in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles applied on a basis
consistent with prior periods (except as otherwise noted therein), and present
fairly the consolidated financial position of Unison and its consolidated
Subsidiaries as of their respective dates, and the consolidated results of their
operations and their cash flows for the periods presented therein (subject, in
the case of the unaudited interim financial statements, to normal year-end
adjustments).
(c) Since the end of the period covered by the most recent consolidated
financial statements of Unison included in the Unison SEC Documents, there has
not been any material adverse change in the business, operations or prospects of
Unison or any of its consolidated Subsidiaries.
(d) Based on Unison's Knowledge, facts and circumstances do not exist that
require Unison to make SEC filings that have not been filed solely for the
reason that the due date for same is a future date, excepting from the foregoing
Unison's Form 10-Q for the quarter ended June 30, 1996.
SECTION 5.5 Information Supplied. No representation or warranty of either
Unison or LABCO omits 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. None of the information supplied by
Unison or LABCO in writing for inclusion in the Merger Information Statement
will at the respective times that the Merger Information Statement, or any
amendments or supplements thereto, is filed with the SEC and is first published
or sent or given to holders of Shareholders for the Company Shareholders Meeting
or at the Effective Time, 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.
SECTION 5.6 Interim Operations of LABCO. LABCO was formed solely for the
purpose of engaging in the Contemplated Transactions, has engaged in no other
business activities and has conducted its operations only as contemplated
hereby.
SECTION 5.7 Brokers or Finders. Except as set forth on Schedule 5.7,
neither Unison nor LABCO and their respective officers and agents have incurred
any obligation or liability, contingent or otherwise, for brokerage or finders'
fees or agents' commissions or other similar payment in connection with this
Agreement. Unison and LABCO will indemnify and hold the Company harmless from
any such payment alleged to be due by or through Unison or LABCO as a result of
the action of Unison or LABCO or its officers or agents.
SECTION 5.8 Activities After Closing. Neither Unison nor LABCO will take
any action or fail to take any action after Closing that is reasonably within
its authority that if taken or not taken will cause the Contemplated
Transactions not to qualify under the IRC as a tax free reorganization.
SECTION 5.9 Disclosure.
(a) No representation or warranty of Unison or LABCO in this Agreement
omits to state a material fact necessary to make the statements herein or
therein, in light of the circumstances in which they were made, not misleading.
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(b) No notice given pursuant to Section 6.11 will contain any untrue
statement or omit to state a material fact necessary to make the statements
therein or in this Agreement, in light of the circumstances in which they were
made, not misleading.
SECTION 5.10 Legal Proceedings; Orders. There is no pending Proceeding
that has been commenced by or against Unison or LABCO or that otherwise relates
to or may materially adversely affect the business of, or any of the assets
owned or used by, Unison or LABCO or that challenges, or that may have the
effect of preventing, delaying, making illegal, or otherwise interfering with,
any of the Contemplated Transactions. To the Knowledge of Unison and LABCO, (1)
no such Proceeding has been Threatened, and (2) neither Unison nor LABCO has
Knowledge of any event that has occurred or circumstance that exists that may
give rise to or serve as a basis for the commencement of any such Proceeding.
SECTION 5.11 Capitalization. The authorized capital stock of Unison
consists solely of 10,000,000 shares of $.001 par value common stock and
1,000,000 shares of $.001 par value preferred stock, of which, as of the date
hereof, 3,900,312 shares of Unison Common Stock are issued and outstanding. All
such shares of Unison Common Stock been duly authorized and validly issued, are
fully paid and non-assessable and were not issued in violation of any preemptive
right.
SECTION 5.12 Merger Consideration. All shares of Unison Common Stock to
be issued as Per Share Consideration upon issuance will be duly authorized and
validly issued, fully paid and non-assessable and not issued in violation of any
preemptive right.
SECTION 6 FURTHER COVENANTS PRIOR TO CLOSING DATE
SECTION 6.1 Access and Investigation. Between the date of this Agreement
and the Closing Date, the Company will, (a) afford Unison, LABCO and their
Representatives and prospective lenders and their Representatives (collectively,
"LABCO's Advisors") reasonable access to each Acquired Company's personnel,
properties (including subsurface testing), contracts, books and records, and
other documents and data, (b) furnish Unison, LABCO and LABCO's Advisors with
copies of all such contracts, books and records, and other existing documents
and data as Unison or LABCO may reasonably request, and (c) furnish Unison,
LABCO and LABCO's Advisors with such additional financial, operating, and other
data and information as they may reasonably request.
SECTION 6.2 Operation of the Businesses of the Acquired Companies.
Between the date of this Agreement and the Closing Date, the Company will:
(a) conduct the business of each Acquired Company only in the Ordinary
Course of Business;
(b) use their Best Efforts to preserve intact the current business
organization of each Acquired Company, keep available the services of the
current officers, employees, and agents of each Acquired Company, and maintain
the relations and good will with suppliers, customers, landlords, creditors,
employees, agents, and others having business relationships with each Acquired
Company;
(c) confer with Unison and LABCO concerning operational matters of a
material nature; and
(d) otherwise report periodically to Unison and LABCO concerning the status
of the business, operations, and finances of each Acquired Company.
SECTION 6.3 Negative Covenant. Except as otherwise expressly permitted by
this Agreement, between the date of this Agreement and the Closing Date, the
Company will not, and will cause each Acquired Company not to, without the prior
written consent of Unison and LABCO, take any affirmative action, or fail to
take any reasonable action within their or its control, as a result of which any
of the changes or events listed in Section 4.16 is likely to occur.
SECTION 6.4 Required Approvals. As promptly as practicable after the date
of this Agreement, the Company will, and will cause each Acquired Company to,
make all filings required by Legal Requirements to be made by them in order to
consummate the Contemplated Transactions. Between the date of this
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Agreement and the Closing Date, the Company will, and will cause each Acquired
Company to cooperate with Unison and LABCO with respect to all filings that
Unison or LABCO elects to make or is required by Legal Requirements to make in
connection with the Contemplated Transactions.
SECTION 6.5 Shareholders' Meeting, Merger Information Statement and
Registration Statement.
(a) As soon as reasonably practicable after the date hereof:
(i) the Company shall duly call, give notice of, convene and hold a
special meeting of the Shareholders (the "Company Shareholders Meeting"),
to be held as soon as practicable after the date hereof for the purpose of
considering and taking action upon the Merger; and
(ii) the Company shall prepare in accordance with the applicable
provisions of the federal securities laws and Utah laws an information
statement with respect to the Merger and the Contemplated Transactions (the
"Merger Information Statement").
(b) the Company shall use its Best Efforts (i) to obtain and furnish the
information required to be included by it in the Merger Information Statement
and, after consultation with LABCO and Unison, respond promptly to any comments
made by the SEC with respect to the Merger Information Statement and any
preliminary version thereof and cause the Merger Information Statement to be
mailed to the Shareholders at the earliest practicable time after the date
hereof (subject to the effectiveness of the Registration Statement, as defined
in Section 6.5(d)) and (ii) obtain the necessary approval by the Shareholders of
this Agreement and the transactions contemplated hereby unless there exists at
such time a proposal for a Third Party Acquisition and in the judgment of the
Board of Directors of the Company after consultation with Company counsel,
obtaining such approvals would be a breach of its fiduciary duties to the
Shareholders or other constituencies under applicable law.
(c) The Senior Managers and the Maguire Limited Partnership shall indemnify
and hold harmless Unison, LABCO and their respective directors, officers,
employees, agents and other representatives (each, a "Unison Indemnified Party")
against any losses, claims, damages or liabilities, joint or several, to which
such Unison Indemnified Party may become subject under the Securities Act,
Exchange Act or applicable state law, insofar as such losses, claims, damages or
liabilities arise out of or are based upon any untrue statement of any material
fact contained in the Registration Statement or Merger Information Statement, or
any amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein, in light of the circumstances in which they were made, not
misleading which statements or omissions were furnished to Unison or LABCO,
directly or indirectly through the Company, by such Shareholders specifically
for use in preparation of the Registration Statement and/or Merger Information
Statement. The indemnification provided for in this Section 6.5(c) shall be in
addition to and shall not be satisfied out of the Reserve Shares.
(d) Unison shall prepare a registration statement on Form S-4 and any
required amendments thereto (the "Registration Statement"), of which the Merger
Information Statement shall be a part, under the Securities Act with respect to
the shares of Unison Common Stock to be issued pursuant to the Merger and file
the Registration Statement with the SEC as soon as reasonably practicable after
the date hereof. Unison shall comply with the requirements of the Securities
Act, the Exchange Act and the rules and regulations of the SEC under such acts
applicable to the offering and sale of Unison Common stock in connection with
the Merger. Unison shall use its Best Efforts to cause the Registration
Statement to become effective as promptly as reasonably practicable and shall
take any action required under applicable federal or state securities laws in
connection with the issuance of Unison Common Stock pursuant to the Merger.
(e) Unison shall indemnify and hold harmless the Company and its directors,
officers, employees, agents and other representatives and the Maguire Limited
Partnership (each, a "Company Indemnified Party") against any losses, claims,
damages or liabilities, joint or several, to which such Company Indemnified
Party may become subject under the Securities Act, Exchange Act or applicable
state law, insofar as such losses, claims, damages or liabilities arise out of
or are based upon any untrue statement of any material fact contained in the
Registration Statement or Merger Information Statement, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact
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required to be stated therein, in light of the circumstances in which they were
made, not misleading which statements or omissions were furnished to the Company
by Unison specifically for use in preparation of the Registration Statement
and/or Merger Information Statement.
(f) If either Unison or the Company shall reasonably request to include in
the Merger Information Statement or omit therefrom any statement in order that
the Merger Information Statement will not include any untrue statement of
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein not misleading, the Merger
Information Statement shall not be mailed to the Shareholders without the mutual
agreement of counsel for the Company and Unison that such statement need not be
included in or need not be omitted from the Merger Information Statement.
(g) Each party shall furnish to the other such information relating to it
and its affiliates and the transactions contemplated by this Agreement and such
further and supplemental information as may be necessary or as may be reasonably
requested by the other party, in light of developments occurring after the date
hereof, to ensure that the statements regarding the parties hereto and their
affiliates and such transactions contained in the Merger Information Statement,
as so supplemented, will not on the effective date of the Registration Statement
or the date of the Company Shareholders Meeting or the Effective Time include
any untrue statement of a material fact or omit to state a material fact
required to be stated therein in order to make the statements therein not
misleading.
SECTION 6.6 Tax Representation Letter of the Company; No Disqualifying
Action. The Company shall execute and deliver to Unison and LABCO the
certificate and the representation for tax purposes in the form of Exhibit 6.6
(the "Company Tax Representation Letter") as soon as reasonably practicable
after the date hereof and in any event not later than five business days prior
to the effective date of the Registration Statement (as anticipated by counsel
to Unison and LABCO). The Company will not take any action that would cause the
Merger to fail to qualify as a tax-free reorganization under Section 368(a) of
the IRC.
SECTION 6.7 Tax Representation Letters of Shareholders. The Company shall
use its Best Efforts to have those Shareholders listed on Schedule 6.7 hereto
execute and deliver a representation letter for tax purposes in the form of
Exhibit 6.7 (the "Shareholder Tax Representation Letter") as soon as reasonably
practicable after the date hereof and in any event not later than five business
days prior to the effective date of the Registration Statement (as anticipated
by counsel to Unison and LABCO).
SECTION 6.8 Agreements of Affiliates. As soon as reasonably practicable
after the date hereof and in any event not later than five business days prior
to the effective date of the Registration Statement (as anticipated by counsel
to Unison and LABCO), the Company shall deliver to Unison a letter identifying
all Persons who are anticipated to be at the time of the vote on the Merger
"affiliates" of the Company for purposes of Rule 145 under the Securities Act or
otherwise applicable SEC accounting releases with respect to pooling-of-interest
accounting treatment. The Company shall use its best efforts to cause each
Person who is identified as an "affiliate" in the letter referred to above to
deliver to the Company not later than five business days prior to the effective
date of the Registration Statement (as anticipated by counsel to Unison and
LABCO) a written agreement in the form of Exhibit 6.8 (the "Affiliate
Agreements").
SECTION 6.9 Delivery of Disclosure Schedules. The parties acknowledge
that this Agreement will be executed and delivered prior to the delivery of the
Disclosure Schedules and the delivery of schedules by Unison and LABCO pursuant
to Section 5 (the "Section 5 Schedules"). The Company agrees to deliver the
Disclosure Schedules to Unison and LABCO, and each of Unison and LABCO agree to
deliver the Section 5 Schedules, as applicable, to the Company, within two weeks
from the date hereof. The parties agree that except for the obligations arising
out of Section 10.1 and Section 10.3, which survive termination of this
Agreement, (a) Unison and LABCO shall each have the right to terminate this
Agreement (i) if the Disclosure Schedules shall not have been timely delivered
or (ii) if such Disclosure Schedules have been timely delivered but contain, in
the aggregate, disclosure of matters which would, or Unison or LABCO reasonably
determines may, materially adversely effect the business, operations or
prospects of the Company, and (b) the Company shall have the right to terminate
this Agreement (i) if the Section 5 Schedules shall not have been timely
delivered or (ii) if such Section 5 Schedules have been timely delivered but
contain, in the
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aggregate, disclosure of matters which would the Company reasonably determines
may materially adversely effect the business, operations or prospects of Unison
and its consolidated Subsidiaries as a whole.
SECTION 6.10 Notification by the Company. Between the date of this
Agreement and the Closing Date, the Company will promptly notify Unison and
LABCO in writing if any Acquired Company becomes aware of any fact or condition
that causes or constitutes a Breach of any of the Company's representations and
warranties as of the date of this Agreement, or if any Acquired Company becomes
aware of the occurrence after the date of this Agreement of any fact or
condition that would (except as expressly contemplated by this Agreement) cause
or constitute a Breach of any such representation or warranty had such
representation or warranty been made as of the time of occurrence or discovery
of such fact or condition. Should any such fact or condition require any change
in the Disclosure Schedules if the Disclosure Schedules were dated the date of
the occurrence or discovery of any such fact or condition, the Company will
promptly deliver to Unison and LABCO a supplement to the Disclosure Schedules
specifying such change. During the same period, the Company will promptly notify
Unison and LABCO of the occurrence of any Breach of any covenant of the Company
in this Section 6 or of the occurrence of any event that may make the
satisfaction of the conditions in Section 7 impossible or unlikely.
SECTION 6.11 Notification by Unison or LABCO. Between the date of this
Agreement and the Closing Date, Unison or LABCO, as applicable, will promptly
notify the Company in writing if it becomes aware of any fact or condition that
causes or constitutes a Breach of any of its representations and warranties as
of the date of this Agreement, or if it becomes aware of the occurrence after
the date of this Agreement of any fact or condition that would (except as
expressly contemplated by this Agreement) cause or constitute a Breach of any
such representation or warranty had such representation or warranty been made as
of the time of occurrence or discovery of such fact or condition. Should any
such fact or condition require any change in the Section 5 Schedules if the
Section 5 Schedules were dated the date of the occurrence or discovery of any
such fact or condition, Unison or LABCO, as applicable, will promptly deliver to
the Company a supplement to the Section 5 Schedules specifying such change.
During the same period, Unison or LABCO, as applicable, will promptly notify the
Company of the occurrence of any Breach of any covenant of the Company in this
Section 6 or of the occurrence of any event that may make the satisfaction of
the conditions in Section 8 impossible or unlikely.
SECTION 6.12 No Negotiation. Until such time, if any, as this Agreement
is terminated pursuant to Section 9, the Company will not, and will cause each
Acquired Company and each of their Representatives not to, directly or
indirectly solicit, initiate, or encourage any inquiries or proposals from,
discuss or negotiate with, provide any non-public information to, or consider
the merits of any unsolicited inquiries or proposals from, any Person (other
than Unison and LABCO) relating to any transaction involving the sale of the
business or assets (other than in the Ordinary Course of Business) of any
Acquired Company, or any of the capital stock of any Acquired Company, or any
merger, consolidation, business combination, or similar transaction involving
any Acquired Company. Notwithstanding the foregoing, (i) the Company may
participate in discussions with, and may furnish information to any third party
which seeks to engage in discussions or requests such information, if, in either
case, the Board of Directors of the Company determines, based on the advice of
Tracy & Holland, L.L.P. or other legal counsel reasonably acceptable to Unison
("Legal Counsel"), that failing to engage in such discussions or to provide such
information would reasonably be expected to violate the fiduciary duties of the
Board of Directors of the Company to the Shareholders, and (ii) the Board of
Directors of the Company may take and disclose to Shareholders a position
contemplated by Rules 14d-9 and 14e-2 promulgated under the Exchange Act with
respect to any tender offer and may make such disclosure to the Shareholders as
may be required under applicable law.
SECTION 6.13 Tax Representation Letter of Unison and LABCO. Unison and
LABCO shall execute and deliver to the Company the certificate and the
representation for tax purposes in the form of Exhibit 6.13 (the "Unison/LABCO
Tax Representation Letter") as soon as reasonably practicable after the date
hereof and in any event not later than five business days prior to the effective
date of the Registration Statement (as anticipated by counsel to Unison and
LABCO).
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SECTION 6.14 Pooling-of-Interests. Each of the Company, Unison and LABCO
shall use its Best Efforts (i) to cause the Merger to qualify, and shall not
take any actions which could prevent the Merger from qualifying, for
pooling-of-interests accounting treatment and as a reorganization under Section
368(a) of the IRC and (ii) to obtain a letter from Ronald H. Ridgers, PC, CPA
regarding actions taken by the Company which could prevent the Merger from
qualifying, for pooling-of-interests accounting treatment.
SECTION 6.15 Nasdaq Listing. Unison shall use its Best Efforts to list,
prior to the Effective Time, on the Nasdaq National Market, subject to official
notice of issuance, the shares of Unison Common Stock to be issued to the
Shareholders in the Merger.
SECTION 6.16 Approvals of Governmental Bodies. As promptly as practicable
after the date of this Agreement, Unison and LABCO will, and will cause each of
its Related Persons to, make all filings required by Legal Requirements to be
made by them to consummate the Contemplated Transactions. Between the date of
this Agreement and the Closing Date, Unison and LABCO will, and will cause each
Related Person to, cooperate with the Company with respect to all filings that
the Company is required by Legal Requirements to make in connection with the
Contemplated Transactions, and (ii) cooperate with the Company in obtaining all
consents identified on Schedule 4.2(b); provided that this Agreement will not
require Unison or LABCO to dispose of or make any change in any portion of its
business or to incur any other burden to obtain a Governmental Authorization.
SECTION 6.17 Best Efforts. Between the date of this Agreement and the
Closing Date, the Company, Unison and LABCO will use their Best Efforts to cause
the conditions in Sections 7 and 8 to be satisfied, except, with respect to
Unison and LABCO, as set forth in the proviso to Section 6.16.
SECTION 7 CONDITIONS PRECEDENT TO UNISON'S
AND LABCO'S OBLIGATION TO CLOSE
Unison's and LABCO's obligation to consummate the Merger and to take the
other actions required to be taken by Unison and LABCO at the Closing is subject
to the satisfaction, at or prior to the Closing, of each of the following
conditions (any of which may be waived by Unison or LABCO, in whole or in part):
SECTION 7.1 Accuracy of Representations. Each of the Company's
representations and warranties set forth in Section 4 of this Agreement shall
have been accurate in all material respects as of the date of this Agreement,
and shall be accurate in all material respects as of the Closing Date as if made
on the Closing Date.
SECTION 7.2 Company's Performance. Each of the covenants and obligations
that the Company is required to perform or to comply with pursuant to this
Agreement at or prior to the Closing shall have been duly performed and complied
with in all material respects.
SECTION 7.3 Shareholder Approval. This Agreement and the Merger shall
have been duly approved by the Shareholders of the Company in accordance with
applicable law and the articles of incorporation and by-laws of the Company.
SECTION 7.4 Board Approval. This Agreement and the Merger shall have been
duly approved by the Board of Directors of each of Unison and LABCO in
accordance with applicable law and the respective certificate and articles of
incorporation and by-laws of Unison and LABCO.
SECTION 7.5 Effectiveness of Registration Statement. The Registration
Statement shall have been declared effective by the SEC, no stop order with
respect thereto shall be in effect, and no proceedings for that purpose shall
have been initiated or threatened by the SEC.
SECTION 7.6 Listing Approval. The shares of Unison Common Stock to be
issued in the Merger shall have been approved for listing on the Nasdaq National
Market subject to official notice of issuance.
SECTION 7.7 Consents. Each Consent required under the Contracts set forth
on Schedule 4.2(b) shall have been obtained and shall be in full force and
effect.
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SECTION 7.8 Additional Documents. Each of the following documents shall
have been delivered to Unison and LABCO:
(a) an opinion of Tracy & Holland, L.L.P., dated the Closing Date, in the
form of Exhibit 7.8(a);
(b) a certificate of the Secretary of State of the State of Utah as to the
legal existence and good standing (including Tax) of the Company in Utah;
(c) certificates of the appropriate governmental officials of the state of
incorporation of each Subsidiary as to the legal existence and good standing
(including Tax) of each Subsidiary;
(d) certificates of appropriate governmental officials in each state in
which any Acquired Company is required to qualify to do business as a foreign
corporation as to the due qualification and good standing of such Acquired
Company in each such jurisdiction;
(e) a certificate of the secretary of the Company attesting to the
incumbency of the officers, the authenticity of the board of directors and
shareholder resolutions authorizing the Contemplated Transactions, and the
authenticity and continuing validity of the Organizational Documents delivered
pursuant to Section 4.1(b);
(f) such other documents as Unison or LABCO may reasonably request for the
purpose of (i) enabling its counsel to provide the opinion referred to in
Section 8.8(a), (ii) evidencing the accuracy of any of the Company's
representations and warranties, (iii) evidencing the performance by the Company
of, or the compliance by the Company with, any covenant or obligation required
to be performed or complied with by the Company, (iv) evidencing the
satisfaction of any condition referred to in this Section 7, or (v) otherwise
facilitating the consummation or performance of any of the Contemplated
Transactions;
(g) evidence reasonably satisfactory to Unison and LABCO that the
Encumbrances set forth on Schedule 4.1(a) which are to be discharged have been
discharged;
(h) in the event the Interim Balance Sheet is as at a date more than 45
days prior to the Closing Date, an unaudited consolidated balance sheet of the
Acquired Companies as at a date not less than 45 days prior to the Closing Date
prepared in compliance with the requirements in Section 4.4 for the Interim
Balance Sheet, which unaudited consolidated balance sheet of the Acquired
Companies shall be deemed an Interim Balance Sheet for all purposes under this
Agreement;
(i) the tax certificate and letter of the Company pursuant to Section 6.6;
(j) the representation letters of certain Shareholders pursuant to Section
6.7; and
(k) the letters of affiliates of the Company pursuant to Section 6.8.
SECTION 7.9 No Proceedings. Since the date of this Agreement, there must
not have been commenced or Threatened against Unison or LABCO, or against any
Person affiliated with Unison or LABCO, any Proceeding (a) involving any
challenge to, or seeking damages or other relief in connection with, any of the
Contemplated Transactions, or (b) that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with any of the Contemplated
Transactions.
SECTION 7.10 No Claim Regarding Stock Ownership or Merger Consideration.
Other than rights of Shareholders hereunder, there must not have been made or
Threatened by any Person any claim asserting that such Person (a) is the holder
or the beneficial owner of, or has the right to acquire or to obtain beneficial
ownership of, any stock of, or any other voting, equity, or ownership interest
in, any of the Acquired Companies, or (b) is entitled to all or any portion of
the cash, assets or other property to be distributed to Shareholders pursuant to
Section 3 hereof.
SECTION 7.11 No Prohibition. Neither the consummation nor the performance
of any of the Contemplated Transactions will, directly or indirectly (with or
without notice or lapse of time), materially contravene, or conflict with, or
result in a material violation of, or cause Unison or LABCO or any Person
affiliated with Unison or LABCO to suffer any material adverse consequence
under, (a) any applicable Legal Requirement
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or Order, or (b) any Legal Requirement or Order that has been published,
introduced, or otherwise formally proposed by or before any Governmental Body.
SECTION 7.12 Termination of Agreements. All agreements, Contracts and
understandings set forth on Schedule 4.1(c) shall have been terminated with no
further liability or obligation of any Acquired Company.
SECTION 7.13 Dissenters' Rights. Objecting Shares shall not represent
more than five percent of the Shares.
SECTION 7.14 Agreement for Acquisition of Memphis Clinical Laboratory Inc.
Unison, the Senior Managers and John Maguire shall have completed, but for the
Closing, the acquisition by Unison of all of the issued and outstanding capital
stock of Memphis Clinical Laboratory Inc. from the Senior Managers and Mr.
Maguire.
SECTION 8 CONDITIONS PRECEDENT TO THE
COMPANY'S OBLIGATION TO CLOSE
The Company's obligation to consummate the Merger and to take the other
actions required to be taken by the Company at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by the Company, in whole or in part):
SECTION 8.1 Accuracy of Representations. Each of Unison's and LABCO's
representations and warranties set forth in Section 5 of this Agreement shall
have been accurate in all material respects as of the date of this Agreement and
shall be accurate in all material respects as of the Closing Date as if made on
the Closing Date.
SECTION 8.2 Unison's and LABCO's Performance. Each covenant and
obligation that Unison or LABCO is required to perform or to comply with
pursuant to this Agreement at or prior to the Closing shall have been performed
and complied with in all material respects.
SECTION 8.3 Board Approval. This Agreement and the Merger shall have been
duly approved by the Board of Directors of each of Unison and LABCO in
accordance with applicable law and the respective certificate and articles of
incorporation and by-laws of Unison and LABCO.
SECTION 8.4 Shareholder Approval. This Agreement and the Merger shall
have been duly approved by the Shareholders in accordance with applicable law
and the articles of incorporation and by-laws of the Company.
SECTION 8.5 Effectiveness of Registration Statement. The Registration
Statement shall have been declared effective by the SEC, no stop order with
respect thereto shall be in effect, and no proceedings for that purpose shall
have been initiated or threatened by the SEC.
SECTION 8.6 Listing Approval. The shares of Unison Common Stock to be
issued in the Merger shall have been approved for listing on the Nasdaq National
Market subject to official notice of issuance.
SECTION 8.7 Consents. Each of the Consents required by the Contracts set
forth on Schedule 4.2(b) shall have been obtained and shall be in full force and
effect.
SECTION 8.8 Additional Documents. Unison or LABCO must have caused the
following documents to be delivered to the Company:
(a) an opinion of Quarles & Brady, dated the Closing Date, in the form of
Exhibit 8.8(a);
(b) the tax certificate and letter of Unison and LABCO pursuant to Section
6.13;
(c) a certificate of the Secretary of State of the State of Delaware as to
the legal existence and good standing (including Tax) of Unison in Delaware;
(d) a certificate of the Secretary of State of the State of Delaware as to
the legal existence and good standing (including Tax) of LABCO in Delaware;
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(e) a certificate of the secretary of Unison attesting to the incumbency of
the officers, the authenticity of the board of directors and shareholder
resolutions authorizing the Contemplated Transactions;
(f) a certificate of the secretary of LABCO attesting to the incumbency of
the officers, the authenticity of the board of directors and shareholder
resolutions authorizing the Contemplated Transactions; and
(g) such other documents as the Company may reasonably request for the
purpose of (i) enabling their counsel to provide the opinion referred to in
Section 7.8(a), (ii) evidencing the accuracy of any representation or warranty
of Unison or LABCO, (iii) evidencing the performance by Unison or LABCO of, or
the compliance by Unison or LABCO with, any covenant or obligation required to
be performed or complied with by Unison or LABCO, as applicable, (ii) evidencing
the satisfaction of any condition referred to in this Section 8, or (v)
otherwise facilitating the consummation of any of the Contemplated Transactions.
SECTION 8.9 No Proceeding. Since the date of this Agreement, there must
not have been commenced or Threatened against Unison or LABCO, or against any
Person affiliated with Unison or LABCO, any Proceeding (a) involving any
challenge to, or seeking damages or other relief in connection with, any of the
Contemplated Transactions, or (b) that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with any of the Contemplated
Transactions.
SECTION 8.10 No Prohibition. Neither the consummation nor the performance
of any of the Contemplated Transactions will, directly or indirectly (with or
without notice or lapse of time), materially contravene, or conflict with, or
result in a material violation of, or cause the Company or any Person affiliated
with the Company to suffer any material adverse consequence under, (a) any
applicable Legal Requirement or Order, or (b) any Legal Requirement or Order
that has been published, introduced, or otherwise formally proposed by or before
any Governmental Body.
SECTION 8.11 Agreement for Acquisition of Memphis Clinical Laboratory
Inc. Unison, the Senior Managers and John Maguire shall have completed, but for
the Closing, the acquisition by Unison of all of the issued and outstanding
capital stock of Memphis Clinical Laboratory Inc. from the Senior Managers and
Mr. Maguire.
SECTION 9 TERMINATION
SECTION 9.1 Termination Events. This Agreement may, by notice given prior
to or at the Closing, be terminated:
(a) by either party pursuant to Section 3.1. or by failure of the Closing
to take place on or prior to the date set for Closing in Section 2.5, but, in
either case subject to the provisions of Section 9.1(f);
(b) by either Unison, LABCO or the Company if a material Breach of any
provision of this Agreement has been committed by the other party and such
Breach has not been waived;
(c) by Unison or LABCO if any of the conditions in Section 7 has not been
satisfied as of the Closing Date or if satisfaction of such a condition is or
becomes impossible (other than through the failure of Unison or LABCO to comply
with its respective obligations under this Agreement) and neither Unison nor
LABCO has waived such condition on or before the Closing Date;
(d) by Unison or LABCO if the Board of Directors of the Company withdraws
or materially modifies or changes its favorable recommendation of this Agreement
or the Merger;
(e) by the Company, if any of the conditions in Section 8 has not been
satisfied as of the Closing Date or if satisfaction of such a condition is or
becomes impossible (other than through the failure of the Company to comply with
its obligations under this Agreement) and the Company has not waived such
condition on or before the Closing Date;
(f) by the Company, if the Board of Directors of the Company withdraws or
materially modifies or changes its favorable recommendation of this Agreement or
the Merger if there exists at such time a proposal for a Third Party Acquisition
and the Board of Directors of the Company after consultation with Company
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counsel determines that the failure to take such action would be a breach of the
fiduciary duties to the Company's shareholders or other constituencies under
applicable law; provided, however, that such termination under this Section
9.1(f) shall not be effective until the Company has made payment to Unison of
the Transaction Expenses required to be paid pursuant to Section 9.2.
(g) by mutual consent of LABCO and the Company; or
(h) by either LABCO or the Company if the Closing has not occurred (other
than through the failure of any party seeking to terminate this Agreement to
comply fully with its obligations under this Agreement) on or before October 30,
1996, or such later date as the parties may agree upon.
SECTION 9.2 Special Fees.
(a) In the event that:
(i) this Agreement shall have been terminated pursuant to Section
9.1(d) or Section 9.1(f) and within 9 months of such termination: (x) a
Third Party Acquisition shall occur, or (y) there is a letter of intent or
similar instrument or other agreement between the Company and a Third Party
for a Third Party Acquisition, or a public announcement by the Company of
the Company's intention or plans to effect a Third Party Acquisition; or
(ii) any Person (other than Unison or an affiliate of Unison) shall
have commenced, publicly proposed or communicated to the Company a proposal
that is publicly disclosed for a tender or exchange offer for more than 20%
(or which, assuming the maximum amount of securities which could be
purchased, would result in any Person beneficially owning more than 20%) of
the then outstanding Shares or otherwise for the direct or indirect
acquisition of the Company or all or substantially all of its assets for a
per Share consideration having a value greater than the Per Share
Consideration, and this Agreement shall have been terminated pursuant to
Section 9.1(d) or Section 9.1(f); or
(iii) this Agreement is terminated pursuant to Section 9.1(f),
then, in any such event, the Company shall promptly pay Unison (but in no
event later than five business days after the first of such events shall
have occurred) the Transaction Expenses.
(b) Unison shall have the right to make more than one request for payment
of Transaction Expenses, subject to the limitation on total Transaction
Expenses. In the event the Company shall fail to pay invoiced Transaction
Expenses within five days of receipt of an invoice therefor from Unison, the
term "Transaction Expenses" shall be deemed to include the costs and expenses
actually incurred or accrued by Unison and LABCO (including, without limitation,
fees and expenses of counsel) in connection with the collection under and
enforcement of Section 9.1(f), together with interest on such unpaid Transaction
Expenses, commencing on the date that the Transaction Expenses were paid, at a
rate equal to the rate of interest publicly announced by Morgan Guaranty Trust
Company of New York, from time to time, in the City of New York, as such bank's
Prime Rate plus 1.00%.
SECTION 9.3 Effect of Termination. Each party's right of termination
under Section 9.1 is in addition to any other rights it may have under this
Agreement or otherwise, and the exercise of a right of termination will not be
an election of remedies. If this Agreement is terminated pursuant to Section
9.1, all further obligations of the parties under this Agreement will terminate,
except that the obligations in Sections 10.1 and 10.3 will survive; provided,
however, that if this Agreement is terminated by a party because of the Breach
of the Agreement by the other party or because one or more of the conditions to
the terminating party's obligations under this Agreement is not satisfied as a
result of the other party's failure to comply with its obligations under this
Agreement, the terminating party's right to pursue all legal remedies will
survive such termination unimpaired.
SECTION 10 GENERAL PROVISIONS
SECTION 10.1 Expenses. Except as otherwise expressly provided in this
Agreement, each party to this Agreement will bear its respective expenses
incurred in connection with the preparation, execution, and
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performance of this Agreement and the Contemplated Transactions, including all
fees and expenses of agents, representatives, counsel, and accountants. In the
event of termination of this Agreement, the obligation of each party to pay its
own expenses will be subject to any rights of such party arising from a breach
of this Agreement by another party.
SECTION 10.2 Public Announcements. Any public announcement or similar
publicity with respect to this Agreement or the Contemplated Transactions will
be issued, if at all, at such time and in such manner as LABCO and the Company
determine. Unless consented to by LABCO in advance or required by Legal
Requirements, prior to the Closing the Company shall, and shall cause the
Acquired Companies to, keep this Agreement strictly confidential and may not
make any disclosure of this Agreement to any Person. The Company and LABCO will
consult with each other concerning the means by which the Acquired Companies'
employees, customers, and suppliers and others having dealings with the Acquired
Companies will be informed of the Contemplated Transactions, and LABCO will have
the right to be present for any such communication.
SECTION 10.3 Confidentiality.
(a) Between the date of this Agreement and the Closing Date, Unison, LABCO
and the Company will maintain in confidence, and will cause the directors,
officers, employees, agents, and advisors of Unison, LABCO and the Acquired
Companies to maintain in confidence, and not use to the detriment of another
party or an Acquired Company any written, oral, or other information obtained in
confidence from another party or an Acquired Company in connection with this
Agreement or the Contemplated Transactions, unless (i) such information is
already known to such party or to others not bound by a duty of confidentiality
or such information becomes publicly available through no fault of such party,
(ii) the use of such information is necessary or appropriate in making any
filing or obtaining any consent or approval required for the consummation of the
Contemplated Transactions, or (iii) the furnishing or use of such information is
required by or necessary or appropriate in connection with legal proceedings.
(b) If the Contemplated Transactions are not consummated: (i) each party
will return or destroy as much of such written information as the other party
may reasonably request; and (ii) Unison, LABCO and their respective Related
Persons, will not employ, solicit the employment or contract with any employee
or independent contractor of any of the Acquired Companies for a period of six
months after the termination of this Agreement.
SECTION 10.4 Notices. All notices, consents, waivers, and other
communications under this Agreement must be in writing and will be deemed to
have been duly given when (a) delivered by hand (with written confirmation of
receipt), (b) sent by telecopier (with written confirmation of receipt),
provided that a copy is mailed by registered mail, return receipt requested, or
(c) when received by the addressee, if sent by a nationally recognized overnight
delivery service (receipt requested), in each case to the appropriate addresses
and telecopier numbers set forth below (or to such other addresses and
telecopier numbers as a party may designate by notice to the other parties):
<TABLE>
<S> <C>
The Company: American Professional Holding, Inc.
10925 Estate Lane, Suite 390
Dallas, Texas 75238
Attn: W. Jerome McGee
Facsimile No.: (214) 342-2129
with a copy to: Tracy & Holland, L.L.P.
306 West 7th Street, Suite 500
Fort Worth, Texas 76102
Attn: George T. Johns, Esq.
Facsimile No.: (817) 332-3140
</TABLE>
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<TABLE>
<S> <C>
LABCO: Labco Acquisition Co.
7272 East Indian School Road, Suite 214
Scottsdale, Arizona 85251
Attn: President
Facsimile: (602) 481-6479
with a copy to: Quarles & Brady
One East Camelback, Suite 400
Phoenix, Arizona 85012-1649
Attn: P. Robert Moya, Esq.
Facsimile: (602) 230-5598
Unison: Unison HealthCare Corporation
7272 East Indian School Road, Suite 214
Scottsdale, Arizona 85251
Attn: President
Facsimile: (602) 481-6479
</TABLE>
SECTION 10.5 Jurisdiction; Service of Process. Any action or proceeding
seeking to enforce any provision of, or based on any right arising out of, this
Agreement may be brought against any of the parties in the courts of the State
of Arizona, County of Maricopa, or, if it has or can acquire jurisdiction, in
the United States District Court for the District of Arizona, and each of the
parties consents to the jurisdiction of such courts (and of the appropriate
appellate courts) in any such action or proceeding and waives any objection to
venue laid therein. Process in any action or proceeding referred to in the
preceding sentence may be served on any party anywhere in the world.
SECTION 10.6 Further Assurances. The parties agree (a) to furnish upon
request to each other such further information, (b) to execute and deliver to
each other such other documents, and (c) to do such other acts and things, all
as the other party may reasonably request for the purpose of carrying out the
intent of this Agreement and the documents referred to in this Agreement.
SECTION 10.7 Combined Operating Results. Unison shall use its Best
Efforts to publish the results of at least 30 days of combined operations of the
Company and Unison following the Effective Time as soon as reasonably
practicable after the end of such 30 day period.
SECTION 10.8 Waiver. The rights and remedies of the parties to this
Agreement are cumulative and not alternative. Neither the failure nor any delay
by any party in exercising any right, power, or privilege under this Agreement
or the documents referred to in this Agreement will operate as a waiver of such
right, power, or privilege, and no single or partial exercise of any such right,
power, or privilege will preclude any other or further exercise of such right,
power, or privilege or the exercise of any other right, power, or privilege. To
the maximum extent permitted by applicable law, (a) no claim or right arising
out of this Agreement or the documents referred to in this Agreement can be
discharged by one party, in whole or in part, by a waiver or renunciation of the
claim or right unless in writing signed by the other party; (b) no waiver that
may be given by a party will be applicable except in the specific instance for
which it is given; and (c) no notice to or demand on one party will be deemed to
be a waiver of any obligation of such party or of the right of the party giving
such notice or demand to take further action without notice or demand as
provided in this Agreement or the documents referred to in this Agreement.
SECTION 10.9 Entire Agreement and Modification. This Agreement supersedes
all prior agreements between the parties with respect to its subject matter
(including the Letter of Intent between Unison and the Company dated March 26,
1996) and constitutes (along with the documents referred to in this Agreement) a
complete and exclusive statement of the terms of the agreement between the
parties with respect to its subject matter. This Agreement may not be amended
except by a written agreement executed by the party to be charged with the
amendment.
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SECTION 10.10 Disclosure Schedules.
(a) The disclosures in the Disclosure Schedules, and those in any
Supplement thereto, shall be deemed to relate only to the representations and
warranties in the Section of the Agreement to which they expressly relate and
not to any other representation or warranty in this Agreement.
(b) In the event of any inconsistency between the statements in the body of
this Agreement and those in the Disclosure Schedules (other than an exception
expressly set forth as such in the Disclosure Schedules with respect to a
specifically identified representation or warranty), the statements in the body
of this Agreement will control.
SECTION 10.11 Assignments, Successors, and No Third-Party Rights. Neither
party may assign any of its rights under this Agreement without the prior
consent of the other parties except that Unison may assign any of its rights
under this Agreement to any Subsidiary of Unison. Subject to the preceding
sentence, this Agreement will apply to, be binding in all respects upon, and
inure to the benefit of the successors and permitted assigns of the parties.
Nothing expressed or referred to in this Agreement will be construed to give any
Person other than the parties to this Agreement any legal or equitable right,
remedy, or claim under or with respect to this Agreement or any provision of
this Agreement; provided, however, that the provisions of Section 3.2, Section
3.4 and Section 10.7 and the provisions of this Agreement concerning
qualification of the Contemplated Transactions as a tax free reorganization are
additionally intended to be for the benefit of the Shareholders. This Agreement
and all of its provisions and conditions are for the sole and exclusive benefit
of the parties to this Agreement and their successors and assigns.
SECTION 10.12 Severability. If any provision of this Agreement is held
invalid or unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will remain in full force and effect. Any provision
of this Agreement held invalid or unenforceable only in part or degree will
remain in full force and effect to the extent not held invalid or unenforceable.
SECTION 10.13 Section Headings, Construction. The headings of Sections in
this Agreement are provided for convenience only and will not affect its
construction or interpretation. All references to "Section" or "Sections" refer
to the corresponding Section or Sections of this Agreement. All words used in
this Agreement will be construed to be of such gender or number as the
circumstances require. Unless otherwise expressly provided, the word "including"
does not limit the preceding words or terms.
SECTION 10.14 Time of Essence. With regard to all dates and time periods
set forth or referred to in this Agreement, time is of the essence.
SECTION 10.15 Governing Law. This Agreement will be governed by the laws
of the State of Arizona without regard to conflicts of laws principles.
SECTION 10.16 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
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<PAGE> 108
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first written above.
UNISON:
UNISON HEALTHCARE CORPORATION, a Delaware corporation
By:
Name:
Title:
LABCO:
LABCO ACQUISITION CO., a Delaware corporation
By:
Name:
Title:
COMPANY:
AMERICAN PROFESSIONAL HOLDING, INC., a Utah corporation
By:
Name:
Title:
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<PAGE> 109
STATE OF
County of
On this day of , 199 , before me, the undersigned
officer, personally appeared , who acknowledged himself
to be a of Unison HealthCare Corporation, a Delaware
corporation, and that he, in such capacity, being authorized so to do, executed
the foregoing instrument for the purposes therein contained.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
--------------------------------------
Notary Public
My Commission Expires:
- ------------------------------------
STATE OF
County of
On this day of , 199 , before me, the undersigned
officer, personally appeared , who acknowledged himself
to be a of Labco Acquisition Co., a Delaware
corporation, and that he, in such capacity, being authorized so to do, executed
the foregoing instrument for the purposes therein contained.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
--------------------------------------
Notary Public
My Commission Expires:
- ------------------------------------
STATE OF
County of
On this day of , 199 , before me, the undersigned
officer, personally appeared , who acknowledged himself
to be a of American Professional Holding, Inc., a Utah
corporation, and that he, in such capacity, being authorized so to do, executed
the foregoing instrument for the purposes therein contained.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
--------------------------------------
Notary Public
My Commission Expires:
- ------------------------------------
ss.:
ss.:
ss.:
<PAGE> 110
EXHIBITS
<TABLE>
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PAGE
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<S> <C>
Exhibit 2.6(a) (iv)................................................................... 3
Exhibits 2.2(A) and 2.2(B)............................................................ 12
Exhibit 2.6(a) (iii).................................................................. 12
Exhibit 2.6(a) (v).................................................................... 13
Exhibit 6.6........................................................................... 50
Exhibit 6.7........................................................................... 50
Exhibit 6.8........................................................................... 51
Exhibit 6.13.......................................................................... 53
Exhibit 7.8(a)........................................................................ 55
Exhibit 8.8(a)........................................................................ 58
SCHEDULES
- --------------------------------------------------------------------------------------------
Schedule 4.1(a)....................................................................... 18
Schedule 4.1(b)....................................................................... 18
Schedule 4.1(c)....................................................................... 18
Schedule 4.2(b)....................................................................... 19
Schedule 4.2(b) (v)................................................................... 19
Schedule 4.5.......................................................................... 21
Schedule 4.6.......................................................................... 21
Schedule 4.7.......................................................................... 22
Schedule 4.8.......................................................................... 22
Schedule 4.9.......................................................................... 22
Schedule 4.10......................................................................... 23
Schedule 4.11......................................................................... 23
Schedule 4.13(b) (i).................................................................. 25
Schedule 4.13(b) (ii)................................................................. 25
Schedule 4.13(d)...................................................................... 26
Schedule 4.14(a)...................................................................... 29
Schedule 4.14(b)...................................................................... 29
Schedule 4.15......................................................................... 30
Schedule 4.16......................................................................... 30
Schedule 4.17(a)...................................................................... 31
Schedule 4.17(b)...................................................................... 33
Schedule 4.17(c)...................................................................... 33
Schedule 4.17(f)...................................................................... 34
Schedule 4.18(b)...................................................................... 34
Schedule 4.18(c)...................................................................... 35
Schedule 4.18(d)...................................................................... 35
Schedule 4.19......................................................................... 36
Schedule 4.20......................................................................... 38
Schedule 4.22(b)...................................................................... 40
Schedule 4.22(c) (i).................................................................. 40
Schedule 4.22(c) (ii)................................................................. 40
Schedule 4.22(d)...................................................................... 40
Schedule 4.25......................................................................... 42
Schedule 5.7.......................................................................... 46
Schedule 6.7.......................................................................... 50
</TABLE>
<PAGE> 111
ANNEX B
AGREEMENT AND PLAN OF MERGER
AMONG
UNISON HEALTHCARE CORPORATION
MEMPHIS ACQUISITION CO.
AND
MEMPHIS CLINICAL LABORATORY, INC.
DATED JULY 3, 1996
<PAGE> 112
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C> <C>
RECITALS............................................................................... B-1
SECTION 1 DEFINITIONS.................................................................. B-2
SECTION 2 THE MERGER AND EFFECTIVE TIME; SURVIVING CORPORATION; CLOSING................
B-7
Section 2.1 The Merger........................................................... B-7
Section 2.2 Effective Time....................................................... B-7
Section 2.3 Articles of Incorporation And Bylaws................................. B-7
Section 2.4 Board Of Directors................................................... B-7
Section 2.5 Closing.............................................................. B-7
Section 2.6 Closing Obligations.................................................. B-8
SECTION 3 CONVERSION OF SHARES......................................................... B-8
Section 3.1 Conversion Of Shares In The Merger................................... B-8
Section 3.2 Adjustments to Share Consideration................................... B-9
Section 3.3 Exchange of Certificates............................................. B-9
SECTION 4 REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................ B-10
Section 4.1 Organization and Good Standing; Capitalization; Agreements
Regarding Capital Stock.............................................. B-10
Section 4.2 Authority; No Conflict............................................... B-11
Section 4.3 Capitalization....................................................... B-11
Section 4.4 Financial Statements................................................. B-11
Section 4.5 Books and Records.................................................... B-12
Section 4.6 Title to Properties; Encumbrances.................................... B-12
Section 4.7 Condition and Sufficiency of Assets.................................. B-12
Section 4.8 Accounts Receivable.................................................. B-12
Section 4.9 Prepaid Supplies..................................................... B-13
Section 4.10 No Undisclosed Liabilities........................................... B-13
Section 4.11 Taxes................................................................ B-13
Section 4.12 No Material Adverse Change........................................... B-13
Section 4.13 Employee Benefits.................................................... B-14
Section 4.14 Compliance with Legal Requirements; Governmental Authorizations...... B-16
Section 4.15 Legal Proceedings; Orders............................................ B-17
Section 4.16 Absence of Certain Changes and Events................................ B-17
Section 4.17 Contracts; No Defaults............................................... B-18
Section 4.18 Insurance............................................................ B-19
Section 4.19 Environmental Matters................................................ B-21
Section 4.20 Employees............................................................ B-22
Section 4.21 Labor Relations; Compliance.......................................... B-22
Section 4.22 Intellectual Property................................................ B-22
Section 4.23 Certain Payments..................................................... B-24
Section 4.24 Disclosure........................................................... B-24
Section 4.25 Relationships with Related Persons................................... B-24
Section 4.26 Accounting Matters................................................... B-24
Section 4.27 Brokers or Finders................................................... B-24
SECTION 5 REPRESENTATIONS AND WARRANTIES OF UNISON AND MEMCO.......................... B-25
Section 5.1 Organization and Good Standing....................................... B-25
Section 5.2 Authority; No Conflict............................................... B-25
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
Section 5.3 Certain Proceedings.................................................. B-25
Section 5.4 SEC Documents; Financial Statements.................................. B-25
Section 5.5 Information Supplied................................................. B-26
Section 5.6 Interim Operations of MEMCO.......................................... B-26
Section 5.7 Brokers or Finders................................................... B-26
Section 5.8 Disclosure........................................................... B-26
Section 5.9 Legal Proceedings; Orders............................................ B-26
Section 5.10 Capitalization....................................................... B-27
Section 5.11 Merger Consideration................................................. B-27
SECTION 6 FURTHER COVENANTS PRIOR TO CLOSING DATE..................................... B-27
Section 6.1 Access and Investigation............................................. B-27
Section 6.2 Operation of the Businesses of the Company........................... B-27
Section 6.3 Negative Covenant.................................................... B-27
Section 6.4 Required Approvals................................................... B-27
Section 6.5 Shareholders' Meeting, Merger Information Statement and Registration
Statement............................................................ B-27
Section 6.6 Agreements of Affiliates............................................. B-29
Section 6.7 Delivery of Disclosure Schedules..................................... B-29
Section 6.8 Notification by the Company.......................................... B-29
Section 6.9 Notification by Unison or MEMCO...................................... B-29
Section 6.10 No Negotiation....................................................... B-30
Section 6.11 Pooling-of-Interests................................................. B-30
Section 6.12 Nasdaq Listing....................................................... B-30
Section 6.13 Approvals of Governmental Bodies..................................... B-30
Section 6.14 Best Efforts......................................................... B-30
SECTION 7 CONDITIONS PRECEDENT TO UNISON'S AND MEMCO'S OBLIGATION TO CLOSE............
B-31
Section 7.1 Accuracy of Representations.......................................... B-31
Section 7.2 Company's Performance................................................ B-31
Section 7.3 Shareholder Approval................................................. B-31
Section 7.4 Board Approval....................................................... B-31
Section 7.5 Effectiveness of Registration Statement.............................. B-31
Section 7.6 Listing Approval..................................................... B-31
Section 7.7 Consents............................................................. B-31
Section 7.8 Additional Documents................................................. B-31
Section 7.9 No Proceedings....................................................... B-32
Section 7.10 No Claim Regarding Stock Ownership or Merger Consideration........... B-32
Section 7.11 No Prohibition....................................................... B-32
Section 7.12 Termination of Agreements............................................ B-32
Section 7.13 Agreement for Merger of Labco and Ampro.............................. B-32
SECTION 8 CONDITIONS PRECEDENT TO COMPANY'S OBLIGATION TO CLOSE....................... B-32
Section 8.1 Accuracy of Representations.......................................... B-32
Section 8.2 Unison's and MEMCO's Performance..................................... B-32
Section 8.3 Board Approval....................................................... B-32
Section 8.4 Shareholder Approval................................................. B-33
Section 8.5 Effectiveness of Registration Statement.............................. B-33
Section 8.6 Listing Approval..................................................... B-33
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
Section 8.7 Consents............................................................. B-33
Section 8.8 Additional Documents................................................. B-33
Section 8.9 No Proceeding........................................................ B-33
Section 8.10 No Prohibition....................................................... B-33
Section 8.11 Agreement for Merger of Labco and Ampro.............................. B-33
SECTION 9 TERMINATION.................................................................. B-34
Section 9.1 Termination Events................................................... B-34
Section 9.2 Special Fees......................................................... B-34
Section 9.3 Effect of Termination................................................ B-35
SECTION 10 GENERAL PROVISIONS.......................................................... B-35
Section 10.1 Expenses............................................................. B-35
Section 10.2 Public Announcements................................................. B-35
Section 10.3 Confidentiality...................................................... B-35
Section 10.4 Notices.............................................................. B-36
Section 10.5 Jurisdiction; Service of Process..................................... B-36
Section 10.6 Further Assurances................................................... B-36
Section 10.7 Combined Operating Results........................................... B-37
Section 10.8 Waiver............................................................... B-37
Section 10.9 Entire Agreement and Modification.................................... B-37
Section 10.10 Disclosure Schedules................................................. B-37
Section 10.11 Assignments, Successors, and No Third-Party Rights................... B-37
Section 10.12 Severability......................................................... B-37
Section 10.13 Section Headings, Construction....................................... B-37
Section 10.14 Time of Essence...................................................... B-38
Section 10.15 Governing Law........................................................ B-38
Section 10.16 Counterparts......................................................... B-38
</TABLE>
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AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger ("Agreement") is made as of July 3, 1996,
among UNISON HEALTHCARE CORPORATION, a Delaware corporation ("Unison"), MEMPHIS
ACQUISITION CO., a Delaware corporation ("MEMCO"), and MEMPHIS CLINICAL
LABORATORY, INC., a Tennessee corporation (the "Company").
RECITALS
A. Unison HealthCare Corporation, a Delaware corporation ("Unison"), is
engaged in the business of owning, leasing and managing nursing homes and other
types of care facilities and the delivery of ancillary services, and MEMCO is a
wholly-owned subsidiary of Unison;
B. MEMCO and the Company desire that MEMCO be merged into the Company
pursuant to this Agreement and in accordance with the applicable statutes of the
State of Tennessee;
C. The Company is principally engaged in the business of owning and
operating medical laboratories for the commercial processing and evaluation of
various types of human tissues;
D. The respective Boards of Directors of MEMCO and the Company have each
approved the merger of MEMCO with and into the Company pursuant to the
provisions of this Agreement;
E. The Board of Directors of the Company has duly resolved that this
Agreement be submitted to the Company's shareholders in accordance with the
Tennessee Business Corporation Act;
F. Unison shall prepare a Registration Statement on Form S-4 to be filed
with the Securities and Exchange Commission registering the shares of Unison
Common Stock to be issued to the Company shareholders in the Merger, which
Registration Statement shall include an information statement of the Company to
be used in connection with the vote of the shareholders of the Company
authorizing the Merger; and
G. Unison and certain shareholders of the Company are separately
negotiating a merger of Labco Acquisition Co., a wholly-owned subsidiary of
Unison ("Labco") with and into American Professional Holding, Inc. ("Ampro"),
with Ampro being the surviving corporation.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
SECTION 1 DEFINITIONS
For purposes of this Agreement, the following terms have the meanings set
forth below:
"AFFILIATE AGREEMENTS" shall have the meaning set forth in Section 6.6.
"APPLICABLE CONTRACT" shall mean any Contract involving $5,000 or more or
which are not cancelable within 30 days (a) under which the Company has or may
acquire any rights, (b) under which the Company has or may become subject to any
obligation or liability, or (c) by which the Company or any of the assets owned
or used by it is or may become bound.
"ARTICLES OF MERGER" shall have the meaning set forth in Section 2.2.
"BALANCE SHEET" shall have the meaning set forth in Section 4.4.
"BEST EFFORTS" shall mean the efforts that a prudent Person desirous of
achieving a result would use in similar circumstances to ensure that such result
is achieved as expeditiously as possible, without incurring unreasonable
expense.
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"BREACH" of a representation, warranty, covenant, obligation, or other
provision of this Agreement or any instrument delivered pursuant to this
Agreement, shall mean any inaccuracy in or breach of, or any failure to perform
or comply with, such representation, warranty, covenant, obligation, or other
provision.
"CERTIFICATE OF MERGER" shall have the meaning set forth in Section 2.2.
"CLOSING" shall have the meaning set forth in Section 2.5.
"CLOSING DATE" shall mean the date and time as of which the Closing
actually takes place.
"CLOSING SHARES" shall mean the 648 Shares owned by Seals.
"CLOSING SHARES CONSIDERATION" shall mean (i) a promissory note in the
original principal amount of $250,000 in the form attached hereto as Exhibit
3.1(a) and (ii) a cash payment in the amount of the sum of (X) $200,000 and (Y)
interest equal to 6% per annum on $450,000 from June 30, 1995 through the
Closing Date.
"COMPANY" shall have the meaning set forth in the first paragraph of this
Agreement.
"CONSENT" shall mean any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
"CONTEMPLATED TRANSACTIONS" shall mean all of the transactions contemplated
by this Agreement, including:
(a) the Merger;
(b) the execution, delivery, and performance of the Affiliate Agreements
and the Shareholder Releases; and
(c) the performance by the Company and MEMCO of their respective covenants
and obligations under this Agreement.
"CONTRACT" shall mean any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied) that is
legally binding.
"DGCL" shall mean the Delaware General Corporation Law.
"DISCLOSURE SCHEDULES" shall mean the disclosure schedules delivered by the
Company to Unison and MEMCO in connection with the execution and delivery of
this Agreement.
"EFFECTIVE TIME" shall have the meaning set forth in Section 2.2 hereof.
"ENCUMBRANCE" shall mean any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest, right of
first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income, or exercise of any other attribute of
ownership.
"ENVIRONMENT" shall mean soil, land surface or subsurface strata, surface
waters (including navigable waters, ocean waters, streams, ponds, drainage
basins, and wetlands), groundwaters, drinking water supply, stream sediments,
ambient air (including indoor air), plant and animal life, and any other
environmental medium or natural resource.
"ENVIRONMENTAL, HEALTH, AND SAFETY LIABILITIES" shall mean any cost,
damages, expense, liability, obligation, or other responsibility arising from or
under Environmental Law or Occupational Safety and Health Law and consisting of
or relating to:
(a) any environmental, health, or safety matters or conditions (including
on-site or off-site contamination, occupational safety and health, and
regulation of chemical substances or products);
(b) fines, penalties, judgments, awards, settlements, legal or
administrative proceedings, damages, losses, claims, demands and response,
investigative, remedial, or inspection costs and expenses arising under
Environmental Law or Occupational Safety and Health Law;
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(c) financial responsibility under Environmental Law or Occupational Safety
and Health Law for cleanup costs or corrective action, including any
investigation, cleanup, removal, containment, or other remediation or response
actions ("Cleanup") required by applicable Environmental Law or Occupational
Safety and Health Law (whether or not such Cleanup has been required or
requested by any Governmental Body or any other Person) and for any natural
resource damages; or
(d) any other compliance, corrective, investigative, or remedial measures
required under Environmental Law or Occupational Safety and Health Law.
The terms "removal," "remedial," and "response action," include the types
of activities covered by the United States Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. sec. 9601 et seq., as amended
("CERCLA").
"ENVIRONMENTAL LAW" shall mean any Legal Requirement that requires or
relates to:
(a) advising appropriate authorities, employees, and the public of intended
or actual releases of pollutants, medical waste or hazardous substances or
materials, violations of discharge limits, or other prohibitions and of the
commencements of activities, such as resource extraction or construction, that
could have significant impact on the Environment;
(b) preventing or reducing to acceptable levels the release of pollutants
or hazardous substances or materials into the Environment;
(c) reducing the quantities, preventing the release, or minimizing the
hazardous characteristics of wastes that are generated;
(d) assuring that products are designed, formulated, packaged, and used so
that they do not present unreasonable risks to human health or the Environment
when used or disposed of;
(e) protecting resources, species, or ecological amenities;
(f) reducing to acceptable levels the risks inherent in the transportation
of hazardous substances, pollutants, oil, or other potentially harmful
substances;
(g) cleaning up pollutants that have been released, preventing the threat
of release, or paying the costs of such clean up or prevention; or
(h) making responsible parties pay private parties, or groups of them, for
damages done to their health or the Environment, or permitting self-appointed
representatives of the public interest to recover for injuries done to public
assets.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974 or
any successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended.
"EXCHANGE AGENT" shall mean Harris Trust and Savings Bank.
"FACILITIES" shall mean any real property, leaseholds, or other interests
currently or formerly owned or operated by the Company and any buildings,
plants, structures, or equipment (including motor vehicles and rolling stock)
currently or formerly owned or operated by the Company.
"GAAP" shall mean generally accepted United States accounting principles,
applied on a basis consistent with the basis on which the Balance Sheet and the
other financial statements referred to in Section 4.4 were prepared.
"GOVERNMENTAL AUTHORIZATION" shall mean any approval, consent, license,
permit, waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
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"GOVERNMENTAL BODY" shall mean any:
(a) nation, state, county, city, town, village, district, or other
jurisdiction of any nature;
(b) federal, state, local, municipal, foreign, or other government;
(c) governmental or quasi-governmental authority of any nature (including
any governmental agency, branch, department, official, or entity and any court
or other tribunal);
(d) multi-national organization or body; or
(e) body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory, or taxing authority or
power of any nature.
"HAZARDOUS ACTIVITY" shall mean the distribution, generation, handling,
importing, management, manufacturing, processing, production, refinement,
Release, storage, transfer, transportation, treatment, or use (including any
withdrawal or other use of groundwater) of Hazardous Materials in, on, under,
about, or from the Facilities or any part thereof into the Environment, and any
other act, business, operation, or thing that increases the danger, or risk of
danger, or poses an unreasonable risk of harm to persons or property on or off
the Facilities, or that may affect the value of the Facilities or the Company.
"HAZARDOUS MATERIALS" shall mean any waste or other substance that is
listed, defined, designated, or classified as, or otherwise determined to be,
hazardous, radioactive, or toxic or a pollutant or a contaminant under or
pursuant to any Environmental Law, including any admixture or solution thereof,
and specifically including petroleum and all derivatives thereof or synthetic
substitutes therefor and asbestos or asbestos-containing materials.
"INTELLECTUAL PROPERTY ASSETS" shall have the meaning set forth in Section
4.22.
"INTERIM BALANCE SHEET" shall have the meaning set forth in Section 4.4.
"IRC" shall mean the Internal Revenue Code of 1986, as amended, or any
successor law, and regulations issued by the IRS pursuant to the Internal
Revenue Code or any successor law.
"IRS" shall mean the United States Internal Revenue Service or any
successor agency, and, to the extent relevant, the United States Department of
the Treasury.
"KNOWLEDGE" of a particular fact or other matter shall mean such individual
is actually aware of such fact or other matter. A Person (other than an
individual) will be deemed to have "Knowledge" of a particular fact or other
matter if any individual who is serving as a director, or executive or operating
officer of such Person (or in any similar capacity) has Knowledge of such fact
or other matter.
"LEGAL REQUIREMENT" shall mean any federal, state, local, municipal,
foreign, international, multinational, or other administrative order,
constitution, law, ordinance, principle of common law, regulation, statute, or
treaty.
"LETTER OF TRANSMITTAL" shall have the meaning set forth in Section 3.3(c)
hereof.
"MERGER" shall mean the merger of MEMCO with and into the Company with the
Company being the surviving corporation pursuant to this Agreement.
"OCCUPATIONAL SAFETY AND HEALTH LAW" shall mean any Legal Requirement
designed to provide safe and healthful working conditions and to reduce
occupational safety and health hazards, and any program, whether governmental or
private (including those promulgated or sponsored by industry associations and
insurance companies), designed to provide safe and healthful working conditions.
"ORDER" shall mean any award, decision, injunction, judgment, order,
ruling, subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
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"ORDINARY COURSE OF BUSINESS" shall mean an action taken by a Person which:
(a) is consistent with the past practices of such Person and is taken in
the ordinary course of the normal day-to-day operations of such Person;
(b) is not required to be authorized by the board of directors of such
Person (or by any Person or group of Persons exercising similar authority); and
(c) is similar in nature and magnitude to actions customarily taken,
without any authorization by the board of directors (or by any Person or group
of Persons exercising similar authority), in the ordinary course of the normal
day-to-day operations of other Persons that are in the same line of business as
such Person.
"ORGANIZATIONAL DOCUMENTS" shall mean: (a) the articles or certificate of
incorporation and the bylaws of a corporation; (b) the partnership agreement and
any statement of partnership of a general partnership; (c) the limited
partnership agreement and the certificate of limited partnership of a limited
partnership; (d) any charter or similar document adopted or filed in connection
with the creation, formation, or organization of a Person; and (e) any amendment
to any of the foregoing.
"PERSON" shall mean any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"PLAN" shall have the meaning set forth in Section 4.13(a).
"PROCEEDING" shall mean any action, arbitration, audit, hearing,
investigation, litigation, or suit (whether civil, criminal, administrative,
investigative, or informal) commenced, brought, conducted, or heard by or
before, or otherwise involving, any Governmental Body or arbitrator.
"RELATED PERSON" shall mean with respect to a particular individual:
(a) each other member of such individual's Family;
(b) any Person that is directly or indirectly controlled by such individual
or one or more members of such individual's Family;
(c) any Person in which such individual or members of such individual's
Family hold (individually or in the aggregate) a Material Interest; or
(d) any Person with respect to which such individual or one or more members
of such individual's Family serves as a director, officer, partner, executor, or
trustee (or in a similar capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is directly or
indirectly controlled by, or is directly or indirectly under common control with
such specified Person;
(b) any Person that holds a Material Interest in such specified Person;
(c) each Person that serves as a director, officer, partner, executor, or
trustee of such specified Person (or in a similar capacity);
(d) any Person in which such specified Person holds a Material Interest;
(e) any Person with respect to which such specified Person serves as a
general partner or a trustee (or in a similar capacity); or
(f) any Related Person of any individual described in clause (b) or (c).
For purposes of this definition, (a) the "Family" of an individual includes
(i) the individual, (ii) the individual's spouse and (iii) any other natural
person who is related to the individual or the individual's spouse within the
second degree, and (b) "Material Interest" means direct or indirect beneficial
ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934)
of voting securities or other voting interests
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<PAGE> 120
representing at least 10% of the outstanding voting power of a Person or equity
securities or other equity interests representing at least 10% of the
outstanding equity securities or equity interests in a Person.
"RELEASE" shall mean any spilling, leaking, emitting, discharging,
depositing, escaping, leaching, dumping, or other releasing into the
Environment, whether intentional or unintentional.
"REPRESENTATIVE" shall mean with respect to a particular Person, any
director, officer, employee, agent, consultant, advisor, or other representative
of such Person, including legal counsel, accountants, and financial advisors.
"SEALS" shall mean William R. Seals.
"SEC" shall mean the Securities and Exchange Commission.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"SHAREHOLDER RELEASES" shall have the meaning set forth in Section
2.6(a)(iv).
"SHAREHOLDERS" shall mean all holders of the Shares.
"SHAREHOLDERS AGREEMENT" shall mean the agreement dated as of June 30, 1995
among Seals, John L. Maguire, Harold N. McKinney, W. Jerome McGee and the
Company.
"SHARES" shall mean all issued and outstanding shares of capital stock of
the Company.
"SUBSIDIARY" shall mean with respect to any Person (the "Owner"), any
corporation or other Person of which securities or other interests having the
power to elect a majority of that corporation's or other Person's board of
directors or similar governing body, or otherwise having the power to direct the
business and policies of that corporation or other Person (other than securities
or other interests having such power only upon the happening of a contingency
that has not occurred) are held by the Owner or one or more of its Subsidiaries;
when used without reference to a particular Person, "Subsidiary" means a
Subsidiary of the Company.
"TAX" shall mean any tax (including any income tax, capital gains tax,
value-added tax, sales tax, property tax, gift tax or estate tax), levy,
assessment, tariff, duty (including any customs duty), deficiency or other fee,
and any related charge or amount (including any fine, penalty, interest or
addition to tax), imposed, assessed or collected by or under the authority of
any Governmental Body or payable pursuant to any tax-sharing agreement or any
other Contract relating to the sharing or payment of any such tax, levy,
assessment, tariff, duty, deficiency or fee.
"TAX RETURN" shall mean any return (including any information return),
report, statement, schedule, notice, form, or other document or information
filed with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection,
or payment of any Tax or in connection with the administration, implementation,
or enforcement of or compliance with any Legal Requirement relating to any Tax.
"TBCA" shall mean the Tennessee Business Corporation Act.
"THIRD PARTY" shall mean a Person other than Unison, MEMCO, John L.
Maguire, Harold N. McKinney, W. Jerome McGee, or any affiliate thereof.
"THIRD PARTY ACQUISITION" shall mean the occurrence of any of the following
events: (i) the acquisition of the Company by merger, consolidation, or other
business combination transaction by a Third Party; (ii) the acquisition by any
Third Party of, or any divestiture or other transaction resulting in the Company
owning less than, 50% or more (in book value or market value) of the total
assets of the Company, taken as a whole as of the date hereof; (iii) the
acquisition by a Third Party of 50% or more of the outstanding Shares, whether
by tender offer, exchange or otherwise; or (iv) the adoption by the Company of a
plan of liquidation or a plan of recapitalization or the declaration or payment
of an extraordinary dividend.
"THREAT OF RELEASE" shall mean a substantial likelihood of a Release that
may require action in order to prevent or mitigate damage to the Environment
that may result from such Release.
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"THREATENED" in respect of any claim, Proceeding, dispute, action, or other
matter shall mean that any demand or statement has been made (orally or in
writing) or any notice has been given (orally or in writing).
"TRANSACTION EXPENSES" shall mean all out-of-pocket expenses and fees up to
$50,000 in the aggregate (including, without limitation, legal fees and
expenses, fees and expenses payable to all banks, investment banking firms,
other financial institutions and other persons and their respective agents and
counsel for arranging, committing to provide or providing any financing or
services for the Merger and any transactions contemplated thereby or structuring
the transactions, and all fees of counsel, accountants, experts, consultants and
soliciting or information firms to Unison and MEMCO, and all printing, mailing
and advertising expenses) actually incurred and paid by Unison or MEMCO or on
their behalf in connection with the transactions, including, without limitation,
any litigation related thereto and the financing thereof, and actually incurred
and paid by banks, investment banking firms, other financial institutions and
other persons and assumed by Unison or MEMCO in connection with the negotiation,
preparation, execution and performance of this Agreement, the structuring and
financing of the Merger and any transactions contemplated hereby and thereby and
any litigation and any financing commitments or agreements relating thereto.
"UNISON COMMON STOCK" shall mean the $.001 par value per share common stock
of Unison.
SECTION 2 THE MERGER AND EFFECTIVE TIME;
SURVIVING CORPORATION; CLOSING
SECTION 2.1 The Merger. At the Effective Time, and subject to the terms
and conditions set forth herein, MEMCO shall be merged with and into the Company
and the separate existence of MEMCO shall thereupon cease, in accordance with
the applicable provisions of the TBCA. The Company shall be the surviving
corporation in the Merger (sometimes referred to herein as the "Surviving
Corporation") and will continue to be governed by the State of Tennessee and all
of its rights, privileges, immunities and franchises, public or private, and all
of its duties and liabilities as a corporation organized under the TBCA, will
continue unaffected by the Merger. The Merger will have the effects specified by
the TBCA.
SECTION 2.2 Effective Time. At the Closing, the Company and MEMCO will
execute and deliver articles of merger (the "Articles of Merger") and a
certificate of merger (the "Certificate of Merger") substantially in the forms
of Exhibits 2.2(A) and 2.2(B), respectively, and will, as promptly as
practicable thereafter, cause the Articles of Merger to be filed with the
Secretary of State of the State of Tennessee, as provided in Section 48-21-107
of the TBCA, and the Certificate of Merger to be filed with the Secretary of
State of the State of Delaware as provided in Section 252(c) of the DGCL.
Subject to and in accordance with the TBCA and DGCL, the Merger shall become
effective at the date and time specified in the Articles of Merger and
Certificate of Merger (the "Effective Time").
SECTION 2.3 Articles of Incorporation And Bylaws. The Articles of
Incorporation and Bylaws of the Company as in effect immediately prior to the
Effective Time shall be the Articles of Incorporation and Bylaws of the
Surviving Corporation.
SECTION 2.4 Board Of Directors. From and after the Effective Time, the
Board of Directors of MEMCO shall be the Board of Directors of the Surviving
Corporation.
SECTION 2.5 Closing. The closing of the transactions contemplated herein
(the "Closing") shall take place at the offices of Quarles & Brady, One East
Camelback, Suite 400, Phoenix, Arizona at 10:00 a.m. (local time) on September
30, 1996 or at such other time and place as the parties may agree. Subject to
the provisions of Section 9, failure to consummate the Contemplated Transactions
on the date and time and at the place determined pursuant to this Section 2.5
will not result in the termination of this Agreement and will not relieve any
party of any obligation under this Agreement.
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SECTION 2.6 Closing Obligations. At the Closing:
(a) The Company will deliver to Unison and MEMCO:
(i) two copies of the Articles of Merger, each duly executed on behalf
of the Company;
(ii) two copies of the Certificate of Merger, each duly executed on
behalf of the Company;
(iii) stock certificates representing all of the Closing Shares,
together with duly executed Letters of Transmittal by each holder of
Closing Shares;
(iv) releases in the form of Exhibit 2.6(a)(iv) executed by each of
the Shareholders listed on Schedule 2.6(a)(iv) (collectively, the
"Shareholder Releases");
(v) a certificate executed by the Company representing and warranting
to Unison and MEMCO that each of the Company's representations and
warranties in this Agreement was accurate in all respects as of the date of
this Agreement and is accurate in all respects as of the Closing Date as if
made on the Closing Date (giving full effect to any supplements to the
Disclosure Schedules that were delivered by the Company to Unison and MEMCO
prior to the Closing Date in accordance with Section 6.8); and
(vi) copies of the resolutions of the Company's Board of Directors and
Shareholders duly authorizing the Contemplated Transactions.
(b) Unison and MEMCO will deliver or cause to be delivered to the Company:
(i) two copies of the Articles of Merger, each duly executed on behalf
of MEMCO;
(ii) two copies of the Certificate of Merger, each duly executed on
behalf of MEMCO;
(iii) a certificate executed by Unison and MEMCO representing and
warranting to the Company that each of Unison's and MEMCO's representations
and warranties in this Agreement was accurate in all respects as of the
date of this Agreement and is accurate in all respects as of the Closing
Date as if made on the Closing Date (giving full effect to any supplements
to the schedules, delivered by Unison and MEMCO to the Company pursuant to
Section 5, prior to the Closing Date in accordance with Section 6.8); and
(iv) copies of the resolutions of Unison's and MEMCO's Board of
Directors and shareholders duly authorizing the Contemplated Transactions.
SECTION 3 CONVERSION OF SHARES
SECTION 3.1 Conversion Of Shares In The Merger. At the Effective Time, by
virtue of the Merger and without any action on the part of any holder of capital
stock of the Company:
(a) The Shares issued and outstanding immediately prior to the Effective
Time shall be canceled and extinguished and be converted into the following:
<TABLE>
<CAPTION>
NUMBER OF
SHAREHOLDER SHARES CONSIDERATION
--------------------------------------- --------- ----------------------------------
<S> <C> <C>
William R. Seals....................... 648 The Closing Shares Consideration
John L. Maguire........................ 118 The right to receive 6,334 shares
of Unison Common Stock
Harold N. McKinney..................... 117 The right to receive 6,333 shares
of Unison Common Stock
W. Jerome McGee........................ 117 The right to receive 6,333 shares
of Unison Common Stock
---------
Total........................ 1,000
========
</TABLE>
(b) The Shares of Unison Common Stock to be issued in the Merger shall be
distributed by the Exchange Agent to each Shareholder pursuant to Section 3.3
hereof.
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(c) Each share of Common Stock, par value $.01 per share, of MEMCO issued
and outstanding immediately prior to the Effective Time shall be converted into
one validly issued, fully paid and nonassessable share of Common Stock, par
value $.01 per share, of the Surviving Corporation.
(d) If, between the date of this Agreement and the Effective Time, the
outstanding number of shares of Unison Common Stock shall have been changed into
a different number of shares by reason of a split-up or combination of shares of
Unison Common Stock, or with respect to such split-up or combination there shall
be declared a record date within said period with a distribution date after the
Effective Time or a stock dividend on Unison Common Stock shall be declared with
a record date within such period, the number of shares of Unison Common Stock to
be delivered pursuant to Section 3.1(a) and subject to adjustment as provided in
Section 3.2 shall be appropriately adjusted.
SECTION 3.2 Adjustments to Share Consideration.
(a) The aggregate number of Unison shares to be delivered under Section
3.1(a) shall be subject to reduction based on net income of the Company for the
quarter ended June 30, 1996 (the "Second Quarter Net Income").
(b) As soon as reasonably practicable after the receipt of an income
statement for the Company for the quarter ended June 30, 1996, in accordance
with GAAP consistently applied throughout the period, which the Company shall
use its Best Efforts to furnish to Unison and MEMCO within 30 days of the end of
such quarter, Unison shall:
(i) subtract from (1) the Second Quarter Net Income (2) that portion
("Unison Testing Net Income") of Second Quarter Net Income attributable to
testing by the Company at or for residents of long-term care facilities
owned, leased or managed by Unison or by any of its Subsidiaries ("Revised
Second Quarter Net Income"). Unison shall calculate Unison Testing Net
Income by multiplying (X) the revenue from testing by the Company at or for
residents of long-term care facilities owned, leased or managed by Unison
or by any of its Subsidiaries by (Y) the Company's average margin and
subtracting from such product (Z) an amount for tax based on an effective
rate of 34%; and
(ii) divide (1) Revised Second Quarter Net Income by (2) 19,000.
(c) To the extent that the amount obtained in Section 3.2(b)(ii) is less
than .22, Unison shall deduct from each Shareholder entitled to receive shares
of Unison Common Stock in the Merger a ratable number of shares of Unison Common
Stock sufficient such that the calculation in Section 3.2(b)(ii) shall yield not
less than .22.
SECTION 3.3 Exchange of Certificates.
(a) At the Effective Time, Unison shall pay to Seals the Closing Shares
Consideration against delivery by such Shareholder of each of the following:
(i) a duly executed letter of transmittal; and
(ii) the certificates representing all Closing Shares held by such
Shareholder.
(b) As of the Effective Time, MEMCO shall deposit with the Exchange Agent,
for the benefit of those holders of Shares whose Shares will be converted into
the right to receive shares of Unison Common Stock in the Merger, for exchange
in accordance with this Section 3, through the Exchange Agent, certificates
representing the shares of Unison Common Stock issuable pursuant to Section
3.1(a) in exchange for such issued and outstanding Shares. Unison Common Stock
into which Shares shall be converted pursuant to the Transaction shall be deemed
to have been issued at the Effective Time.
(c) As soon as reasonably practicable after the Effective Time, Unison and
MEMCO shall cause the Exchange Agent to mail to each record holder of Shares (i)
a letter of transmittal (the "Letter of Transmittal"), which shall specify that
delivery shall be effected, and risk of loss and title to the certificates
representing the Shares held by such record holder (the "Certificates") shall
pass, only upon delivery of the Certificates to the Exchange Agent and which
shall be in such form and have such other provisions as
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MEMCO shall reasonably specify and (ii) instructions for surrendering the
Certificates in exchange for certificates representing shares of Unison Common
Stock. Upon surrender of a Certificate for cancellation to the Exchange Agent,
together with such Letter of Transmittal duly executed and such other documents
as MEMCO or the Exchange Agent shall reasonably request, the holder of such
Certificate shall be entitled to receive promptly in exchange therefor a
certificate representing the shares of Unison Common Stock described in Section
3.1(a) hereof (rounded down to the nearest whole share). The Certificates so
surrendered shall forthwith be canceled. From and after the Effective Time,
Unison shall be entitled to treat such Certificates for Shares which have not
yet been surrendered for exchange as evidencing the ownership of that number of
shares of Unison Common Stock into which the Shares represented by such
Certificates shall have been converted, notwithstanding any failure to surrender
such certificates.
(d) Until surrendered as contemplated by this Section 3.3, each Certificate
shall be deemed at any time after the Effective Time to represent only the right
to receive upon such surrender such shares of Unison Common Stock as provided in
this Section 3.
(e) If any certificate for shares of Unison Common Stock is to be issued in
a name other than that in which the Certificate for Shares surrendered therefor
is registered, it shall be a condition of such issuance that the person
requesting such issuance shall pay any transfer or other tax required by the
reason of the issuance of such shares of Unison common stock in a name other
than that of the registered holder of the Certificate surrendered, or shall
establish to the satisfaction of Unison or the Exchange Agent that such tax has
been paid or is not applicable.
(f) Neither Unison, MEMCO nor the Company shall be liable to the holder of
Shares for any shares of Unison Common Stock delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
SECTION 4 REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Unison and MEMCO as follows:
SECTION 4.1 Organization and Good Standing; Capitalization; Agreements
Regarding Capital Stock.
(a) Schedule 4.1(a) hereto contains a complete and accurate list of the
Company's name, its jurisdiction of incorporation, each other jurisdiction in
which it is authorized to do business, and its capitalization (including the
number of shares of each class authorized and outstanding, the identity of each
stockholder and each Person who has any right to acquire capital stock from such
the Company and the number of shares of each class of stock held by each Person
or which such Person has the right to acquire from the Company, all on an actual
basis and fully-diluted basis as of the Effective Time). The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of its jurisdiction of incorporation, with full corporate power and
authority to conduct its business as it is now being conducted, to own or use
the properties and assets that it purports to own or use, and to perform all its
obligations under Applicable Contracts. The Company is duly qualified to do
business as a foreign corporation and is in good standing under the laws of each
state or other jurisdiction in which either the ownership or use of the
properties owned or used by it, or the nature of the activities conducted by it,
requires such qualification, except where the failure to be so qualified would
not have a material adverse effect on the assets, financial condition or results
of operations of the Company.
(b) Attached as Schedule 4.1(b) are true and correct copies of the
Organizational Documents of the Company, as currently in effect.
(c) Set forth on Schedule 4.1(c) is a true and correct description of all
agreements, rights or other Contracts pursuant to which any Person has the right
to: (i) acquire from the Company, by purchase, exercise, exchange, conversion or
otherwise, any equity or other security of the Company or the right to acquire
any such security; (ii) cause the Company to register, under the Securities Act
or otherwise, any securities of the Company; or (iii) vote or direct the voting
of any class of capital stock of the Company or appoint any member of the
Company's board of directors.
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SECTION 4.2 Authority; No Conflict.
(a) This Agreement constitutes the legal, valid, and binding obligation of
the Company, enforceable against the Company in accordance with its terms. The
Company has the absolute and unrestricted right, power, authority and capacity
to execute and deliver this Agreement and to perform its obligations hereunder.
(b) Except as set forth on Schedule 4.2(b), neither the execution and
delivery of this Agreement nor the consummation or performance of any of the
Contemplated Transactions will, directly or indirectly (with or without notice
or lapse of time):
(i) contravene, conflict with, or result in a violation of (A) any
provision of the Organizational Documents of the Company, or (B) any
resolution adopted by the board of directors or the stockholders of the
Company;
(ii) to Company's knowledge, contravene, conflict with, or result in a
violation of, or give any Governmental Body or other Person the right to
challenge any of the Contemplated Transactions or to exercise any remedy or
obtain any relief under, any Legal Requirement or any Order to which the
Company, or any of the assets owned or used by the Company, may be subject;
(iii) to Company's knowledge, contravene, conflict with, or result in
a violation of any of the terms or requirements of, or give any
Governmental Body the right to revoke, withdraw, suspend, cancel,
terminate, or modify, any Governmental Authorization that is held by the
Company or that otherwise relates to the business of, or any of the assets
owned or used by, the Company;
(iv) to Company's knowledge, cause the Company to become subject to,
or to become liable for the payment of, any Tax;
(v) except as set forth on Schedule 4(b)(v), contravene, conflict
with, or result in a violation or breach of any provision of, or give any
Person the right to declare a default or exercise any remedy under, or to
accelerate the maturity or performance of, or to cancel, terminate, or
modify, any Applicable Contract to the extent any of the foregoing would
have a material adverse effect on the financial condition of the Company or
the Company's business operations; or
(vi) to Company's knowledge, result in the imposition or creation of
any Encumbrance upon or with respect to any of the assets owned or used by
the Company to the extent any of the foregoing would have a material
adverse effect on the financial condition of the Company or the Company's
business operations.
(c) Other than obtaining the requisite vote of the Shareholders, the
Company is not or will not be required to give any notice to or obtain any
Consent from any Person in connection with the execution and delivery of this
Agreement or the consummation or performance of any of the Contemplated
Transactions.
SECTION 4.3 Capitalization. The authorized and outstanding equity
securities of the Company are as set forth on Schedule 4.1(a) hereto. Schedule
4.1(a) also sets forth whether or not Encumbrances on such equity securities
will be satisfied at or prior to the Closing. Except with regard to the
Shareholders Agreement, no legend or other reference to any purported
Encumbrance appears upon any certificate representing equity securities of the
Company. All of the outstanding equity securities of the Company have been duly
authorized and validly issued and are fully paid and nonassessable, and no such
security was issued in violation of any preemptive right or other right to
subscribe to or purchase any securities of the Company. None of the outstanding
equity securities or other securities of the Company was issued in violation of
the Securities Act or any other Legal Requirement. The Company does not own, or
have any Contract to acquire, any equity securities or other securities of any
Person or any direct or indirect equity or ownership interest in any other
business.
SECTION 4.4 Financial Statements. The Company has delivered to MEMCO: (a)
a balance sheet of the Company as at December 31, 1994, and the related
statement of income, changes in stockholders' equity, and cash flow for each of
the prior fiscal years then ended, together with the report thereon of Kathryn
A. Woolley, CPA, independent certified public accountant; (b) a balance sheet of
the Company as at
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December 31, 1995 (including the notes thereto, the "Balance Sheet"), and the
related statement of income, changes in stockholders' equity, and cash flow for
the fiscal year then ended, together with the report thereon of Kathryn A.
Woolley, CPA, independent certified public accountant, and (c) an unaudited
balance sheet of the Company as at March 31, 1996 (the "Interim Balance Sheet")
and the related unaudited statement of income, changes in stockholders' equity,
and cash flow for the three months then ended. Such financial statements (and
notes where applicable) fairly present the financial condition and the results
of operations, changes in stockholders' equity, and cash flow of the Company as
at the respective dates of and for the periods referred to in such financial
statements, all in accordance with GAAP consistently applied throughout the
periods involved, subject, in the case of interim financial statements, to
normal recurring year-end adjustments (the effect of which will not,
individually or in the aggregate, be materially adverse) and the absence of
notes (that, if presented, would not differ materially from those included in
the Balance Sheet). No financial statements of any Person other than the Company
are required by GAAP to be included in the financial statement of the Company.
SECTION 4.5 Books and Records. Except as set forth on Schedule 4.5
hereto, the books of account, minute books, stock record books, and other
records of the Company, all of which have been made available to MEMCO, are
complete and correct and have been maintained in accordance with sound business
practices. The minute books of the Company contain accurate and complete records
of all meetings held of, and corporate action taken by, the stockholders, the
Boards of Directors, and committees of the Boards of Directors of the Company,
and no meeting of any such stockholders, Board of Directors, or committee in
which material matters have been acted upon has been held for which minutes have
not been prepared and are not contained in such minute books. At the Closing,
all of those books and records will be in the possession of the Company.
SECTION 4.6 Title to Properties; Encumbrances. Except as set forth on
Schedule 4.6 hereto, the Company does not own, directly or indirectly, any real
property. Set forth on Schedule 4.6 hereto is a complete and accurate list of
all real property leases, or other real property interests owned by the Company.
The Company owns all the properties and assets (whether real, personal, or mixed
and whether tangible or intangible) that it purports to own, including all of
the properties and assets reflected in the Balance Sheet and the Interim Balance
Sheet (except for assets held under capitalized leases disclosed on Schedule 4.6
and personal property sold since the date of the Balance Sheet and the Interim
Balance Sheet, as the case may be, in the Ordinary Course of Business), and all
of the properties and assets purchased or otherwise acquired by the Company
since the date of the Balance Sheet (except for personal property acquired and
sold since the date of the Balance Sheet in the Ordinary Course of Business and
consistent with past practice). All material properties and assets reflected in
the Balance Sheet and the Interim Balance Sheet are free and clear of all
Encumbrances except (a) mortgages or security interests shown on the Balance
Sheet or the Interim Balance Sheet as securing specified liabilities or
obligations, with respect to which no default (or event that, with notice or
lapse of time or both, would constitute a default) exists, (b) mortgages or
security interests incurred in connection with the purchase of property or
assets after the date of the Interim Balance Sheet (such mortgages and security
interests being limited to the property or assets so acquired), with respect to
which no default (or event that, with notice or lapse of time or both, would
constitute a default) exists, and (c) liens for current taxes not yet due.
SECTION 4.7 Condition and Sufficiency of Assets. Set forth on Schedule
4.7 hereto is a complete and accurate list of all equipment owned or leased by
the Company with an acquisition cost of $1,000 or more (the "Equipment"),
showing whether each item is owned or leased. All items of Equipment are in good
operating condition and repair, and are adequate for the uses to which they are
being put, and none of such items is in need of maintenance or repairs except
for ordinary, routine maintenance and repairs that are not material in nature or
cost. The items of Equipment are sufficient for the continued conduct of the
Company's business immediately after the Closing in substantially the same
manner as conducted prior to the Closing.
SECTION 4.8 Accounts Receivable. All accounts receivable of the Company
that are reflected on the Balance Sheet or the Interim Balance Sheet or on the
accounting records of the Company as of the Closing Date (collectively, the
"Accounts Receivable") represent or will represent valid obligations arising
from sales actually made or services actually performed in the Ordinary Course
of Business. Unless paid prior to the
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Closing Date, the Accounts Receivable are or will be as of the Closing Date
collectible net of the respective reserves shown on the Balance Sheet or the
Interim Balance Sheet (which reserves are adequate and calculated consistent
with past practice). Subject to such reserves, each of the Accounts Receivable
either has been or will be collected in an amount which is not less than 95% of
the face amount of the receivable, within 120 days after the day on which it
first becomes due and payable. To the Company's Knowledge, there is no material
contest, claim, or right of set-off under any Contract with any obligor of an
Accounts Receivable relating to the amount or validity of such Accounts
Receivable. Set forth on Schedule 4.8 is a complete and accurate list of all
Accounts Receivable as of the date of the Interim Balance Sheet, which list sets
forth the aging of such Accounts Receivable.
SECTION 4.9 Prepaid Supplies. Set forth on Schedule 4.9 is a complete and
accurate description of all prepaid supplies of the Company with a book value of
$100 or more (the "Prepaid Supplies"). The Prepaid Supplies, whether or not
reflected in the Balance Sheet or the Interim Balance Sheet, consists of a
quality and quantity usable in the Ordinary Course of Business. The quantities
of Prepaid Supplies are not excessive and are reasonable in the present
circumstances of the Company.
SECTION 4.10 No Undisclosed Liabilities. Except as set forth on Schedule
4.10, the Company has no liabilities or obligations of any nature (whether known
or unknown and whether absolute, accrued, contingent, or otherwise) except for
liabilities or obligations reflected or reserved against in the Balance Sheet or
the Interim Balance Sheet and current liabilities incurred in the Ordinary
Course of Business since the date thereof.
SECTION 4.11 Taxes.
(a) The Company has filed or caused to be filed all income tax and other
material Tax Returns that are or were required to be filed by or with respect to
it, pursuant to applicable Legal Requirements. The Company has delivered to
MEMCO copies of, and Schedule 4.11 hereto contains a complete and accurate list
of, all such income tax and other material Tax Returns filed since April 1,
1990. The Company has paid all Taxes due in respect of such tax returns.
(b) No United States federal or state income Tax Return of the Company has
been audited by the IRS or relevant state tax authorities and all such Tax
Returns are closed by the applicable statute of limitations for all taxable
years through December 31, 1992. The Company has not given or been requested to
give waivers or extensions (or is or would be subject to a waiver or extension
given by any other Person) of any statute of limitations relating to the payment
of Taxes of the Company or for which the Company may be liable.
(c) The charges, accruals, and reserves with respect to Taxes on the
respective books of the Company are adequate (determined in accordance with
GAAP) and are at least equal to the Company's liability for Taxes. To the
Company's Knowledge, there exists no proposed tax assessment against the Company
except as disclosed in the Balance Sheet. No consent to the application of
Section 341(f)(2) of the IRC has been filed with respect to any property or
assets held, acquired, or to be acquired by the Company. All Taxes that the
Company is or was required by Legal Requirements to withhold or collect have
been duly withheld or collected and, to the extent required, have been paid to
the proper Governmental Body or other Person.
(d) To the Company's Knowledge, all income tax and other material Tax
Returns filed by (or that include on a consolidated basis) the Company are true,
correct, and complete. There is no tax sharing agreement that will require any
payment by the Company after the date of this Agreement. The Company is not, or
within the five-year period preceding the Closing Date has not been, an "S"
corporation.
SECTION 4.12 No Material Adverse Change. Since the date of the Balance
Sheet, there has not been any material adverse change in the business,
operations, properties, prospects, assets, or condition of the Company, and no
event has occurred or circumstance exists that may result in such a material
adverse change.
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SECTION 4.13 Employee Benefits.
(a) As used in this Section 4.13, the following terms have the meanings set
forth below.
"COMPANY OTHER BENEFIT OBLIGATION" shall mean an Other Benefit Obligation
owed, adopted, or followed by the Company or an ERISA Affiliate of the Company.
"COMPANY PLAN" shall mean all Plans of which the Company or an ERISA
Affiliate of the Company is or was a Plan Sponsor, or to which the Company or an
ERISA Affiliate of the Company otherwise contributes or has contributed, or in
which the Company or an ERISA Affiliate of the Company otherwise participates or
has participated. All references to Plans are to Company Plans unless the
context requires otherwise.
"COMPANY VEBA" shall mean a VEBA whose members include employees of the
Company or any ERISA Affiliate of the Company.
"ERISA AFFILIATE" shall mean, with respect to the Company, any other person
that, together with the Company, would be treated as a single employer under IRC
sec. 414.
"MULTI-EMPLOYER PLAN" shall have the meaning set forth in ERISA
sec. 3(37)(A).
"OTHER BENEFIT OBLIGATIONS" shall mean all obligations, arrangements, or
customary practices, whether or not legally enforceable, to provide benefits,
other than salary, as compensation for services rendered, to present or former
directors, employees, or agents, other than obligations, arrangements, and
practices that are Plans. Other Benefit Obligations include consulting
agreements under which the compensation paid does not depend upon the amount of
service rendered, sabbatical policies, severance payment policies, and fringe
benefits within the meaning of IRC sec. 132.
"PENSION PLAN" shall have the meaning set forth in ERISA sec. 3(2)(A).
"PLAN" shall have the meaning set forth in ERISA sec. 3(3).
"PLAN SPONSOR" shall have the meaning set forth in ERISA sec. 3(16)(B).
"QUALIFIED PLAN" shall mean any Plan that meets or purports to meet the
requirements of IRC sec. 401(a).
"TITLE IV PLANS" shall mean all Pension Plans that are subject to Title IV
of ERISA, 29 U.S.C. sec. 1301 et seq., other than Multi-Employer Plans.
"VEBA" shall mean a voluntary employees' beneficiary association under IRC
sec. 501(c)(9).
"WELFARE PLAN" shall have the meaning set forth in ERISA sec. 3(1).
(b) (i) Schedule 4.13(b)(i) contains a complete and accurate list of
all Company Plans, Company Other Benefit Obligations, and Company VEBAs,
and identifies as such all Company Plans that are (A) Qualified Plans or
(B) Title IV Plans. Neither the Company nor any ERISA Affiliate
participates in or has ever participated in or had any obligation to
contribute to any defined benefit Pension Plan or Multi-Employer Plan nor
does the Company or any ERISA Affiliate have any liability under Title IV
of ERISA or Part 3 of Subtitle B of Title I of ERISA in connection with any
defined benefit Pension Plan or Multi-Employer Plan.
(ii) Schedule 4.14(b)(ii) contains a complete and accurate list of (A)
all ERISA Affiliates of the Company, and (B) all Plans of which any such
ERISA Affiliate is or was a Plan Sponsor, in which any such ERISA Affiliate
participates or has participated, or to which any such ERISA Affiliate
contributes or has contributed.
(iii) The Company is not liable for post-retirement benefits.
(c) The Company has delivered to MEMCO:
(i) all documents that set forth the terms of each Company Plan,
Company Other Benefit Obligation, or Company VEBA and of any related trust,
including (A) all plan descriptions and summary plan descriptions of
Company Plans for which the Company is required to prepare, file, and
distribute
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plan descriptions and summary plan descriptions, and (B) all summaries and
descriptions furnished to participants and beneficiaries regarding Company
Plans, Company Other Benefit Obligations and Company VEBAs for which a plan
description or summary plan description is not required;
(ii) all personnel, payroll, and employment manuals and policies;
(iii) a written description of any Company Plan or Company Other
Benefit Obligation that is not otherwise in writing;
(iv) all insurance policies purchased by or to provide benefits under
any Company Plan;
(v) all reports submitted within the four years preceding the date of
this Agreement by third party administrators, actuaries, investment
managers, consultants, or other independent contractors with respect to any
Company Plan, Company Other Benefit Obligation, or Company VEBA;
(vi) all notifications to employees of their rights under ERISA
sec. 601 et seq. and IRC sec. 4980B;
(vii) the Form 5500 filed in each of the most recent three plan years
with respect to each Company Plan, including all schedules thereto and the
opinions of independent accountants;
(viii) all notices that were given by the IRS, the Pension Benefit
Guaranty Corporation (the "PBGC"), or the Department of Labor to the
Company, any ERISA Affiliate of the Company, or any Company Plan within the
four years preceding the date of this Agreement; and
(ix) with respect to Qualified Plans and VEBAs, the most recent
determination letter for each Plan of the Company that is a Qualified Plan.
(d) Except as set forth on Schedule 4.13(d):
(i) The Company has performed in all material respects all of its
obligations under all Company Plans, Company Other Benefit Obligations and
Company VEBAs. The Company has made appropriate entries in their financial
records and statements for all obligations and liabilities under such
Plans, VEBAs and Obligations that have accrued but are not due.
(ii) To the knowledge of the Company, no statement, either written or
oral, has been made by the Company to any Person with regard to any Plan or
Other Benefit Obligation that was not in accordance with the Plan or Other
Benefit Obligation and that could have a material adverse economic
consequence to the Company or to MEMCO.
(iii) The Company, with respect to all Company Plans, Company Other
Benefits Obligations, and Company VEBAs, is, and each Company Plan, Company
Other Benefit Obligation, and Company VEBA is, in compliance in all
material respects with ERISA, the IRC, and other applicable Laws including
the provisions of such Laws expressly mentioned in this Section 4.13.
(A) No non-exempt transaction prohibited by ERISA sec. 406 and no
non-exempt "prohibited transaction" under IRC sec. 4975(c) have occurred
with respect to any Company Plan.
(B) To the knowledge of the Company, it has no liability to the IRS
with respect to any Plan, including any liability imposed by Chapter 43
of the IRC.
(C) To the knowledge of the Company, it has no liability to the
PBGC with respect to any Plan or has any liability under ERISA sec. 502
or sec. 4071.
(D) All filings required by ERISA and the IRC as to each Plan have
been timely filed, and all notices and disclosures to participants
required by either ERISA or the IRC have been timely provided.
(E) All contributions and payments made or accrued with respect to
all Company Plans, Company Other Benefit Obligations and Company VEBAs
are deductible under IRC sec. 162 or sec. 404. No amount, or any asset
of any Company Plan or Company VEBA, is subject to tax as unrelated
business taxable income.
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(iv) Each Company Plan can be terminated without payment of any
additional contribution or amount and without the vesting or acceleration
of any benefits promised by such Plan.
(v) Since January 1, 1996, there has been no establishment or
amendment of any Company Plan, Company VEBA or Company Other Benefit
Obligation.
(vi) To the knowledge of the Company, no event has occurred or
circumstance exists that could result in a material increase in premium
costs of Company Plans and Company Other Benefit Obligations that are
insured, or a material increase in benefit costs of such Plans and
Obligations that are self-insured.
(vii) Other than claims for benefits submitted by participants or
beneficiaries, no claim against, or legal proceeding involving, any Company
Plan, Company Other Benefit Obligation or Company VEBA or fiduciary of the
same is pending or, to the Knowledge of the Company, is Threatened.
(viii) No Company Plan is a stock bonus, pension, or profit-sharing
plan within the meaning of IRC sec. 401(a).
(ix) To the knowledge of the Company: (A) each Qualified Plan of the
Company is qualified in form and operation under IRC sec. 401(a); each
trust for each such Plan is exempt from federal income tax under IRC
sec. 501(a); and (B) no event has occurred or circumstance exists that will
or could give rise to disqualification or loss of tax-exempt status of any
such Plan or trust.
(x) The Company and each ERISA Affiliate of the Company has met the
minimum funding standard, and has made all contributions required, under
ERISA sec. 302 and IRC sec. 412.
(xi) No Company Plan is subject to Title IV of ERISA.
(xii) Except to the extent required under ERISA sec. 601 et seq. and
IRC sec. 4980B and applicable state law, the Company provides no health or
welfare benefits for any retired or former employee or is obligated to
provide health or welfare benefits to any active employee following such
employee's retirement or other termination of service.
(xiii) To the extent the Company provides any benefit to retirees, it
has the right to modify and terminate benefits to retirees (other than
pensions) with respect to both retired and active employees.
(xiv) The Company has complied with the provisions of ERISA sec. 601
et seq. and IRC sec. 4980B in all material respects.
(xv) No payment that is owed or may become due to any director,
officer, employee, or agent of the Company will be non-deductible to the
Company or subject to tax under IRC sec. 280G or sec. 4999; nor will the
Company be required to "gross up" or otherwise compensate any such person
because of the imposition of any excise tax on a payment to such person.
(xvi) The consummation of the Contemplated Transactions will not: (i)
give rise to any liability or obligation of the Company pursuant to any
Company Plan; (ii) accelerate the time of payment or vesting, or increase
the amount of compensation due under any Company Plan; (ii) cause any
individual to accrue or receive additional benefits, service or accelerated
rights to payment of benefits under any Company Plan; or (iv) directly or
indirectly cause the Company or any ERISA Affiliate to transfer or set
aside any assets to fund or otherwise provide for benefit for any
individual.
SECTION 4.14 Compliance with Legal Requirements; Governmental
Authorizations.
(a) Except as set forth on Schedule 4.14(a):
(i) to Company's Knowledge, it is, and at all times since December 31,
1994 has been, in compliance in all material respects with each Legal
Requirement that is or was applicable to it or to the conduct or operation
of its business or the ownership or use of any of its assets;
(ii) to Company's Knowledge, no event has occurred or circumstance
exists that (with or without notice or lapse of time) (A) may constitute or
result in a violation by the Company of, or a failure on the part of the
Company to comply in all material respects with, any Legal Requirement, or
(B) may give
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rise to any obligation on the part of the Company to undertake, or to bear
all or any portion of the cost of, any remedial action of any nature; and
(iii) the Company has not received, at any time since December 31,
1994, any notice or other communication (whether oral or written) from any
Governmental Body or any other Person regarding (A) any actual or alleged
violation of, or failure to comply with, any Legal Requirement, or (B) any
actual or alleged obligation on the part of the Company to undertake, or to
bear all or any portion of the cost of, any remedial action of any nature.
(b) Schedule 4.14(b) contains a complete and accurate list of each
Governmental Authorization that is held by the Company or that otherwise relates
to the business of, or to any of the assets owned or used by, the Company. Each
Governmental Authorization listed or required to be listed in Schedule 4.14(b)
is, to Company's Knowledge, valid and in full force and effect, and such
Governmental Authorizations collectively constitute all of the Governmental
Authorizations necessary to permit the Company to lawfully conduct and operate
its business in the manner it currently conducts and operates such business and
to permit the Company to own and use its assets in the manner in which it
currently owns and uses such assets.
SECTION 4.15 Legal Proceedings; Orders.
(a) There is no pending Proceeding that has been commenced by or against
the Company or that otherwise relates to or may affect the business of, or any
of the assets owned or used by, the Company or that challenges, or that may have
the effect of preventing, delaying, making illegal, or otherwise interfering
with, any of the Contemplated Transactions. To the Knowledge of the Company,
except as set forth on Schedule 4.15, (1) no such Proceeding has been
Threatened, and (2) the Company has no Knowledge of any event that has occurred
or circumstance that exists that may give rise to or serve as a basis for the
commencement of any such Proceeding. The Company has delivered to MEMCO copies
of all pleadings, correspondence, and other documents relating to each
Proceeding listed on Schedule 4.15. The Proceedings listed on Schedule 4.15 will
not have a material adverse effect on the business, operations, assets,
condition, or prospects of the Company.
(b) There is no Order to which the Company, or any of the assets owned or
used by the Company, is subject and no officer, director, agent, or employee of
the Company is subject to any Order that prohibits such officer, director,
agent, or employee from engaging in or continuing any conduct, activity, or
practice relating to the business of the Company.
SECTION 4.16 Absence of Certain Changes and Events. Except as set forth
on Schedule 4.16, since the date of the Interim Balance Sheet, the Company has
conducted its businesses only in the Ordinary Course of Business and there has
not been any:
(a) change in the Company's authorized or issued capital stock; grant of
any stock option or right to purchase shares of capital stock of the Company;
issuance of any security convertible into such capital stock; grant of any
registration rights; purchase, redemption, retirement, or other acquisition by
the Company of any shares of any such capital stock; or declaration or payment
of any dividend or other distribution or payment in respect of shares of capital
stock;
(b) amendment to the Organizational Documents of the Company;
(c) payment by the Company of any bonuses, or increase by the Company in
salaries or other compensation to any employee, or entry into any employment,
severance, or similar Contract with any director, officer, or employee;
(d) adoption of, or increase in the payments to or benefits under, any
profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement, or other employee benefit plan for or with any employees of the
Company;
(e) damage to or destruction or loss of any asset or property of the
Company, whether or not covered by insurance, materially and adversely affecting
the properties, assets, business, financial condition, or prospects of the
Company, taken as a whole;
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(f) entry into, termination of, or receipt of notice of termination of any
license, distributorship, dealer, sales representative, joint venture, credit,
or similar agreement, or any Contract or transaction involving a total remaining
commitment by or to the Company of at least $50,000;
(g) sale (other than sales of inventory in the Ordinary Course of
Business), lease, or other disposition of any asset or property of the Company
or mortgage, pledge, or imposition of any lien or other encumbrance on any
material asset or property of the Company, including the sale, lease, or other
disposition of any of the Intellectual Property Assets;
(h) cancellation or waiver of any claims or rights with a value to the
Company in excess of $50,000;
(i) material change in the accounting methods used by the Company; or
(j) agreement, whether oral or written, by the Company to do any of the
foregoing.
SECTION 4.17 Contracts; No Defaults.
(a) Schedule 4.17(a) contains a complete and accurate list, and the Company
has delivered to MEMCO true and complete copies, of:
(i) each Applicable Contract that involves performance of services or
delivery of goods or materials by the Company of an amount or value in
excess of $50,000, including and, in the case of any service contract
entered into by the Company, setting forth the following information: name
and location of institution; circumstances under which such contract may be
terminated; term of contract; and annual service charge;
(ii) each Applicable Contract that involves performance of services or
delivery of goods or materials to the Company of an amount or value in
excess of $50,000;
(iii) each Applicable Contract that was not entered into in the
Ordinary Course of Business and that involves expenditures or receipts of
the Company in excess of $50,000;
(iv) each lease, rental or occupancy agreement, license, installment
and conditional sale agreement, and other Applicable Contract affecting the
ownership of, leasing of, title to, use of, or any leasehold or other
interest in, any real or personal property (except personal property leases
and installment and conditional sales agreements having a value per item or
aggregate payments of less than $25,000 and with terms of less than one
year);
(v) each licensing agreement or other Applicable Contract with respect
to patents, trademarks, copyrights, or other intellectual property,
including agreements with current or former employees, consultants, or
contractors regarding the appropriation or the non-disclosure of any of the
Intellectual Property Assets;
(vi) each joint venture, partnership, and other Applicable Contract
(however named) involving a sharing of profits, losses, costs, or
liabilities by the Company with any other Person;
(vii) each Applicable Contract containing covenants that in any way
purport to restrict the business activity of the Company or any Affiliate
of the Company or limit the freedom of the Company or any Affiliate of the
Company to engage in any line of business or to compete with any Person;
(viii) each Applicable Contract providing for payments to or by any
Person based on sales, purchases, or profits, other than direct payments
for goods;
(ix) each power of attorney that is currently effective and
outstanding;
(x) each Applicable Contract entered into other than in the Ordinary
Course of Business that contains or provides for an express undertaking by
the Company to be responsible for consequential damages;
(xi) each Applicable Contract for capital expenditures in excess of
$50,000;
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(xii) each written warranty, guaranty, and or other similar
undertaking with respect to contractual performance extended by the Company
other than in the Ordinary Course of Business; and
(xiii) each amendment, supplement, and modification (whether oral or
written) in respect of any of the foregoing.
(b) Except as set forth on Schedule 4.17(b), to Company's Knowledge, no
officer, director, agent, employee, consultant, or contractor of the Company is
bound by any Contract that purports to limit the ability of such officer,
director, agent, employee, consultant, or contractor to (A) engage in or
continue any conduct, activity, or practice relating to the business of the
Company, or (B) assign to the Company or to any other Person any rights to any
invention, improvement, or discovery.
(c) Each Contract identified or required to be identified on Schedule
4.17(a) is in full force and effect and to Company's knowledge is valid and
enforceable in accordance with its terms. Except as set forth on Schedule
4.17(c) hereto:
(i) The Company is, and at all times since December 31, 1994 has been,
in compliance in all material respects with all applicable terms and
requirements of each Contract under which the Company has or had any
obligation or liability or by which the Company or any of the assets owned
or used by the Company is or was bound;
(ii) each other Person that has or had any obligation or liability
under any Contract under which the Company has or had any rights is, and at
all times since December 31, 1994 has been, in compliance in all material
respects with all applicable terms and requirements of such Contract;
(iii) to Company's Knowledge, no event has occurred or circumstance
exists that (with or without notice or lapse of time) may contravene,
conflict with, or result in a violation or breach of, or give the Company
or other Person the right to declare a default or exercise any remedy
under, or to accelerate the maturity or performance of, or to cancel,
terminate, or modify, any Applicable Contract; and
(iv) the Company has not given to or received from any other Person,
at any time since December 31, 1994, any notice or other communication
(whether oral or written) regarding any actual or alleged violation or
breach of, or default under, any Applicable Contract.
(d) There are no renegotiations of, attempts to renegotiate, or outstanding
rights to renegotiate any material amounts paid or payable to the Company under
current or completed Contracts with any Person other than in the Company's
Ordinary Course of Business and, to the Knowledge of the Company, no such Person
has made written demand for such renegotiation.
(e) The Contracts relating to the sale, design, manufacture, or provision
of products or services by the Company have been entered into in the Ordinary
Course of Business and have been entered into without the commission of any act
alone or in concert with any other Person, or any consideration having been paid
or promised, that is or would be in violation of any Legal Requirement.
(f) Except as set forth on Schedule 4.17(f), the Company has no agreement,
Contract or understanding, written or oral, with any Person obligating the
Company to proceed with any acquisition or to take any other action. Any
agreement, Contract or understanding set forth on Schedule 4.17(f) may be
terminated by the Company without penalty or cost to the Company.
SECTION 4.18 Insurance.
(a) The Company has delivered to MEMCO:
(i) true and complete copies of all policies of insurance to which the
Company is a party or under which the Company, or any director of the
Company in such director's capacity as a director of the Company, is or has
been covered at any time within the three years preceding the date of this
Agreement;
(ii) true and complete copies of all pending applications for policies
of insurance; and
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(iii) any statement by the auditor of the Company's financial
statements with regard to the adequacy of such entity's coverage or of the
reserves for claims.
(b) Schedule 4.18(b) hereto describes:
(i) any self-insurance arrangement by or affecting the Company,
including any reserves established thereunder;
(ii) any contract or arrangement, other than a policy of insurance,
for the transfer or sharing of any risk by the Company; and
(iii) all obligations of the Company under Applicable Contracts to
third parties with respect to insurance (including such obligations under
leases and service agreements) and identifies the policy under which such
coverage is provided.
(c) Schedule 4.18(c) hereto sets forth, by year, for the current policy
year and each of the two preceding policy years:
(i) a summary of the loss experience under each policy for liability,
property or casualty insurance;
(ii) a statement describing each claim under an insurance policy for
an amount in excess of $25,000, which sets forth:
(A) the name of the claimant;
(B) a description of the policy by insurer, type of insurance, and
period of coverage; and
(C) the amount and a brief description of the claim; and
(iii) a statement describing the loss experience for all claims that
were self-insured, including the number and aggregate cost of such claims.
(d) Except as set forth on Schedule 4.18(d) hereto:
(i) All policies to which the Company is a party or that provide
coverage to the Company, or any director or officer of the Company:
(A) to Company's Knowledge, are valid, outstanding, and
enforceable;
(B) to Company's Knowledge, are issued by an insurer that is
financially sound and reputable;
(C) taken together, provide adequate insurance coverage for the
assets and the operations of the Company for all risks normally insured
against by a Person carrying on the same business or businesses as the
Company;
(D) are sufficient for compliance with all Legal Requirements (to
Company's Knowledge) and Contracts to which the Company is a party or by
which any of them is bound;
(E) will not be terminated as a result of the consummation of the
Contemplated Transactions; and
(F) do not provide for any retrospective premium adjustment or
other experienced-based liability on the part of the Company, exclusive
of audit adjustments for workers compensation coverage.
(ii) The Company has not received (A) any refusal of coverage or any
notice that a defense will be afforded with reservation of rights, or (B)
any notice of cancellation or any other indication that any insurance
policy is no longer in full force or effect or will not be renewed or that
the issuer of any policy is not willing or able to perform its obligations
thereunder.
(iii) The Company has paid all premiums due, and have otherwise
performed all of their respective obligations, under each policy to which
the Company is a party or that provides coverage to the Company or director
thereof.
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(iv) The Company has given notice to the insurer of all claims that
may be insured thereby.
SECTION 4.19 Environmental Matters. Except as set forth on Schedule 4.19
hereto:
(a) To the Knowledge of the Company, it is, and at all times has been, in
full compliance with, and has not been and is not in violation of or liable
under, any Environmental Law. The Company has no basis to expect, nor has any of
them or any other Person for whose conduct they are or may be held to be
responsible received, any actual or Threatened order, notice, or other
communication from (i) any Governmental Body or private citizen acting in the
public interest, or (ii) the current or prior owner or operator of any
Facilities, of any actual or potential violation or failure to comply with any
Environmental Law, or of any actual or Threatened obligation to undertake or
bear the cost of any Environmental, Health, and Safety Liabilities with respect
to any of the Facilities or any other properties or assets (whether real,
personal, or mixed) in which the Company has had an interest, or with respect to
any property or Facility at or to which Hazardous Materials were generated,
manufactured, refined, transferred, imported, used, or processed by the Company,
or any other Person for whose conduct they are or may be held responsible, or
from which Hazardous Materials have been transported, treated, stored, handled,
transferred, disposed, recycled, or received.
(b) There are no pending or, to the Knowledge of the Company, Threatened
claims, Encumbrances or other restrictions of any nature resulting from any
Environmental, Health, and Safety Liabilities or arising under or pursuant to
any Environmental Law, with respect to or affecting any of the Facilities or any
other properties and assets (whether real, personal, or mixed) in which the
Company has or had an interest.
(c) The Company has no basis to expect, nor has it or any other Person for
whose conduct it is or may be held responsible, received, any citation,
directive, inquiry, notice, Order, summons, warning, or other communication that
relates to Hazardous Activity, Hazardous Materials, or any alleged, actual, or
potential violation or failure to comply with any Environmental Law, or of any
alleged, actual, or potential obligation to undertake or bear the cost of any
Environmental, Health, and Safety Liabilities with respect to any of the
Facilities or any other properties or assets (whether real, personal, or mixed)
in which the Company had an interest, or with respect to any property or
facility to which Hazardous Materials generated, manufactured, refined,
transferred, imported, used, or processed by the Company, or any other Person
for whose conduct they are or may be held responsible, have been transported,
treated, stored, handled, transferred, disposed, recycled, or received.
(d) To the Knowledge of the Company, neither it, or any other Person for
whose conduct it is or may be held responsible, has any Environmental, Health,
and Safety Liabilities with respect to the Facilities or with respect to any
other properties and assets (whether real, personal, or mixed) in which the
Company (or any predecessor) has or had an interest, or at any property
geologically or hydrologically adjoining the Facilities or any such other
property or assets.
(e) There are no Hazardous Materials present on or in the Environment at
the Facilities or, to the Knowledge of the Company, at any geologically or
hydrologically adjoining property, including any Hazardous Materials contained
in barrels, above or underground storage tanks, landfills, land deposits, dumps,
equipment (whether moveable or fixed) or other containers, either temporary or
permanent, and deposited or located in land, water, sumps, or any other part of
the Facilities or such adjoining property, or incorporated into any structure
therein or thereon. To the Knowledge of the Company, neither it or any other
Person for whose conduct it is or may be held responsible, or any other Person,
has permitted or conducted, or is aware of, any Hazardous Activity conducted
with respect to the Facilities or any other properties or assets (whether real,
personal, or mixed) in which the Company has or had an interest except in full
compliance with all applicable Environmental Laws.
(f) To the Knowledge of the Company, there has been no Release or, to the
Knowledge of the Company, Threat of Release, of any Hazardous Materials at or
from the Facilities or at any other locations where any Hazardous Materials were
generated, manufactured, refined, transferred, produced, imported, used, or
processed from or by the Facilities, or from or by any other properties and
assets (whether real, personal, or mixed) in which the Company has or had an
interest, or any geologically or hydrologically adjoining property, whether by
the Company, or any other Person.
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(g) The Company has delivered to MEMCO true and complete copies and results
of any reports, studies, analyses, tests, or monitoring possessed or initiated
by the Company pertaining to Hazardous Materials or Hazardous Activities in, on,
or under the Facilities, or concerning compliance by the Company, or any other
Person for whose conduct it is or may be held responsible, with Environmental
Laws.
SECTION 4.20 Employees.
(a) Except as set forth on Schedule 4.20, there has been provided to MEMCO
a complete and accurate list of the following information for each employee or
director of the Company, including each employee on leave of absence or layoff
status: employer; name; job title; current compensation paid or payable and any
change in compensation since December 31, 1995; vacation accrued; and service
credited for purposes of vesting and eligibility to participate under the
Company's pension, retirement, profit-sharing, thrift-savings, deferred
compensation, stock bonus, stock option, cash bonus, employee stock ownership
(including investment credit or payroll stock ownership), severance pay,
insurance, medical, welfare, or vacation plan, other Employee Pension Benefit
Plan or Employee Welfare Benefit Plan, or any other employee benefit plan or any
Director Plan.
(b) Except as set forth on Schedule 4.17(a), no employee or director of the
Company is a party to, or is otherwise bound by, any agreement or arrangement,
including any confidentiality, noncompetition, or proprietary rights agreement,
between such employee or director and any other Person ("Proprietary Rights
Agreement") that in any way adversely affects or will affect (i) the performance
of his duties as an employee or director of the Company, or (ii) the ability of
the Company to conduct its business, including any Proprietary Rights Agreement
with the Company by any such employee or director. To the Company's Knowledge,
no officer or other key employee of the Company intends to terminate his
employment with the Company.
(c) There has been provided to MEMCO a complete and accurate list of the
following information for each retired employee or director of the Company, or
their dependents, receiving benefits or scheduled to receive benefits in the
future: name, pension benefit, pension option election, retiree medical
insurance coverage, retiree life insurance coverage, and other benefits.
SECTION 4.21 Labor Relations; Compliance. The Company has not been or is
not a party to any collective bargaining or other labor Contract. There has not
been, there is not presently pending or existing, and there is not Threatened,
(a) any strike, slowdown, picketing, work stoppage, or employee grievance
process, (b) any Proceeding against or affecting the Company relating to the
alleged violation of any Legal Requirement pertaining to labor relations or
employment matters, including any charge or complaint filed by an employee or
union with the National Labor Relations Board, the Equal Employment Opportunity
Commission, or any comparable Governmental Body, organizational activity, or
other labor or employment dispute against or affecting the Company or its
premises, or (c) any application for certification of a collective bargaining
agent. No event has occurred or circumstance exists that could provide the basis
for any work stoppage or other labor dispute. There is no lockout of any
employees by the Company, and no such action is contemplated by the Company. The
Company has complied in all material respects with all Legal Requirements
relating to employment, equal employment opportunity, nondiscrimination,
immigration, wages, hours, benefits, collective bargaining, the payment of
social security and similar taxes, occupational safety and health, and plant
closing. The Company is not liable for the payment of any compensation, damages,
taxes, fines, penalties, or other amounts, however designated, for failure to
comply with any of the foregoing Legal Requirements.
SECTION 4.22 Intellectual Property.
(a) The term "Intellectual Property Assets" includes the following to the
extent owned, used or licensed by the Company as licensee or licensor:
(i) the name, "Memphis Clinical Laboratory, Inc.", all fictional
business names, trading names, registered and unregistered trademarks,
service marks, and applications (collectively, "Marks");
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(ii) all patents, patent applications, and inventions and discoveries
that may be patentable (collectively, "Patents");
(iii) all copyrights in both published works and unpublished works
(collectively, "Copyrights");
(iv) all rights in mask works, if any, (collectively, "Rights in Mask
Works"); and
(v) all know-how, trade secrets, confidential information, customer
lists, software, technical information, data, process technology, plans,
drawings, and blue prints (collectively, "Trade Secrets").
(b) Agreements. Schedule 4.22(b) hereto contains a complete and accurate
list and summary description, including any royalties paid or received by the
Company, of all Contracts relating to the Intellectual Property Assets to which
the Company is a party or by which the Company is bound, except for any license
implied by the sale of a product and perpetual, paid-up licenses for commonly
available software programs with a value of less than $10,000 under which the
Company is the licensee. There are no outstanding and, to the Company's
Knowledge, no Threatened disputes or disagreements with respect to any such
agreement.
(c) Know-How Necessary for the Business
(i) The Intellectual Property Assets are all those necessary for the
operation of the Company's businesses as they are currently conducted.
Except as described on Schedule 4.22(c) hereto, the Company is the owner of
all right, title, and interest in and to each of the Intellectual Property
Assets, free and clear of all liens, security interests, charges,
encumbrances, equities, and other adverse claims, and has the right to use
without payment to a third party all of the Intellectual Property Assets.
(ii) Schedule 4.22(c)(ii) sets forth all current employees of the
Company who have executed a confidentiality agreement with the Company,
copies of the forms of which are attached to such Schedule.
(d) Trademarks
(i) Schedule 4.22(d) hereto contains a complete and accurate list and
summary description of all Marks. The Company is the owner of all right,
title, and interest in and to each of the Marks, free and clear of all
liens, security interests, charges, encumbrances, equities, and other
adverse claims.
(ii) All Marks that have been registered with the United States Patent
and Trademark Office are currently in compliance with all formal legal
requirements (including the timely post-registration filing of affidavits
of use and incontestability and renewal applications), are valid and
enforceable, and are not subject to any maintenance fees or taxes or
actions falling due within ninety days after the Closing Date.
(iii) No Mark has been or is now involved in any opposition,
invalidation, or cancellation and, to the Company's Knowledge, no such
action is Threatened with the respect to any of the Marks.
(iv) To the Company's Knowledge, there is no potentially interfering
trademark or trademark application of any third party.
(v) No Mark is infringed or, to the Company's Knowledge, has been
challenged or threatened in any way. None of the Marks used by the Company
infringes or is alleged to infringe any trade name, trademark, or service
mark of any third party.
(vi) All products and materials containing a Mark bear the proper
federal registration notice where permitted by law.
(e) Trade Secrets
(i) With respect to each Trade Secret, the documentation relating to
such Trade Secret is current, accurate, and sufficient in detail and
content to conduct the business operations of the Company as presently
conducted.
(ii) The Company has taken reasonable precautions to protect the
secrecy, confidentiality, and value of their Trade Secrets.
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(iii) The Company has good title and an absolute (but not necessarily
exclusive) right to use the Trade Secrets. To the Knowledge of the Company,
the Trade Secrets have not been used, divulged, or appropriated either for
the benefit of any Person (other than the Company) or to the detriment of
the Company. No Trade Secret is subject to any adverse claim or has been
challenged or threatened in any way.
SECTION 4.23 Certain Payments. Neither the Company nor any director,
officer, agent, or employee of the Company, or to the Knowledge of the Company
any other Person associated with or acting for or on behalf of the Company, has
directly or indirectly (a) made any contribution, gift, bribe, rebate, payoff,
influence payment, kickback, or other payment to any Person, private or public,
regardless of form, whether in money, property, or services (i) to obtain
favorable treatment in securing business, (ii) to pay for favorable treatment
for business secured or (iii) to obtain special concessions or for special
concessions already obtained, for or in respect of the Company or any Affiliate
of the Company, in each case in violation of any Legal Requirement, or (b)
established or maintained any fund or asset that has not been recorded in the
books and records of the Company.
SECTION 4.24 Disclosure.
(a) No representation or warranty of the Company in this Agreement omits to
state a material fact necessary to make the statements herein or therein, in
light of the circumstances in which they were made, not misleading.
(b) No notice given pursuant to Section 6.8 will contain any untrue
statement or omit to state a material fact necessary to make the statements
therein or in this Agreement, in light of the circumstances in which they were
made, not misleading.
(c) Any material distributed to the Shareholders in connection with the
Merger, including the Merger Information Statement (and any amendments or
supplements thereto) will comply in all material respects with applicable
federal securities laws and laws of Tennessee and at the time that they or
amendments or supplements thereto, are filed with the SEC and are first
published or sent or given to holders of Shares, will not 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 made therein, in
light of the circumstances under which they were made, not misleading, except
that no representation is made by the Company with respect to information
supplied by Unison or MEMCO for inclusion in the Merger Information Statement.
SECTION 4.25 Relationships with Related Persons. Except as set forth on
Schedule 4.25, no Shareholder or any Related Person of any Shareholder has, or
since December 31, 1994, has had, any interest in any property (whether real,
personal, or mixed and whether tangible or intangible), used in or pertaining to
the Company's business. No Shareholder or any Related Person of Shareholder is,
or since December 31, 1994 has owned (of record or as a beneficial owner) an
equity interest or any other financial or profit interest in, a Person that has
(i) had business dealings or a material financial interest in any transaction
with the Company or (ii) engaged in competition with the Company with respect to
any line of the products or services of the Company (a "Competing Business") in
any market presently served by the Company except for less than one percent of
the outstanding capital stock of any Competing Business that is publicly traded
on any recognized exchange or in the over-the-counter market. Except as set
forth on Schedule 4.25, no Shareholder or any Related Person of Shareholder is a
party to any Contract with, or has any claim or right against, the Company.
SECTION 4.26 Accounting Matters. The Company has not taken or agreed to
take any action or has knowledge of any fact or circumstances relating to the
Company that would prevent accounting for the Merger as a pooling-of-interests.
SECTION 4.27 Brokers or Finders. None of the Shareholders, the Company or
their agents have incurred any obligation or liability, contingent or otherwise,
for brokerage or finders' fees or agents' commissions or other similar payment
in connection with this Agreement or the Contemplated Transactions.
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SECTION 5 REPRESENTATIONS AND WARRANTIES OF UNISON AND MEMCO
Each of Unison and MEMCO, as applicable, represent and warrant to the
Company as follows:
SECTION 5.1 Organization and Good Standing. Each of Unison and MEMCO is a
corporation duly organized, validly existing, and in good standing under the
laws of its jurisdiction of incorporation, with full corporate power and
authority to conduct its business as it is now being conducted, to own or use
the properties and assets that it purports to own or use and to perform all of
its obligations as required by its agreements and contracts. Each of Unison and
MEMCO is duly qualified to do business as a foreign corporation and is in good
standing under the laws of each state or other jurisdiction in which either the
ownership or use of the properties owned or used by it, or the nature of the
activities conducted by it, requires such qualification, except where the
failure to be so qualified would not have a material adverse effect on its
assets, financial condition or results of operations.
SECTION 5.2 Authority; No Conflict.
(a) This Agreement constitutes the legal, valid, and binding obligation of
Unison and MEMCO, enforceable against each of them in accordance with its terms.
Each of Unison and MEMCO has the absolute and unrestricted right, power, and
authority to execute and deliver this Agreement and to perform its obligations
under this Agreement.
(b) Neither the execution and delivery of this Agreement by Unison or MEMCO
nor the consummation or performance of any of the Contemplated Transactions by
Unison or MEMCO will, directly or indirectly (with or without notice or lapse of
time):
(i) contravene, conflict with, or result in a violation of (A) any
provision of the Organizational Documents of Unison or MEMCO, as
applicable, or (B) any resolution adopted by the board of directors or the
stockholders of Unison or MEMCO, as applicable;
(ii) to either Unison's or MEMCO's knowledge, contravene, conflict
with, or result in a violation of, or give any Governmental Body or other
Person the right to challenge any of the Contemplated Transactions or to
exercise any remedy or obtain any relief under, any Legal Requirement or
any Order to which Unison or MEMCO, or any of the assets owned or used by
Unison or MEMCO, may be subject; or
(iii) give any Person the right to prevent, delay, or otherwise
interfere with any of the Contemplated Transactions.
(c) Neither Unison nor MEMCO is nor will be required to obtain any Consent
from any Person in connection with the execution and delivery of this Agreement
or the consummation or performance of any of the Contemplated Transactions.
SECTION 5.3 Certain Proceedings. There is no pending Proceeding that has
been commenced against Unison or MEMCO and that challenges, or may have the
effect of preventing, delaying, making illegal, or otherwise interfering with,
any of the Contemplated Transactions. To neither of Unison's or MEMCO's
Knowledge, no such Proceeding has been Threatened.
SECTION 5.4 SEC Documents; Financial Statements.
(a) Unison filed a registration statement on Form S-1 with the SEC, which
registration statement was declared effective by the SEC on December 18, 1995.
At December 18, 1995, such registration statement did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading. Since
December 18, 1995 Unison has filed all forms, reports and documents required to
be filed by it with the SEC pursuant to the Exchange Act and the SEC rules and
regulations thereunder, all of which as of their respective dates complied in
all material respects with all applicable requirements of the Exchange Act
(collectively, the "Unison SEC Documents"). None of the Unison SEC Documents,
including, without limitation, any financial statements or schedules included
therein, as of their respective dates contained any untrue statement of a
material fact or omitted to state a material fact required
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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.
(b) The consolidated balance sheets and the related statements of
consolidated income, shareholders equity and cash flows (including the related
notes thereto) of Unison included in the Unison SEC Documents complied in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles applied on a basis
consistent with prior periods (except as otherwise noted therein), and present
fairly the consolidated financial position of Unison and its consolidated
Subsidiaries as of their respective dates, and the consolidated results of their
operations and their cash flows for the periods presented therein (subject, in
the case of the unaudited interim financial statements, to normal year-end
adjustments).
(c) Since the end of the period covered by the most recent consolidated
financial statements of Unison included in the Unison SEC Documents, there has
not been any material adverse change in the business, operations or prospects of
Unison or any of its consolidated Subsidiaries.
(d) Based on Unison's Knowledge, facts and circumstances do not exist that
require Unison to make SEC filings that have not been filed solely for the
reason that the due date for same is a future date, excepting from the foregoing
Unison's Form 10-Q for the quarter ended June 30, 1996.
SECTION 5.5 Information Supplied. No representation or warranty of either
Unison or MEMCO omits 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. None of the information supplied by
Unison or MEMCO in writing for inclusion in the Merger Information Statement
will at the respective times that the Merger Information Statement, or any
amendments or supplements thereto, is filed with the SEC and is first published
or sent or given to holders of Shareholders for the Company Shareholders Meeting
or at the Effective Time, 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.
SECTION 5.6 Interim Operations of MEMCO. MEMCO was formed solely for the
purpose of engaging in the Contemplated Transactions, has engaged in no other
business activities and has conducted its operations only as contemplated
hereby.
SECTION 5.7 Brokers or Finders. Except as set forth on Schedule 5.7,
neither Unison nor MEMCO and their respective officers and agents have incurred
any obligation or liability, contingent or otherwise, for brokerage or finders'
fees or agents' commissions or other similar payment in connection with this
Agreement. Unison and MEMCO will indemnify and hold the Company harmless from
any such payment alleged to be due by or through Unison or MEMCO as a result of
the action of Unison or MEMCO or its officers or agents.
SECTION 5.8 Disclosure.
(a) No representation or warranty of Unison or MEMCO in this Agreement
omits to state a material fact necessary to make the statements herein or
therein, in light of the circumstances in which they were made, not misleading.
(b) No notice given pursuant to Section 6.9 will contain any untrue
statement or omit to state a material fact necessary to make the statements
therein or in this Agreement, in light of the circumstances in which they were
made, not misleading.
SECTION 5.9 Legal Proceedings; Orders. There is no pending Proceeding
that has been commenced by or against Unison or MEMCO or that otherwise relates
to or may materially adversely affect the business of, or any of the assets
owned or used by, Unison or MEMCO or that challenges, or that may have the
effect of preventing, delaying, making illegal, or otherwise interfering with,
any of the Contemplated Transactions. To the Knowledge of Unison and MEMCO, (1)
no such Proceeding has been Threatened, and (2) neither Unison nor MEMCO has any
Knowledge of any event that has occurred or circumstance that exists that may
give rise to or serve as a basis for the commencement of any such Proceeding.
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SECTION 5.10 Capitalization. The authorized capital stock of Unison
consists solely of 10,000,000 shares of $.001 par value common stock and
1,000,000 shares of $.001 par value preferred stock, of which, as of the date
hereof, 3,900,312 shares of Unison Common Stock are issued and outstanding. All
such shares of Unison Common Stock been duly authorized and validly issued, are
fully paid and non-assessable and were not issued in violation of any preemptive
right.
SECTION 5.11 Merger Consideration. All shares of Unison Common Stock to
be issued in the Merger upon issuance will be duly authorized and validly
issued, fully paid and non-assessable and not issued in violation of any
preemptive right.
SECTION 6 FURTHER COVENANTS PRIOR TO CLOSING DATE
SECTION 6.1 Access and Investigation. Between the date of this Agreement
and the Closing Date, the Company will, (a) afford Unison, MEMCO and their
Representatives and prospective lenders and their Representatives (collectively,
"MEMCO's Advisors") reasonable access to the Company's personnel, properties
(including subsurface testing), contracts, books and records, and other
documents and data, (b) furnish Unison, MEMCO and MEMCO's Advisors with copies
of all such contracts, books and records, and other existing documents and data
as Unison or MEMCO may reasonably request, and (c) furnish Unison, MEMCO and
MEMCO's Advisors with such additional financial, operating, and other data and
information as they may reasonably request.
SECTION 6.2 Operation of the Businesses of the Company.
Between the date of this Agreement and the Closing Date, the Company will:
(a) conduct its business only in the Ordinary Course of Business;
(b) use its Best Efforts to preserve intact the current business
organization of the Company, keep available the services of the current
officers, employees, and agents of the Company, and maintain the relations and
good will with suppliers, customers, landlords, creditors, employees, agents,
and others having business relationships with the Company;
(c) confer with Unison and MEMCO concerning operational matters of a
material nature; and
(d) otherwise report periodically to Unison and MEMCO concerning the status
of the business, operations, and finances of the Company.
SECTION 6.3 Negative Covenant. Except as otherwise expressly permitted by
this Agreement, between the date of this Agreement and the Closing Date, the
Company will not, without the prior written consent of Unison and MEMCO, take
any affirmative action, or fail to take any reasonable action within its
control, as a result of which any of the changes or events listed in Section
4.16 is likely to occur.
SECTION 6.4 Required Approvals. As promptly as practicable after the date
of this Agreement, the Company will, make all filings required by Legal
Requirements to be made by it in order to consummate the Contemplated
Transactions. Between the date of this Agreement and the Closing Date, the
Company will cooperate with Unison and MEMCO with respect to all filings that
Unison or MEMCO elects to make or is required by Legal Requirements to make in
connection with the Contemplated Transactions.
SECTION 6.5 Shareholders' Meeting, Merger Information Statement and
Registration Statement.
(a) As soon as reasonably practicable after the date hereof:
(i) the Company shall duly call, give notice of, convene and hold a
special meeting of the Shareholders (the "Company Shareholders Meeting"),
to be held as soon as practicable after the date hereof, or act by
unanimous written consent, for the purpose of considering and taking action
upon the Merger; and
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(ii) the Company shall prepare in accordance with the applicable
provisions of the federal securities laws and Tennessee laws an information
statement with respect to the Merger and the Contemplated Transactions (the
"Merger Information Statement").
(b) the Company shall use its Best Efforts (i) to obtain and furnish the
information required to be included by it in the Merger Information Statement
and, after consultation with MEMCO and Unison, respond promptly to any comments
made by the SEC with respect to the Merger Information Statement and any
preliminary version thereof and cause the Merger Information Statement to be
mailed to the Shareholders at the earliest practicable time after the date
hereof (subject to the effectiveness of the Registration Statement, as defined
in Section 6.5(d)) and (ii) obtain the necessary approval by the Shareholders of
this Agreement and the transactions contemplated hereby unless there exists at
such time a proposal for a Third Party Acquisition and in the judgment of the
Board of Directors of the Company after consultation with Company counsel,
obtaining such approvals would be a breach of its fiduciary duties to the
Shareholders or other constituencies under applicable law.
(c) Mr. W. Jerome McGee, Mr. Harold N. McKinney and Mr. John Maguire shall
indemnify and hold harmless Unison, MEMCO and their respective directors,
officers, employees, agents and other representatives (each, a "Unison
Indemnified Party") against any losses, claims, damages or liabilities, joint or
several, to which such Unison Indemnified Party may become subject under the
Securities Act, Exchange Act or applicable state law, insofar as such losses,
claims, damages or liabilities arise out of or are based upon any untrue
statement of any material fact contained in the Registration Statement or Merger
Information Statement, or any amendment or supplement thereto, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein, in light of the circumstances in which they
were made, not misleading which statements or omissions were furnished to Unison
or MEMCO, directly or indirectly through the Company, by such Shareholders
specifically for use in preparation of the Registration Statement and/or Merger
Information Statement.
(d) Unison shall prepare a registration statement on Form S-4 and any
required amendments thereto (the "Registration Statement"), of which the Merger
Information Statement shall be a part, under the Securities Act with respect to
the shares of Unison Common Stock to be issued pursuant to the Merger and file
the Registration Statement with the SEC as soon as reasonably practicable after
the date hereof. Unison shall comply with the requirements of the Securities
Act, the Exchange Act and the rules and regulations of the SEC under such acts
applicable to the offering and sale of Unison Common Stock in connection with
the Merger. Unison shall use its Best Efforts to cause the Registration
Statement to become effective as promptly as reasonably practicable and shall
take any action required under applicable federal or state securities laws in
connection with the issuance of Unison Common Stock pursuant to the Merger.
(e) Unison shall indemnify and hold harmless John L. Maguire, the Company
and its directors, officers, employees, agents and other representatives (each,
a "Company Indemnified Party") against any losses, claims, damages or
liabilities, joint or several, to which such Company Indemnified Party may
become subject under the Securities Act, Exchange Act or applicable state law,
insofar as such losses, claims, damages or liabilities arise out of or are based
upon any untrue statement of any material fact contained in the Registration
Statement or Merger Information Statement, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein, in light of the
circumstances in which they were made, not misleading which statements or
omissions were furnished to the Company by Unison specifically for use in
preparation of the Registration Statement and/or Merger Information Statement.
(f) If either Unison or the Company shall reasonably request to include in
the Merger Information Statement or omit therefrom any statement in order that
the Merger Information Statement will not include any untrue statement of
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein not misleading, the Merger
Information Statement shall not be mailed to the Shareholders without the mutual
agreement of counsel for the Company and Unison that such statement need not be
included in or need not be omitted from the Merger Information Statement.
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(g) Each party shall furnish to the other such information relating to it
and its affiliates and the transactions contemplated by this Agreement and such
further and supplemental information as may be necessary or as may be reasonably
requested by the other party, in light of developments occurring after the date
hereof, to ensure that the statements regarding the parties hereto and their
affiliates and such transactions contained in the Merger Information Statement,
as so supplemented, will not on the effective date of the Registration Statement
or the date of the Company Shareholders Meeting (or action by unanimous written
consent in lieu of such meeting) or the Effective Time include any untrue
statement of a material fact or omit to state a material fact required to be
stated therein in order to make the statements therein not misleading.
SECTION 6.6 Agreements of Affiliates. As soon as reasonably practicable
after the date hereof and in any event not later than five business days prior
to the effective date of the Registration Statement (as anticipated by counsel
to Unison and MEMCO), the Company shall deliver to Unison a letter identifying
all Persons who are anticipated to be at the time of the vote on the Merger
"affiliates" of the Company for purposes of Rule 145 under the Securities Act or
otherwise applicable SEC accounting releases with respect to pooling-of-interest
accounting treatment. The Company shall use its best efforts to cause each
Person who is identified as an "affiliate" in the letter referred to above to
deliver to the Company not later than five business days prior to the effective
date of the Registration Statement (as anticipated by counsel to Unison and
MEMCO) a written agreement in the form of Exhibit 6.6 (the "Affiliate
Agreements").
SECTION 6.7 Delivery of Disclosure Schedules. The parties acknowledge
that this Agreement will be executed and delivered prior to the delivery of the
Disclosure Schedules and the delivery of schedules by Unison and MEMCO pursuant
to Section 5 (the "Section 5 Schedules"). The Company agrees to deliver the
Disclosure Schedules to Unison and MEMCO, and each of Unison and MEMCO agree to
deliver the Section 5 Schedules, as applicable, to the Company, within two weeks
from the date hereof. The parties agree that except for the obligations arising
out of Section 10.1 and Section 10.3, which survive termination of this
Agreement, (a) Unison and MEMCO shall each have the right to terminate this
Agreement (i) if the Disclosure Schedules shall not have been timely delivered
or (ii) if such Disclosure Schedules have been timely delivered but contain, in
the aggregate, disclosure of matters which would, or Unison or MEMCO reasonably
determines may, materially adversely effect the business, operations or
prospects of the Company, and (b) the Company shall have the right to terminate
this Agreement (i) if the Section 5 Schedules shall not have been timely
delivered or (ii) if such Section 5 Schedules have been timely delivered but
contain, in the aggregate, disclosure of matters which would or the Company
reasonably determines may materially adversely effect the business, operations
or prospects of Unison and its consolidated Subsidiaries as a whole.
SECTION 6.8 Notification by the Company. Between the date of this
Agreement and the Closing Date, the Company will promptly notify Unison and
MEMCO in writing if the Company becomes aware of any fact or condition that
causes or constitutes a Breach of any of the Company's representations and
warranties as of the date of this Agreement or if the Company becomes aware of
the occurrence after the date of this Agreement of any fact or condition that
would (except as expressly contemplated by this Agreement) cause or constitute a
Breach of any such representation or warranty had such representation or
warranty been made as of the time of occurrence or discovery of such fact or
condition. Should any such fact or condition require any change in the
Disclosure Schedules if the Disclosure Schedules were dated the date of the
occurrence or discovery of any such fact or condition, the Company will promptly
deliver to Unison and MEMCO a supplement to the Disclosure Schedules specifying
such change. During the same period, the Company will promptly notify Unison and
MEMCO of the occurrence of any Breach of any covenant of the Company in this
Section 6 or of the occurrence of any event that may make the satisfaction of
the conditions in Section 7 impossible or unlikely.
SECTION 6.9 Notification by Unison or MEMCO. Between the date of this
Agreement and the Closing Date, Unison or MEMCO, as applicable, will promptly
notify the Company in writing if it becomes aware of any fact or condition that
causes or constitutes a Breach of any of its representations and warranties as
of the date of this Agreement, or if it becomes aware of the occurrence after
the date of this Agreement of any fact or condition that would (except as
expressly contemplated by this Agreement) cause or constitute a Breach of any
such representation or warranty had such representation or warranty been made as
of the time of occurrence or discovery of such fact or condition. Should any
such fact or condition require any change in the
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Section 5 Schedules if the Section 5 Schedules were dated the date of the
occurrence or discovery of any such fact or condition, Unison or MEMCO, as
applicable, will promptly deliver to the Company a supplement to the Section 5
Schedules specifying such change. During the same period, Unison or MEMCO, as
applicable, will promptly notify the Company of the occurrence of any Breach of
any covenant of Unison or MEMCO in this Section 6 or of the occurrence of any
event that may make the satisfaction of the conditions in Section 8 impossible
or unlikely.
SECTION 6.10 No Negotiation. Until such time, if any, as this Agreement
is terminated pursuant to Section 9, the Company will not, and will cause each
of its Representatives not to, directly or indirectly solicit, initiate, or
encourage any inquiries or proposals from, discuss or negotiate with, provide
any non-public information to, or consider the merits of any unsolicited
inquiries or proposals from, any Person (other than Unison and MEMCO) relating
to any transaction involving the sale of the business or assets (other than in
the Ordinary Course of Business) of the Company, or any of the capital stock of
the Company, or any merger, consolidation, business combination, or similar
transaction involving the Company. Notwithstanding the foregoing, (i) the
Company may participate in discussions with, and may furnish information to any
third party which seeks to engage in discussions or requests such information,
if, in either case, the Board of Directors of the Company determines, based on
the advice of Tracy & Holland, L.L.P. or other legal counsel reasonably
acceptable to Unison ("Legal Counsel"), that failing to engage in such
discussions or to provide such information would reasonably be expected to
violate the fiduciary duties of the Board of Directors of the Company to the
Shareholders, and (ii) the Board of Directors of the Company may take and
disclose to Shareholders a position contemplated by Rules 14d-9 and 14e-2
promulgated under the Exchange Act with respect to any tender offer and may make
such disclosure to the Shareholders as may be required under applicable law.
SECTION 6.11 Pooling-of-Interests. Each of the Company, Unison and MEMCO
shall use its Best Efforts (i) to cause the Merger to qualify, and shall not
take any actions which could prevent the Merger from qualifying, for
pooling-of-interests accounting treatment and (ii) to obtain a letter from
Kathryn A. Woolley, CPA regarding actions taken by the Company which could
prevent the Merger from qualifying, for pooling-of-interests accounting
treatment.
SECTION 6.12 Nasdaq Listing. Unison shall use its Best Efforts to list,
prior to the Effective Time, on the Nasdaq National Market, subject to official
notice of issuance, the shares of Unison Common Stock to be issued to the
Shareholders in the Merger.
SECTION 6.13 Approvals of Governmental Bodies. As promptly as practicable
after the date of this Agreement, Unison and MEMCO will, and will cause each of
its Related Persons to, make all filings required by Legal Requirements to be
made by them to consummate the Contemplated Transactions. Between the date of
this Agreement and the Closing Date, Unison and MEMCO will, and will cause each
Related Person to, cooperate with the Company with respect to all filings that
the Company is required by Legal Requirements to make in connection with the
Contemplated Transactions, and (ii) cooperate with the Company in obtaining all
consents identified on Schedule 4.2(b); provided that this Agreement will not
require Unison or MEMCO to dispose of or make any change in any portion of its
business or to incur any other burden to obtain a Governmental Authorization.
SECTION 6.14 Best Efforts. Between the date of this Agreement and the
Closing Date, the Company, Unison and MEMCO will use their Best Efforts to cause
the conditions in Sections 7 and 8 to be satisfied, except, with respect to
Unison and MEMCO, as set forth in the proviso to Section 6.13.
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SECTION 7 CONDITIONS PRECEDENT TO UNISON'S
AND MEMCO'S OBLIGATION TO CLOSE
Unison's and MEMCO's obligation to consummate the Merger and to take the
other actions required to be taken by Unison and MEMCO at the Closing is subject
to the satisfaction, at or prior to the Closing, of each of the following
conditions (any of which may be waived by Unison or MEMCO, in whole or in part):
SECTION 7.1 Accuracy of Representations. Each of the Company's
representations and warranties set forth in Section 4 of this Agreement shall
have been accurate in all material respects as of the date of this Agreement,
and shall be accurate in all material respects as of the Closing Date as if made
on the Closing Date.
SECTION 7.2 Company's Performance. Each of the covenants and obligations
that the Company is required to perform or to comply with pursuant to this
Agreement at or prior to the Closing shall have been duly performed and complied
with in all material respects.
SECTION 7.3 Shareholder Approval. This Agreement and the Merger shall
have been duly approved by the Shareholders of the Company in accordance with
applicable law, the articles of incorporation and by-laws of the Company and the
Shareholders Agreement.
SECTION 7.4 Board Approval. This Agreement and the Merger shall have been
duly approved by the Board of Directors of each of Unison and MEMCO in
accordance with applicable law and the respective certificates of incorporation
and by-laws of Unison and MEMCO.
SECTION 7.5 Effectiveness of Registration Statement. The Registration
Statement shall have been declared effective by the SEC, no stop order with
respect thereto shall be in effect, and no proceedings for that purpose shall
have been initiated or threatened by the SEC.
SECTION 7.6 Listing Approval. The shares of Unison Common Stock to be
issued in the Merger shall have been approved for listing on the Nasdaq National
Market subject to official notice of issuance.
SECTION 7.7 Consents. Each Consent required under the Contracts set forth
on Schedule 4.2(b) shall have been obtained and shall be in full force and
effect.
SECTION 7.8 Additional Documents. Each of the following documents shall
have been delivered to Unison and MEMCO:
(a) an opinion of Tracy & Holland, L.L.P., dated the Closing Date, in the
form of Exhibit 7.8(a);
(b) a certificate of the Secretary of State of the State of Tennessee as to
the legal existence and good standing (including Tax) of the Company in
Tennessee;
(c) certificates of appropriate governmental officials in each state in
which the Company is required to qualify to do business as a foreign corporation
as to the due qualification and good standing of the Company in each such
jurisdiction;
(d) a certificate of the secretary of the Company attesting to the
incumbency of the officers, the authenticity of the board of directors and
shareholder resolutions authorizing the Contemplated Transactions, and the
authenticity and continuing validity of the Organizational Documents delivered
pursuant to Section 4.1(b);
(e) such other documents as Unison or MEMCO may reasonably request for the
purpose of (i) enabling its counsel to provide the opinion referred to in
Section 8.8(a), (ii) evidencing the accuracy of any of the Company's
representations and warranties, (iii) evidencing the performance by the Company
of, or the compliance by the Company with, any covenant or obligation required
to be performed or complied with by the Company, (iv) evidencing the
satisfaction of any condition referred to in this Section 7, or (v) otherwise
facilitating the consummation or performance of any of the Contemplated
Transactions;
(f) evidence reasonably satisfactory to Unison and MEMCO that the
Encumbrances set forth on Schedule 4.1(a) which are to be discharged have been
discharged;
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(g) evidence reasonably satisfactory to Unison and MEMCO of compliance
with, or a waiver of compliance with, the requirements of the Shareholders
Agreement;
(h) in the event the Interim Balance Sheet is as at a date more than 45
days prior to the Closing Date, an unaudited consolidated balance sheet of the
Company as at a date not less than 45 days prior to the Closing Date prepared in
compliance with the requirements in Section 4.4 for the Interim Balance Sheet,
which unaudited consolidated balance sheet of the Company shall be deemed an
Interim Balance Sheet for all purposes under this Agreement; and
(i) the letters of affiliates of the Company pursuant to Section 6.6.
SECTION 7.9 No Proceedings. Since the date of this Agreement, there must
not have been commenced or Threatened against Unison or MEMCO, or against any
Person affiliated with Unison or MEMCO, any Proceeding (a) involving any
challenge to, or seeking damages or other relief in connection with, any of the
Contemplated Transactions, or (b) that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with any of the Contemplated
Transactions.
SECTION 7.10 No Claim Regarding Stock Ownership or Merger Consideration.
Other than rights of Shareholders hereunder, there must not have been made
or Threatened by any Person any claim asserting that such Person (a) is the
holder or the beneficial owner of, or has the right to acquire or to obtain
beneficial ownership of, any stock of, or any other voting, equity, or ownership
interest in, the Company, or (b) is entitled to all or any portion of the cash,
assets or other property to be distributed to Shareholders pursuant to Section 3
hereof.
SECTION 7.11 No Prohibition. Neither the consummation nor the performance
of any of the Contemplated Transactions will, directly or indirectly (with or
without notice or lapse of time), materially contravene, or conflict with, or
result in a material violation of, or cause Unison or MEMCO or any Person
affiliated with Unison or MEMCO to suffer any material adverse consequence
under, (a) any applicable Legal Requirement or Order, or (b) any Legal
Requirement or Order that has been published, introduced, or otherwise formally
proposed by or before any Governmental Body.
SECTION 7.12 Termination of Agreements. All agreements, Contracts and
understandings set forth on Schedule 4.1(c) shall have been terminated with no
further liability or obligation of the Company.
SECTION 7.13 Agreement for Merger of Labco and Ampro.
Unison, Labco and Ampro shall have completed, but for the Closing, the
merger of Labco with and into Ampro.
SECTION 8 CONDITIONS PRECEDENT TO COMPANY'S OBLIGATION TO CLOSE
The Company's obligation to consummate the Merger and to take the other
actions required to be taken by the Company at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by the Company, in whole or in part):
SECTION 8.1 Accuracy of Representations. Each of Unison's and MEMCO's
representations and warranties set forth in Section 5 of this Agreement shall
have been accurate in all material respects as of the date of this Agreement and
shall be accurate in all material respects as of the Closing Date as if made on
the Closing Date.
SECTION 8.2 Unison's and MEMCO's Performance. Each covenant and
obligation that Unison or MEMCO is required to perform or to comply with
pursuant to this Agreement at or prior to the Closing shall have been performed
and complied with in all material respects.
SECTION 8.3 Board Approval. This Agreement and the Merger shall have been
duly approved by the Board of Directors of each of Unison and MEMCO in
accordance with applicable law and the respective certificates of incorporation
and by-laws of Unison and MEMCO.
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SECTION 8.4 Shareholder Approval. This Agreement and the Merger shall
have been duly approved by the Shareholders in accordance with applicable law
and the articles of incorporation and by-laws of the Company and the
Shareholders Agreement.
SECTION 8.5 Effectiveness of Registration Statement. The Registration
Statement shall have been declared effective by the SEC, no stop order with
respect thereto shall be in effect, and no proceedings for that purpose shall
have been initiated or threatened by the SEC.
SECTION 8.6 Listing Approval. The shares of Unison Common Stock to be
issued in the Merger shall have been approved for listing on the Nasdaq National
Market subject to official notice of issuance.
SECTION 8.7 Consents. Each of the Consents required by the Contracts set
forth on Schedule 4.2(b) shall have been obtained and shall be in full force and
effect.
SECTION 8.8 Additional Documents. Unison or MEMCO must have caused the
following documents to be delivered to :
(a) an opinion of Quarles & Brady, dated the Closing Date, in the form of
Exhibit 8.8(a);
(b) a certificate of the Secretary of State of the State of Delaware as to
the legal existence and good standing (including Tax) of Unison in Delaware;
(c) a certificate of the Secretary of State of the State of Delaware as to
the legal existence and good standing (including Tax) of MEMCO in Delaware;
(d) a certificate of the secretary of Unison attesting to the incumbency of
the officers, the authenticity of the board of directors and shareholder
resolutions authorizing the Contemplated Transactions;
(e) a certificate of the secretary of MEMCO attesting to the incumbency of
the officers, the authenticity of the board of directors and shareholder
resolutions authorizing the Contemplated Transactions; and
(f) such other documents as the Company may reasonably request for the
purpose of (i) enabling their counsel to provide the opinion referred to in
Section 7.8(a), (ii) evidencing the accuracy of any representation or warranty
of Unison or MEMCO, (iii) evidencing the performance by Unison or MEMCO of, or
the compliance by Unison or MEMCO with, any covenant or obligation required to
be performed or complied with by Unison or MEMCO, as applicable, (ii) evidencing
the satisfaction of any condition referred to in this Section 8, or (v)
otherwise facilitating the consummation of any of the Contemplated Transactions.
SECTION 8.9 No Proceeding. Since the date of this Agreement, there must
not have been commenced or Threatened against Unison or MEMCO, or against any
Person affiliated with Unison or MEMCO, any Proceeding (a) involving any
challenge to, or seeking damages or other relief in connection with, any of the
Contemplated Transactions, or (b) that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with any of the Contemplated
Transactions.
SECTION 8.10 No Prohibition. Neither the consummation nor the performance
of any of the Contemplated Transactions will, directly or indirectly (with or
without notice or lapse of time), materially contravene, or conflict with, or
result in a material violation of, or cause the Company or any Person affiliated
with the Company to suffer any material adverse consequence under, (a) any
applicable Legal Requirement or Order, or (b) any Legal Requirement or Order
that has been published, introduced, or otherwise formally proposed by or before
any Governmental Body.
SECTION 8.11 Agreement for Merger of Labco and Ampro.
Unison, Labco and Ampro shall have completed, but for the Closing, the
merger of Labco with and into Ampro.
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SECTION 9 TERMINATION
SECTION 9.1 Termination Events. This Agreement may, by notice given prior
to or at the Closing, be terminated:
(a) by failure of the Closing to take place on or prior to the date set for
Closing in Section 2.5, subject to the provisions of Section 9.1(f);
(b) by either Unison, MEMCO or the Company if a material Breach of any
provision of this Agreement has been committed by the other party and such
Breach has not been waived;
(c) by Unison or MEMCO if any of the conditions in Section 7 has not been
satisfied as of the Closing Date or if satisfaction of such a condition is or
becomes impossible (other than through the failure of Unison or MEMCO to comply
with its respective obligations under this Agreement) and neither Unison nor
MEMCO has waived such condition on or before the Closing Date;
(d) by Unison or MEMCO if the Board of Directors of the Company withdraws
or materially modifies or changes its favorable recommendation of this Agreement
or the Merger;
(e) by the Company, if any of the conditions in Section 8 has not been
satisfied as of the Closing Date or if satisfaction of such a condition is or
becomes impossible (other than through the failure of the Company to comply with
its obligations under this Agreement) and the Company has not waived such
condition on or before the Closing Date;
(f) by the Company, if the Board of Directors of the Company withdraws or
materially modifies or changes its favorable recommendation of this Agreement or
the Merger if there exists at such time a proposal for a Third Party Acquisition
and the Board of Directors of the Company after consultation with Company
counsel determines that the failure to take such action would be a breach of the
fiduciary duties to the Company's shareholders or other constituencies under
applicable law; provided, however, that such termination under this Section
9.1(f) shall not be effective until the Company has made payment to Unison of
the Transaction Expenses required to be paid pursuant to Section 9.2;
(g) by mutual consent of MEMCO and the Company; or
(h) by either MEMCO or the Company if the Closing has not occurred (other
than through the failure of any party seeking to terminate this Agreement to
comply fully with its obligations under this Agreement) on or before October 30,
1996, or such later date as the parties may agree upon.
SECTION 9.2 Special Fees.
(a) In the event that:
(i) this Agreement shall have been terminated pursuant to Section
9.1(d) or Section 9.1(f) and within 9 months of such termination: (x) a
Third Party Acquisition shall occur, or (y) there is a letter of intent or
similar instrument or other agreement between the Company and a Third Party
for a Third Party Acquisition, or a public announcement by the Company of
the Company's intention or plans to effect a Third Party Acquisition; or
(ii) any Person (other than Unison or an affiliate of Unison) shall
have commenced, publicly proposed or communicated to the Company a proposal
that is publicly disclosed for a tender or exchange offer for more than 20%
(or which, assuming the maximum amount of securities which could be
purchased, would result in any Person beneficially owning more than 20%) of
the then outstanding Shares or otherwise for the direct or indirect
acquisition of the Company or all or substantially all of its assets for
consideration having a value greater than the consideration to be delivered
pursuant to this Agreement, and this Agreement shall have been terminated
pursuant to Section 9.1(d) or Section 9.1(f); or
(iii) this Agreement is terminated pursuant to Section 9.1(f), then,
in any such event, the Company shall promptly pay Unison (but in no event
later than five business days after the first of such events shall have
occurred) the Transaction Expenses.
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(b) Unison shall have the right to make more than one request for payment
of Transaction Expenses, subject to the limitation on total Transaction
Expenses. In the event the Company shall fail to pay invoiced Transaction
Expenses within five days of receipt of an invoice therefor from Unison, the
term "Transaction Expenses" shall be deemed to include the costs and expenses
actually incurred or accrued by Unison and MEMCO (including, without limitation,
fees and expenses of counsel) in connection with the collection under and
enforcement of Section 9.1(f), together with interest on such unpaid Transaction
Expenses, commencing on the date that the Transaction Expenses were paid, at a
rate equal to the rate of interest publicly announced by Morgan Guaranty Trust
Company of New York, from time to time, in the City of New York, as such bank's
Prime Rate plus 1.00%.
SECTION 9.3 Effect of Termination. Each party's right of termination
under Section 9.1 is in addition to any other rights it may have under this
Agreement or otherwise, and the exercise of a right of termination will not be
an election of remedies. If this Agreement is terminated pursuant to Section
9.1, all further obligations of the parties under this Agreement will terminate,
except that the obligations in Sections 10.1 and 10.3 will survive; provided,
however, that if this Agreement is terminated by a party because of the Breach
of the Agreement by the other party or because one or more of the conditions to
the terminating party's obligations under this Agreement is not satisfied as a
result of the other party's failure to comply with its obligations under this
Agreement, the terminating party's right to pursue all legal remedies will
survive such termination unimpaired.
SECTION 10 GENERAL PROVISIONS
SECTION 10.1 Expenses. Except as otherwise expressly provided in this
Agreement, each party to this Agreement will bear its respective expenses
incurred in connection with the preparation, execution, and performance of this
Agreement and the Contemplated Transactions, including all fees and expenses of
agents, representatives, counsel, and accountants. In the event of termination
of this Agreement, the obligation of each party to pay its own expenses will be
subject to any rights of such party arising from a breach of this Agreement by
another party.
SECTION 10.2 Public Announcements. Any public announcement or similar
publicity with respect to this Agreement or the Contemplated Transactions will
be issued, if at all, at such time and in such manner as MEMCO and the Company
determine. Unless consented to by MEMCO in advance or required by Legal
Requirements, prior to the Closing the Company shall keep this Agreement
strictly confidential and may not make any disclosure of this Agreement to any
Person. The Company and MEMCO will consult with each other concerning the means
by which the Company's employees, customers, and suppliers and others having
dealings with the Company will be informed of the Contemplated Transactions, and
MEMCO will have the right to be present for any such communication.
SECTION 10.3 Confidentiality.
(a) Between the date of this Agreement and the Closing Date, Unison, MEMCO
and the Company will maintain in confidence, and will cause the directors,
officers, employees, agents, and advisors of Unison, MEMCO and the Company to
maintain in confidence, and not use to the detriment of another party any
written, oral, or other information obtained in confidence from another party in
connection with this Agreement or the Contemplated Transactions, unless (i) such
information is already known to such party or to others not bound by a duty of
confidentiality or such information becomes publicly available through no fault
of such party, (ii) the use of such information is necessary or appropriate in
making any filing or obtaining any consent or approval required for the
consummation of the Contemplated Transactions, or (iii) the furnishing or use of
such information is required by or necessary or appropriate in connection with
legal proceedings.
(b) If the Contemplated Transactions are not consummated: (i) each party
will return or destroy as much of such written information as the other party
may reasonably request; and (ii) Unison, MEMCO and their respective Related
Persons, will not employ, solicit the employment or contract with any employee
or independent contractor of the Company for a period of six months after the
termination of this Agreement.
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<PAGE> 150
SECTION 10.4 Notices. All notices, consents, waivers, and other
communications under this Agreement must be in writing and will be deemed to
have been duly given when (a) delivered by hand (with written confirmation of
receipt), (b) sent by telecopier (with written confirmation of receipt),
provided that a copy is mailed by registered mail, return receipt requested, or
(c) when received by the addressee, if sent by a nationally recognized overnight
delivery service (receipt requested), in each case to the appropriate addresses
and telecopier numbers set forth below (or to such other addresses and
telecopier numbers as a party may designate by notice to the other parties):
<TABLE>
<S> <C>
The Company: Memphis Clinical Laboratory, Inc.
4088 Barton
Memphis, Tennessee 38116
Attn: President
Facsimile No.: (214) 342-2129
with a copy to: Tracy & Holland, L.L.P.
306 West 7th Street, Suite 500
Fort Worth, Texas 76102
Attn: George T. Johns, Esq.
Facsimile No.: (817) 332-3140
Unison: Unison HealthCare Corporation
7272 East Indian School Road, Suite 214
Scottsdale, Arizona 85251
Attn: President
Facsimile: (602) 481-6479
with a copy to: Quarles & Brady
One East Camelback, Suite 400
Phoenix, Arizona 85012-1649
Attn: P. Robert Moya, Esq.
Facsimile: (602) 230-5598
MEMCO: Memphis Acquisition Co.
7272 East Indian School Road, Suite 214
Scottsdale, Arizona 85251
Attn: President
Facsimile: (602) 481-6479
with a copy to: Quarles & Brady
One East Camelback, Suite 400
Phoenix, Arizona 85012-1649
Attn: P. Robert Moya, Esq.
Facsimile: (602) 230-5598
</TABLE>
SECTION 10.5 Jurisdiction; Service of Process. Any action or proceeding
seeking to enforce any provision of, or based on any right arising out of, this
Agreement may be brought against any of the parties in the courts of the State
of Arizona, County of Maricopa, or, if it has or can acquire jurisdiction, in
the United States District Court for the District of Arizona, and each of the
parties consents to the jurisdiction of such courts (and of the appropriate
appellate courts) in any such action or proceeding and waives any objection to
venue laid therein. Process in any action or proceeding referred to in the
preceding sentence may be served on any party anywhere in the world.
SECTION 10.6 Further Assurances. The parties agree (a) to furnish upon
request to each other such further information, (b) to execute and deliver to
each other such other documents, and (c) to do such other
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<PAGE> 151
acts and things, all as the other party may reasonably request for the purpose
of carrying out the intent of this Agreement and the documents referred to in
this Agreement.
SECTION 10.7 Combined Operating Results. Unison shall use its Best
Efforts to publish the results of at least 30 days of combined operations of the
Company and Unison following the Effective Time as soon as reasonably
practicable after the end of such 30 day period.
SECTION 10.8 Waiver. The rights and remedies of the parties to this
Agreement are cumulative and not alternative. Neither the failure nor any delay
by any party in exercising any right, power, or privilege under this Agreement
or the documents referred to in this Agreement will operate as a waiver of such
right, power, or privilege, and no single or partial exercise of any such right,
power, or privilege will preclude any other or further exercise of such right,
power, or privilege or the exercise of any other right, power, or privilege. To
the maximum extent permitted by applicable law, (a) no claim or right arising
out of this Agreement or the documents referred to in this Agreement can be
discharged by one party, in whole or in part, by a waiver or renunciation of the
claim or right unless in writing signed by the other party; (b) no waiver that
may be given by a party will be applicable except in the specific instance for
which it is given; and (c) no notice to or demand on one party will be deemed to
be a waiver of any obligation of such party or of the right of the party giving
such notice or demand to take further action without notice or demand as
provided in this Agreement or the documents referred to in this Agreement.
SECTION 10.9 Entire Agreement and Modification. This Agreement supersedes
all prior agreements between the parties with respect to its subject matter
(including the Letter of Intent dated March 26, 1996) and constitutes (along
with the documents referred to in this Agreement) a complete and exclusive
statement of the terms of the agreement between the parties with respect to its
subject matter. This Agreement may not be amended except by a written agreement
executed by the party to be charged with the amendment.
SECTION 10.10 Disclosure Schedules.
(a) The disclosures in the Disclosure Schedules, and those in any
Supplement thereto, shall be deemed to relate only to the representations and
warranties in the Section of the Agreement to which they expressly relate and
not to any other representation or warranty in this Agreement.
(b) In the event of any inconsistency between the statements in the body of
this Agreement and those in the Disclosure Schedules (other than an exception
expressly set forth as such in the Disclosure Schedules with respect to a
specifically identified representation or warranty), the statements in the body
of this Agreement will control.
SECTION 10.11 Assignments, Successors, and No Third-Party Rights.
Neither party may assign any of its rights under this Agreement without the
prior consent of the other parties except that Unison may assign any of its
rights under this Agreement to any Subsidiary of Unison. Subject to the
preceding sentence, this Agreement will apply to, be binding in all respects
upon, and inure to the benefit of the successors and permitted assigns of the
parties. Nothing expressed or referred to in this Agreement will be construed to
give any Person other than the parties to this Agreement any legal or equitable
right, remedy, or claim under or with respect to this Agreement or any provision
of this Agreement; provided, however, that the provisions of Section 3.1,
Section 3.3 and Section 10.7 are additionally intended to be for the benefit of
the Shareholders. This Agreement and all of its provisions and conditions are
for the sole and exclusive benefit of the parties to this Agreement and their
successors and assigns.
SECTION 10.12 Severability. If any provision of this Agreement is held
invalid or unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will remain in full force and effect. Any provision
of this Agreement held invalid or unenforceable only in part or degree will
remain in full force and effect to the extent not held invalid or unenforceable.
SECTION 10.13 Section Headings, Construction. The headings of Sections in
this Agreement are provided for convenience only and will not affect its
construction or interpretation. All references to "Section" or "Sections" refer
to the corresponding Section or Sections of this Agreement. All words used in
this
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<PAGE> 152
Agreement will be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms.
SECTION 10.14 Time of Essence. With regard to all dates and time periods
set forth or referred to in this Agreement, time is of the essence.
SECTION 10.15 Governing Law. This Agreement will be governed by the laws
of the State of Arizona without regard to conflicts of laws principles.
SECTION 10.16 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first written above.
UNISON:
UNISON HEALTHCARE CORPORATION, a Delaware corporation
By:
Name:
Title:
MEMCO:
MEMPHIS ACQUISITION CO., a Delaware corporation
By:
Name:
Title:
COMPANY:
MEMPHIS CLINICAL LABORATORY, INC., a Tennessee corporation
By:
Name:
Title:
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<PAGE> 153
STATE OF
County of
On this day of , 199 , before me, the undersigned
officer, personally appeared , who acknowledged himself
to be a of Unison HealthCare Corporation, a Delaware
corporation, and that he, in such capacity, being authorized so to do, executed
the foregoing instrument for the purposes therein contained.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
--------------------------------------
Notary Public
My Commission Expires:
- ------------------------------------
STATE OF
County of
On this day of , 199 , before me, the undersigned
officer, personally appeared , who acknowledged himself
to be a of Memphis Acquisition Co., a Delaware
corporation, and that he, in such capacity, being authorized so to do, executed
the foregoing instrument for the purposes therein contained.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
--------------------------------------
Notary Public
My Commission Expires:
- ------------------------------------
STATE OF
County of
On this day of , 199 , before me, the undersigned
officer, personally appeared , who acknowledged himself
to be a of Memphis Acquisition Co., a Delaware
corporation, and that he, in such capacity, being authorized so to do, executed
the foregoing instrument for the purposes therein contained.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
--------------------------------------
Notary Public
My Commission Expires:
- ------------------------------------
STATE OF
County of
ss.:
ss.:
ss.:
ss.:
<PAGE> 154
On this day of , 199 , before me, the undersigned
officer, personally appeared , who acknowledged himself
to be a of Memphis Clinical Laboratory, Inc., a
Tennessee corporation, and that he, in such capacity, being authorized so to do,
executed the foregoing instrument for the purposes therein contained.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
--------------------------------------
Notary Public
My Commission Expires:
- ------------------------------------
<PAGE> 155
EXHIBITS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Exhibit 3.1(a)....................................................................... 2
Exhibits 2.2(A) and 2.2(B)........................................................... 11
Exhibit 2.6(a)(iv)................................................................... 12
Exhibit 6.6.......................................................................... 47
Exhibit 7.8(a)....................................................................... 50
Exhibit 8.8(a)....................................................................... 53
SCHEDULES
- -------------------------------------------------------------------------------------------
Schedule 4.1(a)...................................................................... 16
Schedule 4.1(b)...................................................................... 17
Schedule 4.1(c)...................................................................... 17
Schedule 4.2(b)...................................................................... 17
Schedule 4.2(b)(v)................................................................... 18
Schedule 4.5......................................................................... 19
Schedule 4.6......................................................................... 19
Schedule 4.7......................................................................... 20
Schedule 4.8......................................................................... 20
Schedule 4.9......................................................................... 20
Schedule 4.10........................................................................ 21
Schedule 4.11........................................................................ 21
Schedule 4.13(b)(i).................................................................. 23
Schedule 4.13(b)(ii)................................................................. 23
Schedule 4.13(d)..................................................................... 24
Schedule 4.14(a)..................................................................... 26
Schedule 4.14(b)..................................................................... 27
Schedule 4.15........................................................................ 27
Schedule 4.16........................................................................ 28
Schedule 4.17(a)..................................................................... 29
Schedule 4.17(b)..................................................................... 30
Schedule 4.17(c)..................................................................... 30
Schedule 4.17(f)..................................................................... 31
Schedule 4.18(b)..................................................................... 32
Schedule 4.18(c)..................................................................... 32
Schedule 4.18(d)..................................................................... 32
Schedule 4.19........................................................................ 33
Schedule 4.20........................................................................ 35
Schedule 4.22(b)..................................................................... 37
Schedule 4.22(c)(i).................................................................. 37
Schedule 4.22(c)(ii)................................................................. 37
Schedule 4.22(d)..................................................................... 37
Schedule 4.25........................................................................ 39
Schedule 5.7......................................................................... 42
</TABLE>
<PAGE> 156
ANNEX C
UTAH BUSINESS CORPORATION ACT
PART 13. DISSENTERS' RIGHTS
16-10A-1301 DEFINITIONS. For purposes of Part 13:
(1) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.
(2) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer.
(3) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Section 16-10a-1302 and who exercises that right when and
in the manner required by Sections 16-10a-1320 through 16-10a-1328.
(4) "Fair value" with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action to which
the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action.
(5) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the statutory rate set forth in Section
15-1-1, compounded annually.
(6) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares
that are registered in the name of a nominee to the extent the beneficial owner
is recognized by the corporation as the shareholder as provided in Section
16-10a-723.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
16-10A-1302 RIGHT TO DISSENT. (1) A shareholder, whether or not entitled
to vote, is entitled to dissent from, and obtain payment of the fair value of
shares held by him in the event of, any of the following corporate actions:
(a) consummation of a plan of merger to which the corporation is a party
if:
(i) shareholder approval is required for the merger by Section
16-10a-1103 or the articles of incorporation; or
(ii) the corporation is a subsidiary that is merged with its parent
under Section 16-10a-1104;
(b) consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired;
(c) consummation of a sale, lease, exchange, or other disposition of all,
or substantially all, of the property of the corporation for which a shareholder
vote is required under Subsection 16-10a-1202(1), but not including a sale for
cash pursuant to a plan by which all or substantially all of the net proceeds of
the sale will be distributed to the shareholders within one year after the date
of sale; and
(d) consummation of a sale, lease, exchange, or other disposition of all,
or substantially all, of the property of an entity controlled by the corporation
if the shareholders of the corporation were entitled to vote upon the consent of
the corporation to the disposition pursuant to Subsection 16-10a-1202(2).
(2) A shareholder is entitled to dissent and obtain payment of the fair
value of his shares in the event of any other corporate action to the extent the
articles of incorporation, bylaws, or a resolution of the board of directors so
provides.
(3) Notwithstanding the other provisions of this part, except to the extent
otherwise provided in the articles of incorporation, bylaws, or a resolution of
the board of directors, and subject to the limitations set forth in Subsection
(4), a shareholder is not entitled to dissent and obtain payment under
Subsection (1) of
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<PAGE> 157
the fair value of the shares of any class or series of shares which either were
listed on a national securities exchange registered under the federal Securities
Exchange Act of 1934, as amended, or on the National Market System of the
National Association of Securities Dealers Automated Quotation System, or were
held of record by more than 2,000 shareholders, at the time of:
(a) the record date fixed under Section 16-10a-707 to determine the
shareholders entitled to receive notice of the shareholders' meeting at which
the corporate action is submitted to a vote;
(b) the record date fixed under Section 16-10a-704 to determine
shareholders entitled to sign writings consenting to the proposed corporate
action; or
(c) the effective date of the corporate action if the corporate action is
authorized other than by a vote of shareholders.
(4) The limitation set forth in Subsection (3) does not apply if the
shareholder will receive for his shares, pursuant to the corporate action,
anything except:
(a) shares of the corporation surviving the consummation of the plan of
merger or share exchange;
(b) shares of a corporation which at the effective date of the plan of
merger or share exchange either will be listed on a national securities exchange
registered under the federal Securities Exchange Act of 1934, as amended, or on
the National Market System of the National Association of Securities Dealers
Automated Quotation System, or will be held of record by more than 2,000
shareholders;
(c) cash in lieu of fractional shares; or
(d) any combination of the shares described in Subsection (4), or cash in
lieu of fractional shares.
(5) A shareholder entitled to dissent and obtain payment for his shares
under this part may not challenge the corporate action creating the entitlement
unless the action is unlawful or fraudulent with respect to him or to the
corporation.
16-10A-1303 DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (1) A record
shareholder may assert dissenters' rights as to fewer than all the shares
registered in his name only if the shareholder dissents with respect to all
shares beneficially owned by any one person and causes the corporation to
receive written notice which states the dissent and the name and address of each
person on whose behalf dissenters' rights are being asserted. The rights of a
partial dissenter under this subsection are determined as if the shares as to
which the shareholder dissents and the other shares held of record by him were
registered in the names of different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to shares
held on his behalf only if:
(a) the beneficial shareholder causes the corporation to receive the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and
(b) the beneficial shareholder dissents with respect to all shares of which
he is the beneficial shareholder.
(3) The corporation may require that, when a record shareholder dissents
with respect to the shares held by any one or more beneficial shareholders, each
beneficial shareholder must certify to the corporation that both he and the
record shareholders of all shares owned beneficially by him have asserted, or
will timely assert, dissenters' rights as to all the shares unlimited on the
ability to exercise dissenters' rights. The certification requirement must be
stated in the dissenters' notice given pursuant to Section 16-10a-1322.
16-10A-1320 NOTICE OF DISSENTERS' RIGHTS. (1) If a proposed corporate
action creating dissenters' rights under Section 16-10a-1302 is submitted to a
vote at a shareholders' meeting, the meeting notice must be sent to all
shareholders of the corporation as of the applicable record date, whether or not
they are entitled to vote at the meeting. The notice shall state that
shareholders are or may be entitled to assert dissenters' rights under this
part. The notice must be accompanied by a copy of this part and the materials,
if any, that under this chapter are required to be given the shareholders
entitled to vote on the proposed action at
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the meeting. Failure to give notice as required by this subsection does not
affect any action taken at the shareholders' meeting for which the notice was to
have been given.
(2) If a proposed corporate action creating dissenters' rights under
Section 16-10a-1302 is authorized without a meeting of shareholders pursuant to
Section 16-10a-704, any written or oral solicitation of a shareholder to execute
a written consent to the action contemplated by Section 16-10a-704 must be
accompanied or preceded by a written notice stating that shareholders are or may
be entitled to assert dissenters' rights under this part, by a copy of this
part, and by the materials, if any, that under this chapter would have been
required to be given to shareholders entitled to vote on the proposed action if
the proposed action were submitted to a vote at a shareholders' meeting. Failure
to give written notice as provided by this subsection does not affect any action
taken pursuant to Section 16-10a-704 for which the notice was to have been
given.
16-10A-1321 DEMAND FOR PAYMENT -- ELIGIBILITY AND NOTICE OF
INTENT. (1) If a proposed corporate action creating dissenters' rights under
Section 16-10a-1302 is submitted to a vote at a shareholders' meeting, a
shareholder who wishes to assert dissenters' rights:
(a) must cause the corporation to receive, before the vote is taken,
written notice of his intent to demand payment for shares if the proposed action
is effectuated; and
(b) may not vote any of this shares in favor of the proposed action.
(2) If a proposed corporate action creating dissenters' rights under
Section 16-10a-1302 is authorized without a meeting of shareholders pursuant to
Section 16-10a-704, a shareholder who wishes to assert dissenters' rights may
not execute a writing consenting to the proposed corporate action.
(3) In order to be entitled to payment for shares under this part, unless
otherwise provided in the articles of incorporation, bylaws, or a resolution
adopted by the board of directors, a shareholder must have been a shareholder
with respect to the shares for which payment is demanded as of the date the
proposed corporate action creating dissenters' rights under Section 16-10a-1302
is approved by the shareholders, if shareholder approval is required, or as of
the effective date of the corporate action if the corporate action is authorized
other than by a vote of shareholders.
(4) A shareholder who does not satisfy the requirements of Subsections (1)
through (3) is not entitled to payment for shares under this part.
16-10A-1322 DISSENTERS' NOTICE. (1) If a proposed corporate action
creating dissenters' rights under Section 16-10a-1302 is authorized, the
corporation shall give a written dissenters' notice to all shareholders who are
entitled to demand payment for their shares under this part.
(2) The dissenters' notice required by Subsection (1) must be sent no later
than ten days after the effective date of the corporate action creating
dissenters' rights under Section 16-10a-1302, and shall:
(a) state that the corporate action was authorized and the effective date
or proposed effective date of the corporate action;
(b) state an address at which the corporation will receive payment demands
and an address at which certificates for certificated shares must be deposited;
(c) inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
(d) supply a form for demanding payment, which form requests a dissenter to
state an address to which payment is to be made;
(e) set a date by which the corporation must receive the payment demand and
by which certificates for certificated shares must be deposited at the address
indicated in the dissenters' notice, which dates may not be fewer than 30 nor
more than 70 days after the date the dissenters' notice required by Subsection
(1) is given;
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(f) state the requirement contemplated by Subsection 16-10a-1303(3), if the
requirement is imposed; and
(g) be accompanied by a copy of this part.
16-10A-1323 PROCEDURE TO DEMAND PAYMENT. (1) A shareholder who is given a
dissenters' notice described in Section 16-10a-1322, who meets the requirements
of Section 16-10a-1321, and wishes to assert dissenters' rights must, in
accordance with the terms of the dissenters' notice;
(a) cause the corporation to receive a payment demand, which may be the
payment demand form contemplated in Subsection 16-10a-1322(2)(d), duly
completed, or may be stated in another writing;
(b) deposit certificates for his certificated shares in accordance with the
terms of the dissenters' notice; and
(c) if required by the corporation in the dissenters' notice described in
Section 16-10a-1322, as contemplated by Section 16-10a-1327, certify in writing,
in or with the payment demand, whether or not he or the person on whose behalf
he asserts dissenters' rights acquired beneficial ownership of the shares before
the date of the first announcement to news media or to shareholders of the terms
of the proposed corporate action creating dissenters' rights under Section
16-10a-1302.
(2) A shareholder who demands payment in accordance with Subsection (1)
retains all rights of a shareholder except the right to transfer the shares
until the effective date of the proposed corporate action giving rise to the
exercise of dissenters' rights and has only the right to receive payment for the
shares after the effective date of the corporate action.
(3) A shareholder who does not demand payment and deposit share
certificates as required, by the date or dates set in the dissenters' notice, is
not entitled to payment for shares under this part.
16-10A-1324 UNCERTIFICATED SHARES. (1) Upon receipt of a demand for
payment under Section 16-10a-1323 from a shareholder holding uncertificated
shares, and in lieu of the deposit of certificates representing the shares,the
corporation may restrict the transfer of the shares until the proposed corporate
action is taken or the restrictions are released under Section 16-10a-1326.
(2) In all other respects, the provisions of Section 16-10a-1323 apply to
shareholders who own uncertificated shares.
16-10A-1325 PAYMENT. (1) Except as provided in Section 16-10a-1327, upon
the later of the effective date of the corporate action creating dissenters'
rights under Section 16-10a-1302, and receipt by the corporation of each payment
demand pursuant to Section 16-10a-1323, the corporation shall pay the amount the
corporation estimates to be the fair value of the dissenters' shares, plus
interest to each dissenter who has complied with Section 16-10a-1323, and who
meets the requirements of Section 16-10a-1321, and who has not yet received
payment.
(2) Each payment made pursuant to Subsection (1) must be accompanied by:
(a) (i) (A) the corporation's balance sheet as of the end of its most
recent fiscal year, or if not available, a fiscal year ending not more
than 16 months before the date of payment;
(B) an income statement for that year;
(C) a statement of changes in shareholders' equity for that year
and a statement of cash flow for that year, if the corporation
customarily provides such statements to shareholders; and
(D) the latest available interim financial statements, if any;
(ii) the balance sheet and statements referred to in Subsection (i)
must be audited if the corporation customarily provides audited financial
statements to shareholders;
(b) a statement of the corporation's estimate of the fair value of the
shares and the amount of interest payable with respect to the shares;
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(c) a statement of the dissenter's right to demand payment under Section
16-10a-1328; and
(d) a copy of this part.
16-10A-1326 FAILURE TO TAKE ACTION. (1) If the effective date of the
corporate action creating dissenters' rights under Section 16-10a-1302 does not
occur within 60 days after the date set by the corporation as the date by which
the corporation must receive payment demands as provided in Section 16-10a-1322,
the corporation shall return all deposited certificates and release the transfer
restrictions imposed on uncertificated shares, and all shareholders who
submitted a demand for payment pursuant to Section 16-10a-1323 shall thereafter
have all rights of a shareholder as if no demand for payment had been made.
(2) If the effective date of the corporate action creating dissenters'
rights under Section 16-10a-1302 occurs more than 60 days after the date set by
the corporation as the date by which the corporation must receive payment
demands as provided in Section 16-10a-1322, then the corporation shall send a
new dissenters' notice, as provided in Section 16-10a-1322, and the provisions
of Sections 16-10a-1323 through 16-10a-1328 shall again be applicable.
16-10A-1327 SPECIAL PROVISIONS RELATING TO SHARES ACQUIRED AFTER
ANNOUNCEMENT OF PROPOSED CORPORATE ACTION. (1) A corporation may, with the
dissenters' notice given pursuant to Section 16-10a-1302, state the date of the
first announcement to news media or to shareholders of the terms of the proposed
corporate action creating dissenters' rights under Section 16-10a-1302 and state
that a shareholder who asserts dissenters' rights must certify in writing, in or
with the payment demand, whether or not he or the person on whose behalf he
asserts dissenters' rights acquired beneficial ownership of the shares before
that date. With respect to any dissenter who does not certify in writing, in or
with the payment demand that he or the person on whose behalf the dissenters'
rights are being asserted, acquired beneficial ownership of the shares before
that date, the corporation may, in lieu of making the payment provided in
Section 16-10a-1325, offer to make payment if the dissenter agrees to accept it
in full satisfaction of the demand.
(2) An offer to make payment under Subsection (1) shall include or be
accompanied by the information required by Subsection 16-10a-1325(2).
16-10A-1328 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR
OFFER. (1) A dissenter who has not accepted an offer made by a corporation
under Section 16-10a-1327 may notify the corporation in writing of his own
estimate of the fair value of his shares and demand payment of the estimated
amount, plus interest, less any payment made under Section 16-10a-1325; if
(a) the dissenter believes that the amount paid under Section 16-10a-1325
or offered under Section 16-10a-1327 is less than the fair value of the shares;
(b) the corporation fails to make payment under Section 16-10a-1325 within
60 days after the date set by the corporation as the date by which it must
receive the payment demand; or
(c) the corporation, having failed to take the proposed corporate action
creating dissenters' rights, does not return the deposited certificates or
release the transfer restrictions imposed on uncertificated shares as required
by Section 16-10a-1326.
(2) A dissenter waives the right to demand payment under this section
unless he causes the corporation to receive the notice required by Subsection
(1) within 30 days after the corporation made or offered payment for his shares.
16-10A-1330 JUDICIAL APPRAISAL OF SHARES -- COURT ACTION. (1) If a demand
for payment under Section 16-10a-1328 remains unresolved, the corporation shall
commence a proceeding within 60 days after receiving the payment demand
contemplated by Section 16-10a-1328, and petition the court to determine the
fair value of the shares and the amount of interest. If the corporation does not
commence the proceeding within the 60-day period, it shall pay each dissenter
whose demand remains unresolved the amount demanded.
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(2) The corporation shall commence the proceeding described in Subsection
(1) in the district court of the county in this state where the corporation's
principal office, or if it has no principal office in this state, the county
where its registered office is located. If the corporation is a foreign
corporation without a registered office in this state, it shall commence the
proceeding in the county in this state where the registered office of the
domestic corporation merged with, or whose shares were acquired by, the foreign
corporation was located.
(3) The corporation shall make all dissenters who have satisfied the
requirements of Sections 16-10a-1321, 16-10a-1323, and 16-10a-1328, whether or
not they are residents of this state whose demands remain unresolved, parties to
the proceeding commenced under Subsection (2) as an action against their shares.
All such dissenters who are named as parties must be served with a copy of the
petition. Service on each dissenter may be by registered or certified mail to
the address stated in his payment demand made pursuant to Section 16-10a-1328.
If no address is stated in the payment demand, service may be made at the
address stated in the payment demand given pursuant to Section 16-10a-1323. If
no address is stated in the payment demand, service may be made at the address
shown on the corporation's current record of shareholders of the record
shareholder holding the dissenter's shares. Service may also be made otherwise
as provided by law.
(4) The jurisdiction of the court in which the proceeding is commenced
under Subsection (2) is plenary and exclusive. The court may appoint one or more
persons as appraisers to receive evidence and recommend decision on the question
of fair value. The appraisers have the powers described in the order appointing
them, or in any amendment to it. The dissenters are entitled to the same
discovery rights as parties in other civil proceedings.
(5) Each dissenter made a party to the proceeding commenced under
Subsection (2) is entitled to judgment:
(a) for the amount, if any, by which the court finds that the fair value of
his shares, plus interest, exceeds the amount paid by the corporation pursuant
to Section 16-10a-1327; or
(b) for the fair value, plus interest, of the dissenter's after-acquired
shares for which the corporation elected to withhold payment under Section
16-10a-1327.
16-10A-1331 COURT COSTS AND COUNSEL FEES. (1) The court in an appraisal
proceeding commenced under Section 16-10a-1330 shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The court shall assess the costs against the
corporation, except that the court may assess costs against all or some of the
dissenters, in amounts the court finds equitable, to the extent the court finds
that the dissenters acted arbitrarily, vexatiously, or not in good faith in
demanding payment under Section 16-10a-1328.
(2) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the requirements
of Sections 16-10a-1320 through 16-10a-1328; or
(b) against either the corporation or one or more dissenters, in favor of
any other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by this part.
(3) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to those counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefitted.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED SEPTEMBER 18, 1996
------------------------------------
PROSPECTUS/PROXY AND INFORMATION STATEMENT
------------------------------------
This document, in connection with the appropriate Prospectus/Information
Statement Supplement or Proxy Statement Supplement delivered herewith, is
intended for use in connection with pending acquisitions by Unison HealthCare
Corporation ("Unison") of: (i) American Professional Holding, Inc. ("Ampro") and
Memphis Clinical Laboratory, Inc. ("Memphis"); and (ii) Signature Health Care
Corporation ("Signature Health Care"), Arkansas, Inc., Cornerstone Care, Inc.,
Douglas Manor, Inc. and Safford Care, Inc. (collectively the "Signature
Affiliates") and also with proposals to increase Unison's authorized number of
shares of Common Stock from 10,000,000 to 25,000,000, to increase the number of
shares of Unison Common Stock authorized for issuance under Unison's 1995 Stock
Option Plan (the "Option Plan") from 511,046 to 800,000 and to increase formula
grants to nonemployee directors under the Option Plan.
This Prospectus/Proxy and Information Statement contains information and
financial statements with respect to Unison, the entities proposed to be
acquired, certain other recent acquisitions and other commitments of Unison, but
does not contain complete information regarding any of the above transactions
and should be read in conjunction with the Proxy Statement Supplement or
Prospectus/Information Statement Supplement relating to each particular
transaction. The Proxy Statement Supplement or Prospectus/Information Statement
Supplement relating to a particular transaction will set forth information with
regard to such acquisition, including: (i) information as to the entity being
acquired; (ii) a description of the proposed transactions and agreements
relating thereto; (iii) information relating to the related meeting of Unison
stockholders or Ampro shareholders to vote on the transaction; and (iv)
information with respect to dissenters' rights, if applicable.
This Prospectus/Proxy and Information Statement, together with the
Prospectus/Information Statement Supplement relating to the Ampro and Memphis
transaction, constitutes the Prospectus of Unison covering the shares of its
$.001 par value common stock ("Unison Common Stock") which may be issued in such
acquisition transaction. It does not constitute a Prospectus with respect to the
transactions with Signature or the Signature Affiliates, which are being
effected without registration under the Securities Act of 1933, as amended (the
"1933 Act"), but it will be provided to the holders of shares in Signature and
the Signature Affiliates for their information prior to the consummation of
those transactions. Up to a maximum of 2,049,434 shares of Unison Common Stock
may be issued in connection with the foregoing pending acquisitions, subject to
any adjustments for increases or decreases in the market price of Unison Common
Stock.
The executive offices of Unison are located at 7272 East Indian School
Road, Suite 214, Scottsdale, Arizona 85251, and Unison's telephone number is
(602) 423-1954.
SEE "RISK FACTORS" AT PAGE 9 FOR A DISCUSSION OF CERTAIN SPECIAL RISKS
RELATING TO UNISON AND PENDING OR CONTEMPLATED TRANSACTIONS.
------------------------
THE SECURITIES TO BE ISSUED IN CONNECTION WITH THE FOREGOING ACQUISITIONS
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THE INFORMATION CONTAINED IN THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
This Prospectus/Proxy and Information Statement should be used only in
conjunction with a related Proxy Statement Supplement or Prospectus/Information
Statement Supplement.
------------------------
The date of this Prospectus/Proxy and Information Statement is ,
1996
<PAGE> 163
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION, OTHER THAN AS CONTAINED IN THIS PROSPECTUS/PROXY AND INFORMATION
STATEMENT AND ANY SUPPLEMENT HERETO, IN CONNECTION WITH THE MATTERS DESCRIBED
HEREIN AND, IF SO GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MAY NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED.
THIS PROSPECTUS/PROXY AND INFORMATION STATEMENT, AS SUPPLEMENTED, DOES NOT
CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY ANY SECURITY IN
ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT WOULD BE UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS/PROXY AND
INFORMATION STATEMENT, AS SUPPLEMENTED, NOR ANY DISTRIBUTION OF THE SECURITIES
MADE HEREUNDER SHALL CREATE AN IMPLICATION THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATES AS OF WHICH SUCH INFORMATION IS
GIVEN.
THIS PROSPECTUS/PROXY AND INFORMATION STATEMENT, AS SUPPLEMENTED, DOES NOT
COVER ANY RESALE OF THE SECURITIES TO BE RECEIVED BY THE HOLDERS OF ANY ACQUIRED
ENTITIES UPON CONSUMMATION OF THE PROPOSED TRANSACTIONS, AND NO PERSON IS
AUTHORIZED TO MAKE ANY USE OF THIS PROSPECTUS/PROXY AND INFORMATION STATEMENT IN
CONNECTION WITH ANY SUCH RESALE.
AVAILABLE INFORMATION
Unison is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy and information statements and other information
with the Securities Exchange Commission (the "Commission"). Unison Common Stock
is listed on the Nasdaq National Market under the symbol UNHC. Reports, proxy
statements and other information filed by Unison can be inspected at the
National Association of Securities Dealers, Inc. at 1735 K Street, N.W.,
Washington, D.C. 10006 and can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following Regional Offices of
the Commission: Midwest Regional Office, Citicorp Center, Suite 1400, 500 West
Madison Street, Chicago, Illinois 60661; and Northeast Regional Office, 7 World
Trade Center, Suite 1300, New York, New York 10048. Copies of such material can
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. Additionally, the
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission, and the address of the Commission's site is:
http//www.sec.gov.
Unison has filed with the Commission a Registration Statement on Form S-4
(together with any amendments, schedules and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the shares of Unison Common
Stock to be issued in the Ampro and Memphis Mergers. This Prospectus/Proxy and
Information Statement, as supplemented, does not contain all of the information
contained in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. The Registration
Statement is available for inspection and copying as set forth above. Statements
contained in this Prospectus/ Proxy and Information Statement, as supplemented,
or in any document incorporated by reference into this Prospectus/Proxy and
Information Statement, as supplemented, as to the contents of any contract or
other document referred to herein or therein are not necessarily complete, and
in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement or such other
document, each such statement being qualified in all respects by such reference.
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TABLE OF CONTENTS
<TABLE>
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SUMMARY............................................................................. 5
The Company....................................................................... 5
Summary Historical and Pro Forma Combined Financial Data.......................... 7
Market Price Data and Dividends................................................... 8
RISK FACTORS........................................................................ 9
Limited Operating History......................................................... 9
History of Losses and Accumulated Deficit......................................... 9
Risks of Default from High Leverage, Substantial Lease Obligations and Limited
Capital Resources.............................................................. 9
Financial Covenants............................................................... 9
Difficulty of Acquiring and Integrating Additional Facilities and Services........ 10
Risks of Noncompliance with Government Regulations................................ 10
Uncertainties Resulting from Governmental Budgetary Constraints; Proposed
Budgetary Legislation.......................................................... 11
Potential Reductions of Reimbursement by Third-Party Payors....................... 11
Conflicts of Interest Arising from Benefits to Affiliates of Unison............... 12
Conflicts of Interest from Related Party Transactions............................. 13
Management Discretion Regarding Use of Proceeds from Senior Notes................. 13
Competition....................................................................... 13
Liability and Insurance........................................................... 13
Issuance of Authorized Shares of Common Stock Without Stockholder Approval........ 13
Dependence on Management and Skilled Personnel.................................... 14
Control by Management and Certain Shareholders.................................... 14
Potential Changes in Control; Cross Defaults and Related Risks.................... 14
Environmental Liability Risks..................................................... 15
Possible Volatility of Stock Prices............................................... 15
Effect of Certain Anti-takeover Provisions........................................ 15
Shares Eligible for Future Sale; Registration Rights.............................. 15
Forward-Looking Statements........................................................ 16
RECENT AND PENDING UNISON ACQUISITIONS AND OTHER COMMITMENTS........................ 17
Recent Acquisitions............................................................... 17
Pending Acquisitions.............................................................. 18
The Senior Notes.................................................................. 19
UNISON MARKET PRICE DATA AND DIVIDEND POLICY........................................ 19
CAPITALIZATION...................................................................... 20
UNISON UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS.................. 21
UNISON MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS........................................................................ 35
Recent and Pending Acquisitions................................................... 35
Results of Operations............................................................. 36
Unison Historical................................................................. 37
BritWill Historical............................................................... 39
Liquidity and Capital Resources................................................... 40
BUSINESS OF UNISON.................................................................. 45
Introduction...................................................................... 45
Market Overview................................................................... 45
</TABLE>
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<TABLE>
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Operating Strategy................................................................ 46
Growth Strategy................................................................... 48
Patient Services.................................................................. 49
Operations........................................................................ 50
Description of Management Services and Agreements................................. 51
Description of Lease Agreements................................................... 52
Competition....................................................................... 52
Revenues Sources.................................................................. 53
Government Regulation............................................................. 53
Insurance......................................................................... 59
Employees......................................................................... 59
Labco and Memco; Certain Other Subsidiaries....................................... 59
Properties........................................................................ 60
Legal Proceedings................................................................. 62
UNISON MANAGEMENT................................................................... 63
Directors and Executive Officers.................................................. 63
Executive Compensation............................................................ 64
Compensation of Directors......................................................... 66
1995 Stock Option Plan............................................................ 66
Employment Contracts, Termination of Employment, and Change-in-Control
Arrangements................................................................... 68
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions...................................................................... 68
CERTAIN TRANSACTIONS................................................................ 71
PRINCIPAL STOCKHOLDERS.............................................................. 73
DESCRIPTION OF UNISON CAPITAL STOCK................................................. 75
Common Stock...................................................................... 75
Preferred Stock................................................................... 75
Other Securities.................................................................. 75
Certain Provisions of Certificate of Incorporation Affecting Stockholders......... 76
Limitation of Liability and Indemnification Agreements............................ 76
Voting Agreement.................................................................. 77
Registration Rights............................................................... 77
LEGAL OPINIONS...................................................................... 77
EXPERTS............................................................................. 77
</TABLE>
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SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Consolidated Financial Statements and notes thereto appearing
elsewhere in this Prospectus/Proxy and Information Statement. References to
"Unison" or the "Company" refer to Unison HealthCare Corporation, formerly known
as SunQuest HealthCare Corporation, and its consolidated subsidiaries and their
predecessors, or to any of them, depending on the context.
THE COMPANY
Unison is a provider of high quality traditional long-term and specialty
health care services. Unison provides a broad range of health care services
including nursing care, rehabilitation therapy, respiratory therapy and other
specialized services to patients whose needs span the continuum of care from
home care through subacute care. Subacute care includes those services provided
to patients with medically complex conditions who require more than three hours
per day of skilled nursing, medical supervision and access to specialized
equipment and services, but do not require many of the other services provided
by acute care hospitals. Unison also maintains special units with 495 beds
designed to treat patients with specific medical conditions such as Alzheimers,
AIDS and those requiring wound management. As of September 1, 1996, the Company
operated 51 facilities, including 45 long-term and specialty care facilities (41
of which are Medicare certified) with 4,666 beds and six independent or assisted
living facilities with 196 beds, in twelve states, principally in the midwest
and southwest regions of the United States.
Unison also provides certain ancillary services through both internally
developed and affiliated companies. Ancillary services are those services that
can be billed and reimbursed separately from routine services. Unison recently
established a pharmacy operation and Medicare Part B billing and supply company
to provide ancillary services to both Unison operated facilities and
non-affiliated health care providers. Unison has also acquired a therapy
services company which provides physical, occupational and speech therapy
through local outpatient clinics and long-term care facilities primarily in the
southeastern United States. It has also agreed to acquire two affiliated
laboratory services companies to provide medical laboratory testing services.
See "Recent and Pending Unison Acquisitions and Other Commitments."
Unison believes that it has established a strong competitive position in
the markets it serves by providing appropriate auxiliary services, specialty
health care services and high quality long-term care. Unison continues to
provide high quality health care services, as evidenced by its generally low
deficiency rating in state regulatory compliance surveys compared with national
averages. Unison has improved and is continuing to improve its payor mix and
growth both in specialty services and in revenue and operating profits. For the
six months ended June 30, 1996, Unison achieved a quality mix (defined as
revenues derived from private payors, Medicare and commercial insurers) of 48.2%
compared to 42.8% for the same period in 1995.
Unison believes that it is favorably positioned to benefit from recent
trends in the industry, including demographic shifts, advances in medical
technology and health care cost containment efforts. Unison seeks to
differentiate itself through an intense and focused quality care program that
strives to meet and anticipate changing regulatory requirements. Unison also
believes that it will benefit from increasing demand for long-term care and
specialty health care services, limited supply of new long-term care beds and
consolidation within the industry.
Unison's long-term strategy is to provide a full range of long-term care
services across the entire continuum of care from independent and assisted
living to subacute, specialty and traditional long-term care services. Unison's
operating strategy is to increase the revenues and profitability of the
facilities it operates by: (i) emphasizing the continued development and
expansion of specialty health care services to treat higher acuity patients in
cooperation with local hospitals and physicians; (ii) expanding the scope of
ancillary services provided in and to Unison facilities; (iii) increasing
occupancy levels and improving the Unison's payor mix; (iv) achieving and
maintaining a high standard of regulatory compliance and patient care in each
facility that Unison operates now or in the future; (v) providing independent
living and assisted living opportunities which are operated in hand with
Unison's care facilities; and (vi) containing costs.
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Unison intends to continue to grow its business by: (i) selectively leasing
additional long-term and specialty health care facilities in geographic
clusters; (ii) developing and acquiring additional ancillary services companies;
and (iii) developing in-house specialty care units within its current and future
facilities. In leasing new facilities, Unison intends to focus on facilities
with at least 100 licensed beds near one or more hospitals, especially in
markets with population concentrations in excess of 100,000. Additional
ancillary services are likely to include pharmacy services, home health care
services and reference laboratory services. Specialty units, which typically
generate higher profit margins than are available from more traditional long-
term care services, may include specialty units for Alzheimer's care, for AIDS
care, for specialized rehabilitation services and for the treatment of medically
complex patients. Unison believes that concentrating several long-term care
facilities within strategic geographic areas provides operating efficiencies and
economies of scale, better positions Unison to compete for managed care
contracts and facilitates the development of its ancillary and specialty health
care services.
The founders of Unison, who had previously worked together as executives of
Samaritan Senior Services, Inc., commenced operations of SunQuest HealthCare
Corporation with two facilities in July 1992. The Company had grown to 22
facilities when, on August 10, 1995, the Company acquired BritWill HealthCare
Company ("BritWill") (the "BritWill Acquisition"). BritWill had strategic
geographic concentrations of facilities in Texas and Indiana. The BritWill
Acquisition provided the Company with 28 additional facilities representing
2,816 beds. On November 14, 1995 the Company changed its name from SunQuest
HealthCare Corporation to Unison HealthCare Corporation. Unison has agreed to
acquire two related medical reference laboratory companies (the "Ampro and
Memphis Mergers") and a long term care provider and related companies with 13
facilities in Colorado and Arizona (the "Signature Mergers"), in each case
subject to specified conditions. See "Recent and Pending Unison Acquisitions and
Other Commitments."
The Company's principal executive office is located at 7272 East Indian
School Road, Suite 214, Scottsdale, Arizona, 85251, and its telephone number is
(602) 423-1954.
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SUMMARY HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA
(In thousands, except share and selected operating data)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED DECEMBER 31,
JUNE 30, ----------------------------------------------
----------------------------------- HISTORICAL
HISTORICAL PRO FORMA PRO FORMA PRO FORMA ----------------------------------
1996 1996(2) 1995(2) 1995(2) 1995 1994 1993 1992(1)
----------- --------- --------- --------- ------- ------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues............................. $64,997 $99,081 $71,322 $164,485 $61,285 $12,406 $1,956 $ 379
Expenses:
Wages and related........................ 32,447 53,209 42,974 97,406 31,811 7,149 1,455 190
Other operating.......................... 21,172 25,132 15,441 38,554 20,777 3,902 545 109
Rent..................................... 6,653 8,313 6,596 14,471 6,565 1,299 99 8
Interest................................. 1,452 6,694 6,248 12,834 1,058 84 11 5
Depreciation and amortization............ 1,054 3,085 3,203 6,289 1,050 51 7 3
------
-
------- ------- ------ ---- -------- ------- -------
Total expenses......................... 62,778 96,433 74,462 169,554 61,261 12,485 2,117 315
------
-
------- ------- ------ ---- -------- ------- -------
Income (loss) before income taxes.......... 2,219 2,648 (3,140) (5,069 ) 24 (79) (161) 64
Income taxes (credit)...................... 932 1,059 (1,256) (2,028 ) 50 1 (20) 26
------
-
------- ------- ------ ---- -------- ------- -------
Net income (loss).......................... $ 1,287 $ 1,589 $(1,884) $ (3,041 ) $ (26) $ (80) $ (141) $ 38
======= ======= ====== ==== ======== ======= ======= =======
Per share data:
Net income (loss) per share.............. $ .31 $ .26 $ (.57) $ (.90 ) $ (.02) $ (.06) $ (.11) $ .03
Weighted average shares outstanding...... 4,132 6,181 3,315 3,398 1,349 1,266 1,266 1,266
SELECTED OPERATING DATA(2):
Leased and Owned Facilities(1):
Number of facilities................... 42 55 26 56 43 11 2 --
Number of licensed beds:
Long-term care....................... 3,787 4,837 1,830 4,922 3,872 631 74 --
Assisted and independent living...... 134 262 232 240 112 104 30 --
Managed Facilities(1):
Number of facilities................... 8 8 9 10 10 9 5 4
Number of licensed beds................ 892 892 990 1,096 1,096 990 612 436
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------------
HISTORICAL PRO FORMA(3)
---------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................................................. $ 847 $ 20,156
Working capital........................................................................... 4,848 41,590
Lease operating rights and other assets................................................... 42,588 84,818
Goodwill.................................................................................. 11,195 40,390
Total assets.............................................................................. 84,743 210,091
Total debt................................................................................ 31,111 129,737
Stockholders' equity...................................................................... 22,886 44,006
</TABLE>
- ---------------
(1) Number of facilities expressed are at end of period. Unison operations
commenced in July 1992.
(2) Gives effect to the BritWill Acquisition and other acquisitions in 1995 and
1996, the Ampro and Memphis Mergers, the Signature Mergers and the sale of
$100.0 million of Senior Notes (see "Other Recent and Pending Unison
Acquisitions and Other Commitments") as if such transactions had occurred on
January 1, 1995.
(3) Gives effect to the Ampro and Memphis Mergers, the Signature Mergers and the
sale of $100.0 million of Senior Notes (see "Other Recent and Pending Unison
Acquisitions and Other Commitments") as if they had occurred on June 30,
1996. See the Unaudited Pro Forma Condensed Combined Financial Statements
and Notes thereto.
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MARKET PRICE DATA AND DIVIDENDS
Unison Common Stock is traded on the Nasdaq National Market under the
symbol UNHC. The following tables set forth, for the fiscal quarter indicated,
the high and low sale prices of Unison Common Stock, as reported on the Nasdaq
National Market.
<TABLE>
<CAPTION>
UNISON
-------------------
HIGH LOW
------- -------
<S> <C> <C>
Year Ended December 31, 1995
Fourth Quarter (commencing December 19, 1995).................. $ 9.375 $ 9.000
Year Ending December 31, 1996
First Quarter.................................................. 11.750 8.875
Second Quarter................................................. 15.500 10.250
Third Quarter (through September 17, 1996)..................... 14.750 10.875
</TABLE>
On July 26, 1996, the last trading day prior to the announcement by Unison
of the proposed Signature Mergers, the closing sale price of Unison Common Stock
was $13.00 per share. On September 17, 1996, the closing sale price of Unison
Common Stock was $13.25 per share.
Unison has never paid dividends on its Common Stock.
8
<PAGE> 170
RISK FACTORS
The following risk factors and the information provided elsewhere in this
Prospectus/Proxy and Information Statement and the related Proxy Statement
Supplement and Prospectus/Information Statement Supplement should be considered
carefully in evaluating the Signature Mergers, the Ampro and Memphis Mergers,
the Certificate Amendment and the Option Plan Amendment.
LIMITED OPERATING HISTORY. Unison began operations in 1992 and through the
third quarter of 1995 incurred net losses. Unison reported a net profit in the
fourth quarter of 1995 and in each of the first and second quarters of 1996.
Unison's future profitability will depend on many factors, including the
successful integration of acquired operations, general economic conditions,
occupancy levels, the level of competition, Unison's ability to attract and
retain qualified personnel at competitive rates, government regulation and
reimbursement policies, Unison's ability to integrate other complementary
businesses into its organization and the successful implementation of its growth
strategy. See "-- Difficulty of Acquiring and Integrating Additional Facilities
and Services," "Unison Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business of Unison -- Growth Strategy"
and "-- Government Regulation."
HISTORY OF LOSSES AND ACCUMULATED DEFICIT. Through the third quarter of
1995, Unison operated at a loss on an historical and pro forma basis. Unison
reported a net profit in the fourth quarter of 1995 and in each of the first and
second quarters of 1996. There can be no assurance that Unison will be
profitable in the future. Unison's future profitability will depend on many
factors including those mentioned above. See "-- Limited Operating History" and
"Unison Management's Discussion and Analysis of Financial Condition and Results
of Operations."
RISKS OF DEFAULT FROM HIGH LEVERAGE, SUBSTANTIAL LEASE OBLIGATIONS AND
LIMITED CAPITAL RESOURCES. After giving effect to the Ampro and Memphis Mergers,
the Signature Mergers, the acquisition of RehabWest, the anticipated private
placement of approximately $100.0 million of senior, unsecured Notes (the
"Senior Notes") and the application of approximately $24.7 million of proceeds
from such placement to reduce outstanding indebtedness (including indebtedness
and contingent obligations to the former BritWill shareholders), $129.1 million
in total indebtedness (75.3% of total capitalization) and $1.7 million of
contingent obligations (1.0% of total capitalization) will remain outstanding.
As such, a substantial portion of Unison's cash flow from operations will be
required to make principal and interest payments on outstanding indebtedness.
Unison also has significant long term lease obligations. Unison's pro forma rent
expense (including effects of recent and planned acquisitions) for the six
months ended June 30, 1996 was approximately $8.3 million. Unison is not likely
to be able to repay the principal of the Senior Notes unless it completes
another substantial public or private sale of debt or equity securities before
that date. Substantially all of the assets of Unison and its subsidiaries are
pledged to secure indebtedness and lease obligations. See "-- Financial
Covenants," "-- Potential Changes in Control; Cross Defaults and Related Risks,"
"Capitalization," "Unison Unaudited Pro Forma Condensed Combined Financial
Statements" and "Unison Management's Discussion and Analysis of Financial
Condition and Results of Operations."
FINANCIAL COVENANTS. Some of Unison's leases and loan agreements contain
covenants requiring Unison to achieve specified improvements in its operating
results or financial ratios by specified future dates. Although Unison is
currently in compliance with these ratios, it has not always satisfied these
obligations in the past and there can be no assurance that it will be able to
satisfy all of these obligations in the future. Unison expects that the Senior
Notes will include covenants that prohibit or limit, among other things, the
sale of assets, the making of acquisitions and other investments, the incurrence
of additional debt and liens and the payment of dividends, and that require
Unison to maintain a minimum consolidated net worth and to comply with certain
financial ratio tests, and that limit Unison's ability to sell certain assets,
engage in certain transactions with affiliates, engage in certain mergers and
consolidations and enter a new line of business. See "Recent and Pending Unison
Acquisitions and Other Commitments -- The Senior Notes." Unison's failure to
comply with any of these covenants could result in an event of default, thereby
permitting acceleration of such indebtedness as well as indebtedness under other
instruments that contain cross-acceleration or cross-default provisions, which
in turn could have a material adverse effect on Unison's financial condition and
the results of operations.
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<PAGE> 171
The degree to which Unison is leveraged and the covenants described above
may adversely affect Unison's ability to finance its future operations and could
limit its ability to pursue business opportunities that may be in the interest
of Unison and its security holders. In particular, changes in medical
technology, existing, proposed and future legislation, regulations and the
interpretation thereof, and the increasing importance of managed care contracts
and integrated healthcare delivery systems may require significant investment in
facilities, equipment, personnel or services. Although Unison expects that cash
generated from operations and amounts available under the Senior Notes, together
with public or private sales of equity securities from time to time, will be
sufficient to allow it to make such investments, there can be no assurance that
Unison will be able to obtain the funds necessary to make such investments. See
"-- Potential Changes in Control; Cross Defaults and Related Risks."
DIFFICULTY OF ACQUIRING AND INTEGRATING ADDITIONAL FACILITIES AND
SERVICES. A key element of Unison's growth to date and strategy for the future
is expansion through the leasing of new or existing long-term and specialty
health care facilities and the acquisition or development of ancillary health
care companies or services, including rehabilitation therapy, physical, speech
and occupational therapy, respiratory therapy and laboratory services. This
expansion has increased and is likely to continue to increase the operating
complexity of Unison and its subsidiaries as a whole and has placed and will
continue to place significant demands on Unison's management and other
resources. Acquisitions are inherently risky due to the possibility of unknown
and unforeseen contingencies affecting the new businesses. Unison incurs certain
costs and operating inefficiencies in connection with the acquisition of a new
skilled nursing facility, typically for two to 12 months following such
acquisition, relating to the integration of such facility's financial and
administrative systems, physical plant and other aspects of its operations into
those of Unison. In addition, the introduction of a substantial portion of
Unison's ancillary services to a new skilled nursing facility may take as long
as one to six months to fully implement. There can be no assurance that Unison
will be successful in identifying, acquiring, managing or integrating additional
facilities, operations and ancillary services, that acquisition risks can be
avoided or controlled, that there will be any operating efficiencies between the
businesses or that the combined businesses will be operated profitably. Unison
may acquire other businesses and develop other services in the future and the
failure to integrate and operate these services or other acquired companies
successfully could have a material adverse effect on Unison's business and
future prospects. See "Business of Unison -- Growth Strategy" and "Other Recent
and Pending Unison Acquisitions and Other Commitments."
RISKS OF NONCOMPLIANCE WITH GOVERNMENT REGULATIONS. The operation of
skilled nursing facilities is subject to Federal, state and local laws relating
to, among other things, the number of beds, the provision of ancillary services,
the adequacy of medical care, distribution of pharmaceuticals, equipment,
personnel, operating policies, fire prevention and compliance with building
codes. Skilled nursing facilities are also subject to periodic inspection by
governmental and other authorities to assure compliance with various standards
and to maintain continued licensing under state law and certification under the
Medicare and Medicaid programs. Although Unison generally has been able to
secure necessary approvals or licenses in the past, it voluntarily closed one
facility during 1996 due to regulatory problems, and the failure to obtain or
renew any required regulatory approvals or licenses could adversely affect
Unison's ability to offer existing or additional services, to receive Medicaid
and Medicare payments, and to expand the geographic scope of its operations, any
of which could adversely affect Unison's business.
The Health Care Financing Administration ("HCFA") announced on March 28,
1995 that it intended to conduct an examination of the billing and reimbursement
practices employed by controlled affiliates of long-term care providers that are
engaged in the provision of ancillary services both to the facilities controlled
and not controlled by the providers. As of the date of this Prospectus/Proxy and
Information Statement, the status of these examinations is not known, although
several public companies have announced that HCFA has requested information or
is conducting examinations. The outcome of these examinations and their
potential future impact on reimbursement and billing regulations, if any, cannot
yet be known. There can be no assurance that such examinations and any resulting
changes in reimbursement regulations will not have a material adverse effect on
Unison. Unison believes it complies with all current regulations regarding
billing and reimbursement practices in its provision of ancillary services, and
intends to continue to do so in the future. Effective July 1, 1995, HCFA
promulgated new survey, certification and enforcement rules governing
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<PAGE> 172
skilled nursing facilities and nursing facilities participating in the Medicare
and Medicaid programs. Among other things, the new HCFA rules governing survey
and certification of long-term care facilities define or redefine a number of
terms used in the survey and certification process. The rules require states to
amend their state plans (required by Federal law) to incorporate the provisions
of the new rules, including the full range of remedies for nursing facilities
subject to the jurisdiction of the state Medicaid agency. The new HCFA
certification, survey and enforcement regulations impose significant new burdens
on long-term care facilities. The regulations may require state survey agencies
to take aggressive enforcement actions, such as imposing fines, decertifying
facilities, banning admission or revoking necessary licenses and closing
facilities. Additional remedies are available. Unison believes it understands
the new rules and will be able to comply with them. However, the breadth of the
new rules and their recent effective date create uncertainty over how the rules
will be implemented and the ability of Unison's long-term care facilities to
comply with them. After an initial delay in enforcement of the new regulations
during which only the most egregious violations were enforced, HCFA has begun
enforcing the new rules. Published reports indicate that in the initial surveys
conducted, as many as 70% of the facilities surveyed were not in compliance with
the new rules. On August 21, 1996, President Clinton signed the Health Insurance
Portability and Accountability Act ("HR 3103"). HR 3103 contains a variety of
significant health care fraud and abuse provisions. See "Business of Unison --
Government Regulation."
UNCERTAINTIES RESULTING FROM GOVERNMENTAL BUDGETARY CONSTRAINTS; PROPOSED
BUDGETARY LEGISLATION. Political, economic and regulatory influences are
resulting in fundamental changes in the health care industry in the United
States. For example, proposed federal budgets have called for substantial
reductions in projected Medicare spending. In addition, the Clinton
administration and various members of Congress have advanced a number of
legislative proposals to reform the health care system. Among the proposals
considered by the Congress has been a "block grant" funding mechanism for the
disbursement of the Federal share of Medicaid payments to the individual states,
which, if enacted, could cause a reduction in the availability of Medicaid funds
in future years to the states. Certain other provisions of the proposed
legislation are intended to reduce the rate of increase in Medicare and Medicaid
expenditures through cost savings and other measures which are expected to be
developed in the near future.
Unison anticipates that federal and state governments will continue to
review and assess alternative health care delivery systems and payment methods.
Due to uncertainty regarding the ultimate features of reform initiatives and
their enactment and implementation, Unison cannot predict which, if any, reform
proposals will be adopted, when they may be adopted or what impact they may have
on Unison. There can be no assurance that such reforms, if enacted, or
administrative responses to budgetary constraints, will not have a material
adverse effect on Unison. See "Business -- Government Regulation."
POTENTIAL REDUCTIONS OF REIMBURSEMENT BY THIRD-PARTY PAYORS. Revenues
received from the Medicare program for services provided in Unison's facilities
represented approximately 27.2% of Unison's pro forma revenues for the year
ended December 31, 1995 and approximately 32.4% of Unison's revenues for the six
months ended June 30, 1996. The Medicare program is subject to statutory and
regulatory changes, retroactive and prospective rate adjustments, administrative
rulings and funding restrictions, all of which could have the effect of limiting
or reducing reimbursement levels for Unison's services. Unison cannot predict
whether any changes to this program will be adopted or, if adopted, the effect,
if any, such changes will have on Unison. Any significant decrease in Medicare
reimbursement levels, or the imposition of significant restrictions on
participation in the Medicare program, could have a material adverse effect on
Unison. There can be no assurance that Unison's facilities will continue to
satisfy the requirements for participation in the Medicare program.
Unison bills on a "salary equivalency" fee-based schedule for physical
therapy services and respiratory therapy services provided to Medicare patients
at its facilities, most of which are currently provided through third party
rehabilitation therapy companies but which may increasingly be available through
Unison in the future. Skilled nursing facilities are, with certain exceptions,
only entitled to bill Medicare for such therapy services based on the salary
equivalency guidelines. For rehabilitation therapy services provided directly,
Unison's billing rates and gross margins under the salary equivalency guidelines
for physical therapy services are significantly lower than those for speech
language pathology and occupational therapy, which are
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reimbursed under the "prudent buyer" rule. HCFA is currently considering changes
to the Medicare reimbursement guidelines for physical therapy services and new
salary equivalency guidelines for speech language pathology and occupational
therapy services. In addition, in April 1995, HCFA sent a memorandum to Regional
Office Administrators containing specific data which intermediaries may use in
making "prudent buyer" decisions regarding occupational and respiratory therapy
and speech language pathology services. Unison believes the data, if followed,
would result in a significant decrease in the amounts reimbursed for such
services throughout the industry. Although Unison has no way to determine when,
or if, any changes will be made to the current Medicare reimbursement guidelines
for physical, respiratory, speech or occupational therapy services, or the
extent to which the data set forth in the memorandum will be used by
intermediaries in providing reimbursement, the imposition of salary equivalency
guidelines on speech language pathology and occupational therapy services that
results in a significant decrease in reimbursement rates for such services, or
the widespread use by intermediaries of the data in the memorandum, could
significantly decrease Unison's margins and have a material adverse effect on
the Unison's business. See "Business of Unison -- Government Regulation."
Unison's facilities that participate in applicable state Medicaid programs
are subject to risks of changes in Medicaid reimbursement and payment delays
resulting from budgetary shortfalls of state Medicaid programs. Unison operates
a total of 16 facilities in Texas and 14 facilities in Indiana. The Texas and
Indiana facilities accounted for 42.4% and 34.6%, respectively, of Unison's pro
forma revenues for the year ended December 31, 1995 and 38.0% and 24.6%,
respectively, for the six months ended June 30, 1996. Furthermore, some state
Medicaid programs require certification of all beds in the facility, which may
limit the ability of a facility in any such state to establish a distinct
Medicare Part A unit for subacute care. In an attempt to limit the Federal
budget deficit, there have been, and Unison expects that there will continue to
be, a number of other proposals to limit Medicare and Medicaid payments for
services. Unison cannot predict whether any of these proposals will be adopted
or, if adopted, the effect, if any, such proposals would have on Unison. Any
adverse change in the regulatory environment or the reimbursement rates paid
under the Medicare program or under the Texas and Indiana Medicaid programs
could have a material adverse effect on Unison's financial position and results
of operations. See "-- Uncertainties Resulting from Governmental Budgetary
Constraints; Proposed Budgetary Legislation," "-- Potential Reductions of
Reimbursement by Third-Party Payors," and "Business of Unison -- Government
Regulation."
There can be no assurance that the rates paid to Unison by Medicare,
Medicaid or other payors will be adequate to reimburse Unison for the cost of
providing services. In addition, cost increases due to inflation without
corresponding increases in reimbursement would adversely affect Unison's
business. See "Business of Unison -- Government Regulation."
CONFLICTS OF INTEREST ARISING FROM BENEFITS TO AFFILIATES OF
UNISON. Unison intends to use approximately $500,000 of the net proceeds of the
sale of the Senior Notes to repay outstanding indebtedness incurred by BritWill
or Unison to Bruce H. Whitehead or his affiliates. An additional $9.8 million of
the net proceeds of the sale of the Senior Notes will be used to repay to the
former shareholders of BritWill outstanding indebtedness (including contingent
obligations) incurred in connection with the BritWill Acquisition. Approximately
$127,000 of the net proceeds of the sale of the Senior Notes will be used by
Unison to pay financial advisory fees owed to Trouver Capital Partners, L.P.
("Trouver") as a result of the Ampro and Memphis Mergers. See "Certain
Transactions."
Bruce H. Whitehead, Unison's Chairman of the Board of Directors, is the
President of the General Partner of WFI which was the beneficial owner of
approximately 81.5% of BritWill's stock at the time of its acquisition by
Unison, making it the beneficial owner of approximately 11.6% of Unison's Common
Stock as of the date hereof. Including his rights as agent for the other former
shareholders of BritWill, Mr. Whitehead is the beneficial owner of approximately
14.1% of Unison's Common Stock as of the date hereof. John T. Lynch, Jr. is an
owner and controlling person of Trouver. Tyrrell L. Garth and Mark W. White were
also shareholders of BritWill at the time of its acquisition by Unison. As
members of the Board of Directors of Unison, Messrs. Whitehead, Lynch, Garth and
White participated in the deliberations of the Board of Directors with respect
to various matters concerning the transactions described herein, including the
offering
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<PAGE> 174
of the Senior Notes and the uses to be made of proceeds therefrom. See "Unison
Management" and "Principal Stockholders."
CONFLICTS OF INTEREST FROM RELATED PARTY TRANSACTIONS. In addition to his
relationships described under "-- Conflicts of Interest Arising from Benefits to
Affiliates of Unison" and "-- Control by Management and Certain Stockholders,"
an affiliate of Bruce H. Whitehead, BritWill Investments -- Texas, Ltd.
("BritWill Texas"), is the lessor of six of Unison's long term care facilities
in Texas, and under certain circumstances he has the right or obligation to
purchase nine other facilities that Unison leases from Omega HealthCare
Investors, Inc. ("Omega"). Certain of Unison's obligations to Omega are
guaranteed by Bruce H. Whitehead. One of Unison's directors, John T. Lynch, Jr.,
is a partner in Trouver, which is entitled to receive compensation from
acquisitions and financings under certain circumstances. These business
relationships may create conflicts of interest in managing Unison's business in
the future. See "Certain Transactions."
MANAGEMENT DISCRETION REGARDING USE OF PROCEEDS FROM SENIOR
NOTES. Approximately 80% of the net proceeds of the sale of the Senior Notes
are committed to the Signature Merger, the acquisition of RehabWest, reduction
of outstanding indebtedness (including contingent obligations) to the former
BritWill shareholders, and to other specific uses identified in this
Prospectus/Proxy and Information Statement, with the remainder available for
other corporate purposes such as working capital, debt reduction or future
acquisitions. Unison will have broad discretion in using the unallocated net
proceeds of the offering. Prospective investors will not have an opportunity to
evaluate the relative merits of such unspecified uses. See "Recent and Pending
Unison Acquisitions and Other Commitments -- The Senior Notes -- Use of Note
Proceeds."
COMPETITION. The long-term care, pharmacy and therapy industries are
highly competitive. Unison competes with general acute care hospitals, skilled
nursing facilities, rehabilitation hospitals, long-term care hospitals, assisted
living facilities, home care providers and other subacute and specialty care
providers. Many of these companies have greater financial and other resources
than Unison. No assurance can be given that Unison will have the resources to
compete successfully with such companies. In addition, cost containment efforts,
which encourage more efficient utilization of acute care hospital services, have
resulted in decreased hospital occupancy in recent years. As a result, a
significant number of general acute care hospitals have converted portions of
their facilities to other purposes, including various types of long term and
subacute care. Unison expects this trend to continue. Consequently, there can be
no assurance that Unison will not encounter increased competition in the future,
which could limit its ability to complete strategic acquisitions on attractive
terms, to attract patients or residents, to attract and retain key personnel, or
otherwise expand its business, any of which could have a material adverse effect
on Unison's financial position or results of operations. See "Business of
Unison -- Competition."
LIABILITY AND INSURANCE. The provision of health care services entails an
inherent risk of liability. In recent years, participants in the long-term care
industry have become subject to an increasing number of lawsuits alleging
malpractice or related legal theories, many of which involve large claims and
significant defense costs. Unison maintains professional malpractice insurance
and other insurance coverage which it believes to be adequate, although it
self-insures for certain workers compensation risks. Unison's insurance policies
generally must be renewed on an annual basis. Although Unison has not
experienced difficulty in obtaining insurance coverage at acceptable rates,
there can be no assurance that Unison will be able to obtain such insurance on
commercially reasonable terms in the future, if at all, or that any such
insurance will be adequate. In addition, a successful claim against Unison in
excess of Unison's insurance coverage could have a material adverse effect on
Unison and its financial condition. Claims against Unison, regardless of their
merit or eventual outcome, may also have a material adverse effect on Unison's
ability to attract patients or residents or expand its business. See "Business
of Unison -- Insurance" and "-- Legal Proceedings."
ISSUANCE OF AUTHORIZED SHARES OF COMMON STOCK WITHOUT STOCKHOLDER
APPROVAL. If adopted, the Amendment to Unison's Certificate of Incorporation
will increase the number of authorized shares of Unison Common Stock from
10,000,000 shares to 25,000,000 shares. Following consummation of the Signature
Mergers and the Ampro and Memphis Mergers there will be approximately 6,039,249
million shares of Unison Common Stock outstanding, approximately 2,115,705
shares of Unison Common Stock reserved for
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<PAGE> 175
issuance pursuant to other commitments and approximately 1,845,046 million
shares of Unison Common Stock which are authorized and unissued. Such unissued
shares may be issued by the Unison Board of Directors without further Unison
stockholder action unless the issuance is in connection with a transaction for
which stockholder approval is otherwise required under applicable law or to
comply the requirements of the Nasdaq National Market or with any agreement with
any stock exchange on which Unison Common Stock is then listed.
DEPENDENCE ON MANAGEMENT AND SKILLED PERSONNEL. Unison depends upon the
active involvement of its senior managers, including its executive officers. The
loss of one or more of such officers could have a material adverse effect on
Unison's business and future operations. Unison has entered into employment
agreements with Messrs. Clark, Contris, Oberfield, Rollins and Walker as
executive officers. Unison's success and growth strategy also depend on its
ability to attract and retain qualified clinical management, marketing and other
personnel. Unison competes with general acute care hospitals, rehabilitation
facilities, nursing homes, ambulatory care facilities and other health care
providers for the services of physicians, registered nurses, therapists and
other clinical personnel. Such clinical personnel are in high demand and are
often subject to competing offers. There can be no assurance that Unison will be
able to attract and retain the qualified personnel necessary for its business
and planned growth. See "Business -- Operations" and "Unison
Management -- Employment Agreements."
CONTROL BY MANAGEMENT AND CERTAIN STOCKHOLDERS. After completion of the
Ampro and Memphis Mergers and the Signature Mergers, Unison's officers and
directors will own approximately 46.9% of Unison's outstanding stock (including
approximately 21.2% to be owned as a result of the Signature Mergers by David A.
Kremser, who will become a director of Unison upon the closing of the Signature
Mergers). WFI is the beneficial owner of 458,091 shares of Unison Common Stock
(approximately 7.6% of the shares outstanding after completion of the Ampro and
Memphis Mergers and the Signature Mergers). Bruce H. Whitehead is the beneficial
owner of approximately 14.1% of Unison Common Stock, including both the shares
issuable to WFI and shares issuable to other former shareholders of BritWill (as
to which he currently shares investment control as agent for such shareholders).
Accordingly, the parties listed above will continue to have significant control
over Unison. In addition, the beneficial holders of approximately 1,175,000
shares of Unison Common Stock (approximately 29.0% of the stock outstanding)
have agreed to vote in favor of three nominees selected by WFI for so long as
the $13.5 million amended and restated subordinated note executed in connection
with the BritWill Acquisition (the "Subordinated Note") or related contingent
payment obligations remain outstanding. See "Recent and Pending Unison
Acquisitions and Other Commitments," "Unison Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources," "Unison Management -- Directors and Executive Officers" and
"Principal Stockholders."
POTENTIAL CHANGES IN CONTROL; CROSS DEFAULTS AND RELATED RISKS. In
connection with the BritWill Acquisition, Unison's Board of Directors was
expanded to include representatives of both entities, as well as additional
unaffiliated persons. Messrs. Walker, Rollins, Contris, and Clark have pledged
substantially all of their Unison Common Stock (aggregating approximately 24.1%
of Unison Common Stock currently outstanding) to the former BritWill
shareholders to secure the Company's obligations incurred in connection with the
BritWill Acquisition. In the event of a default, Mr. Whitehead could foreclose
on the pledged stock and the former shareholders of BritWill (of which Whitehead
Family Investments, LLC ("WFI") has a controlling interest) would effectively
gain control of Unison. Through his voting and investment control of WFI and as
agent for the other former shareholders of BritWill, Mr. Whitehead beneficially
owns approximately 11.6% of Unison's Common Stock currently outstanding.
In connection with the Signature Merger, approximately 1,283,019 shares of
Unison Common Stock (subject to adjustment in certain circumstances, see "Recent
and Pending Unison Acquisitions and Other Commitments") will be issued to David
A. Kremser, who will also be added to Unison's Board of Directors. Mr. Kremser's
stock ownership would be approximately 23.3% of the Unison shares to be
outstanding after the Signature Merger, making Mr. Kremser the largest
stockholder and potentially a controlling person of Unison.
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<PAGE> 176
An affiliate of Mr. Whitehead leases or subleases six facilities to Unison,
subject to mortgage loans from Omega HealthCare Investors, Inc., a provider of
secured loans and leasehold financing to the health care industry ("Omega"),
which is not related to Unison and under certain circumstances he has the right
or obligation to purchase nine other facilities that Unison leases from Omega.
Substantially all of the leases from Omega are subject to cross-default
provisions. Any of these factors could ultimately lead to a change in ownership
or control of one or more of Unison's facilities. Omega is not affiliated with
or controlled by Unison or any affiliate of Unison, or any officer or director
of any of the foregoing.
The terms of the Senior Notes (see "Recent and Pending Unison Acquisitions
and Other Commitments -- The Senior Notes") will also have cross-default
provisions, so a default on any of Unison's obligations could require repayment
or refinancing of all of these obligations.
ENVIRONMENTAL LIABILITY RISKS. Certain Federal, state and local
environmental laws, regulations and ordinances impose liability for
environmental costs, damages, and/or expenses upon current or previous owners or
operators of real property. Pursuant to these environmental laws, a current or
previous owner and/or operator of real property may be required to investigate
and remediate any hazardous or toxic substance or petroleum product discovered
at or released upon such property. The current or previous owner and/or operator
may be held liable to a governmental entity or to third parties for property
damage and for investigation and remediation costs incurred by such parties in
connection with the contamination. These environmental laws often impose
responsibility to investigate, remediate and reimburse others for costs incurred
based upon strict liability without regard to whether the owner or operator knew
of or caused the presence of contamination. The liability under such
environmental laws has also been determined to be joint and several unless the
harm is divisible and there is a reasonable basis to allocate responsibility.
The costs and expenses to investigate, remediate or remove such contamination
may be substantial. The owner's ability to sell or lease such property or to
borrow using such property as collateral may be adversely affected by the
presence of such contamination or the owner may continue to be adversely
affected even after the responsible parties have taken steps to remediate such
contamination.
Unison is not currently aware of any material environmental liability
relating to any of the leased or managed facilities or related to any properties
that it would own or lease as a result of the Ampro Merger or the Signature
Mergers. However, the environmental condition of a property is difficult to
assess with certainty, so it is possible that Unison may be unaware of
undetected conditions at a facility that could give rise to material
environmental liabilities in the future.
POSSIBLE VOLATILITY OF STOCK PRICES. The stock market has experienced
price and volume fluctuations which have particularly affected the market price
for many health care companies and have often been unrelated to the operating
performance of these companies. The market price of Unison Common Stock could
also be subject to significant fluctuations in response to variations in
Unison's quarterly operating results, litigation, future announcements
concerning Unison, legislative or regulatory changes in the interpretation of
existing statutes or regulations affecting the health care industry generally or
long-term care business in particular, general trends in the industry and other
events or factors.
EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS. Certain provisions of Unison's
Amended and Restated Certificate of Incorporation (the "Certificate of
Incorporation") and Bylaws (the "Bylaws"), the Delaware General Corporation Law,
and certain change of control provisions of Unison's employment contracts with
senior executives and of the Senior Notes may discourage or prevent certain
types of transactions involving a change of control of Unison, including
transactions in which the stockholders might otherwise receive a premium for
their shares over then current stock prices. See "Description of Unison Capital
Stock."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS. Sales of Unison
Common Stock in the public market after the date hereof could adversely affect
prevailing market prices. All of the shares issued in the Ampro and Memphis
Mergers will be eligible for resale upon satisfaction of applicable "pooling"
requirements. Holders of 1,233,497 shares of Unison Common Stock are eligible
for sale under Rule 144 ("Rule 144") under the Securities Act of 1933, as
amended (the "Securities Act"). An additional 561,815 shares of Unison Common
Stock beneficially owned by other stockholders of Unison will become eligible
for sale under Rule 144 in August 1997 (or earlier if certain proposed rules
pending before the Securities and
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<PAGE> 177
Exchange Commission (the "Commission") are implemented, shortening the holding
period requirement of Rule 144), subject to compliance with the volume
limitation and other requirements of such Rule. Similarly, the shares issued in
the Signature Merger will become eligible for sale under Rule 144 within two
years after issuance. Additional shares of Unison Common Stock, including shares
issuable upon the exercise of options, will also become eligible for sale in the
public market from time to time in the future. In addition, the holders of the
561,815 shares of Unison Common Stock issued to the former shareholders of
BritWill upon conversion of the debenture issued in connection with the
acquisition of BritWill (and 783,804 shares of Unison Common Stock pledged as
security for Unison's obligations incurred in the acquisition of BritWill, in
the event of default on such obligations), the 120,000 shares issuable upon
exercise of warrants issued to the representatives of the underwriters of
Unison's initial public offering, the shares underlying the convertible notes
($1.0 million) and convertible debentures ($1.8 million) issued in the
acquisition of Sunbelt, up to 300,000 shares issuable upon exercise of warrants
issued to Imperial Bank in connection with a loan from Imperial Bank (and
additional shares of Unison Common Stock issuable upon a default by Unison under
such loan) and the 1,509,434 shares (subject to adjustment under certain
circumstances) issuable in the Signature Health Care Merger have the right to
require Unison to register such shares of Unison Common Stock for sale under the
Securities Act. Unison also has granted "piggyback" registration rights with
respect to the shares mentioned above (other than the shares under the
convertible instruments issued in connection with the acquisition of Sunbelt)
and an additional 84,659 shares of Unison Common Stock underlying a convertible
note, which is only convertible upon a default under such note. Controlling
stockholders could also cause Unison to register their stock for resale and to
facilitate such secondary offerings. See "Description of Capital Stock --
Registration Rights."
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus/Proxy and Information
Statement, including without limitation statements containing the words
"believes," "anticipates," "intends," "expects" and words of similar import,
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of Unison or industry results to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: general economic and business conditions, both
nationally and in the regions in which Unison operates; industry capacity;
demographic changes; existing government regulations and changes in, or the
failure to comply with, government regulations; legislative proposals for
healthcare reform; the ability to enter into managed care provider arrangements
on acceptable terms; changes in Medicare and Medicaid reimbursement levels;
liability and other claims asserted against Unison; competition; the loss of any
significant customers; changes in business strategy or development plans; the
ability to attract and retain qualified personnel; the significant indebtedness
of Unison; the availability and terms of capital to fund the expansion of
Unison's business, including the acquisition of additional skilled nursing
facilities and ancillary health care services providers; and other factors
referenced in this Prospectus/Proxy and Information Statement. Certain of these
factors are discussed in more detail elsewhere in this Prospectus/Proxy and
Information Statement, including without limitation under the captions
"Summary," "Risk Factors," "Unison Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business of Unison." GIVEN
THESE UNCERTAINTIES, PROSPECTIVE INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE
RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS. Unison disclaims any obligation to
update any such factors or to publicly announce the result of any revisions to
any of the forward-looking statements contained herein to reflect future events
or developments.
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RECENT AND PENDING UNISON ACQUISITIONS AND OTHER COMMITMENTS
Unison is continually engaged in discussions regarding potential
acquisitions and believes that acquisitions will remain an important part of
Unison's business strategy for the foreseeable future.
RECENT ACQUISITIONS
On August 10, 1995, Unison acquired BritWill HealthCare Company
("BritWill") to achieve the size necessary to assist Unison in the pursuit of
its overall business strategy (the "BritWill Acquisition"). Immediately prior to
the BritWill Acquisition, Unison operated 22 facilities, and the BritWill
Acquisition provided Unison with an additional 28 facilities, representing, at
the time of the BritWill Acquisition, 2,816 beds and strategic concentrations of
facilities in Texas and Indiana. The purchase and sale agreement for the
BritWill Acquisition, as modified through the date hereof (the "Purchase and
Sale Agreement"), requires fixed payments and additional contingent payments
that are due only if certain revenue targets are achieved. The total fixed
purchase amount of $20.6 million consisted of a short-term note in the amount of
$5.6 million (the "Term Note"), an $8.0 million subordinated promissory note
(the "Subordinated Note") and a $7.0 million debenture convertible into 561,815
shares of Unison Common Stock (the "Convertible Debenture"). Unison repaid the
Term Note in January 1996, and Bruce Whitehead, as the holder of the Convertible
Debenture and as agent for the former stockholders of BritWill, has converted
the Convertible Debenture in its entirety. In addition, monthly contingent
payments aggregating approximately $10.3 million may be due through August 2000
if Unison achieves specified monthly revenue conditions, and a lump sum
contingent payment of $11.5 million (the "Lump Sum Payment"), subject to
reduction up to $1.4 million under certain circumstances (the "Reduction"), is
due in August 2000 if revenues exceed $150.0 million in the 12 months ending
June 30, 2000. At least 50% of the outstanding balance of the Subordinated Note
and the Lump Sum Payment are due and the Reduction will be waived in the event
of any public or private sale of debt or equity securities in excess of
$10,000,000 such as the placement of the Senior Notes. See "The Senior Notes."
In connection with the BritWill Acquisition, certain officers of Unison have
pledged shares of Unison Common Stock and entered into a voting agreement, and
the former BritWill shareholders have received registration rights covering the
shares of Unison Common Stock received upon conversion of the Convertible
Debenture. See "Unison Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
On March 28, 1996, Unison entered into a definitive Purchase and Sale
Agreement for the acquisition, effective as of February 1, 1996, of 90% of the
outstanding common stock of each of four rehabilitation therapy service centers
from Paul G. Henderson and Paige B. Plash. The therapy centers provide services
to 56 facilities in six states. In consideration for the stock of the four
therapy centers, Unison paid $800,000 in cash, issued term notes for $1.0
million in the aggregate (the "Sunbelt Notes") and issued subordinated
debentures totalling $1.8 million (the "Sunbelt Debentures"). Contingent
payments of $750,000 and $1.25 million in the aggregate will be paid to Mr.
Henderson and Mr. Plash if audited pre-tax income of the centers equals $2.9
million for the 12 months ending December 31, 1996 and $5.4 million for the 12
months ending December 31, 1997. Pro rata contingent payments may be due if
audited pre-tax income is lower. Unison will purchase the remaining equity
interests of Mr. Henderson and Mr. Plash in the four therapy centers during the
first half of 1998. The remaining equity interests will be priced at a pro rata
portion of seven times the after tax net income of the therapy centers for the
12 months ending December 31, 1997. The Sunbelt Notes and Sunbelt Debentures
bear interest at 10.0% and are convertible into Unison Common Stock at the
election of the holder at a conversion price equal to the average closing price
(85% of the average closing price with respect to the Sunbelt Notes) for Unison
Common Stock for the 20 trading days preceding the date of conversion. The
Sunbelt Notes mature, as to equal principal amounts, on February 1, 1997 and
February 1, 1998, and the Sunbelt Debentures have maturity dates of February 1
in each of 1997, 1998 and 1999, also as to equal principal amounts.
On August 1, 1996, Unison acquired the leasehold rights to two skilled
nursing facilities, Enumclaw and Walla Walla, in the State of Washington with an
aggregate of 222 beds. Unison previously operated these facilities under
management agreements with Franciscan Eldercare ("Franciscan"). In each
restructuring, Franciscan sold the facility to a third party who in turn leased
the facility to SunQuest SPC, Inc. ("SunQuest"), a wholly-owned subsidiary of
Unison. At the time of the restructuring, management fees were approximately
$8,500 per month and $17,500 per month for Enumclaw and Walla Walla,
respectively. The
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base monthly rents under the leases are $34,199 and $18,278 for Enumclaw and
Walla Walla, respectively. The initial term of the Enumclaw lease expires May 1,
2006. SunQuest has the option to renew the lease for two successive periods of
five years each. The term of the Walla Walla lease expires on December 31, 2016.
Unison also recently acquired leasehold rights to several other facilities
that were not material to Unison, including Homestead of McKinney, in McKinney,
Texas, and Valley Vista, in Sandpoint, Idaho.
PENDING ACQUISITIONS
Unison, Labco Acquisition Co., a Delaware corporation and a newly formed
wholly-owned subsidiary of Unison ("Labco"), and American Professional Holding,
Inc., a Utah corporation ("Ampro"), entered into an Agreement and Plan of Merger
dated as of July 3, 1996 pursuant to which, subject to approval of the
shareholders of Ampro and certain other conditions, Labco will merge with and
into Ampro (the "Ampro Merger"), with Ampro being the surviving corporation. As
part of the same overall plan, Unison, Memphis Acquisition Co., a Delaware
corporation and a newly formed wholly-owned subsidiary of Unison ("Memco"), and
Memphis Clinical Laboratory, Inc., a Tennessee corporation ("Memphis"), entered
into an Agreement and Plan of Merger dated as of July 3, 1996 pursuant to which,
subject to approval of the shareholders of Memphis and certain other conditions,
Memco will merge with and into Memphis (the "Memphis Merger"), with Memphis
being the surviving corporation. As a result of the Ampro and Memphis Mergers,
Ampro and Memphis will become wholly-owned subsidiaries of Unison. Ampro and
Memphis operate medical laboratories (primarily the testing of body fluids and
tissues for disease or chemical concentrations) in Dallas, Texas, Poplar Bluff,
Missouri and Memphis, Tennessee and at September 1, 1996, provided testing
services to approximately 295 nursing homes and other health care facilities. At
the effective time of the Ampro and Memphis Mergers, each of the outstanding
shares of Ampro's common stock will be converted into the right to receive
approximately 0.051 of a share of Unison Common Stock, for a total of 521,000
shares of Unison Common Stock, and each outstanding share of common stock of
Memphis (the "Memphis Shares") will be converted into the right to receive
approximately 54 shares of Unison Common Stock, except that 648 Memphis Shares
owned by William R. Seals will instead be converted into the right to receive a
Unison promissory note in the principal amount of $250,000 and cash in the
amount of approximately $240,000. An option (the "Memphis Option") for the
Memphis Shares held by the controlling shareholders of Ampro will be allowed to
lapse (at September 30, 1996) unexercised. The three controlling shareholders of
Ampro, Messrs. Maguire, McGee and McKinney, hold the Memphis Option and appoint
two of three members of the Board of Directors of Memphis. The Ampro Merger and
the Memphis Merger are mutually contingent transactions.
On August 2, 1996, Unison, Mr. David A. Kremser, Mr. John D. Filkoski,
Signature Health Care Corporation, a Delaware corporation ("Signature Health
Care"), Arkansas, Inc., a Colorado corporation ("Arkansas"), Cornerstone Care,
Inc., a Colorado corporation ("Cornerstone"), Douglas Manor, Inc., a Colorado
corporation ("Douglas"), and Safford Care, Inc., a Colorado corporation
("Safford,") and collectively with Signature Health Care, Arkansas, Cornerstone
and Douglas, "Signature") entered into a series of Agreements and Plans of
Merger. Pursuant to these agreements, each of the Signature entities will merge
with and into a wholly-owned subsidiary of Unison to be formed, with the
relevant Signature entity being the surviving corporation in each case.
Signature operates 11 skilled nursing facilities and two assisted living
facilities in Colorado and Arizona. At the effective time of the Signature
Health Care Merger Agreement, the outstanding shares of capital stock of
Signature Health Care (the "Signature Health Care Shares") will be converted
into the right to receive (a) cash equal to approximately $10,200,000 (minus the
amount paid to redeem outstanding options for Signature Health Care Shares) and
(b) 1,509,434 shares of Unison Common Stock, subject to adjustment if the
Average Daily Price of Unison Common Stock is less than $11.25 per share or
greater than $15.25 so that the product of the Average Daily Price and the
number of shares issued remains at $16,981,132.50 if the Average Daily Price is
less than $11.25 per share and at $23,018,868.50, the Average Daily Price is
greater than $15.25 Average Daily Price is defined for these purposes as the
average daily closing price for Unison Common Stock during the thirty day period
ending five days prior to the last trading day prior to the closing date for the
Signature Health Care Merger. The shares of the other Signature entities will be
converted into the right to receive cash and promissory notes equal to
approximately $28,000,000 in the aggregate. The Signature Mergers are
conditioned upon, among other
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things, Unison entering into a definitive agreement to acquire the assets and
business of RehabWest, Inc. for an aggregate purchase price of $5,500,000 and
subject to other terms and conditions satisfactory to Unison and to Messrs.
Kremser and Filkoski.
THE SENIOR NOTES
General. It is a condition to Unison's obligation to consummate the
Signature Mergers that Unison have completed a public or private offering of
subordinated debt or common stock in an amount and on terms acceptable to
Unison. Unison intends to satisfy this condition through the placement of $100.0
million principal amount of Senior Notes (the "Senior Notes") on or about the
date of the Signature Mergers.
Unison anticipates that the Senior Notes will mature approximately ten
years after their issue date and will be entitled to semiannual payments of
interest. Unison will not be required to redeem or prepay Senior Notes prior to
maturity except in the event of a change in control, in which event Unison will
be required to offer to purchase the Senior Notes at 101% of the principal
amount thereof plus accrued and unpaid interest to the purchase date. Unison
will be permitted to redeem the Senior Notes at its option beginning in 2001 at
a premium that declines to par in 2005. In addition, Unison will have the right
to redeem a specified percentage of the Senior Notes with the net cash proceeds
from one or more public equity offerings. The Senior Notes will be secured by
guarantees of Unison's current and future subsidiaries (including Signature,
Ampro and Memphis upon the closing of their respective mergers), but will
otherwise be unsecured. The indenture relating to the Senior Notes will contain
certain covenants including (among others) covenants limiting: (i) the
incurrence by Unison or its subsidiaries of additional indebtedness or lease
payment obligations; (ii) certain restricted payments, including payments of
dividends on and redemption of capital stock by Unison; (iii) transactions with
affiliates; (iv) mergers, acquisitions and asset sales; and (v) the creation of
liens securing indebtedness. Unison will be obligated promptly to file and cause
to become effective an exchange offer registration statement with respect to an
offer to exchange the Senior Notes for requested notes with terms substantially
identical to the Senior Notes.
Use of Proceeds. The net proceeds to Unison (after underwriting discounts
and expenses) from the Senior Notes is estimated to be approximately $96.2
million. Unison intends to use approximately $37.7 million of such proceeds to
satisfy its cash obligations pursuant to the Signature Mergers, approximately
$5.5 million to acquire RehabWest, approximately $21.1 million to repay long
term debt and contingent obligations (including about $9.8 million to pay half
of Unison's aggregate debt and contingent obligations to the former shareholders
of BritWill), about $12.7 million to reduce short-term debt and accounts
payable, and the remaining $19.2 million for future acquisitions and working
capital.
UNISON MARKET PRICE DATA AND DIVIDEND POLICY
Unison Common Stock is traded on the Nasdaq National Market under the
symbol UNHC. The following table sets forth, for the fiscal quarter indicated,
the high and low sale prices of Unison Common Stock, as reported on the Nasdaq
National Market, since it first began trading on December 19, 1995.
<TABLE>
<CAPTION>
UNISON
-------------------
HIGH LOW
------- -------
<S> <C> <C>
Year Ended December 31, 1995
Fourth Quarter (commencing December 19, 1995).......................... $ 9.375 $ 9.000
Year Ending December 31, 1996
First Quarter.......................................................... 11.750 8.875
Second Quarter......................................................... 15.500 10.250
Third Quarter (through September 17, 1996)............................. 14.750 10.875
</TABLE>
On September 17, 1996, the closing sale price of Unison Common Stock was
$13.25 per share.
Unison has never paid any dividends on its Common Stock and it does not
expect to pay dividends for the foreseeable future.
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CAPITALIZATION
The following table sets forth the capitalization of Unison as of June 30,
1996 as adjusted to give effect to the issuance by Unison of the Senior Notes in
the amount of $100.0 million and the application of the estimated net proceeds
therefrom, the Ampro and Memphis Mergers, the Signature Mergers and previous
acquisitions in 1995 and 1996. This table should be read in conjunction with the
historical financial statements of the Company and BritWill and the Unaudited
Pro Forma Condensed Combined Financial Statements, including the related notes
thereto, appearing elsewhere in this Prospectus/Proxy and Information Statement.
<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------------
HISTORICAL PRO FORMA(1)
---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current maturities of long term debt................................. $ 3,576 $ 1,697
======= ========
Long-term debt, excluding current portion............................ $ 27,535 $128,040
Stockholder's equity:
Preferred Stock, $0.001 par value; 1,000,000 shares authorized; no
shares issued or outstanding.................................... -- --
Common Stock, $0.001 par value; 10,000,000 shares authorized;
3,871,312 shares issued and outstanding; 5,920,746 shares issued
and outstanding as adjusted(3).................................. 3 5
Additional paid in capital......................................... 21,804 41,902
Retained earnings.................................................. 1,079 2,099
------- --------
Total stockholders' equity.................................... 22,886 44,006
------- --------
Total capitalization....................................... $ 50,421 $172,046
======= ========
</TABLE>
- ---------------
(1) Gives effect to the Ampro and Memphis Mergers, the Signature Mergers and
previous acquisitions in 1995 and 1996 as if they occurred on June 30,
1996. The table includes the Senior Notes amounting to $100.0 million which
will be issued in connection with the Signature Mergers.
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UNISON UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Combined Financial Statements
are presented assuming that the acquisitions of Signature and Rehab West will be
accounted for as purchases and the Ampro Mergers will be accounted for as a
poolings-of-interests. Accordingly, the Unaudited Pro Forma Condensed Combined
Financial Statements include the combined operations of Unison, Ampro and
Memphis for all periods presented. The Unaudited Pro Forma Condensed Combined
Statements of Operations for the six months ended June 30, 1996 and 1995 and the
year ended December 31, 1995 have been prepared as if the acquisitions of
Signature and RehabWest had been consummated as of January 1, 1995. The
Unaudited Pro Forma Condensed Combined Balance Sheet has been prepared as if all
of the aforementioned business combinations had been consummated as of June 30,
1996.
The Unaudited Pro Forma Condensed Combined Statements of Operations also
include the results of operations of BritWill and Sunbelt for the periods from
January 1, 1995 through the respective dates of acquisition. BritWill was
acquired on August 10, 1995 in a business combination accounted for as a
purchase. Sunbelt was acquired effective February 1, 1996 in a business
combination accounted for as a purchase.
The pro forma information is based on the historical statements of
operations of the acquired businesses giving effect to the placement of the
Senior Notes and the other assumptions and adjustments described in the
accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
The Unaudited Pro Forma Condensed Combined Financial Statements do not
purport to present the results of operations of Unison had the business
combinations taken place on the dates specified, nor are they necessarily
indicative of the results of operations that may be achieved in the future. The
Unaudited Pro Forma Condensed Combined Financial Statements should be read in
conjunction with "Unison Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the separate historical financial
statements and notes thereto of Unison, BritWill, Signature, RehabWest, Ampro
and Memphis included elsewhere in this Prospectus/Proxy and Information
Statement.
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UNISON HEALTHCARE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
--------------------------------------------------------------------------------------
SENIOR PRO FORMA PRO FORMA
UNISON SIGNATURE(A) REHABWEST AMPRO(B) NOTES(C) ADJUSTMENTS COMBINED
------- ------------ --------- -------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......... $ 847 $ -- $ 116 $ 30 $ 62,490 $ (43,200)(d) $ 20,156
(127)(e)
Accounts and notes receivable,
net............................. 22,152 7,761 402 2,149 -- -- 32,464
Other current assets.............. 2,413 1,009 16 399 -- -- 3,837
------- ------- ----- ------ -------- -------- --------
Total current assets............ 25,412 8,770 534 2,578 62,490 (43,327) 56,457
Lease operating rights and other
assets, net....................... 42,588 1,692 -- 319 3,800
1,750 34,669(d) 84,818
Goodwill, net....................... 11,195 1,721 -- 943 -- 26,531(d) 40,390
Property and equipment, net......... 5,548 17,213 8 657 -- 5,000(d) 28,426
------- ------- ----- ------ -------- -------- --------
Total assets.................... $84,743 $ 29,396 $ 542 $4,497 $ 68,040 $ 22,873 $210,091
======= ======= ===== ====== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term
debt............................ $ 3,576 $ 312 $ -- $ 895 $ 7,500
(11,086) $ 500(d) $ 1,697
(7,500)
Other current liabilities......... 16,988 3,223 295 1,664 (1,500) -- 13,170
------- ------- ----- ------ -------- -------- --------
Total current liabilities....... 20,564 3,535 295 2,559 (12,586) 500 14,867
Long-term debt...................... 27,535 19,188 -- 691 100,000
(19,374) -- 128,040
Deferred taxes...................... 9,030 2,921 -- -- -- 4,000(d) 15,951
Other long-term liabilities......... 4,728 2,499 -- -- -- -- 7,227
------- ------- ----- ------ -------- -------- --------
Total liabilities............... 61,857 28,143 295 3,250 68,040 4,500 166,085
------- ------- ----- ------ -------- -------- --------
Stockholders' equity:
Common stock...................... 3 7 -- 10 -- (15)(f) 5
Additional paid-in capital........ 21,804 62 (472) 90 -- 20,418(g) 41,902
Retained earnings................. 1,079 1,184 719 1,147 -- (127)(e)
(1,903)(h) 2,099
------- ------- ----- ------ -------- -------- --------
Total stockholders' equity...... 22,886 1,253 247 1,247 -- 18,373 44,006
------- ------- ----- ------ -------- -------- --------
Total liabilities and
stockholders' equity.......... $84,743 $ 29,396 $ 542 $4,497 $ 68,040 $ 22,873 $210,091
======= ======= ===== ====== ======== ======== ========
Common shares outstanding........... 3,871 2,049(i)(j) 5,920
Book value per common share......... $ 5.91
$ 7.43
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements
22
<PAGE> 184
UNISON HEALTHCARE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
UNISON PRO FORMA UNISON REHAB PRO FORMA PRO FORMA
HISTORICAL ACQUISITIONS(K) ADJUSTMENTS PRO FORMA SIGNATURE(O) WEST AMPRO(P) ADJUSTMENTS COMBINED
---------- -------------- ----------- ----------- ------------ ------ ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Net
patient... $ 63,442 $ 5,140 $ -- $ 68,582 $ 21,984 $2,337 $ -- $ -- $92,903
Other...... 1,555 569 (249)(l) 1,875 268 -- 3,562 473(q) 6,178
------ ----- ----- ------ ------ ----- ----- ------ ------
Total
revenues... 64,997 5,709 (249) 70,457 22,252 2,337 3,562 473 99,081
Expenses:
Wages and
related... 32,447 3,336 -- 35,783 14,263 1,649 1,514 -- 53,209
Other
operating... 21,172 2,230 (249)(l) 23,153 4,684 132 1,493 (4,330)(r) 25,132
Rent....... 6,653 21 538(l) 7,212 1,044 6 51 -- 8,313
Interest... 1,452 249 (247)(l)
23(m) 1,477 1,006 3 56 4,152(s) 6,694
Depreciation
and
amortization... 1,054 121 (113)(l)
7(n) 1,069 845 1 98 125(t)
912(u)
35(v) 3,085
------ ----- ----- ------ ------ ----- ----- ------ ------
Total
expenses... 62,778 5,957 (41) 68,694 21,842 1,791 3,212 894 96,433
------ ----- ----- ------ ------ ----- ----- ------ ------
Income (loss)
before
income
taxes...... 2,219 (248) (208) 1,763 410 546 350 (421) 2,648
Income tax
expense
(benefit)... 932 -- (227) 705 (383) -- 118 619 1,059
------ ----- ----- ------ ------ ----- ----- ------ ------
Net income
(loss)..... $ 1,287 $ (248) $ 19 $ 1,058 $ 793 $ 546 $ 232 $(1,040) $ 1,589
====== ===== ===== ====== ====== ===== ===== ====== ======
Net income
per share:
Primary.... $ 0.32 $ 0.26 $ 0.26
Fully
diluted... 0.31 0.26 0.26
Weighed
average
shares used
in per
share
calculation:
Primary.... 4,070 4,070 2,049 (i)(j 6,119
Fully
diluted... 4,132 4,132 2,049 (i)(j 6,181
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements
23
<PAGE> 185
UNISON HEALTHCARE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
OTHER PRO FORMA PRO FORMA
ACQUISI- ADJUST- UNISON REHAB ADJUST- PRO FORMA
UNISON BRITWILL TIONS(K) MENTS PRO FORMA SIGNATURE(O) WEST AMPRO(P) MENTS COMBINED
------- ------- -------- --------- --------- --------- ------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Net
patient... $12,415 $32,723 $7,591 $ -- $52,729 $11,880 $1,465 $ -- $ -- $66,074
Other.... 1,029 269 22 (249)(l) 1,071 60 -- 3,644 473(q) 5,248
------- ------- ------ ----- ------- ------- ------- ------- ------- -------
Total
revenues... 13,444 32,992 7,613 (249) 53,800 11,940 1,465 3,644 473 71,322
Expenses:
Wages and
related... 7,486 19,813 5,164 -- 32,463 7,931 1,162 1,418 -- 42,974
Other
operating... 4,587 7,422 2,302 (249)(l)
(750)(w) 13,312 2,129 229 1,545 (1,774)(r) 15,441
Rent..... 1,151 4,448 75 538(l)
94(x) 6,306 230 5 55 -- 6,596
Interest,
net.... 183 603 289 (338)(l)
140(m)
247(y) 1,124 947 6 19 4,152(s) 6,248
Depreciation
and
amortization... 88 500 127 (183)(l)
43(n)
589(z) 1,164 827 5 135 125(t)
912(u)
35(v) 3,203
------- ------- ------ ----- ------- ------- ------- ------- ------- -------
Total
expenses... 13,495 32,786 7,957 131 54,369 12,064 1,407 3,172 3,450 74,462
------- ------- ------ ----- ------- ------- ------- ------- ------- -------
Income
(loss)
before
income
taxes.... (51) 206 (344) (380) (569) (124) 58 472 (2,977) (3,140)
Income tax
expense
(benefit)... 1 26 -- (255) (228) (41) -- 157 (1,144) (1,256)
------- ------- ------ ----- ------- ------- ------- ------- ------- -------
Net income
(loss)... $ (52) $ 180 $ (344) $(125) $ (341) $ (83) $ 58 $ 315 $(1,833) $(1,884)
======= ======= ====== ===== ======= ======= ======= ======= ======= =======
Net income
per
share.... $ (0.04) $ (0.27) $ (0.57)
Weighed
average
shares
used in
per share
calculation... 1,266 1,266 2,049(i)(j) 3,315
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements
24
<PAGE> 186
UNISON HEALTHCARE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
OTHER PRO FORMA PRO FORMA
ACQUISI- ADJUST- UNISON REHAB ADJUST- PRO FORMA
UNISON BRITWILL TIONS(K) MENTS PRO FORMA SIGNATURE(O) WEST AMPRO(P) MENTS COMBINED
------- ------- -------- --------- --------- --------- ------ --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Net
patient... $57,743 $38,378 $ 20,190 $ -- $116,311 $32,769 $3,382 $ -- $ -- $152,462
Other....... 3,542 476 73 (499)(l) 3,592 281 -- 7,203 947(q) 12,023
------- ------- ------- ------ -------- ------- ------ ------ ------- --------
Total
revenues... 61,285 38,854 20,263 (499) 119,903 33,050 3,382 7,203 947 164,485
Expenses:
Wages and
related... 31,811 23,280 14,427 -- 69,518 22,006 2,648 3,234 -- 97,406
Other
operating... 20,777 8,923 4,857 (499)(l)
(875)(w) 33,183 5,761 524 3,256 (4,170)(r) 38,554
Rent........ 6,565 5,223 364 1,076(l)
(110)(x) 13,118 1,235 10 108 -- 14,471
Interest,
net....... 1,058 793 693 (675)(l)
280(m)
288(y) 2,437 1,967 9 118 8,303(s) 12,834
Depreciation
and
amortization.. 1,050 592 434 (366)(l)
86(n)
687(z) 2,483 1,550 6 262 250(t)
1,668(u)
70(v) 6,289
------- ------- ------- ------ -------- ------- ------ ------ ------- --------
Total
expenses... 61,261 38,811 20,775 (108) 120,739 32,519 3,197 6,978 6,121 169,554
------- ------- ------- ------ -------- ------- ------ ------ ------- --------
Income (loss)
before
income
taxes....... 24 43 (512) (391) (836 ) 531 185 225 (5,174) (5,069 )
Income tax
expense
(benefit)... 50 30 -- (414) (334 ) (67) -- 82 (1,708) (2,028 )
------- ------- ------- ------ -------- ------- ------ ------ ------- --------
Net income
(loss)...... $ (26) $ 13 $ (512) $ 23 $ (502 ) $ 598 $ 185 $ 143 $(3,466) $ (3,041 )
======= ======= ======= ====== ======== ======= ====== ====== ======= ========
Net income
(loss) per
share....... $ (0.02) $ (0.37 ) $ (0.90 )
Weighted
average
shares used
in per share
calculation... 1,349 1,349 2,049(i)(j) 3,398
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements
25
<PAGE> 187
UNISON HEALTHCARE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO
PRO FORMA FORMA
UNISON AMPRO(P) ADJUSTMENTS COMBINED
------- -------- ----------- --------
<S> <C> <C> <C> <C>
Revenues:
Net patient.................................. $11,070 $ -- $ -- $11,070
Other........................................ 1,336 6,000 -- 7,336
------- ------ ---- -------
Total revenues....................... 12,406 6,000 -- 18,406
Expenses:
Wages and related............................ 7,149 2,445 9,594
Other operating.............................. 3,902 2,560 -- 6,462
Rent......................................... 1,299 107 1,406
Interest..................................... 84 63 -- 147
Depreciation and amortization................ 51 234 -- 285
------- ------ ---- -------
Total expenses....................... 12,485 5,409 -- 17,894
------- ------ ---- -------
Income (loss) before income taxes.............. (79) 591 -- 512
Income tax expense............................. 1 171 -- 172
------- ------ ---- -------
Net income (loss).............................. $ (80) $ 420 $ -- $ 340
======= ====== ==== =======
Net income (loss) per share.................... $ (0.06) $ 0.19
Weighed average shares used in per share
calculation.................................. 1,266 540(j) 1,806
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements
26
<PAGE> 188
UNISON HEALTHCARE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
UNISON AMPRO(P) ADJUSTMENTS COMBINED
------ -------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Net patient.................................... $1,076 $ -- $ -- $ 1,076
Other.......................................... 880 5,055 -- 5,935
------ ------ ---- ------
Total revenues.............................. 1,956 5,055 -- 7,011
Expenses:
Wages and related.............................. 1,455 2,234 3,689
Other operating................................ 545 2,084 -- 2,629
Rent........................................... 99 107 206
Interest....................................... 11 33 -- 44
Depreciation and amortization.................. 7 150 -- 157
------ ------ ---- ------
Total expenses......................... 2,117 4,608 -- 6,725
------ ------ ---- ------
Income (loss) before income taxes................ (161) 447 -- 286
Income tax expense (benefit)..................... (20) 197 -- 177
------ ------ ---- ------
Net income (loss)................................ $ (141) $ 250 $ -- $ 109
====== ====== ==== ======
Net income (loss) per share...................... $(0.11) $ 0.06
Weighed average shares used in per share
calculation.................................... 1,266 540(j) 1,806
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements
27
<PAGE> 189
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
NOTE 1. PRO FORMA ADJUSTMENTS
The pro forma results do not purport to present the results of operations
of Unison had the business combinations taken place on the dates specified, nor
are they necessarily indicative of the financial position or results of
operations that may be achieved in the future. The Unaudited Pro Forma Condensed
Combined Financial Statements have been prepared under the assumptions set forth
in the following notes.
The adjustments to the pro forma statements of operations are discussed
below.
(a) Represents the combined balance sheets of Signature Health Care and the
Signature Affiliates as of June 30, 1996, as follows:
<TABLE>
<CAPTION>
SIGNATURE SIGNATURE SIGNATURE
HEALTH CARE AFFILIATES COMBINED
----------- ---------- --------
<S> <C> <C> <C>
ASSETS
Current assets:
Accounts and notes receivable, net............................ $ 5,185 $2,576 $ 7,761
Other current assets.......................................... 764 245 1,009
------- ------ -------
Total current assets.................................. 5,949 2,821 8,770
Lease operating rights and other assets, net.................... 1,507 185 1,692
Goodwill, net................................................... 1,721 -- 1,721
Property and equipment, net..................................... 16,442 771 17,213
------- ------ -------
Total assets.......................................... $25,619 $3,777 $29,396
======= ====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt............................. $ 259 $ 53 $ 312
Other current liabilities..................................... 2,184 1,039 3,223
------- ------ -------
Total current liabilities............................. 2,443 1,092 3,535
Long term debt.................................................. 18,519 669 19,188
Deferred taxes................................................ 2,921 -- 2,921
Other long-term liabilities................................... 1,036 1,463 2,499
Stockholders' equity:
Common stock.................................................. 2 5 7
Additional paid-in capital.................................... 1,611 (1,549) 62
Retained earnings............................................. (913) 2,091 1,184
------- ------ -------
Total stockholders' equity............................ 700 553 1,253
------- ------ -------
Total liabilities and stockholders' equity............ $25,619 $3,777 $29,396
======= ====== =======
</TABLE>
28
<PAGE> 190
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS -- (CONTINUED)
(b) Represents the combined balance sheets of Ampro and Memphis, as
follows:
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
--------------------------------------------
PRO FORMA PRO FORMA
AMPRO MEMPHIS ADJUSTMENTS COMBINED
------ ------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 14 $ 16 $ 30
Accounts and notes receivable, net.................. 2,048 101 2,149
Other current assets................................ 385 14 -- 399
------ ---- ----- ------
Total current assets........................ 2,447 131 -- 2,578
Lease operating rights and other assets, net.......... 319 -- -- 319
Goodwill, net......................................... 943 -- -- 943
Property and equipment, net........................... 497 160 -- 657
------ ---- ----- ------
Total assets................................ $4,206 $291 $ -- $4,497
====== ==== ===== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt................... $ 395 $ 10 $ 490(1) $ 895
Other current liabilities........................... 1,585 79 -- 1,664
------ ---- ----- ------
Total current liabilities................... 1,980 89 490 2,559
Long-term debt........................................ 669 22 -- 691
Stockholders' equity:
Common stock........................................ 10 1 (1) 10
Additional paid-in capital.......................... 400 -- (310) 90
Retained earnings................................... 1,147 179 (179) 1,147
------ ---- ----- ------
Total stockholders' equity.................. 1,557 180 (490) 1,247
------ ---- ----- ------
Total liabilities and stockholders'
equity.................................... $4,206 $291 $ -- $4,497
====== ==== ===== ======
</TABLE>
- ---------------
(1) Represents the consideration paid for Memphis, comprised of cash in the
amount of $240,000 (assumed to be borrowed) and the assumption of debt
amounting to $250,000.
(c) In connection with the Signature Merger, Unison will issue the
unsecured Senior Notes in the principal amount of $100,000,000. The Senior Notes
will bear interest at 10.25% and mature in 2006. In addition, in August 1996
Unison obtained interim financing in the amount of $7,500,000 for working
capital. Proceeds from the Senior Notes and working capital note will be used as
follows (in thousands):
<TABLE>
<S> <C>
Debt issue costs.......................................................... $ 3,800
Contingent payment to the former BritWill stockholders.................... 1,750
Repayment of short-term debt.............................................. 11,086
Repayment of long-term debt............................................... 19,374
Reduction of accounts payable............................................. 1,500
Funds available for acquisitions and working capital...................... 62,490
--------
$100,000
========
</TABLE>
Short-term debt repaid includes (i) the working capital note amounting to
$7,500,000, (ii) the consideration for the Memphis Merger amounting to $490,000
as described in note (b) and (iii) the current
29
<PAGE> 191
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS -- (CONTINUED)
portion of long-term debt refinanced with the proceeds of the Senior Notes. The
contingent payment to the former BritWill stockholders is added to leasehold
rights and amortized over 25 years.
(d) Consideration for the aggregate purchase price for Signature is
comprised of cash amounting to approximately $37,700,000, a promissory note in
the amount of $500,000 and Unison Common Stock with a market value of
approximately $20,000,000. Unison will pay $5,500,000 in cash to acquire
RehabWest.
The following is the allocation of the purchase price of Signature and
Rehab West (in thousands):
<TABLE>
<S> <C>
Purchase price for Signature............................................... $58,200
Purchase price for Rehab West.............................................. 5,500
-------
Total purchase price....................................................... 63,700
Less net historical assets acquired:
Signature................................................................ 1,253
Rehab West............................................................... 247
-------
1,500
-------
Excess of purchase price over net historical assets acquired............... $62,200
=======
Allocation of purchase price:
Lease operating rights................................................... $34,669
Goodwill................................................................. 26,531
Property and equipment................................................... 5,000
Deferred tax liability................................................... (4,000)
-------
$62,200
=======
</TABLE>
Lease operating rights are being amortized over the lease terms, including
renewal options, not to exceed 35 years. Goodwill represents the amount of the
purchase price in excess of identifiable assets and is being amortized over 40
years. The adjustment to property and equipment is based on the estimated fair
value of the assets acquired as determined by independent appraisals.
(e) In connection with the Ampro Merger, Unison paid a financial advisory
fee to Trouver in the amount of approximately $127,000.
(f) To adjust common stock based on 5,920 pro forma shares outstanding with
a par value of $.001, as follows:
<TABLE>
<S> <C>
Unison historical common stock.................................................. $ 3
Shares issued in connection with Signature Merger............................... 1
Shares issued in connection with Ampro Merger................................... 1
---
Unison pro forma common stock................................................... $ 5
===
</TABLE>
(g) The increase in additional paid-in capital is comprised of the
following (in thousands):
<TABLE>
<S> <C>
Market value of stock issued in connection with the Signature Merger....... $20,000
Less amounts allocated to common stock................................... (2)
Reclassification of Ampro common stock................................... 10
Elimination of historical paid-in capital (deficit):
Signature................................................................ (62)
RehabWest................................................................ 472
-------
$20,418
=======
</TABLE>
30
<PAGE> 192
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS -- (CONTINUED)
(h) To eliminate the historical amounts of retained earnings recorded by
Signature ($1,184,000) and RehabWest ($719,000).
(i) To record 1,509,434 common shares to be issued in connection with the
Signature Health Care Merger.
(j) To record 540,000 common shares to be issued in connection with the
Ampro and Memphis Mergers.
(k) Other Acquisitions: The following table summarizes the operating
results for the following leases entered into from January 1, 1995 through the
later of the date of lease inception or the period of the statement of
operations.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
ACQUISITION --------------------- ---------------------
ACQUISITION DATE REVENUES EXPENSES REVENUES EXPENSES
------------------------------- ----------- -------- -------- -------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Nightingale.................... Oct. 1995 $ -- $ -- $ 4,438 $ 4,506
The Oaks of Boise.............. July 1995 -- -- 815 911
Sunbelt Therapy................ Feb. 1996 544 568 5,942 5,725
Franciscan Enumclaw............ Aug. 1996 2,060 2,294 3,860 4,313
Franciscan Walla Walla......... Aug. 1996 969 999 1,371 1,507
Other acquisitions (1)......... July 1996 2,136 2,096 3,837 3,813
------ ------ ------- -------
$5,709 $5,957 $20,263 $20,775
====== ====== ======= =======
</TABLE>
- ---------------
(1) Represents less than 10% of Unison pro forma net income.
(l) Operating lease pro forma adjustments represent adjustments to the
pre-lease operating results of the facilities identified in note (k). The
historical results have been adjusted to include the lease expense incurred by
Unison, elimination of management fee income to Unison and elimination of the
lessor's depreciation, interest expense and management fees.
(m) Effective as of February 1, 1996, Unison purchased 90% of the
outstanding common stock of Sunbelt. In consideration for the $3,600,000
purchase price, Unison paid cash in the amount of $800,000, issued promissory
notes in the aggregate amount of $1,000,000 (the "Sunbelt Notes") and issued
subordinated convertible debentures in the aggregate amount of $1,800,000 (the
"Sunbelt Debentures"). The Sunbelt Notes and Sunbelt Debentures bear interest at
10.0%, which amounts to approximately $23,000 for the one month ended January
31, 1996, $140,000 for the six months ended June 30, 1995 and $280,000 annually.
The Sunbelt Notes and Sunbelt Debentures are convertible at the option of the
holder into shares of Unison Common Stock based on the average market price (85%
of the average market price with respect to the Sunbelt Notes) of Unison's stock
for the 20 trading days prior to the date of conversion. The effect of the
conversion of the Sunbelt Notes and Sunbelt Debentures is not included in the
calculation of historical or pro forma net income per share because the effect
is antidilutive.
(n) To record amortization of goodwill related to the acquisition of
Sunbelt. Under the purchase method of accounting, assets acquired and
liabilities assumed were recorded at the estimated fair value. The excess of the
$3,600,000 purchase price over the net assets acquired was recorded as goodwill
in the amount of $3,433,000 and amortized over 40 years. Such amortization
amounts to approximately $7,000 for the one month ended January 31, 1996,
$43,000 for the six months ended June 30, 1995 and $86,000 annually.
31
<PAGE> 193
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS -- (CONTINUED)
(o) The following table summaries the operating results for Signature, as
follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1996 DECEMBER 31, 1996
REVENUES EXPENSES REVENUES EXPENSES
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Signature Health Care............................. $12,848 $13,388 $24,410 $24,517
Signature Affiliates.............................. 9,404 8,071 8,640 7,935
------- ------- ------- -------
$22,252 $21,459 $33,050 $32,452
======= ======= ======= =======
</TABLE>
(p) Represents the combined income statements of Ampro and Memphis, as
follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1996 1995
---------------------------- ----------------------------
PRO FORMA PRO FORMA
AMPRO MEMPHIS COMBINED AMPRO MEMPHIS COMBINED
------ ------- --------- ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Net patient.................... $ -- $ -- $ -- $ -- $ -- $ --
Other.......................... 3,088 474 3,562 3,225 419 3,644
------ ---- ------ ----- ---- ------
Total revenues......... 3,088 474 3,562 3,225 419 3,644
Expenses:
Wages and related.............. 1,341 173 1,514 1,273 145 1,418
Other operating................ 1,309 184 1,493 1,359 186 1,545
Rent........................... 37 14 51 40 15 55
Interest....................... 56 -- 56 19 -- 19
Depreciation and
amortization................ 81 17 98 112 23 135
------ ---- ------ ------ ---- ------
Total expenses......... 2,824 388 3,212 2,803 369 3,172
------ ---- ------ ------ ---- ------
Income before income taxes....... 264 86 350 422 50 472
Income tax expense............... 94 24 118 143 14 157
------ ---- ------ ------ ---- ------
Net income....................... $ 170 $ 62 $ 232 $ 279 $ 36 $ 315
====== ==== ====== ====== ==== ======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 YEAR ENDED DECEMBER 31, 1994
---------------------------- ----------------------------
PRO FORMA PRO FORMA
AMPRO MEMPHIS COMBINED AMPRO MEMPHIS COMBINED
------ ------- --------- ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Net patient.................... $ -- $ -- $ -- $ -- $ -- $ --
Other.......................... 6,421 782 7,203 5,152 848 6,000
------ ---- ------ ------ ---- ------
Total revenues......... 6,421 782 7,203 5,152 848 6,000
Expenses:
Wages and related.............. 2,913 321 3,234 2,119 326 2,445
Other operating................ 2,864 392 3,256 2,159 401 2,560
Rent........................... 79 29 108 77 30 107
Interest....................... 118 -- 118 63 -- 63
Depreciation and
amortization................ 194 68 262 147 87 234
------ ---- ------ ------ ---- ------
Total expenses......... 6,168 810 6,978 4,565 844 5,409
------ ---- ------ ------ ---- ------
Income (loss) before income
taxes.......................... 253 (28) 225 587 4 591
Income tax expense (benefit)..... 86 (4) 82 170 1 171
------ ----- ------ ------ ---- ------
Net income (loss)................ $ 167 $(24) $ 143 $ 417 $ 3 $ 420
====== ==== ====== ====== ===== ======
</TABLE>
32
<PAGE> 194
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
----------------------------
PRO FORMA
AMPRO MEMPHIS COMBINED
------ ------- ---------
<S> <C> <C> <C>
Revenues:
Net patient............................................. $ -- $ -- $ --
Other................................................... 4,190 865 5,055
------ ------- ---------
Total revenues.................................. 4,190 865 5,055
Expenses:
Wages and related....................................... 1,872 362 2,234
Other operating......................................... 1,681 403 2,084
Rent.................................................... 77 30 107
Interest................................................ 33 -- 33
Depreciation and amortization........................... 81 69 150
------ ------- ---------
Total expenses.................................. 3,744 864 4,608
------ ------- ---------
Income before income taxes................................ 446 1 447
Income tax expense........................................ 197 -- 197
------ ------- ---------
Net income................................................ $ 249 $ 1 $ 250
====== ======= ========
</TABLE>
(q) To record interest income on approximately $19,163,000 of excess
proceeds from the issuance of subordinated notes at an assumed interest rate of
5%.
(r) To eliminate management fees paid by Signature to Yankee Creek
Management Company, LLC, which is wholly owned by Messrs. Kremser and Filkoski,
net of estimated incremental operating costs incurred by Unison, as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------- YEAR ENDED
1996 1995 DECEMBER 31, 1995
------ ------ -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Signature management fees....................... $4,608 $2,052 $4,244 $4,726
Less incremental operating expenses............. 278 278 278 556
------ ------ ------ ------
$4,330 $1,774 $3,966 $4,170
====== ====== ====== ======
</TABLE>
(s) To record interest expense on the $100,000,000 principal amount of
Senior Notes at an estimated rate of 10.25%, net of repayments, as follows:
<TABLE>
<CAPTION>
SIX MONTHS ANNUAL
---------- -------
(IN THOUSANDS)
<S> <C> <C>
Interest on subordinated notes................................. $5,125 $10,250
Less interest on refinanced debt............................... 973 1,947
---------- --------
---
Net increase in interest expense............................... $4,152 $ 8,303
========== ===========
</TABLE>
(t) To record additional depreciation expense related to the adjustment to
property and equipment set forth in note (d). The $5,000,000 asset will be
amortized over the estimated useful life of 20 years.
33
<PAGE> 195
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS -- (CONTINUED)
(u) To record amortization of the intangible assets described in note (d),
as follows:
<TABLE>
<CAPTION>
SIX MONTHS ANNUAL
---------- ------
(IN THOUSANDS)
<S> <C> <C>
Amortization of goodwill:
Signature..................................................... $ 266 $ 532
Rehab West.................................................... 66 131
Amortization of lease operating rights -- Signature Merger
(35 years).................................................... 495 991
Amortization of deferred financing costs -- Senior Notes
(10 years).................................................... 190 380
Elimination of Signature historical amortization................ (105) (366)
--------- -------
---
Total................................................. $ 912 $1,668
========= ==========
</TABLE>
(v) To record amortization of the payment to the former BritWill
stockholders described in note (c). The $1,750,000 payment was added to lease
operating rights and is being amortized over 25 years. Amortization expense
amounts to $35,000 for the six-month period and $70,000 annually.
(w) On August 10, 1995, Unison purchased all of the outstanding common
stock of BritWill, a long-term care company operating approximately 28
facilities located in Texas and Indiana (the "BritWill Acquisition"). In
connection with the BritWill Acquisition, other operating expenses have been
reduced to give effect to the following estimated annual cost savings to be
realized (in thousands):
<TABLE>
<S> <C>
Elimination of duplicate corporate compensation and benefits........ $ 710
Reduction of insurance costs........................................ 300
Reduction of corporate office rent and operating costs.............. 468
Other............................................................... 22
-------
---
$1,500
==========
</TABLE>
(x) To record amortization of a lease liability incurred in connection with
the BritWill Acquisition. The lease liability represents the excess of the value
of BritWill's lease obligations over market lease rates, based on independent
appraisals. Amortization expense related to the lease liability amounts to
approximately $188,000 annually.
(y) To record interest on debt incurred to acquire BritWill. In connection
with the BritWill Acquisition, Unison issued an $8,000,000 senior subordinated
note bearing interest initially at 8.0%, or $640,000 annually. Interest expense
related to other debt obligations was reduced by $147,000 based on the
anticipated replacement of the accounts receivable sales program with BritWill's
receivables financing program.
(z) Under the purchase method of accounting, the BritWill assets acquired
and liabilities assumed were recorded at the estimated fair value as determined
by an independent appraisal. The excess of the purchase price over the fair
value of net assets acquired is being amortized over 40 years, the noncompete
agreement and assembled work force intangible assets are being amortized over
five years, and the lease operating rights intangible assets are being amortized
over the respective lease terms, not to exceed 25 years. Such amortization is
approximately $2,007,000 annually. Amortization expense was reduced by $830,000
annually to eliminate BritWill's historical amortization of intangible assets.
NOTE 2. INCOME TAXES
Estimated provisions for income taxes related to pro forma adjustments are
based on an assumed combined federal and state income tax rate of 40%.
34
<PAGE> 196
UNISON MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Unison's statements regarding its potential for growth and liquidity and
capital resources are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act and are based on the assumptions set
forth in this discussion and analysis of financial condition and results of
operations. While Unison believes that such assumptions are reasonable, any of
such assumptions could prove to be inaccurate. Important factors which could
cause actual growth and liquidity and capital resources to vary from the
discussion herein are set forth in such discussions and include without
limitation the factors discussed in "Risk Factors" and "Business of Unison."
GIVEN THESE UNCERTAINTIES, PROSPECTIVE INVESTORS ARE CAUTIONED NOT TO PLACE
UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS. Unison disclaims any
obligation to update any such factors or to publicly announce the results of any
revisions to any of the forward-looking statements contained herein to reflect
future events or developments.
The following material should be read in conjunction with Unison's
Consolidated Financial Statements and related notes thereto for the years ended
December 31, 1995, 1994 and 1993 and the Condensed Consolidated Financial
Statements and related notes thereto for the six months ended June 30, 1996 and
1995. All references in this discussion and analysis to years are to fiscal
years ended December 31 of such year.
RECENT AND PENDING ACQUISITIONS
On March 28, 1996, Unison entered into a definitive purchase and sale
agreement for the acquisition, effective February 1, 1996, of 90% of the common
stock of four rehabilitation therapy centers (collectively, "Sunbelt Therapy")
(the "Sunbelt Acquisition"). The transaction was accounted for as a purchase. In
August 1995, Unison acquired BritWill Healthcare Company ("BritWill"), a
long-term care company operating 28 facilities in Texas and Indiana (the
"BritWill Acquisition"). The transaction was accounted for as a purchase. See
Note 3 of Notes to Condensed Consolidated Financial Statements.
On July 3, 1996, Unison, through a newly formed wholly owned subsidiary,
entered into an Agreement and Plan of Merger (the "Ampro Agreement") with
American Professional Holding, Inc. ("Ampro"). In the merger, the outstanding
shares of Ampro Common Stock will be converted into the right to receive that
number of shares of Unison Common Stock obtained by dividing 521,000 by the
number of issued and outstanding shares of Ampro prior to the effective time of
the Merger. Unison also entered into an Agreement and Plan of Merger (the
"Memphis Agreement") with Memphis Clinical Laboratory, Inc. ("Memphis"). In the
merger, three shareholders who own approximately 35% of the outstanding shares
of Memphis will receive pro rata portions of 19,000 shares of Unison Common
Stock and the holder of the remaining shares of Memphis will receive cash in the
estimated amount of $240,000 and a promissory note in the amount of $250,000.
The Ampro Agreement and the Memphis Agreement are mutually contingent and
subject to shareholder approvals. The mergers will be accounted for as
"poolings-of-interest."
Effective August 1, 1996, Unison acquired the leasehold rights to two
skilled nursing facilities located in the State of Washington with an aggregate
of 222 beds. These facilities were previously operated by Unison under a
management contract. See Note 7 of Notes to Condensed Consolidated Financial
Statements.
On August 2, 1996, the Company entered into agreements for the acquisition
of Signature Health Care Corporation ("Signature Health Care") and four
affiliated companies, Douglas Manor, Inc. ("Douglas"), Safford Care, Inc.
("Safford"), Arkansas, Inc. ("Arkansas"), and Cornerstone Care, Inc.
("Cornerstone") and collectively with Signature Health Care, Douglas, Safford
and Arkansas ("Signature"). Signature operates 13 long-term care facilities in
Colorado and Arizona. Through mergers with each of the Signature companies and
newly formed wholly owned subsidiaries of the Company, each of the Signature
companies will become wholly owned subsidiaries of Unison. Outstanding shares of
Signature Health Care will be converted into the right to receive, subject to
certain adjustments, cash equal to approximately $10.2 million and shares of
Unison Common Stock equal to approximately $20.0 million. Outstanding shares of
Douglas, Safford, Arkansas and Cornerstone will be converted into the right to
receive, subject to certain adjustments, cash equal to approximately $28.0
million in the aggregate. The merger agreements are subject to regulatory and
shareholder approval. The mergers will be accounted for as purchases. It is a
condition to the closing of the
35
<PAGE> 197
Signature Mergers that Unison have entered into a definitive agreement for the
acquisition of RehabWest, Inc. for approximately $5.5 million and subject to
other terms that are satisfactory to Unison and to the owners of RehabWest. The
principal creditors of RehabWest are David Kremser and John Filkoski, who sold
RehabWest to its employees in March 1996. As of the date hereof, Unison has not
reached an agreement for the acquisition of RehabWest.
RESULTS OF OPERATIONS
The following table summarizes selected operating statistics of Unison and
its subsidiaries.
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
-------------- -----------------------
1996 1995 1995 1994 1993
----- ---- ----- ---- ----
<S> <C> <C> <C> <C> <C>
Leased Facilities:
Number of facilities......................... 42 13 43 11 2
Number of licensed beds:
Long-term care............................ 3,787 780 3,872 631 74
Assisted and independent living........... 134 104 112 104 30
Managed Facilities:
Number of facilities......................... 8 9 10 9 5
Number of licensed beds...................... 892 990 1,096 990 612
Institutional Pharmacies:
Number of outlets............................ 2 -- 1 -- --
Nonaffiliated facilities served.............. 31 -- 17 -- --
Therapy Services:
Nonaffiliated entities served................ 44 -- -- -- --
</TABLE>
The following table identifies Unison's sources of net operating revenues.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, DECEMBER 31,
------------- ----------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Percentage of total revenues
Long-term care................................. 89.5% 99.4% 97.9% 100 % 100 %
Therapy contracts.............................. 5.1 -- -- -- --
Pharmacies..................................... 4.2 -- 1.1 -- --
Medicare Part B billing and supply............. 1.2 .6 1.0 -- --
---- ----
---- ---- --- ---
Total....................................... 100% 100% 100%
100 % 100 %
======== ========
=== ===
</TABLE>
Unison's revenues fluctuate from facility to facility based on various
factors, including total capacity, occupancy rates, reimbursement systems and
rates among the payor categories, payor mix and the scope and utilization of
Unison's ancillary services. Medicare patients generate the highest revenue per
patient day, although profitability is not always increased due to the
additional costs associated with the higher level of care required by such
patients. In general, private pay sources are more profitable to Unison than
governmental reimbursement sources. Unison generally derives a higher profit
margin from ancillary services than from basic nursing services.
36
<PAGE> 198
Data for nursing center operations with respect to sources of net patient
revenues by payor type are set forth below (long-term care only).
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------- -------------------------
1996 1995 1995 1994 1993
---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Medicaid................................... 51.8% 57.2% 55.9% 58.5% 82.8%
Medicare................................... 32.4 23.2 26.9 9.1 3.4
Private and other.......................... 15.8 19.6 17.2 32.4 13.8
</TABLE>
UNISON HISTORICAL
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
In the six months ended June 30, 1996, Unison realized net income of $1.3
million compared to a loss of $53,000 in the prior year period. Income before
taxes amounted to $2.2 million in the current six-month period compared to a
loss of $52,000 in the prior year. Net operating revenues were $65.0 million in
the 1996 period compared to $13.4 million in the prior year. The increase in net
operating revenues is primarily attributable to revenues from patient services
which increased from $12.4 million in the 1995 period to $63.4 million in the
current six-month period. The increase is the result of (i) the increase in the
number of leased facilities operated; (ii) the acquisitions of institutional
pharmacies and Sunbelt Therapy; and (iii) an increase in Unison's quality mix to
48.2% for the six months ended June 30, 1996 compared to 42.8% in the prior year
period.
Wages and related expense increased from $7.5 million to $32.4 million in
the six months ended June 30, 1996 due primarily to the increase in the number
of leased facilities operated. Wages and related expense as a percentage of
revenues decreased from 55.7% in 1995 to 49.9% in the 1996 period as a result of
operating efficiencies.
Other operating expenses increased from $4.6 million to $21.2 million in
the 1996 period. The increase is due primarily to acquisitions. Other operating
expenses as a percentage of revenues amounted to 32.6% in 1996 compared to 34.1%
in the 1995 period.
Rent expense increased from $1.2 million in the 1995 period to $6.7 million
in the current period. The increase is due primarily to the increase in the
number of leased facilities operated. Rent expense as a percentage of revenues
increased from 8.6% to 10.2% in the current period.
Interest expense amounted to $1.5 million in the current period compared to
$183,000 in 1995. The increase is the result of debt incurred and assumed in
connection with acquisitions as well as increases in borrowings under lines of
credit. See "-- Liquidity and Capital Resources." Interest expense as a
percentage of revenues increased from 1.4% in the 1995 period to 2.2% in the
current year period.
Depreciation and amortization expense increased from $88,000 in 1995 to
$1.1 million in the current period. The increase is due primarily to the
increase in goodwill and lease operating rights associated with acquisitions.
Depreciation and amortization expense as a percentage of revenues increased from
.7% in the 1995 period to 1.6% in 1996.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Revenues. Revenues increased from $12.4 million in 1994 to $61.3 million
in 1995, an increase of 394%. The increase is primarily attributable to revenues
from patient services which increased from $11.1 million in 1994 to $57.7
million in 1995. Patient days increased from 140,153 in 1994 to 613,316 in 1995.
Of this growth in patient revenues and census, 90% is attributable to
acquisitions. Unison operated five leased nursing facilities at December 31,
1994 compared to 38 leased nursing facilities at December 31, 1995. The revenues
related to the 28 facilities acquired from BritWill are included in Unison's
results of operations for periods subsequent to July 31, 1995. Management fees
and other revenue increased from $1.3 million in 1994 to
37
<PAGE> 199
$3.5 million in 1995 as a result of an increase in management agreements from
six facilities in 1994 to 12 facilities during 1995 (with eight facilities under
such management agreements at December 31, 1995).
Wages and Related. Wages and related expense increased from $7.1 million
in 1994 to $31.8 million in 1995, an increase of 345%. The increase in wages and
related expense is primarily attributable to the increase in the number of
leased facilities operated. Wages and related expense as a percent of revenues
decreased from 57.6% in 1994 to 51.9% in 1995 as a result of operating
efficiencies.
Other Operating. Other operating expenses increased from $3.9 million in
1994 to $20.8 million in 1995, an increase of 433%. The increase is attributable
to an increase in the number of facilities operated. Other operating expenses as
a percent of revenues increased from 31.4% in 1994 to 33.9% in 1995.
Rent Expense. Rent expense increased from $1.3 million in 1994 to $6.6
million in 1995, an increase of 406%. The increase is primarily a result of the
increase in the number of leased facilities from five leased facilities in 1994
to 10 during the first seven months of 1995 and an additional 28 facilities from
the BritWill acquisition for the last five months of the year. Rent expense as a
percent of patient revenues increased from 10.5% in 1994 to 10.7% in 1995.
Interest Expense. Interest expense increased from $84,000 in 1994 to $1.1
million in 1995. The increase is primarily attributable to the agreement entered
into in April 1995 to sell the Company's accounts receivable and additional
indebtedness assumed in connection with the BritWill Acquisition. Interest
expense as a percent of revenues increased from 0.7% in 1994 to 1.7% in 1995.
Depreciation and Amortization Expense. Depreciation and amortization
expense increased from $51,000 in 1994 to $1.0 million in 1995. The increase is
due primarily to the amortization of goodwill and lease operating rights
attributable to the increase in leased facilities, related equipment purchases
and leasehold improvements. Depreciation and amortization expense as a percent
of revenues increased from 0.4% in 1994 to 1.7% in 1995.
Income/Loss before Income Taxes and Net Loss. Income before income taxes
amounted to $24,000 in 1995 compared to a loss of $79,000 in 1994. There was no
tax benefit provided for the 1994 loss since a valuation reserve was established
for such future tax benefit. Net loss amounted to $26,000 in 1995 compared to a
loss of $80,000 in 1994.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Revenues. Revenues increased from $1.9 million in 1993 to $12.4 million in
1994, an increase of 534%. The increase is primarily attributable to an increase
in the number of facilities, which caused revenues from patient services to
increase from $1.1 million in 1993 to $11.1 million in 1994. As a result of the
additional lease agreements, patient days increased from 14,053 in 1993 to
140,153 in 1994. Of this change, more than 90% was attributable to acquisitions.
Management fees and other revenue increased from $880,000 in 1993 to $1.3
million in 1994 as a result of improved financial conditions at the existing
managed facilities as well as an increase in the number of facilities managed by
Unison.
Wages and Related Expenses. Wages and related expenses increased from $1.5
million in 1993 to $7.1 million in 1994, an increase of 391%. The increase in
wages and related expenses is primarily attributable to the increase in leased
facilities. Wages and related expenses as a percent of revenues decreased from
74.4% in 1993 to 57.6% in 1994.
Other Operating. Other operating expenses increased from $545,000 in 1993
to $3.9 million in 1994, an increase of 616%. The increase is primarily
attributable to the increase in leased facilities. Other operating expenses as a
percent of revenues increased from 27.9% in 1993 to 31.4% in 1994.
Rent Expense. Rent expense increased from $99,000 in 1993 to $1.3 million
in 1994. The increase is primarily attributable to the increase in leased
facilities. Rent expense as a percent of revenues earned in connection with the
leasing arrangements has increased from 5.1% in 1993 to 10.5% in 1994.
Interest Expense. Interest expense increased from $11,000 in 1993 to
$84,000 in 1994, an increase of 664%. The increase in interest expense is
primarily attributable to borrowings under a line of credit amounting to
$950,000. Interest expense as a percent of revenues increased from 0.6% in 1993
to 0.7% in 1994.
38
<PAGE> 200
Depreciation and Amortization Expense: Depreciation and amortization
expense increased from $7,000 in 1993 to $51,000 in 1994, an increase of 629%.
The increase in depreciation and amortization expense is primarily attributable
to the increase in equipment and leasehold improvements purchased as a result of
the increase in the number of leased facilities. Depreciation and amortization
expense as a percent of revenues remained constant at less than 0.4% in 1993 and
1994.
Loss before Income Taxes and Net Loss. Loss before income taxes improved
from a loss of $161,000 in 1993 to a loss of $79,000 in 1994. There was no tax
benefit provided for the losses since a valuation reserve was established for
such income tax benefits in 1993 and 1994. Net loss improved from a loss of
$141,000 in 1993 to a loss of $80,000 in 1994.
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
("SFAS 121"), requires that impairment losses be recorded on long-lived assets
used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. SFAS 121 also addresses the accounting for
long-lived assets to be disposed of. The adoption of SFAS 121 in the first
quarter of 1996 has not materially impacted the Company's financial statements.
BRITWILL HISTORICAL
Overview
BritWill's long-term care facilities derived 28.6% of resident care revenue
from Medicare and ancillary services for the seven months ended July 31, 1995
compared to 18.8% in the comparable 1994 period. For the year ended December 31,
1994, 17.6% of resident care revenue was derived from Medicare and ancillary
services compared with 5.0% for the year ended December 31, 1993, reflecting the
industry trend toward providing ancillary and specialty care services. BritWill
expects the industry trend towards providing niche services to continue as state
budgets for Medicaid, in particular, continue to face financial stress. BritWill
is taking steps to prepare itself for survival in a reformed health care
environment by diversifying into assisted living programs and subacute care. As
managed care organizations continue to limit hospitalization costs, the ability
of long-term care facilities to provide increasing levels of care at lower costs
than acute care hospitals provides an avenue to increase census. In addition,
BritWill plans to bring certain sub-contracted ancillary services in-house,
including pharmacy and rehabilitative therapy to enhance overall ancillary
margins.
During the periods discussed below, BritWill's results of operations have
been affected by certain industry trends, changing components of total revenue
and, to some extent, changes in BritWill's debt structure. BritWill's results of
operations have also been impacted by acquisitions in each of the periods
discussed.
Seven Months Ended July 31, 1995 Compared to Seven Months Ended July 31, 1994
Revenues. Revenues increased from $29.9 million in 1994 to $38.9 million
in 1995, an increase of 30.1%. These increases are primarily attributable to the
expansion of Medicare services; there were 15 facilities in the Medicare program
in the first seven months of 1994 compared to 24 in 1995. Medicare and ancillary
revenue were 7.0% and 7.0%, respectively, of patient revenues in 1994 compared
to 23.0% and 6.0%, respectively, of patient revenues for 1995. Management fee
revenues decreased by $120,000 or 75% due to the conversion of 2 facilities from
management contracts to leases in November of 1994. However, this decrease was
offset by an additional $3.2 million in patient revenues.
Wages and Related Expense. Wages and related expense increased from $17.0
million in 1994 to $23.3 million in 1995, an increase of 37.1%. Salary and wages
increased 18.4%. New leases contributed to $1.7 million of the wage increase.
The remaining increase is attributable to increased staffing necessary to
support the Company's increased Medicare services.
Lease Expense. Lease expense increased from $4.7 million in 1994 to $5.2
million in 1995, an increase of 10.6% due to the addition of the 3 facilities in
the fourth quarter of 1994.
General and Administrative. General and administrative expenses increased
from $3.4 million in 1994 to $3.9 million in 1995, an increase of 14.7%. This
increase is primarily attributable to new leases. As a
39
<PAGE> 201
percentage of revenues, general and administrative expenses declined from 11.2%
of revenue in 1994 to 10.0% of revenue in 1995.
Depreciation and Amortization. Depreciation and amortization increased
from $487,000 in 1994 to $591,000 in 1995, an increase of 21.4%. This increase
is attributable to additional equipment and leasehold improvements at BritWill's
facilities.
Interest Expense. Interest expense increased from $571,000 in 1994 to
$906,000 in 1995, an increase of 58.7%. This increase was primarily due to
additional borrowings under the revolving credit facility.
Income (Loss) before Income Taxes and Net Income. Income before income
taxes increased from a loss of $1.9 million for the seven months ended July 31,
1994 to income of $43,880 for the seven months ended July 31, 1995. This was
primarily attributable to an increase in acuity of patients and an increase in
Medicare patients in 1995; thus, ancillary utilization increased resulting in
substantially improved performance. There was no tax benefit provided for the
1994 loss since a valuation reserve was established for such income tax
benefits. Net income increased from a net loss of $1.9 million for the seven
months ended July 31, 1994 to net income of $13,380 for the seven months ended
July 31, 1995.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Revenues. Revenues increased from $32.7 million in 1993 to $54.4 million
in 1994, an increase of 66.4%, primarily attributable to the acquisition of nine
facility leases in Texas, primarily in the fourth quarter of 1993. In addition,
in the latter half of 1994, there was a significant increase in Medicare patient
days as there were more Medicare certified facilities. Management fee revenues
decreased 28.1% due to the conversion of two facilities from management
contracts to leases in June 1994 and two additional facilities in November. The
increase in patient census was diluted by a modification in Rule 14 under the
Indiana Medicaid reimbursement program. The effect of this ruling decreased
revenues by $1.2 million.
Operating Expenses. Operating expenses increased from $23.5 million in
1993 to $40.0 million in 1994, an increase of 70.2%. Facility salaries and wages
increased 68.2%, attributable to new leases in Texas. Ancillary expenses
increased $1.7 million due to the increase in the number of facilities
participating in the Medicare program.
Lease Expense. Lease expense increased from $5.1 million in 1993 to $8.3
million in 1994, an increase of 62.7%, due to the new leases.
General and Administrative. General and administrative expenses increased
from $3.7 million in 1993 to $6.3 million in 1994, an increase of 70.3%. This
increase is primarily attributable to new leases and additional resources
dedicated to expanded Medicare operations in 1994.
Depreciation and Amortization. Depreciation and amortization increased
from $704,000 in 1993 to $987,000 in 1994, an increase of 40.2%. This is
primarily attributable to the amortization of leasehold rights recorded as part
of the acquisition of five of the Texas facilities in December of 1994.
Interest Expense. Interest expense increased from $385,000 in 1993 to
$872,000 in 1994, an increase of 126.5%, primarily due to the payment of
interest on subordinated long-term debt.
Income/Loss before Income Taxes and Net Loss. Loss before income taxes
increased from $542,155 for the year ended December 31, 1993 to $1.9 million for
the year ended December 31, 1994. This was primarily attributable to an increase
in supplies expense, principally ancillary costs, in 1994 which were not
billable to Medicaid. There was no tax benefit provided for the losses since a
valuation reserve was established for such income tax benefit. Net loss
increased from $593,905 in 1993 to $2.0 million in 1994.
BritWill Liquidity and Capital Resources
As of July 31, 1995, BritWill had working capital of $952,000 and the
current ratio was 1.09 to one. Net cash provided by BritWill's operating
activities during the seven months ended July 31, 1995 totaled $97,000. Capital
expenditures for the seven months ended July 31, 1995 totaled $1.1 million and
cash provided by financing activities totaled $1.3 million.
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LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, Unison had $847,000 in cash compared to $6.1 million at
December 31, 1995 and $118,000 at December 31, 1994. Unison had working capital
of $4.8 million at June 30, 1996 compared to working capital deficits at
December 31, 1995 and 1994 amounting to $1.2 million and $866,000, respectively.
Cash used in operations in the six months ended June 30, 1996 amounted to
$4.3 million compared to cash provided amounting to $1.3 million in the prior
year period. The change is due primarily to fluctuations in current assets and
liabilities in the 1996 first quarter. Of this increase, $2.5 million is the
result of a change in Unison's accounts receivable-backed credit facility. In
March 1996, the agreement to sell accounts receivable was replaced with a line
of credit secured by eligible accounts receivable. As a result, accounts
receivable at June 30, 1996 include amounts which, under the sales agreement,
would have been deducted from the accounts receivable balance. Cash used in
operations in the year ended December 31, 1995 amounted to $1.2 million compared
to $393,000 in 1994 and $114,000 in 1993. The increase is due primarily to the
increase in accounts receivable and other current assets resulting from the
growth in the number of facilities operated, offset in part by increases in
current liabilities.
Net cash used in investing activities amounted to $4.0 million and $326,000
in the six months ended June 30, 1996 and 1995, respectively, and $3.2 million,
$744,000 and $18,000 in the years ended December 31, 1995, 1994 and 1993,
respectively. Capital expenditures were $2.0 million and $236,000 in the six
months ended June 30, 1996 and 1995, respectively, and $1.1 million, $371,000
and $13,000 in the years ended December 31, 1995, 1994 and 1993, respectively.
Cash used in connection with acquisitions, including lease deposits, amounted to
$2.0 million in the six months ended June 30, 1996 compared to $90,000 in the
same period in 1995. In the year ended December 31, 1995, cash used for
acquisitions totalled $2.1 million compared to $373,000 in 1994 and $5,000 in
1993.
Net cash provided by financing activities amounted to $3.0 million in the
six months ended June 30, 1996 compared to $926,000 used in the prior year
period. In the year ended December 31, 1995, cash provided by financing
activities amounted to $10.4 million compared to $1.2 million in 1994 and
$123,000 in 1993. Net proceeds from Unison's initial public offering (the "IPO")
amounted to $14.6 million of which approximately $4.1 million was used to repay
notes payable to the former shareholders of BritWill, as discussed elsewhere
herein.
At June 30, 1996, the Company had $31.1 million in total debt (57.6% of
total capitalization as compared with 56.3% of total capitalization at December
31, 1995), contingent payment obligations due over the next five years totaling
up to approximately $21.8 million and minimum leasehold obligations totaling
approximately $121.8 million over the same period. This increase in total debt
is primarily attributable to an increase in the Company's working credit
facilities of $12.0 million and debt issued in connection with acquisitions in
the amount of $3.2 million, which increase is offset in part by the repayment of
the Term Note to the agent for the former BritWill shareholders in the amount of
$5.6 million and the conversion of the remainder of the Convertible Debenture
into shares of Unison Common Stock. To the extent that existing resources and
future earnings are insufficient to fund its activities and to repay its fixed
and contingent obligations, either near term or in future years, Unison will
need to raise additional funds through debt or equity financings. There can be
no assurance that such financings will be available, or if available, that
necessary financing will be available on terms favorable to Unison and its
stockholders.
By agreement finalized in April 1996, but providing for effectiveness as of
August 10, 1995 (the "Purchase Modification"), which was modified in August 1996
in the name described below, Unison, BritWill and the agent for the former
holders of BritWill shares immediately prior to the acquisition of BritWill by
Unison (the "Former BritWill Shareholders") amended the BritWill purchase
agreement and Unison's related promissory notes and other obligations to the
Former BritWill Shareholders in the following principal respects: (a) The fixed
purchase price for the BritWill stock and the principal amount of the related
subordinated promissory note to the Former BritWill Shareholders (the
"Subordinated Note") were reduced by $5.5 million. In addition, the interest
rate applicable to the outstanding balance of the Subordinated Note for each
interest period throughout its term was reduced by 400 basis points (initially
from 12% to 8% per annum); (b) Unison's contingent payment obligations to the
Former BritWill Shareholders were increased by
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the amount of the payment reductions resulting from the changes described in
clause (a) above. The contingent payment obligations are subject to the
achievement of specified consolidated revenue conditions. Upon the occurrence of
certain events, the contingent payment obligations could be converted into fixed
payment obligations. Thereafter, the fixed payment obligations could be
accelerated in certain events; (c) the fixed purchase price for the BritWill
stock and the principal amount of the related three-year promissory note to the
Former BritWill Shareholders (the "Term Note") were increased by approximately
$100,000. At the same time, the period during which no interest accrued on the
Term Note was extended to January 2, 1996 (the date on which Unison repaid the
Term Note in full); (d) the parties agreed that based upon Unison's consolidated
balance sheet as of December 31, 1996, Unison's contingent payment obligation
due in June 2000 to the Former BritWill Shareholders will be reduced by up to
$1.4 million (the "Reduction Amount") if Unison is unable to collect or
establish the collectability of certain accounts receivable that were owned by
BritWill when it was acquired by Unison and were adjusted downward in the
purchase allocation of the BritWill Acquisition. The Reduction Amount, however,
will be subject to being "earned back" and paid to the Former BritWill
Shareholders if Unison achieves specified quarterly revenue conditions during
1997 and thereafter.
The principal immediate effect of the Purchase Modification is to decrease
Unison's fixed burden and interest expense (with a corresponding increase in its
income for financial reporting and tax purposes) and to increase its contingent
obligations by a like amount. The Purchase Modification had no effect on the
timing or amount of payments to the Former BritWill Shareholders during 1995.
The Purchase Modification may reduce or delay future payment obligations to the
Former BritWill Shareholders if the specified revenue conditions for the
contingent payments are not satisfied, but under no circumstances can the
changes increase the total amounts owing from, or accelerate the due dates of
payments by, Unison to the Former BritWill Shareholders over the amounts and to
earlier due dates than those that could apply under the same circumstances if
the Purchase Modification had not occurred. The specified revenue conditions in
the Purchase Modification do not represent a forecast or projection of any kind
or for any purpose and should not be relied upon as such. The changes included
in the Purchase Modification resulted in an increase in pretax income of
$484,000 for the year ended December 31, 1995. Absent the Purchase Modification,
Unison's consolidated pretax loss for the year ended December 31, 1995 would
have been $459,685. Copies of the Modification Agreement, the Contingent Payment
Agreement and the restated Subordinated Notes are attached as exhibits to this
report and are incorporated herein. The foregoing summary of the Purchase
Modification is qualified in its entirety by this reference to such documents.
By the modification to the Purchase Modification finalized in August 1996,
but providing for effectiveness as of August 10, 1995, Unison, BritWill and the
Former BritWill Shareholders amended the Purchase Modification in the following
principal respects: (a) upon any debt or equity financing of $100.0 million or
more (including the proposed $100.0 million placement of Senior Notes), the
Former BritWill Shareholders agreed that Unison would not be obligated to pay
more than one-half of the outstanding aggregate amount of the Subordinated Note
and the principal portion of the contingent payments, and that Unison would not
be obligated to make any such payment prior to January 1, 1997; provided,
however, that if Unison does not pay such amounts in full upon such a financing,
the Former BritWill Shareholders will be deemed to have earned back all of the
Reduction Amount; and (b) the rate at which the Former BritWill Shareholders
could earn back the Reduction Amount was increased.
The obligations and notes associated with the BritWill Acquisition, after
the Purchase Modification, include the following: (i) the $7.0 million
Convertible Debenture, which has been converted in full into Unison common
stock; (ii) the $8.0 million Subordinated Note, as amended, payable in monthly
installments of $54,000 of interest only at the rate of 8.0% for the first 18
months, and monthly payments of principal and interest of $76,000 to $117,000
for the next 42 months at 8.0% to 10.0%. The Subordinated Note requires that the
Company maintain (a) specified ratios of operating cash flows to current
obligations increasing over time; (b) a specified ratio of current assets to
current liabilities; and (c) cash and unencumbered credit facilities of minimum
levels. At March 31, 1996, Unison was in compliance with these requirements. The
entire remaining principal balance outstanding under the Subordinated Note and
all unpaid interest are due and payable upon the earlier to occur of either
August 9, 2000 or the completion of any secondary public or private
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debt or equity offering of at least $10.0 million; (iii) the $5.6 million Term
Note which was repaid on January 2, 1996; (iv) a $3.4 million note which was
repaid from the proceeds of Unison's IPO; in December 1995; (v) scheduled
contingent monthly payments, as amended, through August 2000 of $144,0000 to
$225,000 are required upon attainment of specified revenues and will be added to
leasehold rights when and if paid; and (vi) a contingent payment of $11.5
million (subject to adjustment pursuant to the Purchase Modification) is due
August 9, 2000 (or earlier in the event of certain securities offerings, or
under certain circumstances) if revenues during the 12 months ending June 30,
2000 exceed $150.0 million, which will also be added to leasehold rights when
and if paid. If a default occurs on any one or more of the above obligations,
after the expiration of all applicable cure periods with respect to any of the
above, all of the liabilities become due and payable. In order to meet the terms
of the above obligations, specifically the Subordinated Note, Unison expects
that it will be necessary to seek outside financing through an offering of debt
or equity securities or similar outside financing arrangement. There can be no
assurance, however, that such financing will be available to Unison, or, if
available, on terms favorable to Unison. In addition, Unison is required to meet
a series of financial covenants and conditions related to existing leases and
financing assumed with the BritWill Acquisition, including maintenance of
specified operating ratios, levels of working capital and net worth. At June 30,
1996, Unison was in compliance with these covenants.
In March 1996, Unison refinanced its existing revolving credit lines with a
new $10.0 million revolving credit facility. Borrowings under the credit
facility bear interest at the prime rate plus 2% (10.25% at March 31, 1996) and
are secured by Unison's eligible accounts receivable. At June 30, 1996,
borrowings under this credit facility amounted to $8.7 million. Further, in
August 1996, Unison entered into a $1.0 million line of credit secured by its
ancillary accounts receivable with the same lender. This new line is being
accounted for as a sale of receivables. Unison also executed unsecured
promissory notes with a lessor in the amount of $4.0 million with interest
payable at 10.25% to 10.75%. The notes are guaranteed by Jerry M. Walker,
Unison's President.
In May 1996, Unison executed a promissory note payable to the agent for the
Former BritWill Shareholders in the amount of $1.0 million. Interest is payable
at 12.0% and the note is due on demand after 30 days from issuance. On August
30, 1996, Unison repaid $500,000 of the outstanding principal from the proceeds
of the Imperial Loan described below. In June 1996, Unison also entered into an
agreement allowing Unison to lease equipment in the aggregate amount of
$921,000. The lease term is for three years and the effective interest rate is
11.47%. At June 30, 1996, borrowings under this agreement amounted to $648,000.
Unison is negotiating for two more lease lines. The first of these lines would
be in the amount of $450,000, with a three year term, and would be used for
furniture and fixtures. The second of these lines would be in the amount of
approximately $1.5 million, with a four or five year term, at Unison's option,
and would be used principally for computer hardware and software. Completion of
negotiations for these two lines cannot be assured.
In August 1996, Unison entered into a short term loan agreement with
Imperial Bank providing for up to $7.5 million of borrowings (the "Imperial
Loan") and drew $5 million of this amount. Another $2.5 million is expected to
be drawn in October. The loans bear interest at the rate of 9.75% per annum and
are due in February 1997. Among other covenants, the Imperial Loan requires a
minimum debt coverage ratio and level of net worth. Unison has issued or will
issue stock purchase warrants for an aggregate of 300,000 shares in conjunction
with the Imperial Loan, which is also convertible into Unison Stock at a
discount in the event of a loan default.
In August 1996, Unison also delivered to one of its suppliers a $771,005
promissory note bearing interest at the rate of 9% per annum and requiring
monthly installments of principal and interest until May 1997 or earlier in the
event of a public or private sale of Unison equity securities (the"Red Line
Note"). The Red Line Note was issued in satisfaction of certain accounts payable
and is convertible into Unison Common Stock at a discount in the event of a loan
default.
Unison intends to finance a substantial portion of its growth through
sale/leaseback transactions with REITs, financial institutions and private and
other investors. Continued expansion, including the acquisition of Signature and
the cash consideration in the acquisition of Memphis, and the repayment of the
$11.5 million
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contingent payment and Subordinated Note in August 2000 will require a
substantial, additional public or private placement of equity or debt
securities. Unison may also make use of traditional long-term debt, including
publicly issued debt, to finance development. Unison will continue to require
new services of working capital as acquisitions are completed and Unison
continues to expand its existing business. Unison is currently negotiating with
several lenders to increase the availability of working capital for continuing
operations, to fund acquisitions and to decrease the cost of existing
borrowings. There can be no assurance that any such financing will be available
to Unison or, if available, that the terms will be acceptable to Unison. If
Unison is unable to obtain such financing on acceptable terms, it may be unable
to achieve its growth and development goals.
In January 1996, Unison acquired an institutional pharmacy in Indiana for
$200,000 in cash and a note in the amount of $400,000.
On March 28, 1996, Unison entered into a definitive purchase and sale
agreement for the acquisition, effective as of February 1, 1996, of 90% of the
outstanding common stock of Sunbelt Therapy. In consideration for the stock of
Sunbelt Therapy, Unison paid $800,000 in cash, issued term notes for $1.0
million in the aggregate (the "Notes") and issued subordinated convertible
debentures totaling $1.8 million (the "Debentures"). In addition, contingent
payments will be due if specified pretax income targets are achieved. The Notes
and Debentures bear interest at 10%, payable quarterly beginning May 1, 1996,
and are convertible into Unison common stock at the option of the holder at a
conversion price equal to the average closing price (85% of the average closing
price with respect to the Notes) of Unison's common stock for the 20-day trading
period preceding the date of conversion. The Notes mature in equal principal
amounts on February 1, 1997 and 1998, and the Debentures mature in equal
principal amounts on February 1, 1997, 1997 and 1999.
In June 1996, Unison voluntarily terminated its participation in the
Medicare and Medicaid programs at its 94-bed Hillside Health Care Center in
Bonner Springs, Kansas. The facility was subsequently closed. The closure of
this facility is not expected to have a material impact on Unison's results of
operations or financial condition.
Unison is currently negotiating for the sale of $100.0 million of unsecured
senior promissory notes (the "Senior Notes"). It is currently anticipated that
the Senior Notes will bear interest at the rate of 10.25% per annum, will mature
in 2006, will be secured by guarantees from Unison's existing and future
subsidiaries, and will be redeemable at Unison's option beginning in 2001 at a
premium that declines to par in 2005.
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BUSINESS OF UNISON
INTRODUCTION
Unison HealthCare Corporation is a provider of high quality traditional
long-term and specialty health care services. Unison provides a broad range of
health care services including nursing care, rehabilitation therapy, respiratory
therapy and other specialized services. Subacute care includes those services
provided to patients with medically complex conditions who require more than
three hours per day of skilled nursing, medical supervision and access to
specialized equipment and services, but do not require many of the other
services provided by acute care hospitals. Unison also maintains special units
with an aggregate of 495 beds designed to treat patients with specific medical
conditions such as Alzheimer's, AIDS and those requiring wound management.
Unison commenced operations in July 1992 as SunQuest HealthCare Corporation and
changed its name to Unison HealthCare Corporation on November 14, 1995. As of
August 31, 1996, Unison operated 51 facilities, consisting of 45 long-term and
specialty care facilities (41 of which are Medicare certified) with 4,666 beds
and six independent or assisted living facilities with 196 units in 12 states,
principally in the midwest and southwest regions of the United States. Pursuant
to the Signature Merger Agreements, Unison has committed (subject to the
satisfaction or waiver of certain conditions) to acquire companies that operate
11 long term care facilities and two assisted living facilities in Arizona and
Colorado.
Unison has also begun providing certain ancillary services through both
internally developed programs and affiliated companies. Ancillary services are
those services that can be billed and reimbursed separately from routine
services. In 1995, Unison established a pharmacy operation and Medicare Part B
billing and supply company to provide ancillary services to both Unison operated
facilities and non-affiliated health care providers. Ancillary services include
physical, speech and occupational therapies, respiratory therapies and
laboratory services. Effective February 1, 1996, Unison acquired four
rehabilitation therapy services companies, including Henderson and Associates
Physical Therapy and Sunbelt Therapy Management Services, Inc., (collectively,
"Sunbelt") which provide physical, occupational and speech therapy through local
outpatient clinics and long-term care facilities primarily in the southeastern
United States. The rehabilitation companies also provide therapy services to
seven hospitals in Alabama, Mississippi, Oklahoma and West Virginia. Pursuant to
the Ampro Merger Agreement, Unison has committed to acquire (subject to the
satisfaction or waiver of certain conditions) two reference laboratory companies
with facilities in Texas, Missouri and Tennessee.
Unison seeks to establish a strong competitive position in the markets it
serves by providing specialty health care services and high quality long-term
care. Unison continues to provide high quality health care services, as
evidenced by its low deficiency rating in state regulatory compliance surveys
compared with national averages. Unison continuously endeavors to improve its
payor mix and growth both in specialty services and in revenue and operating
profits. Unison achieved a quality mix for the year ended December 31, 1995
(defined as revenues derived from private payors, Medicare and commercial
insurers) of 44% compared to 39% in 1994 and 48.2% for the six months ended June
30, 1996 compared to 42.8% for the six months ended June 30, 1995.
MARKET OVERVIEW
Unison believes there will continue to be significant growth opportunities
to provide health care services to long-term care residents in non-hospital
settings, including both long-term care facilities and assisted or independent
living facilities. The factors that contribute to this growth potential include
the following:
Aging Population. According to the United States Bureau of the Census, the
overwhelming majority of the patients in long-term care facilities and residents
in assisted or independent living facilities are over the age of 65. The number
of people over the age of 65 in the United States has grown from approximately
25.8 million in 1980, or 11.3% of the population, to approximately 31.6 million
in 1990, or 12.6% of the population, and is projected to increase to
approximately 59.7 million, or 20% of the population, by 2025. The United States
Bureau of the Census also reported that approximately 6% of the United States
population between the ages of 75 and 84 and 22% of those over 84 used some form
of health care services in a long-term care facility. As the United States
population ages, the demand for Unison's services is expected to increase.
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Cost Containment Pressures. Governmental and private pay sources have
adopted cost containment measures which encourage reduced lengths of stay in
acute care hospitals. Many of the patients being discharged, in particular
elderly patients, require additional skilled nursing care and specialty health
care services, such as those provided by Unison. Any subsequently adopted health
care reform proposals are expected to continue to emphasize the cost containment
efforts included in health care reform legislation to result in early discharge
of patients from the hospital setting. See "-- Government Regulation."
Advances in Medical Technology. Sophisticated new forms of medical
equipment and treatment have lengthened life expectancies, increasing the number
of individuals requiring specialized care and supervision. In the past, the
level of care required by many of these individuals was not generally available
outside acute care hospitals. However, long-term care providers such as Unison
have become a more attractive alternative to acute care hospitals in certain
instances due to technological advances that have enabled long-term care
providers to offer services less expensively than are provided by acute care
hospitals.
Limitations in the Supply of Long-Term Care Facilities. Many states (but
not all of the states in which Unison operates) have enacted certificate of need
or similar legislation which generally limit the construction of long-term care
facilities and the addition of beds or services in existing facilities.
Furthermore, high construction costs, limitations on government reimbursement
for the full costs of construction, and start-up expenses also act to constrain
growth in the numbers of facilities. Concurrently, as the demand for skilled and
subacute services in long-term care facilities increases, the supply of nursing
home beds will be filled by residents with the highest level of care
requirements. This shift will, in turn, increase the care requirements of
residents of assisted or independent living facilities. As a result, the Company
believes that the supply of long-term care facilities may not grow as quickly as
the demand for such facilities. See "-- Government Regulation -- Certificates of
Need."
OPERATING STRATEGY
Unison's operating strategy is to increase the revenues and profitability
of the facilities it operates by (i) emphasizing the continued development and
expansion of specialty health care services to treat higher acuity patients in
cooperation with local hospitals and physicians; (ii) expanding the scope of
ancillary services provided in Unison facilities and offered to unaffiliated
operators of long term care facilities; (iii) increasing occupancy levels and
improving Unison's payor mix; (iv) achieving and maintaining a high standard of
regulatory compliance and patient care in each facility that Unison operates now
or in the future; (v) providing independent living and assisted living
opportunities which are operated in hand with Unison's care facilities; and (vi)
containing costs.
Expanding Services to Treat Higher Acuity Patients. Specialty health care
services are developed in each facility in cooperation with the local medical
community and are tailored to the specific needs of that community. Specialty
programs are developed by marketing professionals and facility administrators
working directly with local hospital discharge planners and physicians. This
community approach complements Unison's decentralized management structure and
differentiates Unison from other providers of long-term care and specialty
services. Management feels that its approach generally is well received by the
local medical community, as demonstrated by the increase in Unison's quality mix
in 1995 as compared with 1994 and in the first six months of 1996 as compared
with the prior year period.
Unison's facilities currently offer a wide variety of specialty health care
services, which may include: (i) intensive rehabilitation services; (ii) wound
management; (iii) enteral and parenteral feeding programs; (iv) intravenous drug
administration, including chemotherapy; (v) respiratory therapy; (vi)
orthopaedic rehabilitation; and (vii) other specialized subacute services.
Expanding The Scope of Ancillary Services. Unison provides ancillary
services to facility residents in response to physician orders. The major
ancillary services include physical, speech, and occupational therapies;
pharmaceuticals; parenteral and enteral nutrition; infusion and respiratory
therapies; and laboratory services. Historically, Unison has provided most of
these services through contracts with third party providers, but it is
increasingly offering such services through affiliated ancillary services
companies, both in its own facilities and to third party operators of long term
care facilities.
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Increasing Occupancy Levels and Improving the Payor Mix. Unison's
marketing efforts are focused on the hospital and medical community in each
market to promote higher occupancy levels and improved payor mix at its
facilities and assisted or independent living centers in that particular market.
Improving payor mix often means developing programs that respond to the needs of
the residents in each specific payor class, which may include Medicare, private
pay, managed care, active and retired United States military programs and
commercial insurance payors. Unison's goal is to achieve quality mix revenue
levels of 60% in its facilities. Unison defines all categories of payors other
than Medicaid as "quality mix." For the year ended December 31, 1995 and for the
six months ended June 30, 1996, Unison derived approximately 44% and 48%,
respectively, of its revenues from payors other than Medicaid. Quality mix
levels are heavily influenced by hospital discharge patterns in each market
served.
Maintaining High Standards of Regulatory Compliance and Patient
Care. Although its record is not perfect (Unison voluntarily closed one
facility during 1996 due to regulatory problems), Unison believes it is an
industry leader in providing quality patient care and in maintaining regulatory
compliance. In the 12 states in which Unison operates long-term and specialty
care facilities and independent or assisted living facilities, approximately 16%
of all nursing facilities surveyed have deficiencies requiring "significant
correction" as defined. Only 13% of Unison facilities surveyed as of July 30,
1996 had deficiencies cited at this level. All of Unison's 45 nursing facilities
are in compliance. All of Unison's facilities have fully implemented Unison's
Quality Improvement Program.
Unison currently employs nine registered nurses under the direction of the
Vice President of Clinical Operations to direct the quality improvement and
regulatory compliance activities of the facilities. These nursing professionals
are organized in regional teams in cooperation with the regional operations
executives. Together with the facility administrators and Directors of Nursing,
these professionals make up a team of nearly 110 long-term care professionals
who are committed to achieving and maintaining high standards of quality
improvement and regulatory compliance. With the implementation of the new
Omnibus Budget Reconciliation Act of 1987 ("OBRA") regulations on July 1, 1995,
aggressive regulatory compliance activities are an even more important aspect of
long-term care operations. The new OBRA enforcement regulations have increased
the potential penalties against skilled nursing facilities with poor regulatory
compliance history and those providing substandard care. See "-- Government
Regulation -- Enforcement Proceedings and Sanctions; Certification
Requirements."
Providing Independent Living and Assisted Living Opportunities. Unison
believes that independent and assisted living arrangements have become an
increasingly important component of the continuum of care required by older
Americans. Cost containment pressures from government and private payors alike
encourage discharge from long-term and specialty care facilities before
residents may be fully able to care entirely for themselves. The change from the
traditional family structure which cared for the sick and elderly to dual income
families has increased the need for facilities that can assist such persons.
Unison believes that offering services at this important level of the continuum
of care enables it to maintain contacts with potential consumers of its
long-term and specialty health care services and thus improve its occupancy
levels and profitability. Independent living centers are not required to be
licensed and are subject only to minor regulations. In most states, assisted
living facilities are required to be licensed but the requirements are much less
restrictive than those of skilled nursing facilities. These centers provide
fewer nursing and medical services than are provided at Unison's long-term care
facilities. Unison believes that the availability of health care services is one
of the significant reasons that residents move to an assisted or independent
living center. A complete market analysis is conducted for each of Unison's
nursing centers to assess the feasibility of assisted living services to
complement the continuum of care offered.
Containing Costs. Unison believes that the increasing penetration of
managed care will intensify the focus on containing costs. Unison establishes
detailed operating budgets at its facilities and the administrator is
responsible for adherence to these budgets. Unison provides supervisory
oversight at the regional level, and regular review by members of executive
management. Monitoring the performance of these budgets at the facility level
has enabled Unison to maintain control over its operating costs, which has
improved the operating performance of Unison's facilities.
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GROWTH STRATEGY
Unison intends to continue to grow its business by (i) selectively leasing
additional long-term and specialty health care facilities in geographic
clusters; (ii) developing and acquiring additional ancillary services companies;
and (iii) developing in-house specialty care units within its current and future
facilities. In leasing new facilities, Unison intends to focus on facilities
with at least 100 licensed beds near one or more hospitals, especially in
markets with population concentrations in excess of 100,000. Additional
ancillary services are likely to include pharmacy services, home health care
services and reference laboratory services such as those provided by Ampro and
Memphis (see "Certain Information Regarding Ampro and Memphis"). Specialty
units, which typically generate higher profit margins than are available from
less specialized basic long-term care services, may include specialty units for
Alzheimer's care, AIDS care, specialized rehabilitation services and the
treatment of medically complex patients. Based on its experience, Unison
believes that concentrating several long-term care facilities within strategic
geographic areas provides operating efficiencies and economies of scale, better
positions Unison to compete for managed care contracts, and facilitates the
development of its ancillary and specialty health care services.
Achieving Local Economies of Scale. Unison's strategy of creating clusters
of facilities allows it to achieve and exploit economies of scale. These
clusters of facilities -- approximately six to eight facilities in a specific
area -- allow cluster-based teams of regional managers to oversee operations.
The clusters eliminate the need for a large centralized infrastructure to
support field operations and enable Unison to leverage management across a
larger base of patient revenue. Unison is able to more efficiently monitor
individual facilities, ensuring high quality patient care. Clustering facilities
also enables Unison to leverage the addition of ancillary services over a larger
patient base. The proposed Signature Mergers will include the acquisition of
five long term care facilities in the Denver, Colorado area that fit well within
this strategy of creating clusters of facilities.
Unison believes that a substantial opportunity exists to achieve additional
synergies through the combined marketing of both long-term care facilities and
assisted or independent living centers, primarily because of the changing needs
of Unison's residents. This strategy provides an opportunity for entry at each
point in the continuum of care. Cost containment pressures will result in
patients and residents changing facilities more frequently as a result of their
moves up or down the continuum of care in an effort to receive the appropriate
care from the most efficient provider of each level of care. Unison expects to
benefit from its ability to offer continuity of care to its patients and
residents. In addition, Unison believes that it will achieve synergies in its
assisted and independent living center operations as the level of care provided
increases in such facilities.
Competing for Managed Care Contracts. Unison's cluster strategy positions
it to compete for managed care contracts by offering a group of long-term care
facilities and ancillary services in a specific geographic area. Many of the
markets in which it operates facilities are just beginning to experience
significant managed care penetration. A primary goal of managed care is to
transition patients out of full service hospitals and into lower cost care
settings, including subacute care facilities. Managed care organizations demand
consistently high quality of service, and their subscribers seek a range of
options when choosing a care provider. The availability of comprehensive
services that span the range from independent living to subacute care will
enable Unison to attract and compete effectively for managed care contracts
within the entire care continuum. Although a low percentage of Unison's revenues
is currently derived from managed care, senior management has significant
experience in developing managed care business. Unison currently maintains
managed care contracts with several managed care organizations.
Developing In-House Ancillary and Specialty Care Services Programs. Unison
recently has developed programs and established affiliated operations to provide
ancillary services. One reason for developing these programs is to improve the
quality of patient care by controlling the delivery of these services. In May
1995, Unison established Quest Pharmacies, Inc. ("Quest") to develop a
nationwide institutional pharmacy business. Quest has acquired the pharmacy
operations of Med-Shop Pharmacy in Gilmer, Texas and Indiana Prescription Lab,
an institutional pharmacy in Bloomington, Indiana, and is seeking to acquire
other pharmacies. As of August 26, 1996, Quest provided institutional pharmacy
services to 57 long-term care facilities, including 25 Unison facilities and 32
facilities operated by others. Since March 1995 the Company
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has also operated a Medicare Part B billing and supply company that focuses on
wound management and enteral and parenteral feeding services.
In addition to providing services to its own long-term and specialty health
care facilities, each of these ancillary providers seeks to provide services to
other, unrelated long-term care providers, further expanding Unison's revenue
base. In each instance, Unison identifies acquisition candidates with an
existing portfolio of business which can augment the revenues available,
diversify the scope of operations, and improve the quality and consistency of
the services being offered by Unison.
PATIENT SERVICES
Unison's objective is to provide a full range of long-term care services
across the entire continuum of care from independent living services to subacute
care services, all of which are provided primarily to the elderly. For those
among the elderly requiring limited service, independent living facilities offer
assistance with activities of daily living as needed. For residents in need of
greater assistance, the services of an assisted living facility are necessary,
where nutritional, housekeeping, and limited medical services are offered. For
the elderly in need of specialized support, rehabilitation, nutrition,
respiratory therapies and other treatments, skilled nursing care is often
required. The innovation of specialized subacute services within skilled nursing
facilities also responds to the needs of patients requiring intense and
specialized treatment and rehabilitation therapy services immediately after
hospitalization.
Long-Term Care Services. Unison's long-term care facilities provide basic
health care services, including room and board, dietary services, recreational
therapy, social services, housekeeping, laundry and nursing services. In
addition, the long-term care facilities dispense medications and otherwise
follow care plans prescribed by the patient's physician. Unison's long-term care
facilities are licensed by state licensing agencies and are extensively
regulated at the Federal, state, and local level. Unison also provides for the
delivery of specialty medical services at its facilities. See "-- Growth
Strategy -- Developing In-House Ancillary and Specialty Care Services Programs."
Assisted and Independent Living Services. Services and facilities at
assisted and independent living centers include central dining facilities,
limited nursing services, recreational areas, social programs, housekeeping,
laundry and maintenance service, emergency call systems, special features for
handicapped persons and transportation to shopping and special events. These
facilities provide fewer skilled nursing and medical services than are provided
at Unison's long-term care facilities. Unison believes that the availability of
health care services is one of the significant reasons that residents move to an
assisted or independent living center.
Ancillary Services. Unison provides ancillary services to the residents of
skilled nursing facilities in response to physician orders. The major ancillary
services include physical, speech and occupational therapies, pharmaceuticals,
parenteral and enteral nutrition, infusion and respiratory therapies and
laboratory services. In addition, Unison has acquired two pharmacy companies and
a therapy provider will continue to seek to expand ancillary services.
Specialty Subacute Care Services. Subacute care is a major component of
Unison's growth strategy. Unison provides care to patients with specialized
needs through its designated units for the treatment of Alzheimer s disease,
AIDS patients and others. These units are located in specially designed sections
within selected facilities and are staffed by specially trained personnel.
Unison operates 26 such units consisting of 231 licensed beds in Alzheimer's
units, 39 beds in AIDS units and 225 beds in other specialty units, including
wound management, hospice care, rehabilitation services and respiratory therapy.
In addition to providing care tailored to the unique needs of patients within
these units, these services include education and support to the patients'
families. These units generally receive higher levels of reimbursement. The
daily cost to patients for the Unison's specialty services are generally
significantly less than the cost charged for similar services by acute care
hospitals.
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OPERATIONS
In its role as lessee or manager, Unison is responsible for the day-to-day
operation of both leased and managed facilities. These responsibilities include
recruiting, hiring and training all nursing and other personnel, and directing
the full scope of patient care activities that are necessary to operate the
facilities. In general, these activities include direct patient care nursing
services, food service, social services and resident activity programs,
housekeeping and maintenance, business office services including billing and
accounts receivable management, accounts payable, accounting and finance,
quality assurance, and regulatory compliance at each facility.
Organization. Unison strongly believes that long-term and specialty care
facilities should be managed on a decentralized basis. This approach places
direct decision making as close to the bedside as possible so that facilities
will be able to better respond to the specific needs of each medical community.
In order to accomplish this, Unison has created four regions, each of which is
supervised by a regional vice president. The regional vice president is
supported by a clinical operations specialist, a financial consultant, a
regional director of marketing, and assistant regional managers and clerical
personnel, all of whom are employed by Unison. Daily operations of each leased
and managed facility are supervised by an on-site licensed administrator. The
administrator of each facility is supported by other professional personnel,
including a medical director, who assists in the medical management of the
facility, a director of marketing who directs the sales and marketing efforts of
the facility and a director of nursing who supervises a staff of registered
nurses, licensed practical nurses and nurses aides. Other personnel include
dietary staff, activities and social service staff, housekeeping, laundry and
maintenance staff and a business office staff. Unison believes that this
decentralized team approach differentiates it from other operators of long-term
and specialty care services who organize themselves in a more traditional
functional manner.
Quality Management. Unison maintains an active, effective quality
improvement program that is focused on important aspects of care and critical
key indicators that define, measure and improve the quality of care provided to
its patients. The program is an internal facility process focused on involvement
of direct care givers. Quantitative, systematic, data-driven reporting is
monitored by Unison's eight registered nurses under the direction of the Vice
President of Clinical Operations. These monthly reports are used to monitor
adherence to the standards of care established by Unison's Quality Improvement
program. The ability to administer these standards of quality is accomplished
through on-site visits conducted by specially trained, credentialed health care
professionals. Frequent direct observation and assessment of the quality of care
provided to Unison's patients in tandem with the oversight of each facility's
Quality Improvement program results in patients receiving better care, thereby
experiencing higher quality of life.
In addition to its Quality Improvement program, Unison provides each of its
facilities with the resources it needs to administer the exemplary quality of
care Unison expects. Complete policy and procedure manuals are maintained by
Unison and provided to each facility. The manuals are regularly updated to
include changes in regulatory requirements and improvements in clinical
practices.
The facility administrator at each facility is primarily responsible for
adherence to Unison's standards of practice. Each facility administrator's
incentive compensation is based, in part, on the achievement of specified
quality objectives. Clinical Operations Specialists provide individualized
on-site training to direct care givers. Clinical Operations Specialists also
conduct mock state and federal surveys in advance of scheduled annual surveys,
to insure that quality improvement standards and procedures are in compliance.
Unison has often entered into leases of facilities that have had regulatory
compliance or quality difficulties. Unison generally achieves prompt and
significant improvements of such facilities, once it takes control. In the year
ended, in thirteen new acquisitions, regulatory records contained a total of 285
total deficiencies cited prior to acquisition. This number was reduced to 138
deficiencies cited on first governmental review conducted after acquisition: a
48.4% reduction in regulatory noncompliance. Of these thirteen new acquisitions
prior to the BritWill Acquisition, seven have had a second review, resulting in
an Update additional 36.7% reduction in noncompliance. Management believes that
its expertise in this area, as reflected by the above statistics, differentiates
it from most other providers of long-term and subacute care.
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Marketing. Unison's marketing efforts are designed to promote higher
occupancy levels and improved patient quality mix. Marketing is also involved in
evaluating existing and future markets for introduction of additional ancillary
and specialty services. Unison believes that the long-term health care and
assisted and independent living industries are driven by local market forces and
that patients and referral sources are generally located in the immediate
geographic area of the facility. Unison's marketing strategy emphasizes the role
and performance of the administrator and director of admission and marketing in
promoting the services offered by Unison facilities in each local community,
particularly the medical community and their role in the local continuum of
care.
Unison maintains an active marketing program that is focused on market
analysis, competitive services, sales training, and accountability and tracking
systems. These systems define, measure and improve the quality of contacts and
relationships with Unison's referral sources. Quantitative and systematic
reporting and analysis is monitored by the regional directors of marketing,
under the supervision of the Vice President of Marketing. Market specific
information, along with weekly and monthly reporting, is used to monitor
adherence to the standards established by Unison.
The hub of this strategy is the local facility administrator and director
of admissions and marketing. These individuals, under the direction of the
corporate and regional marketing staff, are responsible for establishing and
building relationships with various referral sources including general and
specialty physicians, hospital administration and discharge planners, insurance
case managers and other local community organizations. In addition to soliciting
referrals from these sources, Unison seeks to use their input in conjunction
with demographic and medical data analysis to identify specific market needs,
and to introduce new and needed services where appropriate. The facilities also
are involved in community affairs in order to maintain a public awareness of
their services. Unison believes that the emphasis on local marketing efforts,
supported by corporate resources and analysis, allows it to identify and respond
to the needs of the local medical community quickly and effectively.
The marketing function of Unison is also involved in the market analysis of
potential acquisitions. By evaluating the medical communities for each potential
acquisition, Unison seeks to create a "day one" marketing plan for the targeted
acquisition.
Through extensive training of facility admissions and marketing personnel,
along with administrators and directors of nursing, Unison helps organize and
coordinate the types and levels of services provided in each market. The
marketing and clinical divisions of Unison work jointly with administrators to
identify specialty needs and services.
DESCRIPTION OF MANAGEMENT SERVICES AND AGREEMENTS
Of Unison's 51 facilities, five are operated as managed facilities, in
which Unison's responsibilities include recruiting, hiring and training all
nursing and other personnel on behalf of the owner and providing quality
assurance, resident care, dietary care, marketing, accounting, and data
processing services. Services performed at the headquarters level include group
contract purchasing, employee training and development, quality assurance
oversight, human resource management, assistance with third-party reimbursement,
financial and accounting functions, cash management policy and procedure
development, system design and development and marketing support. Unison's
financial reporting system monitors certain key indicators for each managed
facility. These indicators include payroll, admissions and discharges, cash
collections, net patient care revenues, staffing trend analysis and measurement
of operational data on a per patient day basis.
Unison receives a base management fee for the management of long-term care
facilities ranging generally from 3.5% to 6.0% of net revenues of each facility.
Other than certain corporate and regional overhead costs, the services provided
at a facility are the facility owner's expense. The facility owner also is
obligated to pay for all required capital expenditures. Unison is not required
to advance funds to the owners of the facilities it manages.
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DESCRIPTION OF LEASE AGREEMENTS
Unison leases 46 long-term and specialty health care facilities and
assisted or independent living centers. Unison's leases typically are triple net
obligations, have initial terms of 5-10 years with renewal options for up to 15
to 20 years and are classified as operating leases within the meaning of
Statement of Financial Accounting Standards No. 13. Unison typically grants its
lessor a security interest in Unison's personal property at the leased facility.
The leases generally require Unison to maintain a minimum net worth, expend
specified sums per bed for capital expenditures, maintain certain current ratios
and coverage ratios and prohibit Unison from operating any additional facilities
within a certain radius of the leased facility. In addition, Unison is generally
required to maintain comprehensive insurance covering the facilities it leases
as well as personal and real property damage insurance and professional
malpractice insurance. Failure to pay rent within a specified time period
constitutes a default under each lease agreement, which default, if uncured,
permits the facility's lessor to terminate the lease. In all cases, Unison's
interest in the premises is subordinated to that of the lessor's mortgage
lenders.
Unison's two most significant lessors are Omega HealthCare Investors, Inc.
("Omega") and BritWill Investments-Texas, Ltd. ("BritWill Texas") which are
discussed below.
Omega Lease Agreements. Unison has entered into a series of leases with
Omega for 14 facilities, nine in Indiana and five in Texas (the "Omega Leases").
Each of Unison's Omega Leases currently provides for an initial term that
expires in 2005 and allows Unison up to three five-year renewal options. The
Omega Leases require Unison to pay stated rent, subject to annual increases
based upon inflation or the increase in net revenues of the leased facilities
(whichever results in the greater increase in rent), up to a maximum increase
equal to 5.0% of the prior year's rent. If Unison exercises its renewal options,
rent for the period covered by the option is at fair market value as determined
by independent third-party appraisers, and is thereafter subject to increases on
the same basis as the initial term rent. The Omega Leases also grant Unison the
right, but not the obligation, to purchase the Omega facilities upon the
expiration of the initial term. The purchase price is based on facility cost at
the beginning of the lease term and an annual rate of increase of 2.0% per year
from the beginning date until the renewal date. Based on currently available
information, Unison expects to renew the Omega Leases upon the expiration of the
initial term.
BritWill Texas Lease Agreements. Unison entered into a Combined Operating
Lease and Sublease Contract and Agreement (the "Combined Agreement") for the
lease or sublease by BritWill Texas to BritWill Investments-II, Inc., a Delaware
corporation ("BritWill II"), of six facilities in Texas. The Combined Agreement
provides for an initial term that expires on December 31, 2003. The Combined
Agreement and related documents require Unison to pay monthly amounts equal to:
(i) the amount of the monthly payments made by BritWill Texas to Omega pursuant
to the Loan Agreement between those parties dated November 30, 1993, which
provided the financing for BritWill Texas' acquisition of the subject
facilities; (ii) all payments due from lessees under the leases for the subject
facilities that are sub-leased; and (iii) payment of certain third-party seller
subordinated notes incurred in connection with the acquisition of the subject
facilities.
COMPETITION
Unison long-term and specialty health care facilities compete with general
acute care hospitals, skilled nursing facilities, rehabilitation hospitals,
long-term care hospitals, assisted living facilities, home care providers and
other subacute and specialty care providers. Many of these companies have
greater financial and other resources than Unison. No assurance can be given
that Unison will have the resources to compete successfully with such companies.
In addition, cost containment efforts, which encourage more efficient
utilization of general acute care hospital services, have resulted in decreased
hospital occupancy in recent years. As a result, a significant number of general
acute care hospitals have converted portions of their facilities to other
purposes, including various types of long term and subacute care. Unison
believes that the primary factors in competing for subacute patients and
programs are the scope and quality of services offered, and the price of such
services.
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Unison's pharmacy, rehabilitation therapy and product supply businesses
compete with national, regional and local pharmacies, therapy providers and
product supply companies, some of which have significantly greater financial and
other resources than Unison. Similarly, Ampro and Memphis compete with other
medical reference laboratory companies in their respective geographic areas. No
assurance can be given that Unison will have the resources to compete
successfully with such companies. Unison believes that the primary factors in
competing for product supply business are the price and quality of the products
offered, that the primary factor in competing for pharmacy business is prompt
service, that the primary factors in competing for rehabilitation therapy
business are quality of service and availability of competent therapists, and
that the primary factor in competing for medical reference laboratory services
is prompt service.
REVENUE SOURCES
Medicare, Medicaid, and other payor sources each pay at different rates,
which are customarily expressed as rates per patient day. As the following table
sets forth for the periods presented the pro forma mix of net patient revenues
by payor sources.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
--------------- -------------------------
1996 1995 1995 1994 1993
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Sources of Net Patient Revenues
Medicaid................................. 51.8% 57.2% 55.9% 58.5% 82.8%
Medicare................................. 32.4 23.2 26.9% 9.1% 3.4%
Private and other........................ 15.8 19.6 17.2% 32.4% 13.8%
----- ----- ----- ----- -----
Total................................. 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
The following table sets forth the pro forma patient mix, adjusted to
reflect the BritWill Acquisition as if such transaction had occurred at the
beginning of the period presented.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
--------------- ---------------
1996 1995 1995 1994
----- ----- ----- -----
<S> <C> <C> <C> <C>
Sources of Net Patient Revenues
Medicaid.......................................... 51.8% 54.7% 55.4% 60.2%
Medicare.......................................... 32.4 27.1 27.2% 16.2%
Private and other................................. 15.8 18.2 17.4% 23.6%
----- ----- ----- -----
Total.......................................... 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
</TABLE>
Changes in the mix of a facility's patient population among Medicaid,
Medicare, and private pay can significantly affect the profitability of the
facility's operations because of the widely varying rates of payment between
these various payors.
GOVERNMENT REGULATION
Introduction. The federal government and all states in which Unison
operates regulate various aspects of Unison's business. All of Unison's skilled
nursing facilities are certified or approved as providers under one or more of
the Medicaid or Medicare programs. To participate in the Medicare or Medicaid
program, each facility must comply with federal participation requirements and
meet additional state licensure requirements. All of these programs are
currently the subject of numerous legislative and regulatory proposals at both
federal and state levels, some of which could adversely affect Unison. Further,
some state Medicaid programs require certification of all beds in a facility,
which may limit the ability of a facility in such states to establish distinct
part Medicare units for subacute care. Long-term care facilities include both
skilled nursing facilities for Medicare and nursing facilities for Medicaid. The
Federal Social Security Act (the "Act") authorizes the Secretary of the
Department of Health and Human Services to execute agreements with state survey
agencies to determine whether skilled nursing facilities meet the federal
participation requirements for Medicare. State
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survey agencies perform the same survey tasks for nursing facilities
participating or seeking to participate in the Medicaid program. The results of
Medicare and Medicaid surveys are used by the Healthcare Financing
Administration ("HCFA") and Medicaid state agencies as the basis for decisions
to execute, deny or terminate provider agreements with facilities.
Enforcement Proceedings and Sanctions; Certification Requirements. Before
enactment of OBRA, the only adverse actions available to HCFA and the states
against facilities that were determined to be out of compliance with federal
participation requirements were termination, nonrenewal or automatic
cancellation of provider agreements; denial of participation for prospective
facilities; and denial of payment for new admissions in lieu of termination when
the facilities had deficiencies that did not pose an immediate and serious
threat to the health and safety of residents. OBRA amended the Act to revise
requirements for the survey and certification and enforcement process for
Medicare and Medicaid. OBRA revised and expanded Medicare and Medicaid
provisions dealing with state and federal responsibilities for survey and
certification, types and requirements for surveys, survey team composition and
responsibilities, requirements for validation surveys, procedures for
investigating complaints and monitoring compliance, disclosure of results of
inspections and activities and provisions for penalties imposed on the states
for failure to comply with survey process requirements. OBRA also provided
changes in the enforcement process and remedies for noncompliance to be used in
lieu of or in addition to termination of facilities' participation in the
Medicare or Medicaid program.
Effective July 1, 1995, HCFA promulgated new survey, certification and
enforcement rules governing skilled nursing facilities and nursing facilities
participating in the Medicare and Medicaid programs. Among other things, the new
HCFA rules governing survey and certification of long-term care facilities
define or redefine a number of terms used in the survey and certification
process. The rules require states to amend their state plans (required by
federal law) to incorporate the provisions of the new rules, including the full
range of remedies for nursing facilities subject to the jurisdiction of the
state Medicaid agency. Additional remedies are available.
Unannounced standard surveys must be conducted at least every 15 months
with a state-wide average of 12 months. In addition to the standard survey,
survey agencies have the authority to conduct surveys as frequently as necessary
to determine whether facilities comply with requirements of participation, to
determine whether facilities have achieved correction and to monitor care if
there is a change of ownership or management of a facility. Furthermore, the
state survey agency must review all complaint allegations and conduct a standard
or an abbreviated standard survey to investigate complaints of violations or
requirements by long-term care facilities if a review of the complaint shows
that a deficiency in one or more of the federal requirements may have occurred
and only a survey will determine whether a deficiency or deficiencies exist. If
a facility has been found to furnish substandard quality of care, or have
deficiencies requiring "significant improvement," it is subject to an extended
survey. The extended survey is intended to identify policies and procedures
which may have caused a facility to furnish substandard quality of care.
HCFA's new rules substantially revise provisions regarding enforcement of
compliance for long-term care facilities with deficiencies. The rules allow
either HCFA or state agencies to impose one or more remedies provided under the
rules for any particular deficiency. Facilities must provide a plan of
correction for all deficiencies regardless of whether a remedy is imposed. At a
minimum, the following remedies are available: termination of provider
agreement; temporary management; denial of payment for new admissions; civil
money penalties; closure of the facility in emergencies or transfer of residents
or both; and state monitoring. States may also adopt optional remedies. The new
rules divide remedies into three categories. Category 1 remedies include
directed plans of correction, state monitoring and directed in-service training.
Category 2 remedies include denial of payment for new admissions; denial of
payment for all individuals (imposed only by HCFA); and civil money penalties of
$50 to $3,000 per day. Category 3 remedies include temporary management,
immediate termination or civil money penalties of $3,050 to $10,000 per day. The
rules define situations in which one or more of the penalties must be imposed.
The new HCFA certification, survey and enforcement regulations impose
significant new burdens on long-term care facilities. The regulations may
require state survey agencies to take aggressive enforcement
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actions. The breadth of the new rules and their recent effective date create
uncertainty over how the rules will be implemented and the ability of any
long-term care facility to comply with them.
Unison believes that its facilities substantially comply with the various
state licensure and Federal certification requirements applicable to them.
However, in the ordinary course of its business, Unison sometimes receives
notices of alleged deficiencies for failure to comply with various regulatory
requirements. Unison immediately reviews such notices and takes appropriate
corrective action. Certain of Unison's facilities have received notices in the
past from state agencies which have resulted in fines and/or the agencies taking
steps to decertify the facilities from participation in Medicare and Medicaid
programs. In nearly all such cases, such deficiencies were remedied before any
facilities were decertified. In one instance, Unison paid or agreed to pay
certain monetary penalties totaling $134,225 (following reductions due to waiver
of appeal rights) for violations of Medicare regulations and approximately
$16,000 for violations of state regulations and voluntarily terminated the
participation of that facility in the Medicare program and transferred residents
to other facilities. Hillside had a history of regulatory problems dating before
Unison acquired it in February 1995. In a series of visits to Hillside,
especially in the period from January through May 1996, government surveyors
cited the facility for numerous violations of Medicare and state regulations
relating to matters involving, among other things, patient care and physical
plant requirements. Although Unison disagreed with some of the findings and
believes it achieved significant improvements in the delivery of care during
May, on May 31, 1996 Unison requested that HCFA accept Hillside's voluntary
withdrawal from the Medicare and Medicaid programs because of the substantial
time and expense to be anticipated in the regulatory appeals process and the
poor prospects of a satisfactory outcome.
Certificates of Need. Many states (although not every state in which
Unison operates) have adopted certificate of need or similar health planning
laws which generally require prior state agency approval of certain
acquisitions, new bed additions or services or capital expenditures. To the
extent that such approvals are required for Unison to expand its operations, or
enter new geographic markets, Unison could be adversely affected by its
inability to obtain the necessary approvals and could incur delays and expenses
associated with obtaining such approvals.
Patient Referral Regulations. Unison is also subject to federal and state
laws that prohibit certain direct and indirect payments between health care
providers that are intended, among other things, to induce or encourage the
referral of patients to, or the recommendation of, a particular provider of
items or services. Violation of these laws may result in criminal fines,
imprisonment and exclusion from the Medicare and Medicaid programs. Federal
regulations establish certain safe harbors from liability under this statute.
While failure to satisfy all of the criteria for a safe harbor does not
necessarily mean that an arrangement is unlawful, arrangements that are of the
same generic kind as those for which a safe harbor is available may be subject
to scrutiny if they fail to quality for the appropriate safe harbor. In
addition, under separate statutes, submission of claims for payment that are
deemed to be false or fraudulent, or for items or services that are "not
provided as claimed," may lead to civil monetary penalties, criminal fines and
imprisonment, and/or exclusion from participation in Medicare, Medicaid and
other federally funded state health care programs.
Under Medicare conditions of participation and some state licensure laws,
Unison, because of its method of service delivery, is required to contract with
health care providers, practitioners and suppliers, including hospitals,
facilities, physicians, pharmacies and medical equipment companies. Some of
these individuals or entities may refer, or be in a position to refer, patients
to Unison, and Unison may refer, or be in a position to refer, patients to
certain of these individuals or entities. Because there is no procedure to
obtaining a binding determination or advisory opinion from any agency, Unison is
not able to determine its ultimate compliance with these laws. (HR 3101 for the
first time has established a procedure requiring the Secretary of the Department
of Health and Human Services to issue advisory opinions concerning some activity
punishable under federal health care fraud statutes. The section concerning
advisory opinions does not take effect until six months after the date of
enactment of HR 3101, and will sunset four years after the date of enactment.)
Although Unison believes its practices are not in violation of these laws, there
can be no assurance that such laws will ultimately be interpreted in a manner
consistent with Unison's practices.
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Additional legislation that became effective in stages on January 1, 1992
and January 1, 1995 prohibits physician referrals for certain "designated health
services" rendered to Medicare and Medicaid patients by a provider in which the
referring physician has an ownership interest or other financial relationship.
Various exceptions are available for financial arrangements that would otherwise
prohibit physician self-referrals. Many states have also enacted physician
self-referral laws that apply whether or not Medicare or Medicaid payments are
involved. Similar penalties, including fines and loss of licensure or
eligibility to participate in government reimbursement programs, apply to
violations of these state self-referral laws. These self-referral laws could
require Unison to modify its contractual arrangements in order to satisfy an
available exception, or limit the ability of physicians with whom Unison has
compensation arrangements to refer patients to Unison.
The nursing home industry has been a particular target of intense focus by
government regulators seeking to discover and prosecute claims of health care
fraud. For example, Medicare intermediaries and carriers have been given new
instructions from HCFA concerning investigating and referring for prosecution
suspected instances of Medicare and Medicaid fraud and abuse. In May, 1996, the
federal government announced the first year results of its "Operation Restore
Trust" initiative. This initiative is a combined federal and state effort
designed to combat health care fraud, waste and abuse and specifically targets
the Medicare and Medicaid programs in connection with services of home health
agencies, nursing homes and durable medical equipment suppliers. These entities
are targeted because they account for the fastest growing cost areas in the
Medicare and Medicaid programs. Operation Restore Trust is focused in five
states: California; Florida; Illinois; New York and Texas. In May, 1996, the
Office of Inspector General issued a "special fraud alert" concerning suspected
nursing facility fraud and abuse. This special fraud alert focused on problems
with claims for services not rendered or not provided as claimed and claims
falsified to circumvent coverage limitations on medical supplies. The Company
expect efforts of this sort to continue.
Payment For Services. Unison derives a significant portion of its net
revenues, directly or indirectly, from the Medicare and Medicaid programs. These
programs are subject to statutory and regulatory changes, retroactive and
prospective rate adjustments, administrative rulings and funding restrictions,
all of which could limit or reduce reimbursement for Unison's services. Any
significant decrease in Medicare or Medicaid reimbursement amounts could have a
material adverse effect on Unison. Unison also obtains payment from private
insurers, including managed care organizations and private pay patients. The
facilities also have contracts with private payors, including health maintenance
organizations and other managed care organizations, to provide certain health
care services to cover patients for a set per diem payment for each patient.
There can be no assurance that the rates paid to Unison by these payors will
remain at comparable levels or be adequate to reimburse Unison for the cost of
providing services to covered beneficiaries. In addition, cost increases due to
inflation without corresponding increases in reimbursement could adversely
affect Unison's business.
The Medicare Program. The Medicare Program is a federally funded and
administered health insurance program for individuals age 65 and over or who are
disabled as defined by the Social Security Administration.
Rehabilitation Therapy Services. Medicare covers and pays for
rehabilitation therapy services furnished in facilities in various ways.
Medicare reimburses the skilled nursing facility based on a reasonable cost
standard. For rehabilitation services provided directly, specific guidelines
exist for evaluating the reasonable cost of physical therapy, occupational
therapy and speech language pathology services. Medicare applies salary
equivalency guidelines in determining the reasonable cost of physical therapy
and respiratory services, which is the cost that would be incurred if the
therapist were employed by a nursing facility, plus an amount designed to
compensate the provider for certain general and administrative overhead costs.
Medicare pays for occupational therapy and speech language pathology services on
a reasonable cost basis, subject to the so-called "prudent buyer" rule for
evaluating the reasonableness of the costs. Unison's gross margins for its
physical therapy services under the salary equivalency guidelines are
significantly less than for its services under the "prudent buyer" rule.
HCFA has announced its intention to propose rules in 1996 applying salary
equivalency guidelines to occupational therapy and speech language pathology
services, while updating physical and respiratory therapy guidelines. In
addition, on April 14, 1995, HCFA issued a memorandum to Regional Office
Administrators in
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<PAGE> 218
response to requests by intermediaries for information as to reasonable costs
for occupational therapy and speech language pathology services. The cost data
in the memorandum set forth rates for occupational therapy and speech language
pathology services that are lower than the Medicare reimbursement rates
currently received by Unison for occupational therapy and speech language
pathology services. Although the memorandum states that the cost data is to be
informative and not serve as a limit on reimbursement rates for occupational
therapy and speech language pathology services, intermediaries and customers of
Unison may apply the cost data guidelines as absolute limits on payments. The
cost data figures contained in the memorandum have been subject to criticism by
the industry, and Unison is unable to determine what effect, if any, such
criticism will have on future actions or policy decisions taken by HCFA in
connection with Medicare reimbursement rates for occupational therapy and speech
language pathology services. Unison cannot predict when, or if, any changes will
be made to the current Medicare reimbursement methodologies for rehabilitation
therapy services, or to the extent to which the data in the HCFA memorandum will
be used by intermediaries in providing reimbursement. The imposition of salary
equivalency guidelines on speech language pathology and occupational therapy
services, or the widespread use by intermediaries of the data in the memorandum,
could significantly impact Unison's margin expectations.
Skilled Nursing Facility Services. The Medicare program covers patients
requiring daily skilled nursing and other rehabilitation care following a
minimum three-day stay in a general acute care hospital, but does not cover
patients requiring only intermediate or custodial levels of care. With certain
exceptions, payment for skilled nursing facility services is made prospectively
with each facility receiving an interim payment during the year for its expected
reimbursable costs. The interim payment is later adjusted to reflect actual
allowable direct and indirect costs of services based on the submission of an
annual cost report at year end. Each facility is also subject to limits on
reimbursement for routine costs. Under the Omnibus Budget Reconciliation Act of
1993, these cost limits are currently frozen at 1993 levels. Exceptions to these
limits are available for, among other things, the provision of atypical
services. In July 1994, HCFA issued new guidelines for requesting exceptions to
the cost limits for all requests submitted after July 20, 1994. Due in part to
the provision of subacute services, Unison's costs for care delivered to
Medicare patients in certain of its long-term and specialty healthcare
facilities have exceeded the routine cost limits. Unison's failure to recover
excess costs or to obtain such exceptions could adversely affect Unison's
results of operations and growth strategy.
Pharmacy. Pharmacists and those providing pharmacy services in the United
States are regulated by state statutes and the rules and regulations of state
boards of pharmacy. Currently, Unison operates pharmacies only in Texas and
Indiana. As required by Texas and Indiana law, Unison and its pharmacists are
licensed as a retail pharmacy and as pharmacists, respectively.
In addition, both state and federal regulators prohibit the dispensing of
certain drugs or medicines other than pursuant to a prescription written by a
licensed physician. In order to implement these restrictions, regulations impose
strict recordkeeping requirements with respect to the handling and dispensing of
controlled substances, small quantities of which are maintained in Unison's
pharmacy for use in filling prescriptions. These requirements also impose
significant recordkeeping obligations upon Unison and its pharmacists. Unison is
subject to regular audits by governmental authorities to monitor compliance with
recordkeeping and other requirements imposed by law and regulation. Penalties
for failure to comply with applicable regulations can range from imposition of
fines to the suspension or revocation of the license of the pharmacy, one or
more pharmacists, or both.
Unison currently provides pharmacy services to 17 Company-affiliated, and
26 non-affiliated skilled nursing facilities in East Texas, and six
Unison-affiliated and six non-affiliated skilled nursing facilities in Indiana,
and two other Unison-affiliated skilled nursing facilities in Arizona and Idaho,
and expects to serve all of Unison's affiliated skilled nursing facilities in
Indiana by the end of 1996.
The Medicaid Program. All of Unison's skilled nursing facilities are
certified to participate in applicable state Medicaid programs. Medicaid is a
joint Federal-state medical assistance program for individuals who meet certain
income and resource standards. Facilities participating in the Medicaid program
are required to meet state licensing requirements to be certified in accordance
with state and federal regulations and to enter into contracts with the state
agency to provide services at the rates established by the state. Current
Federal
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<PAGE> 219
law requires Medicaid programs to pay rates that are reasonable and adequate to
meet the costs which must be incurred by a nursing facility in order to provide
care and services in compliance with applicable standards, although there can be
no assurance that the provision will survive the current legislative efforts to
revise Medicaid. Beyond this general mandate, however, states have considerable
flexibility in establishing their Medicaid reimbursement systems, and as a
result, the payment methodologies and rates vary significantly from state to
state. All of the states in which Unison operates Medicaid-certified facilities
use a cost-based reimbursement system under which reimbursement rates are
determined by the state from cost reports filed annually by each facility, on a
prospective or retrospective basis. Recently, several states, including Texas,
have adopted case-mix prospective payment systems, pursuant to which payment
levels increase based on a patient's acuity level and need for services.
Reimbursable costs normally include the costs of providing health care services
to patients, administrative and general costs, and the costs of property and
equipment. Not all costs incurred are reimbursed, however, because of cost
ceilings applicable to both operating and fixed costs. Some state Medicaid
programs include an incentive allowance for providers whose costs are less than
the ceilings and who meet other requirements. In addition, certain Medicaid
payments are subject to relatively long collection cycles and payment delays due
to budget shortfalls in state Medicaid programs.
Medicaid reimbursement regulations for Indiana nursing facilities have been
revised three times since August 1, 1994. The first set of revised regulations
(known as "Rule 14") replaced the Rule 4.1 prospective payment system which had
existed since 1983. Under Rule 4.1, actual rate increases after the base period
were generally limited to approximately 3.0% and facility operators were
permitted to bill separately for certain ancillary therapy services and
non-routine medical supplies.
With the adoption of Rule 14, the Indiana reimbursement system changed from
a true prospective payment system to a modified cost-based system. Base rates
are now determined by actual costs in the base period subject to various line
item limits. Rates for subsequent years are set at the lower of costs from the
prior year or rates from the prior year inflated by the HCFA Skilled Nursing
Facility Market Basket Index, subject to maximum allowable limits and various
line item limits. This system has, over the last decade, resulted in an increase
in annual reimbursement rates of approximately 6%. Rule 14 also precludes
facility operators from billing separately for certain ancillary therapy
services and non-routine medical supplies. The overall impact of Rule 14 reduced
total Medicaid nursing facility payments by $10 million statewide out of total
prior year expenses of $720 million. The elimination of separate billing for
supplies and therapies had a significant effect on certain facility operators
who had relied heavily on this mechanism to underwrite operating losses from per
diem rates. Rule 14.1, Rule 14.2 and legislation effective July 1, 1995 have
made minor amendments which have generally increased certain line item limits.
Commencing in late 1996, a DRG-like case mix reimbursement system will be
implemented in Indiana.
Health Care Reform. On August 21, 1996, President Clinton signed the
Health Insurance Portability and Accountability Act ("HR 3103"). HR 3103
contains a variety of significant health care fraud and abuse provisions. HR
3103 contains a variety of significant health care fraud and abuse provisions.
Among them are: creation of a coordinated federal health care fraud and abuse
program; establishment of a Medicare integrity program under which the
government will enter into contracts to, among other things, review activities
undertaken by providers of services, audit cost reports, make determinations
whether payment under Medicare should be made for services rendered and develop
lists of items of durable medical equipment which are subject to prior
authorization requirements; expansion of current health care fraud and abuse
sanctions to "federal health care programs" defined as "any plan or program that
provides health benefits, whether directly, through insurance, or otherwise,
which is funded directly, in whole or in part, by the United States Government"
as well as any state health care program as defined in the Social Security Act;
creation of a health care fraud criminal sanction; expansion of sanctions
applicable to health care fraud; creation of a criminal penalty for fraudulent
disposition of assets in order to obtain Medicaid benefits; and expansion of the
authority to impose, and increasing the amount of, civil monetary penalties.
The Clinton administration and various members of Congress have proposed a
number of legislative proposals to reform the health care system. Congress is
also considering proposals to significantly reduce Medicare and Medicaid
spending, either as a part of efforts to reduce the budget or as a separate
initiative. In addition, some of the states in which Unison operates are
considering or implementing various healthcare
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<PAGE> 220
reform proposals. These proposals could limit the types of services or number of
providers available to Medicaid beneficiaries. Unison anticipates that Congress
and state legislatures will continue to review and assess health care reform and
budget reduction. Talks in Congress have reached a stalemate with regard to the
type and extent of legislative reform of Medicare and Medicaid programs. Due to
uncertainties regarding the ultimate features of reform or budget initiatives
and their enactment and implementation, Unison cannot predict which, if any,
reform proposals will be adopted, when they may be adopted or what impact they
may have on Unison. No assurance can be given that such measures will not have a
material adverse effect on Unison.
INSURANCE
Unison carries general liability, comprehensive property damage,
malpractice, workers' compensation and other insurance coverages that management
considers adequate for the protection of its assets and operations. There can be
no assurance, however, that the coverage limits of such policies will be
adequate or that insurance will continue to be available to Unison on
commercially reasonable terms in the future. A successful claim against Unison
in excess of its insurance coverage could have a material adverse effect on
Unison and its financial condition and results of operations. Claims against
Unison, regardless of their merit or outcome, may also have an adverse effect on
Unison's reputation and business.
EMPLOYEES
As of August 31, 1996, the Company employed approximately 3,000 full time
equivalent employees. Unison has collective bargaining agreements covering
approximately 303 of its full time equivalent employees but has never
experienced a work stoppage and believes that its overall relations with its
employees are good.
The principal executive offices of Unison are located at 7272 East Indian
School Road, Suite 214, Scottsdale, Arizona 85251, and its telephone number is
(602) 423-1954.
LABCO AND MEMCO; CERTAIN OTHER SUBSIDIARIES
Labco Acquisition Co. ("Labco") and Memphis Acquisition Co. ("Memco"),
recently formed Delaware corporations, are wholly-owned subsidiaries of Unison.
Labco and Memco were organized solely to effect the proposed Mergers with Ampro
and Memphis and neither has had any operations. The principal offices of Labco
and Memco are located at 7272 East Indian School Road, Suite 214, Scottsdale,
Arizona 85251, and their telephone number is (602) 423-1954. Unison will form
five additional subsidiaries, one under the DGCL and four under the CBCA, to
effect the Signature Mergers.
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<PAGE> 221
PROPERTIES
The following table summarizes certain information regarding the long-term
care facilities and assisted and independent living centers operated by Unison
as of August 31, 1996. Except as indicated, all of the facilities are leased.
<TABLE>
<CAPTION>
NUMBER OF MEDICARE
LICENSED OCCUPANCY CERTIFIED
FACILITY NAME LOCATION BEDS RATE BEDS
- ---------------------------------------------- ---------------------------- --------- --------- --------
<S> <C> <C> <C> <C>
HERITAGE REGION
Marshall Manor Nursing Home................. Guntersville, Alabama 91 99.0% 20
Terrace Lake Villa I(2)..................... Guntersville, Alabama 26 80.3 --
Terrace Lake Villa II(2).................... Guntersville, Alabama 16 80.1 --
Edgewater(2)................................ Guntersville, Alabama 40 80.4 --
Ridgewood Health Care Center................ Jasper, Alabama 98 98.6 20
Bayshore Convalescent Center(1)............. N. Miami Beach, Florida 150 64.4 31
Lake City Extended Care Center(1)(4)........ Lake City, Florida 60 32
Homestead of McKinney....................... McKinney, Texas 138 97.7 12
Oakwood Healthcare Center................... Arlington, Texas 120 75.3 20
Twin Pines of Lewisville.................... Lewisville, Texas 120 74.0 14
Peachtree Center Nursing and Rehabilitation
Facility(1)............................... Smyrna, Tennessee 89 94.1 16
HEARTLAND REGION
Boonville Convalescent Center............... Boonville, Indiana 107 97.7 17
Capital Care Healthcare Center.............. Indianapolis, Indiana 60 83.8 10
Cloverleaf of Knightsville.................. Knightsville, Indiana 86 97.1 10
English Estates HealthCare.................. Lebanon, Indiana 130 66.1 20
English Senior Living(2)(5)................. Lebanon, Indiana 22 -- --
Holiday Manor............................... Princeton, Indiana 91 81.7 12
Kendallville Manor HealthCare Center........ Kendallville, Indiana 60 84.7 12
Lockerbie Healthcare Center................. Indianapolis, Indiana 79 77.1 --
Nightingale................................. Westland, Michigan 236 90.1 --
Owensville Convalescent Center.............. Owensville, Indiana 68 98.1 12
Parkview Manor.............................. Indianapolis, Indiana 39 60.2 39
Sunset Manor................................ Greencastle, Indiana 79 91.7 6
Wellington Manor(3)......................... Indianapolis, Indiana 132 76.7 --
Willow Manor Convalescent Center............ Vincennes, Indiana 142 74.5 27
Windsor Manor Nursing and Rehabilitation
Center(1)(4).............................. Indianapolis, Indiana 162 38
Bonner Health Center........................ Bonner Springs, Kansas 50 99.0 --
Oswego Manor................................ Oswego, Kansas 56 66.6 13
Marshall Manor(1)........................... Marshall, Michigan 71 96.0 15
Henry Clay Villa Nursing Facility........... Markleysburg, Pennsylvania 74 93.2 10
Henry Clay Villa Assisted Living
Facility(2)............................... Markleysburg, Pennsylvania 32 40.6 --
MOUNTAIN REGION
SunCrest HealthCare Center.................. Phoenix, Arizona 115 91.6 16
The Oaks at Boise........................... Boise, Idaho 88 70.1 24
Mountainside Care Center.................... Sandpoint, Idaho 95 92.2 19
White Pine Care Center...................... Ely, Nevada 99 78.6 9
Franciscan Health Care Center of Enumclaw... Enumclaw, Washington 148 70.5 28
Franciscan Health Care Center of
Walla Walla............................... Walla Walla, Washington 74 60.6 12
Valley Vista(2)............................. Sandpoint, Idaho 60 81.7 --
</TABLE>
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<PAGE> 222
<TABLE>
<CAPTION>
NUMBER OF MEDICARE
LICENSED OCCUPANCY CERTIFIED
FACILITY NAME LOCATION BEDS RATE BEDS
- ---------------------------------------------- ---------------------------- --------- --------- --------
<S> <C> <C> <C> <C>
PRAIRIE REGION
Colonial Pines Healthcare Center............ San Augustine, Texas 107 79.6 16
Elkhart Manor............................... Elkhart, Texas 102 75.1 10
Four States Care Center..................... Texarkana, Texas 180 52.4 30
Green Acres Nursing Home.................... Emory, Texas 68 79.9 16
Hemphill Care Center........................ Hemphill, Texas 90 92.5 10
Heritage Plaza Nursing Home................. Texarkana, Texas 90 80.5 22
Pine Grove Nursing Center................... Center, Texas 120 93.7 26
Pine Haven Care Center...................... Texarkana, Texas 120 73.4 14
Pleasant Manor Living Center................ Waxahachie, Texas 120 89.0 24
Reunion Plaza Senior Care and Retirement
Center.................................... Texarkana, Texas 102 75.2 26
South Place Nursing Center.................. Athens, Texas 120 88.2 32
Texarkana Nursing Center.................... Texarkana, Texas 120 69.1 28
West Place Nursing Center................... Athens, Texas 120 71.5 16
----- ---
Total beds(5)........................ 4,666 784
===== ===
</TABLE>
- ---------------
(1) Facilities are managed, not leased.
(2) Facilities are independent living and assisted living operations which are
not eligible for Medicare certification.
(3) An application for Medicare certification is pending.
(4) Unison provides reduced-scope management services to these facilities and
receives management fees which average 3.0% of revenues.
(5) Does not include assisted living beds. Totals do not represent all
facilities leased or managed and all licensed or certified beds because the
Heritage Oaks and Hillside Care facilities are not currently in operation.
The following table describes certain additional facilities, as of August
1, 1996, that are operated by Signature and related entities and which are
proposed to be acquired by Unison in the Signature Mergers.
<TABLE>
<CAPTION>
MEDICARE
NUMBER OF OCCUPANCY CERTIFIED
FACILITY NAME LOCATION BEDS RATE BEDS
- ---------------------------------------------- ---------------------------- --------- --------- --------
<S> <C> <C> <C> <C>
Amberwood Court(1)............................ Denver, Colorado 81 88 21
Brookshire House(1)........................... Denver, Colorado 70 90 10
Christopher House(1).......................... Wheat Ridge, Colorado 75 89 12
Arkansas Manor(2)............................. Denver, Colorado 116 91 24
Cornerstone Care Center(2).................... Lakewood, Colorado 140 97 12
The Arbors(2)................................. Camp Verde, Arizona 116 84 20
Los Arcos(1).................................. Flagstaff, Arizona 80 98 20
Rio Verde(1).................................. Cottonwood, Arizona 80 95 16
Pueblo Norte(1)............................... Show Low, Arizona 100 84 10
Douglas Manor(2).............................. Douglas, Arizona 64 84 8
Village Catered Care(2)(3).................... Douglas, Arizona 64 41 --
Safford Care Center(2)........................ Safford, Arizona 128 93 24
Peppertree Catered Care(2)(3)................. Safford, Arizona 64 96 --
----- ---
1,178 177
===== ===
</TABLE>
- ---------------
(1) The facility real estate is owned.
(2) The facility real estate is leased.
(3) Assisted living facility.
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<PAGE> 223
Unison leases approximately 11,000 square feet of office space in
Scottsdale, Arizona that houses the executive offices of Unison. The lease
expires in the year 2000. Unison maintains regional offices in Texarkana, Texas,
Birmingham, Alabama and Indianapolis, Indiana, and may open new regional offices
as growth requires. These regional offices are either in small office suites or
in homes of the regional executives. Quest leases approximately 3,600 square
feet of commercial office space in Longview, Texas for its pharmacy operations.
In addition, Quest leases approximately 2,000 feet of office space in
Bloomington, Indiana for its Indiana pharmacy. Sunbelt Therapy Management
Services, Inc., through the four therapy companies, leases an aggregate of
approximately 38,000 square feet of space for outpatient clinics and fitness
centers in Mississippi and Alabama. Lease terms on most of the office and
pharmacy space range from one to five years. Management believes that Unison's
leased properties are adequate for its present needs and that suitable
additional or replacement space will be available as required.
LEGAL PROCEEDINGS
Unison is, and may in the future be, party to litigation arising in the
ordinary course of its business. There can be no assurance that Unison's
insurance coverage will be adequate to cover all liabilities occurring out of
such claims or that any such claims that are not covered by insurance will not
have an adverse effect on Unison's business. Unison has no reason to believe
that any pending claims are material, whether or not covered by insurance.
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<PAGE> 224
UNISON MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Jerry M. Walker, 51, has served as President and Chief Executive Officer of
Unison since it commenced operations in July 1992, when he founded Unison with
Mr. Rollins and Mr. Contris. From June 1989 until joining Unison, he was the
Chief Executive Officer of Samaritan Senior Services, Inc., a regional operator
of subacute and long-term care facilities based in Phoenix, Arizona. Mr. Walker
is a member of the American College of Health Care Administrators and is a
Certified Public Accountant.
Phillip R. Rollins, 39, has served as the Executive Vice President and
Chief Operating Officer of Unison since it commenced operations in July 1992.
From June 1989 until joining Unison, he worked with Mr. Walker and Mr. Contris
as the Director of Operations of Samaritan Senior Services, Inc. Prior to
joining Samaritan Senior Services, Mr. Rollins was the Director of Medicare and
Ancillary Services for Life Care Centers of America, a private operator of
long-term care facilities headquartered in Cleveland, Tennessee. Mr. Rollins is
a member of the American College of Health Care Administrators.
Paul J. Contris, 37, served as Executive Vice President and Chief Financial
Officer of Unison from July 1992 through August 15, 1995. On August 15, 1995, he
became Executive Vice President and Chief Accounting Officer of Unison, and in
September 1996 he became Executive Vice President Acquisitions and Development
of Unison. Prior to founding Unison with Mr. Walker and Mr. Rollins, he was the
Vice President -- Finance of Samaritan Senior Services. Mr. Contris began his
employment with the predecessor of Samaritan Senior Services in October 1984.
Prior to joining Samaritan Senior Services, he was employed in the acquisitions
department of The Hillhaven Corporation. Mr. Contris is a Certified Public
Accountant.
Craig R. Clark, 47, has served as the Executive Vice President and Chief
Financial Officer of Unison since it acquired BritWill in August 1995, having
served BritWill as Executive Vice President and Chief Financial Officer since
June 1994. In September 1996, Mr. Clark was also appointed to serve as Unison's
Chief Accounting Officer. From 1972 until September 1989, Mr. Clark was
associated with Arthur Young & Company, most recently as Partner. From September
1989 until September 1992, Mr. Clark was Vice President -- Finance and Chief
Accounting Officer of Republic Health Corporation, the predecessor of OrNda
HealthCorp, Inc. From September 1992 until joining BritWill in June 1994, he was
a privately employed consultant. Mr. Clark is a Certified Public Accountant.
Bruce H. Whitehead, 44, has served as the Chairman of the Board of Unison
since August 1995. He is also President and Chief Executive Officer of the
general partner of WFI. Prior to joining Unison, Mr. Whitehead was Chairman of
BritWill from its inception in 1993. From 1984 through 1992, Mr. Whitehead was
President of The BritWill Company, which also invested in and managed long-term
care facilities.
Tyrell L. Garth, 48, has served as a Director of Unison since August 1995.
Mr. Garth is a partner in the law firm of Moore, Landry, Garth, Jones,
Barmeister and Hulett, LLP, which served as general counsel to BritWill prior to
its acquisition by Unison in August 1995. Mr. Garth is also a director of
American Eco Corporation, Houston, Texas, a full service environmental and
mechanical contracting firm, whose common stock is listed on both the American
Stock Exchange and the Toronto Stock Exchange.
John T. Casey, 50, has served as a Director of Unison since August 1995.
From October 1991 through August 1995, Mr. Casey was the Chief Operating Officer
of American Medical International, a publicly traded hospital management
company. Prior to October 1991, Mr. Casey was President of Samaritan Health
Services, a hospital and long-term care provider.
John T. Lynch, 48, has been a director of Unison since June 1992. Mr. Lynch
was also a director of BritWill since 1992. In January 1990, he co-founded
Trouver Capital Partners, L.P., a private investment banking firm and serves as
one of its general partners. Mr. Lynch was Managing Director and a member of the
Health Care Finance Group of Furman Selz Incorporated, and was Managing Director
and head of Health Care Finance Groups at Thomson McKinnon Securities, Inc. and
Dean Witter Reynolds, Inc. for the period 1980 through 1990.
Mark W. White, 56, has served as a Director of Unison since August 1995.
Mr. White has been an attorney in private practice since 1987. From 1983 to
1987, Mr. White served as Governor of the State of Texas. Mr. White is also a
director of American Eco Corporation.
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<PAGE> 225
L. Robert Oberfield, 58, has been President of Quest Pharmacies, Inc., a
majority owned subsidiary of Unison, since it was organized in March 1995. From
December 1992 to March 1995, he was employed by Sunscript Pharmacy Corp., a
subsidiary of Sun Healthcare Company, most recently as President. From September
1990 to December 1992 he was employed by RDS Acquisition Corp. ("RDS"). RDS
commenced bankruptcy proceedings in December 1991. At the time the proceedings
commenced, Mr. Oberfield was the Senior Vice President of RDS, and he served as
its President thereafter until December 1992.
Paul G. Henderson, 41, has served as President of Sunbelt Therapy
Management Services, Inc. since the acquisition of Sunbelt by Unison in March
1996. For the past six years, Mr. Henderson has been active in the founding and
management of physical therapy service providers (Sunbelt) and in providing
patient care.
Terry Troxell-Gurka, 45, has served as Director of Professional Services of
Unison since it commenced operations in July 1992. On November 15, 1994, she
became Vice President of Clinical Operations of Unison. From July 1991 until
July 1992, Ms. Troxell-Gurka served as Director of Professional Services of
Samaritan Senior Services, Inc. Prior to joining Samaritan Senior Services, she
was employed by the Arizona Department of Health from 1985 until 1991, where she
served as Program Manager of health Care Facility Licensure and Enforcement,
overseeing the licensing, certification and enforcement of all licensed health
care facilities in Arizona. Ms. Troxell-Gurka is a licensed registered nurse and
a Certified Gerontologist Clinical Specialist. She sits on the American Health
Care Association's national facility standards committee and Long-Term Care
Nurse Council. She is a member of the American Gerontological Nurses Association
and the Association for Professionals in Infection Control and Epidemiology.
David A. Kremser, 48, founded Signature Health Care Corporation in July
1987 and has served as its Chairman, President, Chief Executive Officer and a
Director since then. Mr. Kremser also serves as the Chief Executive Officer for
each of Arkansas, Cornerstone, Douglas and Safford. From January 1985 through
1987, Mr. Kremser was a Director and Executive Vice President of Columbia
Corporation, a long-term care company, and the President of Columbia West
Corporation, a subsidiary of Columbia Corporation. Prior to joining Columbia
Corporation, he was affiliated with ARA Services, Inc., most recently with
responsibility for the ARA's operations in California, Colorado, Wyoming and
Texas.
EXECUTIVE COMPENSATION
The following table sets forth, with respect to the years ended December
31, 1995 and 1994, compensation awarded to, earned by or paid to (i) Unison's
Chief Executive Officer and (ii) the four other executive officers who were
serving as executive officers at December 31, 1995 and whose total salary and
bonus exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL ------------
COMPENSATION SECURITIES
--------------------- UNDERLYING
SALARY BONUS OPTIONS/SARS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($) ($) (#) COMPENSATION
- ---------------------------------------------------- ---- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Jerry M. Walker,.................................... 1995 $250,000 $ 37,500 33,924
President, Chief Executive Officer 1994 161,952
Phillip R. Rollins,................................. 1995 200,000 30,000 33,924
Executive Vice President Operations, 1994 138,515
Chief Operating Officer
Craig R. Clark,..................................... 1995 200,000 30,000 33,924 $ 88,250(2)
Executive Vice President, Chief 1994 14,231 20,000
Financial Officer
Paul J. Contris,.................................... 1995 200,000 30,000 33,924
Executive Vice President Acquisition and 1994 138,515
Development(3)
Terry Troxell-Gurka,................................ 1995 97,575 2,710 6,185
Vice President Clinical Operations 1994 75,465
David A. Kremser,................................... 1995 390,000 825,000
Director(4)
</TABLE>
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<PAGE> 226
- ---------------
(1) Certain columns have been omitted where there has been no compensation paid
or awarded to or earned by any of the named executives required to be
reported in such columns.
(2) Includes consulting fees of $87,750 paid by BritWill before Mr. Clark became
an employee of BritWill and $500 of fees as a director of BritWill. See
"-- Employment Contracts, Termination of Employment, and Change-in-Control
Arrangements."
(3) Mr. Contris served as Unison's Executive Vice President Finance and Chief
Accounting Officer from August 15, 1995 until September 1996.
(4) Mr. Kremser will become a Director of Unison after the Closing of the
Signature Mergers. Amounts shown were paid by Signature Health Care.
OPTION/SAR GRANTS IN LAST FISCAL YEAR (1)
The following table sets forth information about stock option grants during
the last fiscal year to the executive officers named in the Summary Compensation
Table.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL
- ------------------------------------------------------------------------------------ REALIZABLE VALUE
PERCENT OF AT ASSUMED ANNUAL
TOTAL RATES
OPTIONS/ OF STOCK PRICE
NUMBER OF SARS APPRECIATION FOR
SECURITIES GRANTED TO EXERCISE OPTION
UNDERLYING EMPLOYEES OR BASE TERM(4)
OPTION/SARS IN FISCAL PRICE EXPIRATION -------------------
NAME GRANTED (#) YEAR(2) ($/SH)(3) DATE 5% ($) 10% ($)
- --------------------------------- ------------ ---------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Jerry M. Walker.................. 33,924 12.54% $10.00 8/10/2005 $247,270 $574,585
Phillip R. Rollins............... 33,924 12.54 $10.00 8/10/2005 247,270 574,585
Craig R. Clark................... 33,924 12.54 $10.00 8/10/2005 247,270 574,585
Paul J. Contris.................. 33,924 12.54 $10.00 8/10/2005 247,270 574,585
Terry Troxell-Gurka.............. 6,185 2.29 $10.00 8/10/2005 45,082 104,758
</TABLE>
- ---------------
(1) Consists entirely of stock options.
(2) Based on total grants during the fiscal year of 270,541.
(3) The options were granted with an exercise price of $10.00 per share and were
repriced in January 1996 to $9.00 per share. All other discretionary grants
at $10.00 per share were also repriced; formula grants to nonemployee
directors under the Automatic Option Grant Program were not repriced.
(4) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock appreciation of 5% or 10% compounded
annually from the date the respective options were granted to their
expiration date and are not presented to forecast possible future
appreciation, if any, in the price of the Common Stock. The potential
realizable value of the foregoing options is calculated by assuming that the
market price of the underlying security appreciates at the indicated rate
for the entire term of the option and that the option is exercised at the
repriced exercise price and sold on the last day of its term at the
appreciated price.
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AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUE
TABLE(1)
The following table sets forth information with respect to the executive
officers named in the Summary Compensation Table concerning the number and value
of options outstanding at the end of the last fiscal year. There were no option
exercises during the last fiscal year.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FISCAL YEAR-END (#) FISCAL YEAR-END ($)
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE(1)
- --------------------------------------------------------- ------------------- -------------------
<S> <C> <C>
Jerry M. Walker.......................................... 0/33,924 0/12,722
Phillip R. Rollins....................................... 0/33,924 0/12,722
Craig R. Clark........................................... 0/33,924 0/12,722
Paul J. Contris.......................................... 0/33,924 0/12,722
Terry Troxell-Gurka...................................... 0/6,185 0/2,319
</TABLE>
- ---------------
(1) Value as of December 31, 1995 is based upon closing bid price of $9.375 as
reported on the Nasdaq National Market for December 29, 1995, minus the
exercise price after repricing, multiplied by the number of shares
underlying the option.
COMPENSATION OF DIRECTORS
The nonemployee directors of Unison receive an annual retainer of $10,000,
$1,000 for each Board and Committee meeting attended, plus reimbursement of
expenses, and the right to participate in the Option Plan. Directors who are
also executive officers of Unison receive no additional compensation for serving
on the Board of Directors.
THE 1995 STOCK OPTION PLAN
Unison's 1995 Stock Option Plan (the "Option Plan") was adopted by the
Board of Directors effective July 10, 1995 and approved by the stockholders on
August 8, 1995. Up to 511,046 shares of Unison Common Stock have been authorized
for issuance under the Option Plan. The Board of Directors approved on September
6, 1996, and directed to be submitted to stockholders for approval at the Unison
Special Meeting, an amendment to the Option Plan (the"Option Plan Amendment")
which would effect an increase in the number of shares of Unison Common Stock
authorized for issuance under the Option Plan from 511,046 to 800,000. See "The
Option Plan Amendment" in the Proxy Statement Supplement.
The Option Plan is divided into two separate components: (i) a
Discretionary Option Grant Program under which eligible individuals may, at the
discretion of the Plan Administrator, be granted options to purchase shares of
Common Stock at an exercise price determined by the Plan Administrator and (ii)
the Automatic Option Grant Program under which option grants will automatically
be made at periodic intervals to eligible non-employee Board members to purchase
shares of Unison Common Stock at an exercise price equal to 100% of their fair
market value on the grant date.
The Discretionary Option Grant Program is administered by the Compensation
Committee. The Compensation Committee as Plan Administrator has complete
discretion to determine which eligible individuals are to receive option grants,
the time or times when such option grants are to be made, the number of shares
subject to each such grant, the status of any granted option as either an
incentive stock option or a non-qualified stock option under the Federal tax
laws, the vesting schedule to be in effect for the option grant and the maximum
term for which any granted option is to remain outstanding.
Upon an acquisition of Unison by merger, consolidation or reorganization,
each outstanding option may be substituted with shares of the acquiring company
or such option may be canceled in consideration for a cash payment to the
optionee of an amount per option share equal to the excess of the highest fair
market
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<PAGE> 228
value of Unison Common Stock during the 60-day period preceding the acquisition
over the option exercise price. A similar cash payment will be made to each
optionee upon the dissolution or liquidation of Unison.
The Plan Administrator has the authority to effect the cancellation of
outstanding options under the Discretionary Option Grant Program in return for
the grant of new options for the same or different number of option shares with
an exercise price per share based upon the fair market value of Unison Common
Stock on the new grant date.
Under the Automatic Option Grant Program, prior to September 6, 1996, each
individual serving as a non-employee member of the Board of Directors of Unison
on the date of adoption of the Option Plan by the Board of Directors received an
option grant on such date for 9,246 shares of Unison Common Stock, except that
the Chairman of the Board of Directors received an option for 10,496 shares.
Similar additional grants were to be made at every fifth annual stockholder
meeting thereafter. Beginning with and after September 6, 1996, if the Option
Plan Amendment is approved, nonemployee directors are entitled to receive annual
option grants in respect of 15,000 shares (17,500 shares in the case of the
Chairman of the Board) at each annual meeting of stockholders.
Each automatic grant will be exercisable 50% one year after the grant and
100% two years after the grant and will have a term of 10 years, subject to
earlier termination following the optionee's removal from the Board of Directors
for cause.
The Board of Directors may amend or modify the Option Plan at any time. The
Option Plan will terminate on July 9, 2005, unless sooner terminated by the
Board of Directors.
Effective July 10, 1995, the Board of Directors granted options to purchase
306,126 shares of Unison Common Stock in the aggregate under the 1995 Plan to
certain employees of Unison, including each of the executive officers in the
following amounts: Jerry M. Walker, Philip R. Rollins, Craig R. Clark and Paul
J. Contris, 33,924 shares each, which vest over two-year period from the grant
date; and to L. Robert Oberfield and Terry Troxell-Gurka, 6,185 shares each,
which vest over a four-year period from the grant date. All of the options have
an exercise price (after repricing in January 1996) of $9.00 per share. Such
exercise price is equal to the fair market value of the Common Stock on the
grant date, as determined by the Board of Directors.
On September 1996 the Compensation Committee of the Board of Directors
confirmed a special, one-time grant (originally promised in July 1996 subject to
Compensation Committee Approval) of options for 60,000 shares to Craig R. Clark,
at an exercise price of $9.00 per share in conjunction with his assumption of
additional responsibilities as Unison's Chief Accounting Officer. On the same
date, but subject to approval of the Option Plan Amendment by Unison's
stockholders, the Compensation Committee recommended, and the full Board
approved, the issuance of options for an additional 416,850 shares to Unison
employees at an exercise price of $13.75 per share (its fair market value at
date of grant), including options for 40,000 shares each to Messrs. Rollins,
Costris and Clark, options for 10,000 shares to each, Mr. Oberfield and Mr.
Henderson and options for Ms. Troxell-Gurka for 7,500 shares all as reflected in
the following table:
1996 OPTION GRANTS
UNISON STOCK OPTION PLAN
<TABLE>
<CAPTION>
NUMBER OF
NAME AND POSITION OPTION SHARES
---------------------------------------------------------------------- -------------
<S> <C>
Jerry M. Waller, President, CEO....................................... 0
Phillip R. Rollins, Executive Vice President.......................... 40,000
Craig R. Clark, Executive Vice President.............................. 100,000
Paul J. Contris, Executive Vice President............................. 40,000
Terry Troxell-Gurka, Vice President................................... 7,500
Executive Group (7 persons)........................................... 197,500
Non-Executive Director Group.......................................... 92,500
Non-Executive Officer Employee Group.................................. 186,850
</TABLE>
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EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT, AND CHANGE-IN-CONTROL
ARRANGEMENTS
Unison has entered into employment agreements with each of Messrs. Walker,
Rollins and Contris, each of which expires in August 1998, subject to automatic
renewal for successive one-year periods unless either Unison or the employee has
given notice of non-renewal 30 days prior to expiration. The employment
agreements provide for an annual base salary of $275,000 for Mr. Walker and
$220,000 for each of Messrs. Rollins and Contris and the right to earn quarterly
and annual incentive compensation totalling at least 60% of base salary. The
right to receive incentive compensation is based on Unison's attainment of its
quarterly and annual budget as reflected in its quarterly and annual filings
with the Commission. During 1995, Messrs. Walker, Rollins and Contris were each
granted options to purchase 33,924 shares of Unison Common Stock under the
Option Plan and in September 1996 Messrs. Rollins and Contris were granted
options for an additional 40,000 shares at an exercise price of $13.75 per
share, subject to stockholder approval of the Option Plan Amendment. If any of
the employment agreements is terminated by Unison other than for cause, Unison
must pay the employee one year's base salary or his base salary for the
remaining term of the agreement, whichever is longer, and the employee's
pro-rated performance bonus. If any of the employment agreements is not renewed
at the end of the initial or subsequent term, the employee will be entitled to
receive one year's base salary. The employment agreements contain a one-year
nonsolicitation of employees and customers provision. Each of Messrs. Walker,
Rollins and Contris may be terminated upon Unison's failure to meet certain
financial covenants under the Pledge Agreements. See "Certain Transactions."
Unison initially entered into an employment agreement with Mr. Clark for an
eighteen-month term beginning in August 1995 at an annual base salary of
$200,000 and incentive compensation as described above. In September 1996 Mr.
Clark's contract was amended to extend the term to August 1998 and his annual
base salary was increased to $220,000. If the employment agreement is terminated
other than for cause, Mr. Clark will be entitled to receive one year's base
salary or his base salary for the remaining term of the agreement, whichever is
longer, and his pro-rated performance bonus. The employment agreement contains a
one-year nonsolicitation of employees and customers provision. Mr. Clark's
employment agreement with BritWill was terminated in connection with the
BritWill Acquisition, and Mr. Clark received a payment of $175,000 (equal to one
year of base salary) pursuant thereto. During 1995, Mr. Clark was granted an
option to purchase 33,924 shares of Unison Common Stock under the Option Plan,
and on September 6, 1996, the Compensation Committee confirmed the earlier grant
of an option to purchase 60,000 shares of Unison Common Stock under the Option
Plan at an exercise price of $9.00 per share and, subject to stockholder
approval of the Option Plan Amendment, options for an additional 40,000 shares
at an exercise price of $13.75 per share.
Unison entered into an employment agreement with Mr. Oberfield for a
one-year term beginning in May 1995, subject to automatic renewal for successive
one-year terms unless either Unison or Mr. Oberfield has given notice of
non-renewal 30 days prior to expiration. The employment agreement provides for
an initial annual base salary of $96,000. The annual base salary increased to
$136,800 as of January 1996 because Quest had become profitable during 1995. Mr.
Oberfield is also entitled to participate in Unison's incentive compensation
program for key employees, up to a maximum award of 15% of his base salary. If
the employment agreement is not renewed by Unison other than for cause, Unison
must pay Mr. Oberfield one year's base salary and his prorated incentive
compensation. During 1995, Mr. Oberfield was granted an option to purchase 6,185
shares of Unison Common Stock under the Option Plan, and in September 1996 he
was granted an option to purchase an additional 10,000 shares at $13.75 per
share, subject to approval of the Option Plan Amendment by the stockholders.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
Prior to August 1995, decisions concerning compensation of executive
officers were made by an Executive Committee of the Board of Directors,
consisting of Messrs. Walker, Rollins and Contris. On August 17, 1995, the Board
of Directors created a Compensation Committee consisting of Messrs. Garth, White
and Casey. See "-- Directors and Executive Officers."
The BritWill Acquisition. By a Second Amended and Restated Purchase and
Sale Agreement, amended in April 1996, effective as of August 10, 1995, Unison
acquired BritWill. A short-term note in the
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<PAGE> 230
amount of $5.6 million (the "Term Note"), an $8.0 million subordinated
promissory note (the "Subordinated Note") and a $7.0 million convertible
debenture (the "Convertible Debenture") issued as consideration for the BritWill
Acquisition were issued to the former shareholders of BritWill, one of whom is
Mr. Garth. The primary BritWill shareholder entitled to receive payments is WFI,
which owned 81.5% of the stock of BritWill prior to the BritWill Acquisition.
Bruce H. Whitehead is the president of the general partner of WFI and holds a 1%
ownership interest in WFI. The remaining 99% ownership interest in WFI is held
by the Whitehead Family Trust, the sole beneficiaries of which are the children
of Bruce H. Whitehead. Mr. Whitehead is the Chairman of the Board of Unison. The
Term Note was repaid in full in January 1996. The Convertible Debenture has been
converted into 561,815 shares of Common Stock. The Subordinated Note bears
interest at rates ranging from 8.0% to 10.0%, calls for partial payments of
principal prior to maturity and matures at the earlier of August 9, 2000 or the
completion of the placement and funding of any future public or private offering
of debt or equity securities. The Subordinated Note also requires Unison to
maintain certain cash balances and financial covenants. In addition, monthly
contingent payments aggregating approximately $10.3 million may be due through
August 2000 if Unison achieves specified monthly revenue conditions, and a lump
sum contingent payment of $11.5 million (the "Lump Sum Contingent Payment") is
due in August 2000 if revenues exceed $150.0 million in the 12 months ending
June 30, 2000. The Lump Sum Payment is subject to reduction by up to $1.4
million if during 1996 Unison does not collect or establish the collectability
of certain accounts receivable that were owned by BritWill at the time of the
acquisition and if certain specified quarterly consolidated revenue conditions
are not achieved. These contingent amounts will be added to lease operating
rights when and if paid. The Lump Sum Payment is due earlier in the event of any
future public or private debt or equity financing or under certain other
circumstances.
To secure payment of the deferred purchase price for the BritWill
Acquisition, Jerry M. Walker, Phillip R. Rollins and Paul J. Contris each
executed stock pledge agreements (the "Pledge Agreements") in favor of Bruce H.
Whitehead, as agent for the former BritWill shareholders. Pursuant to the Pledge
Agreements, 7.5% of the pledged stock was released upon completion of the
Company's initial public offering of Common Stock during December 1995 and
January 1996 (the "IPO"), and another 7.5% will be released six months
thereafter. During the term of the Pledge Agreements, employment agreements
executed by Messrs. Walker, Rollins and Contris may be terminated by Mr.
Whitehead if Unison fails to satisfy certain financial covenants. Craig R. Clark
also executed a pledge agreement in favor of Bruce H. Whitehead, as agent for
the former BritWill shareholders, pledging all of his rights as a former
BritWill shareholder to receive cash or Common Stock from the Acquisition Notes
and the Convertible Debenture. See "-- Employment Contracts, Termination of
Employment, and Change-in-Control Arrangements."
In connection with the BritWill Acquisition, BritWill executed a promissory
note in the amount of $3.4 million (the "Renewal Note"), bearing interest at the
rate of 12.0% and payable to WFI. The Renewal Note was a renewal, extension and
combination of certain outstanding indebtedness of BritWill to WFI and BritWill
Investment Company. The Renewal Note required monthly payments of interest,
commencing September 10, 1995, and quarterly principal reduction payments of
$1.0 million, commencing on October 1, 1996. The Renewal Note was not secured,
and Unison repaid the Renewal Note from proceeds of the IPO.
Subsequent to the BritWill Acquisition, Unison incurred the Whitehead
Loans, which were evidenced by a $500,000 promissory note payable to WFI and a
$250,000 promissory note payable to WFI (the "Supplemental Notes"), each bearing
interest at the rate of 12.0%, in consideration of cash advances to Unison. The
$500,000 Supplement Note required monthly payments of interest, commencing
September 10, 1995, matured on December 31, 1995 and was unsecured. The $250,000
Supplemental Note required monthly payments of interest, commencing October 9,
1995, matured on the earlier to occur of December 31, 1995 or the completion of
the IPO and was unsecured. Unison repaid the Supplemental Notes from proceeds of
the IPO.
Indiana Sale-Leaseback. Certain obligations of Unison to Omega Healthcare
Investors, Inc. ("Omega"), the owner of nine facilities that the Company leases
in Indiana and a party unrelated to the Company and BritWill, are guaranteed by
Bruce H. Whitehead, Unison's Chairman of the Board. BritWill Investments - I,
Inc., a Delaware corporation and a wholly-owned subsidiary of Unison ("BritWill
I"), obtained a leasehold interest in the nine facilities located in Indiana
pursuant to a sale-leaseback agreement in
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<PAGE> 231
November 1992. Fee title to the facilities was acquired initially from
affiliates of Cloverleaf Healthcare Services, Inc. (collectively, "Cloverleaf")
by BritWill Investments -- Indiana L.P., a Texas limited partnership ("BritWill
Indiana"), which is an entity owned and controlled by Bruce H. Whitehead.
BritWill Indiana sold the nine facilities to Omega for approximately $19.8
million, and Omega simultaneously entered into a master lease with BritWill I
for all nine facilities with minimum annual rent of approximately $2.3 million,
subject to adjustment. As further consideration for its funding of the purchase
price and its concurrent granting of the master lease, Omega required that
BritWill and Bruce H. Whitehead guarantee the obligations of BritWill I under
the master lease.
At the time of the sale leaseback transaction, the nine facilities were
subject to existing leases to Cedar Care, Inc., an Indiana corporation ("Cedar
Care"), or Sherwood HealthCare Corp., an Indiana corporation ("Sherwood") (the
"Cedar Care and Sherwood Leases"). The Omega master lease with BritWill I
recognized the Cedar Care and Sherwood Leases and treated them as subleases
subject to the master lease. Cedar Care and Sherwood are operators of each of
the nine facilities subject to the sale-leaseback, and they are beneficially
owned and controlled by Tyrrell L. Garth, a director of the Company. In addition
to and in connection with the Cedar Care and Sherwood Leases, Cedar Care and
Sherwood entered into a series of management agreements with BritWill I for the
operation of those nine facilities and four other Indiana facilities. Fees under
the management agreements are based upon the revenues of Cedar Care and Sherwood
from the facilities, such that all net income of Cedar Care and Sherwood is paid
to BritWill I under the management agreements and the Cedar Care and Sherwood
Leases. These arrangements are both accounted for and described as leaseholds.
In addition, Cedar Care and Sherwood have agreed to cooperate with the Company
in whatever manner the Company may elect in order to transfer, assign or
otherwise account for their interests in the facilities.
Participation Agreement. A portion of the indebtedness renewed pursuant to
the Renewal Note was originally evidenced by a promissory note in the original
principal amount of $2.5 million due November 24, 2002, bearing interest at the
rate of 12.0% (the "Participation Note"). At the time of execution of the
Participation Note, Garth Financial Services, Inc. ("GFS"), which is
wholly-owned by Mr. Garth, entered into a Participation Agreement dated December
24, 1992, under which GFS was entitled to receive principal and interest
payments on $400,000 of the Participation Note. The Participation Agreement
provides GFS with a priority in payments received on the Participation Note.
Also on December 24, 1992, BritWill entered into a Bonus Participation Agreement
with WFI, as additional consideration for the Participation Note, under which
WFI was entitled to quarterly bonus payments equal to the greater of 7.5% of the
unrestricted cash flow of BritWill or $10,000 until the Participation Note was
paid in full. The Participation Agreement and the Bonus Participation Agreement
terminated with repayment of the Renewal Note.
Omega Financing. In March 1996, Unison borrowed $3.5 million from Omega.
The borrowing is evidenced by a promissory note, bears interest at 10.25% and is
guaranteed by Unison and by Jerry M. Walker, Unison's President and Chief
Executive Officer.
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CERTAIN TRANSACTIONS
For additional information concerning Certain Transactions, see "Unison
Management -- Compensation Committee Interlocks and Insider Participation in
Compensation Decisions."
Texas Sale-Leasebacks. BritWill Investments -- II, Inc., a Delaware
corporation and a wholly-owned subsidiary of Unison ("BritWill II") acquired
leasehold interests in five facilities in Texas from Omega through two separate
sale-leaseback transactions. All five leases from Omega to BritWill II are
guaranteed by Bruce H. Whitehead, BritWill and BritWill Investments -- Texas
("BritWill-Texas"), as required by Omega. In December 1993, BritWill-Texas,
which is owned and controlled by Bruce H. Whitehead, purchased fee title to
three facilities, and simultaneously sold the facilities to Omega. Omega
concurrently entered into a master lease agreement to lease the facilities to
BritWill II. The second sale-leaseback transaction was consummated in the same
manner between the same parties for two facilities in December 1994. The second
sale-leaseback replaced a mortgage for the two facilities under which Omega had
loaned $4.6 million to BritWill-Texas in return for a promissory note and liens
on the two facilities. BritWill-Texas sold the two facilities to Omega in
exchange for the release of its obligations under the promissory note, and Omega
simultaneously leased the facilities to BritWill II with minimum annual rent of
approximately $555,000, subject to adjustment.
Omega Security Deposit. The Omega lease to BritWill II required BritWill
II to post a security deposit with Omega. BritWill-Texas advanced $1.4 million
to Omega for the required deposit. BritWill II has the benefit of that deposit
and owes that amount to BritWill-Texas.
Texas Mortgage Transaction. BritWill II leases six facilities in Texas
from BritWill Texas. BritWill-Texas acquired the six facilities in December 1993
with a $10.2 million loan from Omega. Omega is unrelated to Unison and the other
parties involved in the Texas mortgage transaction. The note for the transaction
contains an initial interest rate of 11.25%, subject to adjustment, with
interest payable monthly. The note also requires annual principal reduction
payments of $60,000, escalating to $120,000 over the term of the note. The loan
from Omega is guaranteed by BritWill and Bruce H. Whitehead. BritWill-Texas
continues to receive lease payments from BritWill II for those facilities. The
aggregate annual base rental for those facilities, which have a total of 767
licensed beds, is $1.1 million.
Texas Avalon Facilities. Through separate assignments in November 1994,
BritWill II acquired two leasehold interests from Avalon Care, Inc., an entity
owned and controlled by Bruce H. Whitehead, in exchange for the assumption by
BritWill II of the obligations of Avalon Care, Inc. under the two leases.
Certain Indebtedness. BritWill incurred certain indebtedness to entities
owned and controlled by Bruce H. Whitehead, which was renewed, extended and
combined in the Renewal Note. This indebtedness included: (i) a promissory note
in the original principal amount of $1.0 million due June 30, 1995, bearing
interest at the rate of 12.0%, from BritWill to BritWill Investment Company;
(ii) a promissory note in the original principal amount of $500,000 due June 30,
1995, bearing interest at the rate of 12.0%, from BritWill to BritWill
Investment Company; (iii) a promissory note in the original principal amount of
$600,000 due June 1, 1995, bearing interest at the rate of 12.0%, from BritWill
to WFI; and (iv) the Participation Note. The Renewal Note was repaid in full.
BritWill II is also obligated to repay five unsecured promissory notes to
BritWill-Texas currently in the amounts of $418,000, $409,000, $387,000,
$585,000 and $893,000. Interest accrues on the notes at 9.0%, the prime rate
plus 2.0%, the prime rate plus 2.0%, 10.0% and 10.0%, respectively. Aggregate
monthly interest payments under all five notes was approximately $17,000 in
1995. Four notes are scheduled to mature in November 2001, and the $1.1 million
note is due in October 2004.
Agreements with Trouver Capital Partners, L.P. John T. Lynch, Jr., a
Director of Unison and beneficial owner of approximately 3.81% of the Company's
Common Stock at the Record Date, is a General Partner of Trouver. Two other
partners of Trouver are beneficial owners of approximately 1.42%, in the
aggregate, of Unison's Common Stock. Unison and Trouver are parties to the
Unison/BritWill Combination Advisory Agreement dated July 10, 1995 (the
"Combination Agreement"), pursuant to which Trouver provided financial advisory
services to assist in the combination of Unison and BritWill as well as agreeing
to provide stand-by financing. Trouver's compensation under the Combination
Agreement was $675,000, which has been
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paid in full. In addition, Unison and Trouver are parties to a Financial
Advisory Agreement dated July 10, 1995 (a similar agreement dated March 16, 1992
expired during 1995) pursuant to which Trouver acted and will act as financial
advisor with respect to business and acquisition plans and opportunities and in
respect of private placement of debt or equity securities or working capital
facilities. Fees payable under the agreement range from 2% to 5% for the private
placement of debt or equity or certain other financings, and from 1.5% to 10%
for services rendered in the acquisition of additional leased or managed
facilities or other corporate development transactions. Trouver assisted Unison
in securing lease or management agreements in respect of four long-term and
specialty health care facilities, for which it is entitled to receive fees of up
to $400,000 over the next eight years based upon Unison's management fees or
earnings over that period. Accrued compensation through August 1995 totalled
$32,537.
Transactions with Sentry Healthcare Acquirors. Unison leases one long-term
and specialty health care facility and manages four facilities that are owned by
affiliates of Douglas K. Mittleider, who beneficially owns approximately 2.97%
of Unison's Common Stock at the Record Date (but owned more than 5% of Unison's
Common Stock at the time the agreements were entered into). The lease agreement
with Mr. Mittleider requires rental payments of $16,500 per month and extends
through June 2013. The management agreements provide compensation to Unison
equal to approximately 5% of patient revenues for three of these facilities and
3% for the other two facilities. Management considers these terms to be
competitive with those generally prevailing in the industry.
On December 30, 1994, Unison issued to Sentry, an entity owned by Mr.
Mittleider, a warrant to purchase 178,503 shares of Unison Common Stock for
consideration of $200 (less than $0.01 per share), and in consideration for
those agreements and for assistance in arranging other business transactions for
Unison. The warrant contains piggyback registration rights. Sentry exercised the
warrant as to 60,000 shares of Unison Common Stock in January 1996 and sold the
shares in the IPO's over-allotment option.
Quest Pharmacies, Inc. On or about May 15, 1995, Unison and L. Robert
Oberfield incorporated Quest Pharmacies, Inc. Quest is 75% owned by Unison and
25% owned by Mr. Oberfield. Quest was created for the primary purpose of
establishing and operating pharmacy facilities for the provision of
pharmaceutical services and supplies to Unison's long-term and specialty health
care facilities and to third parties. Unison and Mr. Oberfield have entered into
a shareholder agreement (the "Quest Shareholders Agreement") pursuant to which,
among other things, Mr. Oberfield has a right to put his Quest stock to Unison,
and Unison has a right to require Mr. Oberfield to sell his Quest stock to
Unison, in May of 1998 or in May of any year thereafter in exchange for a cash
payment or, at Mr. Oberfield's option, stock in Unison. The amount that Unison
would be required to pay for the purchase of Mr. Oberfield's 25% of the
outstanding Quest stock is based upon a formula set forth in the Quest
Shareholders Agreement, and is intended to approximate his 25% share of the
value of Quest's earnings contribution to Unison, based on the earnings of both
Quest and Unison and on the ratio of Unison's stock price to its recent
earnings.
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PRINCIPAL STOCKHOLDERS
Only stockholders of record at the close of business on , 1996
(the "Unison Record Date") will be entitled to vote at the Unison Special
Meeting. On the Unison Record Date, there were issued and outstanding 3,989,815
shares of Unison Common Stock. Each holder of Unison Common Stock is entitled to
one vote, exercisable in person or by proxy, for each share of Unison Common
Stock held of record on the Unison Record Date. The presence of a majority of
the shares of Unison Common Stock entitled to vote, in person or by proxy, is
required to constitute a quorum for the conduct of business at the Unison
Special Meeting. The Inspector of Election appointed by either the Chairman of
the Board of Directors or the President of Unison shall determine the shares
represented at the meeting and the validity of proxies and ballots and shall
count all proxies and ballots.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of Unison Common Stock at the Record Date with respect to (i) each
person known to Unison to own beneficially more than five percent of the
outstanding shares of Unison Common Stock, (ii) each director of Unison, (iii)
each of the executive officers listed in the Summary Comparison Table set forth
herein and (iv) all directors and executive officers of Unison as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1)
-----------------------------------------------------
PRIOR TO THE AFTER THE
SIGNATURE, AMPRO AND SIGNATURE, AMPRO AND
MEMPHIS MERGERS MEMPHIS MERGERS
----------------------- -----------------------
IDENTITY OF STOCKHOLDER OR GROUP NUMBER PERCENT NUMBER PERCENT
- --------------------------------------------- --------- ------- --------- -------
<S> <C> <C> <C> <C>
Bruce H. Whitehead(2)........................ 463,337 11.60% 463,337 7.67%
Jerry M. Walker(3)........................... 329,336 8.22 329,336 5.44
Phillip R. Rollins(4)........................ 329,336 8.22 329,336 5.44
Paul J. Contris(5)........................... 314,336 7.85 314,336 5.19
John T. Lynch, Jr.(6)........................ 152,208 3.81 152,208 2.52
c/o Trouver Capital Partners, L.P.
P.O. Box 7053
Princeton, NJ 08543
Craig R. Clark(7)............................ 54,984 * 54,984 *
Tyrrell L. Garth(8).......................... 10,707 * 10,707 *
Mark W. White(9)............................. 7,665 * 7,665 *
John T. Casey................................ 20,000 * 20,000 *
David A. Kremser(10)......................... -- -- 1,283,019 21.24
All executive officers and directors as a
group (12 persons prior to the Signature,
Ampro and Memphis Mergers and 13 persons
following the Signature, Ampro and Memphis
Mergers)................................... 1,688,995 41.38 2,972,014 55.40
</TABLE>
- ---------------
* Less than one percent
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission ("SEC") and generally includes voting or
investment power with respect to securities. In accordance with SEC rules,
shares which may be acquired upon exercise of stock options which are
currently exercisable or which become exercisable within 60 days of the
date of the table are deemed beneficially owned by the optionee. Except as
indicated by footnote, and subject to community property laws where
applicable, the persons or entities named in the table above have sole
voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them.
(2) Includes 458,089 shares of Unison Common Stock issued to Whitehead Family
Investments, Ltd. ("WFI") upon conversion of the Convertible Debenture
issued to the former shareholders of BritWill HealthCare Company
("BritWill") as partial payment of the purchase price for the acquisition
of BritWill (the "BritWill Acquisition"). Mr. Whitehead has sole voting and
investment power with respect to the shares held by WFI. Does not include
5,248 shares of Unison Common Stock issuable
73
<PAGE> 235
upon exercise of outstanding options which will vest in August 1997.
Includes 5,248 shares of Unison Common Stock issuable upon exercise of
immediately exercisable options.
(3) All but 15.0% of these shares are pledged to secure payment of the deferred
purchase price for the BritWill Acquisition. Does not include 16,962 shares
of Unison Common Stock issuable upon exercise of options which will vest in
August 1997. Includes 16,962 shares of Unison Common Stock issuable upon
exercise of immediately exercisable options.
(4) All but 15.0% of these shares are pledged to secure payment of the deferred
purchase price for the BritWill Acquisition. Does not include 16,962 shares
of Unison Common Stock issuable upon exercise of options which will vest in
August 1997. Includes 16,962 shares of Unison Common Stock issuable upon
exercise of immediately exercisable options.
(5) All but 15.0% of these shares are pledged to secure payment of the deferred
purchase price for the BritWill Acquisition. Does not include 16,962 shares
of Unison Common Stock issuable upon exercise of options which will vest in
August 1997. Includes 16,962 shares of Unison Common Stock issuable upon
exercise of immediately exercisable options.
(6) Includes 10,140 shares of Unison Common Stock as to which he currently
shares investment power with Bruce H. Whitehead. Excludes 4,623 shares of
Unison Common Stock issuable upon exercise of options which will vest in
August 1997. Includes 4,623 shares of Unison Common Stock issuable upon
exercise of immediately exercisable options.
(7) All of these shares are pledged to secure payment of the deferred purchase
price for the BritWill Acquisition. Includes 38,022 shares of Unison Common
Stock as to which Mr. Clark currently shares investment power with Bruce H.
Whitehead. Excludes 16,962 of Unison Common Stock issuable upon exercise of
options granted which will vest in August 1997. Includes 16,962 shares of
Unison Common Stock issuable upon exercise of immediately exercisable
options.
(8) Includes 6,084 shares of Unison Common Stock held by Mr. Garth as trustee
of a trust for the benefit of Jessica Garth Abeshire and Joshua Garth, as
to which he currently shares investment power with Bruce H. Whitehead. Does
not include 4,623 shares of Unison Common Stock issuable upon exercise of
options which will vest in August 1997. Includes 4,623 shares of Unison
Common Stock issuable upon exercise of immediately exercisable options.
(9) Includes 3,042 shares of Unison Common Stock, as to which he currently
shares investment power with Bruce H. Whitehead. Does not include 4,623
shares of Common Stock issuable upon exercise of options which will vest in
August 1997. Includes 4,623 shares of Unison Common Stock issuable upon
exercise of immediately exercisable options.
(10) Includes 1,283,019 shares of Unison Common Stock to be issued to Mr.
Kremser in the Signature Health Care Merger. Mr. Kremser will become a
Director of Unison upon closing of the Signature Mergers.
74
<PAGE> 236
DESCRIPTION OF UNISON CAPITAL STOCK
The following description of Unison's capital stock does not purport to be
complete and is subject in all respects to applicable Delaware law and to the
provisions of Unison's Certificate of Incorporation and Bylaws, copies of which
have been filed with the Commission as exhibits to Unison's Annual Report on
Form 10-K for the year ended December 31, 1995.
The authorized capital stock of Unison consists of 10,000,000 shares of
Common Stock, par value $.001 per share, and 1,000,000 shares of Preferred
Stock, par value $.001 per share. If the Ampro and Memphis Mergers and the
Signature Mergers occur, an aggregate of 6,039,249 shares of Unison Common Stock
will be issued and outstanding (assuming no exercise of outstanding options or
conversion of convertible securities), and no shares of Preferred Stock will be
issued or outstanding.
COMMON STOCK
Holders of Unison Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Holders of Unison Common Stock do
not have cumulative voting rights, and therefore holders of a majority of the
shares voting for the election of directors can elect all of the directors. In
such event, the holders of the remaining shares will not be able to elect any
directors.
Holders of Unison Common Stock are entitled to receive such dividends as
may be declared from time to time by the Board of Directors out of funds legally
available therefor. Unison does not anticipate paying cash dividends in the
foreseeable future. In the event of the liquidation, dissolution or winding up
of Unison, the holders of Unison Common Stock are entitled to share ratably in
all assets remaining after payment of liabilities.
Holders of Unison Common Stock have no preemptive, conversion or redemption
rights and are not subject to further calls or assessments by Unison. All of the
outstanding shares of Unison Common Stock are, and the shares offered by Unison
hereby and by the related Prospectus/Information Statement Supplement will be,
if issued, validly issued, fully paid and nonassessable.
The Transfer Agent and Registrar for Unison Common Stock is Harris Trust
and Savings Bank, Chicago, Illinois.
PREFERRED STOCK
Unison's Board of Directors is authorized to issue from time to time,
without stockholder authorization, in one or more designated series, any or all
of the authorized but unissued shares of Preferred Stock with such dividend,
redemption, conversion and exchange provisions as may be provided in the
particular series. Any series of Preferred Stock may possess voting, dividend,
liquidation and redemption rights superior to that of Unison Common Stock. The
rights of the holders of Unison Common Stock will be subject to, and may be
adversely affected by, the rights of the holders of any Preferred Stock that may
be issued in the future. Issuance of a new series of Preferred Stock, while
providing desirable flexibility in connection with possible acquisition and
other corporate purposes, could have the effect of entrenching Unison's Board of
Directors and making it more difficult for a Third Party to acquire, or
discourage a Third Party from acquiring, a majority of the outstanding voting
stock of Unison. Unison has no present plans to issue any series of Preferred
Stock.
OTHER SECURITIES
Unison has also issued a number of other outstanding securities. Warrants
for an aggregate of 120,000 shares of Unison Common Stock were issued to the
representatives of the underwriters in Unison's initial public offering of
Unison Common Stock at an exercise price of $11.70 per share. A warrant has been
issued to HealthPartners Funding, L.P. for 16,667 shares of Unison Common Stock
at an exercise price of $0.01 per share. The Sunbelt Notes and Debentures for
$1,000,000 and $1,800,000, respectively, that were issued in connection with the
acquisition of four therapy centers effective February 1, 1996 are convertible
into Unison Common Stock at a conversion price equal to the average closing
price (85% of the average closing price with respect to the Sunbelt Notes) for
the 20 day trading period preceding the date of conversion. A warrant for
75
<PAGE> 237
200,000 shares at an exercise price of $13.88 per share has been issued to
Imperial Bank in conjunction with certain bridge financing, and the bridge
financing note is convertible into Unison Common Stock at a discount from market
value in the event of a default. Options for a total of 511,046 shares of Unison
Common Stock have been issued or authorized for issuance under Unison's employee
stock option plan (with such number to increase to 800,000 if the Option Plan
Amendment is approved). In addition, 1,509,434 shares (subject to adjustment if
the Average Daily Price of Unison Common Stock is less than $11.25 per share or
greater than $15.25 per share) and 540,000 shares are to be issued in connection
with the Signature Mergers and the Ampro and Memphis Mergers, respectively. A
$771,000 promissory note to Red Line Healthcare Corporation (the "Red Line
Note") is convertible into Unison Common Stock at an effective price of $9.11
per share during a default thereon. See "-- Registration Rights," and "Recent
and Pending Unison Acquisitions and Other Commitments."
CERTAIN PROVISIONS OF CERTIFICATE OF INCORPORATION AFFECTING STOCKHOLDERS
Unison's Certificate of Incorporation prevents certain transactions with an
"interested person" (defined as any person who, indirectly or directly,
beneficially owns or has the right to acquire or vote more than 5% of Unison's
outstanding voting stock, excluding any person who owned 25% of such securities
on August 10, 1995), including: (i) any merger, consolidation, sale or other
disposition of all or substantially all of the assets of Unison or any
subsidiary of Unison; or (ii) any purchase by Unison or its subsidiaries of all
or substantially all of the stock or assets of an interested person, without
affirmative vote of the holders of at least two-thirds of the outstanding shares
of all classes or series of stock entitled to vote on the election of Unison's
Board of Directors; provided, however, that such stockholder approval will not
be required if the transaction is approved by the Board of Directors, and a
majority of the directors approving such transaction are "continuing directors,"
defined as directors who either: (i) were elected prior to the date an
interested person became an interested person; (ii) was a director on August 10,
1995; or (iii) succeeds a continuing director or fills a newly created
directorship upon the recommendation of a majority of the continuing directors.
Unison's Certificate of Incorporation provides for a classified Board of
Directors. The classification of the Board of Directors may discourage a third
party from making a tender offer or otherwise attempting to gain control of
Unison and may maintain the incumbency of the Board of Directors.
Unison's Certificate of Incorporation also requires that any action
required or permitted by stockholders must be effected at a duly called annual
or special meeting of stockholders and may not be effected by written consent.
LIMITATION OF LIABILITY AND INDEMNIFICATION AGREEMENTS
Unison's Certificate of Incorporation provides that to the fullest extent
permitted by Delaware law, a director of Unison shall not be liable to Unison or
its stockholders for monetary damages for breach of fiduciary duty as a
director. Under current Delaware law, liability of a director may not be limited
(i) for any breach of the director's duty of loyalty to Unison or its
stockholders; (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law; (iii) in respect of
certain unlawful dividend payments or stock redemptions or repurchases; and (iv)
for any transaction from which the director derives an improper personal
benefit. The effect of the provision of Unison's Certificate of Incorporation is
to eliminate the rights of Unison and its stockholders (through stockholders'
derivative suits on behalf of Unison) to recover monetary damages against a
director for breach of the fiduciary duty of care as a director (including
breaches resulting from negligent or grossly negligent behavior), except in the
situations described in clauses (i) through (iv) above. This provision does not
limit or eliminate the rights of Unison or any stockholder to seek nonmonetary
relief such as an injunction or recision in the event of a breach of a
director's duty of care. In addition, Unison's Certificate of Incorporation
provides that Unison shall indemnify its directors, officers, employees and
agents against losses incurred by any such person by reason of the fact that
such person was acting in such capacity.
76
<PAGE> 238
VOTING AGREEMENT
Messrs. Walker, Rollins, Contris and Lynch, who beneficially own an
aggregate of 1,125,216 shares of Unison Common Stock, and Messrs. Joseph A.
Boystak and Edmund C. King, who beneficially own approximately 1.42%, in the
aggregate of Unison's Common Stock (collectively, the "Affiliate Stockholders"),
and Unison are parties to a voting agreement (the "Voting Agreement"). Under the
Voting Agreement, each of the Affiliate Stockholders is required to vote his
shares so as to elect three members of the Board of Directors designated by WFI.
Initially, the designees of WFI are Messrs. Garth, White and Whitehead. Each of
the Affiliate Stockholders is also prohibited from voting his stock in favor of
any proposition that would have the effect of reducing the Board of Directors of
Unison to fewer than three members. The Voting Agreement terminates on the
earliest to occur of: (i) payment in full of the Subordinated Note to the former
shareholders of BritWill HealthCare Company; (ii) August 9, 2005; or (iii) the
written termination by each of the parties to the Voting Agreement.
REGISTRATION RIGHTS
Unison is party to a number of agreements ("Registration Rights
Agreements") pursuant to which the other party has the right to require Unison
to register the sale of shares of Unison Common Stock owned by each other party.
Registration Rights Agreements have been entered with: (a) Mr. Bruce Whitehead,
as agent for the former shareholders of BritWill HealthCare Company in respect
of 561,815 shares of Unison Common Stock owned by them and 783,804 other shares
pledged to them as collateral; (b) the representatives of the underwriters from
Unison's initial public offering in respect of 120,000 shares issuable upon
exercise of warrants with an exercise price of $11.60 per share; (c) the former
owners of Sunbelt Therapy with respect to shares issuable upon conversion of the
Sunbelt Notes ($1.0 million) and Sunbelt Debentures ($1.8 million) issued to
them in that transaction; (d) Imperial Bank with respect to shares issuable upon
conversion of its loans to Unison in the event of a default or upon exercise of
warrants for up to 300,000 shares of Unison Common Stock issued in connection
with such loans; (e) Sentry Healthcare Acquirors, Inc. (piggyback rights only)
in respect of the 118,503 shares of Unison Common Stock that it currently owns
and that it acquired upon exercise of a warrant issued by Unison in 1995; and
(f) Red Line Healthcare Corporation (piggyback rights only) with respect to
shares issuable upon conversion of the Red Line Note during a default thereon.
In addition, the 1,509,434 shares of Unison Common Stock (subject to adjustment
under certain circumstances) to be issued in connection with the Signature
Merger will be subject to registration rights. Unison is obligated to pay all
registration expenses (other than underwriting discounts and commissions and
subject to certain limitations) incurred in connection with such registrations.
LEGAL OPINIONS
Certain legal matters will be passed upon for Unison by Quarles & Brady,
which has also given the opinion regarding tax consequences of the Ampro Merger.
EXPERTS
The consolidated financial statements of Unison HealthCare Corporation at
December 31, 1994 and 1995 and for each of the three years in the period ended
December 31, 1995 included in the Prospectus/Proxy and Information Statement and
the related financial statement schedule appearing elsewhere herein have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
The financial statements of BritWill HealthCare Company for the one month
ended July 31, 1995 included in the Prospectus/Proxy and Information Sheet of
Unison HealthCare Corporation, which is referred to and made a part of this
Prospectus and Registration Statement, and the related financial statement
schedule appearing elsewhere herein have been audited by Ernst & Young, LLP,
independent auditors, as set forth in
77
<PAGE> 239
their report thereon appearing elsewhere herein, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
The consolidated financial statements of BritWill HealthCare Company as of
December 31, 1993, 1994 and June 30, 1995 and for the years ended December 31,
1993, 1994 and the six months ended June 30, 1995 included in this
Prospectus/Proxy and Information Statement and Registration Statement have been
so included in reliance of the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The financial statements of American Professional Holding, Inc. as of
December 31, 1995 and 1994 and for each of the three years in the period ended
December 31, 1995 appearing herein have been audited by Ronald H. Ridgers, P.C.,
independent auditors, as set forth in their report appearing elsewhere herein,
and are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
The financial statements of Memphis Clinical Laboratory, Inc. as of
December 31, 1995 and 1994 and for each of the three years in the period ended
December 31, 1995 appearing herein have been audited by Ronald H. Ridgers, P.C.,
independent auditors, as set forth in their report appearing elsewhere herein,
and are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
The consolidated financial statements of Signature Health Care Corporation,
and the combined financial statements of Arkansas, Inc., Cornerstone Care, Inc.,
Douglas Manor, Inc., and Safford Care, Inc. appearing herein have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
The financial statements of The Oaks of Boise appearing herein have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving such reports.
The financial statements of Nightingale West, Inc. at December 31, 1994 and
for each of the two years in the period ended December 31, 1994 appearing in
this Prospectus/Proxy and Information Statement and Registration Statement have
been audited by Grant, Millman & Johnson, P.C., independent auditors, as set
forth in their report thereon appearing elsewhere herein and in the Registration
Statement, and are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
The combined financial statements of Henderson & Associates Rehabilitation
and Sunbelt Therapy Management Services, Inc. appearing herein have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
78
<PAGE> 240
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. FINANCIAL STATEMENTS
UNISON HEALTHCARE CORPORATION
Report of Independent Auditors................................................................. F-3
Consolidated Balance Sheets as of December 31, 1995 and 1994................................... F-4
Consolidated Statements of Operations for the years ended December 31, 1995, 1994 and 1993..... F-5
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended December 31, 1994
and 1993..................................................................................... F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993..... F-7
Notes to Consolidated Financial Statements..................................................... F-8
Condensed Consolidated Balance Sheets as of June 30, 1996 and December 31, 1995................ F-20
Condensed Consolidated Statements of Operations for the three months and six months ended June
30, 1996 and 1995............................................................................ F-21
Condensed Consolidated Statements of Cash Flows for the three months and six months ended June
30, 1996 and 1995............................................................................ F-22
Notes to Condensed Consolidated Financial Statements........................................... F-23
BRITWILL HEALTHCARE COMPANY
Report of Independent Auditors................................................................. F-25
Report of Independent Accountants.............................................................. F-26
Consolidated Balance Sheets as of December 31, 1993 and 1994 and June 30, 1995................. F-27
Consolidated Statements of Operations for the years ended December 31, 1993 and 1994, six
months ended June 30, 1995 and one month ended July 31, 1995................................. F-28
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1993 and 1994
and the six months ended June 30, 1995....................................................... F-29
Consolidated Statements of Cash Flows for the years ended December 31, 1993 and 1994, six
months ended June 30, 1995 and one month ended July 31, 1995................................. F-30
Notes to Consolidated Financial Statements..................................................... F-31
AMERICAN PROFESSIONAL HOLDING, INC.
Report of Independent Auditor.................................................................. F-41
Consolidated Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996................. F-42
Consolidated Statements of Income for the years ended December 31, 1993, 1994 and 1995 and the
six months ended June 30, 1995 and 1996...................................................... F-43
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1993, 1994 and
1995 and the six months ended June 30, 1996..................................................
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995 and
the six months ended June 30, 1996 and 1995.................................................. F-44
Notes to Consolidated Financial Statements..................................................... F-45
MEMPHIS CLINICAL LABORATORY, INC.
Report of Independent Auditor.................................................................. F-50
Consolidated Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996................. F-51
Consolidated Statements of Income for the years ended December 31, 1993, 1994 and 1995 and the
six months ended June 30, 1995 and 1996...................................................... F-52
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1993, 1994 and
1995 and the six months ended June 30, 1996..................................................
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995 and
the six months ended June 30, 1996 and 1995.................................................. F-53
Notes to Consolidated Financial Statements..................................................... F-54
SIGNATURE HEALTH CARE CORPORATION
Report of Independent Public Accountants....................................................... F-57
Consolidated Balance Sheets as of December 31, 1995 and 1994 and June 30, 1996................. F-58
Consolidated Statements of Operations for the years ended December 31, 1995, 1994 and 1993 and
six months ended June 30, 1996 and 1995...................................................... F-59
</TABLE>
F-1
<PAGE> 241
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1995 and 1994
and six months ended June 30, 1996........................................................... F-60
Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993 and
six months ended June 30, 1996 and 1995...................................................... F-61
Notes to Consolidated Financial Statements..................................................... F-62
ARKANSAS, INC., CORNERSTONE CARE, INC., DOUGLAS MANOR, INC., AND SAFFORD CARE, INC.
Report of Independent Public Accountants....................................................... F-68
Combined Balance Sheet as of December 31, 1995 and six months ended June 30, 1996.............. F-69
Combined Statement of Operation for the year ended December 31, 1995 and six months ended June
30, 1996 and 1995............................................................................ F-70
Combined Statement of Stockholders' Equity for the year ended December 31, 1995 and six months
ended June 30, 1996.......................................................................... F-71
Combined Statement of Cash Flows for the year ended December 31, 1995 and six months ended June
30, 1996 and 1995............................................................................ F-72
Notes to Combined Financial Statements......................................................... F-73
THE OAKS OF BOISE
Report of Independent Accountants.............................................................. F-76
Statements of Assets, Liabilities and Interdivision Account as of June 30, 1995 and 1994....... F-77
Statements of Revenue, Expenses and Interdivision Account for the years ended June 30, 1995
and 1994..................................................................................... F-78
Statements of Cash Flows for the years ended June 30, 1995 and 1994............................ F-79
Notes to Financial Statements.................................................................. F-80
NIGHTINGALE WEST, INC.
Independent Auditors' Report................................................................... F-83
Balance Sheet as of December 31, 1994.......................................................... F-84
Statement of Operations for the nine months ended September 30, 1995 and the years ended
December 31, 1994 and 1993................................................................... F-85
Statements of Retained Earnings for the nine months ended September 30, 1995 and the years
ended December 31, 1994 and 1993............................................................. F-86
Statements of Cash Flows for the nine months ended September 30, 1995 and the years ended
December 31, 1994 and 1993................................................................... F-87
Notes to Financial Statements.................................................................. F-88
HENDERSON AND ASSOCIATES REHABILITATION AND SUNBELT THERAPY MANAGEMENT SERVICES, INC.
Report of Independent Auditors................................................................. F-92
Combined Balance Sheets as of December 31, 1995 and 1994....................................... F-93
Combined Statements of Operations and Stockholders' Equity..................................... F-94
Combined Statements of Cash Flows.............................................................. F-95
Notes to Financial Statements.................................................................. F-96
2. FINANCIAL STATEMENT SCHEDULES
UNISON HEALTHCARE CORPORATION
Schedule II Valuation and Qualifying Accounts................................................. S-1
BRITWILL HEALTH CARE COMPANY
Schedule II Valuation and Qualifying Accounts................................................. S-2
SIGNATURE HEALTH CARE CORPORATION
Schedule II Consolidated Valuation and Qualifying Accounts.................................... S-3
ARKANSAS, INC., CORNERSTONE CARE, INC., DOUGLAS MANOR INC., AND SAFFORD CARE, INC.
Schedule II Combined Valuation and Qualifying Accounts........................................ S-4
</TABLE>
All other schedules are omitted because they are not applicable or not required.
F-2
<PAGE> 242
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Unison HealthCare Corporation
We have audited the accompanying consolidated balance sheets of Unison
HealthCare Corporation as of December 31, 1995 and 1994, and the related
consolidated statements of operations, changes in stockholders' equity
(deficit), and cash flows for each of the three years in the period ended
December 31, 1995. Our audits also included the financial statement schedule
listed in the Index at Item 14(a). These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Unison
HealthCare Corporation at December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
ERNST & YOUNG LLP
Phoenix, Arizona
April 10, 1996
F-3
<PAGE> 243
UNISON HEALTHCARE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1994
----------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 6,097,370 $ 117,641
Accounts receivable-patient, net of allowance for doubtful
accounts of $709,000 in 1995 and $203,000 in 1994 (Notes 4 and
9)............................................................ 14,770,958 1,944,010
Accounts receivable-other, net of allowance for doubtful accounts
of $74,000 in 1995 and $87,000 in 1994 (Notes 4 and 9)........ 1,852,290 417,305
Prepaids and other (Note 5)...................................... 2,244,906 551,988
----------- ----------
Total current assets.......................................... 24,965,524 3,030,944
Equipment and leasehold improvements, net
(Notes 6 and 11)................................................. 3,002,223 707,098
Lease operating rights and other assets (Note 7)................... 38,902,115 280,341
Goodwill, net (Note 3)............................................. 7,472,502 --
Deferred taxes (Note 16)........................................... -- 99,104
Security deposits (Note 8)......................................... 3,189,114 179,350
----------- ----------
$77,531,478 $4,296,837
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Line of credit (Note 9).......................................... $ 789,041 $ 950,000
Accounts payable................................................. 9,437,409 1,685,961
Accrued expenses (Note 10)....................................... 8,784,821 1,062,486
Notes payable and current portion of long-term debt due to
affiliates (Notes 11 and 15).................................. 5,823,929 --
Current portion of other notes payable and long-term debt (Note
11)........................................................... 635,701 99,768
Deferred taxes (Note 16)......................................... 702,640 99,104
----------- ----------
Total current liabilities..................................... 26,173,541 3,897,319
Notes payable and long-term debt due to affiliates (Notes 11 and
15).............................................................. 13,691,032 --
Other notes payable and long-term debt (Note 11)................... 4,692,968 539,001
Deferred taxes (Note 16)........................................... 8,173,160 --
Leasehold liability, net (Note 14)................................. 4,621,667 --
Other liabilities.................................................. 294,000 --
----------- ----------
Total liabilities............................................. 57,646,368 4,436,320
Stockholders' equity (deficit) (Note 12):
Preferred stock, $.001 par value, authorized 1,000,000 shares, no
shares issued or outstanding.................................. -- --
Common stock, $.001 par value, authorized 10,000,000 shares,
3,673,748 and 1,249,497 shares issued and outstanding in 1995
and 1994...................................................... 2,524 100
Additional paid-in capital....................................... 20,090,707 42,853
Retained earnings (deficit)...................................... (208,121) (182,436)
----------- ----------
Total stockholders' equity (deficit).......................... 19,885,110 (139,483)
----------- ----------
$77,531,478 $4,296,837
=========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE> 244
UNISON HEALTHCARE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1995 1994 1993
----------- ----------- ----------
<S> <C> <C> <C>
Revenues:
Net patient revenue................................ $57,742,991 $11,069,787 $1,075,970
Management fees.................................... 1,730,003 1,114,609 851,666
Other.............................................. 1,812,182 221,365 28,250
----------- ----------- ----------
Total revenues............................. 61,285,176 12,405,761 1,955,886
Expenses:
Wages and related.................................. 31,811,215 7,148,401 1,455,325
Other operating.................................... 20,776,286 3,901,626 544,801
Rent............................................... 6,565,286 1,298,753 99,407
Interest........................................... 1,058,088 84,396 10,796
Depreciation and amortization...................... 1,049,986 51,228 6,718
----------- ----------- ----------
Total expenses............................. 61,260,861 12,484,404 2,117,047
----------- ----------- ----------
Income (loss) before income taxes.................... 24,315 (78,643) (161,161)
Income tax expense (benefit)......................... 50,000 1,180 (20,417)
----------- ----------- ----------
Net loss............................................. $ (25,685) $ (79,823) $ (140,744)
=========== =========== ==========
Net loss per share................................... $(.02) $(.06) $(.11)
Shares used in per share calculation................. 1,349,020 1,266,164 1,266,164
</TABLE>
See accompanying notes.
F-5
<PAGE> 245
UNISON HEALTHCARE CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK
------------------ ADDITIONAL RETAINED
NUMBER OF PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
--------- ------ ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1992............ 1,249,497 $ 100 $ -- $ 38,131 $ 38,231
Net loss................................ -- -- -- (140,744) (140,744)
--------- ------ ----------- --------- -----------
Balance at December 31, 1993............ 1,249,497 100 -- (102,613) (102,513)
Stock warrants issued................... -- -- 42,853 -- 42,853
Net loss................................ -- -- -- (79,823) (79,823)
--------- ------ ----------- --------- -----------
Balance at December 31, 1994............ 1,249,497 100 42,853 (182,436) (139,483)
Net loss................................ -- -- -- (25,685) (25,685)
Sale of common stock in public
offering.............................. 2,000,000 2,000 14,612,273 -- 14,614,273
Conversion of debenture................. 424,251 424 5,285,581 5,286,005
Stock warrants issued................... -- -- 150,000 -- 150,000
--------- ------ ----------- --------- -----------
Balance at December 31, 1995............ 3,673,748 $2,524 $20,090,707 $(208,121) $19,885,110
========= ====== =========== ========= ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 246
UNISON HEALTHCARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1995 1994 1993
----------- ----------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss...................................................... $ (25,685) $ (79,823) $(140,744)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................... 1,049,986 51,228 6,718
Provision for doubtful accounts............................. 29,109 127,592 145,650
Tax provision (credit)...................................... 50,000 1,854 (20,417)
Note discount amortization.................................. 20,538 -- --
Leasehold liability amortization............................ (78,333) -- --
Changes in operating assets and liabilities, net of
acquisitions:
Increase in accounts receivable -- patient, net.......... (7,341,173) (1,929,382) (416,716)
Increase in accounts receivable -- other, net............ (892,287) (346,310) (82,111)
Increase in prepaids and other........................... (593,883) (543,668) (7,774)
Increase in accounts payable and accrued expenses........ 6,533,294 2,325,708 401,810
----------- ----------- ---------
Net cash used in operating activities......................... (1,248,434) (392,801) (113,584)
----------- ----------- ---------
INVESTING ACTIVITIES
Purchase of equipment and leasehold improvements.............. (1,080,521) (371,271) (12,931)
Increase in intangibles....................................... (1,139,531) (193,348) (5,232)
Increase in lease deposits.................................... (272,215) (179,350) --
Acquisition of BritWill....................................... (676,635) -- --
----------- ----------- ---------
Net cash used in investing activities......................... (3,168,902) (743,969) (18,163)
----------- ----------- ---------
FINANCING ACTIVITIES
(Decrease) increase in line of credit......................... (2,915,913) 950,000 (3,136)
Proceeds from sale of receivables............................. 2,515,267 197,277 --
Proceeds from notes payable and long-term debt................ 1,820,629 240,119 556,811
Payments on notes payable and long-term debt.................. (5,637,191) (141,120) (430,590)
Proceeds from IPO............................................. 14,614,273 -- --
----------- ----------- ---------
Net cash provided by financing activities..................... 10,397,065 1,246,276 123,085
----------- ----------- ---------
Net increase (decrease) in cash............................. 5,979,729 109,506 (8,662)
Cash and cash equivalents at beginning of period.............. 117,641 8,135 16,797
----------- ----------- ---------
Cash and cash equivalents at end of period.................... $ 6,097,370 $ 117,641 $ 8,135
=========== =========== =========
Supplemental disclosure
Income taxes paid........................................... $ -- $ 1,150 $ 7,162
Interest expense paid....................................... 999,289 84,396 10,796
Supplemental disclosure of noncash investing and financing
activities
BritWill Acquisition:
Increase in assets.......................................... 58,468,673 -- --
Liabilities incurred and assumed............................ 59,420,708 -- --
Conversion of debentures into shares of common stock.......... 5,286,005 -- --
Acquisition of leasehold rights ($237,317) and equipment and
leasehold improvements ($126,103) through issuance of note
payable..................................................... -- 363,420 --
Common stock warrants issued (Note 12)........................ 150,000 42,853 --
</TABLE>
See accompanying notes
F-7
<PAGE> 247
UNISON HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Unison began operations in July 1992 as SunQuest HealthCare Corporation and
changed its name to Unison HealthCare Corporation ("Unison" or the "Company") in
November 1995. In August 1995, Unison acquired all of the common stock of
BritWill HealthCare Company ("BritWill") (see Note 3). Unison is a provider of
long-term and specialty health care services. At December 31, 1995, Unison
operated and managed 53 facilities including long-term care and specialty care
and independent/assisted living facilities. Unison's operations are located in
twelve states, principally in the midwest and southwest regions of the United
States. In 1995, Unison established a pharmacy operation and Medicare Part B
billing and supply company.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Unison and all of its leased facilities. Significant intercompany transactions
and balances have been eliminated in consolidation.
Revenues and expenses related to the 28 facilities acquired from BritWill
are included in Unison's results of operations for periods subsequent to July
31, 1995.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Net Patient Revenues
Unison's revenues are derived primarily from providing long-term health
care services. Approximately 83%, 70% and 86% of Unison's net patient revenues
for the years ended December 31, 1995, 1994 and 1993, respectively, were derived
from funds under Medicare and Medicaid assistance programs and approximately 82%
and 79% of Unison's net patient accounts receivable at December 31, 1995 and
1994, respectively, are due from such programs. Credit risk exists to the extent
that the Company's most significant source of revenue is reimbursement for
patient care from state-sponsored Medicaid programs and from Medicare. However,
management does not believe that there are significant credit risks associated
with these governmental agencies. Contractual adjustments resulting from
agreements with various organizations to provide services for amounts which
differ from billed charges, including services under Medicare and Medicaid, are
recorded as deductions from gross patient revenue. The estimated third party
payor settlements under Medicare and Medicaid programs are recorded in the
period the related services are rendered and are subject to audit and final
settlement by the fiscal intermediary. Differences between the net amounts
accrued and subsequent settlement, if any, are recorded in operations at the
time the final settlement is determined. As of December 31, 1995 and 1994,
Unison has recognized approximately $1,800,000 and $62,000, respectively, of
Medicare routine cost limit exceptions which are still subject to audit and
final approval by the fiscal intermediary. Based on consultation with outside
reimbursement specialists, it is management's opinion that the ultimate
resolution of third party payor settlements will not have a material adverse
impact on the financial position or results of operations of Unison.
Provision for doubtful accounts is made when the related revenue is
recorded. Accounts, when determined to be uncollectible, are charged against the
allowance for doubtful accounts.
Cash and cash equivalents
Cash and cash equivalents include amounts held in demand deposits at
financial institutions and all highly liquid investments that have an original
maturity of three months or less.
F-8
<PAGE> 248
UNISON HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Inventories
Inventories are comprised of nursing facility supplies and pharmaceutical
products and are stated at the lower of cost (first-in, first-out) or market.
Equipment and Leasehold Improvements
Equipment and leasehold improvements are stated at cost. Depreciation and
amortization for financial statement purposes are computed using the
straight-line method over the lesser of the respective lease term or the
estimated useful life of the respective asset.
Intangible Assets
Direct and incremental costs incurred prior to commencement of Unison's
operations are deferred and charged against operations on a straight line basis
over the life of the respective lease agreement. Certain costs incurred in the
acquisition of facilities such as assembled workforce and covenants not to
compete are amortized on a straight line basis over five years. Lease operating
rights (net of leasehold liabilities) recorded in connection with lease
arrangements or through acquisition have been capitalized and are being
amortized on a straight line basis over the respective initial lease term,
including probable renewal periods, not to exceed twenty-five years. Goodwill is
being amortized over a forty-year period.
Management believes that goodwill has an unlimited useful life and,
therefore, assigned to goodwill a forty-year amortization period. In determining
its unlimited useful life, management considered factors such as: policies of
similar public healthcare and long-term care companies, nature of the long-term
care industry which is positively impacted by the increasing age of the American
population as well as the continual transfer of patients from a high cost acute
care setting to a lower cost long-term care setting, profitability of companies
in the long-term care industry, and the fact that nursing care services provided
in nursing home facilities will be continuously needed in the future and are not
subject to obsolescence.
The Company continually assesses the recoverability of intangible assets by
comparing the carrying amount of the intangible assets to the future benefits or
undiscounted cash flows derived from that asset. Impairments are recognized in
operating results if it is probable that the carrying value of the asset will
not be recovered from future cash flows derived from that asset. The adoption of
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" in
the first quarter of 1996 is not expected to have a material impact on the
financial statements.
Income Taxes
Unison accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS
109 requires the use of an asset and liability approach for measuring deferred
taxes based on temporary differences between financial statement and tax bases
of assets and liabilities existing at each balance date using enacted tax rates
for years in which the related taxes are expected to be paid or recovered.
Loss Per Share
Loss per share is calculated by dividing net loss by the weighted average
number of common shares outstanding. Unison's common stock equivalents, which
are stock options, stock warrants and convertible debentures, are not included
in the calculation for 1995 because the effect on loss per share is
antidilutive. The accompanying financial statements give retroactive effect to a
stock split of approximately 12.5-to-one effective as of September 28, 1995.
F-9
<PAGE> 249
UNISON HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
In December 1995, Unison issued 2,000,000 shares of its common stock in an
initial public offering (the "IPO") (see Note 12). Pursuant to the Securities
and Exchange Commission Staff Accounting Bulletin No. 83, "Earnings per Share
Computation in an Initial Public Offering," an aggregate of 16,667 common and
common equivalent shares issued during the twelve-month period prior to the IPO,
at prices below the IPO price, have been included as if they were outstanding
for all periods presented.
Unison grants stock options for a fixed number of shares to employees with
an exercise price equal to the fair value of the shares at the date of grant.
The Company accounts for stock option grants in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and,
accordingly, recognizes no compensation expense for the stock option grants.
3. SIGNIFICANT BUSINESS TRANSACTIONS AND ACQUISITIONS
In August 1995, Unison acquired BritWill, another long-term care company
operating approximately 28 facilities located in Texas and Indiana. The terms of
the acquisition were modified in April 1996, effective August 10, 1995, such
that Unison acquired all of the outstanding stock of BritWill for a total fixed
purchase amount of $20,600,000 plus, to the extent applicable, monthly
contingent payments ranging in monthly amounts from $143,633 to $225,317
(aggregating approximately $10,300,000) if Unison's monthly consolidated net
patient revenues exceed specified monthly amounts ranging from $8,000,000 to
$11,989,000 for the period from September 9, 1995 through July 31, 2000. An
additional lump sum contingent payment of $11,500,000 (but subject to a
reduction of up to $1,410,000 under specified circumstances) is payable on
August 9, 2000 if Unison has consolidated net patient revenues of not less than
$150,000,000 for the twelve-month period ended June 30, 2000. The purchase price
was comprised of two promissory notes amounting to $13,600,000 in total, and a
$7,000,000 noninterest bearing convertible subordinated debenture. See Note 10.
In connection with the acquisition, Unison paid a financial advisory fee to
Trouver Capital Partners, L.P. ("Trouver") amounting to $675,000. One of
Unison's directors is a partner in Trouver. The acquisition was accounted for as
a purchase. The fixed purchase price in excess of net tangible assets was
allocated among BritWill's assets: goodwill -- $7,000,000; lease operating
rights -- $36,719,485; assembled work force -- $1,250,000 and covenants not to
compete -- $100,000. The contingent portions of the purchase price will be added
to lease operating rights when and if paid; as of December 31, 1995, contingent
payments amounting to $566,668 had been added to lease operating rights.
In addition to the BritWill acquisition, in 1995 Unison entered into
operating lease agreements to obtain leasehold interests in five nursing
facilities. In 1994 and 1993, the Company entered into operating leases for
eight nursing facilities and one assisted living center. The operations of the
nursing facilities and assisted living center acquired are included in Unison's
statements of operations from the date of acquisition.
Summarized below are the unaudited pro forma consolidated results of
operations of Unison for the years ended December 31, 1995 and 1994, assuming
the BritWill Acquisition and the lease agreements were consummated as of January
1, 1994. The unaudited pro forma consolidated results of operations have been
prepared for comparative purposes only and are not necessarily indicative of
what would have occurred had these transactions been made at January 1, 1994 or
of results which may occur in the future.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1994
------------ -----------
<S> <C> <C>
Revenues............................................. $105,392,000 $85,263,000
Net loss............................................. (152,000) (1,721,000)
Net loss per share................................... $(.11) $(1.31)
</TABLE>
F-10
<PAGE> 250
UNISON HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. ACCOUNTS RECEIVABLE
In April 1995, Unison entered into a sales agreement with HealthPartners
Funding, L.P. ("Health Partners") to routinely sell eligible accounts
receivable, consisting primarily of Medicare and Medicaid receivables, up to
$3,000,000 for a discount fee of up to 1.583% of outstanding eligible
receivables purchased under the agreement. As of December 31, 1995 and 1994,
Unison had sold approximately $2,515,267 and $198,000, respectively, of eligible
accounts receivable to HealthPartners.
The proceeds from the sale were in the form of cash of $1,982,276 and
$118,000 as of December 31, 1995 and 1994, respectively, and collateralization
of accounts receivable of $532,991 and $79,981 (included in other current
assets), as of December 31, 1995 and 1994, respectively (Note 5). Under the
terms of the sales agreement, Unison was required to repurchase from
HealthPartners all Medicare and Medicaid receivables which were uncollected
after 60 days, management receivables which were uncollected after 90 days and
cost report settlement receivables which were uncollected after 120 days. As
additional consideration, Unison has granted to HealthPartners warrants to
purchase common stock equal to at least $150,000. See Note 12 for terms of
warrants. In March 1996, the sales agreement was terminated (Note 11).
Certain of the Company's other accounts receivable are pledged as
collateral under a revolving credit facility (Note 11).
5. PREPAIDS AND OTHER ASSETS
A summary of prepaids and other assets as of December 31:
<TABLE>
<CAPTION>
1995 1994
----------- --------
<S> <C> <C>
Prepaid expenses............................................ $1,071,774 $298,011
Inventory................................................... 640,141 173,996
HealthPartners receivable (Note 4).......................... 532,991 79,981
---------- --------
Other current assets........................................ $2,244,906 $551,988
========== ========
</TABLE>
6. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
A summary of equipment and leasehold improvements and related accumulated
depreciation, by major classification, as of December 31:
<TABLE>
<CAPTION>
1995 1994
----------- --------
<S> <C> <C>
Equipment................................................... $2,167,148 $695,949
Leasehold improvements...................................... 1,120,553 52,668
---------- --------
3,287,701 748,617
Less accumulated depreciation............................... (285,478) (41,519)
---------- --------
$3,002,223 $707,098
========== ========
</TABLE>
7. LEASE OPERATING RIGHTS AND OTHER ASSETS
A summary of lease rights and other assets as of December 31:
<TABLE>
<CAPTION>
1995 1994
----------- --------
<S> <C> <C>
Lease operating rights...................................... $36,999,654 $102,646
Capitalized assembled workforce............................. 1,250,000 --
Covenant not to compete..................................... 100,000 --
Management contract and leasing commissions................. 1,205,759 205,553
----------- --------
39,555,413 308,199
Less accumulated amortization............................... (653,298) (27,858)
----------- --------
$38,902,115 $280,341
=========== ========
</TABLE>
F-11
<PAGE> 251
UNISON HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. SECURITY DEPOSITS
A summary of lease deposits as of December 31:
<TABLE>
<CAPTION>
1995 1994
---------- --------
<S> <C> <C>
Security deposits with Omega................................. $2,735,000 $ --
Other deposits............................................... 454,114 179,350
---------- --------
$3,189,114 $179,350
========== ========
</TABLE>
In connection with certain lease agreements with Omega Healthcare
Investors, Inc. ("Omega"), the Company is required to maintain security deposits
with Omega. Omega invests these funds in a mutual fund on behalf of Unison at a
rate of 5.5% at December 31, 1995. BritWill Texas advanced $1,400,000 of the
amount of these deposits to BritWill (Note 11).
9. LINE OF CREDIT
In 1994, Unison maintained a line of credit with a financial institution in
the amount of $950,000, all of which was outstanding at December 31, 1994.
Unison terminated this line of credit agreement in April 1995.
Unison maintained a $6,000,000 revolving line of credit which was secured
by certain of the Company's accounts receivable. As of December 31, 1995,
borrowings under the line of credit amounted to $789,041 with interest payable
at 10.05%. As of December 31, 1995 Unison was not in compliance with respect to
the financial reporting covenants of the line of credit. The line of credit was
terminated in March 1996.
Unison also participated in a revolving credit facility whereby eligible
accounts receivable were sold in an amount up to $3,000,000 (Note 4).
In March 1996, Unison's revolving lines of credit were replaced by a new
$10,000,000 credit facility. Borrowings under this credit facility bear interest
at the prime rate plus 2.0%, mature in 1998 and are secured by the Company's
eligible accounts receivable. The agreement requires Unison to comply with
certain financial and operational covenants including limitations on additional
borrowings and sale of assets and alteration of the existing capital structure.
10. ACCRUED EXPENSES
A summary of accrued expenses as of December 31:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Accrued compensation and benefits............................ $4,594,440 $ 818,418
Accrued severance costs(1)................................... 879,077 --
Due to State Medicaid........................................ 469,968 135,321
Other........................................................ 2,841,336 108,747
---------- ----------
Accrued expenses............................................. $8,784,821 $1,062,486
========== ==========
</TABLE>
- ---------------
(1) Represents an accrual for severence, exit and lease termination costs
incurred in connection with the BritWill Acquisition.
F-12
<PAGE> 252
UNISON HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. NOTES PAYABLE AND LONG-TERM DEBT
A summary of notes payable and long-term debt as of December 31:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1994
----------- --------
<S> <C> <C>
Subordinated Note(1). ............................................... $ 8,000,000 $ --
Term Note(1). ....................................................... 5,601,597 --
Convertible Debenture(1). ........................................... 1,713,995 --
Subordinated notes payable an affiliate(2). ......................... 4,199,369 --
Payable to State of Indiana Medicaid(3) ............................. 3,741,188 --
Noninterest bearing note payable to lessor, monthly payments of
$11,850 commencing in December 1995, due November 1999. ........... 556,950 568,800
Unamortized discount on noninterest bearing note payable to lessor... (164,304) (205,380)
Note payable in annual installments of $133,333 plus interest at the
published Federal rate, due February 1998.......................... 400,000 --
10.0% subordinated notes payable to third party, payable monthly to
August 1998........................................................ 233,599 --
Other................................................................ 561,236 275,349
----------- --------
24,843,630 638,769
Less current portion................................................. (6,459,630) (99,768)
----------- --------
$18,384,000 $539,001
=========== ========
</TABLE>
- ---------------
(1) In connection with the BritWill Acquisition (Note 3), Unison incurred the
following indebtedness to the former shareholders of BritWill: (i) a
short-term note in the amount of $5,601,597 (the "Term Note"); (ii) a
subordinated promissory note in the amount of $8,000,000 (the "Subordinated
Note") and: (iii) a $7,000,000 noninterest-bearing debenture convertible
into 561,815 shares of common stock (the "Convertible Debenture"). The Term
Note, as amended, was repaid in January 1996. The Subordinated Note is
payable in monthly installments of interest only at 8% until March 1997,
with monthly payments of principal and interest thereafter in amounts
ranging from $76,442 to $117,384 with interest ranging from 8% to 10%. The
Subordinated Note is due the earlier of August 9, 2000 or the completion of
a public or private offering (other than the IPO) of debt or equity
securities with gross proceeds of at least $10,000,000. The holder of the
Convertible Debenture converted a portion of the Convertible Debenture in
December 1995 into 424,251 shares of common stock and converted the
remainder on March 28, 1996.
(2) Represents notes payable to BritWill Investments Texas, Ltd. ("BritWill
Texas"), an affiliate of BritWill. Of this amount, $2,799,369 is payable
monthly with interest at 9% to 10% with the balance due in October 2004. The
remaining $1,400,000 represents an advance from BritWill Texas for a lease
security deposit (Note 8). This note bears interest at the rate earned on
the lease deposit, payable quarterly, and is due December 2003.
(3) In March 1995, BritWill received an erroneous Medicaid reimbursement payment
of approximately $4,300,000 related to one of its Indiana facilities.
Negotiations with the State of Indiana's agent regarding such overpayment
resulted in BritWill retaining the funds subject to BritWill's payment of
interest thereon to the State of Indiana at the higher of the prime rate
plus 3.25% or 12%. In April 1996, the Company agreed to terms with the State
of Indiana for the repayment of the remaining $3.7 million balance by which
(i) Unison paid $1.1 million to Indiana in April 1996; (ii) Indiana will
withhold a retroactive rate increase due to Unison in the amount of
approximately $740,000; (iii) Medicaid reimbursement payments with respect
to five of Unison's facilities in Indiana will offset the amount due to the
State for the months of May through July 1996; and (iv) the unpaid balance
will be due in full in
F-13
<PAGE> 253
UNISON HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. NOTES PAYABLE AND LONG-TERM DEBT -- (CONTINUED)
August 1996. Interest is payable at 14%. The Company has reflected the
amount due as long-term because it will utilize its credit facility, which
matures in 1998 (Note 9), to fund these repayments.
Future maturities of notes payable and long-term debt are as follows:
<TABLE>
<S> <C>
Year ending December 31,
1996.............................................. $ 6,459,630
1997.............................................. 6,224,503
1998.............................................. 1,137,909
1999.............................................. 968,105
2000.............................................. 8,577,789
Thereafter............................................. 1,475,694
-----------
$24,843,630
===========
</TABLE>
The terms of the Subordinated Note require the Company to meet certain
financial covenants including current and cash flow ratios. As of December 31,
1995, Unison was in compliance with respect to these covenants.
12. STOCKHOLDER'S EQUITY (DEFICIT)
Effective July 29, 1991, Unison was authorized to issue 100,000 shares of
preferred stock. No shares were issued or outstanding as of December 31, 1994.
Effective August 14, 1995 the authorized number of shares of Preferred Stock was
increased to 1,000,000. The terms and conditions of the preferred stock are at
the discretion of Unison's Board of Directors and will be determined at the time
of issuance.
In December 1995 and January 1996, Unison completed the IPO in which
2,000,000 shares of common stock were issued at $9.00 per share. Proceeds from
the IPO amounted to $14,614,273, net of expenses, of which $9,727,000 was used
to repay debt (Notes 11 and 15). In connection with the IPO, the Company issued
warrants to the representatives of the underwriters to purchase up to 120,000
shares of common stock, at an exercise price of $11.70 per share, in exchange
for certain advisory services to be provided to Unison during the twelve-month
period following the IPO. The warrants are exercisable for a five-year period
beginning in December 1996.
On August 10, 1995, Unison entered into a stock purchase warrant agreement
with HealthPartners. The agreement entitles HealthPartners to purchase shares of
Unison's common stock with an aggregate market value of $150,000, or
approximately 16,667 shares based on the IPO price of $9.00 per share. The
$150,000 market value has been capitalized as a deferred financing cost and is
being amortized over two years. The warrant may be exercised for $.01 per share
at any time up to two years from the IPO date.
Effective December 31, 1994, Unison completed a stock purchase warrant
agreement to satisfy amounts due to an individual whom actively negotiated
several of Unison's management and operating lease agreements. The warrant
agreement, once exercised, allows 178,503 shares of common stock to be purchased
for $200 through December 31, 1997. Warrants for 60,000 shares of stock were
exercised in January 1996. Since the warrants were granted at less than fair
market value, leasehold rights totaling $42,853 have been capitalized and are
being amortized over the respective initial lease term.
13. STOCK OPTIONS
In July 1995, the Board of Directors approved the 1995 Stock Option Plan
(the "1995 Plan"). Up to 511,046 shares of Common Stock have been authorized for
issuance under the 1995 Plan. The 1995 Plan offers two types of options: (i) a
discretionary option grant program (the "Discretionary Program") under
F-14
<PAGE> 254
UNISON HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. STOCK OPTIONS -- (CONTINUED)
which eligible individuals may, at the discretion of the Board of Directors, be
granted options to purchase shares of common stock at an exercise price
determined by the Board of Directors, and (ii) the automatic option grant
program (the "Automatic Program") under which grants of options will
automatically be made at periodic intervals to eligible non-employee Board
members to purchase shares of common stock at an exercise price equal to 100% of
their fair market value on the grant date. Each grant under the Automatic
Program vests over two years and is exercisable for ten years. Options granted
in 1995 under the Discretionary Program vest over periods of two to four years.
In January 1996, the 1995 Plan was amended by the Board of Directors to change
the exercise price of all outstanding options from $10.00 to $9.00 per share,
which was the IPO price (Note 12).
Information regarding the 1995 Plan follows:
<TABLE>
<CAPTION>
DISCRETIONARY AUTOMATIC
PROGRAM PROGRAM
-------------- ---------
<S> <C> <C>
Shares under option:
Outstanding at December 31, 1994..................................... -- --
Granted............................................................ 270,541 38,334
Canceled........................................................... (4,873) --
------- ------
Outstanding at December 31, 1995..................................... 265,668 38,334
======= ======
Option price per share............................................... $9.00 $9.00
</TABLE>
At December 31, 1995, 245,378 shares of common stock were available under
the 1995 Plan for future awards.
14. LEASES
As of December 31, 1995, Unison operated 43 facilities under noncancelable
operating leases with lease terms ranging from five to twenty years plus renewal
options. The lease agreements provide for contingent rental provisions based on
increases in the consumer price index, Medicaid reimbursement rates and number
of licensed beds. Certain of the leases have purchase options determined by a
specified formula. Unison is responsible for all taxes, maintenance and other
executory costs.
Unison leases 14 facilities from Omega, of which nine facilities are in
Indiana and five are in Texas. Each of the Omega leases expires in 2005 and
allows Unison up to three five-year renewal options. The Omega leases require
the Company to pay stated rent, with annual increases based upon the greater of
5% of incremental revenues or the Consumer Price Index, but limited to a maximum
annual increase of 5%. The Omega leases grant the Company the right, but not the
obligation, to purchase the Omega facilities upon the expiration of the initial
lease term.
The Company leases six facilities located in Texas from BritWill Texas for
an initial term that expires in December 2005. The lease agreement requires
Unison to pay monthly amounts equal to (i) the amount of monthly payments made
by BritWill Texas to Omega pursuant to a loan agreement which provided the
financing for BritWill's purchase of the six facilities; (ii) all payments due
from lessees related to the facilities that are subleased; and (iii) payment of
certain third-party seller subordinated notes incurred in connection with the
acquisition of the six facilities.
Covenants to the Omega leases and the BritWill Texas leases require
maintenance of specified operating ratios, levels of working capital and net
worth. As of December 31, 1995, the Company was not in compliance with the cash
flow to debt covenant. Omega has agreed to waive this covenant as of December
31, 1995. The
F-15
<PAGE> 255
UNISON HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. LEASES -- (CONTINUED)
financial covenant tests will next be applied for the first quarter of 1996, and
the Company expects to be in compliance with the covenants for such period.
In connection with the BritWill Acquisition, Unison recorded a leasehold
liability in the amount of $4,700,000. This adjustment was based on an
independent appraisal which valued the present value of the BritWill lease
obligations based on market lease rates. The leasehold liability is being
amortized over the aggregate lease term of approximately 25 years.
Future minimum lease payments at December 31, 1995, by year and in the
aggregate, under noncancelable operating lease arrangements with initial or
remaining terms of one year or more consist of the following:
<TABLE>
<S> <C>
1996........................................................... $ 10,779,459
1997........................................................... 10,868,398
1998........................................................... 10,915,673
1999........................................................... 10,859,043
2000........................................................... 10,358,871
Thereafter..................................................... 68,001,637
------------
$121,783,081
============
</TABLE>
Unison's lease payments are personally guaranteed to $13,500,000 by the
Chairman of the Board as well as secured by substantially all the personal
property of Unison. Unison's lease payments are senior to all unsecured debt.
15. RELATED PARTY TRANSACTIONS
In connection with the BritWill Acquisition (Note 3) Unison entered into
the following transactions. The Term Note, Subordinated Note and Convertible
Debenture issued as consideration for the BritWill Acquisition were issued to
the former shareholders of BritWill (Note 11). The primary BritWill shareholder
receiving payments was Whitehead Family Investments, Ltd. ("WFI"), which owned
81.5% of the stock of BritWill prior to the BritWill Acquisition. Bruce H.
Whitehead, Chairman of the Board of Unison, is the president of the general
partner of WFI and, together with a family trust, owns 100% of WFI.
In connection with the BritWill Acquisition, a note payable to WFI in the
amount of $3,375,000 was repaid with the proceeds from the IPO. Subsequent to
the BritWill Acquisition, Unison also incurred notes payable to WFI in the
aggregate amount of $750,000 bearing interest at the rate of 12%. These notes
were repaid with the proceeds from the IPO.
Certain obligations of Unison to Omega, the owner of 14 facilities that the
Company leases in Indiana and Texas are guaranteed by Bruce H. Whitehead. Unison
also leases six facilities in Texas from BritWill Texas. Lease expense on these
facilities for the five months ended December 31, 1995 amounted to $504,660. See
Note 14.
With the BritWill Acquisition, Unison also assumed unsecured notes payable
to BritWill Texas with an aggregate balance at December 31, 1995 of $2,799,369
(Note 11). Interest expense on these notes amounted to $83,993 for the five
months ended December 31 1995.
F-16
<PAGE> 256
UNISON HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. TAXES
The components of the provision (benefit) for income taxes follow:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
------- ------ --------
<S> <C> <C> <C>
Current:
Federal............................................. $ -- $ -- $ (4,562)
State............................................... -- 1,180 1,150
Deferred:
Federal............................................. 42,500 -- (14,488)
State............................................... 7,500 -- (2,517)
------- ------ --------
$50,000 $1,180 $(20,417)
======= ====== ========
</TABLE>
The difference between Unison's effective income tax rates and the
statutory rates are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Statutory federal income tax expense (benefit)............. $ 8,160 $(22,658) $(52,304)
Increases (decreases) resulting from:
Benefit of graduated income tax.......................... -- -- 5,799
Amortization of intangibles and nondeductible expenses... 91,099 -- --
State tax expense (benefit) net of federal benefit....... 4,950 779 (821)
Valuation allowance...................................... (56,322) 25,057 31,275
Other.................................................... 2,113 (1,998) (4,366)
-------- -------- --------
Income tax expense (benefit)............................... $ 50,000 $ 1,180 $(20,417)
======== ======== ========
</TABLE>
Deferred income taxes reflect the tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Temporary differences are
primarily attributable to reporting for income tax purposes certain items of
income and expense using a cash basis of accounting and recognition of
depreciation using the accelerated cost recovery system.
Significant components of the deferred taxes follow:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------
1995 1994
----------------------- --------------------
CURRENT LONG-TERM CURRENT LONG-TERM
--------- ----------- -------- ---------
<S> <C> <C> <C> <C>
Deferred liabilities:
Intangibles....................................... $ -- $(9,937,608) $ -- $ --
Accelerated depreciation.......................... -- (30,810) -- (8,210)
Cash to accrual adjustment........................ (908,339) -- (99,104) --
--------- ----------- -------- --------
Total liabilities................................... (908,339) (9,968,418) (99,104) (8,210)
Deferred assets:
Allowance for doubtful accounts................... 205,699 -- -- --
Net operating loss
carryforward................................... -- 1,795,258 -- 163,646
Valuation allowance............................... -- -- -- (56,332)
--------- ----------- -------- --------
Total assets........................................ 205,699 1,795,258 -- 107,314
--------- ----------- -------- --------
Total net asset (liability)......................... $(702,640) $(8,173,160) $(99,104) $ 99,104
========= =========== ======== ========
</TABLE>
F-17
<PAGE> 257
UNISON HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. TAXES -- (CONTINUED)
The increase in deferred taxes and the elimination of the valuation reserve
was due to the application of the provisions of SFAS 109 with respect to the
treatment of basis differences between assets acquired and liabilities assumed
in the BritWill acquisition. At December 31, 1995, the Company has consolidated
net operating loss carryforwards which approximate $4,500,000 and begin to
expire in 2007 for federal income tax purposes and 1999 for state income tax
purposes. With respect to the change in ownership certain of the net operating
loss carryforwards could be subject to annual limitations.
17. FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of Unison's financial instruments as
of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
----------- -----------
<S> <C> <C>
Notes payable and long-term debt.......................... $24,843,630 $24,206,644
</TABLE>
The carrying amounts reported in the balance sheet for cash, accounts
receivable, lease deposits, accounts payable and borrowings under revolving
lines of credit approximate their fair value. The fair value of the Company's
long-term borrowings is estimated by discounting future cash flows at current
rates offered to Unison for debt of comparable types and maturities. Because no
market exists for these financial instruments, considerable judgment is
necessary in interpreting the data to develop estimates of fair value. The use
of different market assumptions may have a material effect on the estimated fair
value amounts.
18. INSURANCE
Health care companies are subject to medical malpractice, personal injury
and other liability claims that are customary risks inherent in the operation of
health facilities and are generally covered by insurance. Unison maintains
property, liability and professional malpractice insurance policies through
commercial carriers on a claims made basis in amounts and with such coverages
and deductibles that are deemed appropriate by management, based upon historical
claims, industry standards and the nature and risks of its business. There can
be no assurance that a future claim will not exceed available insurance
coverages or that such coverages will continue to be available for the same
scope of coverages at reasonable premium rates. Any substantial increase in the
cost of such insurance or the unavailability of any such coverages could have an
adverse effect on Unison's business. However, based upon the evaluation of
Unison's historical asserted and unasserted claim experience, management
believes that the ultimate liability, if any, resulting from the settlement of
any future claim will not have a material impact on Unison's financial position,
operations or liquidity.
Unison maintains workers compensation coverage on its facilities with the
exception of certain facilities located in Texas. The reserve for workers
compensation claims amounts to $184,000 at December 31, 1995 and is included in
accrued expenses. The Company believes that this reserve for asserted and/or
unasserted claims is adequate based on historical results.
19. COMMITMENTS
The Company entered into an agreement with Trouver to provide financial
advisory services in connection with the Company's financing and business
acquisition plans. Trouver is compensated by the Company based on a percentage,
ranging from 1.5% to 10.0%, based on the type of transaction consummated (see
Note 3).
F-18
<PAGE> 258
UNISON HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20. SUBSEQUENT EVENTS
On March 28, 1996, Unison entered into a definitive purchase and sale
agreement for the acquisition, effective February 1, 1996, of 90% of the
outstanding common stock of each of four rehabilitation therapy service centers
(the "Centers"). In consideration for the stock of the Centers, Unison paid
$800,000 in cash, issued term notes in the aggregate amount of $1,000,000 (the
"Notes") and issued convertible subordinated debentures in the aggregate amount
of $1,800,000 (the "Debentures"). In addition, contingent payments will be due
if specified revenue targets are obtained. Both the Notes and Debentures are
convertible into shares of Unison common stock at the option of the holder. The
transaction will be accounted for as a purchase.
F-19
<PAGE> 259
UNISON HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
JUNE 30, DECE,BER 31,
1996 1995
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 847 $ 6,097
Accounts receivable -- patient, less allowance for doubtful
accounts of $829 at June 30, 1996 and $709 at December 31,
1995........................................................... 19,624 14,771
Accounts receivable -- other, less allowance for doubtful accounts
of $74 at June 30, 1996 and December 31, 1995.................. 2,528 1,852
Prepaid expenses and other current assets......................... 2,413 2,245
------- -------
Total current assets........................................... 25,412 24,965
Lease operating rights and other assets, net........................ 39,329 38,902
Goodwill, net....................................................... 11,195 7,473
Property and equipment, net......................................... 5,548 3,002
Security deposits................................................... 3,259 3,189
------- -------
$84,743 $77,531
======= =======
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit.................................................... $ -- $ 789
Accounts payable.................................................. 7,826 9,437
Accrued expenses.................................................. 8,384 8,785
Notes payable and current portion of long-term debt due to
affiliates..................................................... 2,619 5,824
Current portion of other notes and long-term debt................. 957 636
Deferred taxes.................................................... 778 703
------- -------
Total current liabilities...................................... 20,564 26,174
Line of credit...................................................... 8,742 --
Notes payable and long-term debt due to affiliates.................. 12,271 13,691
Other notes payable and long-term debt.............................. 6,522 4,693
Deferred taxes...................................................... 9,030 8,173
Leasehold liability, net............................................ 4,528 4,621
Other long-term liabilities......................................... 200 294
------- -------
Total liabilities.............................................. 61,857 57,646
------- -------
Stockholders' equity:
Common stock, $.001 par value; 10,000,000 shares authorized;
3,871,312
and 3,673,748 issued and outstanding at June 30, 1996
and December 31, 1995.......................................... 3 2
Additional paid-in capital........................................ 21,804 20,091
Retained earnings (accumulated deficit)........................... 1,079 (208)
------- -------
Total stockholders' equity..................................... 22,886 19,885
------- -------
$84,743 $77,531
======= =======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
F-20
<PAGE> 260
UNISON HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
1996 1995 1996 1995
--------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Net patient revenue......................... $ 32,480 $ 6,598 $ 63,442 $ 12,415
Management fees............................. 227 470 557 936
Other....................................... 566 52 998 92
--------- --------- --------- ---------
Total revenues........................... 33,273 7,120 64,997 13,443
Expenses:
Wages and related........................... 16,488 3,926 32,447 7,486
Other operating............................. 10,638 2,382 21,172 4,587
Rent........................................ 3,238 594 6,653 1,151
Interest.................................... 842 138 1,452 183
Depreciation and amortization............... 584 50 1,054 88
--------- --------- --------- ---------
Total expenses........................... 31,790 7,090 62,778 13,495
--------- --------- --------- ---------
Income (loss) before income taxes............. 1,483 30 2,219 (52)
Income tax expense............................ 632 -- 932 1
--------- --------- --------- ---------
Net income (loss)............................. $ 851 $ 30 $ 1,287 $ (53)
========= ========= ========= =========
Net income (loss) per share:
Primary..................................... $.21 $.02 $.32 $(.04)
Fully diluted............................... .21 .02 .31 (.04)
Shares used in per share calculation:
Primary..................................... 4,082,723 1,266,164 4,070,169 1,266,164
Fully diluted............................... 4,129,309 1,266,164 4,131,955 1,266,164
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition
and Results of Operations.
F-21
<PAGE> 261
UNISON HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------
1996 1995
----------- -------
(UNAUDITED)
<S> <C> <C>
Net cash provided by (used in) operating activities (including changes
in all operating assets and liabilities)............................. $ (4,262) $1,295
-------- ------
Cash flows from investing activities:
Purchase of equipment and leasehold improvements..................... (2,010) (236)
Increase in intangibles and other assets............................. (1,022) (27)
Increase in lease deposits........................................... (70) (63)
Acquisitions......................................................... (932) --
-------- ------
Net cash used in investing activities............................. (4,034) (326)
-------- ------
Cash flows from financing activities:
Net increase in borrowings under revolving lines of credit........... 7,953 (950)
Proceeds from long-term debt......................................... 5,131 71
Payments of principal on long-term debt.............................. (10,038) (47)
-------- ------
Net cash provided by (used in) financing activities............... 3,046 (926)
-------- ------
Net increase (decrease) in cash........................................ (5,250) 43
Cash and cash equivalents at beginning of period....................... 6,097 118
-------- ------
Cash and cash equivalents at end of period............................. $ 847 $ 161
======== ======
Supplemental disclosures:
Cash paid for:
Interest............................................................. $ 985 $ 163
Income taxes......................................................... -- --
Acquisitions:
Increase in assets................................................... 5,031 --
Liabilities assumed and incurred..................................... 4,031 --
Conversion of debenture into shares of common stock.................... 1,714 --
Equipment purchased under capital lease................................ 648 --
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition
and Results of Operations.
F-22
<PAGE> 262
UNISON HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The unaudited financial information furnished herein, in the opinion of
management, contains all adjustments which are necessary to state fairly the
financial position, cash flows and results of operations of Unison HealthCare
Corporation and its subsidiaries ("Unison" or the "Company") as of and for
the periods indicated. Unison presumes that users of the interim financial
information herein have read or have access to the audited financial
statements and Management's Discussion and Analysis of Financial Condition
and Results of Operations for the preceding fiscal year and that the adequacy
of additional disclosure needed for a fair presentation, except in regard to
material contingencies, may be determined in that context. Accordingly,
footnote and other disclosures which would substantially duplicate the
disclosures contained in Unison's most recent annual report to stockholders
have been omitted. Operating results for the three months and six months
ended June 30, 1996 are not necessarily indicative of the results which may
be expected for the year ending December 31, 1996.
2. The provision for doubtful accounts receivable is included in other operating
expenses. Provisions totaled $110,000, $321,000, $31,000 and $50,000 for the
three months and six months ended June 30, 1996 and 1995, respectively.
3. On March 28, 1996, Unison entered into a definitive purchase and sale
agreement for the acquisition, effective February 1, 1996, of 90% of the
common stock of four rehabilitation therapy centers (collectively, "Sunbelt
Therapy"). In consideration for the stock of Sunbelt Therapy, Unison paid
$800,000 in cash, issued term notes for $1,000,000 in the aggregate (the
"Notes") and issued subordinated convertible debentures totaling $1,800,000
(the "Debentures"). In addition, contingent payments will be due if specified
pretax income targets are achieved. The Notes and Debentures bear interest at
10%, payable quarterly beginning May 1, 1996, and are convertible into Unison
common stock at the option of the holder at a conversion price equal to the
average closing price (85% of the average closing price with respect to the
Notes) of Unison's common stock for the 20-day trading period preceding the
date of conversion. The Notes mature in equal principal amounts on February
1, 1997 and 1998, and the Debentures mature in equal principal amounts on
February 1, 1997, 1998 and 1999. The transaction was accounted for as a
purchase.
In August 1995, Unison acquired BritWill HealthCare Company ("BritWill"), a
long-term care company operating 28 facilities in Texas and Indiana. The
transaction was accounted for as a purchase.
Summarized below are the unaudited pro forma consolidated results of
operations of Unison for the periods indicated, assuming the acquisitions
were consummated as of January 1, 1995. The amounts reflect pro forma
adjustments for interest on new debt and amortization of intangible assets
and leasehold liabilities. The unaudited pro forma consolidated results of
operations have been prepared for comparative purposes only and are not
necessarily indicative of what would have occurred had these transactions
been made at January 1, 1995 or of results which may occur in the future.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1996 1995 1996 1995
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE)
<S> <C> <C> <C> <C>
Revenues............................ $33,273 $23,969 $65,541 $48,977
Net income (loss)................... 871 (381) 1,281 (787)
Net income (loss) per share......... $.21 $(.30) $.31 $(.62)
</TABLE>
4. In January 1996, Unison acquired an institutional pharmacy in Indiana. In
consideration for the $600,000 purchase price, the Company paid cash in the
amount of $200,000 and issued a note payable amounting to $400,000. The
acquisition was accounted for as a purchase. Had this transaction occurred as
of January 1, 1995, the pro forma effect on Unison's results of operations
for the three and six months ended June 30, 1996 and 1995 would have been
immaterial.
F-23
<PAGE> 263
UNISON HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. In March 1996, Unison replaced its revolving lines of credit with a new
$10,000,000 revolving credit facility. Borrowings under this credit facility
bear interest at the prime rate plus 2.0% (10.25% at June 30, 1996), mature
in 1998 and are secured by the Company's eligible accounts receivable. The
credit agreement requires Unison to comply with certain financial and
operational covenants including limitations on additional borrowings and
sales of assets and alteration of the existing capital structure. Unison also
executed promissory notes with a lessor in the aggregate amount of $4,000,000
with interest at 10.25% to 10.75%. The notes are guaranteed by Jerry M.
Walker, the Company's President. In May 1996, Unison executed a promissory
note payable to the agent for the former holders of BritWill stock
immediately prior to the acquisition of BritWill in the amount of $1,000,000.
Interest is payable at 12.0% and the note is due on demand after 30 days from
issuance.
6. On July 3, 1996, Unison, through a newly formed wholly owned subsidiary,
entered into an Agreement and Plan of Merger (the "Ampro Agreement") with
American Professional Holding, Inc. ("Ampro"). In the merger, the outstanding
shares of Ampro Common Stock will be converted into the right to receive that
number of shares of Unison Common Stock obtained by dividing 521,000 by the
number of issued and outstanding shares of Ampro prior to the effective time
of the Merger. Unison also entered into an Agreement and Plan of Merger (the
"Memphis Agreement") with Memphis Clinical Laboratory, Inc. ("Memphis"). In
the merger, three shareholders who own approximately 35% of the outstanding
shares of Memphis will receive pro rata portions of 19,000 shares of Unison
Common Stock and the holder of the remaining shares of Memphis will receive
cash in the estimated amount of $233,750 and a promissory note in the amount
of $250,000. The Ampro Agreement and the Memphis Agreement are mutually
contingent and subject to shareholder and regulatory approvals. The mergers
will be accounted for as poolings of interests.
On August 2, 1996, the Company entered into agreements for the acquisition of
Signature Health Care Corporation ("Signature Health Care") and four
affiliated companies, Douglas Manor, Inc. ("Douglas"), Safford Care, Inc.
("Safford"), Arkansas, Inc. ("Arkansas"), and Cornerstone, Inc.
("Cornerstone" and collectively with Signature Health Care, Douglas, Safford
and Arkansas, "Signature"). Signature operates 13 long-term care facilities
in Colorado and Arizona. Through mergers with each of the Signature companies
and newly formed wholly owned subsidiaries of the Company, each of the
Signature companies will become wholly owned subsidiaries of Unison.
Outstanding shares of Signature Health Care will be converted into the right
to receive, subject to certain adjustments, cash equal to approximately
$10,200,000 and shares of Unison's Common Stock equal to approximately
$20,000,000. Outstanding shares of Douglas, Safford, Arkansas and Cornerstone
will be converted into the right to receive, subject to certain adjustments,
cash equal to approximately $28,000,000 in the aggregate. The merger
agreements are subject to regulatory and shareholder approval. The mergers
will be accounted for as purchases.
7. Effective August 1, 1996, Unison acquired the leasehold rights to two skilled
nursing facilities located in the State of Washington with an aggregate of
222 beds. These facilities were previously operated by Unison under a
management contract. Summarized below are the unaudited pro forma
consolidated results of operations of Unison for the periods indicated,
assuming the acquisitions were consummated as of January 1, 1995. The
unaudited pro forma consolidated results of operations have been prepared for
comparative purposes only and are not necessarily indicative of what would
have occurred had this transaction been made at January 1, 1995 or of results
which may occur in the future.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ -------------------
1996 1995 1996 1995
------- ------ ------- -------
<S> <C> <C> <C> <C>
Revenues..................................... $34,329 $8,366 $67,394 $15,988
Net income (loss)............................ 785 (116) 1,099 (339)
Net income per share......................... $.19 $(.09) $.27 $(.27)
</TABLE>
F-24
<PAGE> 264
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
BritWill HealthCare Company
We have audited the accompanying consolidated statement of operations and
cash flows of BritWill HealthCare Company for the month ended July 31, 1995. Our
audit also included the financial statement schedule listed in the Index at Item
14(a). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of BritWill
HealthCare Company for the one month ended July 31, 1995, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
Phoenix, Arizona
April 10, 1996
F-25
<PAGE> 265
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of BritWill HealthCare Company
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of BritWill
HealthCare Company and its subsidiaries at June 30, 1995 and at December 31,
1994 and 1993, and the results of their operations and their cash flows for the
six month period ended June 30, 1995 and for each of the two years in the period
ended December 31, 1994, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Dallas, Texas
November 8, 1995
F-26
<PAGE> 266
BRITWILL HEALTHCARE COMPANY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................... $ 355,864 $ 560,879 $ 858,606
Accounts receivable, less allowance for doubtful accounts of
$480,039, $997,246 and $790,867, respectively............... 4,393,837 6,855,716 7,599,464
Due from third party payors, net............................... 137,974 1,149,319 2,290,066
Inventories.................................................... 319,417 433,483 442,033
Due from affiliates............................................ 7,482 369,234 512,594
Prepaid expenses............................................... 333,197 400,307 486,874
Other receivables.............................................. 33,848 18,831 31,151
Security deposits.............................................. 500,000 637,517
Restricted cash................................................ 600,000 645,000 45,000
----------- ----------- -----------
Total current assets........................................ 6,181,619 10,932,769 12,903,305
Furniture, fixtures and equipment, net........................... 838,741 1,399,216 2,210,682
Other assets, net................................................ 6,966,794 6,971,077 6,827,126
Deferred charges, net............................................ 650,815 573,629 537,321
Security deposits................................................ 1,335,000 2,376,344 2,237,944
----------- ----------- -----------
Total assets................................................ $15,972,969 $22,253,035 $24,716,378
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................... $ 2,568,153 $ 6,249,936 $ 5,133,964
Accrued expenses............................................... 1,998,684 3,495,450 7,002,347
Notes payable due affiliates................................... 316,160 668,268 528,230
Notes payable.................................................. 800,000 612,473
Income taxes payable........................................... 51,750 52,896 92,126
----------- ----------- -----------
Total current liabilities................................... 5,734,747 11,079,023 12,756,667
Revolving line of credit......................................... 1,672,577
Subordinated long-term debt due affiliates....................... 6,135,694 8,354,868 8,488,465
Other long-term debt............................................. 1,184,146 48,183
----------- ----------- -----------
Total liabilities........................................... 11,870,441 20,618,037 22,965,892
----------- ----------- -----------
Commitments and contingencies
Shareholders' equity:
Common stock, $1.00 par value; authorized 1,000,000 shares;
389,750 issued and outstanding in 1993, 421,050 in 1994 and
424,050 in 1995............................................. 389,750 421,050 424,050
Additional paid-in capital..................................... 5,176,836 4,705,540 4,714,469
Treasury stock, 42,600 and 54,650 shares in 1994 and 1995,
respectively, at par........................................ (42,600) (54,650)
Accumulated deficit............................................ (1,464,058) (3,448,992) (3,333,383)
----------- ----------- -----------
Total shareholders' equity.................................. 4,102,528 1,634,998 1,750,486
----------- ----------- -----------
Total liabilities and shareholders' equity.................. $15,972,969 $22,253,035 $24,716,378
=========== =========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-27
<PAGE> 267
BRITWILL HEALTHCARE COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ONE MONTH
DECEMBER 31, ENDED JUNE ENDED
------------------------- 30, JULY 31,
1993 1994 1995 1995
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues:
Patient care services, net........................... $32,106,741 $53,800,520 $32,723,297 $5,655,071
Management fee from related parties.................. 348,655 251,186 40,430
Other income......................................... 130,107 373,239 228,426 207,270
Other related party income........................... 146,000
----------- ----------- ----------- -----------
Total revenues.................................... 32,731,503 54,424,945 32,992,153 5,862,341
----------- ----------- ----------- -----------
Expenses:
Salaries and contract labor.......................... 19,407,858 32,634,732 19,812,601 3,467,433
Rent................................................. 5,097,014 8,263,642 4,448,134 775,136
Supplies............................................. 3,499,445 6,686,572 4,134,207 716,037
General and administrative........................... 3,670,420 6,252,183 3,255,917 614,191
Depreciation and
amortization...................................... 703,595 986,812 500,682 90,803
Bad debt............................................. 524,333 644,471 21,442 48,631
Other................................................ 50,623 71,529 10,731 121,900
----------- ----------- ----------- -----------
Total expenses.................................... 32,953,288 55,539,941 32,183,714 5,834,131
----------- ----------- ----------- -----------
Income (loss) from
operations........................................ (221,785) (1,114,996) 808,439 28,210
Interest income (expense):
Interest income................................... 64,575 54,545 109,309 3,878
Interest expense.................................. (131,764) (226,587) (105,127)
Related party interest
expense......................................... (384,945) (739,823) (485,265) (88,977)
----------- ----------- ----------- -----------
Income (loss) before income taxes.................... (542,155) (1,932,038) 205,896 (162,016)
Provision for income taxes........................... 51,750 52,896 26,000 4,500
----------- ----------- ----------- -----------
Net income (loss).................................... $ (593,905) $(1,984,934) $ 179,896 $ (166,516)
=========== =========== =========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-28
<PAGE> 268
BRITWILL HEALTHCARE COMPANY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993 AND 1994
AND THE SIX MONTHS ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK
------------------ PAID-IN ----------------- ACCUMULATED
SHARES AMOUNT CAPITAL SHARES AMOUNT DEFICIT TOTAL
------- -------- ---------- ------ -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992....... 389,750 $389,750 $5,099,827 $ (870,153) $ 4,619,424
Contribution of assets and
liabilities -- net (Note
1)........................... 77,009 77,009
Net loss....................... (593,905) (593,905)
------- -------- ---------- ------ ------ ---------- ----------
Balance, December 31, 1993....... 389,750 389,750 5,176,836 (1,464,058) 4,102,528
Common stock issued............ 31,300 31,300 (23,475) 7,825
Employee receivable due to
common stock issued.......... (7,825) (7,825)
Rescission of shares due to
employee terminations........ 42,600 42,600 $(42,600)
Excess consideration over
historical cost of assets
acquired in a purchase
combination
(Note 1)..................... (482,596) (482,596)
Net loss....................... (1,984,934) (1,984,934)
------- -------- ---------- ------ ------ ---------- ----------
Balance, December 31, 1994....... 421,050.. 421,050 4,705,540 42,600 (42,600) (3,448,992) 1,634,998
Common stock issued............ 3,000 3,000 (2,250) 750
Employee receivable due to
common stock issued.......... (750) (750)
Purchase of shares due to
employee terminations........ 11,929 12,050 (12,050) (64,287) (64,408)
Net income..................... 179,896 179,896
------- -------- ---------- ------ ------ ---------- ----------
Balance, June 30, 1995........... 424,050 $424,050 $4,714,469 54,650 $(54,650) $(3,333,383) $ 1,750,486
======= ======== ========== ====== ====== ========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-29
<PAGE> 269
BRITWILL HEALTHCARE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS
ENDED ONE MONTH
------------------------- JUNE 30, ENDED
1993 1994 1995 JULY 31, 1995
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................. $ (593,905) $(1,984,934) $ 179,896 $ (166,516)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization................... 703,595 1,083,779 574,065 90,803
Increase in accounts receivable................. (2,099,490) (2,461,879) (743,748) (100,036)
(Increase) decrease in amounts due from third
party payors.................................. (105,844) (1,011,345) (1,140,747) 895,801
Decrease (increase) in inventories.............. 77,564 (114,066) (8,550)
Increase in due from affiliates................. (152,825) (361,752) (143,360)
Increase in prepaid expenses.................... (321,615) (67,110) (86,567) (19,097)
(Increase) decrease in other receivables........ (33,848) 15,017 (12,320) (1,047)
(Increase) decrease in other assets and deferred
charges....................................... (69,733) (173,037) 67,370
Payment for restricted cash..................... (45,000)
(Increase) decrease in security deposits........ (141,344) 883 (13,119)
(Decrease) increase in accounts payable......... 1,298,397 3,681,783 (1,115,972) (1,604,192)
Increase in accrued expenses.................... 743,237 1,156,766 3,506,897 90,725
Increase (decrease) in income taxes payable..... 51,750 1,146 39,230 (19,749)
----------- ----------- ----------- -----------
Net cash (used in) provided by operating
activities.................................... (432,984) (318,672) 876,670 (779,057)
----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchase of furniture and equipment................ (366,366) (551,714) (485,009) (136,997)
Purchase of facilities from related party, net of
liabilities of $340,000......................... (482,596)
Construction in progress........................... (170,904) (436,169)
----------- ----------- ----------- -----------
Net cash used in investing activities........... (366,366) (1,205,214) (921,178) (136,997)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of notes payable............ 1,380,000 2,283,823
Proceeds from revolving line of credit............. 1,672,577 1,082,377
Payments on notes payable and long-term debt....... (569,685) (364,922) (1,754,875) (117,894)
(Payment for) receipt of restricted cash........... (600,000) 600,000
Payment for debt issuance costs.................... (190,000) (111,059)
Repurchase of shares............................... (64,408)
----------- ----------- ----------- -----------
Net cash provided by financing activities....... 210,315 1,728,901 342,235 964,483
----------- ----------- ----------- -----------
Net (decrease) increase in cash and cash
equivalents........................................ (589,035) 205,015 297,727 48,429
Cash and cash equivalents at beginning of period..... 944,899 355,864 560,879 858,606
----------- ----------- ----------- -----------
Cash and cash equivalents at end of period........... $ 355,864 $ 560,879 $ 858,606 $ 907,035
=========== =========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest........................................ $ 403,954 $ 684,615 $ 296,562 $ 82,069
Income taxes.................................... 150 51,502
Supplemental schedule of noncash investing and
financing activities:
Security deposit with Omega through issuance of
note............................................ 1,400,000
Acquisition of other intangibles through issuance
of note......................................... 3,331,547 249,000
Contribution of inventory and accrued
liabilities -- net.............................. 77,009
</TABLE>
See accompanying notes to the consolidated financial statements.
F-30
<PAGE> 270
BRITWILL HEALTHCARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1994 AND
FOR THE SIX MONTHS THEN ENDED IS UNAUDITED)
1. ORGANIZATION AND NATURE OF BUSINESS
BritWill HealthCare Company (the "Company") was organized as a Delaware
corporation on August 5, 1992. The Company leases and manages long-term care
facilities located throughout Texas and Indiana. The Company commenced
operations on December 24, 1992. At that time, BritWill Investments -- Indiana
L.P. (BI-Indy), an affiliate of the Company, managed thirteen long-term care
facilities owned by Cloverleaf Enterprises, Inc. Such facilities were leased and
operated by Sherwood Healthcare Corp. (Sherwood) and Cedar Care, Inc. (Cedar
Care). Under the terms of a management agreement, BI-Indy exercised its options
to acquire nine of these facilities and acquire the leasehold rights to the
remaining four facilities from Cloverleaf Enterprises, Inc. Concurrently, the
nine facilities were sold by BI-Indy to Omega Healthcare Investors, Inc. (Omega)
and leased back under a "Master Lease" agreement by BritWill Investments -- I
(BI-1), a subsidiary of the Company. The leasehold rights to the four facilities
were contributed to BI-1 by BI-Indy. Further, BI-Indy assigned the two
management agreements for these thirteen facilities to BI-1.
In December 1993, BritWill Investments Texas, Ltd. (BI-TX), an affiliate of
the Company, entered into purchase agreements for six long-term care facilities
and entered into lease agreements for three facilities with third-party lessors.
The total consideration paid by BI-TX was approximately $18,440,000. BI-TX
financed these transactions through two participating mortgages with Omega
totaling $14,760,000 and the sale of five facilities to Omega for $13,810,000.
BritWill Investments -- II (BI-2), a subsidiary of the Company, then entered
into a noncancelable operating lease ("Texas Master Lease") with Omega for the
five facilities sold by BI-TX and also entered into two noncancelable operating
lease and sublease agreements for six facilities either owned or leased by
BI-TX.
During 1993, BI-TX conveyed supply inventories and certain liabilities and
other accrued expenses from the facilities to BI-2. No consideration was paid by
BI-2 to BI-TX for the inventory and BI-TX did not give BI-2 any consideration
for the transfer of the liabilities and accrued expenses. The amount by which
the predecessor cost of the inventory exceeded the assumed liabilities, $77,009,
was recognized as additional paid-in capital.
Effective November 1, 1994, BI-2 purchased the net assets of two nursing
homes operated by Avalon Care, Inc. ("Avalon"), an affiliated company. The
nursing homes acquired were: Elkhart Manor ("Elkhart") and Oakwood Health Care
Center ("Oakwood") facilities. Avalon assigned the responsibilities and rewards
of the Elkhart and Oakwood operating leases to BI-2. As consideration for the
purchase of the leases, BI-2 forgave intercompany debt from Avalon. The amount
by which the consideration paid exceeded the predecessor cost of the acquired
assets less the assumed liabilities and forgiveness of debt, $482,496, was
recognized as a reduction of additional paid-in capital.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries, consisting of BI-1 and BI-2. The financial statements
include the accounts of Cedar Care and Sherwood since December 24, 1992.
Although the Company has no ownership interest in Cedar Care or Sherwood, these
companies are consolidated because the Company has unilateral and perpetual
control over the assets and operations of these companies due to the management
agreements. Under these management agreements, managerial control and operating
proceeds have been transferred directly to BI-1. Fees under the management
agreements are based upon the revenues of Cedar Care and Sherwood from the
facilities, such that all net income of Cedar Care and Sherwood is paid to BI-1.
All significant intercompany accounts and transactions have been eliminated.
F-31
<PAGE> 271
BRITWILL HEALTHCARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
Cash and cash equivalents
Cash and cash equivalents include amounts held in demand deposits at
financial institutions and all highly liquid investments that have an original
maturity of three months or less.
Restricted cash
Restricted cash consists of a $600,000 certificate of deposit that is
collateral for a $600,000 bank note payable and a $45,000 certificate of deposit
assigned to a third party as security for payment of insurance claims. As of
June 30, 1995, restricted cash consists of the $45,000 certificate of deposit.
Revenue and accounts receivable
Revenues are derived from patient care services and management fees of
nursing homes not owned or leased by the Company. Credit risk exists to the
extent that the most significant source of revenue is reimbursement for patient
care from state sponsored Medicaid programs in Texas and Indiana and from
Medicare. However, management does not believe that there are any significant
credit risks associated with these governmental agencies. Payments from such
programs are based on cost as defined under the programs, and associated
revenues are presented net of provisions to reduce customary charges to amounts
receivable from such programs. Revenues from private sources are recognized
based upon established charges. Reserves are provided for receivables estimated
to be uncollectible and are adjusted periodically based on the Company's
evaluation of industry conditions, historical collection experience and other
relevant factors.
The following table summarizes the approximate percent of net patient
revenues and accounts receivable from such payors:
<TABLE>
<CAPTION>
NET REVENUE ACCOUNTS RECEIVABLE
------------------------------------------- --------------------------
SIX MONTHS ONE MONTH
DECEMBER 31, ---------- ---------- DECEMBER 31,
------------- JUNE 30, JULY 31, ------------- JUNE 30,
1993 1994 1995 1995 1993 1994 1995
---- ---- ---------- ---------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Medicaid...................... 64.3% 60.5% 53.7% 53.9% 72.1% 57.9% 62.8%
Medicare...................... 5.0 17.6 28.6 28.6 13.8 26.9 25.4
Private....................... 21.5 20.1 16.0 15.9 11.1 9.9 7.9
Other......................... 9.2 1.8 1.7 1.6 3.0 5.3 3.9
---- ---- ---- ---- ---- ---- ----
100% 100% 100% 100% 100% 100% 100%
==== ==== ==== ==== ==== ==== ====
</TABLE>
Inventories
Inventories consist of medical and other supplies necessary for delivering
resident care at the facilities. Inventories are recorded at the lower of cost
(determined by the first-in, first-out method) or market.
Furniture, fixtures and equipment
Furniture, fixtures and equipment are carried at cost. Depreciation is
recognized using the straight-line method over the estimated useful lives of the
assets, which range from five to ten years. Leasehold improvements are amortized
over the lesser of the estimated useful life or lease term. Maintenance cost and
repairs are expensed as incurred; betterments and leasehold improvements are
capitalized.
F-32
<PAGE> 272
BRITWILL HEALTHCARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred charges
Deferred charges consist of costs incurred to acquire leases to the
long-term care facilities, which are amortized on the straight-line method over
the term of the lease. Amortization expense was $77,350, $77,186, $38,366 and
$6,436 for the years ended December 31, 1993 and 1994, the six months ended June
30, 1995 and the one month ended July 31, 1995, respectively.
Income taxes
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," (SFAS 109). The
cumulative effect of the adoption of SFAS 109 was immaterial to the Company's
financial position. Under SFAS 109, the liability method is used to account for
income taxes. Under this method, the deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
financial reporting of existing assets and liabilities and their respective tax
basis. The Company's principal differences relate to the availability of tax net
operating loss carry forwards, certain reserves, accrued vacation, and
depreciation.
Interim financial data
The following table sets forth summarized results of operations for
BritWill for the periods indicated:
<TABLE>
<CAPTION>
SEVEN MONTHS
ENDED
JULY 31,
---------------------------
1995 1994
----------- -----------
(UNAUDITED)
<S> <C> <C>
Total revenues.................................... $38,854,000 $29,857,000
Income (loss) from operations..................... 836,000 (1,365,000)
Income (loss) before income taxes................. 44,000 (1,886,000)
Net income (loss)................................. 13,000 (1,912,000)
</TABLE>
3. FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment consists of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------- JUNE 30,
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Furniture and fixtures..................... $ 854,027 $1,202,684 $1,476,780
Leasehold improvements..................... 121,948 349,943 504,952
Construction in progress................... 33,904 213,596 649,765
Land....................................... 55,904
---------- ---------- ----------
1,009,879 1,766,223 2,687,401
Less accumulated depreciation.............. (171,138) (367,007) (476,719)
---------- ---------- ----------
$ 838,741 $1,399,216 $2,210,682
========== ========== ==========
</TABLE>
Depreciation expense was $158,154, $162,143, $109,712 and $23,468 for the
years ended December 31, 1993 and 1994, the six months ended June 30, 1995 and
the one month ended July 31, 1995, respectively.
F-33
<PAGE> 273
BRITWILL HEALTHCARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1993 1994 1995
---------- ----------- -----------
<S> <C> <C> <C>
Leasehold rights -- BI-Indy.......................... $4,103,338 $ 4,103,338 $ 4,103,338
Leasehold rights -- BI-TX............................ 3,331,547 3,331,547 3,331,547
Deferred financing costs............................. 848,733 1,131,224
---------- ----------- -----------
7,434,885 8,283,618 8,566,109
Less accumulated amortization........................ (468,091) (1,312,541) (1,738,983)
---------- ----------- -----------
$6,966,794 $ 6,971,077 $ 6,827,126
========== =========== ===========
</TABLE>
The leasehold rights -- BI-Indy were recorded at the cost of the
predecessor and are being amortized to rent expense over ten years, the term of
the lease.
The leasehold rights -- BI-TX were recorded at the amount of the obligation
entered into to obtain the right to operate nursing homes acquired by BI-TX in
June and December 1993 and are being amortized to rent expense over ten years,
the term of the lease. See Note 10.
Other deferred financing costs include additional acquisition costs and
debt closing costs which are being amortized to interest expense over periods of
three to ten years. The total amount charged to interest expense was $96,967,
$73,838, $83,483 and $13,446 for the years ended December 31, 1993, 1994, the
six months ended June 30, 1995 and the one month ended July 31, 1995,
respectively.
Total amortization expense relating to these assets was $468,091, $747,483,
$352,604 and $60,934 for the years ended December 31, 1993 and 1994, the six
months ended June 30, 1995 and the one month ended July 31, 1995, respectively.
5. SECURITY DEPOSIT
Security deposits consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Lease deposit -- BI-Indy............................... $1,335,000 $1,335,000 $1,335,000
Liquidity deposit -- BI-TX............................. 1,400,000 1,400,000
Other deposits......................................... 141,344 140,461
---------- ---------- ----------
1,335,000 2,876,344 2,875,461
Less current portion................................... (500,000) (637,517)
---------- ---------- ----------
$1,335,000 $2,376,344 $2,237,944
========== ========== ==========
</TABLE>
In connection with the Indiana transaction discussed in Note 1, the Company
is required to maintain a security deposit equal to seven months minimum lease
obligation. These funds are held in escrow and restricted until certain
financial covenants have been met, including but not limited to net worth and
net operating cash flow requirements. These funds are currently invested by the
lessor in a mutual fund on behalf of the Company and bear interest at 7.0%,
6.0%, 5.5% on December 31, 1993 and 1994, and June 30, 1995, respectively.
Accrued interest receivable on these funds is $27,791, $26,656 and $72,389 at
December 31, 1993 and 1994, and June 30, 1995, respectively. This deposit has
been classified as noncurrent.
In connection with the Texas transaction discussed in Note 1, BI-TX
advanced BI-2 $1,400,000. This advance, as described in Note 7, matures in
December 2003 and is classified as a long term liability. These
F-34
<PAGE> 274
BRITWILL HEALTHCARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
funds were used as a liquidity deposit with OMEGA (the "lessor") and are
currently invested by the lessor on behalf of the Company and bear interest at
5.25% to 6.0%. The underlying note between BI-2 and BI-TX has interest payable
at the same term as the interest earned on the security deposit. A portion of
this deposit, $500,000, has been classified as current as the terms of the Texas
master lease allow for the use of a letter of credit in place of a security
deposit. The Company has a $500,000 letter of credit available through a third
party.
Other deposits, primarily lease and utility, have been classified as
current at June 30, 1995. Due to the subsequent event described in Note 12, the
Dallas, Texas operations of the Company will be relocated to Phoenix, Arizona by
March 1996.
6. ACCRUED EXPENSES
Accrued expenses consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Amounts due Medicaid -- Indiana............................ $3,741,188
Accrued salaries and benefits.............................. $ 968,003 $1,386,092 1,205,922
Payroll withholding taxes.................................. 541,544 413,531 481,522
Ancillary expense.......................................... 194,039 620,142
Property taxes............................................. 293,286 468,651 396,700
Rent....................................................... 258,811 245,547
Financing costs............................................ 255,000
Other...................................................... 195,851 519,326 311,326
---------- ---------- ----------
$1,998,684 $3,495,450 $7,002,347
========== ========== ==========
</TABLE>
In March 1995, the Company received an erroneous Medicaid reimbursement
payment of approximately $4,300,000 related to one of its Indiana facilities.
Negotiations with the state of Indiana's agent regarding such overpayment
resulted in the Company retaining the money paid subject to the Company's
payment of interest thereon to the state of Indiana. Future amounts due the
Company by the state will be offset against the interest-bearing obligation
until March 25, 1996 at which time the Company must reimburse the state for the
unused portion. The unreimbursed Medicaid payment accrues interest at prime plus
3.25% or 12% per annum, whichever is higher. The Company recorded $72,000 of
interest expense during the six-month period ended June 30, 1995 and $74,440 of
interest expense during the one-month period ended July 31, 1995.
F-35
<PAGE> 275
BRITWILL HEALTHCARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. NOTES PAYABLE AND LONG-TERM DEBT
Subordinated notes payable and long-term debt consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Subordinated notes payable to an affiliate, secured by a
$1,400,000 liquidity deposit bearing interest at 5.2%
to 12.0%, due January 1995 through December 2003
payable quarterly..................................... $ 6,316,548 $ 8,974,136 $ 8,776,782
Line of credit and notes payable to banks, secured by a
$600,000 certificate of deposit and certain accounts
receivable, bearing interest at 6.1% to 10.5% payable
monthly, due January 1995 through October 1995........ 800,000 1,000,000
Note payable to bank, bearing interest at prime plus
2.0% payable monthly, due October 1998................ 50,548 48,183
Note payable to OMEGA, bearing interest at 11.5% payable
monthly, due January 1995............................. 500,000
Subordinated notes payable to third party, bearing
interest at 10.0% payable monthly, due August 1998.... 246,071 239,913
Note payable to officer and affiliate, bearing interest
at 6.0% to 12.0% payable monthly, due September 1994
through February 1995................................. 135,306 49,000
Revolving line of credit advances bearing interest at
the commercial paper 30 day weighted average rate plus
4.25% payable monthly................................. 1,672,577
----------- ----------- -----------
7,251,854 10,819,755 10,737,455
Less current portion.................................... (1,116,160) (1,280,741) (528,230)
----------- ----------- -----------
$ 6,135,694 $ 9,539,014 $10,209,225
=========== =========== ===========
</TABLE>
The maturities of long-term debt are as follows:
<TABLE>
<S> <C>
Year ending December 31,
1995....................................... $ 1,280,741
1996....................................... 831,918
1997....................................... 254,049
1998....................................... 2,496,647
1999....................................... 286,349
Thereafter................................. 5,670,051
-----------
$10,819,755
===========
</TABLE>
The stated interest rate for the line of credit and note payable to bank
bear interest at 2.0% over prime (8.5% at December 31, 1994 and 9.0% at June 30,
1995).
On January 31, 1995, the Company completed a three-year revolving credit
line for $6,000,000. The credit line is collateralized by existing and future
accounts receivable of the Company. The credit line requires the Company to
maintain quarterly financial covenants including fixed charge ratio
requirements, cash velocity test requirements, accounts receivable
day-sales-outstanding requirements and positive earnings test requirements. As
of June 30, 1995, the Company was in compliance with all such quarterly
covenants.
F-36
<PAGE> 276
BRITWILL HEALTHCARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES
The components of the provision for income taxes is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ONE MONTH
DECEMBER 31, ---------- ---------
------------------- JUNE 30, JULY 31,
1993 1994 1995 1995
------- ------- ---------- ---------
<S> <C> <C> <C> <C>
Current:
Federal................................ $ 9,296
State and local........................ 51,454 $52,896 $26,000 $4,500
------- ------- ------- ------
60,750 52,896 26,000 4,500
Deferred:
Federal................................ (9,000)
------- ------- ------- ------
$51,750 $52,896 $26,000 $4,500
======= ======= ======= ======
</TABLE>
A reconciliation of the provision for income taxes to the amount computed
by applying the statutory income tax rate to income before income taxes is as
follows:
<TABLE>
<CAPTION>
SIX MONTHS ONE MONTH
DECEMBER 31, ---------- ---------
----------------------- JUNE 30, JULY 31,
1993 1994 1995 1995
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Income taxes computed at statutory
U.S. federal income tax rates..... $(184,332) $(533,067) $ 70,005 $(55,080)
Limitation on (utilization of)
NOL............................... 178,238 473,479 (101,239) 50,080
State and local income taxes........ 51,454 52,896 26,000 4,500
Permanent differences............... 6,390 59,588 31,234 5,000
--------- --------- --------- ---------
$ 51,750 $ 52,896 $ 26,000 $ 4,500
========= ========= ========= =========
</TABLE>
At December 31, 1993 and 1994, June 30, 1995 and July 31, 1995, the Company
has federal tax net operating loss carry forwards of approximately $701,000 and
$2,091,000 and $2,100,000 and $2,100,000, respectively, which expire at various
dates through 2008. Under section 382 of the Internal Revenue Code of 1986, as
amended, the utilization of net operating loss carry forwards may be delayed or
permanently lost if there has been a cumulative change in ownership during the
past three years of more than 50%. Such a change occurred in August 1995 as
described in Note 12. Therefore, the annual limitation on the Company's net
operating loss carry forward is approximately $1,500,000.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
F-37
<PAGE> 277
BRITWILL HEALTHCARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the Company's net deferred tax assets and liabilities
were as follows:
<TABLE>
<CAPTION>
JUNE 30,
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Deferred tax assets:
Vacation accrual.................................. $ (61,000) $ (103,197) $ (107,086)
Net operating loss carry forward.................. (260,000) (773,700) (1,034,568)
Capital leases.................................... (690,000) (631,138) (880,088)
Leasehold rights.................................. (20,000) (38,347) (55,191)
Allowance for bad debts........................... (201,000) (387,333) (292,621)
----------- ----------- -----------
Gross deferred tax assets...................... (1,232,000) (1,933,715) (2,369,554)
Valuation allowance................................. 1,223,000 1,933,715 2,369,554
----------- ----------- -----------
Net deferred tax assets............................. (9,000)
Deferred tax liabilities............................
----------- ----------- -----------
Net deferred tax liabilities........................ $ (9,000) $ $
=========== =========== ===========
</TABLE>
9. LEASES
The Company has noncancelable operating leases on substantially all of its
buildings and equipment which expire at various dates through the year 2003.
BI-1 and BI-2 lease sixteen facilities from Omega under the "Master Lease" and
"Texas Master Lease" Agreements.
The approximate future minimum rental commitments at December 31, 1994
under the operating leases are as follows:
<TABLE>
<S> <C>
1995.................................................... $ 8,098,047
1996.................................................... 7,804,644
1997.................................................... 7,886,491
1998.................................................... 7,901,301
1999.................................................... 7,910,753
Thereafter.............................................. 35,869,739
-----------
$75,470,975
===========
</TABLE>
Rent expense under operating leases was $5,097,014, $8,263,642, $4,448,134
and $750,636 during the years ended December 31, 1993 and 1994, the six months
ended June 30, 1995 and the one month ended July 31, 1995, respectively.
The lease terms are generally from eight to ten years with two or three
five-year renewal options. Minimum rentals increase annually based upon the
greater of 5.0% of incremental revenues or the Consumer Price Index, but limited
to a maximum annual increase of 3.5%. Upon exercise of a renewal option, the
rental payments continue in the same fashion as the original lease. The Company
and certain affiliated entities have options to purchase certain properties at
various times at prices determined by a specified formula. The Company and its
subsidiaries have guaranteed performance on the mortgages and lease payments to
Omega as discussed in Note 1 totaling $38,900,000 and $35,500,000 at December
31, 1993 and 1994, respectively.
The lease payments are personally guaranteed to $13,500,000 by the chairman
of the board whose family trust is a majority shareholder of the Company, as
well as secured by substantially all the personal property and equity of the
Company. Lease rental payments are senior to all unsecured debt. The Company is
responsible for all taxes, maintenance and other executory costs.
F-38
<PAGE> 278
BRITWILL HEALTHCARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Covenants to the Master Lease and Texas Master Lease include, but are not
limited to, current ratio requirements, cash flow to rent and debt service
requirements, minimum net worth requirements, and minimum cash requirements. In
March 1994, Omega consolidated and amended certain financial covenants related
to the Indiana and Texas Master Leases and the participating mortgages. Certain
payments to affiliates are subordinate to the lease payments made to Omega. As
of December 31, 1993, the Company was in compliance with these covenants, as
amended. As of December 31, 1994, the Company was in default with the cash flow
to rent and cash flow to debt financial covenants. The lessor has agreed to
waive these covenants as of and for the year ended December 31, 1994. As of June
30, 1995, the Company was in compliance with these covenants.
10. RELATED PARTY TRANSACTIONS
BritWill HealthCare Company is a member of a group of affiliated companies
and has extensive transactions and relationships with members of the group.
Management of the Company believes that the terms of these transactions are not
materially different than those which would result from transactions among
wholly unrelated parties.
In December 1992, the Company entered into a transaction with BI-Indy in
which the Company exchanged 75% of its common stock for leasehold rights with a
value of $4,100,000. BI-Indy contributed furniture and equipment and $623,466 of
other costs incurred and capitalized as part of the transaction.
In December 1992, certain affiliates of a director of the Company loaned
the Company $400,000; and Whitehead Family Investments (WFI), a related party,
loaned the Company $2,075,000 which, combined with the director loan, is
recorded as subordinated long-term debt. The loans are subordinate to the lease
obligations on the Company's Indiana facilities. Interest expense on the loans
totaled $297,000 for 1993 and 1994 and $148,500 and $28,875 for the six months
ended June 30, 1995 and one month ended July 31, 1995, respectively. In
addition, the lenders are entitled to a minimum quarterly bonus. The expense for
this bonus agreement totaled $40,000 for both years ended 1993 and 1994 and
$20,000 for the six months ended June 30, 1995 and $3,333 for the one month
ended July 31, 1995.
On December 23, 1993, an officer of the Company, loaned the Company
$70,000, at 12.0% annual interest, for working capital. The loan renewed a
$60,000 loan issued on October 23, 1993. At December 31, 1994, the outstanding
principal balance amounted to $49,000. Such principal balance was repaid in
1995. Interest expense on these loans amounted to approximately $1,400 and
$5,880 in years ended 1993 and 1994, respectively.
In December 1993, the Company entered into a transaction with BI-TX in
which BI-TX contributed $2,800,000 of leasehold rights and $510,000 of working
capital to the Company in exchange for a note payable of $3,310,000. The
outstanding principal balance totaled $2,999,136 and $2,901,782, and at December
31, 1994, and June 30, 1995, respectively. Interest expense on this loan
amounted to approximately $24,000, $226,476, $121,365 and $31,943 in 1993, 1994,
for the six months ended June 30, 1995 and for the one month ended July 31,
1995, respectively.
In December 1994, certain affiliates of a director of the Company loaned
the Company $1,500,000 at 12.0% annual interest. A portion of the loan,
$500,000, represents a renewal of a $250,000 loan issued on December 1, 1994.
Interest expense on these loans amounted to approximately $1,500 in 1994,
$85,562 for the six months ended June 30, 1995 and $15,068 for the one month
ended July 31, 1995.
On June 1, 1994, the Company renewed a $600,000 note payable (in addition
to the above mentioned note) to WFI for working capital at an annual interest
rate of 12.0%. The note was renewed from a loan of the same amount issued on
June 1, 1993. Interest expense on these loans amounted to $42,000, $72,000,
$36,000 and $6,000 for the years ended December 31, 1993 and 1994, the six
months ended June 30, 1995 and the one month ended July 31, 1995, respectively.
F-39
<PAGE> 279
BRITWILL HEALTHCARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company manages nursing homes owned by an affiliate. Management fee
revenues charged the affiliate totaled $348,655, $251,186, $40,430 and $0 during
the years ended December 31, 1993 and 1994, the six months ended June 30, 1995
and the one month ended July 31, 1995, respectively.
During 1993, the Company performed certain services for BritWill
Investments Corporation, an affiliated entity, relating to acquisition support
and rental of office space. Total income recognized by the Company for
performing these services was $146,000 in 1993.
11. COMMITMENTS AND CONTINGENCIES
Estimated third party settlements
Final determination of amounts earned under cost-reimbursed programs is
subject to review by appropriate governmental authorities or their agents. In
the opinion of management, adequate provision has been made for any adjustments
that could result from such reviews. In addition, the state of Indiana has
reviewed the Indiana Medicaid reimbursement structure. The ultimate impact to
health care providers in that state has been estimated and management believes
there will not be a material adverse effect on the financial position or results
of operations of the Company.
Medical malpractice and self-insured risks
The Company has obtained medical malpractice coverage with liability limits
of $5,000,000 per claim and in the aggregate. The Company has also obtained
workers' compensation coverage in Indiana but is uninsured with respect to
certain facilities located in Texas. The Company believes that the provision of
$20,000 recorded at December 31, 1994 and $20,550 at June 30, 1995 for asserted
and/or unasserted claims is adequate based on historical results.
12. SUBSEQUENT EVENT
On August 10, 1995, Sunquest HealthCare Corporation, another long-term care
company operating approximately 21 facilities in eleven states, acquired the
Company's outstanding stock for a fixed payment of $26,000,000, plus contingent
amounts of up to approximately $9.8 million if the company achieves specified
revenue targets. The purchase price was comprised of two promissory notes
amounting to $19,000,000, in total, and a $7,000,000 noninterest bearing
convertible subordinated debenture.
In November 1995, a retroactive restatement and correction of the purchase
agreement reduced the fixed purchase price by $6,000,000. The purchase agreement
includes a related contingent purchase price obligation of up to $9,800,000
depending upon future revenues.
F-40
<PAGE> 280
REPORT OF INDEPENDENT AUDITOR
The Board of Directors
American Professional Holding, Inc.
We have audited the accompanying consolidated balance sheets of American
Professional Holding, Inc. as of December 31, 1994 and 1995 and the related
consolidated statements of income and cash flows for each of the three years in
the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of American
Professional Holding, Inc. at December 31, 1994 and 1995 and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
Ronald H. Ridgers, P.C.
Richardson, Texas
March 30, 1996
F-41
<PAGE> 281
AMERICAN PROFESSIONAL HOLDING, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1994 1995 1996
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash................................................. $ 171,725 $ 61,687 $ 13,684
Accounts receivable trade............................ 971,293 1,253,870 1,574,477
Accounts receivable related party.................... 205,210 394,437 473,340
Other current assets................................. 59,587 72,931 385,563
---------- ---------- ----------
Total current assets......................... 1,407,815 1,782,925 2,447,064
---------- ---------- ----------
PROPERTY AND EQUIPMENT:
Land and building.................................... 205,205 205,205 205,205
Vehicles............................................. 181,935 222,823 219,425
Furniture............................................ 64,385 67,594 70,376
Lab equipment........................................ 353,706 542,815 562,068
---------- ---------- ----------
805,231 1,038,437 1,057,074
Less accumulated depreciation.......................... 390,691 517,281 560,518
---------- ---------- ----------
Total property and equipment................. 414,540 521,156 496,556
INTANGIBLE AND OTHER ASSETS:
Goodwill, net of $36,249, $108,746, and $144,992 of
amortization...................................... 1,051,217 978,720 942,474
Accounts receivable stockholders..................... 0 257,250 318,375
Other................................................ 2,238 1,300 1,300
---------- ---------- ----------
Total intangible and other assets............ 1,053,455 1,237,270 1,262,149
---------- ---------- ----------
$2,875,810 $3,541,351 $4,205,769
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable trade............................... $ 304,842 $ 491,080 $ 746,922
Accounts payable related............................. 5,000 0 141,500
Accrued expenses..................................... 136,314 439,098 535,100
Deferred taxes....................................... 223,690 155,690 161,690
Notes payable current................................ 516,115 394,916 394,916
---------- ---------- ----------
Total current liabilities.................... 1,185,961 1,480,784 1,980,128
Long-term debt....................................... 470,334 674,126 669,098
---------- ---------- ----------
Total liabilities............................ 1,656,295 2,154,910 2,649,226
STOCKHOLDERS' EQUITY:
Common stock; par value $.001; 50,000,000 shares
authorized; 10,200,000 shares outstanding......... 10,200 10,200 10,200
Additional paid in capital........................... 399,800 399,800 399,800
Retained earnings.................................... 809,515 976,441 1,146,543
---------- ---------- ----------
Total stockholders' equity................... 1,219,515 1,386,441 1,556,543
---------- ---------- ----------
$2,875,810 $3,541,351 $4,205,769
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-42
<PAGE> 282
AMERICAN PROFESSIONAL HOLDING, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------- -------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES........................ $4,190,398 $5,151,559 $6,421,187 $3,225,220 $3,087,780
DIRECT COSTS:
Direct labor and related
taxes...................... 1,667,264 1,684,506 2,039,835 919,541 937,347
Supplies...................... 659,594 733,967 1,038,506 515,894 437,239
Other direct costs............ 27,960 188,946 148,147 31,461 52,708
---------- ---------- ---------- ---------- ----------
Total direct costs.... 2,354,818 2,607,419 3,226,408 1,466,896 1,427,294
---------- ---------- ---------- ---------- ----------
GROSS PROFIT.................... 1,835,580 2,544,140 3,194,699 1,758,324 1,660,486
GENERAL AND ADMINISTRATIVE:
Wages and related taxes....... 204,969 434,174 873,971 353,223 403,826
Printing...................... 36,866 41,663 105,942 52,736 28,930
Depreciation and
amortization............... 81,392 146,882 193,002 112,304 79,483
Rents......................... 77,067 76,931 78,959 40,010 37,146
Mileage....................... 217,769 214,593 314,310 133,901 174,759
Utilities..................... 86,470 93,454 164,638 76,336 74,215
Supplies...................... 97,285 62,057 74,404 34,930 33,330
Interest...................... 33,343 63,290 118,110 18,499 55,698
Insurance..................... 142,113 183,197 225,590 120,095 116,941
Professional fees............. 49,162 71,923 90,999 48,057 59,152
Management fees............... 195,211 265,325 245,904 117,288 110,500
Other......................... 168,507 304,428 455,864 229,450 222,404
---------- ---------- ---------- ---------- ----------
Total general and
administrative...... 1,390,154 1,957,917 2,941,773 1,336,829 1,396,384
---------- ---------- ---------- ---------- ----------
INCOME BEFORE TAXES............. 445,426 586,223 252,926 421,495 264,102
LESS PROVISION FOR
TAXES......................... 196,800 170,000 86,000 143,300 94,000
---------- ---------- ---------- ---------- ----------
NET INCOME...................... $ 248,626 $ 416,223 $ 166,926 $ 278,195 $ 170,102
========== ========== ========== ========== ==========
NET INCOME PER COMMON SHARE..... $ .02 $ .04 $ .02 $ .03 $ .02
========== ========== ========== ========== ==========
SHARES USED IN CALCULATION...... 10,000,000 10,100,000 10,200,000 10,200,000 10,200,000
========== ========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-43
<PAGE> 283
AMERICAN PROFESSIONAL HOLDING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
--------------------------------- ---------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income..................................... $ 248,626 $ 416,223 $ 166,926 $ 278,195 $ 170,102
Adjustments to reconcile net income to net cash
(used) provided by operating activities:
Depreciation and amortization................ 81,392 146,882 193,082 112,304 79,483
Increase (decrease) in deferred taxes........ 147,800 6,242 (68,000) (8,000) 6,000
Changes in operating accounts:
Increase in accounts receivable-trade........ (274,047) (284,312) (282,577) (243,014) 320,607)
Increase in account receivable-related
parties.................................... (43,775) (161,435) (189,227) (55,527) (78,903)
Increase (decrease) in other current
assets..................................... 0 (39,587) (13,334) (57,735) (317,632)
Increase (decrease) in accounts
payable-trade.............................. (8,012) 184,973 186,238 3,845 255,842
Increase (decrease) in accounts
payable-related party...................... 0 (20,000) (5,000) (5,000) 141,500
Increase (decrease) in accrued expenses...... 75,132 22,482 302,784 257,426 96,002
--------- --------- --------- --------- ---------
Net cash (used) provided by operating
activities................................... 227,116 271,468 290,892 282,494 36,786
INVESTING ACTIVITIES:
Increase in fixed assets..................... (56,588) (538,357) (233,206) (76,632) (18,637)
Sale of other assets......................... 0 37,762 938 938 0
Increase in notes receivable-stockholders.... 0 0 (257,250) 0 (61,125)
Decrease in other liabilities................ 0 (40,000) 0 0 0
--------- --------- --------- --------- ---------
Net cash used in investing activities........ (56,588) (540,595) (489,518) (73,694) (79,762)
FINANCING ACTIVITIES:
Purchase of subsidiary....................... 0 (300,000) 0 0 0
Proceeds of borrowings....................... 33,941 833,989 627,000 0 185,859
Repayment on debt............................ (125,975) (270,208) (538,412) (292,149) (190,887)
--------- --------- --------- --------- ---------
Net cash (used) provided by financing
activities................................. (92,034) 263,781 88,588 (292,149) (5,028)
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH................ 78,494 (5,346) (110,038) (85,349) (48,003)
CASH AT BEGINNING OF PERIOD.................... 98,577 177,071 171,725 171,725 61,687
--------- --------- --------- --------- ---------
CASH AT END OF PERIOD.......................... $ 177,071 $ 171,725 61,687 $ 86,376 $ 13,684
========= ========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-44
<PAGE> 284
AMERICAN PROFESSIONAL HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND THE SIX MONTHS ENDED
JUNE 30, 1995 (UNAUDITED) AND 1996 (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Business -- American Professional Holding, Inc. (the Company) is a Utah
Corporation formed in February 1984 under the name Technologies Properties, Inc.
In July 1993, the Company purchased all of the outstanding stock of Ampro
Medical Services, Inc. (Ampro) a Texas Corporation which operates under the name
of Northlake Professional Laboratory (Northlake). The acquisition of Ampro was
accounted for as a pooling of interest. In addition, the stockholders voted to
change the name of the Company to American Professional Holding, Inc.
In July 1994, the Company purchased all of the outstanding stock of Gamma
Laboratories, Inc. (Gamma) of Poplar Bluff, Missouri for $300,000 in cash and a
note for $580,000. In addition, the Company issued $200,000 of its common stock.
The acquisition of Gamma was accounted for as a purchase in accordance with
Accounting Principles Board Opinion No. 16.
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant inter company accounts and
transactions have been eliminated in consolidation.
Ampro and Gamma are the only operating entities of the Company.
Nature of Business -- Ampro and Gamma principally test blood and other
specimens and provide x-ray services to various nursing homes, long-term health
care providers, clinics, doctors and patients in Texas and Missouri.
Approximately 85% of the Company's revenues are derived from funds provided from
Medicare and Medicaid assistance programs.
Revenue Recognition -- The Company uses the accrual method of accounting
for financial statement purposes in accordance with generally accepted
accounting principles and industry standards. Revenues are recorded in the month
service is provided based on the expected reimbursement prices to be paid by the
third-party providers. Management evaluates receivable amounts and writes down
billed amounts to recoverable amounts on a quarterly basis. Payments under
Medicare and Medicaid are subject to audit and adjustment by the fiscal
intermediary.
Cash -- Cash consists of amounts held in demand deposit accounts at
financial institutions. The Company has no cash equivalents.
Direct Costs -- Direct costs includes all direct labor and related payroll
costs, laboratory supplies, and other direct cost of sales.
Statement of Cash Flows -- The Company has adopted the indirect method of
accounting for its cash flows in accordance with Financial Accounting Standards
Board Statement No. 95.
Fixed Assets -- Fixed assets are carried at cost less accumulated
depreciation. The cost of fixed assets is depreciated over their estimated
useful lives on a straight line method. Lives used in computing depreciation
expense are as follows:
<TABLE>
<S> <C>
Vehicles........................................................ 3 to 5 years
Furniture....................................................... 3 years
Equipment....................................................... 3 to 7 years
Building........................................................ 27.5 years
</TABLE>
Maintenance and repairs are charged to expense as incurred. Additions and
betterments are capitalized. Gains or losses on dispositions are included in
current operations.
F-45
<PAGE> 285
AMERICAN PROFESSIONAL HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes -- The Company uses the cash basis for reporting for income
tax purposes. Deferred taxes are provided for items of income or expense that
are reported in different periods for financial statement purposes and tax
purposes. The Company has adopted FASB Statement No. 109 for financial statement
reporting purposes.
Account Receivable -- The Company extends credit to certain customers as a
policy of conducting business. The Company's principal customers are nursing
homes, home health care agencies, MHMR facilities, clinics and physicians in
Texas and Missouri. The Company bills Medicare and other third-party payors on
behalf of the customers. Because of its favorable collection experience in the
past, management does not believe a reserve for doubtful accounts is necessary.
Goodwill -- As a result of the purchase of Gamma, the Company recorded
$1,087,466 of goodwill. Such goodwill is being amortized over a fifteen year
life. Amounts amortized are as follows: December 31, 1995 -- $72,497; December
31, 1994 -- $36,249; June 30, 1996 -- $36,248; and June 30, 1995 -- $36,248.
Reclassifications -- Certain amounts have been reclassified to reflect
current classifications,
2. INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The unaudited consolidated balance sheet as of June 30, 1996 and the
unaudited consolidated statements of income and cash flows for the six months
ended June 30, 1995 and 1996, in the opinion of management, have been prepared
on the same basis as the audited consolidated financial statements and include
all significant adjustments, consisting only of normal recurring adjustments,
necessary for the fair presentations of the results of the interim periods. The
data disclosed in these notes to the financial statement for these periods are
also unaudited. Operating results for the interim periods are not necessarily
indicative of the results that may be expected for an entire year.
3. FEDERAL INCOME TAXES
The provision for taxes is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------------------- --------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Current provision............... $ 49,000 $127,300 $154,000 $151,300 $88,000
Deferred provision.............. 147,800 42,700 (68,000) (8,000) 6,000
-------- -------- -------- -------- -------
Total provision................. $196,800 $170,000 $ 86,000 $143,300 $94,000
======== ======== ======== ======== =======
</TABLE>
In 1993, 1994 and 1995 the Company paid $0, $171,000 and $91,756 in Federal
income taxes, respectively.
The reconciliation of the Company's effective income tax note to the
federal statutory note of 34% for the years ended December 31, 1993, 1994 and
1995 and the six months ended June 30, 1995 and 1996 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------- -------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Federal income taxes at statutory rate............ 34% 34% 34% 34% 34%
Benefit of graduated tax..........................
Accrual to cash adjustments....................... 10 (3) (2) -- --
Other............................................. -- -- 2 -- 2
-- -- -- -- --
44% 29% 34% 34% 36%
== == == == ==
</TABLE>
F-46
<PAGE> 286
AMERICAN PROFESSIONAL HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income tax reflects the tax affect of temporary differences
resulting from the Company being on the cash reporting basis for tax purposes.
All deferred items are current in nature.
4. NOTES PAYABLE
At December 31, 1994 and 1995 and June 30, 1996, notes payable are
comprised as follows.
<TABLE>
<CAPTION>
JUNE 30,
1994 1995 1996
-------- ---------- ----------
<S> <C> <C> <C>
Note payable to a bank; payments are $16,100 per
month including interest; interest at 10%;
secured by assets of Ampro and personal
guarantees of three major stockholders; matures
June 1998....................................... $283,368 $ 370,819 $ 296,652
Note payable to an individual; payments are
$10,000 per month for the first year, $12,500
per month to August 1996 and $17,222 until
maturity including interest; interest 10%;
mature January 1998; secured by 1,163 shares of
Gamma stock..................................... 430,167 342,442 280,740
Note payable to a bank for a line of credit;
payments are $6,240 per month including
interest; interest at 10%; matures June 1997;
secured by accounts receivable of Gamma......... 60,000 109,065 129,172
Notes payable to bank; payments are $1,801 per
month including interest; interest at 10%
secured by land and building; matures June
1998............................................ 115,048 105,650 99,145
Note payable to a bank; interest only; interest at
10%; matures June 1998; secured by accounts
receivable of Ampro............................. -- 100,000 200,000
Note payable to a supplier; payments are $3,404
per month including interest at 7%; matures June
1995; unsecured................................. 20,126 -- --
Note payable to three individuals; payments are
$1,466 per month principal only; interest at
10%; matures August 1995; secured by accounts
receivable of
Ampro........................................... 11,690 -- --
Note payable to a related party; payments are
$2,709 per month including interest; interest at
10%; matures April 1995; secured by accounts
receivable of Ampro............................. 10,615 -- --
Notes payable to a bank and finance company;
payments are $3,090 per month including
interest; interest from 8.0% to 10.5%; matures
January 1996 to June 1998; secured by
vehicles........................................ 55,435 41,057 58,305
-------- ---------- ----------
Total Notes payable............................... 986,449 1,069,042 1,064,014
Less: current portion............................. 516,115 394,916 394,916
-------- ---------- ----------
$470,334 $ 674,126 $ 669,098
======== ========== ==========
</TABLE>
F-47
<PAGE> 287
AMERICAN PROFESSIONAL HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1995, maturities on long-term debt are as follows:
<TABLE>
<S> <C>
1996..................................................... $ 394,916
1997..................................................... 232,914
1997..................................................... 367,292
1999..................................................... 10,000
2000 and thereafter...................................... 63,920
----------
$1,069,042
==========
</TABLE>
Interest paid in 1993, 1994, and 1995 was $7,212, $43,082 and $125,446,
respectively.
5. RELATED PARTY ACTIVITIES
The Company paid $5,527, $2,701, and $5,000 for interest in 1993, 1994, and
1995, respectively, to an entity, related by common ownership. (See Note 4) In
addition, the Company paid $195,211, $265,325, and $240,690 in 1993, 1994, and
1995, respectively, in management fees and non-employee compensation to an
entity, related by common ownership. In 1993, 1994, and 1995 the Company paid
certain expenses on behalf of an entity, related by common ownership. The
related entity owed the Company $43,775, $205,210, and $369,437 at December 31,
1993, 1994, and 1995, respectively.
6. FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of the Company's financial instruments
as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
---------- ----------
<S> <C> <C>
Notes payable and long-term debt.................... $1,069,042 $1,006,970
</TABLE>
The carrying amounts reported in the balance sheet for cash, accounts
receivable, lease deposits, accounts payable and borrowings under revolving
lines of credit approximate their fair value. The fair value of the Company's
long-term borrowings is estimated by discounting future cash flows at current
rates offered to the Company for debt of comparable types and maturities.
Because no market exists for these financial instruments, considerable judgment
is necessary in interpreting the data to develop estimates of fair value. The
use of different market assumptions may have a material effect on the estimated
fair value amounts.
7. COMMITMENTS
The Company leases certain equipment and automobiles as part of its
operations. All such leases are considered operating leases. Future minimum
lease payments at December 31, 1995 are as follows:
<TABLE>
<S> <C>
1995...................................................... $156,304
1996...................................................... 106,230
1997...................................................... 63,206
1998...................................................... 1,955
</TABLE>
F-48
<PAGE> 288
AMERICAN PROFESSIONAL HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. PRO-FORMA DATA (UNAUDITED)
The following unaudited pro-forma data summarizes the combined results of
operations of the Company and Gamma as though the merger had occurred at the
beginning of 1993:
<TABLE>
<CAPTION>
1993 1994
---------- ----------
<S> <C> <C>
Revenues.................................................... $5,750,208 $5,882,564
Net income.................................................. 253,606 367,486
Net income per share........................................ $.02 $.03
</TABLE>
9. SUBSEQUENT EVENT
On March 26, 1996, the Company signed a letter of intent to be acquired by
Unison HealthCare Corporation of Scottsdale, Arizona. The agreement calls for a
stock for stock pooling-of-interests for approximately $8,000,000. Numerous
conditions, appropriate due diligence and various approvals must be completed
before the transaction can be completed.
F-49
<PAGE> 289
REPORT OF INDEPENDENT AUDITOR
The Board of Directors
Memphis Clinical Laboratory, Inc.
We have audited the accompanying balance sheets of Memphis Clinical
Laboratory, Inc. as of December 31, 1994 and 1995 and the related statements of
income and cash flows for each of the three years in the period ended December
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Memphis Clinical Laboratory,
Inc. at December 31, 1994 and 1995 and the results of it's operations and cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
Ronald H. Ridgers, P.C.
Richardson, Texas
February 10, 1996
F-50
<PAGE> 290
MEMPHIS CLINICAL LABORATORY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1994 1995 1996
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash.................................................. $ 16,807 $ 10,015 $ 15,994
Accounts receivable trade............................. 63,843 52,933 100,933
Other current assets.................................. 899 899 13,921
-------- -------- --------
Total current assets.......................... 81,549 63,847 130,848
PROPERTY AND EQUIPMENT:
Automobiles........................................... 102,571 5,622 58,622
Equipment............................................. 367,906 349,553 360,921
Leasehold improvements................................ 24,540 27,146 27,146
-------- -------- --------
495,017 435,321 446,689
Less accumulated depreciation........................... 281,119 270,284 286,903
-------- -------- --------
Total property and equipment.................. 213,898 165,037 159,786
-------- -------- --------
$295,447 $228,884 $290,634
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable trade................................ $ 4,500 $ 4,500 $ 0
Accounts payable officer.............................. 44,048 35,786 17,063
Accrued expenses...................................... 34,132 15,096 36,426
Current portion long-term debt........................ 12,408 10,000 10,000
Deferred taxes........................................ 23,000 20,000 25,000
-------- -------- --------
Total current liabilities..................... 118,088 85,382 88,489
Long-term debt.......................................... 34,904 24,886 21,921
-------- -------- --------
Total liabilities............................. 152,992 110,268 110,410
STOCKHOLDERS' EQUITY:
Common stock; no par; 1,000 shares authorized and
outstanding........................................ 1,000 1,000 1,000
Retained earnings..................................... 141,455 117,616 179,224
-------- -------- --------
Total stockholders' equity.................... 142,455 118,616 180,224
-------- -------- --------
$295,447 $228,884 $290,634
======== ======== ========
</TABLE>
See notes to financial statements.
F-51
<PAGE> 291
MEMPHIS CLINICAL LABORATORY, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------- --------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
REVENUES................................ $863,768 $827,489 $780,952 $418,989 $474,097
DIRECT COSTS:
Direct labor and related taxes........ 307,770 262,072 244,208 116,440 140,448
Supplies.............................. 171,080 176,563 98,560 56,464 56,025
Other direct costs.................... 105,174 106,034 80,577 37,780 41,378
-------- -------- -------- -------- --------
Total direct costs............ 584,024 544,669 423,345 210,684 237,851
-------- -------- -------- -------- --------
GROSS PROFIT............................ 279,744 282,820 357,607 208,305 236,246
INDIRECT EXPENSES:
Wages and related taxes............... 53,766 63,965 76,681 28,671 32,702
Depreciation.......................... 68,968 87,463 68,374 23,484 16,619
Rent.................................. 30,000 30,000 28,542 15,000 13,500
Repairs and maintenance............... 29,894 36,447 36,462 14,471 12,978
Supplies.............................. 15,244 17,265 13,380 7,678 11,760
Taxes................................. 11,751 6,844 5,430 7,201 3,918
Insurance............................. 16,381 16,725 22,190 13,695 5,096
Legal and accounting.................. 3,003 2,788 18,192 7,974 7,496
Management fees....................... 0 0 54,000 0 0
Auto.................................. 16,326 15,467 19,947 6,139 9,279
Utilities............................. 15,554 16,050 17,745 8,249 8,604
Other indirect costs.................. 17,636 6,806 25,600 25,483 28,876
-------- -------- -------- -------- --------
Total indirect costs.......... 278,523 299,820 386,543 158,045 150,828
Operating Income (loss)................. 1,221 (17,000) (28,936) 50,260 85,418
Other income............................ 1,423 21,024 891 140 190
-------- -------- -------- -------- --------
INCOME (LOSS) BEFORE TAXES.............. 2,644 4,024 (28,045) 50,400 85,608
PROVISION (BENEFIT) FOR TAXES........... 345 603 (4,206) 14,110 24,000
-------- -------- -------- -------- --------
NET INCOME (LOSS)....................... $ 2,299 $ 3,421 $(23,839) $ 36,290 $ 61,608
======== ======== ======== ======== ========
NET INCOME (LOSS) PER COMMON SHARE...... $ 2.30 $ 3.42 $ (23.84) $ 36.29 $ 61.61
======== ======== ======== ======== ========
SHARES USED IN CALCULATION.............. 1,000 1,000 1,000 1,000 1,000
======== ======== ======== ======== ========
</TABLE>
See notes to financial statements.
F-52
<PAGE> 292
MEMPHIS CLINICAL LABORATORY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ -------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)........................... $ 2,299 $ 3,421 $(23,839) $ 36,290 $ 61,608
Adjustments to reconcile net income (loss)
to net cash (used) provided by operating
activities:
Depreciation.............................. 68,968 87,463 68,374 41,042 16,619
Change in deferred taxes.................. 0 0 (3,000) (3,000) 5,000
Changes in operating accounts:
(Increase) decrease in accounts
receivable............................. (12,046) (51,797) 10,910 7,983 (48,000)
(Increase) decrease in note receivable.... (25,000) 25,000 0 0 0
(Increase) decrease in other assets....... 4,400 8,163 0 0 (13,022)
Increase (decrease) in accounts payable... (39,008) (12,748) 0 (4,500) (4,500)
Increase (decrease) in accounts payable --
officer................................ 0 44,048 (8,262) (2,625) (18,723)
Increase (decrease) in accrued expenses... 38,108 (3,976) (19,036) (31,860) 21,330
Increase (decrease) in taxes payable...... 10,342 (21,758) 0 0 0
-------- -------- -------- -------- --------
Net cash provided by operating activities... 48,063 77,816 25,147 43,330 20,312
INVESTING ACTIVITIES:
Increase in fixed assets.................. 70,591 85,795 19,513 4,261 11,368
-------- -------- -------- -------- --------
Net cash (used) by investing activities..... (70,591) (85,793) (19,513) (4,261) (11,368)
FINANCING ACTIVITIES:
Proceeds of borrowings.................... 31,028 55,475 0 0 0
Repayment on debt......................... (8,500) (30,691) (12,426) (5,048) (2,965)
-------- -------- -------- -------- --------
Net cash (used) provided by investing
activities............................. 22,528 24,784 (12,426) (5,048) (2,965)
-------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH............. 0 16,807 (6,792) 34,021 5,979
-------- -------- -------- -------- --------
CASH AT BEGINNING OF PERIOD................. 0 0 16,807 16,807 10,015
-------- -------- -------- -------- --------
CASH AT END OF PERIOD....................... $ 0 $ 16,807 $ 10,015 $ 50,828 $ 15,994
======== ======== ======== ======== ========
</TABLE>
See notes to financial statements.
F-53
<PAGE> 293
MEMPHIS CLINICAL LABORATORY, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND THE SIX MONTHS ENDED
JUNE 30, 1995 (UNAUDITED) AND 1996 (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation -- Memphis Clinical Laboratory, Inc. (the Company) is
a Tennessee corporation formed in May, 1986. The Company principally test blood
and other specimens and bills the cost to Medicare and other third-party
providers.
The Company uses the accrual method of accounting for financial statement
purposes in accordance with generally accepted accounting principles and
industry standards.
Direct Costs -- Direct costs includes all direct labor, materials,
laboratory supplies and other direct costs of sales.
Statement of Cash Flows -- The Company has adopted the indirect method of
accounting for its cash flows in accordance with Financial Accounting Standards
Board Statement No. 95. The Company has no cash equivalents.
Fixed Assets -- Fixed assets are carried at cost less accumulated
depreciation. The cost of fixed assets is depreciated over their estimated
useful lives on a straight line method. Lives used in computing depreciation
expense are as follows:
<TABLE>
<S> <C>
Equipment........................................................... 5 years
Vehicles............................................................ 5 years
Leasehold improvements.............................................. 5 years
</TABLE>
Maintenance and repairs are charged to expense as incurred. Additions and
betterments are capitalized. Gains or losses on dispositions are included in
current operations.
Income Taxes -- The Company uses the cash basis of accounting for income
tax purposes. In addition, it uses accelerated methods of depreciation in
accordance with federal income tax rules. Deferred taxes have been provided for
these timing differences between book and tax accounting methods. The Company
has adopted FASB Statement No. 109 for financial statement reporting purposes.
Account Receivable -- The Company extends credit to various customers as a
policy of conducting business. The Company's principal customers are nursing
homes, home health care agencies, clinics and physicians in the Memphis,
Tennessee area. Because of favorable collection experience in the past,
management does not believe an allowance for doubtful accounts is necessary.
Reclassifications -- Certain amounts have been reclassified to reflect
current classifications.
2. INTERIM FINANCIAL STATEMENTS (UNAUDITED)
The unaudited balance sheet as of June 30, 1996 and the unaudited
statements of income and cash flows for the six months ended June 30, 1995 and
1996, in the opinion of management, have been prepared on the same basis as the
audited financial statements and include all significant adjustments, consisting
only of normal recurring adjustments, necessary for the fair presentations of
the results of the interim periods. The data disclosed in these notes to the
financial statement for these periods are also unaudited. Operating results for
the interim periods are not necessary indicative of the results that may be
expected for an entire Year.
F-54
<PAGE> 294
MEMPHIS CLINICAL LABORATORY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. NOTES PAYABLE
At December 31, 1994, 1995 and June 30, 1996, notes payable are comprised
as follows:
<TABLE>
<CAPTION>
JUNE 30,
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
Note payable to officer; payments are $1,099 per month
including interest; interest is at 7%; matures January 1999;
secured by
equipment................................................... $47,312 $34,886 $31,891
Less current portion.......................................... 12,408 10,000 10,000
------- ------- -------
$34,904 $24,886 $21,891
======= ======= =======
</TABLE>
Interest paid in 1993, 1994 and 1995, was $0, $5,172 and $3,088, respectively.
4. RELATED PARTY ACTIVITIES
In accordance with an agreement, the Company pays it's President for rent
of its laboratory facilities. This agreement expires in 2004. The Company paid
$30,000, $30,000 and $28,500 in 1993, 1994 and 1995, respectively.
At December 31, 1993, 1994 and 1995, the Company owes the President for
various advances. These amounts are carried as accounts payable officer in the
accompanying financial statements. In addition, see Note 3.
5. FEDERAL INCOME TAXES
The provision (benefit) for taxes is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
--------------------- -----------------
1993 1994 1995 1995 1996
---- ---- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Current provision (benefit)........................... $345 $603 $(1,206) $17,110 $19,000
Deferred provision (benefit).......................... -- -- (3,000) (3,000) 5,000
---- ---- ------- ------- -------
Total provision (benefit)............................. $345 $603 $(4,206) $14,110 $24,000
==== ==== ======= ======= =======
</TABLE>
The reconciliation of the Company's effective income tax note to the
federal statutory note of 34% for the years ended December 31, 1993, 1994 and
1995 and the three months ended June 30, 1995 and 1996 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------- -------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Federal income taxes at statutory rate.................... 34% 34% 34 % 34% 34%
Benefit of graduated tax.................................. (21) -- -- (5) (7)
Cash to accrual adjustments............................... -- (19) -- (1) (1)
NOL Benefit............................................... -- -- (49) -- --
--- --- --- -- --
13% 15% (15)% 28% 28%
=== === === == ==
</TABLE>
Deferred income tax reflects the tax affect of temporary differences
resulting from the Company being on the cash reporting basis for tax purposes.
The Company paid no federal income taxes in 1993, 1994 and 1995.
F-55
<PAGE> 295
MEMPHIS CLINICAL LABORATORY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of the Company's financial instruments
as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
-------- -------
<S> <C> <C>
Notes payable and long-term debt......................... $ 34,886 $32,100
</TABLE>
The carrying amounts reported in the balance sheet for cash, accounts
receivable, lease deposits, accounts payable and borrowings under revolving
lines of credit approximate their fair value. The fair value of the Company's
long-term borrowings is estimated by discounting future cash flows at current
rates offered to the Company for debt of comparable types and maturities.
Because no market exists for these financial instruments, considerable judgment
is necessary in interpreting the data to develop estimates of fair value. The
use of different market assumptions may have a material effect on the estimated
fair value amounts.
7. COMMITMENTS
Future minimum payments under operating leases are as follows:
<TABLE>
<S> <C>
1996....................................................... $27,000
1997....................................................... 27,000
1998....................................................... 25,650
1999....................................................... 24,300
2000 and thereafter........................................ 76,950
</TABLE>
In 1995, the Company has entered into a three year management agreement
with its President. Such agreement, among other things, provides for a salary of
$60,000 annually, for the President for the term of the agreement which expires
in 1997.
F-56
<PAGE> 296
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Signature Health Care Corporation:
We have audited the accompanying consolidated balance sheets of SIGNATURE
HEALTH CARE CORPORATION (a Delaware corporation) and subsidiaries as of December
31, 1995 and 1994, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the years in the three year
period ended December 31, 1995. These consolidated financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Signature Health Care
Corporation and subsidiaries as of December 31, 1995 and 1994, and the results
of their operations and their cash flows for each of the years in the three year
period ended December 31, 1995 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Denver, Colorado
April 15, 1996
F-57
<PAGE> 297
SIGNATURE HEALTH CARE CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1994
JUNE 30, ----------- -----------
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
Cash and cash equivalents........................... $ -- $ 274,992 $ 919,121
Patient accounts receivable, net of allowance for
doubtful accounts of $194,210 at June 30, 1996 and
$195,900 and $155,200 at December 31, 1995 and
1994.............................................. 5,184,861 3,663,958 1,641,216
Prepaid income taxes................................ 141,525 -- 407,448
Inventory........................................... 256,304 5,000 5,000
Other current assets................................ 265,323 160,073 164,704
Deferred tax asset.................................. 101,300 101,300 102,400
----------- -----------
Total current assets........................... 5,949,313 4,205,323 3,239,889
Property and equipment, at cost..................... 18,391,035 18,264,010 18,020,293
Less-Accumulated depreciation..................... (1,949,127) (1,490,542) (594,150)
----------- -----------
Net property and equipment..................... 16,441,908 16,773,468 17,426,143
Goodwill, net of accumulated amortization of
$924,286 at June 30, 1996 and $639,142 and $68,900
at December 31, 1995 and 1994..................... 1,720,599 2,005,744 2,576,027
Loan fees, net of accumulated amortization of
$64,000 at June 30, 1996 and $49,000 and $20,000
at December 31, 1995 and 1994..................... 260,330 275,330 304,288
Debt service reserve................................ 1,187,288 1,161,808 1,110,647
Receivables due from affiliates, net................ -- 495,031 --
Deposits and other.................................. 59,925 59,925 63,425
----------- -----------
Total other assets............................. 3,228,142 3,997,838 4,054,387
----------- -----------
Total assets................................... $25,619,363 $24,976,629 $24,720,419
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current maturities of long-term debt................ $ 259,064 $ 198,994 $ 141,417
Accounts payable.................................... 1,471,607 1,078,237 189,660
Accrued payroll, taxes and benefits................. 507,784 354,714 676,374
Income taxes payable................................ -- 211,847 --
Accrued property taxes.............................. 63,505 87,683 92,336
Other accrued expenses.............................. 44,348 104,468 31,077
Unearned revenue.................................... 96,402 96,402 121,016
----------- -----------
Total current liabilities...................... 2,442,710 2,132,345 1,251,880
Deferred income taxes............................... 2,921,436 2,939,553 3,219,753
Long-term debt, net of current maturities........... 18,518,886 18,605,174 18,842,292
Payables due to affiliates, net..................... 1,035,935 -- --
----------- -----------
Total liabilities......................... 24,918,967 23,677,072 23,313,925
Common stock, $.01 par value; 1,200,000 shares
authorized; 250,000 shares issued and
outstanding....................................... 2,500 2,500 2,500
Additional paid-in capital.......................... 1,610,600 1,610,600 1,610,600
Accumulated deficit from operations................. (912,704) (313,543) (206,606)
----------- -----------
Total stockholders' equity..................... 700,396 1,299,557 1,406,494
----------- -----------
Total liabilities and stockholders'
equity.................................. $25,619,363 $24,976,629 $24,720,419
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-58
<PAGE> 298
SIGNATURE HEALTH CARE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
--------------------------- -------------------------------------------
1996 1995 1995 1994 1993
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sub-acute and
rehabilitation........ $ 4,746,382 $ 3,638,225 $ 8,314,758 $ 4,151,426 $ 3,635,407
Alzheimers care......... 890,862 708,815 1,493,735 1,129,135 584,504
Skilled nursing care.... 7,151,720 7,059,116 14,481,606 14,428,066 13,932,573
Miscellaneous
services.............. 58,859 59,757 119,527 200,301 143,285
----------- ----------- ----------- ----------- -----------
Net patient revenue..... 12,847,823 11,465,913 24,409,626 19,908,928 18,295,769
Management fees......... -- -- -- 32,772 --
----------- ----------- ----------- ----------- -----------
Total revenue...... 12,847,823 11,465,913 24,409,626 19,941,700 18,295,769
----------- ----------- ----------- ----------- -----------
Nursing services
(including $1,591,506
and $1,071,642 at June
30, 1966 and 1995 and
$2,365,582, $583,911
and $0 at December 31,
1995, 1994 and 1993
paid to an
affiliate)............ 5,798,958 4,942,391 11,467,625 9,683,175 8,920,580
Dietary services........ 650,887 678,693 1,514,387 1,500,641 1,486,345
General services........ 1,938,984 1,960,668 2,890,000 3,053,090 3,050,311
Provision for bad
debts................. 58,543 71,218 181,339 213,482 125,729
Management fees paid to
an affiliate.......... 3,456,306 2,008,921 4,725,703 2,301,848 1,026,739
Rent.................... 192,582 185,512 375,101 397,297 382,552
Interest, net of $35,161
and $56,841 at June
30, 1996 and 1995 and
$96,959, $90,041 and
$65,674 at December
31, 1995, 1994 and
1993 of income........ 975,065 915,970 1,933,452 1,657,162 930,294
Depreciation and
amortization.......... 758,729 810,480 1,495,634 1,078,710 727,541
----------- ----------- ----------- ----------- -----------
Total expenses..... $13,830,054 $11,573,853 $24,583,241 $19,885,405 $16,650,091
----------- ----------- ----------- ----------- -----------
(Loss) income
before income
taxes............ (982,231) (107,940) (173,615) 56,295 1,645,678
(Benefit) provision
for income
taxes............ (383,070) (41,066) (66,678) 28,654 642,005
----------- ----------- ----------- ----------- -----------
Net (loss)
income...... $ (599,161) $ (66,874) ($ 106,937) $ 27,641 $ 1,003,673
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-59
<PAGE> 299
SIGNATURE HEALTH CARE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 AND
SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
COMMON STOCK
CONVERTIBLE -----------------------------
PREFERRED STOCK ADDITIONAL ACCUMULATED TOTAL
---------------------- PAID-IN EARNINGS/ STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
-------- ----------- ------- ------ ---------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1992.......... 700,000 $ 2,427,566 250,000 $2,500 $ 191,100 $ 500,645 $ 3,121,811
Net income........................... -- -- -- -- -- 1,003,673 1,003,673
Accretion of mandatory provision..... -- 112,526 -- -- -- (112,526) --
-------- ----------- -------- ------ ---------- ----------- ----------
Balances at December 31, 1993.......... 700,000 $ 2,540,092 250,000 $2,500 $ 191,100 $ 1,391,792 $ 4,125,484
Net income........................... -- -- -- -- -- 27,641 27,641
Purchase of Preferred stock and
elimination of residual interest in
retained earnings.................. (700,000) (2,540,092) -- -- 1,419,500 (1,626,039) (2,746,631)
-------- ----------- -------- ------ ---------- ----------- ----------
Balances at December 31, 1994.......... -- $ -- 250,000 $2,500 $1,610,600 $ (206,606) $ 1,406,494
Net loss............................. -- -- -- -- -- (106,937) (106,937)
-------- ----------- -------- ------ ---------- ----------- ----------
Balances at December 31, 1995.......... -- $ -- 250,000 $2,500 $1,610,600 $ (313,543) $ 1,299,557
-------- ----------- -------- ------ ---------- ----------- ----------
Net loss (unaudited)................. -- -- -- -- -- (599,161) (599,161)
-------- ----------- -------- ------ ---------- ----------- ----------
Balances at June 30, 1996
(unaudited).......................... -- $ -- 250,000 $2,500 $1,610,600 $ (912,704) $ 700,396
======== =========== ======== ====== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-60
<PAGE> 300
SIGNATURE HEALTH CARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------------- ----------------------------------------
1996 1995 1995 1994 1993
----------- ----------- ----------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income....................... $ (599,161) $ (66,874) $ (106,937) $ 27,641 $ 1,003,673
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization......... 758,729 810,480 1,495,634 1,078,710 727,541
Provision for bad debts............... 58,543 71,218 181,339 213,482 125,729
Change in deferred taxes.............. (279,100) 73,591 62,083
Changes in non-cash working capital:
Patient accounts receivable........ (1,579,445) (1,258,378) (2,204,081) (421,724) (957,302)
Prepaid income taxes............... -- 407,448 407,448 (407,448) --
Inventory and other current
assets........................... (356,553) (150,619) 4,631 (54,280) 18,673
Accounts payable................... 393,371 591,800 888,577 (149,569) (147,816)
Accrued payroll, taxes and
benefits......................... 153,070 300,317 (321,660) 118,214 69,922
Income taxes payable............... (372,258) (63,492) 211,847 (223,500) (28,059)
Accrued property taxes and other
accrued expenses................. (84,298) (108,501) 68,738 (47,779) (24,349)
Unearned revenue................... -- -- (24,614) 33,213 (22,995)
----------- ------------
Net cash provided by
operating activities............. (1,628,002) 533,399 321,822 240,551 827,100
----------- ------------
Cash flows from investing activities:
Recognition of buyout net asset value... -- -- -- (4,459,908) --
Purchase of property and equipment...... (126,257) (101,719) (243,718) (512,922) (221,573)
Purchase of investments................. -- -- (51,161) (17,739) 7,092
Purchase of goodwill.................... -- -- -- (2,644,885) --
Increase in deferred taxes related to
buyout................................ -- -- -- 2,778,543 --
Change in deposits and other assets..... (25,480) (221,752) 3,500 96,377 (26,078)
----------- ------------
Net cash used in investing
activities....................... (151,737) (323,471) (291,379) (4,760,534) (240,559)
----------- ------------
Cash flows from financing activities:
Repayment of long-term debt............. (26,218) (102,289) (179,541) (11,462,055) (1,065,386)
Receivables due from affiliates, net.... 1,530,965 678,295 (495,031) -- --
Issuance of long-term debt.............. -- -- -- 19,100,000 --
Payment of loan fees.................... -- -- -- (324,297) --
Purchase of preferred stock............. -- -- -- (2,746,631) --
----------- ------------
Net cash (used in) provided by
financing activities............. 1,504,747 576,006 (674,572) 4,567,017 (1,065,386)
----------- ------------
Net (decrease) increase in cash.... (274,992) 785,934 (644,129) 47,034 (478,845)
Cash and cash equivalents,
at beginning of year............. 274,992 919,121 919,121 872,087 1,350,932
----------- ------------
Cash and cash equivalents,
at end of year................... $ -- $ 1,705,055 $ 274,992 $ 919,121 $ 872,087
=========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-61
<PAGE> 301
SIGNATURE HEALTH CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(INCLUDING INFORMATION APPLICABLE TO UNAUDITED PERIODS)
(1) BUSINESS AND ORGANIZATION
Signature Health Care Corporation and its wholly owned subsidiaries (the
"Corporation") own, operate and manage skilled nursing centers providing
restorative, rehabilitative, and sub-acute services. As of December 31, 1995,
the Corporation owns six nursing homes and leases one for a total of seven
nursing homes with 602 total beds. The Corporation does business in Colorado and
Arizona. The Corporation's nursing homes are subject to licensing and regulation
of their services by various federal and state government agencies. The
Corporation incorporated in Delaware on October 12, 1987.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation. The accompanying consolidated financial statements include
the accounts of the Corporation and its wholly owned subsidiaries with all
significant intercompany accounts and transactions eliminated.
Cash and Cash Equivalents. Cash and cash equivalents include all
investments with an original maturity of three months or less.
Property and Equipment. Property and equipment are recorded at cost, with
depreciation computed on the straight-line method over the estimated useful
lives of depreciable assets which range from two to 40 years.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("SFAS 121"). SFAS
121 requires that the Corporation perform a review of long-lived assets and
goodwill related to those assets to assess whether an impairment of value
exists. If such an impairment does exist, the related assets must be written
down to fair value.
The Corporation is required to adopt SFAS 121 in fiscal 1996. Management
has not yet determined what the ultimate impact of adopting this new Statement
will be on the Corporation's financial position or results of operations.
Loan Fees. Loan fees amortize over the term of the related debt using the
effective interest method.
Net Patient Service Revenue and Accounts Receivable. Patient revenue is
reported at established rates or estimated net realizable amounts from
third-party payors or others for services rendered. Credit risk exists to the
extent that the Corporation's most significant source of revenue is
reimbursement for patient care from state-sponsored Medicaid programs and from
Medicare. However, management does not believe that there are significant credit
risks associated with these governmental agencies. Contractual adjustments
resulting from agreements with various organizations to provide services for
amounts which differ from billed charges, including services under Medicare and
Medicaid, are recorded as deductions from gross patient revenue. The estimated
third party payor settlements under Medicare and Medicaid programs are recorded
in the period the related services are rendered and are subject to audit and
final settlement by the fiscal intermediary. Differences between the net amounts
accrued and subsequent settlement, if any, are recorded in operations at the
time the final settlement is determined.
Until the year of settlement, accounts receivable are reduced for the
differences between recognized revenue and interim payments received from
third-party payors. The Corporation classifies these differences in
contra-accounts in accounts receivable as payable to Medicare and Medicaid
third-party payors until the year of settlement. These settlement amounts total
$1,084,000, $586,000 and $500,000 as of December 31, 1995, 1994 and 1993,
respectively.
F-62
<PAGE> 302
SIGNATURE HEALTH CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company derived patient revenues from various sources in 1995, 1994 and
1993, respectively, as follows:
(a) federal Medicare program (retrospectively reimbursing actual
allowable costs), 33%, 20% and 19%;
(b) negotiated contracts with various government agencies and private
insurance companies, 31%, 36% and 39%;
(c) private pay sources, 19%, 25% and 26%; and
(d) state Medicaid programs (prospectively reimbursing historical
allowable costs plus an inflation factor and profit factor), 17%, 19% and
16%.
Management Fees. During 1994 the Corporation provided accounting services
to a contracted therapy business. In return for its management services, the
Corporation received management fees in an amount equal to 3% of net revenue
plus its costs for providing accounting services.
Goodwill. Goodwill is being amortized over a five-year period.
Income Taxes. The Corporation accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109. "Accounting for Income
Taxes" ("SFAS 109"). SFAS 109 requires the use of an asset and liability
approach for measuring deferred taxes based on temporary differences between
financial statement and tax bases of assets and liabilities existing at each
balance date using enacted tax rates for years in which the related taxes are
expected to be paid or recovered.
Use of Estimates in the Preparation of Financial Statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(3) INTERIM FINANCIAL STATEMENTS (UNAUDITED)
The unaudited consolidated balance sheet and statement of stockholders'
equity as of June 30, 1996 and the unaudited statements of income and cash flows
for the six months ended June 30, 1995 and 1996, in the opinion of management,
have been prepared on substantially the same basis as the audited consolidated
financial statements and include all significant adjustments necessary for the
fair presentations of the results of the interim periods. The data disclosed in
these notes to the financial statement for these periods are also unaudited.
Operating results for the interim periods are not necessarily indicative of the
results that may be expected for an entire year.
(4) LONG-TERM DEBT
Long-term debt at December 31, 1995 and 1994, consisted of the following.
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
10 year mortgage at 10.5% payable monthly......... $18,804,168 $18,983,709
Less current maturities......................... (198,994) (141,417)
----------- -----------
Total long-term debt, net of current
maturities............................ $18,605,174 $18,842,292
=========== ===========
</TABLE>
The property and equipment of the Corporation secure the current mortgage.
The mortgage contains a personal guarantee from a stockholder of the
Corporation. The mortgage contains various covenants including debt service
coverage, minimum current ratio, and restrictions on the payment of dividends.
The Corporation
F-63
<PAGE> 303
SIGNATURE HEALTH CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
complied with the covenants throughout 1995 and 1994. Cash paid for interest
totaled $2,030,110 $1,658,341, and $993,075 in 1995, 1994 and 1993,
respectively.
Long-term debt maturing in the next five years follows.
<TABLE>
<S> <C>
1996.................................................... $ 198,994
1997.................................................... 220,924
1998.................................................... 245,271
1999.................................................... 272,301
2000.................................................... 302,309
Thereafter.............................................. 17,564,369
-----------
Total long-term debt.......................... $18,804,168
===========
</TABLE>
(5) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheet for cash, accounts
receivable, deposits/accounts payable and long-term borrowings approximate their
fair value. The fair value of the Corporation's long-term borrowings is
estimated by discounting future cash flows at current rates offered to the
Corporation for debt of comparable types and maturities. Because no market
exists for these financial instruments, considerable judgment is necessary in
interpreting the data to develop estimates of fair value. The use of different
market assumptions may have a material effect on the estimated fair value
amounts.
(6) EQUITY
The common stock carry certain rights, the more significant of which follow
(see Note 7).
Voting. Each share of common stock carry the right to one vote.
Options. The Corporation reserves 250,000 shares of authorized but
unissued common stock for issuance to employees upon exercise of stock purchase
options. As of December 31, 1995, granted options cover the purchase, of 113,800
shares of common stock, of which 90,000 shares have vested and 23,800 shares
vest upon completion of certain conditions, none of which had occurred as of
December 31, 1995. Activity related to granted options for the three years ended
December 31, 1995 follows:
<TABLE>
<CAPTION>
PRICE PER
SHARES SHARE
------- ---------------
<S> <C> <C>
Granted options at December 31, 1992............................... 95,500 --
Options granted.................................................. 14,000 $6.50 - $10.00
Cancelled options................................................ (2,500) --
-------
Granted options at December 31, 1993............................... 107,000 --
Options granted.................................................. 6,800 $12.00
Cancelled options................................................ (3,000) --
-------
Granted options at December 31, 1994............................... 110,800 --
Options granted.................................................. 6,850 $25.00
Cancelled options................................................ (3,850) --
-------
Granted options at December 31, 1995............................... 113,800 --
-------
</TABLE>
(7) RELATED PARTY TRANSACTIONS
During 1993 the Corporation paid or accrued $158,750 for a consulting fee
to an affiliate of its preferred stockholder for investment banking, financial,
and management services.
F-64
<PAGE> 304
SIGNATURE HEALTH CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1993 the Corporation advanced $100,000 to an affiliated entity which
will provide physical, occupational, and speech therapy services to the
Corporation and others. This advance was outstanding during 1993 and 1994.
During 1995 the Corporation incurred and paid for management and
rehabilitation services from an entity having common owners.
(8) COMMITMENTS AND CONTINGENCIES
The Corporation leases a nursing home, on a ten year base term expiring in
2000, under which the Corporation possesses (1) the right to renew for one
additional 5 year term and (2) the option to purchase the nursing home through
the end of the base term. The lease provides for certain restrictions on the
maintenance and operation of the nursing home and an annual 2% escalation in the
base rent.
The Corporation also leases office space for its corporate office, on a
year to year basis, under which the Corporation possesses the right to renew for
additional one year terms.
Both leases are treated as operating leases, future lease payments follow.
<TABLE>
<S> <C>
1996..................................................... $ 381,152
1997..................................................... 374,370
1998..................................................... 380,736
1999..................................................... 387,648
2000..................................................... 361,152
----------
Total base term rent........................... $1,885,058
==========
</TABLE>
The Corporation has been named as a defendant in certain litigation.
Corporation management believes amounts which may become payable, if any,
pursuant to such litigation, will be covered by the Corporation's insurance
policies.
(9) INCOME TAXES
The Corporation accounts for income taxes under the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"), which requires recognition of deferred tax assets and liabilities for the
expected future income tax consequences of events which have been included in
the financial statement or tax returns. Under this method, deferred tax assets
and liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse.
Deferred taxes liability as of December 31, 1995 and 1994 are comprised of
the following.
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Tax credit........................................ $ -- 13,000
Accrued liabilities and allowances................ 101,300 89,400
----------- -----------
Total current deferred tax asset............. 101,300 102,400
----------- -----------
Depreciation and amortization..................... (601,100) (441,200)
Basis step-up (see Note 7)........................ (2,338,500) (2,778,500)
----------- -----------
Total noncurrent deferred tax liability...... (2,939,600) (3,219,700)
----------- -----------
Total net deferred taxes................ $(2,838,300) $(3,117,300)
=========== ===========
</TABLE>
F-65
<PAGE> 305
SIGNATURE HEALTH CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Corporation did not record any valuation allowances against the
deferred tax asset at December 31, 1995 and 1994, as the Corporation's
management believes that it is more likely than not that the asset will be
realized. Cash paid for income taxes totaled $0, $462,000 and $608,000 in 1995,
1994 and 1993 respectively.
The components of the income tax provision (benefit) consist of the
following.
<TABLE>
<CAPTION>
1995 1994 1993
--------- -------- --------
<S> <C> <C> <C>
Federal................................... $ 195,484 $ 44,533 $464,005
State..................................... 43,275 9,859 117,000
--------- -------- --------
Current income tax provision............ 238,759 54,392 581,005
--------- -------- --------
Federal................................... (250,077) (21,072) 30,000
State..................................... (55,360) (4,666) 31,000
--------- -------- --------
Deferred income tax provision
(benefit)............................ (305,437) (25,738) 61,000
--------- -------- --------
Total income tax provision
(benefit).......................... $ (66,678) $ 28,654 $642,005
========= ======== ========
</TABLE>
The difference between the Corporation's effective income tax rates and the
statutory rates are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1995 1994 1993
--------- -------- --------
<S> <C> <C> <C>
Statutory federal income tax expense
(benefit)............................... $ (59,025) $ 19,140 $559,531
Increases (decreases) resulting from:
State tax expense (benefit) net of
federal benefit...................... (8,681) 2,815 82,284
Nondeductible expenses.................. 5,659 6,115 2,603
Other................................... (4,631) 584 (2,413)
--------- -------- --------
Income tax expense (benefit).............. $ (66,678) $ 28,654 $642,005
========= ======== ========
</TABLE>
(10) BUY OUT OF PREFERRED STOCKHOLDERS
On March 30, 1994, the Corporation completed new long-term financing. The
proceeds were used to retire all existing debt, create a minimum debt service
reserve, and redeem all outstanding convertible preferred stock, which had
rights which made it essentially equivalent to common stock and comprised
approximately 67% of the Corporation's equity ownership.
Because a substantive change in control occurred, a proportional share of
the Corporation's net assets were revalued based on the monetary consideration
paid to the preferred shareholders and the assets applicable to common
stockholders' residual interest were carried forward at historical cost, net of
related valuation and allowance accounts.
The transaction resulted in an increase in property and equipment of
approximately $4.4 million, goodwill of $2.6 million, deferred tax liability of
$2.8 million as no step-up in basis was allowed for tax purposes, and the
elimination of retained earnings and an increase in paid-in capital.
The depreciation and amortization related to the increase in property and
equipment and goodwill referred to above totalled $233,350 in 1994 and
$1,210,111 in 1995 and $605,056 and $605,056 for the six months ended June 30,
1995 and 1996, respectively.
F-66
<PAGE> 306
SIGNATURE HEALTH CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(11) SUBSEQUENT EVENT
On August 2, 1996, the Corporation entered into an agreement and plan of
merger with Unison HealthCare Corporation ("Unison"). Through the merger the
Corporation will become a wholly owned subsidiary of Unison. Outstanding shares
of the Corporation will be converted into the right to receive, subject to
certain adjustments, cash equal to $10,200,000 and shares of Unison's common
stock equal to approximately $20,000,000. The merger is subject to regulatory
and shareholder approval.
F-67
<PAGE> 307
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Arkansas, Inc., Cornerstone Care, Inc., Douglas Manor, Inc., and Safford Care,
Inc.:
We have audited the accompanying combined balance sheet of ARKANSAS, INC.,
CORNERSTONE CARE, INC., DOUGLAS MANOR, INC., and SAFFORD CARE, INC. (Colorado
corporations) as of December 31, 1995, and the related combined statements of
operations, stockholders' equity and cash flows for the period from inception,
May 9, 1995 through December 31, 1995. These financial statements are the
responsibility of each Corporation's management. Our responsibility is to
express an opinion on these combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Arkansas, Inc.,
Cornerstone Care, Inc., Douglas Manor, Inc., and Safford Care, Inc. as of
December 31, 1995, and the combined results of their operations and their cash
flows for the period from inception through December 31, 1995 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado
April 15, 1996
F-68
<PAGE> 308
ARKANSAS, INC., CORNERSTONE CARE, INC.,
DOUGLAS MANOR, INC., AND SAFFORD CARE, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
1996
----------- DECEMBER 31,
1995
------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents........................................ $ -- $ 313,198
Patient accounts receivable, net of allowance for doubtful
accounts of $41,000 at June 30, 1996 and $23,000 at December
31, 1995 and
1994........................................................... 2,575,860 2,382,353
Inventory........................................................ 192,817 --
Other current assets............................................. 52,543 3,483
---------- ----------
Total current assets........................................ 2,821,220 2,699,034
Equipment........................................................ 753,524 800,995
Leasehold improvements........................................... 157,026 167,695
---------- ----------
Property and equipment, at cost................................ 910,550 968,690
Less-Accumulated depreciation.................................. (139,921) (54,314)
---------- ----------
Net property and equipment.................................. 770,629 914,376
Deposits and other............................................... 70,605 70,605
Prepaid rent..................................................... 114,814 209,587
---------- ----------
Total other assets.......................................... 185,419 280,192
---------- ----------
Total assets........................................... $ 3,777,268 $3,893,602
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of capitalized lease............................. $ 52,992 $ 48,003
Accounts payable................................................. 593,700 430,382
Accrued payroll, taxes and benefits.............................. 289,820 312,124
Property taxes payable........................................... 64,155 48,015
Other accrued expenses........................................... 60,488 4,905
Unearned revenue................................................. 30,550 30,550
---------- ----------
Total current liabilities................................... 1,091,705 873,979
Deferred rent............................................... -- 91,428
Capitalized lease, net of current portion................... 668,624 668,940
Amounts due affiliates...................................... 1,464,672 1,579,209
---------- ----------
Total liabilities........................................... 3,225,001 3,213,556
Common stock, $.01 par value; 400,000 shares authorized; 4,000
shares issued and outstanding.................................. 4,000 4,000
Additional paid-in capital....................................... 377,000 377,000
Distributions to stockholders.................................... (1,926,000) (406,000)
Accumulated earnings from operations............................. 2,097,267 705,046
---------- ----------
Total stockholders' equity.................................. 552,267 680,046
---------- ----------
Total liabilities and stockholders' equity............. $ 3,777,268 $3,893,602
========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-69
<PAGE> 309
ARKANSAS, INC., CORNERSTONE CARE, INC.,
DOUGLAS MANOR, INC., AND SAFFORD CARE, INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED INCEPTION TO YEAR ENDED
JUNE 30, JUNE 30, DECEMBER 31,
1996 1995 1995
---------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Sub-acute and rehabilitation....................... $2,390,306 $ 79,163 $1,965,605
Alzheimers care.................................... 1,108,873 -- 1,063,937
Skilled nursing care............................... 5,695,862 395,168 5,449,292
Miscellaneous services............................. 208,925 713 161,906
---------- -------- ----------
Total revenue................................. 9,403,866 475,044 8,640,740
---------- -------- ----------
Nursing services (including $744,753 and $26,253 at
June 30, 1996 and 1995 and $467,124 at December
31, 1995 paid to an affiliate)................... 3,773,485 212,220 4,286,037
Dietary services................................... 509,366 38,129 634,946
General services................................... 1,591,666 99,017 1,213,308
Provision for bad debts............................ 17,662 6,478 55,624
Management fees paid to an affiliate............... 1,151,824 42,771 797,900
Rent............................................... 851,169 44,578 860,211
Interest, net of $4,624 and $191 at June 30, 1996
and 1995 and $2,600 at December 31, 1995 of
income........................................... 30,366 31,508 33,354
Depreciation and amortization...................... 86,107 16,042 54,314
---------- -------- ----------
Total expenses................................ 8,011,645 490,743 7,935,694
---------- -------- ----------
Net income (loss)........................ $1,392,221 $(15,699) $ 705,046
========== ======== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-70
<PAGE> 310
ARKANSAS, INC., CORNERSTONE CARE, INC.,
DOUGLAS MANOR, INC., AND SAFFORD CARE, INC.
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995 AND
SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------
ADDITIONAL DISTRIBUTIONS ACCUMULATED TOTAL
PAID-IN TO EARNINGS/ STOCKHOLDERS'
SHARES AMOUNT CAPITAL STOCKHOLDERS (DEFICIT) EQUITY
----- ------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Arkansas, Inc.............................. 1,000 $1,000 $ -- $ -- $ -- $ 1,000
Cornerstone Care, Inc...................... 1,000 1,000 -- -- -- 1,000
Douglas Manor, Inc......................... 1,000 1,000 -- -- -- 1,000
Safford Care, Inc.......................... 1,000 1,000 -- -- -- 1,000
----- ------ -------- --------- -------- ---------
Purchase of common stock.............. 4,000 4,000 -- -- -- 4,000
Douglas Manor, Inc......................... -- -- 259,000 -- -- 259,000
Safford Care, Inc.......................... -- -- 118,000 -- -- 118,000
----- ------ -------- --------- -------- ---------
Additional capital contributions...... -- -- 377,000 -- -- 377,000
Arkansas, Inc.............................. -- -- -- -- 442,759 442,759
Cornerstone Care, Inc...................... -- -- -- -- 170,237 170,237
Douglas Manor, Inc......................... -- -- -- -- (58,419) (58,419)
Safford Care, Inc.......................... -- -- -- -- 150,469 150,469
----- ------ -------- --------- -------- ---------
Net Income............................ -- -- -- -- 705,046 705,046
Arkansas, Inc.............................. -- -- -- (318,000) -- (318,000)
Cornerstone Care, Inc...................... -- -- -- (88,000) -- (88,000)
----- ------ -------- --------- -------- ---------
Distributions to stockholders......... -- -- -- (406,000) -- (406,000)
----- ------ -------- --------- -------- ---------
Balances at December 31, 1995.............. 4,000 $4,000 $ 377,000 $ (406,000) $ 705,046 $ 680,046
----- ------ -------- --------- -------- ---------
Arkansas, Inc. ............................ -- -- -- -- 707,661 707,661
Cornerstone Care, Inc. .................... -- -- -- -- 396,401 396,401
Douglas Manor, Inc. ....................... -- -- -- -- (89,526) (89,526)
Safford Care, Inc. ........................ -- -- -- -- 377,685 377,685
----- ------ -------- --------- -------- ---------
Net Income (unaudited)................ -- -- -- 1,392,221 1,392,221
Arkansas, Inc. ............................ -- -- -- (442,000) -- (442,000)
Cornerstone Care, Inc. .................... -- -- -- (526,000) -- (526,000)
Douglas Manor, Inc. ....................... -- -- -- (203,000) -- (203,000)
Safford Care, Inc. ........................ -- -- -- (349,000) -- (349,000)
----- ------ -------- --------- -------- ---------
Distributions to stockholders
(unaudited)......................... -- -- -- (1,520,000) -- (1,520,000)
----- ------ -------- --------- -------- ---------
Balances at June 30, 1996 (unaudited)...... 4,000 $4,000 $ 377,000 $ (1,926,000) $ 2,097,267 $ 552,267
===== ====== ======== ========= ======== =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-71
<PAGE> 311
ARKANSAS, INC., CORNERSTONE CARE, INC.,
DOUGLAS MANOR, INC., AND SAFFORD CARE, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
SIX MONTHS ENDED INCEPTION TO DECEMBER 31,
JUNE 30, JUNE 30, ------------
1996 1995 1995
---------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................... $ 1,392,221 $ (15,699) $ 705,046
Adjustments to reconcile net income to net cash
provided by/(used in) operating activities:
Depreciation and amortization...................... 86,107 16,042 54,314
Provision for bad debts............................ 17,662 6,478 55,624
Deferred rent expense.............................. (206,242) -- 91,428
Changes in non-cash working capital:
Patient accounts receivable..................... (211,166) (400,923) (2,437,977)
Inventory and other current assets.............. (32,290) (74,651) (213,070)
Accounts payable................................ 163,318 197,855 430,382
Accrued payroll, taxes and benefits............. (22,304) 278,144 312,124
Property taxes payable and other accrued
expenses...................................... 71,723 2,344 52,920
Unearned revenue................................ -- -- 30,550
----------- --------- -----------
Net cash used in operating activities......... 1,259,029 9,590 (918,659)
----------- --------- -----------
Cash flows from investing activities:
Purchase of property and equipment................... 57,637 (2,226) (229,455)
Change in deposits and other assets.................. -- (23,495) (70,605)
----------- --------- -----------
Net cash used in investing activities.............. 57,637 (25,721) (300,060)
----------- --------- -----------
Cash flows from financing activities:
Sale of common stock................................. -- -- 4,000
Amortization of lease obligation..................... 4,673 -- (22,292)
Amounts due to affiliates, net....................... (114,537) 295,665 1,579,209
Additional paid in capital........................... -- 377,000
Distributions to stockholders........................ (1,520,000) -- (406,000)
----------- --------- -----------
Net cash provided by financing activities..... (1,629,864) 295,665 1,531,917
----------- --------- -----------
Net (decrease) increase in cash and cash
equivalents.............................. (313,198) 279,534 313,198
Cash and cash equivalents, at beginning of
year..................................... $ 313,198 -- $ --
=========== ========= ===========
Cash and cash equivalents at end of year... -- $ 279,534 313,198
=========== ========= ===========
Supplemental disclosure of non-cash investing and
financing activities:
Acquisition of capitalized equipment lease......... $ -- $ 400,222 $ 739,235
=========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-72
<PAGE> 312
ARKANSAS, INC.,
CORNERSTONE CARE, INC.,
DOUGLAS MANOR, INC., AND
SAFFORD CARE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(INCLUDING INFORMATION APPLICABLE TO UNAUDITED PERIODS)
(1) BUSINESS AND ORGANIZATION
Arkansas, Inc., Cornerstone Care, Inc., Douglas Manor, Inc., and Safford
Care, Inc. (the "Sub-S Corporations"), operate skilled nursing centers providing
restorative, rehabilitative, and sub-acute services and assisted living centers
providing supervisory nursing services. As of December 31, 1995, the Sub-S
Corporations lease four nursing homes and two assisted living centers with 579
total beds. The Sub-S Corporations do business in Colorado and Arizona. The
Sub-S Corporations' nursing homes and assisted living centers are subject to
licensing and regulation of their services by various federal and/or state
government agencies. The Sub-S Corporations incorporated in Colorado on May 9,
1995.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Combination. The accompanying combined financial statements include the
accounts of the Sub-S Corporations, which all have common ownership, with all
significant intercompany accounts and transactions eliminated.
Cash and Cash Equivalents. Cash and cash equivalents include all
investments with an original maturity of three months or less.
Property and Equipment. Property and equipment are recorded at cost, with
depreciation computed on the straight-line method over the estimated useful
lives of depreciable assets which range from three to ten years.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("SFAS 121"). SFAS
121 requires that the Sub-S Corporations perform a review of long-lived assets
to assess whether an impairment of value exists. If such an impairment does
exist, the related assets must be written down to fair value.
The Sub-S Corporation is required to adopt SFAS 121 in fiscal 1996.
Management has not yet determined what the ultimate impact of adopting this new
Statement will be on the Sub-S Corporations' financial position or results of
operations.
Net Patient Service Revenue and Accounts Receivable. Patient revenue is
reported at established rates or estimated net realizable amounts from
third-party payors or others for services rendered. Credit risk exists to the
extent that the Sub-S Corporations' most significant source of revenue is
reimbursement for patient care from state-sponsored Medicaid programs and from
Medicare. However, management does not believe that there are significant credit
risks associated with these governmental agencies. Contractual adjustments
resulting from agreements with various organizations to provide services for
amounts which differ from billed charges, including services under Medicare and
Medicaid, are recorded as deductions from gross patient revenue. The estimated
third party payor settlements under Medicare and Medicaid programs are recorded
in the period the related services are rendered and are subject to audit and
final settlement by the fiscal intermediary. Differences between the net amounts
accrued and subsequent settlement, if any, are recorded in operations at the
time the final settlement is determined.
F-73
<PAGE> 313
ARKANSAS, INC.,
CORNERSTONE CARE, INC.,
DOUGLAS MANOR, INC., AND
SAFFORD CARE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Until the year of settlement, accounts receivable are reduced for the
differences between recognized revenue and interim payments received from
third-party payors. The Sub-S Corporations classify these differences in
contra-accounts in accounts receivable as payable to Medicare and Medicaid
third-party payors until the year of settlement. These settlement amounts total
$114,550 as of December 31, 1995.
The Sub-S Corporations derived patient revenues from various sources in
1995, as follows:
(a) state Medicaid programs (prospectively reimbursing historical
allowable costs plus an inflation factor and profit factor), 42%;
(b) federal Medicare program (retrospectively reimbursing actual
allowable costs), 22%;
(c) negotiated contracts with various government agencies and private
insurance companies, 21%; and
(d) private pay sources, 15%.
Use of Estimates in the Preparation of Financial Statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(3) INTERIM FINANCIAL STATEMENTS (UNAUDITED)
The unaudited combined balance sheet and statement of stockholders' equity
as of June 30, 1996 and the unaudited statements of income and cash flows for
the six months ended June 30, 1995 and 1996, in the opinion of management, have
been prepared on substantially the same basis as the audited combined financial
statements and include all significant adjustments necessary for the fair
presentations of the results of the interim periods. The data disclosed in these
notes to the financial statement for these periods are also unaudited. Operating
results for the interim periods are not necessary indicative of the results that
may be expected for an entire year.
(4) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheet for cash, accounts
receivable, deposits/accounts payable and long-term borrowings approximate their
fair value. The fair value of the Sub-S Corporation's long-term borrowings is
estimated by discounting future cash flows at current rates offered to the Sub-S
Corporation for debt of comparable types and maturities. Because no market
exists for these financial instruments, considerable judgment is necessary in
interpreting the data to develop estimates of fair value. The use of different
market assumptions may have a material effect on the estimated fair value
amounts.
(5) COMMITMENTS AND CONTINGENCIES
The Sub-S Corporations lease nursing homes and assisted living centers, on
a ten year base term expiring in 2005, under which the Sub-S Corporations
possess (1) the right to renew for three additional 10 year terms and (2) the
option to purchase the nursing homes and assisted living centers through the.
end of the base term and any renewals. The leases provide for certain
restrictions on the maintenance and operation of the nursing homes and assisted
living centers and an annual 2.5% escalation in the base rent. Future lease
payments follow.
F-74
<PAGE> 314
ARKANSAS, INC.,
CORNERSTONE CARE, INC.,
DOUGLAS MANOR, INC., AND
SAFFORD CARE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<S> <C>
1996.................................................... $ 1,642,264
1997.................................................... 1,683,320
1998.................................................... 1,725,403
1999.................................................... 1,768,538
2000.................................................... 1,812,752
Thereafter.............................................. 8,729,428
-----------
Total base term rent.......................... $17,361,705
===========
</TABLE>
For financial reporting purposes leases are treated as operating leases
and, for financial reporting purposes, the applicable future lease payments are
being recognized on a straight-line allocation basis. The property and equipment
of the Sub-S Corporations secure the leases. The leases contain various
covenants including completion of capital additions. The Sub-S Corporations
complied with the covenants throughout 1995.
(6) RELATED PARTY TRANSACTIONS
The Sub-S Corporations incurred and paid for management and rehabilitation
services from an entity having common ownership.
(7) INCOME TAXES
The Sub-S Corporations elected and have been granted S corporation status
under the regulations of the Internal Revenue Service. Under these regulations,
The Sub-S Corporations' taxable income is divided among, and passed through to,
its stockholders. Therefore, The Sub-S Corporations do not account for income
taxes and deferred tax assets or liabilities.
(8) SUBSEQUENT EVENT
On August 2, 1996 the Sub-S Corporations entered into agreements and plans
of merger with Unison HealthCare Corporation ("Unison"). Through the mergers the
Sub-S Corporations will become wholly owned subsidiaries of Unison. Outstanding
shares of the Sub-S Corporations will be converted into the right to receive,
subject to certain adjustments, cash equal to approximately $28,000,000. The
merger agreements are subject to regulatory and shareholder approval.
F-75
<PAGE> 315
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Unison HealthCare Corporation:
We have audited the accompanying statements of assets, liabilities and
interdivision account of THE OAKS OF BOISE (formerly, Franciscan ElderCare of
Boise, a division of Franciscan ElderCare Corporation, a Delaware not-for-profit
corporation) as of June 30, 1995 and 1994, and the related statements of
revenue, expenses and interdivision account and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Oaks of Boise as of June
30, 1995 and 1994, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
November 2, 1995.
F-76
<PAGE> 316
THE OAKS OF BOISE
STATEMENTS OF ASSETS, LIABILITIES AND INTERDIVISION ACCOUNT
JUNE 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash................................................................. $700..... $ 700
Accounts receivable, net of allowance for doubtful accounts of
$12,500 and $23,000 as of June 30, 1995 and 1994, respectively.... 326,736 226,720
Inventory............................................................ 17,411 20,046
-------- --------
Total current assets............................................ 344,847 247,466
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net.............................. 204,093 182,301
LEASE DEPOSIT.......................................................... 50,000 50,000
-------- --------
$598,940 $479,767
======== ========
LIABILITIES AND INTERDIVISION ACCOUNT
CURRENT LIABILITIES:
Accounts payable..................................................... $115,197 $ 51,679
Accrued expenses..................................................... 202,341 257,973
-------- --------
Total current liabilities....................................... 317,538 309,652
INTERDIVISION ACCOUNT.................................................. 281,402 170,115
-------- --------
$598,940 $479,767
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-77
<PAGE> 317
THE OAKS OF BOISE
STATEMENTS OF REVENUE, EXPENSES AND INTERDIVISION ACCOUNT
FOR THE YEARS ENDED JUNE 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
NET PATIENT REVENUE............................................... $ 1,744,121 $ 2,041,011
----------- -----------
EXPENSES:
Operating....................................................... 1,714,211 1,467,438
General and administrative...................................... 267,292 267,273
Rent and facilities............................................. 407,218 407,036
Depreciation and amortization................................... 38,809 44,651
----------- -----------
Total expenses............................................. 2,427,530 2,186,398
----------- -----------
EXCESS OF EXPENSES OVER REVENUE................................... (683,409) (145,387)
INTERDIVISION ADVANCES FROM FEC................................... 3,229,790 2,703,125
INTERDIVISION ADVANCES TO FEC..................................... (2,435,094) (2,588,095)
INTERDIVISION ACCOUNT, beginning of year.......................... 170,115 200,472
----------- -----------
INTERDIVISION ACCOUNT, end of year................................ $ 281,402 $ 170,115
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-78
<PAGE> 318
THE OAKS OF BOISE
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Excess of expenses over revenue................................. $ (683,409) $ (145,387)
Adjustments to reconcile the excess of expenses over revenue to
net cash used by operating activities --
Depreciation and amortization................................ 38,809 44,651
Changes in assets and liabilities --
Accounts receivable, net..................................... (100,016) 83,796
Inventory.................................................... 2,635 (11,905)
Accounts payable............................................. 63,518 1,023
Accrued expenses............................................. (55,632) (59,239)
----------- -----------
Net cash used in operating activities................... (734,095) (87,061)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and leasehold improvements............... (60,601) (27,969)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Interdivision advances from FEC................................. 3,229,790 2,703,125
Interdivision advances to FEC................................... (2,435,094) (2,588,095)
----------- -----------
Net cash provided by financing activities............... 794,696 115,030
----------- -----------
CHANGE IN CASH.................................................... -- --
CASH, beginning of year........................................... 700 700
----------- -----------
CASH, end of year................................................. $ 700 $ 700
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-79
<PAGE> 319
THE OAKS OF BOISE
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
(1) ORGANIZATION:
The Oaks of Boise (formerly Franciscan ElderCare of Boise) (The Oaks) was
acquired by Unison HealthCare Corporation (a Delaware corporation) (Unison) from
Franciscan ElderCare Corporation (a Delaware not-for-profit corporation) (FEC)
in July 1995 (Note 6). The Oaks is an 88 bed skilled nursing facility located in
Boise, Idaho, and operated as a division of FEC until June 30, 1995.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Net Patient Revenue
Net patient revenue is reported at the estimated billing rates or at the
amount realizable under agreements with third-party payors. During 1995 and
1994, revenues derived from patients covered by Medicare were 16% and 24%,
respectively, and revenues derived from patients covered by Medicaid were 38%
and 43%, respectively. Revenues earned under third-party payor agreements with
Medicare and Medicaid are subject to audit and retroactive adjustment. Amounts
realizable may change due to periodic changes in the regulatory environment.
Provisions for estimated third-party payor settlements are provided for in the
period the related services are rendered. As of June 30, 1995, accounts
receivable included $169,209 of settlements due from third parties. There were
no settlements due from third parties as of June 30, 1994. Differences between
the amounts accrued and subsequent settlements are recorded in operations at the
time of settlement.
There have been, and management expects that there will continue to be, a
number of proposals to limit Medicare and Medicaid reimbursement, as well as
revenues from certain private payor sources for long-term care services.
Management cannot predict whether any of these proposals will be adopted or, if
adopted and implemented, what effect such proposals would have on the financial
position and results of the operations of The Oaks.
Depreciation and Amortization
Equipment and leasehold improvements are recorded at cost and are
depreciated using the straight-line method over the lesser of the asset's
estimated useful life or term of the related lease (varying from 3 to 15 years).
Expenditures for maintenance, repairs and minor equipment replacements are
charged to expense as incurred.
Inventory
Inventory, consisting of food, linen and miscellaneous supplies, is stated
at the lower of average cost or market.
Income Taxes
The Oaks was a division of FEC, a not-for-profit corporation, through the
acquisition date and accordingly, no provision for income taxes has been
provided in the accompanying financial statements.
F-80
<PAGE> 320
THE OAKS OF BOISE
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Accrued Expenses
Accrued expenses consisted of the following at June 30:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Accrued salaries and benefits.......................... $112,570 $102,342
Amounts owed to third party payors..................... 53,150 115,367
Accrued taxes.......................................... 10,500 11,219
Accrued insurance...................................... -- 9,012
Other.................................................. 26,121 20,033
-------- --------
$202,341 $257,973
======== ========
</TABLE>
(3) EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Equipment and leasehold improvements consisted of the following at June 30:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Equipment............................................ $ 193,768 $ 156,878
Leasehold improvements............................... 301,461 277,750
--------- ---------
495,229 434,628
Less -- Accumulated depreciation..................... (291,136) (252,327)
--------- ---------
$ 204,093 $ 182,301
========= =========
</TABLE>
(4) RELATED PARTY TRANSACTIONS:
During fiscal 1995, The Oaks was one of several facilities operated as a
division of FEC. FEC makes advances to the facilities for operating purposes and
the facilities forward cash receipts to FEC as part of FEC's centralized cash
management system. Consequently, The Oak's financial statements do not include
certain accounts, such as operating cash, debt or fund balance. The results of
transactions between FEC and The Oaks are reflected in the interdivision account
as of and for the years ended June 30, 1995 and 1994.
Prior to December 1, 1994, management services were provided to The Oaks by
FEC. A management fee of 5% of net patient revenue was charged by FEC. From
December 1, 1994 to June 30, 1995, management services were provided to The Oaks
by Unison. Unison also charged 5% of net patient revenue. Management fees paid
for 1995 and 1994 were $100,500 and $95,000, respectively, and are included in
general and administrative expenses.
The Oaks purchases general liability insurance from an affiliate of FEC.
Liability insurance expense totaled $12,000 and $6,000 for the years ended June
30, 1995 and 1994, respectively.
F-81
<PAGE> 321
THE OAKS OF BOISE
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(5) COMMITMENTS AND CONTINGENCIES:
Leases
The Oak's facility is leased by FEC under a noncancelable operating lease
which expires in July, 2000. Future minimum rental commitments under the lease
are as follows, as of June 30, 1995:
<TABLE>
<S> <C>
Years Ending June 30,
1996........................................................ $ 367,536
1997........................................................ 367,536
1998........................................................ 367,536
1999........................................................ 367,536
2000........................................................ 367,536
Thereafter.................................................. 30,628
----------
$1,868,308
==========
</TABLE>
Claims and Litigation
In the normal course of business, The Oaks is subject to claims and
litigation for which FEC carries professional, general liability and other
insurance coverages. In the opinion of management, the outcome of such claims
and litigation will not have a material impact on The Oak's financial position
or results of operations (see Note 6).
(6) SUBSEQUENT EVENT:
Effective July 1, 1995, FEC and Unison entered into a purchase agreement,
pursuant to which Unison purchased certain accounts receivable, equipment,
leasehold improvements and supplies inventory and acquired FEC's rights under
certain contracts, including a sublease of the land and building of The Oak's
facility. The purchase price is subject to certain increases, based on adjusted
cash flow, as defined, for the two years ending June 30, 1997. The purchase
price is also subject to certain decreases, to be determined based on the
facility's net losses, if any, for the year ending June 30, 1996. Unison also
assumed certain of The Oak's liabilities, including accrued vacation and sick
pay. Under the terms of the agreement, Unison is obligated to pay security
deposits totaling $30,628 prior to December 1, 1995, to ensure Unison's
performance on FEC's sublease of the facility.
In conjunction with the purchase agreement, FEC and Unison also entered
into a repurchase option agreement whereby FEC has the option to repurchase the
assets and contract rights sold to Unison. This option is only exercisable if
FEC forms an affiliation with one of two healthcare providers identified in the
purchase agreement.
F-82
<PAGE> 322
INDEPENDENT AUDITORS' REPORT
Board of Directors
Nightingale West, Inc.
8365 Newburgh Rd.
Westland, MI 48185
We have audited the accompanying Balance Sheet of Nightingale West, Inc. (a
Michigan Corporation) as of December 31, 1994, and the related Statements of
Operations, Retained Earnings, and Cash Flows for each of the two years in the
period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Nightingale West, Inc. as of
December 31, 1994, and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles.
The accompanying Statements of Operations, Retained Earnings, and Cash
Flows for the nine months ended September 30, 1995 were not audited by us and,
accordingly, we do not express an opinion on them.
GRANT, MILLMAN & JOHNSON, P.C.
October 30, 1995
Farmington Hills, Michigan
F-83
<PAGE> 323
NIGHTINGALE WEST, INC.
BALANCE SHEET
DECEMBER 31, 1994
(READ NOTES TO FINANCIAL STATEMENTS)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current Assets:
Cash......................................................................... $ 244,682
Patient Accounts Receivable.................................................. 392,609
Sundry Receivables........................................................... 149,050
Supplies..................................................................... 21,356
Prepaid Expenses............................................................. 92,344
----------
Total Current Assets........................................................... 900,041
----------
Property and Equipment:
Land......................................................................... 200,000
Building and Improvements.................................................... 2,964,084
Equipment.................................................................... 316,778
----------
3,480,862
Less: Accumulated Depreciation............................................... 2,686,848
----------
Book Value of Property and Equipment........................................... 794,014
----------
Other Assets:
Deposits..................................................................... 350
Prepaid Expenses............................................................. 1,943
----------
Total Other Assets............................................................. 2,293
----------
TOTAL ASSETS................................................................... $1,696,348
==========
LIABILITIES
Current Liabilities:
Current Portion of Notes Payable............................................. $ 104,399
Accounts Payable............................................................. 145,968
Accrued Payroll.............................................................. 194,667
Accrued Property Taxes....................................................... 35,651
Accrued Expenses............................................................. 22,009
----------
Total Current Liabilities...................................................... 502,694
----------
Long-Term Liabilities:
Notes Payable, Net of Current Portion........................................ 1,945,309
----------
Total Liabilities.............................................................. 2,448,003
----------
STOCKHOLDERS' EQUITY
Capital Stock -- Common; $1 Par Value;
Authorized 50,000 Shares; Issued and Outstanding 10,000 Shares............... 10,000
Retained Earnings (Deficit).................................................. (761,655)
----------
Total Stockholders' Equity..................................................... (751,655)
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..................................... $1,696,348
==========
</TABLE>
F-84
<PAGE> 324
NIGHTINGALE WEST, INC.
STATEMENTS OF OPERATIONS
(READ NOTES TO FINANCIAL STATEMENTS)
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR FOR THE NINE
ENDED ENDED MONTHS ENDED
DECEMBER 31, 1993 DECEMBER 31, 1994 SEPTEMBER 30, 1995
----------------- ----------------- ------------------
(UNAUDITED)
<S> <C> <C> <C>
Net Patient Service Revenue............... $5,318,801 $5,854,088 $4,403,837
Other Revenue............................. 39,540 49,730 34,812
---------- ---------- ----------
Total Revenue............................. 5,358,341 5,903,818 4,438,649
---------- ---------- ----------
Operating Expenses:
Operating............................... 3,962,780 4,300,165 3,474,778
General and Administrative.............. 767,619 800,964 789,872
Interest................................ 176,959 169,038 120,692
Depreciation and Amortization........... 174,549 192,061 129,750
---------- ---------- ----------
Total Operating Expenses.................. 5,081,907 5,462,228 4,515,092
---------- ---------- ----------
Income (Loss) From Operations............. 276,434 441,590 (76,443)
Nonoperating Gains -- Interest............ 8,435 12,367 8,537
Nonoperating Losses -- Sale of Assets..... (2,815) -- --
---------- ---------- ----------
NET INCOME (LOSS)......................... $ 282,054 $ 453,957 $ (67,906)
========== ========== ==========
</TABLE>
F-85
<PAGE> 325
NIGHTINGALE WEST, INC.
STATEMENTS OF RETAINED EARNINGS
(READ NOTES TO FINANCIAL STATEMENTS)
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR FOR THE NINE
ENDED ENDED MONTHS ENDED
DECEMBER 31, 1993 DECEMBER 31, 1994 SEPTEMBER 30, 1995
----------------- ----------------- ------------------
(UNAUDITED)
<S> <C> <C> <C>
Balance -- Beginning, as Previously
Reported................................ $(929,816) $(695,119) $(761,655)
Cumulative Effect on Prior Years of
Retroactive Restatement for Accounting
Change.................................. (67,850) (70,493) --
--------- --------- ---------
Balance -- Beginning, As Restated......... (997,666) (765,612) (761,655)
Net Income (Loss) for the Period (as
Restated in 1993 and 1994).............. 282,054 453,957 (67,906)
Less: Distributions to Stockholders....... (50,000) (450,000) (150,000)
--------- --------- ---------
Balance -- Ending......................... $(765,612) $(761,655) $(979,561)
========= ========= =========
</TABLE>
F-86
<PAGE> 326
NIGHTINGALE WEST, INC.
STATEMENTS OF CASH FLOWS
(READ NOTES TO FINANCIAL STATEMENTS)
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR FOR THE NINE
ENDED ENDED MONTHS ENDED
DECEMBER 31, 1993 DECEMBER 31, 1994 SEPTEMBER 30, 1995
----------------- ----------------- ------------------
(UNAUDITED)
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income (Loss)....................... $ 282,054 $ 453,957 $ (67,906)
--------- --------- ---------
Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided by Operating
Activities:
Depreciation and Amortization........ 174,549 192,061 129,750
Loss on Disposal of Property......... 2,815 -- --
(Increase) Decrease in:
Accounts Receivable.................. (371,332) 71,154 166,841
Prepaid Expenses..................... (23,274) 18,182 (28,712)
Supplies............................. (653) 1,397 (3,147)
Other Assets......................... -- (350) --
Increase (Decrease) in:
Accounts Payable..................... 32,776 (13,995) 31,932
Accrued Expenses..................... 33,485 17,892 (26,713)
--------- --------- ---------
Total Adjustments......................... (151,634) 286,341 269,951
--------- --------- ---------
Net Cash Provided by Operating
Activities.............................. 130,420 740,298 202,045
--------- --------- ---------
Cash Flows From Investing Activities:
Cash Payments for the Purchase of
Property............................. (55,442) (108,923) (48,634)
Cash Proceeds From the Sale of
Property............................. 5,000 -- --
--------- --------- ---------
Net Cash Used by Investing Activities..... (50,442) (108,923) (48,634)
Cash Flows From Financing Activities:
Principal Payments on Debt.............. (100,813) (110,435) (78,479)
Distributions to Stockholders........... (50,000) (450,000) (150,000)
--------- --------- ---------
Net Cash Used by Financing Activities..... (150,813) (560,435) (228,479)
--------- --------- ---------
Net Increase (Decrease) in Cash and
Equivalents............................. (70,835) 70,940 (75,068)
Cash and Equivalents, Beginning........... 244,577 173,742 244,682
--------- --------- ---------
Cash and Equivalents, Ending.............. $ 173,742 $ 244,682 $ 169,614
========= ========= =========
Supplemental Disclosure of Cash Flow
Information:
Cash Paid During the Period For:
Interest Expense..................... $ 176,959 $ 169,038 $ 120,692
========= ========= =========
</TABLE>
F-87
<PAGE> 327
NIGHTINGALE WEST, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Nightingale West, Inc. was incorporated under the laws of the State of
Michigan on October 10, 1968. The Company operates a 236-bed nursing home in
Westland, Michigan, and grants credit without collateral to its residents, most
of whom are from the local area, and are insured under third party payor
agreements.
Unaudited Interim Financial Information
The accompanying financial statements for the nine months ended September
30, 1995 are unaudited; however, in the opinion of management, such statements
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the results of operations and cash flows
for such period. The operating results for the interim period are not
necessarily indicative of the results of a full year.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
Income Taxes
The Company, with the consent of its stockholders, has elected under the
Internal Revenue Code to be an S-Corporation. In lieu of corporation income
taxes, the stockholders are taxed on their proportionate share of the Company's
taxable income. Therefore, no provision or liability for federal income taxes
has been included in these financial statements.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is calculated
using various straight line and accelerated methods over the estimated useful
lives of the assets.
Patient Service Revenue
Patient service revenue is reported at the estimated net realizable amounts
from residents, third party payers, and others for services rendered. Revenue
under third party payor agreements is subject to audit and retroactive
adjustment. Provisions for estimated third party payor settlements are provided
in the period the related services are rendered. Differences between the
estimated amounts accrued and interim and final settlements are reported in
operations in the year of settlement.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. During the normal
course of business, the Company regularly maintains cash on deposit in excess of
federally insured limits with financial institutions.
Accounts Receivable
The Company considers its accounts receivable to be fully collectible.
Accordingly, no allowance for doubtful accounts is required. If accounts do
become uncollectible, they will be charged to operations when that determination
is made.
F-88
<PAGE> 328
NIGHTINGALE WEST, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Supplies Inventory
Supplies inventory is stated at the lower of cost or market, on a first-in,
first-out basis.
Prepaid Expenses
The Company considers all expenses paid in advance which have an estimated
benefit of one year or less, to be current assets. All other prepaid amounts
which will benefit future periods greater than one year from the balance sheet
date are considered long term.
NOTE 2 -- ASSETS WHOSE USE IS LIMITED
At December 31, 1994, the Company has included in Cash the patient trust
accounts totalling $3,464. The related liability of the same amount is included
in Accounts Payable.
NOTE 3 -- NOTES PAYABLE
Notes Payable at December 31, 1994 consist of the following:
<TABLE>
<CAPTION>
CURRENT LONG TERM
-------- ----------
<S> <C> <C>
Land Contract Payable to a related party, secured by Land and
Building. Monthly payments of $21,724, including interest
at 8.0% through July, 2004................................. $100,649 $1,945,309
Installment Loan payable to a bank, secured by all assets.
Monthly payments of $1,250 plus interest at the bank's
prime rate plus 1.0%, through May, 1995.................... 3,750 --
-------- ----------
TOTAL...................................................... $104,399 $1,945,309
======== ==========
</TABLE>
Future maturities of long term debt as of December 31, 1994 are as follows:
<TABLE>
<S> <C>
1995........................................................ $ 104,399
1996........................................................ 109,002
1997........................................................ 118,050
1998........................................................ 127,847
1999........................................................ 138,459
Thereafter.................................................. 1,451,951
----------
Total....................................................... $2,049,708
==========
</TABLE>
NOTE 4 -- RELATED PARTY TRANSACTIONS
As referred to in Note 3 above, the Company has included in liabilities at
December 31, 1994, a long term Land Contract Payable for the purchase of real
estate, in the amount of $2,045,958. This contract is payable to a related
entity that has similar management and ownership. Interest expense paid on this
contract is recorded in the Statements of Operations as follows:
<TABLE>
<CAPTION>
PERIOD AMOUNT
------------------------------------------------------------------ --------
<S> <C>
Year ended December 31, 1993...................................... $174,875
Year ended December 31, 1994...................................... $167,752
Nine months ended September 30, 1995.............................. $120,787
</TABLE>
F-89
<PAGE> 329
NIGHTINGALE WEST, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- LEASES
Leases that do not meet the criteria for capitalization are classified as
operating leases with related rentals charged to operations as incurred. The
following is a schedule by year of the future minimum lease payments under
operating leases as of December 31, 1994:
<TABLE>
<CAPTION>
MINIMUM
LEASE PAYMENTS
--------------
<S> <C>
Year Ending December 31
1995.................................................. $4,091
1996.................................................. 3,409
------
Total Minimum Lease Payments............................ $7,500
======
</TABLE>
Total rent expense included in the Statements of Operations for the year
ended December 31, 1994 was $682, and $3,068 for the nine months ended September
30, 1995.
NOTE 6 -- CHANGE IN METHOD OF ACCOUNTING FOR COMPENSATED ABSENCES
In prior years, the Company did not record its liability for accrued
compensated absences such as vacation and sick pay. In 1995, the Company changed
its method of accounting for these compensated absences. The change was made
because the Company felt that the new method resulted in a more accurate
recognition of expenses and a better matching of revenues and costs. The
financial statements of the prior periods have been restated to apply the new
method retroactively. The effect on income of the accounting change for the
years ended December 31, 1993 and 1994 are decreases of $2,643 and $2,407
respectively. The cumulative effect of the change to prior years has been
recorded in the Statements of Retained Earnings. There is no tax effect from
this change.
NOTE 7 -- NET PATIENT SERVICE REVENUES
The Company has agreements with third party payers that provide for payment
at amounts different than its established rates. The Company's revenues are
derived mostly from its participation in the Medicaid assistance program, and
the collectibility of these funds is dependent upon the performance of these
programs. Contractual adjustments resulting from these agreements are recorded
as deductions from gross resident revenue.
For the years ended December 31, 1993 and 1994, and the nine month period
ended September 30, 1995, the Company's revenues from the Medicaid program were
approximately 80% of total revenues. At December 31, 1994, the Company's
receivable from the Medicaid program was 93% of total patient receivables.
NOTE 8 -- SUBSEQUENT EVENTS
In 1995 the Company entered into an agreement to sell substantially all of
its operating assets to another unrelated entity for an amount in excess of book
value. The eventual closing and sale is expected to occur in November, 1995.
In addition, the Company's collective bargaining agreement that covers
substantially all of its employees expired in 1995. The parties to the contract
have agreed to continue working under the expired agreement during the contract
negotiations.
F-90
<PAGE> 330
NIGHTINGALE WEST, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- INSURANCE CLAIMS
Nursing homes are subject to medical malpractice, personal injury, and
other liability claims that are customary risks inherent in the operation of a
health care facility and are generally covered by insurance. The Company
maintains insurance with coverage and deductibles that management deems
appropriate based on historical claims and the nature of the risks of its
business. Although there can be no assurance that a potential future claim will
not exceed the insurance coverage available, management believes that based upon
evaluation of historical asserted and unasserted claims experience, management
believes that the ultimate liability, if any, resulting from the settlement of
any future claim will not have a material impact on Nightingale's financial
position, operations or liquidity.
NOTE 10 -- RECLASSIFICATIONS
Certain accounts in the prior year's financial statements have been
reclassified for comparative purposes to conform with the presentation in these
financial statements.
F-91
<PAGE> 331
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Henderson & Associates Rehabilitation and
Sunbelt Therapy Management Services, Inc.
We have audited the accompanying combined balance sheets of Henderson &
Associates Rehabilitation and Sunbelt Therapy Management Services, Inc. as of
December 31, 1995 and 1994, and the related combined statements of operations
and stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Henderson &
Associates Rehabilitation and Sunbelt Therapy Management Services, Inc. at
December 31, 1995 and 1994, and the combined results of their operations and
their cash flows for the years then ended in conformity with generally accepted
accounting principles.
May 16, 1996
Ernst & Young LLP
Phoenix, Arizona
F-92
<PAGE> 332
HENDERSON & ASSOCIATES REHABILITATION
AND
SUNBELT THERAPY MANAGEMENT SERVICES, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash................................................................. $ 69,779 $ 61,858
Accounts receivable, less allowance for doubtful accounts of $95,000
in 1995 and $91,600 in 1994........................................ 485,843 371,260
Other receivables.................................................... 50,507 14,503
Due from affiliates.................................................. 38,893 60,567
Other................................................................ 24,590 18,958
-------- --------
Total current assets....................................... 669,612 527,146
Property and equipment, less accumulated depreciation of $144,158 in
1995 and $125,054 in 1994.......................................... 90,205 141,132
-------- --------
Total assets............................................... $759,817 $668,278
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable..................................................... $ 33,549 $ 23,956
Accrued payroll and related expenses................................. 250,672 174,441
Accrued vacation payable............................................. 149,042 87,183
Due to affiliates.................................................... 39,330 --
Customer deposits.................................................... 27,336 28,067
Current portion of long-term debt and capital lease obligation....... 139,580 65,996
-------- --------
Total current liabilities.................................. 639,509 379,643
Long-term debt and capital lease obligation, less current portion.... 47,618 51,057
Stockholders' equity:
Common stock, $1 par value; 3000 shares authorized, issued and
outstanding..................................................... 3,000 3,000
Retained earnings............................................... 69,690 234,578
-------- --------
Total stockholders' equity................................. 72,690 237,578
-------- --------
Total liabilities and stockholders' equity................. $759,817 $668,278
======== ========
</TABLE>
See accompanying notes.
F-93
<PAGE> 333
HENDERSON & ASSOCIATES REHABILITATION
AND
SUNBELT THERAPY MANAGEMENT SERVICES, INC.
COMBINED STATEMENTS OF OPERATIONS AND
STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
Net Patient Service Revenue....................................... $4,803,845 $3,965,529
Operating Expenses:
Salaries and related expenses................................... 3,710,351 2,840,249
Contract labor.................................................. 382,612 345,843
Insurance....................................................... 202,814 230,980
Office supplies and expenses.................................... 127,262 88,902
Rent............................................................ 59,497 57,130
Travel.......................................................... 156,166 100,015
Other........................................................... 92,892 82,754
Depreciation.................................................... 34,741 17,387
Interest........................................................ 12,335 6,651
---------- ----------
Total operating expenses................................ 4,778,670 3,769,911
---------- ----------
Income from operations............................................ 25,175 195,618
Nonoperating losses............................................... (39,744) (46,626)
---------- ----------
Net (loss) income................................................. (14,569) 148,992
Distributions to stockholders..................................... (150,319) (83,541)
Retained earnings at beginning of period.......................... 234,578 169,127
---------- ----------
Retained earnings at end of period................................ $ 69,690 $ 234,578
========== ==========
</TABLE>
See accompanying notes.
F-94
<PAGE> 334
HENDERSON & ASSOCIATES REHABILITATION
AND
SUNBELT THERAPY MANAGEMENT SERVICES, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------
1995 1994
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) income................................................ $ (14,569) $ 148,992
Adjustments to reconcile net (loss) income to net cash provided
by operating activities:
Depreciation.................................................. 34,741 17,387
Loss on partnership investment................................ 16,278 22,457
Loss on disposal of assets.................................... 23,466 24,167
Changes in operating assets and liabilities:
Accounts receivable, net...................................... (128,913) 9,967
Accounts payable.............................................. 9,593 14,730
Other accrued expenses and liabilities........................ 177,420 66,649
Customer deposits............................................. (731) 28,067
--------- ---------
Net cash provided by operating activities................ 117,285 332,416
INVESTING ACTIVITIES
Purchases of property and equipment.............................. (7,280) (144,915)
Changes in other assets.......................................... (21,910) (28,969)
--------- ---------
Net cash used in investing activities.................... (29,190) (173,884)
FINANCING ACTIVITIES
Proceeds from long-term debt..................................... 201,460 99,497
Payments of long-term debt and capital lease obligation.......... (131,315) (92,327)
Distributions to stockholders.................................... (150,319) (83,541)
--------- ---------
Net cash used in financing activities.................... (80,174) (76,371)
--------- ---------
Increase in cash................................................. 7,921 82,161
CASH at beginning of period...................................... 61,858 (20,303)
--------- ---------
CASH at end of period............................................ $ 69,779 $ 61,858
========= =========
</TABLE>
See accompanying notes.
F-95
<PAGE> 335
HENDERSON & ASSOCIATES REHABILITATION
AND
SUNBELT THERAPY MANAGEMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
1. ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Henderson & Associates Rehabilitation (HAR) and Sunbelt Therapy Management
Services, Inc. (Sunbelt) provide a variety of therapy services to patients, and
contract their services to hospitals, home health agencies and other
third-parties.
PRINCIPLES OF COMBINATION
The combined financial statements include the accounts of Henderson &
Associates Rehabilitation and Sunbelt Therapy Management Services, Inc. All
significant intercompany accounts and transactions have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the combined financial
statements and accompanying notes. Actual results could differ from those
estimates.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation of property and
equipment is calculated using the straight-line method over the estimated useful
lives of the assets. Routine maintenance and repairs are charged to expenses as
incurred.
INCOME TAXES
HAR and Sunbelt are S corporations, and taxable income or loss flows
through to the individual stockholders for income tax purposes. Accordingly, no
provision for income taxes or income tax liabilities has been included in the
accompanying combined financial statements.
NET PATIENT SERVICE REVENUE
Net patient service revenue is reported at the estimated realizable amounts
from patients, third-party payors and others for services rendered. HAR and
Sunbelt have negotiated agreements with several organizations to provide therapy
services based on fee schedules.
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<PAGE> 336
HENDERSON & ASSOCIATES REHABILITATION
AND
SUNBELT THERAPY MANAGEMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
2. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATION
Long-term debt and capital lease obligation consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1995 1994
--------- ---------
<S> <C> <C>
Lines of credit.................................................... $ 65,050 $ 18,000
Note payable to a bank, due in monthly installments of $1,421,
interest at 1% above prime through November 1996................. -- 30,003
Note payable to a bank in monthly installments of $1,282, interest
at 1% above prime through October 1997........................... -- 31,510
Note payable to a credit union in monthly installments of $680,
interest at 7.11% through December 1997.......................... -- 22,000
Note payable to a bank, due in monthly installments of $2,245,
interest at 8.25% through November 1998.......................... 69,638 --
Note payable to a bank, due in monthly installments of $3,100,
interest at .5% above the average yield of U.S. Treasury Bills
through May 1996, at which time a final installment in the amount
of the unpaid balance is due..................................... 46,785 --
Capital lease obligation in monthly installments of $818........... 5,725 15,540
--------- ---------
187,198 117,053
Less current portion............................................... (139,580) (65,996)
--------- ---------
$ 47,618 $ 51,057
========= =========
</TABLE>
HAR has negotiated a $35,000 line of credit with a bank at an interest rate
of 1% over the prime rate.
Sunbelt has negotiated a $50,050 line of credit with a bank at an interest
rate of .5% over the bank's Base Lending Rate (8.5% at December 31, 1995).
Both lines of credit are secured by personal guarantees of the
stockholders.
Sunbelt has a capital lease for physical therapy equipment with a bargain
purchase option upon completion of the lease. At December 31, 1995, the leased
equipment, which is included in property and equipment in the accompanying
combined balance sheet, is carried at a cost of $21,310 less accumulated
depreciation of $6,038.
The lease expires in June 1996.
The following is a schedule of principal maturities of long-term debt and
capital lease obligation at December 31, 1995:
<TABLE>
<S> <C>
1996............................................................ $139,580
1997............................................................ 23,907
1998............................................................ 23,711
--------
$187,198
========
</TABLE>
3. RELATED PARTIES
HAR and Sunbelt share employees and expenses with several organizations of
which the stockholders are owners. However, HAR and Sunbelt have not billed
these organizations for shared activities and have not
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<PAGE> 337
HENDERSON & ASSOCIATES REHABILITATION
AND
SUNBELT THERAPY MANAGEMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
identified the related costs, and the accompanying combined financial statements
do not include revenue from these shared activities.
4. EMPLOYEE BENEFIT PLAN
Sunbelt has a qualified defined contribution plan covering all eligible
employees. Contributions are determined based upon a percentage of each eligible
employee's compensation, as defined by management. Contributions to the plan
were approximately $3,809 in 1995 and $3,458 in 1994.
HAR has a profit sharing plan covering all eligible employees.
Contributions are at the discretion of management. No contributions were made to
the plan in 1995 or 1994.
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by HAR and Sunbelt in
estimating the fair value of their financial instruments:
Cash, Accounts Payable and Accrued Liabilities: The carrying amounts
reported in the combined balance sheets approximate their fair values.
Long-Term Debt: The fair values of fixed rate issues are estimated using
discounted cash flow analyses based on the current incremental borrowing rates
for similar types of borrowing arrangements. The carrying amounts of all fixed
and variable rate issues approximate their fair values.
6. SUBSEQUENT EVENT
Unison HealthCare Corporation purchased 90% of the common stock of HAR and
Sunbelt effective February 1, 1996.
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<PAGE> 338
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under provisions of Section 145 of the Delaware General Corporation Law and
the Bylaws of the Company (Exhibit 3.2 hereto), directors, officers and persons
controlling the Company are indemnified by the Company under certain
circumstances for certain liabilities and expenses. In addition, officers and
directors of the Company are insured, under a policy of insurance paid for by
the Company, under certain circumstances for certain liabilities and expenses.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in said Act and is,
therefore, unenforceable. In the event that a claim for such indemnification is
asserted (except to the extent that such claim seeks reimbursement of expenses
in connection with a successful defense of any action, suit or proceeding) by a
director, officer or controlling person of the Company in connection with the
securities being registered and the Securities and Exchange Commission is still
of the same opinion, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in said Act and will be governed by the final
adjudication of such issue.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<C> <S>
2 Second Amended and Restated Purchase and Sale Agreement among Unison HealthCare
Corporation and Whitehead Family Investments, Ltd., as amended (incorporated by
reference to Exhibit 2 to Amendment No. 1 to the Registration Statement on Form S-1
filed on November 16, 1995, File No. 33-97662)
2.1 Modification Agreement dated April 15, 1996 among Unison HealthCare Corporation,
BritWill HealthCare Company and Bruce H. Whitehead (incorporated by reference to
Exhibit 2.1 to the Company's Annual Report on Form 10-K for the year ended December
31, 1995)
2.1.1 Modification Agreement dated August 28, 1996 among Unison HealthCare Corporation,
BritWill HealthCare Company and Bruce H. Whitehead*
2.2 Purchase and Sale Agreement effective as of February 1, 1996 by and among Unison
HealthCare Corporation, a Delaware corporation, Sunbelt Therapy Management
Services, Inc., an Arizona corporation, Paul G. Henderson and Paige B. Plash
(incorporated by reference to Exhibit 2.1 to the Form 8-K filed on April 12, 1996)
2.3 Agreement and Plan of Merger among Unison HealthCare Corporation, Signature Health
Care Corporation, David A. Kremser and John D. Filkoski (incorporated by reference
to Exhibit 2.3 to the Company's Quarterly Report on Form 10-Q for the period ended
June 30, 1996)
2.4 Agreement and Plan of Merger among Unison HealthCare Corporation, Arkansas, Inc.,
David A. Kremser and John D. Filkoski (incorporated by reference to Exhibit 2.4 to
the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1996)
2.5 Agreement and Plan of Merger among Unison HealthCare Corporation, Cornerstone Care,
Inc., David A. Kremser and John D. Filkoski (incorporated by reference to Exhibit
2.5 to the Company's Quarterly Report on Form 10-Q for the period ended June 30,
1996)
2.6 Agreement and Plan of Merger among Unison HealthCare Corporation, Douglas Manor,
Inc., David A. Kremser and John D. Filkoski (incorporated by reference to Exhibit
2.6 to the Company's Quarterly Report on Form 10-Q for the period ended June 30,
1996)
</TABLE>
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<PAGE> 339
<TABLE>
<C> <S>
2.7 Agreement and Plan of Merger among Unison HealthCare Corporation, Safford Care,
Inc., David A. Kremser and John D. Filkoski (incorporated by reference to Exhibit
2.7 to the Company's Quarterly Report on Form 10-Q for the period ended June 30,
1996)
2.8 Agreement and Plan of Merger among Unison HealthCare Corporation, a Delaware
corporation, Labco Acquisition Co., a Delaware corporation, and American
Professional Holding, Inc., a Utah corporation (incorporated by reference to the
Company's Current Report on Form 8-K dated July 31, 1996)
2.9 Agreement and Plan of Merger among Unison HealthCare Corporation, a Delaware
corporation, Memphis Acquisition Co., a Delaware corporation, and Memphis Clinical
Laboratory, Inc., a Tennessee corporation (incorporated by reference to the
Company's Current Report on Form 8-K dated July 31, 1996)
3.1 Restated Certificate of Incorporation of Unison HealthCare Corporation
(incorporated by reference to Exhibit 3.1 to Amendment No. 1 to the Registration
Statement on Form S-1 filed on November 16, 1995, File No. 33-97662)
3.2 Bylaws of Unison HealthCare Corporation (incorporated by reference to Exhibit 3.2
to the Registration Statement on Form S-1 filed on October 2, 1995, File No.
33-97662)
4.1 [Intentionally Omitted.]
4.2 Warrant issued to HealthPartners Funding, L.P. (incorporated by reference to
Exhibit 4.2 to the Registration Statement on Form S-1 filed on October 2, 1995,
File No. 33-97662)
4.3 Warrants issued to Wheat, First Securities, Inc. and Cruttenden Roth Incorporated
as Representatives of the Underwriters (incorporated by reference to Exhibit 4.3 to
Amendment No. 3 to the Registration Statement on Form S-1 filed on December 12,
1995, File No. 33-97662)
4.4 Specimen Stock Certificate representing the Common Stock (incorporated by reference
to Exhibit 4.4 to Amendment No. 3 to the Registration Statement on Form S-1 filed
on December 12, 1995, File No. 33-97662)
4.5 Form of Note (and related schedule of omitted documents) of Unison HealthCare
Corporation to Messrs. Henderson and Plash (incorporated by reference to Exhibit
4.1 to the Form 8-K filed on April 12, 1996)
4.6 Form of Debenture (and related schedule of omitted documents) by Unison HealthCare
Corporation to Messrs. Henderson and Plash (incorporated by reference to Exhibit
4.2 to the Form 8-K filed on April 12, 1996)
5.1 Opinion of Quarles & Brady**
8.1 Tax Opinion of Quarles & Brady**
4.7 Warrant dated as of August 16, 1996 between Unison and Imperial Bank, a California
banking corporation*
9 Voting Agreement among the Company and Messrs. Walker, Rollins, Contris, Lynch,
Boystak and King (incorporated by reference to Exhibit 9 to the Registration
Statement on Form S-1 filed on October 2, 1995, File No. 33-97662)
10.1 Promissory Note of Unison HealthCare Corporation to the Agent for the Former
BritWill Shareholders in the amount of $1,000,000 dated May 6, 1996 (incorporated
by reference to Exhibit 10.1 to the Company's quarterly report on Form 10-Q filed
on May 15, 1996, File No. 0-27374)
10.1.1 Second Amended and Restated Subordinated Promissory Note of the Company to the
former shareholders of BritWill (incorporated by reference to Exhibit 10.1.1 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1995)
</TABLE>
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<PAGE> 340
<TABLE>
<C> <S>
10.1.2 Contingent Payment Agreement dated April 15, 1996 among Unison HealthCare
Corporation, BritWill HealthCare Company and Bruce H. Whitehead (incorporated by
reference to Exhibit 10.1.2 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995)
10.2 Term Note of the Company to the former shareholders of BritWill (incorporated by
reference to Exhibit 10.2 to the Registration Statement on Form S-1 filed on
October 2, 1995, File No. 33-97662)
10.3 Convertible Debenture of the Company issued to the former shareholders of BritWill
(incorporated by reference to Exhibit 10.3 to Amendment No. 1 to the Registration
Statement on Form S-1 filed on November 16, 1995, File No. 33-97662)
10.4 Renewal Note of BritWill to the former shareholders of BritWill (incorporated by
reference to Exhibit 10.4 to the Registration Statement on Form S-1 filed on
December 4, 1995, File No. 33-97662)
10.4.1 Letter agreement modifying the Term Note and the Renewal Note (incorporated by
reference to Exhibit 10.4.1 to Amendment No. 2 to the Registration Statement on
Form S-1 filed on December 4, 1995, File No. 33-97662)
10.5 $500,000 Supplemental Note of the Company to the former shareholders of BritWill
(incorporated by reference to Exhibit 10.5 to the Registration Statement on Form
S-1 filed on October 2, 1995, File No. 33-97662)
10.5.1 Letter agreement regarding the $500,000 Supplemental Note (incorporated by
reference to Exhibit 10.5.1 to Amendment No. 1 to the Registration Statement on
Form S-1 filed on November 16, 1995, File No. 33-97662)
10.6 $250,000 Supplemental Note of the Company to WFI (incorporated by reference to
Exhibit 10.6 to Amendment No. 1 to the Registration Statement on Form S-1 filed on
November 16, 1995, File No. 33-97662)
10.7 Example of Stock Pledge Agreement of certain officers and the Former Shareholders
of BritWill (incorporated by reference to Exhibit 10.7 to the Registration
Statement on Form S-1 filed on October 2, 1995, File No. 33-97662)
10.8 Registration Rights Agreement between the Company and WFI (incorporated by
reference to Exhibit 10.8 to the Registration Statement on Form S-1 filed on
October 2, 1995, File No. 33-97662)
10.9 Employment Agreement of Jerry M. Walker (incorporated by reference to Exhibit 10.9
to Amendment No. 1 to the Registration Statement on Form S-1 filed on November 16,
1995, File No. 33-97662)
10.10 Employment Agreement of Phillip R. Rollins, Sr. (incorporated by reference to
Exhibit 10.10 to Amendment No. 1 to the Registration Statement on Form S-1 filed on
November 16, 1995, File No. 33-97662)
10.11 Employment Agreement of Craig R. Clark (incorporated by reference to Exhibit 10.11
to Amendment No. 1 to the Registration Statement on Form S-1 filed on November 16,
1995, File No. 33-97662)
10.12 Employment Agreement of Paul J. Contris (incorporated by reference to Exhibit 10.12
to Amendment No. 1 to the Registration Statement on Form S-1 filed on November 16,
1995, File No. 33-97662)
10.13 Employment and Non-Competition Agreement of L. Robert Oberfield (incorporated by
reference to Exhibit 10.13 to Amendment No. 1 to the Registration Statement on Form
S-1 filed on November 16, 1995, File No. 33-97662)
10.14 Shareholders Agreement dated May 15, 1995, among Quest Pharmacies, Inc., the
Company and L. Robert Oberfield (incorporated by reference to Exhibit 10.14 to the
Registration Statement on Form S-1 filed on October 2, 1995, File No. 33-97662)
</TABLE>
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<PAGE> 341
<TABLE>
<C> <S>
10.15 Unison HealthCare Corporation 1995 Stock Option Plan (incorporated by reference to
Exhibit 10.15 to the Registration Statement on Form S-1 filed on October 2, 1995,
File No. 33-97662)
10.16 [Intentionally Omitted.]
10.17 Receivables Acquisition Agreement, dated November 14, 1994, as amended, with
HealthPartners Funding, L.P. (incorporated by reference to Exhibit 10.17 to the
Registration Statement on Form S-1 filed on October 2, 1995, File No. 33-97662)
10.18 Agreements between the Company and Trouver Capital Partners, L.P. dated March 16,
1992 and July 10, 1995 (incorporated by reference to Exhibit 10.18 to the
Registration Statement on Form S-1 filed on October 2, 1995, File No. 33-97662)
10.19 Agreement between BritWill and Trouver Capital Partners, L.P. dated September 15,
1992, as amended (incorporated by reference to Exhibit 10.19 to the Registration
Statement on Form S-1 filed on October 2, 1995, File No. 33-97662)
10.20 Master Lease between BritWill -- I and Omega, dated as of November 1, 1992, for
Capital Care HealthCare Center, Cedar Crest HealthCare Center (Wellington Manor),
English Estates (Kingsbury Rehabilitation and HealthCare Center), Lockerbie
HealthCare Center, Parkview Manor and Sunset Manor (incorporated by reference to
Exhibit 10.20 to the Registration Statement on Form S-1 filed on October 2, 1995,
File No. 33-97662)
10.21 Agreement of Acquisition and Lease between BritWill and Omega, dated as of November
1, 1992 (incorporated by reference to Exhibit 10.21 to the Registration Statement
on Form S-1 filed on October 2, 1995, File No. 33-97662)
10.22 Leasehold Mortgage between BritWill -- I and Omega, dated November 1, 1992
(incorporated by reference to Exhibit 10.22 to the Registration Statement on Form
S-1 filed on October 2, 1995, File No. 33-97662)
10.23 Loan Agreement (Texas Facilities) between BritWill Investments -- Texas and Omega,
dated April 1, 1993 (incorporated by reference to Exhibit 10.23 to the Registration
Statement on Form S-1 filed on October 2, 1995, File No. 33-97662)
10.24 [Intentionally Omitted]
10.25 Loan Agreement between BritWill Investments -- Texas and Omega, dated November 30,
1993 (incorporated by reference to Exhibit 10.25 to the Registration Statement on
Form S-1 filed on October 2, 1995, File No. 33-97662)
10.26 BritWill Master Guaranty between BritWill and Omega, dated November 30, 1993
(incorporated by reference to Exhibit 10.26 to the Registration Statement on Form
S-1 filed on October 2, 1995, File No. 33-97662)
10.27 Letter of Credit Agreement between BritWill Investments -- II and Omega, dated
November 30, 1993 (incorporated by reference to Exhibit 10.27 to the Registration
Statement on Form S-1 filed on October 2, 1995, File No. 33-97662)
10.28 Master Lease between BritWill -- II and Omega, dated as of November 30, 1993
(incorporated by reference to Exhibit 10.28 to the Registration Statement on Form
S-1 filed on October 2, 1995, File No. 33-97662)
10.29 Agreement Regarding Financial Covenants Compliance and Amendment Agreement among
BritWill and Omega, dated December 13, 1994 (incorporated by reference to Exhibit
10.29 to the Registration Statement on Form S-1 filed on October 2, 1995, File No.
33-97662)
10.30 Master Lease between BritWill -- II and Omega, dated December 12, 1994
(incorporated by reference to Exhibit 10.30 to the Registration Statement on Form
S-1 filed on October 2, 1995, File No. 33-97662)
10.31 Amendment Agreement between the Company and Omega, dated August 10, 1995
(incorporated by reference to Exhibit 10.31 to the Registration Statement on Form
S-1 filed on October 2, 1995, File No. 33-97662)
</TABLE>
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<PAGE> 342
<TABLE>
<C> <S>
10.32 Unison Master Guaranty to Omega, dated August 10, 1995 (incorporated by reference
to Exhibit 10.32 to the Registration Statement on Form S-1 filed on October 2,
1995, File No. 33-97662)
10.33 Subordinated Promissory Note in the amount of $2,475,000 of BritWill to WFI, dated
December 24, 1992 (incorporated by reference to Exhibit 10.33 to the Registration
Statement on Form S-1 filed on October 2, 1995, File No. 33-97662)
10.34 Participation Agreement among BritWill, WFI and Garth Financial Services, Inc.,
dated December 24, 1992 (incorporated by reference to Exhibit 10.34 to the
Registration Statement on Form S-1 filed on October 2, 1995, File No. 33-97662)
10.35 Bonus Participation Agreement between BritWill and WFI, dated December 24, 1992
(incorporated by reference to Exhibit 10.35 to the Registration Statement on Form
S-1 filed on October 2, 1995, File No. 33-97662)
10.36 Unsecured Promissory Note of BritWill -- II to BritWill Investments -- Texas in the
amount of $1,081,548.39, dated November, 1993 (incorporated by reference to Exhibit
10.36 to the Registration Statement on Form S-1 filed on October 2, 1995, File No.
33-97662)
10.37 Unsecured Promissory Note of BritWill -- II to BritWill Investments -- Texas in the
amount of $500,000, dated November, 1993 (incorporated by reference to Exhibit
10.37 to the Registration Statement on Form S-1 filed on October 2, 1995, File No.
33-97662)
10.38 Unsecured Promissory Note of BritWill -- II to BritWill Investments -- Texas in the
amount of $660,000, dated November, 1993 (incorporated by reference to Exhibit
10.38 to the Registration Statement on Form S-1 filed on October 2, 1995, File No.
33-97662)
10.39 [Intentionally Omitted]
10.40 Management Services Agreement between Unison and Lake City Nursing Homes, Inc.,
dated December 1, 1993 (incorporated by reference to Exhibit 10.40 to the
Registration Statement on Form S-1 filed on October 2, 1995, File No. 33-97662)
10.41 Lease Contract and Agreement between BritWill Investments -- Texas, as Lessor and
BritWill -- II, as Lessee, dated December 1, 1993, for Four States Care Center,
Heritage Plaza Nursing Center, Pine Haven Care Center, Reunion Plaza Senior Care
and Retirement Center and Texarkana Nursing Center (incorporated by reference to
Exhibit 10.41 to the Registration Statement on Form S-1 filed on October 2, 1995,
File No. 33-97662)
10.42 Management Agreement between Sherwood HealthCare Corp. and BritWill Investments --
Indiana, dated November 1, 1991, as amended, for Capital Care, Parkview, Sunset
Manor, Boonville, Holiday Manor, Kendallville Manor and Owensville (incorporated by
reference to Exhibit 10.42 to the Registration Statement on Form S-1 filed on
October 2, 1995, File No. 33-97662)
10.43 Management Agreement between Cedar Care, Inc. and BritWill Investments -- Indiana,
dated November 1, 1991, as amended, for Cedar Crest, Country Side, English, Harty,
Lockerbie and Willow Manor (incorporated by reference to Exhibit 10.43 to the
Registration Statement on Form S-1 filed on October 2, 1995, File No. 33-97662)
10.44 Lease for All Seasons Nursing Home (aka Oakwood in Arlington) (incorporated by
reference to Exhibit 10.44 to the Registration Statement on Form S-1 filed on
October 2, 1995, File No. 33-97662)
10.45 Lease for Elkhart Nursing Home (incorporated by reference to Exhibit 10.45 to the
Registration Statement on Form S-1 filed on October 2, 1995, File No. 33-97662)
10.46 Management Services Agreement between the Company and Marshall Manor (Michigan),
dated September 15, 1992 (incorporated by reference to Exhibit 10.46 to the
Registration Statement on Form S-1 filed on October 2, 1995, File No. 33-97662)
</TABLE>
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<TABLE>
<C> <S>
10.47 Leases for Center (aka Pine Grove Care Center) and Waxahachie (aka Pleasant Manor
Living Center) with BritWill Investments -- Texas (incorporated by reference to
Exhibit 10.47 to the Registration Statement on Form S-1 filed on October 2, 1995,
File No. 33-97662)
10.48 Management Services Agreement between the Company and HP/HealthCare Acquirors, Inc.
for Windsor Manor (incorporated by reference to Exhibit 10.48 to the Registration
Statement on Form S-1 filed on October 2, 1995, File No. 33-97662)
10.49 Management Services Agreement for Bayshore Convalescent Center (incorporated by
reference to Exhibit 10.49 to the Registration Statement on Form S-1 filed on
October 2, 1995, File No. 33-97662)
10.50 Lease for Henry Clay Villa, dated July 1, 1995 (incorporated by reference to
Exhibit 10.50 to the Registration Statement on Form S-1 filed on October 2, 1995,
File No. 33-97662)
10.51 Lease for Marshall Manor Nursing Home (Alabama) (incorporated by reference to
Exhibit 10.51 to Amendment No. 1 to the Registration Statement on Form S-1 filed on
November 16, 1995, File No. 33-97662)
10.52 [Intentionally Omitted].
10.53 [Intentionally Omitted].
10.54 [Intentionally Omitted].
10.55 Sublease for Ridgewood Health Care Center (incorporated by reference to Exhibit
10.55 to Amendment No. 1 to the Registration Statement on Form S-1 filed on
November 16, 1995, File No. 33-97662)
10.56 Management Services Agreement for Peachtree Nursing Center (aka Smyrna Nursing
Center) and Rehabilitation Facility, dated September 15, 1993 (incorporated by
reference to Exhibit 10.56 to Amendment No. 1 to the Registration Statement on Form
S-1 filed on November 16, 1995, File No. 33-97662)
10.57 Management Services Agreement for St. Barnabas Nursing Home, and Retirement
Apartments, dated January 12, 1995 (incorporated by reference to Exhibit 10.57 to
Amendment No. 1 to the Registration Statement on Form S-1 filed on November 16,
1995, File No. 33-97662)
10.58 [Intentionally Omitted].
10.59 Lease for Boonville Convalescent Center (incorporated by reference to Exhibit 10.59
to Amendment No. 1 to the Registration Statement on Form S-1 filed on November 16,
1995, File No. 33-97662)
10.60 [Intentionally Omitted].
10.61 [Intentionally Omitted].
10.62 [Intentionally Omitted].
10.63 Sublease for Holiday Manor (incorporated by reference to Exhibit 10.63 to Amendment
No. 1 to the Registration Statement on Form S-1 filed on November 16, 1995, File
No. 33-97662)
10.64 [Intentionally Omitted].
10.65 [Intentionally Omitted].
10.66 Lease for Owensville Convalescent Center (incorporated by reference to Exhibit
10.66 to Amendment No. 1 to the Registration Statement on Form S-1 filed on
November 16, 1995, File No. 33-97662)
10.67 [Intentionally Omitted].
10.68 [Intentionally Omitted].
10.69 [Intentionally Omitted].
10.70 Lease for Willow Manor Convalescent Center (incorporated by reference to Exhibit
10.70 to Amendment No. 1 to the Registration Statement on Form S-1 filed on
November 16, 1995, File No. 33-97662)
</TABLE>
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<TABLE>
<C> <S>
10.71 Lease for Bonner Health Center, dated February 1, 1995 (incorporated by reference
to Exhibit 10.71 to Amendment No. 1 to the Registration Statement on Form S-1 filed
on November 16, 1995, File No. 33-97662)
10.72 Lease for Hillside Care Center (aka Prairie Manor), dated February 1, 1995
(incorporated by reference to Exhibit 10.72 to Amendment No. 1 to the Registration
Statement on Form S-1 filed on November 16, 1995, File No. 33-97662)
10.73 Lease for Oswego Manor, dated March 2, 1994 (incorporated by reference to Exhibit
10.73 to Amendment No. 1 to the Registration Statement on Form S-1 filed on
November 16, 1995, File No. 33-97662)
10.74 [Intentionally Omitted].
10.75 Lease for SunCrest HealthCare Center, dated September 14, 1994 (incorporated by
reference to Exhibit 10.75 to Amendment No. 1 to the Registration Statement on Form
S-1 filed on November 16, 1995, File No. 33-97662)
10.76 Sublease for The Oaks of Boise (aka Franciscan Health Care Center of Boise)
(incorporated by reference to Exhibit 10.76 to Amendment No. 1 to the Registration
Statement on Form S-1 filed on November 16, 1995, File No. 33-97662)
10.77 Lease for Mountainside Care Center (aka Sandpoint Manor) and St. Francis Preschool
and Childcare Center (incorporated by reference to Exhibit 10.77 to Amendment No. 1
to the Registration Statement on Form S-1 filed on November 16, 1995, File No.
33-97662)
10.77.1 Sublease for Mountainside Care Center (incorporated by reference to Exhibit 10.77.1
to Amendment No. 1 to the Registration Statement on Form S-1 filed on November 16,
1995, File No. 33-97662)
10.78 [Intentionally Omitted].
10.79 Lease for White Pine Care Center, dated November 1, 1994 (incorporated by reference
to Exhibit 10.79 to Amendment No. 1 to the Registration Statement on Form S-1 filed
on November 16, 1995, File No. 33-97662)
10.80 Management Services Agreement for Franciscan Health Care Center of Enumclaw, dated
November 30, 1994 (incorporated by reference to Exhibit 10.80 to Amendment No. 1 to
the Registration Statement on Form S-1 filed on November 16, 1995, File No.
33-97662)
10.81 Management Services Agreement for Franciscan Health Care Center of Walla Walla,
dated November 30, 1994 (incorporated by reference to Exhibit 10.81 to Amendment
No. 1 to the Registration Statement on Form S-1 filed on November 16, 1995, File
No. 33-97662)
10.82 [Intentionally Omitted].
10.83 Lease for Green Acres Nursing Home, dated August 30, 1995 (incorporated by
reference to Exhibit 10.83 to Amendment No. 1 to the Registration Statement on Form
S-1 filed on November 16, 1995, File No. 33-97662)
10.84 Lease for Hemphill Care Center, dated September 1, 1994 (incorporated by reference
to Exhibit 10.84 to Amendment No. 1 to the Registration Statement on Form S-1 filed
on November 16, 1995, File No. 33-97662)
10.85 [Intentionally Omitted].
10.86 [Intentionally Omitted].
10.87 [Intentionally Omitted].
10.88 [Intentionally Omitted].
10.89 [Intentionally Omitted].
10.90 Lease for Nightingale West Nursing Home, dated August 24, 1995 (incorporated by
reference to Exhibit 10.90 to Amendment No. 1 to the Registration Statement on Form
S-1 filed on November 16, 1995, File No. 33-97662)
</TABLE>
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<C> <S>
10.91 Sublease for Twin Pines of Lewisville, dated September 8, 1995 (incorporated by
reference to Exhibit 10.91 to Amendment No. 1 to the Registration Statement on Form
S-1 filed on November 16, 1995, File No. 33-97662)
10.92 Management Services Agreement for Homestead of McKinney, dated September 20, 1995
(incorporated by reference to Exhibit 10.92 to Amendment No. 1 to the Registration
Statement on Form S-1 filed on November 16, 1995, File No. 33-97662)
10.93 Letter of Intent for proposed Henderson & Plash rehabilitation business
acquisition, dated September 16, 1995 (incorporated by reference to Exhibit 10.93
to Amendment No. 2 to the Registration Statement on Form S-1, File No. 33-97662)
10.94 Letter Agreement regarding licensing and operation of the Indiana facilities from
Cedar Care and Sherwood to the Company, dated August 10, 1995 (incorporated by
reference to Exhibit 10.94 to Amendment No. 2 to the Registration Statement on Form
S-1 filed on December 4, 1995, File No. 33-97662)
10.95 Agreement Regarding Conversion of the Convertible Debenture, dated December 1, 1995
(incorporated by reference to Exhibit 10.95 to Amendment No. 2 to the Registration
Statement on Form S-1 filed on December 4, 1995, File No. 33-97662)
10.96 Letter Agreement Regarding Consulting Services (incorporated by reference to
Exhibit 10.96 to Amendment No. 3 to the Registration Statement on Form S-1 filed on
December 12, 1995, File No. 33-97662)
10.97 Loan and Security Agreement dated February 16, 1996 by and between Unison
HealthCare Corporation, SunQuest SPC, Inc., BritWill HealthCare Company, BritWill
Investments-I, Inc., BritWill Funding Corporation, BritWill Investments-II, Inc.,
Emory Care Center, Inc., Cedar Care, Inc., Sherwood Healthcare Corp. (collectively
as borrowers) and HealthPartners Funding, L.P. (as lender) (incorporated by
reference to Exhibit 10.97 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995)
10.98 Security Agreement effective as of February 1, 1996 by and among Unison HealthCare
Corporation, a Delaware corporation, Sunbelt Therapy Management Services, Inc., an
Arizona corporation, Paul G. Henderson and Paige B. Plash (incorporated by
reference to Exhibit 10.1 to the Form 8-K filed on April 12, 1996)
10.99 Promissory Note of Unison HealthCare Corporation to Omega Healthcare Investors,
Inc. in the amount of $3,500,000, dated February 9, 1996 (incorporated by reference
to Exhibit 10.99 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995)
10.100 Lease dated November 30, 1994 between Monica R. Salusky and SunQuest SPC, Inc.
(commencement date: August 1, 1996) (incorporated by reference to the Company's
Current Report on Form 8-K dated August 14, 1996)
10.101 Modification of Lease dated as of July 31, 1996 between Monica R, Salusky, SunQuest
SPC, Inc. and Unison HealthCare Corporation (incorporated by reference to the
Company's Current Report on Form 8-K dated August 14, 1996)
10.102 Lease dated June 19, 1996 between Walla Walla Partners, L.P. and SunQuest SPC, Inc.
(commencement date: August 1, 1996) (incorporated by reference to the Company's
Current Report on Form 8-K dated August 14, 1996)
10.103 First Amendment to Lease dated July 26, 1996 between Walla Walla Partners, L.P. and
SunQuest SPC, Inc. (incorporated by reference to the Company's Current Report on
Form 8-K dated August 14, 1996)
10.104 Loan Agreement dated as of August 16, 1996 between Unison and Imperial Bank, a
California banking corporation*
10.105 Promissory Note of Unison HealthCare Corporation to Imperial Bank in the amount of
$5,000,000 dated August 16, 1996*
</TABLE>
II-8
<PAGE> 346
<TABLE>
<C> <S>
10.106 Form of Security Agreement -- Stock Pledge (Direct Subsidiary) (and related
schedule of omitted documents) between Unison HealthCare Corporation and Imperial
Bank and Acknowledgment and Consent of Direct Subsidiary of Unison HealthCare
Corporation*
10.107 Form of Security Agreement -- Stock Pledge (Indirect Subsidiary) (and related
schedule of omitted documents) between Direct Subsidiary of Unison HealthCare
Corporation and Imperial Bank and Acknowledgment and Consent of Indirect Subsidiary
of Unison HealthCare Corporation*
10.108 Subordination Agreement dated August 16, 1996 among Bruce H. Whitehead, as agent
for the former shareholders of BritWill HealthCare Company, Unison HealthCare
Company and Imperial Bank*
10.109 Promissory Note of Unison HealthCare Corporation to Red Line Healthcare Corporation
in the amount of $771,004.60 dated August 30, 1996*
10.110 Receivables Purchase and Sale Agreement dated August 8, 1996 between HealthPartners
Funding, L.P., Sunbelt Therapy Management Services, Inc. (an Arizona corporation),
Henderson & Associates Rehabilitation, Inc., Decator Sportsfit & Wellness Center,
Inc., Therapy Health Systems, Inc., Sunbelt Therapy Management Services, Inc. (an
Alabama corporation), Quest Pharmacies, Inc. and SunQuest SPC, Inc.*
10.111 Master Lease Agreement dated June 4, 1996 between Unison HealthCare Corporation and
LINC Anthem Corporation*
11.1 Unison HealthCare Corporation Statement Re: Computation of Per Share Earnings
(incorporated by reference to Exhibit 11.1 to the Company's Quarterly Report on
Form 10-Q for the period ended June 30, 1996)
21 List of subsidiaries*
23.1 Consent of Ernst & Young LLP (reference is made to page II-14)*
23.2 Consent of Ernst & Young LLP (reference is made to page II-15)*
23.3 Consent of Price Waterhouse (reference is made to page II-16)*
23.4 Consent of Ronald H. Ridgers, P.C. (reference is made to page II-17)*
23.5 Consent of Ronald H. Ridgers, P.C. (reference is made to page II-18)*
23.6 Consent of Arthur Andersen LLP (reference is made to page II-19)*
23.7 Consent of Arthur Andersen LLP (reference is made to page II-20)*
23.8 Consent of Grant, Millman & Johnson, P.C. (reference is made to page II-21)*
23.9 Consent of Ernst & Young LLP (reference is made to page II-22)*
24.1 Power of Attorney (reference is made to page II-12)*
</TABLE>
- ---------------
* Filed herewith.
** To be filed by amendment.
II-9
<PAGE> 347
(B) FINANCIAL STATEMENT SCHEDULES
Schedule II -- Unison HealthCare Corporation Valuation and Qualifying
Accounts
Schedule II -- BritWill HealthCare Company Valuation and Qualifying
Accounts
Schedule II -- Signature Healthcare Corporation Valuation and Qualifying
Accounts
Schedule II -- Arkansas, Inc., Cornerstone Care, Inc., Douglas Manor,
Inc. and Safford Care, Inc. Combined Valuation and Qualifying Accounts
(C) CERTAIN REPORTS, OPINIONS AND APPRAISALS
The opinion of Cruttenden Roth is furnished as Annex C to the Proxy
Statement Supplement to this Prospectus/Proxy and Information Statement.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant undertakes as follows:
(a) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration statement,
by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
(b) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will not
be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act, and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(d) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance on Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(e) For purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new Registration Statement relating to the
securities offer therein, and the Offering of such securities at that time
shall be deemed to be the initial bona fide Offering thereof.
(f) The undersigned registrant hereby undertakes to respond to
requests for information that is
II-10
<PAGE> 348
incorporated by reference into the prospectus pursuant to Items 4, 10(b),
11, or 13 of this Form, within one business day of receipt of such request,
and to send the incorporated documents by first class mail or other equally
prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the
date of responding to the request.
(g) The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject of
and included in the registration statement when it became effective.
II-11
<PAGE> 349
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Phoenix, State of
Arizona, on the 18th day of September, 1996.
Unison HealthCare Corporation
By: /s/ JERRY M. WALKER
Jerry M. Walker
President and Chief Executive
Officer
POWER OF ATTORNEY
Know All Men By These Presents, that each person whose signature appears
below constitutes and appoints Jerry M. Walker, Paul J. Contris and Craig R.
Clark, and each one of them individually, his true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution for him and in
his name, place and stead, in any and all capacities to sign any and all
amendments (including post-effective amendments) to this Registration Statement
and to file the same with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite or necessary to be done in
and about the premises. as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------- ------------------------------- ---------------------
<C> <S> <C>
/s/ JERRY M. WALKER President and Chief Executive September 18, 1996
- ----------------------------------- Officer and Director (Principal
Jerry M. Walker Executive Officer)
/s/ PHILLIP R. ROLLINS Executive Vice President -- September 18, 1996
- ----------------------------------- Operations, Chief Operating
Phillip R. Rollins Officer, Director
/s/ PAUL J. CONTRIS Executive Vice President -- September 18, 1996
- ----------------------------------- Acquisitions and Development
Paul J. Contris and Director
/s/ CRAIG R. CLARK Executive Vice President, Chief September 18, 1996
- ----------------------------------- Financial Officer and Director
Craig R. Clark (Principal Accounting Officer)
/s/ BRUCE H. WHITEHEAD Chairman of the Board of September 18, 1996
- ----------------------------------- Directors
Bruce H. Whitehead
</TABLE>
II-12
<PAGE> 350
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------- ------------------------------- ---------------------
<C> <S> <C>
/s/ TYRRELL L. GARTH Director September 18, 1996
- -----------------------------------
Tyrrell L. Garth
/s/ JOHN T. LYNCH, JR. Director September 18, 1996
- -----------------------------------
John T. Lynch, Jr.
/s/ MARK W. WHITE Director September 18, 1996
- -----------------------------------
Mark W. White
/s/ JOHN T. CASEY Director September 18, 1996
- -----------------------------------
John T. Casey
</TABLE>
II-13
<PAGE> 351
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated April 10, 1996, included in the Proxy Statement of
Unison HealthCare Corporation that is made a part of the Registration Statement
(Form S-4) and Prospectus of Unison HealthCare Corporation for the registration
of its common stock.
We also consent to the use of our report dated April 10, 1996 with respect
to the financial statement schedules of Unison HealthCare Corporation for the
years ended December 31, 1995, 1994 and 1993 included in the Registration
Statement (Form S-4) to be filed with the Securities and Exchange Commission.
Ernst & Young LLP
Phoenix, Arizona
September 13, 1996
II-14
<PAGE> 352
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated April 10, 1996, included in the Proxy Statement of
Unison HealthCare Corporation that is made a part of the Registration Statement
(Form S-4) and Prospectus of Unison HealthCare Corporation for the registration
of its common stock.
We also consent to use of our report dated April 10, 1996 with respect to
the financial statement schedules of BritWill HealthCare Company for the one
month ended July 31, 1996 included in the Registration Statement (Form S-4) to
be filed with the Securities and Exchange Commission.
Ernst & Young LLP
Phoenix, Arizona
September 13, 1996
II-15
<PAGE> 353
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus consisting part of this
Registration Statement on Form S-4 of our report dated November 8, 1995 relating
to the financial statements of BritWill HealthCare Company, which appears in
such Prospectus. We also consent to the application of such report to the
Financial Statement Schedule for the six month period ended June 30, 1995 and
for the two years ended December 31, 1994 included in Part II of this
Registration Statement when such schedule is read in conjunction with the
financial statements referred to in our report. The audits referred to in such
report also included this schedule. We also consent to the reference to us under
the heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Dallas, Texas
September 13, 1996
II-16
<PAGE> 354
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITOR
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 30, 1996, accompanying the financial
statements of American Professional Holding, Inc. contained in the Registration
Statement on Form S-4 and related Prospectus/Proxy and Information Statement of
Unison HealthCare Corporation.
RONALD H. RIDGERS, P.C.
Richardson, Texas
September 13, 1996
II-17
<PAGE> 355
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITOR
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 10, 1996, accompanying the financial
statements of Memphis Clinical Laboratory, Inc. contained in the Registration
Statement on Form S-4 and related Prospectus/Proxy and Information Statement of
Unison HealthCare Corporation.
RONALD H. RIDGERS, P.C.
Richardson, Texas
September 13, 1996
II-18
<PAGE> 356
EXHIBIT 23.6
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and to all references to our firm) included in or made part of this
registration statement.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
September 13, 1996.
II-19
<PAGE> 357
EXHIBIT 23.7
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated April 15, 1996, on the consolidated balance sheets of Signature
Health Care Corporation (a Delaware corporation) and subsidiaries as of December
31, 1995 and 1994 and the related consolidated statements of operations,
stockholders' equity and cash flows for the years ended December 31, 1995, 1994
and 1993; and our report dated April 15, 1996, on the combined balance sheet of
Arkansas, Inc., Cornerstone Care, Inc., Douglas Manor, Inc. and Safford Care,
Inc. (Colorado corporations) as of December 31, 1995 and the related combined
statements of operations, stockholders' equity and cash flows for the period
from inception, May 9, 1995, through December 31, 1995, and to all references to
our Firm included in or made a part of the Registration Statement on Form S-4
(File No. ) for Unison HealthCare Corporation.
ARTHUR ANDERSEN LLP
Denver, Colorado,
September 18, 1996
II-20
<PAGE> 358
EXHIBIT 23.8
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in the Registration statement of Unison HealthCare
Corporation of our report dated October 30, 1995, accompanying the financial
statements of Nightingale West, Inc. contained in such Registration Statement,
and to the use or our name and the statements with respect to us, as appearing
under the heading "Experts" in the Prospectus.
GRANT, MILLMAN & JOHNSON, P.C.
September 12, 1996
Farmington Hills, Michigan
II-21
<PAGE> 359
EXHIBIT 23.9
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated April 10, 1996, included in the Proxy Statement of
Unison HealthCare Corporation that is made a part of the Registration Statement
(Form S-4) and Prospectus of Unison HealthCare Corporation for the registration
of its common stock.
Ernst & Young LLP
Phoenix, Arizona
September 13, 1996
II-22
<PAGE> 360
SCHEDULE II
UNISON HEALTHCARE CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
-----------------------
BALANCE AT CHARGED CHARGED BALANCE AT
BEGINNING TO COST TO OTHER END OF
DESCRIPTION OF PERIOD AND EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- --------------------------------- ---------- ------------ -------- --------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1993
Allowance for doubtful
accounts....................... $ 18,975 $145,650 $ -- $ (625)(1) $ 164,000
Year Ended December 31, 1994
Allowance for doubtful
accounts....................... $ 164,000 $127,592 $ $ (1,592)(1) $ 290,000
Year Ended December 31, 1995
Allowance for doubtful
accounts....................... $ 290,000 $ 29,109 $800,774(2) $(336,883)(1) $ 783,000
</TABLE>
- ---------------
(1) Uncollectible accounts written off, net of recoveries
(2) Represents the allowance for doubtful accounts recorded by BritWill at July
31, 1995.
S-1
<PAGE> 361
SCHEDULE II
BRITWILL HEALTHCARE COMPANY
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
------------------------
BALANCE AT CHARGED CHARGED BALANCE AT
BEGINNING TO COST TO OTHER END OF
DESCRIPTION OF PERIOD AND EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ------------------------------------- ---------- ------------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1993
Allowance for uncollectible
accounts........................ $ (313,564) $(524,333) $ 357,858(1) $ (480,039)
Year Ended December 31, 1994
Allowance for uncollectible
accounts........................ $ (480,039) $(644,471) $ 127,264(1) $ (997,246)
Six Months Ended June 30, 1995
Allowance for uncollectible
accounts........................ $ (997,246) $ (21,442) $ 227,821(1) $ (790,867)
One Month Ended July 31, 1995
Allowance for uncollectible
accounts........................ $ (790,867) $ (48,631) $ 38,724(1) $ (800,774)
</TABLE>
- ---------------
(1) Uncollectible accounts written off, net of recoveries.
S-2
<PAGE> 362
SCHEDULE II
SIGNATURE HEALTHCARE CORPORATION
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
-----------------------
BALANCE AT CHARGED CHARGED BALANCE AT
BEGINNING TO COST TO OTHER END OF
DESCRIPTION OF PERIOD AND EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- --------------------------------- ---------- ------------ -------- --------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1993
Allowance for doubtful
accounts....................... $ 58,100 $125,729 $ -- $ (72,129)(1) $ 111,700
Year Ended December 31, 1994
Allowance for doubtful
accounts....................... $ 111,700 $213,482 $ -- $(169,982)(1) $ 155,200
Year Ended December 31, 1995
Allowance for doubtful
accounts....................... $ 155,200 $181,339 $ -- $(140,639)(1) $ 195,900
</TABLE>
- ---------------
(1) Uncollectible accounts written off, net of recoveries
S-3
<PAGE> 363
SCHEDULE II
ARKANSAS, INC., CORNERSTONE CARE, INC.,
DOUGLAS MANOR, INC., AND SAFFORD CARE, INC.
COMBINED VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
-----------------------
BALANCE AT CHARGED CHARGED BALANCE AT
BEGINNING TO COST TO OTHER END OF
DESCRIPTION OF PERIOD AND EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ----------------------------------- ---------- ------------ -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1995
Allowance for doubtful
accounts......................... $ $ 55,624 $ $(32,624)(1) $ 23,000
</TABLE>
- ---------------
(1) Uncollectible accounts written off, net of recoveries
S-4
<PAGE> 364
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------------------------------------------------------------------------------
<C> <S>
2 Second Amended and Restated Purchase and Sale Agreement among Unison HealthCare
Corporation and Whitehead Family Investments, Ltd., as amended (incorporated by
reference to Exhibit 2 to Amendment No. 1 to the Registration Statement on Form S-1
filed on November 16, 1995, File No. 33-97662)
2.1 Modification Agreement dated April 15, 1996 among Unison HealthCare Corporation,
BritWill HealthCare Company and Bruce H. Whitehead (incorporated by reference to
Exhibit 2.1 to the Company's Annual Report on Form 10-K for the year ended December
31, 1995)
2.1.1 Modification Agreement dated August 28, 1996 among Unison HealthCare Corporation,
BritWill HealthCare Company and Bruce H. Whitehead*
2.2 Purchase and Sale Agreement effective as of February 1, 1996 by and among Unison
HealthCare Corporation, a Delaware corporation, Sunbelt Therapy Management
Services, Inc., an Arizona corporation, Paul G. Henderson and Paige B. Plash
(incorporated by reference to Exhibit 2.1 to the Form 8-K filed on April 12, 1996)
2.3 Agreement and Plan of Merger among Unison HealthCare Corporation, Signature Health
Care Corporation, David A. Kremser and John D. Filkoski (incorporated by reference
to Exhibit 2.3 to the Company's Quarterly Report on Form 10-Q for the period ended
June 30, 1996)
2.4 Agreement and Plan of Merger among Unison HealthCare Corporation, Arkansas, Inc.,
David A. Kremser and John D. Filkoski (incorporated by reference to Exhibit 2.4 to
the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1996)
2.5 Agreement and Plan of Merger among Unison HealthCare Corporation, Cornerstone Care,
Inc., David A. Kremser and John D. Filkoski (incorporated by reference to Exhibit
2.5 to the Company's Quarterly Report on Form 10-Q for the period ended June 30,
1996)
2.6 Agreement and Plan of Merger among Unison HealthCare Corporation, Douglas Manor,
Inc., David A. Kremser and John D. Filkoski (incorporated by reference to Exhibit
2.6 to the Company's Quarterly Report on Form 10-Q for the period ended June 30,
1996)
2.7 Agreement and Plan of Merger among Unison HealthCare Corporation, Safford Care,
Inc., David A. Kremser and John D. Filkoski (incorporated by reference to Exhibit
2.7 to the Company's Quarterly Report on Form 10-Q for the period ended June 30,
1996)
2.8 Agreement and Plan of Merger among Unison HealthCare Corporation, a Delaware
corporation, Labco Acquisition Co., a Delaware corporation, and American
Professional Holding, Inc., a Utah corporation (incorporated by reference to the
Company's Current Report on Form 8-K dated July 31, 1996)
2.9 Agreement and Plan of Merger among Unison HealthCare Corporation, a Delaware
corporation, Memphis Acquisition Co., a Delaware corporation, and Memphis Clinical
Laboratory, Inc., a Tennessee corporation (incorporated by reference to the
Company's Current Report on Form 8-K dated July 31, 1996)
3.1 Restated Certificate of Incorporation of Unison HealthCare Corporation
(incorporated by reference to Exhibit 3.1 to Amendment No. 1 to the Registration
Statement on Form S-1 filed on November 16, 1995, File No. 33-97662)
3.2 Bylaws of Unison HealthCare Corporation (incorporated by reference to Exhibit 3.2
to the Registration Statement on Form S-1 filed on October 2, 1995,
File No. 33-97662)
4.1 [Intentionally Omitted].
4.2 Warrant issued to HealthPartners Funding, L.P. (incorporated by reference to
Exhibit 4.2 to the Registration Statement on Form S-1 filed on October 2, 1995,
File No. 33-97662)
</TABLE>
<PAGE> 365
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------------------------------------------------------------------------------
<C> <S>
4.3 Warrants issued to Wheat, First Securities, Inc. and Cruttenden Roth Incorporated
as Representatives of the Underwriters (incorporated by reference to Exhibit 4.3 to
Amendment No. 3 to the Registration Statement on Form S-1 filed on December 12,
1995, File No. 33-97662)
4.4 Specimen Stock Certificate representing the Common Stock (incorporated by reference
to Exhibit 4.4 to Amendment No. 3 to the Registration Statement on Form S-1 filed
on December 12, 1995, File No. 33-97662)
4.5 Form of Note (and related schedule of omitted documents) of Unison HealthCare
Corporation to Messrs. Henderson and Plash (incorporated by reference to
Exhibit 4.1 to the Form 8-K filed on April 12, 1996)
4.6 Form of Debenture (and related schedule of omitted documents) by Unison HealthCare
Corporation to Messrs. Henderson and Plash (incorporated by reference to Exhibit
4.2 to the Form 8-K filed on April 12, 1996)
5.1 Opinion of Quarles & Brady**
8.1 Tax Opinion of Quarles & Brady**
4.7 Warrant dated as of August 16, 1996 between Unison and Imperial Bank, a California
banking corporation*
9 Voting Agreement among the Company and Messrs. Walker, Rollins, Contris, Lynch,
Boystak and King (incorporated by reference to Exhibit 9 to the Registration
Statement on Form S-1 filed on October 2, 1995,
File No. 33-97662)
10.1 Promissory Note of Unison HealthCare Corporation to the Agent for the Former
BritWill Shareholders in the amount of $1,000,000 dated May 6, 1996 (incorporated
by reference to Exhibit 10.1 to the Company's quarterly report on Form 10-Q filed
on May 15, 1996, File No. 0-27374)
10.1.1 Second Amended and Restated Subordinated Promissory Note of the Company to the
former shareholders of BritWill (incorporated by reference to Exhibit 10.1.1 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1995)
10.1.2 Contingent Payment Agreement dated April 15, 1996 among Unison HealthCare
Corporation, BritWill HealthCare Company and Bruce H. Whitehead (incorporated by
reference to Exhibit 10.1.2 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995)
10.2 Term Note of the Company to the former shareholders of BritWill (incorporated by
reference to Exhibit 10.2 to the Registration Statement on Form S-1 filed on
October 2, 1995, File No. 33-97662)
10.3 Convertible Debenture of the Company issued to the former shareholders of BritWill
(incorporated by reference to Exhibit 10.3 to Amendment No. 1 to the Registration
Statement on Form S-1 filed on November 16, 1995,
File No. 33-97662)
10.4 Renewal Note of BritWill to the former shareholders of BritWill (incorporated by
reference to Exhibit 10.4 to the Registration Statement on Form S-1 filed on
December 4, 1995, File No. 33-97662)
10.4.1 Letter agreement modifying the Term Note and the Renewal Note (incorporated by
reference to Exhibit 10.4.1 to Amendment No. 2 to the Registration Statement on
Form S-1 filed on December 4, 1995, File No. 33-97662)
10.5 $500,000 Supplemental Note of the Company to the former shareholders of BritWill
(incorporated by reference to Exhibit 10.5 to the Registration Statement on Form
S-1 filed on October 2, 1995, File No. 33-97662)
</TABLE>
<PAGE> 366
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------------------------------------------------------------------------------
<C> <S>
10.5.1 Letter agreement regarding the $500,000 Supplemental Note (incorporated by
reference to Exhibit 10.5.1 to Amendment No. 1 to the Registration Statement on
Form S-1 filed on November 16, 1995, File No. 33-97662)
10.6 $250,000 Supplemental Note of the Company to WFI (incorporated by reference to
Exhibit 10.6 to Amendment No. 1 to the Registration Statement on Form S-1 filed on
November 16, 1995, File No. 33-97662)
10.7 Example of Stock Pledge Agreement of certain officers and the Former Shareholders
of BritWill (incorporated by reference to Exhibit 10.7 to the Registration
Statement on Form S-1 filed on October 2, 1995,
File No. 33-97662)
10.8 Registration Rights Agreement between the Company and WFI (incorporated by
reference to Exhibit 10.8 to the Registration Statement on Form S-1 filed on
October 2, 1995, File No. 33-97662)
10.9 Employment Agreement of Jerry M. Walker (incorporated by reference to Exhibit 10.9
to Amendment No. 1 to the Registration Statement on Form S-1 filed on November 16,
1995, File No. 33-97662)
10.10 Employment Agreement of Phillip R. Rollins, Sr. (incorporated by reference to
Exhibit 10.10 to Amendment No. 1 to the Registration Statement on Form S-1 filed on
November 16, 1995, File No. 33-97662)
10.11 Employment Agreement of Craig R. Clark (incorporated by reference to Exhibit 10.11
to Amendment No. 1 to the Registration Statement on Form S-1 filed on November 16,
1995, File No. 33-97662)
10.12 Employment Agreement of Paul J. Contris (incorporated by reference to Exhibit 10.12
to Amendment No. 1 to the Registration Statement on Form S-1 filed on November 16,
1995, File No. 33-97662)
10.13 Employment and Non-Competition Agreement of L. Robert Oberfield (incorporated by
reference to Exhibit 10.13 to Amendment No. 1 to the Registration Statement on Form
S-1 filed on November 16, 1995, File No. 33-97662)
10.14 Shareholders Agreement dated May 15, 1995, among Quest Pharmacies, Inc., the
Company and L. Robert Oberfield (incorporated by reference to Exhibit 10.14 to the
Registration Statement on Form S-1 filed on October 2, 1995, File No. 33-97662)
10.15 Unison HealthCare Corporation 1995 Stock Option Plan (incorporated by reference to
Exhibit 10.15 to the Registration Statement on Form S-1 filed on October 2, 1995,
File No. 33-97662)
10.16 [Intentionally Omitted].
10.17 Receivables Acquisition Agreement, dated November 14, 1994, as amended, with
HealthPartners Funding, L.P. (incorporated by reference to Exhibit 10.17 to the
Registration Statement on Form S-1 filed on October 2, 1995,
File No. 33-97662)
10.18 Agreements between the Company and Trouver Capital Partners, L.P. dated March 16,
1992 and July 10, 1995 (incorporated by reference to Exhibit 10.18 to the
Registration Statement on Form S-1 filed on October 2, 1995, File No. 33-97662)
10.19 Agreement between BritWill and Trouver Capital Partners, L.P. dated September 15,
1992, as amended (incorporated by reference to Exhibit 10.19 to the Registration
Statement on Form S-1 filed on October 2, 1995,
File No. 33-97662)
</TABLE>
<PAGE> 367
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------------------------------------------------------------------------------
<C> <S>
10.20 Master Lease between BritWill -- I and Omega, dated as of November 1, 1992, for
Capital Care HealthCare Center, Cedar Crest HealthCare Center (Wellington Manor),
English Estates (Kingsbury Rehabilitation and HealthCare Center), Lockerbie
HealthCare Center, Parkview Manor and Sunset Manor (incorporated by reference to
Exhibit 10.20 to the Registration Statement on Form S-1 filed on October 2, 1995,
File No. 33-97662)
10.21 Agreement of Acquisition and Lease between BritWill and Omega, dated as of November
1, 1992 (incorporated by reference to Exhibit 10.21 to the Registration Statement
on Form S-1 filed on October 2, 1995, File No. 33-97662)
10.22 Leasehold Mortgage between BritWill -- I and Omega, dated November 1, 1992
(incorporated by reference to Exhibit 10.22 to the Registration Statement on Form
S-1 filed on October 2, 1995, File No. 33-97662)
10.23 Loan Agreement (Texas Facilities) between BritWill Investments -- Texas and Omega,
dated April 1, 1993 (incorporated by reference to Exhibit 10.23 to the Registration
Statement on Form S-1 filed on October 2, 1995,
File No. 33-97662)
10.24 [Intentionally Omitted].
10.25 Loan Agreement between BritWill Investments -- Texas and Omega, dated November 30,
1993 (incorporated by reference to Exhibit 10.25 to the Registration Statement on
Form S-1 filed on October 2, 1995, File No. 33-97662)
10.26 BritWill Master Guaranty between BritWill and Omega, dated November 30, 1993
(incorporated by reference to Exhibit 10.26 to the Registration Statement on Form
S-1 filed on October 2, 1995, File No. 33-97662)
10.27 Letter of Credit Agreement between BritWill Investments -- II and Omega, dated
November 30, 1993 (incorporated by reference to Exhibit 10.27 to the Registration
Statement on Form S-1 filed on October 2, 1995, File No. 33-97662)
10.28 Master Lease between BritWill -- II and Omega, dated as of November 30, 1993
(incorporated by reference to Exhibit 10.28 to the Registration Statement on Form
S-1 filed on October 2, 1995, File No. 33-97662)
10.29 Agreement Regarding Financial Covenants Compliance and Amendment Agreement among
BritWill and Omega, dated December 13, 1994 (incorporated by reference to Exhibit
10.29 to the Registration Statement on Form S-1 filed on October 2, 1995, File No.
33-97662)
10.30 Master Lease between BritWill -- II and Omega, dated December 12, 1994
(incorporated by reference to Exhibit 10.30 to the Registration Statement on Form
S-1 filed on October 2, 1995, File No. 33-97662)
10.31 Amendment Agreement between the Company and Omega, dated August 10, 1995
(incorporated by reference to Exhibit 10.31 to the Registration Statement on Form
S-1 filed on October 2, 1995, File No. 33-97662)
10.32 Unison Master Guaranty to Omega, dated August 10, 1995 (incorporated by reference
to Exhibit 10.32 to the Registration Statement on Form S-1 filed on October 2,
1995, File No. 33-97662)
10.33 Subordinated Promissory Note in the amount of $2,475,000 of BritWill to WFI, dated
December 24, 1992 (incorporated by reference to Exhibit 10.33 to the Registration
Statement on Form S-1 filed on October 2, 1995,
File No. 33-97662)
</TABLE>
<PAGE> 368
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------------------------------------------------------------------------------
<C> <S>
10.34 Participation Agreement among BritWill, WFI and Garth Financial Services, Inc.,
dated December 24, 1992 (incorporated by reference to Exhibit 10.34 to the
Registration Statement on Form S-1 filed on October 2, 1995,
File No. 33-97662)
10.35 Bonus Participation Agreement between BritWill and WFI, dated December 24, 1992
(incorporated by reference to Exhibit 10.35 to the Registration Statement on Form
S-1 filed on October 2, 1995, File No. 33-97662)
10.36 Unsecured Promissory Note of BritWill -- II to BritWill Investments -- Texas in the
amount of $1,081,548.39, dated November, 1993 (incorporated by reference to Exhibit
10.36 to the Registration Statement on Form S-1 filed on October 2, 1995, File No.
33-97662)
10.37 Unsecured Promissory Note of BritWill -- II to BritWill Investments -- Texas in the
amount of $500,000, dated November, 1993 (incorporated by reference to Exhibit
10.37 to the Registration Statement on Form S-1 filed on October 2, 1995, File No.
33-97662)
10.38 Unsecured Promissory Note of BritWill -- II to BritWill Investments -- Texas in the
amount of $660,000, dated November, 1993 (incorporated by reference to Exhibit
10.38 to the Registration Statement on Form S-1 filed on October 2, 1995, File No.
33-97662)
10.39 [Intentionally Omitted].
10.40 Management Services Agreement between Unison and Lake City Nursing Homes, Inc.,
dated December 1, 1993 (incorporated by reference to Exhibit 10.40 to the
Registration Statement on Form S-1 filed on October 2, 1995,
File No. 33-97662)
10.41 Lease Contract and Agreement between BritWill Investments -- Texas, as Lessor and
BritWill -- II, as Lessee, dated December 1, 1993, for Four States Care Center,
Heritage Plaza Nursing Center, Pine Haven Care Center, Reunion Plaza Senior Care
and Retirement Center and Texarkana Nursing Center (incorporated by reference to
Exhibit 10.41 to the Registration Statement on Form S-1 filed on October 2, 1995,
File No. 33-97662)
10.42 Management Agreement between Sherwood HealthCare Corp. and BritWill Investments --
Indiana, dated November 1, 1991, as amended, for Capital Care, Parkview, Sunset
Manor, Boonville, Holiday Manor, Kendallville Manor and Owensville (incorporated by
reference to Exhibit 10.42 to the Registration Statement on Form S-1 filed on
October 2, 1995, File No. 33-97662)
10.43 Management Agreement between Cedar Care, Inc. and BritWill Investments -- Indiana,
dated November 1, 1991, as amended, for Cedar Crest, Country Side, English, Harty,
Lockerbie and Willow Manor (incorporated by reference to Exhibit 10.43 to the
Registration Statement on Form S-1 filed on October 2, 1995, File No. 33-97662)
10.44 Lease for All Seasons Nursing Home (aka Oakwood in Arlington) (incorporated by
reference to Exhibit 10.44 to the Registration Statement on Form S-1 filed on
October 2, 1995, File No. 33-97662)
10.45 Lease for Elkhart Nursing Home (incorporated by reference to Exhibit 10.45 to the
Registration Statement on Form S-1 filed on October 2, 1995,
File No. 33-97662)
10.46 Management Services Agreement between the Company and Marshall Manor (Michigan),
dated September 15, 1992 (incorporated by reference to Exhibit 10.46 to the
Registration Statement on Form S-1 filed on October 2, 1995, File No. 33-97662)
10.47 Leases for Center (aka Pine Grove Care Center) and Waxahachie (aka Pleasant Manor
Living Center) with BritWill Investments -- Texas (incorporated by reference to
Exhibit 10.47 to the Registration Statement on Form S-1 filed on October 2, 1995,
File No. 33-97662)
</TABLE>
<PAGE> 369
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------------------------------------------------------------------------------
<C> <S>
10.48 Management Services Agreement between the Company and HP/HealthCare Acquirors, Inc.
for Windsor Manor (incorporated by reference to Exhibit 10.48 to the Registration
Statement on Form S-1 filed on October 2, 1995, File No. 33-97662)
10.49 Management Services Agreement for Bayshore Convalescent Center (incorporated by
reference to Exhibit 10.49 to the Registration Statement on Form S-1 filed on
October 2, 1995, File No. 33-97662)
10.50 Lease for Henry Clay Villa, dated July 1, 1995 (incorporated by reference to
Exhibit 10.50 to the Registration Statement on Form S-1 filed on October 2, 1995,
File No. 33-97662)
10.51 Lease for Marshall Manor Nursing Home (Alabama) (incorporated by reference to
Exhibit 10.51 to Amendment No. 1 to the Registration Statement on Form S-1 filed on
November 16, 1995, File No. 33-97662)
10.52 [Intentionally Omitted].
10.53 [Intentionally Omitted].
10.54 [Intentionally Omitted].
10.55 Sublease for Ridgewood Health Care Center (incorporated by reference to Exhibit
10.55 to Amendment No. 1 to the Registration Statement on Form S-1 filed on
November 16, 1995, File No. 33-97662)
10.56 Management Services Agreement for Peachtree Nursing Center (aka Smyrna Nursing
Center) and Rehabilitation Facility, dated September 15, 1993 (incorporated by
reference to Exhibit 10.56 to Amendment No. 1 to the Registration Statement on Form
S-1 filed on November 16, 1995, File No. 33-97662)
10.57 Management Services Agreement for St. Barnabas Nursing Home, and Retirement
Apartments, dated January 12, 1995 (incorporated by reference to Exhibit 10.57 to
Amendment No. 1 to the Registration Statement on Form S-1 filed on November 16,
1995, File No. 33-97662)
10.58 [Intentionally Omitted].
10.59 Lease for Boonville Convalescent Center (incorporated by reference to Exhibit 10.59
to Amendment No. 1 to the Registration Statement on Form S-1 filed on November 16,
1995, File No. 33-97662)
10.60 [Intentionally Omitted].
10.61 [Intentionally Omitted].
10.62 [Intentionally Omitted].
10.63 Sublease for Holiday Manor (incorporated by reference to Exhibit 10.63 to Amendment
No. 1 to the Registration Statement on Form S-1 filed on November 16, 1995, File
No. 33-97662)
10.64 [Intentionally Omitted].
10.65 [Intentionally Omitted].
10.66 Lease for Owensville Convalescent Center (incorporated by reference to Exhibit
10.66 to Amendment No. 1 to the Registration Statement on Form S-1 filed on
November 16, 1995, File No. 33-97662)
10.67 [Intentionally Omitted].
10.68 [Intentionally Omitted].
10.69 [Intentionally Omitted].
10.70 Lease for Willow Manor Convalescent Center (incorporated by reference to Exhibit
10.70 to Amendment No. 1 to the Registration Statement on Form S-1 filed on
November 16, 1995, File No. 33-97662)
</TABLE>
<PAGE> 370
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------------------------------------------------------------------------------
<C> <S>
10.71 Lease for Bonner Health Center, dated February 1, 1995 (incorporated by reference
to Exhibit 10.71 to Amendment No. 1 to the Registration Statement on Form S-1 filed
on November 16, 1995, File No. 33-97662)
10.72 Lease for Hillside Care Center (aka Prairie Manor), dated February 1, 1995
(incorporated by reference to Exhibit 10.72 to Amendment No. 1 to the Registration
Statement on Form S-1 filed on November 16, 1995, File No. 33-97662)
10.73 Lease for Oswego Manor, dated March 2, 1994 (incorporated by reference to Exhibit
10.73 to Amendment No. 1 to the Registration Statement on Form S-1 filed on
November 16, 1995, File No. 33-97662)
10.74 [Intentionally Omitted].
10.75 Lease for SunCrest HealthCare Center, dated September 14, 1994 (incorporated by
reference to Exhibit 10.75 to Amendment No. 1 to the Registration Statement on Form
S-1 filed on November 16, 1995, File No. 33-97662)
10.76 Sublease for The Oaks of Boise (aka Franciscan Health Care Center of Boise)
(incorporated by reference to Exhibit 10.76 to Amendment No. 1 to the Registration
Statement on Form S-1 filed on November 16, 1995, File No. 33-97662)
10.77 Lease for Mountainside Care Center (aka Sandpoint Manor) and St. Francis Preschool
and Childcare Center (incorporated by reference to Exhibit 10.77 to Amendment No. 1
to the Registration Statement on Form S-1 filed on November 16, 1995, File No.
33-97662)
10.77.1 Sublease for Mountainside Care Center (incorporated by reference to Exhibit 10.77.1
to Amendment No. 1 to the Registration Statement on Form S-1 filed on November 16,
1995, File No. 33-97662)
10.78 [Intentionally Omitted].
10.79 Lease for White Pine Care Center, dated November 1, 1994 (incorporated by reference
to Exhibit 10.79 to Amendment No. 1 to the Registration Statement on Form S-1 filed
on November 16, 1995, File No. 33-97662)
10.80 Management Services Agreement for Franciscan Health Care Center of Enumclaw, dated
November 30, 1994 (incorporated by reference to Exhibit 10.80 to Amendment No. 1 to
the Registration Statement on Form S-1 filed on November 16, 1995, File No.
33-97662)
10.81 Management Services Agreement for Franciscan Health Care Center of Walla Walla,
dated November 30, 1994 (incorporated by reference to Exhibit 10.81 to Amendment
No. 1 to the Registration Statement on Form S-1 filed on November 16, 1995, File
No. 33-97662)
10.82 [Intentionally Omitted].
10.83 Lease for Green Acres Nursing Home, dated August 30, 1995 (incorporated by
reference to Exhibit 10.83 to Amendment No. 1 to the Registration Statement on Form
S-1 filed on November 16, 1995, File No. 33-97662)
10.84 Lease for Hemphill Care Center, dated September 1, 1994 (incorporated by reference
to Exhibit 10.84 to Amendment No. 1 to the Registration Statement on Form S-1 filed
on November 16, 1995, File No. 33-97662)
10.85 [Intentionally Omitted].
10.86 [Intentionally Omitted].
10.87 [Intentionally Omitted].
10.88 [Intentionally Omitted].
10.89 [Intentionally Omitted].
</TABLE>
<PAGE> 371
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------------------------------------------------------------------------------
<C> <S>
10.90 Lease for Nightingale West Nursing Home, dated August 24, 1995 (incorporated by
reference to Exhibit 10.90 to Amendment No. 1 to the Registration Statement on Form
S-1 filed on November 16, 1995, File No. 33-97662)
10.91 Sublease for Twin Pines of Lewisville, dated September 8, 1995 (incorporated by
reference to Exhibit 10.91 to Amendment No. 1 to the Registration Statement on Form
S-1 filed on November 16, 1995, File No. 33-97662)
10.92 Management Services Agreement for Homestead of McKinney, dated September 20, 1995
(incorporated by reference to Exhibit 10.92 to Amendment No. 1 to the Registration
Statement on Form S-1 filed on November 16, 1995, File No. 33-97662)
10.93 Letter of Intent for proposed Henderson & Plash rehabilitation business
acquisition, dated September 16, 1995 (incorporated by reference to Exhibit 10.93
to Amendment No. 2 to the Registration Statement on Form S-1,
File No. 33-97662)
10.94 Letter Agreement regarding licensing and operation of the Indiana facilities from
Cedar Care and Sherwood to the Company, dated August 10, 1995 (incorporated by
reference to Exhibit 10.94 to Amendment No. 2 to the Registration Statement on Form
S-1 filed on December 4, 1995, File No. 33-97662)
10.95 Agreement Regarding Conversion of the Convertible Debenture, dated December 1, 1995
(incorporated by reference to Exhibit 10.95 to Amendment No. 2 to the Registration
Statement on Form S-1 filed on December 4, 1995, File No. 33-97662)
10.96 Letter Agreement Regarding Consulting Services (incorporated by reference to
Exhibit 10.96 to Amendment No. 3 to the Registration Statement on Form S-1 filed on
December 12, 1995, File No. 33-97662)
10.97 Loan and Security Agreement dated February 16, 1996 by and between Unison
HealthCare Corporation, SunQuest SPC, Inc., BritWill HealthCare Company, BritWill
Investments-I, Inc., BritWill Funding Corporation, BritWill Investments-II, Inc.,
Emory Care Center, Inc., Cedar Care, Inc., Sherwood Healthcare Corp. (collectively
as borrowers) and HealthPartners Funding, L.P. (as lender) (incorporated by
reference to Exhibit 10.97 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995)
10.98 Security Agreement effective as of February 1, 1996 by and among Unison HealthCare
Corporation, a Delaware corporation, Sunbelt Therapy Management Services, Inc., an
Arizona corporation, Paul G. Henderson and Paige B. Plash (incorporated by
reference to Exhibit 10.1 to the Form 8-K filed on
April 12, 1996)
10.99 Promissory Note of Unison HealthCare Corporation to Omega Healthcare Investors,
Inc. in the amount of $3,500,000, dated February 9, 1996 (incorporated by reference
to Exhibit 10.99 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995)
10.100 Lease dated November 30, 1994 between Monica R. Salusky and SunQuest SPC, Inc.
(commencement date: August 1, 1996) (incorporated by reference to the Company's
Current Report on Form 8-K dated August 14, 1996)
10.101 Modification of Lease dated as of July 31, 1996 between Monica R, Salusky, SunQuest
SPC, Inc. and Unison HealthCare Corporation (incorporated by reference to the
Company's Current Report on Form 8-K dated
August 14, 1996)
10.102 Lease dated June 19, 1996 between Walla Walla Partners, L.P. and SunQuest SPC, Inc.
(commencement date: August 1, 1996) (incorporated by reference to the Company's
Current Report on Form 8-K dated August 14, 1996)
</TABLE>
<PAGE> 372
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------------------------------------------------------------------------------
<C> <S>
10.103 First Amendment to Lease dated July 26, 1996 between Walla Walla Partners, L.P. and
SunQuest SPC, Inc. (incorporated by reference to the Company's Current Report on
Form 8-K dated August 14, 1996)
10.104 Loan Agreement dated as of August 16, 1996 between Unison and Imperial Bank, a
California banking corporation*
10.105 Promissory Note of Unison HealthCare Corporation to Imperial Bank in the amount of
$5,000,000 dated August 16, 1996*
10.106 Form of Security Agreement -- Stock Pledge (Direct Subsidiary) (and related
schedule of omitted documents) between Unison HealthCare Corporation and Imperial
Bank and Acknowledgment and Consent of Direct Subsidiary of Unison HealthCare
Corporation*
10.107 Form of Security Agreement -- Stock Pledge (Indirect Subsidiary) (and related
schedule of omitted documents) between Direct Subsidiary of Unison HealthCare
Corporation and Imperial Bank and Acknowledgment and Consent of Indirect Subsidiary
of Unison HealthCare Corporation*
10.108 Subordination Agreement dated August 16, 1996 among Bruce H. Whitehead, as agent
for the former shareholders of BritWill HealthCare Company, Unison HealthCare
Company and Imperial Bank*
10.109 Promissory Note of Unison HealthCare Corporation to Red Line Healthcare Corporation
in the amount of $771,004.60 dated August 30, 1996*
10.110 Receivables Purchase and Sale Agreement dated August 8, 1996 between HealthPartners
Funding, L.P., Sunbelt Therapy Management Services, Inc. (an Arizona corporation),
Henderson & Associates Rehabilitation, Inc., Decator Sportsfit & Wellness Center,
Inc., Therapy Health Systems, Inc., Sunbelt Therapy Management Services, Inc. (an
Alabama corporation), Quest Pharmacies, Inc. and SunQuest SPC, Inc.*
10.111 Master Lease Agreement dated June 4, 1996 between Unison HealthCare Corporation and
LINC Anthem Corporation*
11.1 Unison HealthCare Corporation Statement Re: Computation of Per Share Earnings
(incorporated by reference to Exhibit 11.1 to the Company's Quarterly Report on
Form 10-Q for the period ended June 30, 1996)
21 List of subsidiaries*
23.1 Consent of Ernst & Young LLP (reference is made to page II-13)*
23.2 Consent of Ernst & Young LLP (reference is made to page II-14)*
23.3 Consent of Price Waterhouse (reference is made to page II-15)*
23.4 Consent of Ronald H. Ridgers, P.C. (reference is made to page II-16)*
23.5 Consent of Ronald H. Ridgers, P.C. (reference is made to page II-17)*
23.6 Consent of Arthur Andersen LLP (reference is made to page II-18)*
23.7 Consent of Arthur Andersen LLP (reference is made to page II-19)*
23.8 Consent of Grant, Millman & Johnson, P.C. (reference is made to page II-20)*
24.1 Power of Attorney (reference is made to page II-11)*
</TABLE>
- ---------------
* Filed herewith.
** To be filed by amendment.
<PAGE> 1
EXHIBIT 2.1.1
THIS INSTRUMENT IS SUBJECT TO THE TERMS OF A SUBORDINATION AGREEMENT, DATED AS
OF AUGUST 16, 1996, BY AND AMONG BRUCE H. WHITEHEAD, AS AGENT, UNISON HEALTHCARE
CORPORATION, A DELAWARE CORPORATION, AND IMPERIAL BANK, A CALIFORNIA BANKING
CORPORATION.
MODIFICATION AGREEMENT
By this Modification Agreement (this "Agreement"), dated as of August
28, 1996, Unison HealthCare Corporation, a Delaware corporation, f/k/a SunQuest
HealthCare Corporation ("Buyer"), BritWill HealthCare Company, a Delaware
corporation ("BritWill"), and Bruce H. Whitehead, as agent for the former
shareholders of BritWill pursuant to a Collection Agency Agreement dated as of
August 10, 1995 ("Seller"), confirm and agree as follows:
SECTION 1 - RECITALS
1.1 On or about August 10, 1995, Buyer, Seller and BritWill entered
into an Amended and Restated Purchase Agreement, pursuant to which Buyer
acquired from Seller 100% of the capital stock of BritWill for a purchase price
of $32,000,000, payable by a $19,500,000 promissory note (the "Subordinated
Note"), a $5,500,000 promissory note (the "Term Note") and a $7,000,000
convertible debenture.
1.2 In or about November 1995, Buyer, Seller and BritWill entered into
a Second Amended and Restated Purchase and Sale Agreement dated as of August 10,
1995 (as subsequently modified, the "Purchase Agreement"), which restated and
replaced the Amended and Restated Purchase Agreement, and, among other things,
provided for the following:
(a) The fixed purchase price was reduced from $32,000,000 to
$26,000,000, by reducing the Subordinated Note from $19,500,000 to
$13,500,000;
(b) The $6,000,000 purchase price and Subordinated Note
reduction and the interest reductions arising therefrom were
recharacterized as contingent obligations;
(c) Increasing monthly revenue thresholds, as set forth on
Schedule 1 attached hereto, were established, which if met, would
trigger Unison's obligation to pay the contingent amounts. Net revenues
of $150,000,000 would trigger in full Unison's obligation to pay the
contingent obligation in August 2000;
(d) The Subordinated Note and the principal portion of the
contingent obligations were due in full upon any debt or equity
financing of $10,000,000 or more following Buyer's initial public
offering; and
(e) The effective date for all changes was August 10, 1995.
<PAGE> 2
1.3 On or about April 15, 1996, Buyer, Seller and BritWill entered into
a Modification Agreement and a Contingent Payment Agreement (collectively, the
"Prior Modification"), which modified the Purchase Agreement and certain related
documents in a number of respects, including the following:
(a) The fixed purchase price was reduced from $26,000,000 to
$20,601,597.25, by (i) reducing the Subordinated Note from $13,500,000
to $8,000,000, and (ii) increasing the Term Note from $5,500,000 to
$5,601,597.25. (The Term Note was deemed paid in full as of January 2,
1996, without the accrual of any interest.)
(b) The interest rate in effect at any time under the
Subordinated Note was reduced by 400 basis points (4%).
(c) The revenue thresholds provided in Schedule 1 for the
payment of contingent amounts were expanded to apply to the entire Lump
Sum Contingent Payment arising from revisions to the Subordinated Note
that reduced the face amount thereof by $11,500,000; provided, however,
the Lump Sum Contingent Payment will be reduced by the amount of the
Reclassified Items, totalling up to approximately $1,400,000, with the
final adjustment for the Reclassified Items to take effect on the
Reclassification Date.
(d) Over the time period from January 1, 1997 through August
9, 2000, Seller will have the right to "earn back" any reductions for
the Reclassified Items at the rate of 10% per fiscal quarter, provided
that Buyer meets specific revenue thresholds set forth in Schedule 2
attached hereto and in Schedule 2 to the Contingent Payment Agreement.
These revenue thresholds are substantially higher than the revenue
thresholds established for the accrual of Buyer's obligation to pay
contingent amounts generally, as referenced in Section 1.3(c) above.
(e) If Buyer prepays the Lump Sum Contingent Payment prior to
the Reclassification Date, Seller will pay Buyer the amount of any
Reclassified Items within 30 days after the Reclassification Date, and
thereafter Buyer will reimburse Seller for any "earn backs" pursuant to
Section 1.3(d) above. If Buyer prepays the Lump Sum Contingent Payment
after the Reclassification Date, the prepayment will be reduced by the
amount of the adjustment for the Reclassified Items, with Buyer again
obligated to reimburse Seller for any "earn backs." Reimbursement
payments by Buyer under either of the above prepayment scenarios would
be made on a quarterly basis upon achievement of the applicable revenue
threshold.
(f) New conditions were established whereby the contingent
obligations could be converted into fixed obligations. If Buyer commits
an event that allows for conversion of the contingent obligations to
fixed obligations,
-2-
<PAGE> 3
Buyer forfeits any benefit that it previously received from any
reduction for the Reclassified Items.
(g) The covenant requirements for Buyer's cash flow to current
obligations ratio were modified and Buyer's current ratio was reduced.
(h) The parties agreed that the representations and warranties
and indemnifications in the Purchase and Sale Agreement would lapse on
January 1, 1997.
(i) The parties agreed to an effective date for all changes of
August 10, 1995.
1.4 On or about April 29, 1996, Buyer notified Seller and BritWill of
Buyer's desire to modify further the Purchase Agreement on the terms and
conditions set forth herein.
1.5 Buyer, Seller and BritWill now have agreed to modify further the
Purchase Agreement and related documents on the terms and conditions set forth
herein.
SECTION 2 - MODIFICATIONS OF DOCUMENTS
2.1 The Purchase Agreement, Subordinated Note and Contingent Payment
Agreement are hereby modified to provide that upon the next "Qualifying
Financing," which shall be a debt or equity financing of $10,000,000 or greater
by Buyer, Buyer shall not be obligated to make payment of more than one-half of
the "Full Balance," which shall be the aggregate, outstanding amount of the
Subordinated Note and the Lump Sum Contingent Payment outstanding prior to such
financing (i.e., assuming no prepayments and exclusive of interest and costs,
the "Full Balance" would be $19,500,000 and the required payment would be
$9,750,000). Any portion of the Full Balance not paid upon the next Qualifying
Financing shall be paid in full upon the first Qualifying Financing thereafter.
If Buyer elects not to pay the Full Balance upon the next Qualifying Financing,
Buyer shall have no obligation to make the minimum payment of one-half of the
Full Balance prior to January 1, 1997; however, if Buyer does not pay the Full
Balance upon the next Qualifying Financing, Seller shall be deemed to have
"earned back" all Reclassified Items.
2.2 The Contingent Payment Agreement is hereby modified to (i) increase
the earn back percentage for each quarter within which the applicable earn back
threshold is met from 10% to 20%, and (ii) make the earn backs cumulative so
that meeting the earn back revenue threshold for any quarter results in deemed
satisfaction of all prior earn back thresholds.
2.3 The Contingent Payment Agreement is hereby modified to provide that
if Buyer prepays the Lump Sum Contingent Payment in full prior to the
Reclassification Date, and a reduction for Reclassified Items occurs thereafter,
Seller's obligation to repay Buyer for the Reclassified Items shall be (i)
evidenced by a
-3-
<PAGE> 4
noninterest bearing note, due and payable in full on August 9, 2000, and (ii)
subject to reduction for any "earn backs" in the manner described in the
Contingent Payment Agreement.
2.4 Buyer shall cause the Pledgors and their spouses to execute the
Consent and Agreement of Pledgors attached hereto, which, among other things,
will modify the Pledge Agreements to secure all of the obligations of Buyer, as
modified herein.
SECTION 3 - OTHER MODIFICATIONS, RATIFICATION AND AGREEMENTS; RETROACTIVE
APPLICATION OF ALL MODIFICATIONS
3.1 All references to the Purchase Agreement, Subordinated Note,
Contingent Payment Agreement and Pledge Agreements in such documents and in any
other documents related to or entered into in connection with the acquisition by
Buyer of BritWill (the "Other Documents") are hereby amended to refer to the
Purchase Agreement, Subordinated Note, Contingent Payment Agreement and Pledge
Agreements, as hereby amended.
3.2 All terms, conditions and provisions of the Purchase Agreement,
Subordinated Note, Contingent Payment Agreement, Pledge Agreements and Other
Documents are continued in full force and effect and shall remain unaffected and
unchanged except as specifically amended hereby. Buyer, Seller and BritWill
hereby ratify and reaffirm the Purchase Agreement, Subordinated Note, Contingent
Payment Agreement, Pledge Agreements and Other Documents, as hereby amended.
SECTION 4 - GENERAL
4.1 The parties shall execute and deliver such additional documents and
do such other acts as may be reasonably required to fully implement the intent
of this Agreement.
4.2 This Modification shall be binding upon, and shall inure to the
benefit of, the parties hereto and their heirs, personal representatives,
successors and assigns.
4.3 Capitalized terms not otherwise defined herein shall have the
definitions ascribed to those terms in the Purchase Agreement and/or Prior
Modification, as appropriate.
4.4 This Agreement shall be governed by and construed according to the
laws of the State of Texas.
4.5 This Agreement may be executed in several counterparts, each of
which shall, for all purposes, be deemed an original, and all counterparts,
taken together, shall constitute one and the same Agreement. Delivery by any
party of a facsimile signature shall constitute effective delivery of an
original signature hereto.
-4-
<PAGE> 5
IN WITNESS WHEREOF, these presents are executed as of the date
indicated above.
BRITWILL HEALTHCARE COMPANY, a Delaware
corporation
By /s/ Jerry M. Walker
------------------------------------------
Jerry M. Walker, President and Chief
Executive Officer
UNISON HEALTHCARE CORPORATION (fka SUNQUEST
---------------------------------------------
HEALTHCARE CORPORATION), a Delaware
corporation
By /s/ Jerry M. Walker
------------------------------------------
Jerry M. Walker, President and Chief
Executive Officer
/s/ Bruce H. Whitehead
---------------------------------------------
BRUCE H. WHITEHEAD, as agent for the former
shareholders of BritWill pursuant to a
Collection Agency Agreement dated as of
August 10, 1995
THIS INSTRUMENT IS SUBJECT TO THE TERMS OF A SUBORDINATION AGREEMENT, DATED AS
OF AUGUST 16, 1996, BY AND AMONG BRUCE H. WHITEHEAD, AS AGENT, UNISON HEALTHCARE
CORPORATION, A DELAWARE CORPORATION, AND IMPERIAL BANK, A CALIFORNIA BANKING
CORPORATION.
-5-
<PAGE> 6
CONSENT AND AGREEMENT OF PLEDGORS
Each of the undersigned Pledgors executed a Pledge Agreement of even
date with the Purchase Agreement. Each of the Pledgors hereby consents and
agrees to the modifications and all other matters contained in the foregoing
Modification Agreement and agrees that his respective Pledge Agreement
constitutes collateral security for the due payment and performance of all
obligations of Buyer under the Purchase Agreement, as modified by the Prior
Modification and by the foregoing Modification Agreement.
Except as expressly amended herein, all of the terms of the Pledge
Agreement shall remain unchanged and shall continue in full force and effect.
DATED as of August 28, 1996.
/s/ Jerry M. Walker
----------------------------------------
JERRY M. WALKER
/s/ Phillip R. Rollins
----------------------------------------
PHILLIP R. ROLLINS
/s/ Paul J. Contris
----------------------------------------
PAUL J. CONTRIS
/s/ Craig R. Clark
----------------------------------------
CRAIG R. CLARK
"PLEDGORS"
-1-
<PAGE> 7
CONSENT AND AGREEMENT OF SPOUSES
Each of the undersigned hereby approves of and consents to all
provisions of the Modification Agreement and the attachments thereto, the terms
and provisions of which are incorporated herein by reference. Each of the
undersigned further reconfirms their prior consent and agreement to the Pledge
Agreement executed by their respective spouse, and agrees to take no action at
any time to hinder performance by anyone under the Pledge Agreement or to commit
any act which would have a material adverse effect upon the ability of any party
to perform pursuant to the terms of the Pledge Agreement.
Dated as of August 28, 1996.
/s/ Carol Walker
----------------------------------------
CAROL WALKER
/s/ Cynthia Rollins
----------------------------------------
CYNTHIA ROLLINS
/s/ Tammi Contris
----------------------------------------
TAMMI CONTRIS
/s/ Kathy Clark
----------------------------------------
KATHY CLARK
-2-
<PAGE> 8
SCHEDULE 1
<TABLE>
<CAPTION>
Consolidated Total
Second Preceding Revenues for Second
Month Month Preceding Month
<S> <C> <C>
10/95 8/95 $8,000,000
11/95 9/95 8,056,000
12/95 10/95 8,112,392
1/96 11/95 8,169,179
2/96 12/95 8,226,363
3/96 1/96 8,283,948
4/96 2/96 8,341,935
5/96 3/96 8,400,329
6/96 4/96 8,459,131
7/96 5/96 8,518,345
8/96 6/96 8,577,973
9/96 7/96 8,638,019
10/96 8/96 8,698,485
11/96 9/96 8,759,375
12/96 10/96 8,820,690
1/97 11/96 8,882,435
2/97 12/96 8,944,612
3/97 1/97 9,007,224
4/97 2/97 9,070,275
5/97 3/97 9,133,767
6/97 4/97 9,197,703
7/97 5/97 9,262,087
8/97 6/97 9,326,922
9/97 7/97 9,392,210
10/97 8/97 9,457,956
11/97 9/97 9,524,161
12/97 10/97 9,590,831
</TABLE>
-1-
<PAGE> 9
<TABLE>
<S> <C> <C>
1/98 11/97 9,657,966
2/98 12/97 9,725,572
3/98 1/98 9,793,651
4/98 2/98 9,862,207
5/98 3/98 9,931,242
6/98 4/98 10,000,761
7/98 5/98 10,070,766
8/98 6/98 10,141,262
9/98 7/98 10,212,250
10/98 8/98 10,283,736
11/98 9/98 10,355,722
12/98 10/98 10,428,212
1/99 11/98 10,501,210
2/99 12/98 10,574,718
3/99 1/99 10,648,741
4/99 2/99 10,723,283
5/99 3/99 10,798,346
6/99 4/99 10,873,934
7/99 5/99 10,950,052
8/99 6/99 11,026,702
9/99 7/99 11,103,889
10/99 8/99 11,181,616
11/99 9/99 11,259,887
12/99 10/99 11,338,707
1/00 11/99 11,418,077
2/00 12/99 11,498,004
3/00 1/00 11,578,490
4/00 2/00 11,659,539
5/00 3/00 11,741,156
6/00 4/00 11,823,344
7/00 5/00 11,906,108
8/00 6/00 11,989,451
</TABLE>
-2-
<PAGE> 10
SCHEDULE 2
<TABLE>
<CAPTION>
CONSOLIDATED
QUARTER ENDED TOTAL REVENUE
- ------------- -------------
<S> <C>
3/31/97 $31,939,967
6/30/97 33,497,746
9/30/97 35,131,501
12/31/97 36,884,938
3/31/98 38,641,943
6/30/98 40,526,591
9/30/98 42,503,159
12/31/98 44,576,126
3/31/99 46,750,197
6/30/99 49,030,303
9/30/99 51,421,613
12/31/99 53,929,553
3/31/00 56,559,811
6/30/00 59,318,351
</TABLE>
-1-
<PAGE> 1
EXHIBIT 4.7
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE HEREUNDER HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED UNLESS REGISTERED UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN
EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
WARRANT
CORPORATION: UNISON HEALTHCARE CORPORATION, A DELAWARE CORPORATION
NUMBER OF SHARES: 200,000
CLASS OF STOCK: COMMON STOCK
INITIAL EXERCISE PRICE: $13.88 PER SHARE
ISSUED AS OF: AUGUST 16, 1996
EXPIRATION DATE: FIVE (5) YEARS AFTER THE DATE THAT ALL OBLIGATIONS
UNDER THE LOAN AGREEMENT HAVE BEEN PAID IN FULL
FOR VALUE RECEIVED, the adequacy and receipt of which is hereby
acknowledged, UNISON HEALTHCARE CORPORATION, a Delaware corporation, hereby
certifies that IMPERIAL BANK, a California banking corporation, and its
successors and assigns, are entitled to purchase from the Company at any time
and from time to time on and after the date hereof until 12:00 midnight
California local time on the Expiration Date at an initial exercise price of
THIRTEEN DOLLARS AND EIGHTY EIGHT CENTS ($13.88) per share of Common Stock TWO
HUNDRED THOUSAND (200,000) fully paid and nonassessable shares of Common Stock
of the Company, on the terms and conditions hereinafter set forth.
The number of such shares of Common Stock and the Exercise Price are
subject to adjustment as provided in this Warrant. Anything contained in this
Warrant to the contrary notwithstanding, the number of shares of Common Stock
which may be issued upon exercise of this Warrant by any Regulated Warrantholder
shall never exceed such amount as may be permitted under the Bank Holding
Company Act, or any successor statute, or under any other federal or state
banking laws or regulations to which such Regulated Warrantholder may be subject
at the time of such exercise.
<PAGE> 2
1. Certain Definitions. As used in this Warrant, the following terms
have the following definitions:
"Additional Shares of Common Stock" means all shares of Common Stock
issued or issuable by the Company after the date of this Warrant.
"Bank" means IMPERIAL BANK, a California banking corporation, and its
successors and assigns.
"Common Stock" means the Company's Common Stock, par value $.001 per
share, and includes any common stock of the Company of any class or classes
resulting from any reclassification or reclassifications thereof which is not
limited to a fixed sum or percentage of par value in respect of the rights of
the holders thereof to participate in dividends and in the distribution of
assets upon the voluntary or involuntary liquidation, dissolution or winding up
of the Company.
"Company" means UNISON HEALTHCARE CORPORATION, a Delaware corporation.
"Commission" means the Securities and Exchange Commission.
"Convertible Securities" means evidence of indebtedness, shares of
stock or other securities which are at any time directly or indirectly
convertible into or exchangeable for Additional Shares of Common Stock.
"Current Market Price" of a share of Common Stock or of any other
security as of a relevant date means: (i) the Fair Value thereof as determined
in accordance with clause (ii) of the definition of Fair Value with respect to
Common Stock or any other security that is not listed on a national securities
exchange or traded on the over-the-counter market or quoted on NASDAQ, and (ii)
the average of the daily closing prices for the ten (10) trading days before
such date (excluding any trades which are not bona fide arm's length
transactions) with respect to Common Stock or any other security that is listed
on a national securities exchange or traded on the over-the-counter market or
quoted on NASDAQ. The closing price for each day shall be (i) the last sale
price of shares of Common Stock or such other security, regular way, on such
date or, if no such sale takes place on such date, the average of the closing
bid and asked prices thereof on such date, in each case as officially reported
on the principal national securities exchange on which the same are then listed
or admitted to trading, or (ii) if no shares of Common Stock or if no securities
of the same class as such other security are then listed or admitted to trading
on any national securities exchange, the average of the reported closing bid and
asked prices thereof on such date in the over-the-counter market as shown by the
National Association of Securities Dealers automated quotation system or, if no
shares of Common Stock or if no securities of the same class as such other
security are then
2
<PAGE> 3
quoted in such system, as published by the National Quotation Bureau,
Incorporated or any similar successor organization, and in either case as
reported by any member firm of the New York Stock Exchange selected by the
Warrantholders.
"Exchange Act" means the Securities Exchange Act of 1934.
"Exercise Period" means the period commencing on the date hereof and
ending at 12:00 midnight California local time on the Expiration Date.
"Exercise Price" means initially Thirteen Dollars and Eighty Eight
Cents ($13.88) per share, subject to adjustment as provided in this Warrant.
"Expiration Date" means the date that is five (5) years after the date
that all "Obligations" under the Loan Agreement have been paid in full. As used
in this definition, the term "Obligations" has the meaning as defined in the
Loan Agreement.
"Fair Value" means: (i) with respect to a share of Common Stock or any
other security, the Current Market Price thereof, and (ii) with respect to any
other property, assets, business or entity, an amount determined in accordance
with the good faith judgment of the Board of Directors of the Company.
"Indemnified Party" and "Indemnifying Party" have the meanings set
forth in Section 11(e)(iii).
"Loan" has the meaning as defined in the Loan Agreement.
"Loan Agreement" means that certain Loan Agreement of even date
herewith between the Company and the Bank.
"Registrable Stock" means: (i) all Warrant Shares which are issuable to
the Warrantholders pursuant to the Warrants, whether or not the Warrants have in
fact been exercised and whether or not such Warrant Shares have in fact been
issued, (ii) all Warrant Shares acquired by the Warrantholders pursuant to the
Warrants, (iii) any shares of Common Stock, whether or not such shares of Common
Stock have in fact been issued, and stock or other securities of the Company
issued upon conversion of, in a stock split or reclassification of, or a stock
dividend or other distribution on, or in substitution or exchange for, or in a
merger or consolidation involving the Company or its assets, or otherwise in
connection with, such Warrant Shares, and (iv) any shares of Common Stock which
are issuable to the Bank pursuant to the Loan Agreement, whether or not such
shares of Common Stock have in fact been issued and any stock or other
securities of the Company issued upon conversion of, in a stock split or
reclassification of, or a stock dividend or other distribution on, or in
substitution or exchange for, or in a merger or consolidation involving the
Company
3
<PAGE> 4
or its assets, or otherwise in connection with, such shares of Common Stock. For
purposes of Section 11: (i) a Warrantholder of record shall be treated as the
record holder of the related Warrant Shares and other securities issuable
pursuant to the Warrants, and (ii) the Bank shall be treated as the record
holder of the Common Stock and other securities issuable pursuant to the Loan
Agreement.
"Regulated Warrantholder" means any Warrantholder which is, or the
parent of which is, subject to the Bank Holding Company Act, or any successor
statute, or any other federal or state banking laws and regulations.
"Securities Act" means the Securities Act of 1933, as amended.
"Warrant(s)" means this Warrant and any warrants issued in exchange or
replacement of this Warrant or upon transfer hereof.
"Warrantholder(s)" means the Bank and its successors and assigns.
"Warrant Shares" means shares of Common Stock issuable to
Warrantholders pursuant to the Warrants.
2. Exercise of Warrant. This Warrant may be exercised, in whole or in
part, at any time and from time to time during the Exercise Period by written
notice to the Company and upon payment to the Company of the Exercise Price
(subject to adjustment as provided herein) for the shares of Common Stock in
respect of which the Warrant is exercised.
3. Form of Payment of Exercise Price. Anything contained herein to the
contrary notwithstanding, at the option of the Warrantholders, the Exercise
Price may be paid in any one or a combination of the following forms: (a) by
wire transfer to the Company, (b) by the Warrantholder's check to the Company,
(c) by the cancellation of any indebtedness owed by the Company and/or any
subsidiaries of the Company to the Warrantholder, and/or (d) by the surrender to
the Company of Warrants, Warrant Shares, Common Stock and/or other securities of
the Company and/or any subsidiaries of the Company having a Fair Value equal to
the Exercise Price.
4. Conversion/Cashless Exercise. In lieu of exercising this Warrant as
specified in Sections 2 and 3 above, the Warrantholders may from time to time at
the Warrantholders' option convert this Warrant, in whole or in part, into a
number of shares of Common Stock of the Company determined by dividing (A) the
aggregate Fair Value of such shares or other securities otherwise issuable upon
exercise of this Warrant minus the aggregate Exercise Price of such shares by
(B) the Fair Value of one such share.
4
<PAGE> 5
5. Certificates for Warrant Shares; New Warrant. The Company agrees
that the Warrant Shares shall be deemed to have been issued to the
Warrantholders as the record owner of such Warrant Shares as of the close of
business on the date on which payment for such Warrant Shares has been made (or
deemed to be made by conversion) in accordance with the terms of this Warrant.
Certificates for the Warrant Shares shall be delivered to the Warrantholders
within a reasonable time, not exceeding five (5) days, after this Warrant has
been exercised or converted. A new Warrant representing the number of shares, if
any, with respect to which this Warrant remains exercisable also shall be issued
to the Warrantholders within such time so long as this Warrant has been
surrendered to the Company at the time of exercise.
6. Adjustment of Exercise Price, Number of Shares and Nature of
Securities Issuable Upon Exercise of Warrants.
(a) Exercise Price: Adjustment of Number of Shares. The
Exercise Price shall be subject to adjustment from time to time as hereinafter
provided. Upon each adjustment of the Exercise Price, the Warrantholders shall
thereafter be entitled to purchase, at the Exercise Price resulting from such
adjustment, a number of shares determined by multiplying the Exercise Price in
effect immediately prior to such adjustment by the number of shares purchasable
pursuant hereto immediately prior to such adjustment and dividing the product
thereof by the Exercise Price resulting from such adjustment.
(b) Adjustment of Exercise Price Upon Issuance of Common
Stock. If and whenever after the date hereof the Company shall issue or sell
Additional Shares of Common Stock without consideration or for a consideration
per share less than the Current Market Price or the Exercise Price then in
effect immediately prior to the issuance or sale of such shares, then the
Exercise Price in effect immediately prior to such issuance or sale of such
shares shall be reduced to a number which shall be calculated by dividing (A) an
amount equal to the sum of (1) the number of shares of Common Stock outstanding
immediately prior to such issue or sale multiplied by the then existing Exercise
Price plus (2) the aggregate consideration, if any, received by the Company upon
such issue or sale, by (B) the total number of shares of Common Stock
outstanding immediately after such issue or sale.
No adjustment of the Exercise Price, however, shall
be made in an amount less than $.01 per share, but any such lesser adjustment
shall be carried forward and shall be made at the time and together with the
next subsequent adjustment which, together with any adjustments so carried
forward, shall amount to $.01 per share or more.
5
<PAGE> 6
The provisions of this Section 6(b) shall not apply
to any Additional Shares of Common Stock which are distributed to holders of
Common Stock pursuant to a stock split for which an adjustment is provided for
under Section 6(f).
(c) Further Provisions for Adjustment of Exercise Price Upon
Issuance of Additional Shares of Common Stock and Convertible Securities. For
purposes of Section 6(b), the following provisions shall also be applicable:
(i) In case at any time on or after the date hereof,
the Company shall declare any dividend, or authorize any other distribution,
upon any stock of the Company of any class, payable in Additional Shares of
Common Stock or by the issuance of Convertible Securities, such declaration or
distribution shall be deemed to have been issued or sold (as of the record date)
without consideration and shall thereby cause an adjustment in the Exercise
Price as required by Section 6(b).
(ii) (A) In case at any time on or after the date
hereof, the Company shall in any manner issue or sell any Convertible
Securities, whether or not the rights to exchange or convert thereunder are
immediately exercisable, there shall be determined the price per share for which
Additional Shares of Common Stock are issuable upon the conversion or exchange
thereof, such determination to be made by dividing (a) the total amount received
or receivable by the Company as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the conversion or exchange
thereof by (b) the maximum aggregate number of Additional Shares of Common Stock
issuable upon conversion or exchange of all such Convertible Securities for such
minimum aggregate amount of additional consideration; and such issue or sale
shall be deemed to be an issue or sale for cash (as of the date of issue or sale
of such Convertible Securities) of such maximum number of Additional Shares of
Common Stock at the price per share so determined, and shall thereby cause an
adjustment in the Exercise Price, if such an adjustment is required by Section
6(b) hereof.
(B) If such Convertible Securities shall by
their terms provide for an increase or increases, with the passage of time, in
the amount of additional consideration, if any, payable to the Company, or in
the rate of exchange upon the conversion or exchange thereof, the adjusted
Exercise Price shall, upon any such increase becoming effective, be
appropriately increased to take into consideration such increase or increases;
provided, however, that any such increase or increases in the Exercise Price
shall not exceed, in the aggregate, the amount of the original reduction of the
Exercise Price attributable to the Convertible Securities.
(C) If any rights of conversion or exchange
evidenced by such Convertible Securities shall expire without having been
exercised,
6
<PAGE> 7
the adjusted Exercise Price shall forthwith be readjusted to such Exercise Price
as would have been in effect had an adjustment with respect to such Convertible
Securities been made on the basis that the only Additional Shares of Common
Stock issued or sold were those issued upon the conversion or exchange of such
Convertible Securities, and that they were issued or sold for the consideration
actually received by the Company upon such exercise, plus the consideration, if
any, actually received by the Company for the granting of such Convertible
Securities.
(iii) (A) In case at any time on or after the date
hereof, the Company shall in any manner grant or issue any rights or options to
subscribe for, purchase or otherwise acquire Additional Shares of Common Stock,
whether or not such rights or options are immediately exercisable, there shall
be determined the price per share for which Additional Shares of Common Stock
are issuable upon the exercise of such rights or options, such determination to
be made by dividing (a) the total amount, if any, received or receivable by the
Company as consideration for the granting of such rights or options, plus the
minimum aggregate amount of additional consideration, if any, payable to the
Company upon the exercise of such rights or options if the maximum number of
Additional Shares were issued pursuant to such rights or options for such
minimum aggregate amount of additional consideration, by (b) the maximum number
of Additional Shares of Common Stock of the Company issuable upon the exercise
of all such rights or options for such minimum aggregate amount of additional
consideration; and the granting of such rights or options shall be deemed to be
an issue or sale for cash (as of the date of the granting of such rights or
options) of such maximum number of Additional Shares of Common Stock at the
price per share so determined, and shall thereby cause an adjustment in the
Exercise Price, if such an adjustment is required by Section 6(b) hereof.
(B) If such rights or options shall by their
terms provide for an increase or increases, with passage of time, in the amount
of additional consideration payable to the Company upon the exercise thereof,
the adjusted Exercise Price shall, upon any such increases becoming effective,
be appropriately increased to take into consideration such increase or
increases; provided, however, that any such increase or increases in the
Exercise Price shall not exceed, in the aggregate, the amount of the original
reduction of the Exercise Price attributable to the grant of such rights or
options.
(C) If any such rights or options shall
expire without having been exercised, the adjusted Exercise Price shall
forthwith be readjusted to such Exercise Price as would have been in effect had
an adjustment with respect to such rights or options been made on the basis that
the only Additional Shares of Common Stock so issued or sold were those issued
or sold upon the exercise of such rights or options and that they were issued or
sold for the consideration actually received by the Company upon such exercise,
plus the
7
<PAGE> 8
consideration, if any, actually received by the Company for the granting of such
rights or options.
(iv) (A) In case at any time on or after the date
hereof, the Company shall grant any rights or options to subscribe for, purchase
or otherwise acquire Convertible Securities, there shall be determined the price
per share for which Additional Shares of Common Stock are issuable upon the
exchange or conversion of such Convertible Securities if such rights or options
were exercised, such determination to be made by dividing (a) the total amount,
if any, received or receivable by the Company as consideration for the issuance
of such rights or options, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the exercise of such rights
or options if the maximum number of Convertible Securities were issued pursuant
to such rights or options for such minimum aggregate amount of additional
consideration, plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the exchange or conversion of such Convertible
Securities if the maximum number of Additional Shares were issued pursuant to
such Convertible Securities for such minimum aggregate amount of additional
consideration, by (b) the maximum aggregate number of Additional Shares of
Common Stock issuable upon the exchange or conversion of the Convertible
Securities for such minimum aggregate amount of additional consideration; and
the issue or sale of such rights or options shall be deemed to be an issue or
sale for cash (as of the date of the granting of such rights or options) of such
maximum number of Additional Shares of Common Stock at the price per share so
determined, and thereby shall cause an adjustment in the Exercise Price, if such
an adjustment is required by Section 6(b).
(B) If such rights or options to subscribe
for or otherwise acquire Convertible Securities shall by their terms provide for
an increase or increases, with the passage of time, in the amount of additional
consideration payable to the Company upon the exercise, exchange or conversion
thereof, the adjusted Exercise Price shall, forthwith upon any such increase
becoming effective, be appropriately increased to take into consideration such
increase or increases; provided, however, that any such increase or increases in
the Exercise Price shall not exceed, in the aggregate, the amount of the
original reduction of the Exercise Price attributable to the grant of such
rights or options.
(C) If any such rights, options or rights of
conversion or exchange of such Convertible Securities shall expire without
having been exercised, exchanged or converted, the adjusted Exercise Price shall
forthwith be readjusted to such Exercise Price as would have been in effect had
an adjustment been made with respect to such rights, options or rights of
conversion or exchange of such Convertible Securities on the basis that the only
Additional Shares of Common Stock so issued or sold were those issued or sold
upon the exercise of such rights or options and exchange or conversion of such
Convertible Securities and that they were
8
<PAGE> 9
issued or sold for the consideration actually received by the Company upon
exercise of such rights and options and exchange or conversion of such
Convertible Securities, plus the consideration, if any, actually received by the
Company for the granting of such rights, options or Convertible Securities.
(v) In any case where an adjustment has been made in
the Exercise Price upon the issuance of Convertible Securities or any rights or
options to purchase Convertible Securities or Additional Shares of Common Stock
pursuant to this Section 6(c), no further adjustment shall be made at the time
of the conversion of any such Convertible Securities or at the time of the
exercise of any such rights or options.
(vi) In case at any time on or after the issuance of
this Warrant any shares of Common Stock or Convertible Securities shall be
issued or sold for a consideration other than cash, the amount of the
consideration other than cash payable to the Company shall be deemed to be the
Fair Value of such consideration. Whether or not the consideration so received
is cash, the amount thereof shall be determined after deducting therefrom any
expenses incurred or any underwriting commissions or concessions or discounts
paid or allowed by the Company in connection therewith.
(vii) In case at any time the Company shall fix a
record date of the holders of its Common Stock for the purpose of entitling them
(a) to receive a dividend or other distribution payable in Common Stock,
Convertible Securities or rights or options to purchase either thereof, or (b)
to subscribe for or purchase Common Stock, Convertible Securities or rights or
options to purchase either thereof, then such record date shall be deemed to be
the date of the issue or sale of the shares of Common Stock deemed, pursuant to
this Section 6(c), to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date of the granting of
such right of subscription or purchase, as the case may be.
(viii) The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock for the purposes of this Section
6(c).
(d) Reorganization, Reclassification, Consolidation, Merger or
Sale. If any capital reorganization or reclassification of the capital stock of
the Company, or any consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to another
corporation shall be effected in such a way that holders of Common Stock shall
be entitled to receive cash, stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful
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and adequate provisions shall be made whereby the Warrantholders shall
thereafter have the right to purchase and receive upon the basis and upon the
terms and conditions specified in this Warrant upon exercise of this Warrant and
in lieu of the shares of the Common Stock of the Company immediately theretofore
purchasable and receivable upon the exercise of the rights represented hereby,
such cash, shares of stock, securities or assets as may be issued or payable
with respect to or in exchange for a number of outstanding shares of Common
Stock equal to the number of shares of such Common Stock immediately theretofore
purchasable and receivable upon the exercise of the rights represented hereby,
and in any such case appropriate provision shall be made with respect to the
rights and interest of the Warrantholders to the end that the provisions hereof
(including, without limitation, provisions for adjustments of the Exercise Price
and of the number of shares purchasable and receivable upon the exercise of this
Warrant) shall thereafter be applicable, as nearly as may be, in relation to any
shares of stock, securities or assets thereafter deliverable upon the exercise
hereof. The Company shall not effect any consolidation, merger or sale of all or
substantially all of the assets of the Company unless prior to or simultaneous
with the consummation thereof the successor corporation (if other than the
Company) resulting from such consolidation, merger or purchase of such assets
shall assume, by written instrument executed and mailed or delivered to the
Warrantholders, the obligation to deliver to such Warrantholders such cash (or
cash equivalent), shares of stock, securities or assets as, in accordance with
the foregoing provisions, the Warrantholders may be entitled to receive and
containing the express assumption of such successor corporation of the due and
punctual performance and observance of each provision of this Warrant to be
performed and observed by the Company and of all liabilities and obligations of
the Company hereunder.
(e) Company to Prevent Dilution. In case at any time or from
time to time conditions arise by reason of action taken by the Company which are
not adequately covered by the provisions of this Section 6, and which might
materially and adversely affect the exercise rights of the Warrantholders under
any provision of this Warrant, an appropriate adjustment shall be made by the
Company on a basis consistent with the standards established in the other
provisions of this Section 6, with respect to the Exercise Price and the number
of shares purchasable upon exercise of the Warrants, so as to preserve, without
dilution, the exercise rights of the Warrantholders.
(f) Stock Splits and Reverse Splits. In case at any time the
Company shall subdivide its outstanding shares of Common Stock into a greater
number of shares, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of shares of Common
Stock purchasable pursuant to this Warrant immediately prior to such subdivision
shall be proportionately increased, and conversely, in case at any time the
Company shall combine its outstanding shares of Common Stock into a smaller
number of shares, the Exercise Price in effect immediately prior to such
combination shall be
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proportionately increased and the number of shares of Common Stock purchasable
upon the exercise of this Warrant immediately prior to such combination shall be
proportionately reduced.
(g) Dissolution, Liquidation and Wind-Up. In case the Company
shall, at any time prior to the expiration of this Warrant, dissolve, liquidate
or wind up its affairs, the Warrantholders shall be entitled, upon the exercise
of this Warrant, to receive, in lieu of the shares of Common Stock of the
Company which such Warrantholders would have been entitled to receive, the same
kind and amount of assets as would have been issued, distributed or paid to such
Warrantholders upon any such dissolution, liquidation or winding up with respect
to such shares of Common Stock of the Company, had such Warrantholders been the
holders of record of the Warrant Shares receivable upon the exercise of this
Warrant on the record date for the determination of those persons entitled to
receive any such liquidating distribution. After any such dissolution,
liquidation or winding up which shall result in any cash distribution in excess
of the Exercise Price provided for by this Warrant, the Warrantholders may, at
each such Warrantholder's option, exercise the same without making payment of
the Exercise Price, and in such case the Company shall, upon the distribution to
said Warrantholders, consider that said Exercise Price has been paid in full to
it and in making settlement to said Warrantholders, shall deduct from the amount
payable to such Warrantholders an amount equal to such Exercise Price.
(h) Noncash Consideration. In case any Additional Shares of
Common Stock or Convertible Securities or any rights or options to purchase any
Additional Shares of Common Stock or Convertible Securities shall be issued for
a consideration in a form other than cash, the amount of such consideration
shall be deemed to be the Fair Value thereof.
(i) Accountants' Certificate. In each case of an adjustment in
the number of shares of Common Stock or other stock, securities or property
receivable on the exercise of the Warrants, the Company shall prepare a
certificate setting forth such adjustment and showing in detail the facts upon
which such adjustment is based, including a statement of (a) the consideration
received or to be received by the Company for any Additional Shares of Common
Stock, rights, options or Convertible Securities issued or sold or deemed to
have been issued or sold, (b) the number of shares of Common Stock of each class
outstanding or deemed to be outstanding, (c) the adjusted Exercise Price and (d)
the number of shares issuable upon exercise of this Warrant. The Company will
forthwith mail a copy of each such certificate to each Warrantholder.
7. Special Agreements of the Company.
(a) Reservation of Shares. The Company covenants and agrees
that all Warrant Shares will, upon issuance, be validly issued, fully paid and
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nonassessable and free from all preemptive rights of any stockholder, and from
all taxes. liens and charges with respect to the issue thereof. The Company
further covenants and agrees that during the period within which the rights
represented by this Warrant may be exercised, the Company will at all times have
authorized, and reserved, a sufficient number of shares of Common Stock to
provide for the exercise of the rights represented by this Warrant. The Company
hereby covenants and agrees to take all such action as may be necessary to
assure that the par value per share of the Common Stock is at all times equal to
or less than the Exercise Price.
(b) Avoidance of Certain Actions. The Company will not, by
amendment of its Articles or Certificates of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, issue or sale of
securities or otherwise, avoid or take any action which would have the effect of
avoiding the observance or performance of any of the terms to be observed or
performed hereunder by the Company, but will at all times in good faith assist
in carrying out all of the provisions of this Warrant and in taking all of such
action as may be necessary or appropriate in order to protect the rights of the
Warrantholders against dilution or other impairment of their rights hereunder.
(c) Securing Governmental Approvals. If any shares of Common
Stock required to be reserved for the purposes of exercise of this Warrant
require registration with or approval of any governmental authority under any
federal law (other than the Securities Act) or under any state law before such
shares may be issued upon exercise of this Warrant, the Company will, at its
expense, as expeditiously as possible, cause such shares to be duly registered
or approved, as the case may be.
(d) Listing on Securities Exchanges: Registration. If, and so
long as, any class of the Company's Common Stock shall be listed on any national
securities exchange (as defined in the Exchange Act), the Company will, at its
expense, obtain and maintain the approval for listing upon official notice of
issuance of all Warrant Shares and maintain the listing of Warrant Shares after
their issuance; and the Company will so list on such national securities
exchange, will register under the Exchange Act (or any similar statute then in
effect), and will maintain such listing of, any other securities that at any
time are issuable upon exercise of this Warrant if and at the time any
securities of the same class shall be listed on such national securities
exchange by the Company.
(e) Information Rights. So long as the Warrantholders hold
this Warrant and/or any of the Warrant Shares, the Company shall deliver to the
Warrantholders (i) promptly after mailing, copies of all communications to the
shareholders of the Company, (ii) within ninety (90) days after the end of each
fiscal year of the Company, the annual audited financial statements of the
Company certified by the independent public accountants of recognized standing,
and (iii) within
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forty-five (45) days after the end of each of the first three quarters of each
fiscal year, the Company's quarterly, unaudited financial statements.
(f) Restrictions on Public Sale by the Company. Unless
otherwise consented to by the Bank, the Company will not effect any public or
private sale or distribution of its convertible debt or equity securities,
including a sale pursuant to Regulation D under the Securities Act, during the
ten (10) day period prior to, and during the ninety (90) day period beginning
on, the closing date of each underwritten offering by the Company made pursuant
to a registration statement filed pursuant to Sections 11(a) or 11(b); and the
Company shall use its best efforts to cause each holder of its privately placed
convertible debt or equity securities issued by it at any time on or after the
date of this Warrant to agree not to effect any public sale or distribution of
any such securities during such period, including a sale pursuant to Rule 144 or
Rule 144A under the Securities Act.
(g) Preemptive Rights. In the event the Company offers to the
Company's shareholders the right to purchase any securities of the Company, then
all shares of Common Stock issuable pursuant to the Warrants shall be deemed to
be issued and outstanding and held by the Warrantholders and the Warrantholders
shall be entitled to participate in such rights offering.
(h) Compliance with Law. The Company shall comply with all
applicable laws, rules and regulations of the United States and of all states,
municipalities and agencies and of any other jurisdiction applicable to the
Company and shall do all things necessary to preserve, renew and keep in full
force and effect and in good standing its corporate existence and authority
necessary to continue its business.
8. Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon exercise hereof, the Company
shall pay to the Warrantholder an amount in cash equal to such fraction
multiplied by the Current Market Value of one share of Common Stock.
9. Notices of Stock Dividends, Subscriptions, Reclassifications,
Consolidations, Mergers, etc. If at any time: (i) the Company shall declare a
cash dividend (or an increase in the then existing dividend rate), or declare a
dividend on Common Stock payable otherwise than in cash out of its net earnings
after taxes for the prior fiscal year; or (ii) the Company shall authorize the
granting to the holders of Common Stock of rights to subscribe for or purchase
any shares of capital stock of any class or of any other rights; or (iii) there
shall be any capital reorganization, or reclassification, or redemption of the
capital stock of the Company, or consolidation or merger of the Company with, or
sale of all or substantially all of its assets to, another corporation or firm;
or (iv) there shall be a voluntary or involuntary
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<PAGE> 14
dissolution, liquidation or winding up of the Company, then the Company shall
give to the Warrantholders at the addresses of such Warrantholders as shown on
the books of the Company, at least twenty (20) days prior to the applicable
record date hereinafter specified, a written notice summarizing such action or
event and stating the record date for any such dividend or rights (or, if a
record date is not to be selected, the date as of which the holders of Common
Stock of record entitled to such dividend or rights are to be determined), the
date on which any such reorganization, reclassification, consolidation, merger,
sale of assets, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected the holders of Common Stock
of record shall be entitled to effect any exchange of their shares of Common
Stock for cash (or cash equivalent), securities or other property deliverable
upon any such reorganization, reclassification, consolidation, merger, sale of
assets, dissolution, liquidation or winding up.
10. Registered Holder: Transfer of Warrants or Warrant Shares.
(a) Maintenance of Registration Books: Ownership of this
Warrant. The Company shall keep at its principal office a register in which the
Company shall provide for the registration, transfer and exchange of this
Warrant. The Company shall not at any time, except upon the dissolution,
liquidation or winding-up of the Company, close such register so as to result in
preventing or delaying the exercise or transfer of this Warrant.
(b) Exchange and Replacement. This Warrant is exchangeable
upon surrender hereof by the registered holder to the Company at its principal
office for new Warrants of like tenor and date representing in the aggregate the
right to purchase the number of shares purchasable hereunder, each of such new
Warrants to represent the right to purchase such number of shares as shall be
designated by said registered holder at the time of surrender. Subject to
compliance with applicable securities laws, this Warrant and all rights
hereunder are transferable in whole or in part upon the books of the Company by
the registered holder hereof in person or by duly authorized attorney, and new
Warrants shall be made and delivered by the Company, of the same tenor and date
as this Warrant but registered in the name of the transferee(s), upon surrender
of this Warrant, duly endorsed, to said office of the Company. The Company
acknowledges that the Bank intends to transfer this Warrant to the Bank's
parent, subsidiaries, affiliates and/or participant under the Loan Agreement.
Upon receipt by the Company of evidence reasonably satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and upon surrender and
cancellation of this Warrant, if mutilated, the Company will make and deliver a
new Warrant of like tenor, in lieu of this Warrant, without requiring the
posting of any bond or the giving of any other security. This Warrant shall be
promptly cancelled by the Company upon the surrender hereof in connection with
any exchange, transfer or replacement. The Company shall pay all expenses, taxes
and
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other charges payable in connection with the preparation, execution and delivery
of Warrants pursuant to this Section 10.
(c) Warrants and Warrant Shares Not Registered. The holder of
this Warrant, by accepting this Warrant, represents and acknowledges that this
Warrant and the Warrant Shares are not being registered under the Securities Act
on the grounds that the issuance of this Warrant and the offering and sale of
such Warrant Shares are exempt from registration under Section 4(2) of the
Securities Act as not involving any public offering.
11. Registration.
(a) Required Registration. Whenever the Company shall receive
a written request therefor from any holder or holders of at least 10% of the
Registrable Stock, the Company shall promptly prepare and file a registration
statement under the Securities Act covering the Registrable Stock which is the
subject of such request and shall use its best efforts to cause such
registration statement to become effective as expeditiously as possible. Upon
the receipt of such request, the Company shall promptly give written notice to
all holders of Registrable Stock that such registration is to be effected. The
Company shall include in such registration statement such Registrable Stock for
which it has received written requests to register such shares by the holders
thereof within thirty (30) days after the effectiveness of the Company's written
notice to such other holders. Notwithstanding the foregoing, the Company may
delay the filing of a registration statement under this Section 11(a) (other
than a registration statement required to be filed pursuant to Section 2.9 of
the Loan Agreement) for a period of up to sixty (60) days, if in the good faith
judgment of the Board of Directors of the Company such filing would interfere
with pending confidential, nonpublic material negotiations that the Company is
engaged in. The Company shall not be obligated to prepare, file and cause to
become effective more than two (2) registration statements pursuant to this
Section 11(a) (excluding therefrom any registration statement which is withdrawn
prior to effectiveness or otherwise and excluding therefrom any registration
statement pursuant to Section 2.9 of the Loan Agreement). If, in the good faith
judgment of the managing underwriter, if any, of such public offering, the
inclusion of all of the Registrable Stock covered by requests for registration
pursuant to this Section 11(a) would materially and adversely affect the
successful marketing of a lesser amount of Registrable Stock, after giving
priority to the shares of Registrable Stock over all other persons who may
participate in such registration, the number of shares of Registrable Stock
otherwise to be included in the underwritten public offering shall be reduced to
the required level with the participation in such offering to be pro rata among
the holders of Registrable Stock requesting such registration, based upon the
number of shares of Registrable Stock owned by such holders; and those shares
which are excluded from the underwritten public offering shall be withheld from
the market by the holders thereof for a period, not to exceed ninety (90) days,
which the managing underwriter
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<PAGE> 16
reasonably determines is necessary in order to effect the underwritten public
offering. Anything contained herein to the contrary notwithstanding, neither the
Company nor any other holder of securities of the Company may include securities
in any registration statement filed pursuant to Section 2.9 of the Loan
Agreement without the written consent of the Bank.
(b) Incidental Registration. Each time the Company shall
determine to file a registration statement under the Securities Act (other than
on Form S-8 or Form S-4) in connection with the proposed offer and sale for
money of any of its securities by it or by any of its security holders, the
Company will give written notice of its determination to all holders of
Registrable Stock. Upon the written request of a holder of any Registrable
Stock, the Company will cause all such Registrable Stock, the holders of which
have so requested registration thereof, to be included in such registration
statement, all to the extent requisite to permit the sale or other disposition
by the prospective seller or sellers of the Registrable Stock to be so
registered in accordance with the terms of the proposed offering. If the
registration statement is to cover an underwritten distribution, the Company
shall use its best efforts to cause the Registrable Stock requested for
inclusion pursuant to this Section 11(b) to be included in the underwriting on
the same terms and conditions as the securities otherwise being sold through the
underwriters. If, in the good faith judgment of the managing underwriter of such
public offering, the inclusion of all of the Registrable Stock requested to be
registered would materially and adversely affect the successful marketing of the
other shares proposed to be offered, then the amount of the Registrable Stock to
be included in the offering shall be reduced and the Registrable Stock and the
other shares to be offered shall participate in such offering as follows: the
shares to be sold by the Company shall receive priority along with, if the
registration statement is filed because of the exercise of demand registration
rights by one or more shareholders, the shares to be sold by such
shareholder(s), and the Registrable Stock and any other shares of Common Stock
to be included in such offering shall be reduced pro rata in proportion to the
number of shares of Common Stock proposed to be included in such offering by
each holder of such shares.
(c) Registration Procedures. If and whenever the Company is
required by the provisions of Section 11(a) or 11(b) to effect the registration
of Registrable Stock under the Securities Act, the Company will, at its expense,
as expeditiously as possible:
(i) In accordance with the Securities Act and the
rules and regulations of the Commission, prepare and file with the Commission a
registration statement on the form of registration statement appropriate with
respect to such securities and use its best efforts to cause such registration
statement to become and remain effective until the securities covered by such
registration statement have been sold, and prepare and file with the Commission
such amendments to such registration statement and supplements to the prospectus
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<PAGE> 17
contained therein as may be necessary to keep such registration statement
effective and such registration statement and prospectus accurate and complete
until the securities covered by such registration statement have been sold;
(ii) If the offering is to be underwritten, in whole
or in part, enter into a written underwriting agreement with the holders of the
Registrable Stock participating in such offering and the underwriter in form and
substance reasonably satisfactory to the managing underwriter of the public
offering and the holders of the Registrable Stock participating in such
offering;
(iii) Furnish to the holders of securities
participating in such registration and to the underwriters of the securities
being registered such reasonable number of copies of the registration statement,
preliminary prospectus, final prospectus and such other documents as such
underwriters and holders may reasonably request in order to facilitate the
public offering of such securities;
(iv) Use its best efforts to register or qualify the
securities covered by such registration statement under such state securities or
blue sky laws of such jurisdictions as such participating holders and
underwriters may reasonably request;
(v) Notify the holders participating in such
registration, promptly after it shall receive notice thereof, of the date and
time when such registration statement and each post-effective amendment thereto
has become effective or a supplement to any prospectus forming a part of such
registration statement has been filed;
(vi) Notify such holders promptly of any request by
the Commission for the amending or supplementing of such registration statement
or prospectus or for additional information;
(vii) Prepare and file with the Commission, promptly
upon the request of any such holders, any amendments or supplements to such
registration statement or prospectus which, in the opinion of counsel for such
holders, is required under the Securities Act or the rules and regulations
thereunder in connection with the distribution of the Registrable Stock by such
holders;
(viii) Prepare and promptly file with the Commission,
and promptly notify such holders of the filing of, such amendments or
supplements to such registration statement or prospectus as may be necessary to
correct any statements or omissions if, at the time when a prospectus relating
to such securities is required to be delivered under the Securities Act, any
event has occurred as the result of which any such prospectus or any other
prospectus as then in effect may include an
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untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading;
(ix) In case any of such holders or any underwriter
for any such holders is required to deliver a prospectus at a time when the
prospectus then in circulation is not in compliance with the Securities Act or
the rules and regulations of the Commission, prepare promptly upon request such
amendments or supplements to such registration statement and such prospectus as
may be necessary in order for such prospectus to comply with the requirements of
the Securities Act and such rules and regulations;
(x) Advise such holders, promptly after it shall
receive notice or obtain knowledge thereof, of the issuance of any stop order by
the Commission suspending the effectiveness of such registration statement or
the initiation or threatening of any proceeding for that purpose and promptly
use its best efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued;
(xi) If requested by the managing underwriter or
underwriters or a holder of Registrable Stock being sold in connection with an
underwritten offering, immediately incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriters and the
holders of a majority of the Registrable Stock being sold agree should be
included therein relating to the plan of distribution with respect to such
Registrable Stock, including information with respect to the Registrable Stock
being sold to such underwriters, the purchase price being paid therefor by such
underwriters and with respect to any other terms of the underwritten (or best
efforts underwritten) offering of the Registrable Stock to be sold in such
offering; and make all required filings of such prospectus supplement or
post-effective amendment as soon as notified of the matters to be incorporated
in such prospectus supplement or post-effective amendment;
(xii) Cooperate with the selling holders of
Registrable Stock and the managing underwriters, if any, to facilitate the
timely preparation and delivery of certificates representing Registrable Stock
to be sold and not bearing any restrictive legends; and enable such Registrable
Stock to be in such denominations and registered in such names as the managing
underwriters may request at least two business days prior to any sale of
Registrable Stock to the underwriters;
(xiii) So long as Registrable Stock is being sold
pursuant to the registration statement, prepare a prospectus supplement or
post-effective amendment to the registration statement or the related prospectus
or any document incorporated therein by reference or file any other required
documents so that, as thereafter delivered to the purchasers of the Registrable
Stock, the prospectus will not
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contain an untrue statement of material fact or omit to state any material fact
necessary to make the statements therein not misleading;
(xiv) Use its best efforts to enter into such
agreements (including an underwriting agreement) and take all such other actions
in connection therewith in order to expedite or facilitate the disposition of
such Registrable Stock and in such connection, whether or not an underwriting
agreement is entered into and whether or not the registration is an underwritten
registration:
(A) make such representations and warranties
to the holders of such Registrable Stock and the underwriters, if any, in form,
substance and scope as are customarily made by issuers to underwriters in
primary underwritten offerings;
(B) If an underwriting agreement is entered
into, the same shall set forth in full the indemnification provisions and
procedures of Section 11(e) hereof with respect to all parties to be indemnified
pursuant to said Section; and
(C) The Company shall deliver such documents
and certificates as may be requested by the holders of the majority of the
Registrable Stock being sold and the managing underwriters, if any, to evidence
compliance with the terms of this Section 11(c) and with any customary
conditions contained in the underwriting agreement or other agreement entered
into by the Company.
The above shall be done at each closing under such underwriting or similar
agreement or as and to the extent required thereunder;
(xv) Make available for inspection by a
representative of the holders of a majority of the Registrable Stock, any
underwriter participating in any disposition pursuant to a registration
statement, and any attorney or accountant retained by the sellers or
underwriter, all financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such
representative, underwriter, attorney or accountant in connection with the
preparation of the registration statement; provided, that any records,
information or documents that are designated by the Company in writing as
confidential shall be kept confidential by such persons unless disclosure of
such records, information or documents is required by court or administrative
order;
(xvi) Otherwise use its best efforts to comply with
all applicable rules and regulations of the Commission, and as soon as
practicable after the effective date of a registration statement make generally
available to the Company's security holders, an earnings statement of the
Company, conforming with
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the requirements of Section 11(a) of the Securities Act and Rule 158 under the
Securities Act, covering a period of at least twelve (12) months beginning after
the effective date of the registration statement;
(xvii) Not file any amendment or supplement to such
registration statement or prospectus to which a majority in interest of such
holders has objected on the grounds that such amendment or supplement does not
comply in all material respects with the requirements of the Securities Act or
the rules and regulations thereunder, after having been furnished with a copy
thereof at least five (5) business days prior to the filing thereof; provided,
however, that the failure of such holders or their counsel to review or object
to any amendment or supplement to such registration statement or prospectus
shall not affect the rights of such holders or any controlling person or persons
thereof or any underwriter or underwriters therefor under Section 11(e) hereof;
and
(xviii) At the request of any such holder (i) furnish
to such holder on the effective date of the registration statement or, if such
registration includes an underwritten public offering, at the closing provided
for in the underwriting agreement, an opinion in usual and customary form, dated
such date, of the counsel representing the Company for the purposes of such
registration, addressed to the underwriters, if any, and to the holder or
holders making such request, and (ii) use its best effort to furnish to such
holder letters dated each such effective date and such closing date, from the
independent certified public accountants of the Company, addressed to the
underwriters, if any, and to the holder or holders making such request, stating
that they are independent certified public accountants within the meaning of the
Securities Act and dealing with such matters as the underwriters may request,
or, if the offering is not underwritten, that in the opinion of such accountants
the financial statements and other financial data of the Company included in the
registration statement or the prospectus or any amendment or supplement thereto
comply in all material respects with the applicable accounting requirements of
the Securities Act, and additionally covering such other financial matters,
including information as to the period ending immediately prior to the date of
such letter with respect to the registration statement and prospectus, as such
requesting holder or holders may reasonably request.
(d) Expenses of Registration. All expenses incident to the
Company's performance of or compliance with this Warrant, including, without
limitation, the following shall be borne by the Company, regardless of whether
the registration statement becomes effective:
(i) All registration and filing fees (including those
with respect to filings required to be made with the National Association of
Securities Dealers, Inc.);
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(ii) Fees and expenses of compliance with all
securities or blue sky laws (including fees and disbursements of counsel for the
underwriters or selling holders in connection with blue sky qualifications of
the Registrable Stock and in determination of their eligibility for investment
under the laws of such jurisdictions as the managing underwriters or holders of
a majority of the Registrable Stock being sold may designate);
(iii) Printing, messenger, telephone and delivery
expenses;
(iv) Fees and disbursements of counsel for the
Company, the underwriters and for the sellers of the Registrable Stock as
hereinafter provided;
(v) Fees and disbursements of all independent
certified public accountants of the Company (including the expenses of any
special audit and "comfort" letters required by or incident to such
performance);
(vi) Fees and disbursements of underwriters engaged
by the Company (excluding discounts, commissions or fees of underwriters,
selling brokers, dealer managers or similar securities industry professionals
relating to the distribution of the Registrable Stock or legal expenses of any
person other than the Company and the selling holders); and
(vii) Fees and expenses of other persons retained by
the Company.
Notwithstanding the foregoing, in the event the
holders of Registrable Stock request a registration pursuant to Section 11(a)
and such registration is withdrawn at the request of such holders for reasons
other than a material problem with the Company, such holders shall reimburse the
Company for reasonable expenses incurred by the Company in connection with such
registration.
The Company will, in any event, pay its internal
expenses (including without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit, the fees and expenses incurred in connection with the listing
of the securities to be registered on each securities exchange on which similar
securities issued by the Company are then listed, rating agency fees and the
fees and expenses of any person, including special experts, retained by the
Company.
In connection with each registration statement
hereunder, the Company will reimburse the holders of Registrable Stock being
registered pursuant to the registration statement for the reasonable fees and
disbursements of
21
<PAGE> 22
not more than one counsel (or more than one counsel if conflict exists among
such selling holders in the exercise of the reasonable judgment of counsel for
the selling holders and counsel for the Company) chosen by the holders of a
majority of such Registrable Stock; provided, however, that the Company shall
not be obligated to reimburse the holders for fees and disbursements in excess
of $10,000 per registration statement or $42,500 in the aggregate.
(e) Indemnification.
(i) The Company hereby agrees to indemnify each of
the holders of Registrable Stock against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any registration statement, preliminary or final prospectus, or other document
incident to any such registration, qualification or compliance (or in any
related registration statement, notification or the like) or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or any violation by
the Company of any rule or regulation promulgated under the Securities Act
applicable to the Company and relating to action or inaction required of the
Company in connection with any such registration, qualification or compliance,
and to reimburse the holders of Registrable Stock (including officers and
directors of the same and controlling persons) for any legal and any other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action, provided, however, that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage or liability arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company by
Warrantholders in an instrument duly executed by Warrantholders and stated to be
specifically for use therein.
(ii) The Warrantholders severally and not jointly
agree to indemnify the Company and its officers and directors and each person,
if any, who controls any thereof within the meaning of Section 15 of the
Securities Act and their respective successors against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement of a material fact contained in any prospectus, offering
circular or other document incident to any registration, qualification or
compliance relating to securities purchased pursuant to the Warrants (or in any
related registration statement, notification or the like) or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading and will reimburse
the Company and each other person indemnified pursuant to this subsection (ii)
for any legal and any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action;
provided, however, that this subsection (ii) shall apply only if (and only to
the extent that) such statement or omission was made in reliance upon
information (including, without limitation, written
22
<PAGE> 23
negative responses to inquiries) furnished to the Company by an instrument duly
executed by Warrantholders and stated to be specifically for use in such
prospectus, or other document (or related registration statement, notification
or the like) or any amendment or supplement thereto.
(iii) Each party entitled to indemnification
hereunder (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party (at such Indemnifying Party's
expense) to assume the defense of any claim or any litigation resulting
therefrom, provided that counsel for the Indemnifying Party, who shall conduct
the defense of such claim or litigation, shall be satisfactory to the
Indemnified Party, and the Indemnified Party may participate in such defense at
such party's expense, and provided, further, that the omission by any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 11(e) except to the
extent that the omission results in a failure of actual notice to the
Indemnifying Party and such Indemnifying Party is materially damaged solely as a
result of the failure to give notice. No Indemnifying Party, in the defense of
any such claim or litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
to such claim or litigation.
(iv) If the indemnification provided for in this
Section 11(e) is unavailable or insufficient to hold harmless an Indemnified
Party in respect of any losses, claims, damages, liabilities, expenses or
actions in respect thereof referred to herein, then the Indemnifying Party shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages, liabilities, expenses or actions in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party on the one hand, and the Indemnified Party on the other, in connection
with the statements or omissions which resulted in such losses, claims, damages,
liabilities, expenses or actions as well as any other relevant equitable
considerations, including the failure to give the notice required hereunder. The
relative fault of the Indemnifying Party and the Indemnified Party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact relates to information supplied by the
Indemnifying Party or the Indemnified Party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Warrantholders agree that it would
not be just and equitable if contributions pursuant to this Section 11(e) were
determined by pro rata allocation or by any other method of allocation which did
not take account of the equitable considerations referred to above. The amount
paid or payable to an Indemnified Party as a result of the losses, claims,
damages, liabilities or actions in respect thereof,
23
<PAGE> 24
referred to above, shall be deemed to include any legal or other expenses
reasonably incurred by such Indemnified Party in connection with investigating
or defending any such action or claim. Notwithstanding the contribution
provisions of this Section 11(e), in no event shall the amount contributed by
any seller of Registrable Stock exceed the aggregate net offering proceeds
received by such seller from the sale of Registrable Stock to which such
contribution or indemnification claim relates. No person guilty of fraudulent
misrepresentations (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation.
(v) The indemnification required by this Section
11(e) shall be made by periodic payments during the course of the investigation
or defense, as and when bills are received or expenses incurred. Anything
contained herein to the contrary notwithstanding, the liability of any holder of
Registrable Stock under this Section 11(e) shall not exceed the amount of the
net proceeds actually received by such holder from the sale of its Registrable
Stock pursuant to the registration, qualification, notification or compliance in
respect of which such liability arose.
(f) Reporting Requirements Under Exchange Act. The Company
shall maintain the registration of its Common Stock under Section 12 of the
Exchange Act and shall keep effective such registration and shall timely file
such information, documents and reports as the Commission may require or
prescribe under Section 13 of the Exchange Act, or otherwise. The Company shall
forthwith upon request furnish any holder of Registrable Stock (i) a written
statement by the Company that it has complied with such reporting requirements,
(ii) a copy of the most recent annual or quarterly report of the Company, and
(iii) such other reports and documents filed by the Company with the Commission
as such holder may reasonably request in availing itself of an exemption for the
sale of Registrable Stock without registration under the Securities Act. The
Company acknowledges and agrees that the purpose of the requirements contained
in this Section 11(f) is to enable any such holder to comply with the current
public information requirement contained in Rule 144 under the Securities Act
should such holder ever wish to dispose of any of the securities of the Company
acquired by it without registration under the Securities Act in reliance upon
Rule 144 (or any other similar exemptive provision). In addition, the Company
shall take such other measures and file such other information, documents and
reports as shall hereafter be required by the Commission as a condition to the
availability of Rule 144 and Rule 144A under the Securities Act (or any similar
exemptive provision hereafter in effect).
(g) Stockholder Information. The Company may require each
holder of Registrable Stock as to which any registration is to be effected
pursuant to this Section 11 to furnish the Company such information with respect
to such holder and the distribution of such Registrable Stock as shall be
required by law or by the Commission in connection therewith.
24
<PAGE> 25
12. Representation and Warranties. The Company hereby represents and
warrants to and covenants with the Bank, each Warrantholder, and each holder of
Warrant Shares that:
(a) Organization and Capitalization of the Company. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of California. As of the date hereof, the authorized
capital of the Company consists of 10,000,000 shares of Common Stock and
1,000,000 shares of Preferred Stock, of which 3,989,815 shares of Common Stock
and no shares of Preferred Stock are issued and outstanding. The Company has,
and at all times during the Exercise Period will have, reserved for issuance
pursuant to the Warrants and the Loan Agreement that number of shares of Common
Stock that are issuable pursuant to the Warrants and the Loan Agreement. All the
outstanding shares of Common Stock and Preferred Stock have been validly issued
without violation of any preemptive or similar rights, are fully paid and
nonassessable and have been issued in compliance with all federal and applicable
state securities laws.
(b) Authority. The Company has full corporate power and
authority to execute and deliver this Warrant, to issue the shares of Common
Stock issuable upon exercise of this Warrant and pursuant to the Loan Agreement,
and to perform all of its obligations hereunder, and the execution, delivery and
performance hereof has been duly authorized by all necessary corporate action on
its part. This Warrant has been duly executed on behalf of the Company and
constitutes the legal, valid and binding obligation of the Company enforceable
in accordance with its terms.
(c) No Legal Bar. Neither the execution, delivery or
performance of this Warrant nor the issuance of the shares of Common Stock
issuable upon exercise of this Warrant or pursuant to the Loan Agreement will
(a) conflict with or result in a violation of the Certificate of Incorporation
or By-Laws of the Company, (b) conflict with or result in a violation of any
law, statute, regulation, order or decree applicable to the Company or any
affiliate, (c) require any consent or authorization or filing with, or other act
by or in respect of any governmental authority or (d) result in a breach of,
constitute a default under or constitute an event creating rights of
acceleration, termination or cancellation under any mortgage, lease, contract,
franchise, instrument or other agreement to which the Company is a party or by
which it is bound.
(d) Validity of Shares. When issued upon the exercise of this
Warrant as contemplated herein or pursuant to the Loan Agreement, the shares of
Common Stock so issued will have been validly issued and will be fully paid and
nonassessable. On the date hereof, the par value of the Common Stock is less
than the Exercise Price per share of Common Stock.
25
<PAGE> 26
13. Continuing Validity. The Company will, at any time upon the request
of the Bank or a holder of the Warrant Shares, acknowledge in writing, in form
reasonably satisfactory to Bank or such holder, the Company's continuing
obligation to afford to the Bank or such holder all rights to which the Bank or
such holder shall continue to be entitled in accordance with the provisions of
this Warrant, including those which survive any exercise of this Warrant;
provided, however, that if the Bank or such holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to the Bank and such holder all such rights.
14. Miscellaneous Provisions.
(a) Notice of Expiration. The Company shall give written
notice to the Warrantholders, specifically advising them of the Expiration Date
and of their right to exercise the Warrants not more than one hundred eighty
(180) days and not less than ninety (90) days before the Expiration Date. If
such written notice is not so given, the Expiration Date shall automatically be
extended until ninety (90) days after the date that the Company gives the
Warrantholders such written notice.
(b) Governing Law; Arbitration. The validity of this Warrant,
the construction, interpretation, and enforcement thereof, and the rights of the
parties thereto shall be determined under, governed by, and construed in
accordance with the internal laws of the State of Delaware, without regard to
principles of conflicts of law. Any dispute arising out of or relating to this
Warrant shall be resolved by binding arbitration in Los Angeles, California in
accordance with the rules and regulations of the American Arbitration
Association.
(c) Notices. All notices hereunder shall be in writing and
shall be deemed to have been given five (5) days after being mailed by certified
mail, or one (1) business day after being sent by a reputable overnight delivery
service, addressed to the address below stated of the party to which notice is
given, or to such changed address as such party may have fixed by notice:
To the Company: Unison HealthCare Corporation
7272 East Indian School Road, Suite 214
Scottsdale, Arizona 85251
Attention: Chief Financial Officer
With a copy (which
shall not constitute
notice) to: P. Robert Moya, Esq.
Quarles & Brady
One East Camelback Road
Suite 400
26
<PAGE> 27
Phoenix, Arizona 85012
To the
Warrantholders
or holder of
Warrant Shares: Imperial Bank
201 North Figueroa Street
Los Angeles, California 90012
Attention: Mark W. Campbell
With a copy (which
shall not constitute
notice) to: Richard M. Baker, Esq.
Senior Vice President and General Counsel
IMPERIAL BANK
9920 South La Cienega Boulevard
Inglewood, CA 90301
provided, however, that any notice of change of address shall be effective only
upon receipt.
(d) Successors and Assigns. This Warrant shall be binding upon
and inure to the benefit of the Company, the Bank, the Warrantholders and the
holders of Warrant Shares and the successors, assigns and transferees of the
Company, the Bank, the Warrantholders and the holders of Warrant Shares.
(e) Attorneys' Fees. If any legal action or other proceeding
is brought for the enforcement of this Warrant, or because of an alleged
dispute, breach, default, or misrepresentation in connection with any of the
provisions of this Warrant, the successful or prevailing party or parties shall
be entitled to recover such reasonable attorneys' fees and other costs incurred
in that action or proceeding, in addition to any other relief to which it or
they may be entitled, as may be ordered in connection with such proceeding.
(f) Entire Agreement: Amendments and Waivers. This Warrant
sets forth the entire understanding of the parties with respect to the
transactions contemplated hereby. The failure of any party to seek redress for
the violation or to insist upon the strict performance of any term of this
Warrant shall not constitute a waiver of such term and such party shall be
entitled to enforce such term without regard to such forbearance. This Warrant
may be amended, the Company may take any action herein prohibited or omit to
take action herein required to be performed by it, and any breach of or
compliance with any covenant, agreement, warranty or representation may be
waived, only if the Company has obtained the
27
<PAGE> 28
written consent or written waiver of the majority in interest of the
Warrantholders, and then such consent or waiver shall be effective only in the
specific instance and for the specific purpose for which given.
(g) Severability. If any term of this Warrant as applied to
any person or to any circumstance is prohibited, void, invalid or unenforceable
in any jurisdiction, such term shall, as to such jurisdiction, be ineffective to
the extent of such prohibition or invalidity without in any way affecting any
other term of this Warrant or affecting the validity or enforceability of this
Warrant or of such provision in any other jurisdiction.
(h) Headings. The headings in this Warrant are inserted only
for convenience of reference and shall not be used in the construction of any of
its terms.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officers effective as of the date first set forth above.
UNISON HEALTHCARE CORPORATION,
a Delaware corporation
By
---------------------------------
Name:
----------------------------
Title:
---------------------------
28
<PAGE> 1
EXHIBIT 10.104
================================================================================
LOAN AGREEMENT
dated as of
August 16, 1996
between
UNISON HEALTHCARE CORPORATION
("Borrower")
and
IMPERIAL BANK
("Bank")
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
ARTICLE I
DEFINITIONS AND INTERPRETATIONS ............. 1
1.1 Definitions .................................................... 1
Affiliate ...................................................... 1
Agreement ...................................................... 1
Asset .......................................................... 1
Asset Sale ..................................................... 1
Bank ........................................................... 1
Bank Expenses .................................................. 1
Bankruptcy Code ................................................ 2
Borrower ....................................................... 2
Business Day ................................................... 2
Capital Expenditures ........................................... 2
Capitalized Lease .............................................. 2
Capitalized Lease Obligations .................................. 2
Change of Control .............................................. 2
Closing Date ................................................... 2
Compliance Certificate ......................................... 2
Consolidated Net Income ........................................ 3
Consolidated Net Worth ......................................... 3
Contingent Payment Agreement ................................... 3
Conversion Date ................................................ 3
Coverage Ratio ................................................. 3
Debt ........................................................... 3
"Dollars" or "$" ............................................... 3
EBITDA ......................................................... 3
Environmental Laws ............................................. 3
ERISA .......................................................... 4
ERISA Group .................................................... 4
Event of Default ............................................... 4
Financial Statement(s) ......................................... 4
Funding Fees ................................................... 4
GAAP ........................................................... 4
Governmental Authority ......................................... 4
Hazardous Materials ............................................ 4
Healthpartners ................................................. 5
Insolvency Proceeding .......................................... 5
Interest Expense ............................................... 5
Internal Revenue Code .......................................... 5
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Lease Expense ................................................. 5
Lien .......................................................... 5
Loan Document(s) .............................................. 5
Loan One ...................................................... 6
"Loan One Funding Fee" and "Loan Two Funding Fee" ............. 6
Loan Two ...................................................... 6
Loans ......................................................... 6
Material Adverse Effect ....................................... 6
Maturity Date ................................................. 6
Multiemployer Plan ............................................ 6
Note One ...................................................... 6
Note Two ...................................................... 6
Notes ......................................................... 6
Obligations ................................................... 6
Participant ................................................... 7
PBGC .......................................................... 7
Permitted Debt ................................................ 7
Permitted Liens ............................................... 7
Permitted Transaction ......................................... 7
Person ........................................................ 7
Plan .......................................................... 7
Responsible Officer ........................................... 8
Solvent ....................................................... 8
Stipulated Number of Shares ................................... 8
Stock Pledge Agreement (Direct Subsidiary) .................... 8
Stock Pledge Agreement (Indirect Subsidiary) .................. 8
Stock Pledge Agreements ....................................... 8
Subsidiary .................................................... 8
Subordination Agreement ....................................... 9
Subordinated Note ............................................. 9
Swaps ......................................................... 9
Taxes ......................................................... 9
Transferee .................................................... 9
Unfunded Liabilities .......................................... 9
Unmatured Event of Default .................................... 9
Warrant One ................................................... 9
Warrants ...................................................... 9
Warrant Two ................................................... 10
Whitehead ..................................................... 10
1.2 Accounting Terms and Determinations ........................... 10
1.3 Computation of Time Periods ................................... 10
1.4 Construction .................................................. 10
1.5 Exhibits and Schedules ........................................ 10
1.6 No Presumption Against Any Party .............................. 10
1.7 Independence of Provisions .................................... 11
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE II
TERMS OF THE LOAN ................... 11
2.1 The Loan ...................................................... 11
2.2 Prepayments ................................................... 11
2.3 Interest Rates; Payments of Interest .......................... 11
2.4 Note; Statements of Obligations ............................... 12
2.5 Holidays ...................................................... 12
2.6 Time and Place of Payments .................................... 13
2.7 Funding Fees .................................................. 13
2.8 Maturity Date ................................................. 13
2.9 Bank's Option to Convert Loans ................................ 13
ARTICLE III
CONDITIONS PRECEDENT .................. 14
3.1 Conditions to Loan One ........................................ 14
3.2 Conditions to Loan Two ........................................ 16
ARTICLE IV
REPRESENTATIONS AND WARRANTIES ............. 17
4.1 Legal Status .................................................. 17
4.2 No Violation; Compliance ...................................... 17
4.3 Authorization; Enforceability ................................. 18
4.4 Approvals; Consents ........................................... 18
4.5 Liens ......................................................... 18
4.6 Debt .......................................................... 18
4.7 Litigation .................................................... 18
4.8 No Default .................................................... 18
4.9 Subsidiaries .................................................. 18
4.10 Taxes ......................................................... 18
4.11 Correctness of Financial Statements ........................... 19
4.12 ERISA ......................................................... 19
4.13 Other Obligations ............................................. 19
4.14 Public Utility Holding Company Act ............................ 19
4.15 Investment Company Act ........................................ 19
4.16 Licenses, Patents, Trademarks, Copyrights, and Intellectual
Property, etc ................................................. 19
4.17 Environmental Condition ....................................... 20
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
ARTICLE V
AFFIRMATIVE COVENANTS ................. 20
5.1 Punctual Payments ............................................. 20
5.2 Books and Records ............................................. 20
5.3 Financial Statements .......................................... 20
5.4 Existence; Compliance with Law ................................ 21
5.5 Insurance ..................................................... 21
5.6 Assets ........................................................ 22
5.7 Taxes and Other Liabilities ................................... 22
5.8 Notice to Bank ................................................ 22
5.9 Further Assurances ............................................ 23
ARTICLE VI
NEGATIVE COVENANTS ..................... 23
6.1 Use of Funds; Margin Regulation ............................... 23
6.2 Debt .......................................................... 23
6.3 Liens ......................................................... 23
6.4 Merger, Consolidation, Transfer of Assets ..................... 23
6.5 Leases ........................................................ 24
6.6 Sales and Leasebacks .......................................... 24
6.7 Asset Sales ................................................... 24
6.8 Investments ................................................... 24
6.9 Character of Business ......................................... 24
6.10 Dividends and Distributions ................................... 24
6.11 Guaranty ...................................................... 24
6.12 Financial Condition ........................................... 25
(a) Coverage Ratio .......................................... 25
(b) Net Worth ............................................... 25
6.13 Transactions with Affiliates .................................. 25
6.14 Change of Control ............................................. 25
6.15 Stock Issuance ................................................ 25
6.16 Subordinated Debt ............................................. 25
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES ............... 26
7.1 Events of Default ............................................. 26
7.2 Remedies ...................................................... 27
7.3 Remedies Cumulative ........................................... 27
</TABLE>
iv
<PAGE> 6
<TABLE>
<S> <C>
ARTICLE VIII
TAXES ......................... 28
8.1 Taxes on Payments ............................................. 28
ARTICLE IX
MISCELLANEOUS ....................... 28
9.1 Notices ....................................................... 28
9.2 No Waivers .................................................... 28
9.3 Bank Expenses; Documentary Taxes; Indemnification ............. 28
9.4 Amendments and Waivers ........................................ 30
9.5 Successors and Assigns; Participations; Disclosure ............ 30
9.6 Counterparts; Integration ..................................... 31
9.7 Severability .................................................. 31
9.8 Governing Law; Jurisdiction ................................... 31
9.9 Waiver of Jury Trial .......................................... 32
</TABLE>
v
<PAGE> 7
EXHIBITS AND SCHEDULES
Exhibit 1.1N - Form of Note Two
Exhibit 1.1S-1 - Form of Security Agreement - Stock Pledge (Direct
Subsidiary)
Exhibit 1.1S-2 - Form of Security Agreement - Stock Pledge (Indirect
Subsidiary)
Exhibit 1.1W - Form of Warrant Two
Exhibit 3.1(b) - Form of Opinion of Borrower's Counsel
Exhibit 5.3(b) - Form of Compliance Certificate
Schedule 1.1P-1 - Permitted Debt
Schedule 1.1P-2 - Permitted Transactions
Schedule 4.7 - Litigation
Schedule 4.9 - Subsidiaries
Schedule 6.5 - Leases
vi
<PAGE> 8
LOAN AGREEMENT
This LOAN AGREEMENT, dated as of August 16, 1996, is entered into
between Borrower and Bank.
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATIONS
1.1 Definitions. The following terms, as used herein, shall have the
following meanings:
"Affiliate" means any Person (i) that, directly or indirectly,
controls, is controlled by or is under common control with Borrower or any
Subsidiary; (ii) which directly or indirectly beneficially owns or controls five
percent (5%) or more of any class of voting stock of Borrower or any Subsidiary;
or (iii) five percent (5%) or more of the voting stock of which is directly or
indirectly beneficially owned or held by Borrower or any Subsidiary. For
purposes of the foregoing, "control" (including "controlled by" and "under
common control with") shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
"Agreement" means this Loan Agreement, together with any concurrent or
subsequent rider, amendment, schedule or exhibit to this Loan Agreement.
"Asset" means any interest of a Person in any kind of property or
asset, whether real, personal, or mixed real and personal, and whether tangible
or intangible.
"Asset Sale" means any sale, transfer or other disposition of
Borrower's or any Subsidiary's businesses or Asset(s) now owned or hereafter
acquired, including shares of stock and indebtedness of any Subsidiary,
receivables and leasehold interests.
"Bank" means Imperial Bank, a California banking corporation.
"Bank Expenses" means all costs or expenses paid or advanced by Bank
which are required to be paid by Borrower under this Agreement and the Loan
Documents; taxes and insurance premiums of every nature and kind of Borrower
paid by Bank; appraisal, filing, recording, documentation, publication and
search fees paid or incurred by Bank to correct any default or enforce any
provision of this Agreement and the Loan Documents; costs and expenses of suit,
arbitration or judicial reference proceeding incurred by Bank in enforcing or
defending this Agreement, or any portion hereof, and attorneys' fees (including
attorneys' fees incurred pursuant to proceedings
1
<PAGE> 9
arising under the Bankruptcy Code) and expenses incurred by Bank in structuring,
drafting, reviewing, amending, terminating, enforcing, defending or concerning
this Agreement and all other documents executed in connection herewith, whether
or not suit is brought. All Bank Expenses paid or incurred by Bank shall be
considered to be, and shall become, a part of the Obligations and shall be
payable on demand as set forth in Section 9.3(a).
"Bankruptcy Code" means The Bankruptcy Reform Act of 1978 (Pub. L. No.
95-598; 11 U.S.C.), as amended or supplemented from time to time, or any
successor statute, and any and all rules and regulations issued or promulgated
in connection therewith.
"Borrower" means Unison HealthCare Corporation, a Delaware corporation.
"Business Day" means any day other than a Saturday, a Sunday, or a day
on which commercial banks in the City of Los Angeles, California are authorized
or required by law or executive order or decree to close.
"Capital Expenditures" means expenditures made in cash, or financed
with long term debt, by any Person for the acquisition of any fixed Assets or
improvements, replacements, substitutions, or additions thereto that have a
useful life of more than one (1) year, including the direct or indirect
acquisition of such Assets by way of increased product or service charges,
offset items, or otherwise, and the principal portion of payments with respect
to Capitalized Lease Obligations.
"Capitalized Lease" means any lease of an Asset by a Person as lessee
which would, in conformity with GAAP, be required to be accounted for as a
capital lease on the balance sheet of that Person.
"Capitalized Lease Obligations" of a Person means the amount of the
obligations of such Person under all Capitalized Leases which would be shown as
a liability on a balance sheet of such Person prepared in accordance with GAAP.
"Change of Control" shall be deemed to have occurred at such time as
any "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of
the Securities Exchange Act of 1934) becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934), directly or
indirectly, of more than ten percent (10%) of the total voting power of all
classes of stock then outstanding of Borrower normally entitled to vote in the
election of directors.
"Closing Date" means the date when all of the conditions set forth in
Section 3.1 have been fulfilled to the satisfaction of Bank and its counsel.
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"Compliance Certificate" means a certificate of compliance to be
delivered monthly in accordance with Section 5.3(b), substantially in the form
of Exhibit 5.3(b).
"Consolidated Net Income" means, with respect to any period, the
consolidated net income of Borrower and the Subsidiaries reflected on Borrower's
Financial Statement for such period, prepared in accordance with GAAP.
"Consolidated Net Worth" means, as of the date of determination,
Borrower's and the Subsidiaries' consolidated net worth calculated in accordance
with GAAP.
"Contingent Payment Agreement" means that certain Contingent Payment
Agreement, dated as of August 10, 1995, among, Borrower, BritWill HealthCare
Company, a Delaware corporation, and Whitehead, and any amendments or
restatements thereof.
"Conversion Date" shall mean the earlier of: (i) the first day after
the Maturity Date, or (ii) the date upon which an Event of Default has occurred.
"Coverage Ratio" means as of the last day of each month, the ratio of
(i) the product of four times the sum of (x) EBITDA for the trailing three month
period plus (y) the Lease Expense for the trailing three month period to (ii)
the sum of (1) the product of four times the sum of (x) the Interest Expense for
the trailing three month period plus (y) the Lease Expense for the trailing
three month period, plus (2) current maturities of Borrower's long term debt as
determined by GAAP, V us (3) all amounts of principal paid on demand notes.
"Debt" means, as of the date of determination, the sum, but without
duplication, of any and all of a Person's: (i) indebtedness heretofore or
hereafter created, issued, incurred or assumed by such Person (directly or
indirectly) for or in respect of money borrowed; (ii) Capitalized Lease
Obligations; (iii) obligations evidenced by bonds, debentures, notes, or other
similar instruments; (iv) obligations for the deferred purchase price of
property or services (excluding trade payables); (v) current liabilities in
respect of unfunded vested benefits under any Plan; (vi) obligations under
letters of credit; (vii) obligations under acceptance facilities; (viii)
obligations under all guaranties, endorsements (other than for collection or
deposit in the ordinary course of business), and other contingent obligations to
purchase, to provide funds for payment, or supply funds to invest in any other
Person, or otherwise to assure a creditor against loss; (ix) obligations secured
by any Lien, whether or not such obligations have been assumed; and (x) Swaps.
"Dollars" or "$" means lawful currency of the United States of America.
"EBITDA" means, for any period, the sum of Borrower's and the
Subsidiaries' Consolidated Net Income, Interest Expense, income tax expense,
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depreciation, amortization and extraordinary losses, minus the sum of any gains,
if any, on the sale of Assets and extraordinary income, determined in accordance
with GAAP.
"Environmental Laws" means all federal, state or local laws, statutes,
common law duties, rules, regulations, ordinances and codes, together with all
administrative orders, directives, requests, licenses, authorizations and
permits of, and agreements with, any Governmental Authorities, in each case
relating to or imposing liability or standards of conduct concerning
environmental protection matters, including the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, the Clean Air Act, the Federal
Water Pollution Control Act of 1972, the Solid Waste Disposal Act, the Federal
Resource Conservation and Recovery Act, the Toxic Substances Control Act, the
Emergency Planning and Community Right-to-Know Act, the California Hazardous
Waste Control Law, the California Solid Waste Management, Resource Recovery and
Recycling Act, the California Water Code and the California Health and Safety
Code, and any similar laws of any other state or jurisdiction.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and unless the context otherwise requires, the
regulations thereunder.
"ERISA Group" means Borrower and all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with Borrower are treated as a single employer
under Section 414 of the Internal Revenue Code.
"Event of Default" has the meaning set forth in Section 7.1.
"Financial Statement(s)" means, with respect to any accounting period
of any Person, statements of income and statements of cash flows of such Person
for such period, and balance sheets of such Person as of the end of such period,
setting forth in each case in comparative form figures for the corresponding
period in the preceding fiscal year or, if such period is a full fiscal year,
corresponding figures from the preceding annual audit, all prepared in
reasonable detail and in accordance with GAAP, subject to year-end adjustments
in the case of monthly Financial Statements. Financial Statement(s) shall
include the schedules thereto and annual Financial Statements shall also include
the footnotes thereto.
"Funding Fees" means the Loan One Funding Fee and the Loan Two Funding
Fee.
"GAAP" means generally accepted accounting principles in the United
States of America, consistently applied.
"Governmental Authority" means any federal, state, local or other
governmental department, commission, board, bureau, agency, central bank, court,
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tribunal or other instrumentality or authority, domestic or foreign, exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Hazardous Materials" means all or any of the following: (a) substances
that are defined or listed in, or otherwise classified pursuant to, any
applicable laws or regulations as "hazardous substances," "hazardous materials,"
"hazardous wastes," "toxic substances," or any other formulation intended to
define, list, or classify substances by reason of deleterious properties such as
ignitability, corrosivity, reactivity, carcinogenicity, reproductive toxicity,
or EP toxicity"; (b) oil, petroleum, or petroleum derived substances, natural
gas, natural gas liquids, synthetic gas, drilling fluids, produced waters, and
other wastes associated with the exploration, development, or production of
crude oil, natural gas, or geothermal resources; (c) any flammable substances or
explosives or any radioactive materials; and (d) asbestos in any form or
electrical equipment which contains any oil or dielectric fluid containing
levels of polychlorinated biphenyls in excess of fifty (50) parts per million.
"Healthpartners" means Healthpartners Funding, L.P., a Delaware limited
partnership.
"Insolvency Proceeding" means any proceeding commenced by or against
any Person, under any provision of the Bankruptcy Code, or under any other
bankruptcy or insolvency law, including, but not limited to, assignments for the
benefit of creditors, formal or informal moratoriums, compositions, or
extensions with some or all creditors.
"Interest Expense" means, with respect to any fiscal period, the
current interest accrued during such period on the aggregate amount of the Debt,
including the interest portion of Borrower's Capitalized Lease Obligations.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
supplemented and amended from time to time, or any successor statute, and any
and all regulations and rules promulgated thereunder.
"Late Payment Fee" has the meaning given to such term in Section
2.3(c).
"Lease Expense" means, with respect to any period of Borrower and its
Subsidiaries, on a consolidated basis, the aggregate amount of rent paid or
payable in connection with any lease that is charge against Consolidated Net
Income for the period.
"Lien" means any mortgage, deed of trust, pledge, security interest,
hypothecation, assignment, deposit arrangement or other preferential
arrangement, charge or encumbrance (including, any conditional sale or other
title retention agreement, or finance lease) of any kind.
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"Loan Document(s)" means each of the following documents, instruments,
and agreements individually or collectively, as the context requires, and any
amendments, replacements, substitutions, renewals, refinancings or restatements
thereto or thereof:
(i) the Notes;
(ii) the Warrants;
(iii) the Subordination Agreement;
(iv) the Stock Pledge Agreements; and
(v) such other documents, instruments, and agreements
(including financing statements and fixture filings) as Bank may
reasonably request in connection with the transactions contemplated
hereunder or to perfect or protect the liens and security interests
granted to Bank in connection herewith.
"Loan One" has the meaning given to such term in Section 2.1(a).
"Loan One Funding Fee" and "Loan Two Funding Fee" have the meanings
given to such terms in Section 2.7.
"Loan Two" has the meaning given to such term in Section 2.1(b).
"Loans" means the Loan One and the Loan Two.
"Material Adverse Effect" means a material adverse effect on (i) the
business, Assets, condition (financial or otherwise), results of operations, or
prospects of Borrower or any Subsidiary, (ii) the ability of Borrower to perform
its obligations under this Agreement (including, without limitation, repayment
of the Obligations as they come due), or (iii) the validity or enforceability of
this Agreement, the Loan Documents, or the rights or remedies of Bank hereunder
and thereunder.
"Maturity Date" means February 16, 1997.
"Multiemployer Plan" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA or Section 3(37) of ERISA to which any member of the ERISA
Group is then making or accruing an obligation to make contributions or has
within the preceding five plan years (while a member of such ERISA Group) made
contributions, including for these purposes any Person which ceased to be a
member of the ERISA Group during such five year period.
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"Note One" means that certain Promissory Note One in the principal
amount of Five Million Dollars ($5,000,000), dated as of even date herewith,
executed by Borrower to the order of Bank.
"Note Two" means a Promissory Note Two in the form of Exhibit 1.1N, in
the principal amount of the Loan Two, executed by Borrower to the order of Bank.
"Notes" means the Note One and the Note Two.
"Obligations" means any and all indebtedness, liabilities, and
obligations of Borrower owing to Bank and to its successors and assigns,
previously, now, or hereafter incurred, and howsoever evidenced, whether direct
or indirect, absolute or contingent, joint or several, liquidated or
unliquidated, voluntary or involuntary, due or not due, legal or equitable,
whether incurred before, during, or after any Insolvency Proceeding, and whether
recovery thereof is or becomes barred by a statute of limitations or is or
becomes otherwise unenforceable or unallowable as claims in any Insolvency
Proceeding, together with all interest thereupon (including all interest
accruing during the pendency of an Insolvency Proceeding). The Obligations shall
include, without limiting the generality of the foregoing, all principal and
interest owing under the Loans, all Bank Expenses, the Funding Fees, the Late
Payment Fee, any other fees and expenses due hereunder, and all other
indebtedness evidenced by this Agreement and the Notes.
"Participant" has the meaning set forth in Section 9.5(d).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permitted Debt" means (i) Debt owing to Bank in accordance with the
terms of this Agreement and the Loan Documents, (ii) Debt existing on the
Closing Date and listed on Schedule 1.1P-1, but no refinancings or extensions
thereof except as described on Schedule 1.1P-1, and (iv) equipment leases to the
extent permitted under Section 6.5.
"Permitted Liens" means (i) Liens for current taxes, assessments or
other governmental charges which are not delinquent or remain payable without
any penalty, (ii) Liens in favor of Bank in accordance with the Loan Documents,
(iii) statutory Liens, other than those described in clause (i) above, arising
in the ordinary course of business with respect to obligations which are not
delinquent or are being contested in good faith by appropriate proceedings,
provided that, if delinquent, adequate reserves have been set aside with respect
thereto as required by GAAP and, by reason of nonpayment, no property is subject
to a material risk of loss or forfeiture; (iv) Liens consisting of pledges or
deposits to secure obligations under leases permitted hereunder, (v) Liens
relating to Capitalized Lease Obligations and purchase money Liens permitted
hereunder so long as such Lien attaches only to the Asset being leased or
acquired, (vi) judgment
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Liens that do not constitute an Event of Default under Section 7.1(i), (vii)
Liens, if they constitute such, of true lease and consignment UCC filings
permitted hereunder, and (viii) Liens securing Permitted Debt as described on
Schedule 1.1P-1.
"Permitted Transaction" means any of the transactions listed on
Schedule 1.1P-2.
"Person" means and includes natural persons, corporations, limited
partnerships, general partnerships, limited liability companies, limited
liability partnerships, joint stock companies, joint ventures, associations,
companies, trusts, banks, trust companies, land trusts, business trusts, or
other organizations, irrespective of whether they are legal entities, and
governments and agencies and political subdivisions thereof.
"Plan" means an "employee benefit plan" as defined in Section 3(3) of
ERISA in which any personnel of any member of the ERISA Group participate or
from which any such personnel may derive a benefit, excluding any Multiemployer
Plan, but including any plan either established or maintained by any member of
the ERISA Group or to which such Person contributes under the laws of any
foreign country.
"Responsible Officer" means either the Chief Executive Officer, Chief
Financial Officer, Treasurer or Controller of a Person, or such other officer,
employee, or agent of such Person designated by a Responsible Officer in a
writing delivered to Bank.
"Solvent" means, with respect to any Person on the date any
determination thereof is to be made, that on such date: (a) the present fair
valuation of the property and assets of such Person is greater than such
Person's probable liability in respect of existing debts; (b) such Person does
not intend to, and does not believe that it will, incur debts beyond such
Person's ability to pay as such debts mature; and (c) such Person is not engaged
in business or a transaction, and is not about to engage in business or a
transaction, which would leave such Person with property and assets remaining
which would constitute unreasonably small capital after giving effect to the
nature of the particular business or transaction. For purposes of this
definition (i) the "fair valuation" of any property or assets means the amount
realizable within a reasonable time, either through collection or sale of such
property or assets at their regular market value, which is the amount obtainable
by a capable and diligent Person from an interested buyer willing to purchase
such property or assets within a reasonable time under ordinary circumstances;
and (ii) the term "debts" includes any payment obligation, whether or not
reduced to judgment, equitable or legal, matured or unmatured, liquidated or
unliquidated, disputed or undisputed, secured or unsecured, absolute, fixed or
contingent.
"Stipulated Number of Shares" means that number of shares of Common
Stock of Borrower that would be issued by Borrower pursuant to Warrant One if
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<PAGE> 16
Warrant One was exercised on the date that Loan Two is made pursuant to Section
2.1(b) multiplied by a fraction the numerator of which is the original principal
amount of Loan Two and the denominator of which is five million (5,000,000).
"Stock Pledge Agreement (Direct Subsidiary)" means, a Security
Agreement-Stock Pledge, substantially in the form of Exhibit 1.1S-1 between
Borrower and Bank.
"Stock Pledge Agreement (Indirect Subsidiary)" means a Security
Agreement-Stock Pledge, substantially in the form of Exhibit 1.1S-2 between a
Subsidiary and Bank.
"Stock Pledge Agreements" means the Stock Pledge Agreements (Direct
Subsidiary) and the Stock Pledge Agreements (Indirect Subsidiary).
"Subsidiary" means any corporation, limited liability company,
partnership, trust or other entity (whether now existing or hereafter organized
or acquired) of which Borrower or one or more Subsidiaries of Borrower at the
time owns or controls directly or indirectly more than 50% of the shares of
stock or partnership or other ownership interest having general voting power
under ordinary circumstances to elect a majority of the board of directors,
managers or trustees or otherwise exercising control of such corporation,
limited liability company, partnership, trust or other entity (irrespective of
whether at the time stock or any other form of ownership of any other class or
classes shall have or might have voting power by reason of the happening of any
contingency).
"Subordination Agreement" means that certain Subordination Agreement,
dated as of even date herewith, between Whitehead and Bank.
"Subordinated Note" means that certain Second Amended and Restated
Subordinated Promissory Note, dated as of August 10, 1995, in the original
principal amount of Eight Million Dollars ($8,000,000), executed by Borrower to
the order of Whitehead, and any amendments, restatements, refinancings or
replacements thereof.
"Swaps" means payment obligations with respect to interest rate swaps,
currency swaps and similar obligations obligating a Person to make payments,
whether periodically or upon the happening of a contingency. For the purposes of
this Agreement, the amount of the obligation under any Swap shall be the amount
determined, in respect thereof as of the end of the then most recently ended
fiscal quarter of Borrower, based on the assumption that such Swap had
terminated at the end of such fiscal quarter, and in making such determination,
if any agreement relating to such Swap provides for the netting of amounts
payable by and to each party thereto or if any such agreement provides for the
simultaneous payment of amounts by and to each party, then in each such case,
the amount of such obligation shall be the net amount so determined.
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"Taxes" has the meaning set forth in Section 8.1.
"Transferee" has the meaning set forth in Section 9.5(e).
"Unfunded Liabilities" means, with respect to any Plan at any time, the
amount (if any) by which (i) the present value of all benefits under such Plan
exceeds (ii) the fair market value of all Plan assets allocable to such benefits
(excluding any accrued but unpaid contributions), all determined as of the then
most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the ERISA Group to the
PBGC or an appointed trustee under Title IV of ERISA.
"Unmatured Event of Default" means any condition or event which with
the giving of notice or lapse of time or both would, unless cured or waived,
become an Event of Default.
"Warrant One" means that certain Warrant One, dated as of even date
herewith, executed by Borrower in favor of Bank.
"Warrants" means the Warrant One and the Warrant Two.
"Warrant Two" means a Warrant Two in the form of Exhibit 1.1W, executed
by Borrower in favor of Bank pursuant to Section 3.2(c).
"Whitehead" means Bruce H. Whitehead, as agent for the former
shareholders of BritWill HealthCare Company.
1.2 Accounting Terms and Determinations. Unless otherwise specified
herein, all accounting terms used herein shall be interpreted, all accounting
determinations hereunder shall be made, and all financial statements required to
be delivered hereunder shall be prepared in accordance with GAAP.
1.3 Computation of Time Periods. In this Agreement, with respect to the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
mean "to but excluding." Periods of days referred to in this Agreement shall be
counted in calendar days unless otherwise stated.
1.4 Construction. Unless the context of this Agreement clearly requires
otherwise, references to the plural include the singular and to the singular
include the plural, references to any gender include any other gender, the part
includes the whole, the term "including" is not limiting, and the term "or" has,
except where otherwise indicated, the inclusive meaning represented by the
phrase "and/or." References in this Agreement to "determination" by Bank include
good faith estimates by Bank (in the case of quantitative determinations), and
good faith beliefs by Bank (in the case of
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qualitative determinations). The words "hereof," "herein," "hereby,"
"hereunder," and similar terms in this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement. Article, section,
subsection, clause, exhibit and schedule references are to this Agreement,
unless otherwise specified. Any reference in this Agreement or any of the Loan
Documents to this Agreement or any of the Loan Documents includes any and all
permitted alterations, amendments, changes, extensions, modifications, renewals,
or supplements thereto or thereof, as applicable.
1.5 Exhibits and Schedules. All of the exhibits and schedules attached
hereto shall be deemed incorporated herein by reference.
1.6 No Presumption Against Any Party. Neither this Agreement, any of
the Loan Documents, any other document, agreement, or instrument entered into in
connection herewith, nor any uncertainty or ambiguity herein or therein shall be
construed or resolved using any presumption against any party hereto, whether
under any rule of construction or otherwise. On the contrary, this Agreement,
the Loan Documents, and the other documents, instruments, and agreements entered
into in connection herewith have been reviewed by each of the parties and their
counsel and shall be construed and interpreted according to the ordinary
meanings of the words used so as to accomplish fairly the purposes and
intentions of all parties hereto.
1.7 Independence of Provisions. All agreements and covenants hereunder,
under the Loan Documents, and the other documents, instruments, and agreements
entered into in connection herewith shall be given independent effect such that
if a particular action or condition is prohibited by the terms of any such
agreement or covenant, the fact that such action or condition would be permitted
within the limitations of another agreement or covenant shall not be construed
as allowing such action to be taken or condition to exist.
ARTICLE II
TERMS OF THE LOAN
2.1 The Loan.
(a) Subject to the terms and conditions hereof, Bank agrees to
make a loan to Borrower on the Closing Date in the principal amount of Five
Million Dollars ($5,000,000) (the "Loan One"), the proceeds of which shall be
used only for the purposes allowed in Section 6.1.
(b) Subject to the terms and conditions hereof, Bank agrees to
make a loan to Borrower on October 1, 1996 in such amount as Borrower shall
specify in accordance with Section 3.2(a) (the "Loan Two"), the proceeds of
which shall be used only for the purposes allowed in Section 6.1.
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2.2 Prepayments. Borrower may prepay the Loans, or any portion thereof,
at any time and from time to time. All prepayments shall include accrued
interest on the amount prepaid to the date of prepayment, calculated in
accordance with Section 2.3. All such prepayments shall be without penalty or
premium.
2.3 Interest Rates; Payments of Interest.
(a) Interest Rate. The unpaid principal balance of the Loans
shall bear interest at the rate of nine and three-quarters percent (9.75%) per
annum.
(b) Default Rate. If any payment of principal or interest on
the Loans shall not be paid when due (whether at the stated maturity, by
acceleration or otherwise) and any applicable grace period has expired, in
addition to and not in substitution of any of Bank's other rights and remedies
with respect to such nonpayment, the entire unpaid principal balance of the
Loans shall bear interest at the rate of fourteen and three-quarters percent
(14.75%) per annum, effective on the day following the expiration date of the
grace period with respect thereto and continuing until such overdue payment is
paid in full. In addition, interest, Bank Expenses, the Funding Fees, the Late
Payment Fee and other amounts due hereunder not paid when due (and any
applicable grace period has expired) shall bear interest at the rate of fourteen
and three quarters percent (14.75%) effective on the day following the
expiration date of the grace period with respect thereto and continuing until
such overdue payment is paid in full.
(c) Late Payment Fee. If any payment due hereunder, whether
for principal, interest, Funding Fees, or otherwise, is not paid on or before
the tenth day after the date such payment is due, in addition to and not in
substitution of any of Bank's other rights and remedies with respect to such
nonpayment, Borrower shall pay to Bank, a late payment fee ("Late Payment Fee")
equal to five percent (5%) of the amount of such overdue payment. The Late
Payment Fee shall be due and payable on the eleventh day after the due date of
the overdue payment with respect thereto.
(d) Computation of Interest. All computations of interest
shall be calculated on the basis of a year of three hundred sixty (360) days for
the actual days elapsed.
(e) Maximum Interest Rate. In no event shall the interest rate
and other charges hereunder exceed the highest rate permissible under any law
which a court of competent jurisdiction shall, in a final determination, deem
applicable hereto. In the event that such a court determines that Bank has
received interest and other charges hereunder in excess of the highest rate
applicable hereto, such excess shall be deemed received on account of, and shall
automatically be applied to reduce, the Obligations, other than interest, in the
inverse order of maturity, and the provisions hereof shall be deemed amended to
provide for the highest permissible rate. If there are no Obligations
outstanding, Bank shall refund to Borrower such excess.
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(f) Payments of Interest. All accrued but unpaid interest on
the Loans, calculated in accordance with this Section 2.3, shall be due and
payable, in arrears, on the first Business Day of each month.
2.4 Note; Statements of Obligations. The Loan One and Borrower's
obligation to repay the same shall be evidenced by the Note One, this Agreement
and the books and records of Bank. The Loan Two and Borrower's obligation to
repay the same shall be evidenced by the Note Two, this Agreement and the books
and records of Bank. Bank shall render monthly statements of the Loans to
Borrower, including statements of all principal and interest owing on the Loans,
and all Bank Expenses owing, and such statements shall be presumed to be correct
and accurate and constitute an account stated between Borrower and Bank unless,
within thirty (30) days after receipt thereof by Borrower, Borrower delivers to
Bank, at the address specified in Section 9.1, written objection thereof
specifying the error or errors, if any, contained in any such statement.
2.5 Holidays. Any principal or interest in respect of the Loans which
would otherwise become due on a day other than a Business Day, shall instead
become due on the next succeeding Business Day and such adjustment shall be
reflected in the computation of interest; provided, however, that in the event
that such due date shall, subsequent to the specification thereof by Bank, for
any reason no longer constitute a Business Day, Bank may change such specified
due date in accordance with this Section 2.5.
2.6 Time and Place of Payments. All payments due hereunder shall be
made available to Bank in immediately available Dollars, not later than 12:00
p.m., Los Angeles time, on the day of payment, to the following address or such
other address as Bank may from time to time specify by notice to Borrower:
IMPERIAL BANK
9920 S. La Cienega Boulevard, Suite 628
Inglewood, CA 90301
Attention: Lending Services Department 2560
Telefacsimile: 310-338-6110
Telephone: 310-417-5989
2.7 Funding Fees. Borrower shall pay to Bank a fully earned,
non-refundable funding fee (the "Loan One Funding Fee") in the amount of One
Hundred Twenty-Five Thousand Dollars ($125,000), of which Fifty Thousand Dollars
($50,000) shall be due and payable on the Closing Date and Seventy Five Thousand
Dollars ($75,000) shall be due and payable on the Maturity Date or date of
prepayment of the Loans. Upon the funding of the Loan Two pursuant to Section
2.1(b), Borrower shall pay to Bank an additional funding fee (the "Loan Two
Funding Fee") in an amount equal to two and one half percent (2.5%) of the
original principal amount of the Loan Two.
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2.8 Maturity Date. On the Maturity Date, Borrower shall pay to Bank the
entire unpaid principal balance of the Loans together with all accrued but
unpaid interest thereon, all Bank Expenses then unpaid and all other costs and
expenses due to Bank pursuant to this Agreement and the Loan Documents which
have not been paid by such date.
2.9 Bank's Option to Convert Loans. Bank may, at its option, from time
to time on or after the Conversion Date convert all or any portion of the Loans
into shares of Common Stock of Borrower as set forth in this Section 2.9. In the
event that Bank intends to exercise such option, Bank shall notify Borrower in
writing ("Notice of Intent to Convert"). All shares of Common Stock issuable to
Bank hereunder shall constitute "Registrable Stock" (as defined in the Warrants)
and when Bank gives Notice of Intent to Convert Borrower shall at its sole
expense promptly and diligently register and qualify all such shares in
accordance with the procedures set forth in Section 11 of the Warrants to enable
Bank to resell such shares to the public without restriction upon issuance to
Bank (the "Registration"). In the event that Borrower fails to file an
appropriate registration statement with the Securities and Exchange Commission
within sixty (60) days after the date of the Notice of Intent to Convert,
Borrower immediately shall pay to Bank an amount equal to two percent (2%) of
the amount of the Obligations then outstanding. Such payment by Borrower shall
not relieve Borrower of the obligation to file such registration statement and
comply with the procedures set forth in Section 11 of the Warrants. Borrower
shall promptly notify Bank in writing when Borrower has completed all of the
registration and qualification procedures and the Registration is effective.
Bank shall exercise an option to convert all or any portion of the Loans by
giving written notice to Borrower specifying the amount of the Loans that are
converted and the number of shares of Common Stock to be issued to Bank
("Conversion Notice"). The number of shares of Common Stock to be issued to Bank
shall be determined by dividing the amount of the Loans that are converted by
the Conversion Rate. The Conversion Rate shall be equal to eighty five percent
(85%) of the "Current Market Price" (as defined in the Warrants) of a share of
Common Stock calculated as of the latest practicable date before the
Registration becomes effective (or, if the Registration does not become
effective, and Bank still exercises an option to convert, calculated as of the
date of the Conversion Notice). The shares of Common Stock shall be deemed to
have been issued to Bank as the record owner of such shares as of the close of
business on the date of the Conversion Notice. Certificates for such shares
shall be delivered to Bank promptly and in any event within five (5) days after
the date of the Conversion Notice. Upon effectiveness of the Registration, Bank
shall use reasonable efforts to complete the sale of the shares pursuant to the
Registration within a reasonable period of time, subject to market conditions
and Bank's intention to maximize the amount to be realized from the sale of
shares.
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ARTICLE III
CONDITIONS PRECEDENT
3.1 Conditions to Loan One. The obligation of Bank to make the Loan One
is subject to and contingent upon the fulfillment of each of the following
conditions to the satisfaction of Bank and its counsel:
(a) receipt by Bank of this Agreement and each of the Loan
Documents (other than the Note Two and the Warrant Two) including a Stock Pledge
Agreement (Direct Subsidiary) with respect to each Subsidiary owned by Borrower,
and a Stock Pledge Agreement (Indirect Subsidiary) with respect to each
Subsidiary owned by a Subsidiary, all duly executed by Borrower and/or the other
parties thereto, acknowledged where required, and in form and substance
satisfactory to Bank in its sole and absolute discretion;
(b) receipt by Bank of a duly executed opinion of Borrower's
counsel, dated as of the Closing Date, substantially in the form and substance
of Exhibit 3.1(b) and otherwise satisfactory to Bank in its sole and absolute
discretion;
(c) receipt by Bank of a Certificate of the Secretary of
Borrower, dated as of the Closing Date, certifying (i) the incumbency and
signatures of the Responsible Officers of Borrower who are executing this
Agreement and the Loan Documents on behalf of Borrower, (ii) the bylaws of
Borrower and all amendments thereto as being true and correct and in full force
and effect, and (iii) the resolutions of the Board of Directors of Borrower as
being true and correct and in full force and effect, authorizing the execution
and delivery of this Agreement and the Loan Documents, and authorizing the
transactions contemplated hereunder and thereunder, and authorizing the
Responsible Officers of Borrower to execute the same on behalf of Borrower;
(d) receipt by Bank of a certificate of corporate status and
good standing for Borrower, dated as of a recent date prior to the Closing Date,
showing that Borrower is in good standing under the laws of the State of
Delaware;
(e) receipt by Bank of Borrower's Certificate of Incorporation
and all amendments thereto, certified by the Delaware Secretary of State and
dated as of a recent date prior to the Closing Date;
(f) receipt by Bank of certificates of foreign qualification
and good standing with respect to Borrower, dated as of a recent date prior to
the Closing Date, showing that Borrower is in good standing under the laws of
States of Arizona and each jurisdiction in which it is doing business where the
conduct of such business requires such qualification;
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(g) receipt by Bank of a certificate signed by the President
and Chief Financial Officer of Borrower, dated as of the Closing Date,
certifying to Bank that (i) both immediately before and immediately after giving
effect to the transactions contemplated by this Agreement and the Loan
Documents, Borrower is and will be Solvent, (ii) to the best of their knowledge
after due and diligent inquiry, the representations and warranties of Borrower
contained in this Agreement and the Loan Documents are true and correct and
(iii) to the best of their knowledge after due and diligent inquiry, both
immediately before and immediately after giving effect to the transactions
contemplated by this Agreement and the Loan Documents, no Event of Default or
Unmatured Event of Default is continuing or shall occur;
(h) receipt by Bank of a certificate of corporate status and
good standing for each Subsidiary executing a Stock Pledge Agreement (Indirect
Subsidiary) dated as of a recent date prior to the Closing Date, showing that
such Subsidiary is in good standing under the laws of the state of its
organization;
(i) receipt by Bank of the Articles of Incorporation of each
Subsidiary executing a Stock Pledge Agreement (Indirect Subsidiary) and all
amendments thereto, certified by the Secretary of State of the state of its
organization and dated as of a recent date prior to the Closing Date;
(j) receipt by Bank of certificates of foreign qualification
and good standing with respect to each Subsidiary executing a Stock Pledge
Agreement (Indirect Subsidiary) dated as of a recent date prior to the Closing
Date, showing that such Subsidiary is in good standing under the laws of each
jurisdiction in which such Subsidiary is doing business where the conduct of
such business requires such qualification;
(k) receipt by Bank of a Certificate of the Secretary of each
Subsidiary executing a Stock Pledge Agreement (Indirect Subsidiary), dated as of
the Closing Date, certifying (i) the incumbency and signatures of the
Responsible Officers of such Subsidiary who are executing such agreement on
behalf of such Subsidiary, and (ii) the resolutions of the Board of Directors of
such Subsidiary as being true and correct and in full force and effect,
authorizing the execution and delivery of such Stock Pledge Agreement (Indirect
Subsidiary), and authorizing the transactions contemplated thereunder, and
authorizing the Responsible Officers of such Subsidiary to execute the same on
behalf of such Subsidiary;
(l) receipt by Bank of the first installment of the Loan One
Funding Fee and all other fees, costs, and expenses owing to Bank on the Closing
Date (including the fees, costs and expenses of Bank pursuant to Section
9.3(a)(i));
(m) receipt by Bank of copies of insurance binders or
insurance certificates evidencing Borrower's having caused to be obtained
insurance in accordance
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with Section 5.5, including the additional insured endorsements required by such
Section ;
(n) receipt by Bank of a Participation Agreement,
duly executed by Cruttenden Roth Bridge Fund, LLC., providing for a purchase of
a participation interest in the Loan in the amount of One Million Dollars
($1,000,000) and otherwise in form and substance satisfactory to Bank in its
sole and absolute discretion;
(o) receipt by Bank of a copy of the Subordinated
Note and the Contingent Payment Agreement evidencing the legend required by the
Subordination Agreement, certified by the Secretary of Borrower;
(p) receipt by Bank of Uniform Commercial Code
Financing Statement Partial Releases Form UCC-2, duly executed by
Healthpartners, in form and substance satisfactory to Bank in its sole and
absolute discretion;
(q) receipt by Bank of any other documents which Bank
reasonably requests relating to the transactions contemplated hereby; and
(r) the Closing Date shall have occurred on or before
August 31, 1996.
3.2 Conditions to Loan Two. The obligation of Bank to make the
Loan Two is subject to and contingent upon the fulfillment of each of the
following conditions to the satisfaction of Bank and its counsel:
(a) receipt by Bank, no later than 5:00, p.m., Los
Angeles time, September 16, 1996, of a written request from Borrower, duly
executed by a Responsible Officer of Borrower, that Bank make the Loan Two and
specifying the amount thereof, which amount shall be at least Five Hundred
Thousand Dollars ($500,000) or more in increments of One Hundred Thousand
Dollars ($100,000), up to a maximum amount of Two Million Five Hundred Thousand
Dollars ($2,500,000);
(b) receipt by Bank of the Note Two duly executed by
Borrower and in form and substance satisfactory to Bank in its sole and absolute
discretion;
(c) receipt by Bank of the Warrant Two duly executed
by Borrower for the number of shares of Common Stock of Borrower equal to the
Stipulated Number of Shares and providing for an "Exercise Price" equal to the
"Current Market Price" (as defined in the Warrants) calculated as of the date
that Loan Two is made, and otherwise in form and substance satisfactory to Bank
in its sole and absolute discretion;
(d) receipt by Bank of a certificate signed by the
President and Chief Financial Officer of Borrower, dated as of October 1, 1996,
certifying to Bank that
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(i) both immediately before and immediately after giving effect to the Note Two
and the Warrant Two, Borrower and each Subsidiary is and will be Solvent, (ii)
to the best of their knowledge after due and diligent inquiry, the
representations and warranties of Borrower and each Subsidiary contained in this
Agreement and the Loan Documents are true and correct and (iii) to the best of
their knowledge after due and diligent inquiry, both immediately before and
immediately after giving effect to the Note Two and the Warrant Two, no Event of
Default or Unmatured Event of Default is continuing or shall occur; and
(e) receipt by Bank of the Loan Two Funding Fee.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
In order to induce Bank to enter into this Agreement and to
make the Loans to Borrower, Borrower represents and warrants to Bank that on the
Closing Date and on the date of funding the Loan Two:
4.1 Legal Status. Borrower and each Subsidiary is a
corporation duly organized and existing under the laws of its state of
organization. Borrower and each Subsidiary has the power and authority to own
its own Assets and to transact the business in which it is engaged, and is
properly licensed, qualified to do business and in good standing in every
jurisdiction in which it is doing business where failure to so qualify could
have a Material Adverse Effect.
4.2 No Violation; Compliance. The execution, delivery and
performance of this Agreement and the Loan Documents to which Borrower and each
Subsidiary is a party are within Borrower's and such Subsidiary's powers, are
not in conflict with the terms of any charter, bylaw, articles of incorporation
or other organization papers of Borrower or such Subsidiary, and do not result
in a breach of or constitute a default under any contract, obligation, indenture
or other instrument to which Borrower or such Subsidiary is a party or by which
Borrower or such Subsidiary is bound or affected. There is no law, rule or
regulation, nor is there any judgment, decree or order of any court or
Governmental Authority binding on Borrower or any Subsidiary which would be
contravened by the execution, delivery, performance or enforcement of this
Agreement and the Loan Documents to which Borrower or any Subsidiary is a party.
4.3 Authorization; Enforceability. Borrower and each
Subsidiary has taken all corporate action necessary to authorize the execution
and delivery of this Agreement and the Loan Documents to which Borrower and such
Subsidiary is a party, and the consummation of the transactions contemplated
hereby and thereby. Upon their execution and delivery in accordance with the
terms hereof, this Agreement and
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the Loan Documents to which Borrower and each Subsidiary is a party will
constitute legal, valid and binding agreements and obligations of Borrower and
such Subsidiary enforceable against Borrower and such Subsidiary in accordance
with their respective terms, except as enforceability may be limited by
bankruptcy, insolvency, and similar laws and equitable principles affecting the
enforcement of creditors' rights generally.
4.4 Approvals; Consents. No approval, consent, exemption or
other action by, or notice to or filing with, any Governmental Authority is
necessary in connection with the execution, delivery, performance or enforcement
of this Agreement or the Loan Documents.
4.5 Liens. Borrower and each Subsidiary has good and
marketable title to, or valid leasehold interests in, all of its Assets, free
and clear of all Liens or rights of others, except for Permitted Liens.
4.6 Debt. Borrower has no Debt other than Permitted Debt.
4.7 Litigation. Except as set forth in Schedule 4.7, there are
no suits, proceedings, claims or disputes pending or, to the knowledge of
Borrower after due inquiry, threatened, against or affecting Borrower or any of
its Assets, or any Subsidiary or any of such Subsidiary's Assets, which are not
fully covered by applicable insurance and as to which no reservation of rights
has been taken by the insurer thereunder.
4.8 No Default. No event is continuing or would result from
the incurring of obligations by Borrower under this Agreement or the Loan
Documents, to the extent Borrower is a party thereto, which is an Event of
Default or Unmatured Event of Default.
4.9 Subsidiaries. Set forth in Schedule 4.9 is a complete and
accurate list of the Subsidiaries, showing the jurisdiction of incorporation of
each and showing the percentage of Borrower's or a Subsidiary's ownership of the
outstanding stock of each Subsidiary. All of the outstanding capital stock of
each Subsidiary has been validly issued, is fully paid and nonassessable, and is
owned by Borrower or the Subsidiary indicated in Schedule 4.9 free and clear of
all Liens except Permitted Liens.
4.10 Taxes. All tax returns required to be filed by Borrower
in any jurisdiction have in fact been filed, and all taxes, assessments, fees
and other governmental charges upon Borrower or upon any of its Assets, income
or franchises, which are due and payable have been paid. The provisions for
taxes on the books of Borrower are adequate for all open years, and for
Borrower's current fiscal period.
4.11 Correctness of Financial Statements. Borrower's
consolidated and consolidating audited Financial Statement as of the fiscal year
ended December 31, 1995, and all information and data furnished by Borrower to
Bank in connection therewith, are complete and correct and accurately and fairly
present the financial
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condition and results of operations of Borrower and its Subsidiaries as of their
respective dates. Any forecasts of future financial performance delivered by
Borrower to Bank have been made in good faith and are based on reasonable
assumptions and investigations by Borrower. Said audited Financial Statement has
been prepared in accordance with GAAP. Since the date of such audited Financial
Statement, there has been no change in Borrower's or its Subsidiaries' financial
condition or results of operations sufficient to have a Material Adverse Effect.
Borrower and its Subsidiaries have no contingent obligations, liabilities for
taxes or other outstanding financial obligations which are material in the
aggregate, except as disclosed in such statements, information and data.
4.12 ERISA. Borrower is in compliance in all material respects
with all applicable provisions of ERISA; Borrower has not violated any provision
of any Plan; no Reportable Event under Section 4043(c)(5), (6) or (13) of ERISA
has occurred or is continuing with respect to any Plan initiated by Borrower;
Borrower has met its minimum funding requirements under ERISA with respect to
each Plan; and each Plan will be able to fulfill its benefit obligations as they
come due in accordance with the Plan documents and under GAAP.
4.13 Other Obligations. Borrower is not in default on any
Debt, and Borrower is not in default on any other lease, commitment, contract,
instrument or obligation which is material to the operation of its business.
4.14 Public Utility Holding Company Act. Borrower is not a
"holding company," or an "affiliate" of a "holding company" or a "subsidiary
company" of a "holding company," within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
4.15 Investment Company Act. Borrower is not an "investment
company," or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended.
4.16 Licenses, Patents, Trademarks, Copyrights, and
Intellectual Property, etc. Borrower has all necessary, patents, patent rights,
licenses, trademarks, trademark rights, trade names, trade name rights,
copyrights, permits, and franchises in order for it to conduct its business and
to operate its Assets, without known conflict with the rights of third Persons,
and all of same are valid and subsisting. The consummation of the transactions
contemplated by this Agreement will not alter or impair any of such rights of
Borrower. Borrower has not been charged or, to the best of Borrower's knowledge
after due inquiry threatened to be charged with any infringement or, after due
inquiry infringed on any, unexpired trademark, trademark registration, trade
name, patent, copyright, copyright registration, or other proprietary right of
any Person.
4.17 Environmental Condition. (i) None of Borrower's or any
Subsidiary's Assets has ever been used by Borrower or by previous owners or
operators
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in the disposal of, or to produce, store, handle, treat, release, or transport,
any Hazardous Materials except in compliance with Environmental Laws; (ii) none
of Borrower's or any Subsidiary's Assets has ever been designated or identified
in any manner pursuant to any environmental protection statute as a Hazardous
Materials disposal site, or a candidate for closure pursuant to any
environmental protection statute; (iii) no Lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned or operated by Borrower or any Subsidiary; and (iv) neither
Borrower nor any Subsidiary has received a summons, citation, notice, or
directive from the Environmental Protection Agency or any other federal or state
governmental agency concerning any action or omission by Borrower or any
Subsidiary resulting in the releasing or disposing of Hazardous Materials into
the environment.
ARTICLE V
AFFIRMATIVE COVENANTS
Borrower covenants and agrees that from the Closing Date and
thereafter until the indefeasible payment, performance and satisfaction in full
of the Obligations, Borrower shall:
5.1 Punctual Payments. Punctually pay the interest and
principal on the Loans, the Funding Fees, the Late Payment Fee, and all Bank
Expenses and any other fees and liabilities due under this Agreement and the
Loan Documents at the times and place and in the manner specified in this
Agreement or the Loan Documents within the grace periods, if any, permitted
hereunder or thereunder.
5.2 Books and Records. Maintain, and cause each Subsidiary to
maintain, adequate books and records in accordance with GAAP, and permit any
officer, employee or agent of Bank, at any reasonable time upon one (1) day's
notice, to inspect, audit and examine such books and records, and to make copies
of the same.
5.3 Financial Statements. Deliver to Bank the following, all
in form and detail satisfactory to Bank and in such number of copies as Bank may
request:
(a) as soon as available but not later than thirty
(30) days after and as of the close of each monthly accounting period, a
consolidated and consolidating internally prepared Financial Statement for
Borrower and the Subsidiaries which shall include Borrower's and the
Subsidiaries' consolidated and consolidating balance sheet as of the close of
such period, and Borrower's and the Subsidiaries' consolidated statement of
income and retained earnings and statement of cash flow for such period and year
to date, certified by the Chief Financial Officer of Borrower, to the best of
his or her knowledge after due and diligent inquiry, as being complete and
correct and fairly presenting Borrower's and the Subsidiaries' financial
condition and results of operations;
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(b) as soon as available but not later than thirty
(30) days after and as of the end of each monthly accounting period, a
Compliance Certificate from the Chief Financial Officer of Borrower, stating,
among other things, that he or she has reviewed the provisions of this Agreement
and the Loan Documents and that, to the best of his or her knowledge after due
and diligent inquiry there exists no Event of Default or Unmatured Event of
Default, and containing the calculations and other details necessary to
demonstrate compliance with Section 6.12;
(c) promptly upon receipt by Borrower, copies of any
and all reports and management letters submitted to Borrower or any Subsidiary
by any certified public accountant in connection with any audit of Borrower's or
any Subsidiary's financial records made by such accountant; and
(d) from time to time such other information
(including state surveys) as Bank may reasonably request.
5.4 Existence: Compliance with Law. Preserve and maintain, and
cause each Subsidiary to preserve and maintain, its existence and good standing
in the State of its organization, qualify and remain qualified, and cause each
Subsidiary to qualify and remain qualified, as a foreign corporation in every
jurisdiction where the failure to be so qualified could have a Material Adverse
Effect; and preserve, and cause each of its Subsidiaries to preserve, all of its
licenses, permits, governmental approvals, rights, privileges and franchises
required for its operations; and comply, and cause each of its Subsidiaries to
comply, with the provisions of all documents pursuant to which it is organized
which govern its continued existence; and comply, and cause each of its
Subsidiaries to comply, with the requirements of all applicable laws, rules,
regulations, orders of any Governmental Authority having authority or
jurisdiction over it, except for such laws, rules and regulations where the
failure to so comply could not have a Material Adverse Effect, and comply, and
cause each of the Subsidiaries to comply, with all requirements for the
maintenance of its business, insurance, licenses, permits, governmental
approvals, rights, privileges and franchises.
5.5 Insurance. Maintain and keep in force, and cause each
Subsidiary to maintain and keep in force, insurance of the types and in amounts
customarily carried by companies engaged in the same or similar business, or
similarly situated, including fire, extended coverage, public liability,
business interruption, earthquake, property damage and workers' compensation
insurance, and deliver to Bank from time to time at Bank's request schedules
setting forth all insurance then in effect, except that with respect to workers'
compensation insurance, Borrower shall only be required to list the carriers and
the amount of coverage thereof. Bank shall be named as an additional insured on
Borrower's general liability coverage under an endorsement reasonably acceptable
to Bank.
5.6 Assets. Maintain, keep and preserve, and cause each
Subsidiary to maintain, keep and preserve, all of its Assets (tangible or
intangible) which are
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necessary to its business in good repair and condition, and from time to time
make necessary repairs, renewals and replacements thereto so that such Assets
shall be fully and efficiently preserved and maintained.
5.7 Taxes and Other Liabilities. Pay and discharge when due,
and cause each Subsidiary to pay and discharge when due, any and all assessments
and taxes, both real or personal and including federal and state income taxes,
and any and all other material indebtedness and obligations, except where being
contested in good faith and proper proceedings if appropriate reserves are
maintained with respect thereto.
5.8 Notice to Bank. Promptly, upon Borrower acquiring
knowledge thereof, give written notice to Bank of:
(a) all litigation affecting Borrower where the
amount in controversy is in excess of Two Hundred Fifty Thousand Dollars
($250,000);
(b) any dispute which may exist between Borrower or
any Subsidiary, on the one hand, and any governmental regulatory body or law
enforcement authority, on the other, if the determination of such dispute could
have a Material Adverse Effect;
(c) any labor controversy resulting in or threatening
to result in a strike against Borrower or any Subsidiary;
(d) any proposal by any public authority to acquire
the Assets or business of Borrower or any Subsidiary, or to compete with
Borrower or any Subsidiary;
(e) any reportable event under Section 4043(c)(5),
(6) or (13) of ERISA with respect to any Plan, any decision to terminate or
withdraw from a Plan, any finding made with respect to a Plan under Section
4041(c) or (e) of ERISA, the commencement of any proceeding with respect to a
Plan under Section 4042 of ERISA, or any material increase in the actuarial
present value of unfunded vested benefits under all Plans over the preceding
year;
(f) any Event of Default or Unmatured Event of
Default; and
(g) any other matter which has resulted or could
result in a Material Adverse Effect.
5.9 Further Assurances. Execute and deliver, or cause to be
executed and delivered, upon the request of Bank and at Borrower's expense, such
additional documents, instruments and agreements as Bank may reasonably
determine to be necessary or advisable to carry out the provisions of this
Agreement and the Loan Documents, and the transactions and actions contemplated
hereunder and thereunder.
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ARTICLE VI
NEGATIVE COVENANTS
Borrower further covenants and agrees that from the Closing
Date and thereafter until the indefeasible payment, performance and satisfaction
in full of the Obligations, Borrower shall not without the prior written consent
of Bank:
6.1 Use of Funds, Margin Regulation.
(a) Use any proceeds of the Loan for any purpose
other than to finance Borrower's working capital requirements in accordance with
the budget provided to Bank.
(b) Use any portion of the proceeds of the Loan in
any manner which might cause the Loan, the application of the proceeds thereof,
or the transactions contemplated by this Agreement to violate Regulation G, T,
U, or X of the Board of Governors of the Federal Reserve System, or any other
regulation of such board, or to violate the Securities and Exchange Act of 1934,
as amended or supplemented.
6.2 Debt. Create, incur, assume or suffer to exist, or permit
any Subsidiary to create, incur, assume or suffer to exist, any Debt except
Permitted Debt.
6.3 Liens. Create, incur, assume or suffer to exist, or permit
any Subsidiary to create, incur, assume or suffer to exist, any Lien (including
the lien of an attachment, judgment or execution) on any of its Assets, whether
now owned or hereafter acquired, except Permitted Liens; or sign or file, or
permit any Subsidiary to sign or file, under the Uniform Commercial Code as
adopted in any jurisdiction, a financing statement which names Borrower or any
Subsidiary as a debtor, except with respect to true leases and consignments to
the extent otherwise permitted hereunder, or sign, or permit any Subsidiary to
sign, any security agreement authorizing any secured party thereunder to file
such a financing statement, except with respect to true leases and consignments
to the extent otherwise permitted hereunder.
6.4 Merger, Consolidation, Transfer of Assets. Wind up,
liquidate or dissolve, reorganize, merge or consolidate with or into any other
Person, or acquire all or substantially all of the Assets or the Business of any
other Person, or permit any Subsidiary to do so, except for any Permitted
Transaction.
6.5 Leases. Create, incur, assume or suffer to exist, or
permit any Subsidiary to create, incur, assume or suffer to exist, any
obligation as a lessee for the rental or hire of any real or personal property,
other than those leases listed on Schedule 6.5, and except for any Permitted
Transaction.
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6.6 Sales and Leasebacks. Sell, transfer, or otherwise dispose
of, or permit any Subsidiary to sell, transfer, or otherwise dispose of, any
real or personal property to any Person, and thereafter directly or indirectly
leaseback the same or similar property, except for any Permitted Transaction.
6.7 Asset Sales. Conduct any Asset Sale, or permit any
Subsidiary to do so, except for any Permitted Transaction.
6.8 Investments. Except for any Permitted Transaction, make,
or permit any Subsidiary to make, any loans or advances to, or any investment
in, any Person; or acquire, or permit any Subsidiary to acquire, any capital
stock, Assets, obligations, or other securities of, make any contribution to, or
otherwise acquire any interest in, any Person; or acquire or form any new
Subsidiary, or permit any Subsidiary to acquire or form any new Subsidiary;
provided that if Bank shall consent to such acquisition or formation, Borrower
or such Subsidiary shall concurrently therewith pledge the capital stock of such
new Subsidiary to Bank to secure the Obligations pursuant to a Stock Pledge
Agreement (Direct Subsidiary) or a Stock Pledge Agreement (Indirect Subsidiary),
as the case may be; or participate, or permit any Subsidiary to participate, as
a partner or joint venturer with any other Person.
6.9 Character of Business. Engage in any business activities
or operations substantially different from or unrelated to its present business
activities and operations.
6.10 Dividends and Distributions. Declare or pay any dividends
or distributions; or purchase, redeem, retire, or otherwise acquire for value
any of its capital stock now or hereafter outstanding; or make any distribution
of Assets to its shareholders as such, whether in cash, Assets, or in
obligations of Borrower; or allocate or otherwise set apart any sum for the
payment of any dividend or distribution on, or for the purchase, redemption or
retirement of, any of its capital stock; or make any other distribution by
reduction of capital or otherwise in respect of any shares of its capital stock;
or permit any Subsidiary to purchase or otherwise acquire for value any capital
stock of Borrower or any other Subsidiary.
6.11 Guaranty. Except as described on Schedule 1.1P-1, assume,
guaranty, endorse (other than checks and drafts received by Borrower in the
ordinary course of business), or otherwise be or become directly or contingently
responsible or liable, or permit any Subsidiary to assume, guaranty, endorse, or
otherwise be or become directly or contingently responsible or liable
(including, any agreement to purchase any obligation, stock, Assets, goods, or
services or to supply or advance any funds, Assets, goods, or services, or any
agreement to maintain or cause such Person to maintain, a minimum working
capital or net worth, or otherwise to assure the creditors of any Person against
loss) for the obligations of any Person; or, except for Permitted Liens, pledge
or hypothecate, or permit any Subsidiary to pledge or hypothecate, any of its
Assets as security for any liabilities or obligations of any other Person.
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6.12 Financial Condition.
(a) Coverage Ratio. Permit the Coverage Ratio as of
the last day of each month to be less than 1.1:1.0; or
(b) Net Worth. Permit Borrower's Consolidated Net
Worth to be less than the sum of (i) Twenty One Million Eight Hundred Thousand
Dollars ($21,800,000), plus (ii) seventy percent of Consolidated Net Income
(ignoring any losses) for each month, plus (iii) one hundred percent (100%) of
the increase in Borrower's net worth attributable to sale, conversion to, or the
issuance of any equity securities issues by Borrower or any Subsidiary during
the period from June 30, 1996 to the last day of each month most recently ended,
plus (iv) one hundred percent (100%) of the gain on the sale or disposition of
property by Borrower or any of the Subsidiaries during the period from June 30,
1996 to the last day of each month most recently ended.
6.13 Transactions with Affiliates. Except for any Permitted
Transaction, enter into any transaction, including the purchase, sale, or
exchange of property or the rendering of any service, with any Affiliate, or
permit any Subsidiary to enter into any transaction, including the purchase,
sale, or exchange of property or the rendering of any service, with any
Affiliate, except in the ordinary course of and pursuant to the reasonable
requirements of Borrower's or such Subsidiary's business and upon fair and
reasonable terms no less favorable to Borrower or such Subsidiary than would
obtain in a comparable arm's length transaction with a Person not an Affiliate.
6.14 Change of Control. Cause, permit or suffer, directly or
indirectly any Change of Control.
6.15 Stock Issuance. Issue any additional capital stock,
except in accordance with the Warrants or except if such issuance will not cause
a Change of Control, or permit any Subsidiary to issue any additional capital
stock except as otherwise permitted in the applicable Stock Pledge Agreement
(Indirect Subsidiary).
6.16 Subordinated Debt. Make any payments, whether in
principal, interest, or otherwise, on account of the Subordinated Note or the
Contingent Payment Agreement at any time when (i) an Event of Default under
Section 7.1(a) has occurred which has not been fully cured to the satisfaction
of Bank, or would result from such payment, or (ii) the Obligations have become
due and payable pursuant to Section 7.2.
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES
7.1 Events of Default. The occurrence of any one or more of
the following events, acts or occurrences shall constitute an event of default
(an "Event of Default") hereunder:
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(a) Borrower fails to pay on or before the fifth day
following the due date thereof, any payment of interest due on the Loans, the
Funding Fees, any Bank Expenses, or any other amount payable hereunder other
than payments of principal required hereunder, or Borrower fails to pay on or
before the due date thereof, any payment of principal required hereunder;
(b) Borrower fails to observe or perform any of the
covenants and agreements set forth in Article VI;
(c) Borrower fails to observe or perform any covenant
or agreement set forth in this Agreement and the Loan Documents (other than
those covenants and agreements described in Sections 7.1(a) and 7.1(b)), and
such failure continues for fifteen (15) days after the earlier to occur of (i)
Borrower obtaining knowledge of such failure or (ii) Bank's dispatch of notice
to Borrower of such failure; or
(d) Any representation, warranty or certification
made by Borrower or any officer or employee of Borrower in this Agreement, in
any certificate, financial statement or other document delivered pursuant to
this Agreement or any Loan Document proves to have been untrue in any material
respect when made;
(e) Any event or condition occurs that: (i) results
in the acceleration of the maturity of Debt or other financial arrangements of
Borrower; or (ii) permits (or, with the giving of notice or lapse of time or
both, would permit) the holder or holders of such Debt or extensions of credit
or financial accommodations or any Person acting on behalf of such holder or
holders to accelerate the maturity thereof, in either case except with respect
to trade payables and immaterial Debt being contested in good faith and by
proper proceedings if appropriate reserves are maintained with respect thereto;
(f) Borrower commences a voluntary Insolvency
Proceeding seeking liquidation, reorganization or other relief with respect to
itself or its Debt or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official over it or any substantial part
of its property, or consents to any such relief or to the appointment of or
taking possession by any such official in an involuntary Insolvency Proceeding
or fails generally to pay its Debt as it becomes due, or takes any action to
authorize any of the foregoing;
(g) An involuntary Insolvency Proceeding is commenced
against Borrower seeking liquidation, reorganization or other relief with
respect to it or its Debt or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial part of
its property, and such involuntary Insolvency Proceeding remains undismissed for
a period of sixty (60) days;
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<PAGE> 35
(h) Borrower suffers (i) any money judgment in excess
of applicable insurance coverage or (ii) any writ, warrant of attachment, or
similar process; which in either case continues unsatisfied and in effect for a
period of sixty (60) consecutive days without being vacated, discharged,
satisfied, stayed or bonded pending appeal;
(i) A judgment creditor obtains possession of any of
the Assets of Borrower by any means, including levy, distraint, replevin, or
self-help, or any order, judgment or decree is entered decreeing the dissolution
of Borrower;
(j) Notice of intent to terminate a Plan or Plans
shall be filed under Title IV of ERISA by any member of the ERISA Group, any
plan administrator or any combination of the foregoing; or the PBGC shall
institute proceedings under Title IV of ERISA to terminate, to impose liability
(other than for premiums under Section 4007 of ERISA) in respect of, or to cause
a trustee to be appointed to administer any Plan or Plans; or there occurs a
complete or partial withdrawal from, or a default, within the meaning of Section
4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans;
(k) Any of the Loan Documents fails to be in full
force and effect for any reason, or Bank fails to have a perfected, first
priority Lien in and upon all of the collateral assigned or pledged to Bank
thereunder, or a breach or an event of default occurs under any Loan Document
which is not cured within any applicable grace period, or Whitehead attempts to
revoke, terminate or limit the Subordination Agreement; or
(l) Any other Material Adverse Effect occurs.
7.2 Remedies. Upon the occurrence of any Event of Default described in
Section 7.1(g) or 7.1(h), the Obligations shall become immediately due and
payable without any election or action on the part of Bank without presentment,
demand, protest or notice of any kind, all of which Borrower hereby expressly
waives. Upon the occurrence and continuance of any other Event of Default, Bank
may, at its election, without notice of its election and without demand,
immediately declare the Obligations to be due and payable, whereupon the
Obligations shall become immediately due and payable, without presentment,
demand, protest or notice of any kind, all of which Borrower hereby expressly
waives.
7.3 Remedies Cumulative. The rights and remedies of Bank
herein and in the Loan Documents are cumulative, and are not exclusive of any
other rights, powers, privileges, or remedies, now or hereafter existing, at
law, in equity or otherwise.
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ARTICLE VIII
TAXES
8.1 Taxes on Payments. All payments in respect of the
Obligations shall be made free and clear of and without any deduction or
withholding for or on account of any present and future taxes, assessments or
governmental charges imposed by the United States of America, or any political
subdivision or taxing authority thereof or therein (all such taxes being
hereinafter called "Taxes"), except as expressly provided in this Section 8.1.
If any Taxes are imposed and required by law to be deducted or withheld from any
amount payable to Bank, then Borrower shall (i) increase the amount of such
payment so that Bank will receive a net amount (after deduction of all Taxes)
equal to the amount due hereunder, (ii) pay such Taxes to the appropriate taxing
authority for the account of Bank, and (iii) as promptly as possible thereafter,
send Bank evidence showing payment thereof, together with such additional
documentary evidence as Bank may from time to time require. If Borrower fails to
perform its obligations under (H) or (iii) above, Borrower shall indemnify Bank
for any incremental taxes, interest or penalties that may become payable as a
result of any such failure.
ARTICLE IX
MISCELLANEOUS
9.1 Notices. All notices, requests and other communications to
any party hereunder shall be in writing (including telecopy, facsimile
transmission or similar writing) and shall be given to such party at its address
or telecopier number set forth on the signature pages hereof or such other
address or telecopier number as such party may hereafter specify for the purpose
by notice to the other party. Each such notice, request or other communication
shall be effective upon receipt; provided that any notice, request, or other
communication given in connection with Bank's exercise of any of its rights or
remedies hereunder, and as to which there exists applicable statutory or common
law governing such notice, request or other communication, shall be effective in
accordance with such applicable statutory law irrespective of when received by
Borrower.
9.2 No Waivers. No failure or delay by Bank in exercising any
right, power or privilege hereunder or under any Loan Document shall operate as
a waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege.
9.3 Bank Expenses: Documentary Taxes: Indemnification.
(a) Borrower shall pay all Bank Expenses on demand,
including: (i) all out-of-pocket expenses of Bank, including attorneys' fees
(including attorneys' fees incurred pursuant to proceedings arising under the
Bankruptcy Code) and expenses
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incurred in connection with the negotiation, preparation, and enforcement of
this Agreement, the Loan Documents, or any other document, instrument or
agreement entered into in connection herewith, and the consummation of the
transactions contemplated hereunder and thereunder, any waiver, forbearance, or
consent hereunder or thereunder, or any amendment thereof or any Event of
Default hereunder or thereunder; and (ii) if an Event of Default occurs, all
out-of-pocket expenses incurred by Bank, including attorneys' fees (including
attorneys' fees incurred pursuant to proceedings arising under the Bankruptcy
Code) and expenses incurred (including allocated costs for in-house legal
services) in connection with such Event of Default, collection and other
enforcement proceedings resulting therefrom or in connection with any
refinancing or restructuring of the Obligations and the liabilities of Borrower
under this Agreement, any of the Loan Documents, or any other document,
instrument or agreement entered into in connection herewith in the nature of a
"workout."
(b) Borrower shall indemnify Bank against any
transfer taxes, documentary taxes, assessments, or charges made by any
Governmental Authority of the United States of America, or any political
subdivision or Governmental Authority thereof or therein, and imposed on Bank by
reason of the execution and delivery of this Agreement, any of the Loan
Documents, or any other document, instrument or agreement entered into in
connection herewith, excluding any taxes imposed on Bank under the Internal
Revenue Code or similar state and local laws and determined by Bank's net income
or revenue earned.
(c) Borrower shall and hereby agrees to indemnify,
protect, defend and hold harmless Bank and its directors, officers, agents,
employees and attorneys from and against (i) any and all losses, claims,
damages, liabilities, deficiencies, judgments, costs and expenses (including
attorneys' fees and attorneys' fees incurred pursuant to proceedings arising
under the Bankruptcy Code) incurred by any of them (except to the extent that it
is finally judicially determined to have resulted from their own gross
negligence or willful misconduct) arising out of or by reason of any
litigations, investigations, claims or proceedings (whether administrative,
judicial or otherwise), including discovery, whether or not Bank is designated a
party thereto, which arise out of or are in any way related to (1) this
Agreement, the Loan Documents, or the transactions contemplated hereby or
thereby, (2) any actual or proposed use by Borrower of the proceeds of the Loan,
or (3) Bank's entering into this Agreement, the Loan Documents or any other
agreements and documents relating hereto, (ii) any such losses, claims, damages,
liabilities, deficiencies, judgments, costs and expenses arising out of or by
reason of the use, generation, manufacture, production, storage, release,
threatened release, discharge, disposal or presence on, under or about
Borrower's operations or property or property leased by Borrower of any
material, substance or waste which is or becomes designated as Hazardous
Materials, and (iii) any such losses, claims, damages, liabilities,
deficiencies, judgments, costs and expenses incurred in connection with any
remedial or other action taken by Borrower or Bank in connection with compliance
by Borrower with any federal, state or local environmental laws, acts, rules,
regulations, orders, directions, ordinances, criteria or guidelines (except to
the
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<PAGE> 38
extent that it is finally judicially determined to have resulted from their own
gross negligence or willful misconduct). If and to the extent that the
obligations of Borrower hereunder are unenforceable for any reason, Borrower
hereby agrees to make the maximum contribution to the payment and satisfaction
of such obligations of Bank which is permissible under applicable law.
Borrower's obligations under this Section 9.3 shall survive any termination of
this Agreement and the other Loan Documents and the payment in full of the
Obligations, and are in addition to, and not in substitution of, any other of
its obligations set forth in this Agreement.
9.4 Amendments and Waivers. Any provision of this Agreement or
any of the Loan Documents to which Borrower is a party may be amended or waived
if, but only if, such amendment or waiver is in writing and is signed by the
party asserted to be bound thereby, and then such amendment or waiver shall be
effective only in the specific instance and specific purpose for which given.
9.5 Successors and Assigns; Participations; Disclosure.
(a) This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns,
except that Borrower may not assign or transfer any of its rights or obligations
under this Agreement without the prior written consent of Bank and any such
prohibited assignment or transfer by Borrower shall be void.
(b) Bank may make, carry or transfer the Loan at, to
or for the account of, any of its branch offices or the office of an Affiliate
of Bank or to any Federal Reserve Bank, all without Borrower's consent.
(c) Bank may, at its own expense, assign to one or
more banks or other financial institutions all or a portion of its rights
(including voting rights) and obligations under this Agreement and the Loan
Documents. In the event of any such assignment by Bank pursuant to this Section
9.5(c), Bank's obligations under this Agreement arising after the effective date
of such assignment shall be released and concurrently therewith, transferred to
and assumed by Bank's assignee to the extent provided for in the document
evidencing such assignment, and Bank shall give prompt notice of such assignment
to Borrower.
(d) Bank may at any time sell to one or more banks or
other financial institutions (each a "Participant") participating interests in
the Loan, and in any other interest of Bank hereunder. In the event of any such
sale by Bank of a participating interest to a Participant, Bank's obligations
under this Agreement shall remain unchanged, Bank shall remain solely
responsible for the performance thereof, and Borrower shall continue to deal
solely and directly with Bank in connection with Bank's rights and obligations
under this Agreement. Borrower agrees that each Participant shall, to the extent
provided in its participation agreement, be entitled to the benefits of Article
VIII with respect to its participating interest.
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(e) Borrower authorizes Bank to disclose to any
assignee under Section 9.5(c) or any Participant (either, a "Transferee") and
any prospective Transferee any and all financial information in Bank's
possession concerning Borrower which has been delivered to Bank by Borrower
pursuant to this Agreement or which has been delivered to Bank by Borrower in
connection with Bank's credit evaluation prior to entering into this Agreement.
(f) Borrower agrees that Bank may use Borrower's name
in advertising and promotional materials upon Borrower's consent with respect
thereto, which consent shall not be unreasonably withheld or delayed, and in
conjunction therewith Bank may disclose the general terms of this Agreement.
9.6 Counterparts; Integration. This Agreement may be signed
in any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement constitutes the entire agreement and understanding among the
parties hereto and supersedes any and all prior agreements and understandings,
oral or written, relating to the subject matter hereof.
9.7 Severability. The provisions of this Agreement are
severable. The invalidity, in whole or in part, of any provision of this
Agreement shall not affect the validity or enforceability of any other of its
provisions. If one or more provisions hereof shall be declared invalid or
unenforceable, the remaining provisions shall remain in full force and effect
and shall be construed in the broadest possible manner to effectuate the
purposes hereof.
9.8 Governing Law; Jurisdiction.
(a) GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED TO
HAVE BEEN MADE IN THE STATE OF CALIFORNIA AND THE VALIDITY, CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT HEREOF, AND THE RIGHTS OF THE PARTIES HERETO,
SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW.
(b) JURISDICTION AND VENUE. THE PARTIES HERETO AGREE
THAT ANY ACTION OR PROCEEDING PURSUANT TO OR ARISING IN CONNECTION WITH THIS
AGREEMENT OR THE LOAN DOCUMENTS SHALL BE HELD ONLY IN THE CITY AND COUNTY OF LOS
ANGELES, STATE OF CALIFORNIA, OR AT THE SOLE OPTION OF BANK, IN ANY OTHER FORUM
IN WHICH BANK INITIATES PROCEEDINGS AND WHICH HAS JURISDICTION OVER THE SUBJECT
MATTER AND PARTIES IN CONTROVERSY. THE PARTIES HERETO HEREBY WAIVE ANY RIGHT
EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO
VENUE TO THE
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EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 9.8(b) AND
STIPULATE THAT ANY FORUM LOCATED IN THE CITY AND COUNTY OF LOS ANGELES, STATE OF
CALIFORNIA, SHALL HAVE IN PERSONAM JURISDICTION AND VENUE OVER EACH SUCH PARTY
FOR THE PURPOSE OF ADJUDICATING, ARBITRATING, OR RESOLVING ANY SUCH DISPUTE,
CONTROVERSY, OR PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE
LOAN DOCUMENTS. SERVICE OF PROCESS SUFFICIENT FOR PERSONAL JURISDICTION IN ANY
ACTION AGAINST BORROWER MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN
RECEIPT REQUESTED, TO ITS ADDRESS SPECIFIED FOR NOTICES PURSUANT TO SECTION 9.1.
9.9 WAIVER OF JURY TRIAL. BORROWER AND BANK EACH HEREBY
EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY ACTION, CAUSE OF ACTION,
CLAIM, DEMAND, OR PROCEEDING ARISING UNDER OR WITH RESPECT TO THIS AGREEMENT OR
THE LOAN DOCUMENTS, OR IN ANY WAY CONNECTED WITH, RELATED TO, OR INCIDENTAL TO
THE DEALINGS OF WITH RESPECT TO THIS AGREEMENT, THE LOAN DOCUMENTS OR THE
TRANSACTIONS RELATED HERETO AND THERETO, IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE.
BORROWER AND BANK EACH HEREBY AGREES THAT ANY SUCH ACTION, CAUSE OF ACTION,
CLAIM, DEMAND, OR PROCEEDING SHALL BE DECIDED BY A COURT TRIAL WITHOUT A JURY
AND THAT EITHER PARTY MAY FILE AN ORIGINAL COUNTERPART OF THIS SECTION 9.9 WITH
ANY COURT OR OTHER TRIBUNAL AS WRITTEN EVIDENCE
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OF THE CONSENT OF THE OTHER PARTY TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
BORROWER: UNISON HEALTHCARE CORPORATION,
a Delaware corporation
By /s/ Jerry M. Walker
--------------------------------------
Title: President
----------------------------------
Address for Notices:
7272 E. Indian School Road, Suite 214
Scottsdale, Arizona 85251
Attn: Chief Financial Officer
Telephone: (602) 423-1954
Facsimile: (602) 481-6479
BANK: IMPERIAL BANK
By /s/ Thomas H. Shinkle
--------------------------------------
Title:
----------------------------------
Address for Notices:
Imperial Bank
Attn: Mark W. Campbell
Regional Vice President
201 North Figueroa Street
Los Angeles, California 90012
Telephone: (213) 484-3738
Facsimile: (213) 484-3721
34
<PAGE> 1
Exhibit 10.105
PROMISSORY NOTE
(Note One)
$5,000,000 Los Angeles, California
August 16, 1996
1. FOR VALUE RECEIVED, UNISON HEALTHCARE CORPORATION, a Delaware
corporation ("Maker"), promises to pay to the order of IMPERIAL BANK, a
California banking corporation ("Payee"), the principal sum of Five Million
Dollars ($5,000,000) plus interest in the manner and upon the terms and
conditions set forth below.
2. This Promissory Note (this "Note") shall bear interest at the rate
of nine and three quarters percent (9.75%) per annum. Maker promises to pay all
accrued interest hereunder, in arrears, on the first Business Day of each and
every month. All computations of interest shall be in accordance with the
provisions of the Agreement (as hereinafter defined).
3. Maker further promises to pay the outstanding principal balance
hereof, together with all accrued but unpaid interest thereon, on February 16,
1997.
4. This Note may be prepaid at any time, in whole or in part, without
any premium or penalty whatsoever.
5. If any payment due hereunder shall not be paid when due (whether at
the stated maturity, by acceleration or otherwise) and any applicable grace
period has expired, in addition to and not in substitution of any other rights
and remedies which Payee may have with respect to such nonpayment, the entire
principal amount owing hereunder shall bear interest at the rate of fourteen and
three quarters percent (14.75%) per annum, effective on the day following the
expiration of the grace period with respect thereto and continuing until such
overdue payment is paid in full. In addition, interest due hereunder not paid
when due shall bear interest at the rate of fourteen and three quarters percent
(14.75%) per annum, effective on the day following the expiration of the grace
period with respect thereto and continuing until such overdue interest payment
is paid in full.
6. If any payment due hereunder, whether for principal, interest,
Funding Fees, or otherwise, is not paid on or before the tenth day after the
date such payment is due, in addition to and not in substitution of any of
Payee's other rights and remedies with respect to such nonpayment, Maker shall
pay to Payee, a late payment fee ("Late Payment Fee") equal to five percent (5%)
of the amount of such overdue payment. The Late
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<PAGE> 2
Payment Fee shall be due and payable on the eleventh day after the due date of
the overdue payment with respect thereto.
7. Maker shall make all payments hereunder in lawful money of the
United States of America and in immediately available funds to Payee at Payee's
office located at 9920 South La Cienega Boulevard, Suite 628, Inglewood, CA
90301, Attention Lending Services Department; or to such other address as Payee
may from time to time specify by notice to Maker.
8. In no event shall the interest rate and other charges hereunder
exceed the highest rate permissible under any law which a court of competent
jurisdiction shall, in a final determination, deem applicable hereto. In the
event that such a court determines that Payee has received interest and other
charges hereunder in excess of the highest rate applicable hereto, such excess
shall be deemed received on account of, and shall automatically be applied to
reduce, the principal balance hereof, and the provisions hereof shall be deemed
amended to provide for the highest permissible rate. If there is no principal
balance outstanding, Payee shall refund to Maker such excess.
9. This Note is the Note One referred to in that certain Loan
Agreement, dated as of August 16, 1996 (as may be at any time hereafter amended,
supplemented, or otherwise modified or restated, the "Agreement"), by and
between Maker, as Borrower, and Payee, as Bank, and is governed by the terms
thereof. Initially capitalized terms used but not defined herein shall have the
meanings assigned to such terms in the Agreement. The Agreement, among other
things, contains provisions for acceleration of the maturity of this Note upon
the happening of certain stated events and also for prepayments on account of
principal of this Note prior to the maturity hereof upon the terms and
conditions specified in the Agreement.
10. This Note is secured by the Liens granted to Payee under the Loan
Documents.
11. Maker hereby waives presentment for payment, notice of dishonor,
protest and notice of protest.
12. This Note shall be governed by and construed in accordance with the
internal laws of the State of California without regard to principles of
conflicts of laws.
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<PAGE> 3
IN WITNESS WHEREOF, Maker has duly executed this Note as of the date
first above written.
UNISON HEALTHCARE CORPORATION,
a Delaware corporation
By /s/ Jerry M. Walker
-----------------------------
Title: President
-------------------
3
<PAGE> 1
Exhibit 10.106
Schedule of Omitted Documents
Security Agreement - Stock Pledge (Direct Subsidiary) dated as of August 16,
1996 between Unison HealthCare Corporation and Imperial Bank and Acknowledgment
and Consent of SunQuest SPC, Inc.
Security Agreement - Stock Pledge (Direct Subsidiary) dated as of August 16,
1996 between Unison HealthCare Corporation and Imperial Bank and Acknowledgment
and Consent of BritWill HealthCare Company
Security Agreement - Stock Pledge (Direct Subsidiary) dated as of August 16,
1996 between Unison HealthCare Corporation and Imperial Bank and Acknowledgment
and Consent of Quest Pharmacies, Inc.
Security Agreement - Stock Pledge (Direct Subsidiary) dated as of August 16,
1996 between Unison HealthCare Corporation and Imperial Bank and Acknowledgment
and Consent of SunBelt Therapy Management Services, Inc.
<PAGE> 2
Exhibit 10.106
SECURITY AGREEMENT - STOCK PLEDGE
(DIRECT SUBSIDIARY)
This SECURITY AGREEMENT - STOCK PLEDGE (this "Agreement"), dated as of
August _, 1996, is entered into by and between UNISON HEALTHCARE CORPORATION, a
Delaware corporation ("Pledgor"), with its chief executive office located at
7272 E. Indian School Road, Suite 214, Scottsdale, Arizona 85251, and IMPERIAL
BANK, a California banking corporation ("Pledgee"), with reference to the
following facts:
RECITALS
A. Pledgor and Pledgee are contemporaneously herewith entering into or
have previously entered into that certain Loan Agreement, dated as of August _,
1996 (as the same may be amended, restated, modified or supplemented from time
to time in accordance with its terms, the "Loan Agreement").
B. Pledgor has agreed to provide security for its obligations under the
Loan Agreement by pledging to Pledgee all of Pledgor's right, title and interest
in and to all of the capital stock of Company, now owned or hereafter acquired
by Pledgor.
AGREEMENT
NOW THEREFORE, in consideration of the mutual promises, covenants,
conditions, representations, and warranties hereinafter set forth and for other
good and valuable consideration, the parties hereto mutually agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
(a) DEFINITIONS. All initially capitalized terms used but not
defined in this Agreement shall have the meanings assigned to such terms in the
Loan Agreement. In addition, the following terms, as used in this Agreement,
have the following meanings:
"Code" means the California Uniform Commercial Code, as
amended and supplemented from time to time, and any successor statute; provided,
however, with respect to any Collateral consisting of "uncertificated
securities" (as defined in Division 8 of the Code), "Code" shall mean the
Uniform Commercial Code as adopted in the state of organization of the Company,
as amended and supplemented from time to time, and any successor statute.
1
<PAGE> 3
"Collateral" means all of the following:
(i) ____________________ (_____) shares of the
outstanding Common Stock, $______ par value, of Company, which shares constitute
_____________ percent (__%) of the outstanding capital stock of Company, and all
of the hereafter-acquired shares of Common Stock of Company in which Pledgor has
an interest at any time while this Agreement is in effect (collectively, the
"Shares");
(ii) All of Pledgor's presently existing and
hereafter arising stock subscription warrants, stock options, or other rights to
purchase Company's capital stock and all rights represented thereby (the
"Options"); and
(iii) The proceeds of each of the foregoing,
including any and all dividends, cash, stock, instruments, and other property
from time to time received, receivable, or otherwise distributed in respect of
or in exchange for any of the Shares or Options (the "Proceeds").
"Company" means ________________________.
"Event of Default" has the meaning given to such term
in Section 10.
"Secured Obligations" means Obligations (as defined
in the Loan Agreement) and the obligations of Pledgor hereunder.
"'33 Act" means the Securities Act of 1933, as
amended and supplemented from time to time, and any successor statute, and any
and all rules promulgated in connection therewith.
(b) CONSTRUCTION. Unless the context of this Agreement clearly
requires otherwise, references to the plural include the singular, references to
the singular include the plural, and the term "including" is not limiting. The
words "hereof," "herein," "hereby," "hereunder," and other similar terms refer
to this Agreement as a whole and not to any particular provision of this
Agreement. Any reference herein to any document includes any and all
alterations, amendments, extensions, modifications, renewals, or supplements
thereto or thereof, as applicable. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against Pledgee or Pledgor,
whether under any rule of construction or otherwise. On the contrary, this
Agreement has been reviewed by Pledgor, Pledgee, and their respective counsel,
and shall be construed and interpreted according to the ordinary meaning of the
words used so as to fairly accomplish the purposes and intentions of Pledgee and
Pledgor.
2. PLEDGE. As security for the prompt and complete payment and
performance of the Secured Obligations, Pledgor hereby delivers, pledges, and
grants to
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<PAGE> 4
Pledgee a continuing security interest in all of Pledgor's now-owned or
hereafter-acquired right, title, and interest in and to the Collateral. All
certificates or instruments representing or evidencing the Collateral shall be
delivered promptly to and held by Pledgee pursuant hereto and shall be in
suitable form for transfer or assignment in blank, all in form and substance
satisfactory to Pledgee. In the event that the securities that comprise the
Collateral are uncertificated or in book entry form, then Pledgor shall take
such actions as may be required to cause Company to register or enter, as the
case may be, such Collateral in the name of Pledgee, and otherwise take such
actions as Pledgee may require for Pledgee's security interest therein to be
perfected in accordance with Section 8313 and 8321 of the Code. In addition,
Pledgor shall provide Pledgee with an opinion of counsel satisfactory to
Pledgee, to the effect that Pledgee has a perfected security interest in the
Collateral and such other opinions as Pledgee may require, in form and substance
satisfactory to Pledgee.
3. FURTHER ASSURANCES. Pledgor agrees that it shall cooperate with
Pledgee and shall execute and deliver, or cause to be executed and delivered, to
Pledgee all stock powers, proxies, assignments, financing statements,
instruments, and other documents, and shall take all further action, at the
expense of Pledgor, from time to time requested by Pledgee, in order to maintain
a continuing, first-priority, perfected security interest in the Collateral in
favor of Pledgee, and to enable Pledgee to exercise and enforce its rights and
remedies hereunder with respect to the Collateral, and Pledgor agrees that it
shall execute and deliver to Pledgee at Pledgee's request any further
applications, agreements, documents and instruments, and shall perform any and
all acts deemed necessary by Pledgee to carry into effect the terms, conditions,
and provisions of this Agreement and the transactions connected herewith. Should
Pledgor fail to execute or deliver any such applications, agreements, documents,
financing statements and instruments, or to perform any such acts, Pledgor
acknowledges that Pledgee may execute and deliver the same and perform such acts
in the name of Pledgor and on its behalf as its attorney-in-fact in accordance
with Section 12.
4. PLEDGEE'S DUTIES. Pledgee shall not have any duties with respect to
the Collateral other than the duty to use reasonable care if the Collateral is
in its possession. In accordance with Section 9207 of the Code, Pledgee shall be
deemed to have used reasonable care if it observes substantially the same
standard of care with respect to the custody or preservation of the Collateral
as it observes with respect to similar assets owned by Pledgee. Without limiting
the generality of the foregoing, Pledgee shall be under no obligation to take
any steps necessary to preserve rights in the Collateral against any other
parties, to sell the same if it threatens to decline in value, or to exercise
any rights represented thereby (including rights with respect to calls,
conversions, exchanges, maturities, or tenders); provided, however, that at any
time that an Event of Default is continuing Pledgee may, at its option, do so,
and any and all expenses incurred in connection therewith shall be for the
account of Pledgor.
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<PAGE> 5
5. VOTING RIGHTS; DIVIDENDS; ETC.
5.1 During the term of this Agreement, and as long as no Event
of Default is continuing:
(a) Pledgor shall be entitled to exercise any and all voting
and other consensual rights pertaining to the Shares or any part thereof;
provided, however, no vote shall be cast or any consent, waiver or ratification
given or any action taken which would violate or be inconsistent with the terms
of this Agreement, the Loan Agreement or any other instrument or agreement
referred to therein or herein, or which could have the effect of impairing the
value of the Collateral or any part thereof or the position or interest of
Pledgee therein.
(b) Pledgor shall be entitled to receive and retain any and
all dividends and distributions paid in respect of the Shares not otherwise
prohibited by the Loan Agreement; provided, however, that any and all:
(i) dividends and distributions paid or payable other
than in cash in respect of, and any and all additional Shares or instruments or
other property received, receivable, or otherwise distributed in respect of, or
in exchange for, any Shares;
(ii) dividends and distributions paid or payable in
cash in respect of any Shares in connection with a partial or total liquidation
or dissolution, merger, consolidation of Company, or any exchange of stock,
conveyance of assets, or similar corporate reorganization; and
(iii) cash paid with respect to, payable, or
otherwise distributed on redemption of, or in exchange for, any Shares,
shall be forthwith delivered to Pledgee to hold as Collateral and shall, if
received by Pledgor, be received in trust for the benefit of Pledgee, be
segregated from the other property or funds of Pledgor, and be forthwith
delivered to Pledgee as Collateral in the same form as so received (with any
necessary endorsement), and, if deemed appropriate by Pledgee, Pledgor shall
take such actions, including the actions described in Section 2, as Pledgee
may require.
5.2 If an Event of Default shall be continuing or any amounts
shall be due and payable (whether by acceleration, maturity, or otherwise) under
any of the Secured Obligations, all rights of Pledgor to exercise the voting and
other consensual rights that it would otherwise be entitled to exercise pursuant
to Section 5.1(a) and to receive the dividends and distributions that it would
otherwise be authorized to receive and retain pursuant to Section 5.1(b) shall,
at Pledgee's option, cease, and all such rights shall, at Pledgee's option,
thereupon become vested in Pledgee, and Pledgee shall, at its option, thereupon
have the sole right to exercise such voting and other consensual rights and to
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<PAGE> 6
receive and hold as Collateral such dividends and interest payments. Any
payments received by Pledgor contrary to the provisions of this Section 5.2
shall be held in trust by Pledgor for the benefit of Pledgee, shall be
segregated from other funds of Pledgor, and shall be promptly paid over to
Pledgee, with any necessary endorsement.
6. REPRESENTATIONS, WARRANTIES, AND COVENANTS. Pledgor warrants,
represents, and covenants that on the date hereof and the date of funding the
Loan Two:
6.1 There are no restrictions upon the transfer of any of the
Collateral to or by Pledgee and Pledgor is the sole beneficial owner of the
Collateral and has the right to pledge and grant a security interest in or
otherwise transfer such Collateral free of any encumbrances or rights of third
parties.
6.2 All of the Collateral is and shall remain free from all
liens, claims, encumbrances, and purchase-money or other security interests
except as created hereby. Pledgor shall not, without Pledgee's prior written
consent, sell or otherwise dispose of any of the Collateral.
6.3 The execution and delivery of this Agreement, and the
delivery to Pledgee of the Shares creates a valid, perfected, and first-priority
security interest in the Collateral in favor of Pledgee, and all actions
necessary or desirable to such perfection have been duly taken.
6.4 No authorization or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required either:
(a) for the grant by Pledgor of the security interest granted hereby or for the
execution, delivery, or performance of this Agreement by Pledgor; (b) for the
perfection of or exercise by Pledgee of its rights and remedies hereunder
(except as may have been taken by or at the direction of Pledgor or as may be
required in connection with a disposition of the Collateral by laws affecting
the offering and sale of securities generally); or (c) for the exercise by
Pledgee of the voting or other rights provided for in this Agreement or the
remedies in respect of the Collateral pursuant to this Agreement (except as may
be required in connection with a disposition of the Collateral by laws affecting
the offering and sale of securities generally).
6.5 The pledge of the Collateral pursuant to this Agreement,
and the making of the loans in accordance with the terms of the Loan Agreement,
does not violate Regulation G, T, U, or X of the Board of Governors of the
Federal Reserve System.
6.6 Company presently has issued and outstanding
__________________ (___________) shares of Common Stock of which _____________
(___%) is owned by Pledgor and they constitute, respectively, all of the capital
stock of Company and the Shares referenced herein.
6.7 There are no presently existing Options.
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<PAGE> 7
6.8 All of the outstanding Shares have been duly and validly
issued by Company, and they are fully paid and nonassessable.
6.9 Pledgor has made its own arrangements for keeping informed
of changes or potential changes affecting the Collateral (including, but not
limited to, rights to convert, rights to subscribe, payment of dividends,
reorganization or other exchanges, tender offers, and voting rights), and
Pledgor agrees that Pledgee shall not have any responsibility or liability for
informing Pledgor of any such changes or potential changes or for taking any
action or omitting to take any action with respect thereto.
6.10 Pledgor's chief executive office is located at the
address indicated in the preamble hereof. Pledgor shall at all times keep its
books and records concerning the Collateral at its chief executive office.
Pledgor shall not change the location of its chief executive office without
giving Pledgee at least thirty (30) days' prior written notice thereof.
6.11 Pledgor will prevent the Company from issuing any
additional Collateral unless Pledgee is satisfied, in its sole and absolute
discretion, that all actions have been taken which are necessary to perfect
Pledgee's security interest in such Collateral.
7. SHARE ADJUSTMENTS. In the event that during the term of this
Agreement any reclassification, readjustment, or other change is declared or
made in the capital structure of Company, or any Option is exercised, all new
substituted and additional shares, options, or other securities, issued or
issuable to Pledgor by reason of any such change or exercise shall be delivered
to and held by Pledgee under the terms of this Agreement in the same manner as
the Collateral originally pledged hereunder.
8. OPTIONS. In the event that during the term of this Agreement Options
shall be issued or exercised in connection with the Collateral, such Options
acquired by Pledgor shall be immediately assigned by Pledgor to Pledgee and all
new shares or other securities so acquired by Pledgor shall also be immediately
assigned to Pledgee to be held under the terms of this Agreement in the same
manner as the Collateral originally pledged hereunder.
9. CONSENT. Pledgor hereby consents that, from time to time, before or
after the occurrence or existence of any Event of Default with or without notice
to or assent from Pledgor, any other security at any time held by or available
to Pledgee for any of the Secured Obligations or any other security at any time
held by or available to Pledgee of any other person, firm, or corporation
secondarily or otherwise liable for any of the Secured Obligations, may be
exchanged, surrendered, or released and any of the Secured Obligations may be
changed, altered, renewed, extended, continued, surrendered, compromised,
waived, or released, in whole or in part, as Pledgee may see fit. Pledgor shall
remain bound under this Agreement notwithstanding any such exchange, surrender,
release,
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alteration, renewal, extension, continuance, compromise, waiver, or inaction, or
extension of further credit.
10. EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an event of default ("Event of Default") under this Agreement:
10.1 The occurrence of an Event of Default under the Loan
Agreement;
10.2 Pledgor shall breach, or be in default of, any of its
agreements, covenants and obligations hereunder; or
10.3 Any representation or warranty made by Pledgor hereunder
shall prove to have been untrue in any material respect when made.
11. REMEDIES UPON DEFAULT.
11.1 Upon the occurrence of an Event of Default, Pledgee shall
have, in addition to any other rights given by law or in this Agreement, in the
Loan Agreement, or in any other agreement between Pledgee and Pledgor, all of
the rights and remedies with respect to the Collateral of a secured party under
the Code, and also shall have, without limitation, the following rights, which
Pledgor hereby agrees to be commercially reasonable:
(a) to receive all amounts payable in respect of the
Collateral to Pledgor under Section 5.1(b) hereof;
(b) to register all or any part of the Collateral on
the books of the Company in Pledgee's name or the name of its nominee or
nominees;
(c) to vote all or any part of the Shares (whether or
not transferred into the name of the Pledgee) in accordance with Section 5.2
hereof, and give all consents, waivers and ratifications in respect of the
Collateral and otherwise act with respect thereto as though it were the outright
owner thereof; PLEDGOR HEREBY IRREVOCABLY CONSTITUTES AND APPOINTS PLEDGEE THE
PROXY AND ATTORNEY-IN-FACT OF PLEDGOR, COUPLED WITH AN INTEREST, WITH FULL POWER
OF SUBSTITUTION FOR ANY AND ALL OF SUCH PURPOSES; WHICH PROXY AND POWER OF
ATTORNEY SHALL CONTINUE IN FULL FORCE AND EFFECT AND TERMINATE UPON THE EARLIER
TO OCCUR OF (a) THE INDEFEASIBLE PAYMENT IN FULL OF THE SECURED OBLIGATIONS, OR
(b) TEN (10) YEARS FROM THE DATE HEREOF.
(d) at any time or from time to time, to sell, assign
and deliver, or grant options to purchase, all or any part of the Collateral, or
any interest
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<PAGE> 9
therein, at any public or private sale, without demand of performance,
advertisement or notice of intention to sell or of the time or place of sale or
adjournment thereof or to redeem or otherwise (all of which are hereby waived by
Pledgor), for cash, on credit or for other property, for immediate or future
delivery without any assumption of credit risk, and for such price or prices and
on such terms as the Pledgee in its absolute discretion may determine; provided,
that at least five (5) days notice of the time and place of any such sale shall
be given to Pledgor. Pledgee shall not be obligated to make any such sale of
Collateral regardless of whether any such notice of sale has therefore been
given. Pledgor hereby waives any other requirement of notice, demand, or
advertisement for sale, to the extent permitted by law. Pledgor hereby waives
and releases to the fullest extent permitted by law any right or equity of
redemption with respect to the Collateral, whether before or after sale
hereunder, and all rights, if any, of marshalling the Collateral and any other
security for the Secured Obligations or otherwise. At any such sale, unless
prohibited by applicable law, Pledgee may bid for and purchase all or any part
of the Collateral so sold free from any such right or equity of redemption.
Pledgee shall not be liable for failure to collect or realize upon any or all of
the Collateral or for any delay in so doing nor shall Pledgee be under any
obligation to take any action whatsoever with regard thereto;
(e) to buy the Collateral, in its own name, or in the
name of a designee or nominee. Pledgee shall have the right to execute any
document or form, in its name or in the name of the Pledgor, that may be
necessary or desirable in connection with such sale of the Collateral.
(f) to sell all or any part of the Collateral by a
private placement, restricting bidders and prospective purchasers to those who
will represent and agree that they are purchasing for investment only and not
for distribution. In so doing, Pledgee may solicit offers to buy the Collateral,
or any part of it for cash, from a limited number of investors deemed by
Pledgee, in its reasonable judgment, to be responsible parties who might be
interested in purchasing the Collateral. If Pledgee shall solicit such offers
from not less than four (4) such investors, then the acceptance by Pledgee of
the highest offer obtained therefore shall be deemed to be a commercial
reasonable method of disposition of such Collateral, even though the sales price
established and/or obtained may be substantially less than the price that would
be obtained pursuant to a public offering. Notwithstanding the foregoing, should
Pledgee determine that, prior to any public offering of any securities contained
in the Collateral, such securities should be registered under the '33 Act and/or
registered or qualified under any other federal or state law, and that such
registration and/or qualification is not practical, Pledgor agrees that it will
be commercially reasonable if a private sale is arranged so as to avoid a public
offering even if offers are solicited from fewer than four (4) investors, and
even though the sales price established and/or obtained may be substantially
less than the price that would be obtained pursuant to a public offering.
11.2 If Pledgee shall determine to exercise its right to sell
all or any of the Collateral, and if, in the opinion of counsel for Pledgee, it
is necessary, or if, in the
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opinion of Pledgee, it is advisable, to have the Collateral, or the portion
thereof to be sold, registered under the provisions of the '33 Act, the Pledgor
agrees, at its own expense (as more fully provided in Section 11.3):
(a) to execute and deliver, and to use its best
efforts to cause Company and its directors and officers to execute and deliver
all such instruments and documents, and to do or cause to be done all other such
acts and things, as may be necessary or, in the opinion of the Pledgee,
advisable to register the Collateral, or the portion thereof to be sold, under
the provisions of the '33 Act and to cause the registration statement relating
thereto to become effective and to remain effective for such period as
prospectuses are required by law to be furnished, and to make or cause to be
made all amendments and supplements thereto and to the related prospectus that,
in the opinion of Pledgee, are necessary or advisable, all in conformity with
the requirements of the '33 Act and the rules and regulations of the Securities
and Exchange Commission applicable thereto;
(b) to use its best efforts to cause Company to agree
to make, and to make available to its security holders as soon as practicable,
an earnings statement (which need not be audited) covering a period of at least
twelve (12) months, beginning with the first month after the effective date of
any such registration statement, which earnings statement will satisfy the
provisions of Section 11(a) of the '33 Act;
(c) to use its best efforts to qualify the Collateral
under state Blue Sky or securities laws and to obtain the approval of any
governmental authorities for the sale of the Collateral, as requested by
Pledgee; and
(d) at the request of Pledgee, to indemnify and hold
harmless Pledgee and any underwriters (and any Person controlling Pledgee or
such underwriters) from and against any loss, liability, claim, damage, and
expenses (and reasonable counsel fees incurred in connection therewith) under
the '33 Act or otherwise insofar as such loss, liability, claim, damage, or
expense arises out of or is based upon any untrue statement or alleged untrue
statement of a material fact contained in such registration statement or
prospectus or in any preliminary prospectus or any amendment or supplement
thereto, or arises out of or is based upon any omission or alleged omission to
state therein a material fact required to be stated or necessary to make the
statements therein not misleading, such indemnification to remain operative
regardless of any investigation made by or on behalf of Pledgee or any
underwriters (or any Person controlling Pledgee or such underwriters).
11.3 Expenses payable by Pledgor in connection with any
disposition under Section 11.2 shall include, but shall not be limited to, all
costs of a registration under the '33 Act of any Collateral or of sale of any
Collateral pursuant to Regulation A under the '33 Act, brokers' or
underwriters' commissions, fees, or discounts, accounting and legal fees, costs
of printing and other expenses of transfer and sale.
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12. PLEDGEE AS PLEDGOR'S ATTORNEY-IN-FACT. Pledgor hereby irrevocably
appoints Pledgee as its attorney-in-fact, coupled with an interest, at any time
after the occurrence and during the continuance of an Event of Default, (i) to
arrange for the register of the Collateral on the books of Company to the name
of Pledgee or to the name of Pledgee's nominee and (ii) to receive, endorse and
collect all instruments made payable to Pledgor of any dividend, distribution or
other payment on account of the Collateral, or any part thereof, and to give
full discharge for the same and to execute and file governmental notifications
and reporting forms. Pledgor further authorizes Pledgee to perform any and all
acts which Pledgee deems necessary for the protection and preservation of the
Collateral or of the value of Pledgee's security interest therein, including but
not limited to receiving income thereon as additional security hereunder, all at
Pledgor's expense, and Pledgor agrees to repay Pledgee promptly upon demand any
amounts expended hereunder by Pledgee, together with interest thereon. Pledgor
further grants to Pledgee a power of attorney coupled with an interest to
execute all agreements, forms, applications, documents and instruments and to
take all actions and do all things as could be executed, taken, or done by
Pledgor in connection with the protection and preservation of the Collateral or
this Agreement. This power of attorney is irrevocable and authorizes Pledgee to
act for Pledgor in connection with the matters described herein without notice
to or demand upon Pledgor.
13. GENERAL PROVISIONS.
13.1 CUMULATIVE REMEDIES; NO PRIOR RECOURSE TO COLLATERAL. The
enumeration herein of Pledgee's rights and remedies is not intended to be
exclusive, and such rights and remedies are in addition to and not by way of
limitation of any other rights or remedies that the Pledgee may have under the
Loan Agreement, the Credit Documents, the Code, or other applicable law. Pledgee
shall have the right, in its sole discretion, to determine which rights and
remedies are to be exercised and in which order. The exercise of one right or
remedy shall not preclude the exercise of any others, all of which shall be
cumulative.
13.2 NO IMPLIED WAIVERS. No act, failure, or delay by Pledgee
shall constitute a waiver of any of its rights and remedies. No single or
partial waiver by Pledgee of any provision of this Agreement or any other Loan
Document, or of a breach or default hereunder or thereunder, or of any right or
remedy which the Pledgee may have, shall operate as a waiver of any other
provision, breach, default, right, or remedy or of the same provision, breach,
default, right, or remedy on a future occasion. No waiver by Pledgee shall
affect its rights to require strict performance of this Agreement.
13.3 NOTICES. All notices or demands by any party hereto to
the other party and relating to this Agreement shall be sent in accordance with
the terms of Section 9.1 of the Loan Agreement.
13.4 SUCCESSORS AND ASSIGNS. This Agreement shall bind the
successors and assigns of Pledgor, and shall inure to the benefit of the
successors and
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assigns of Pledgee; provided, however, that Pledgor may not assign this
Agreement nor delegate any of its duties hereunder without Pledgee's prior
written consent and any prohibited assignment shall be absolutely void. Pledgee
may assign this Agreement and its rights and duties hereunder and no consent or
approval by Pledgor is required in connection with any such assignment. Pledgee
reserves the right to sell, assign, transfer, negotiate, or grant participations
in all or any part of, or any interest in Pledgee's rights and benefits
hereunder. In connection with any such assignment or participation, Pledgee may
disclose all documents and information which Pledgee now or hereafter may have
relating to Pledgor or Pledgor's business to any prospective or actual
Transferee.
13.5 SECTION HEADINGS. Headings and numbers have been set
forth herein for convenience only. Unless the contrary is compelled by the
context, everything contained in each section applies equally to this entire
Agreement.
13.6 SEVERABILITY OF PROVISIONS. If any provision of this
Agreement is for any reason held to be invalid, illegal or unenforceable in any
respect, that provision shall not affect the validity, legality or
enforceability of any other provision of this Agreement.
13.7 ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This Agreement
constitutes the entire agreement between Pledgor and Pledgee pertaining to the
subject matter contained herein. Any provision of this Agreement may be amended
or waived if, but only if, such amendment or waiver is in writing and is signed
by the party asserted to be bound thereby, and then such amendment or waiver
shall be effective only in the specific instance and specific purpose for which
given.
13.8 COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may
be executed in any number of counterparts and by different parties on separate
counterparts, each of which, when executed and delivered, shall be deemed to be
an original, and all of which, when taken together, shall constitute but one and
the same Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of a manually executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver a manually executed
counterpart of this Agreement but the failure to deliver a manually executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement.
13.9 TERMINATION BY PLEDGEE. After termination of the Loan
Agreement and when Pledgee has received payment and performance, in full, of the
Secured Obligations, Pledgee shall execute and deliver to Pledgor a termination
of all of the security interests granted by Pledgor hereunder and, to the extent
they have been delivered to Pledgee and not disposed of in accordance with this
Agreement, certificates evidencing the Shares.
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14. GOVERNING LAW; JURISDICTION.
14.1 GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED TO HAVE
BEEN MADE IN THE STATE OF CALIFORNIA AND THE VALIDITY, CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT HEREOF, AND THE RIGHTS OF THE PARTIES HERETO,
SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW.
14.2 JURISDICTION AND VENUE. THE PARTIES HERETO AGREE THAT ANY
ACTION OR PROCEEDING PURSUANT TO OR ARISING IN CONNECTION WITH THIS AGREEMENT
SHALL BE HELD ONLY IN THE CITY AND COUNTY OF LOS ANGELES, STATE OF CALIFORNIA,
OR AT THE SOLE OPTION OF PLEDGOR, IN ANY OTHER FORUM IN WHICH PLEDGOR INITIATES
PROCEEDINGS AND WHICH HAS JURISDICTION OVER THE SUBJECT MATTER AND PARTIES IN
CONTROVERSY. THE PARTIES HERETO HEREBY WAIVE ANY RIGHT EACH MAY HAVE TO ASSERT
THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY
PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION AND STIPULATE THAT ANY
FORUM LOCATED IN THE CITY AND COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, SHALL
HAVE IN PERSONAM JURISDICTION AND VENUE OVER EACH SUCH PARTY FOR THE PURPOSE OF
ADJUDICATING, ARBITRATING, OR RESOLVING ANY SUCH DISPUTE, CONTROVERSY, OR
PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT. SERVICE OF PROCESS
SUFFICIENT FOR PERSONAL JURISDICTION IN ANY ACTION AGAINST PLEDGOR MAY BE MADE
BY
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REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO ITS ADDRESS SPECIFIED
FOR NOTICES PURSUANT TO SECTION 13.3 HEREOF.
IN WITNESS WHEREOF, the parties have executed this Agreement
on the date first written above.
"PLEDGOR"
UNISON HEALTHCARE CORPORATION,
a Delaware corporation
By:___________________________________
Title:_________________________
"Pledgee"
IMPERIAL BANK,
a California banking corporation
By:___________________________________
Title:_________________________
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ACKNOWLEDGMENT AND CONSENT
______________________________, a _____________ corporation ("Company")
hereby acknowledges and consents to the terms of the foregoing Security
Agreement - Stock Pledge (the "Agreement"), dated as of ____________________,
199__, by and between Unison HealthCare Corporation, a Delaware corporation
("Pledgor"), and Imperial Bank, a California banking corporation ("Pledgee").
Company agrees that it will honor the terms of, and will not take any action
contrary to, the terms of the Agreement, including without limitation, Section
6.11 thereof. Company further acknowledges and agrees that it has received a
copy of the Agreement and has registered the pledge of the Collateral (as
defined in the Agreement) in the name of Pledgee. Company acknowledges that, in
entering into the Loan Agreement (as defined in the Agreement), Pledgee is
relying on the Agreement and on Company's agreement herein; and Company agrees
that any offset or claim Company may now or hereafter have against Pledgor (or
against Pledgor's interests, claims or rights) shall be subordinate to the
claims, rights and interests of Pledgee under the Agreement. The signatories
below hereby represent and warrant to Pledgee that they are duly authorized to
execute and deliver this Acknowledgment and Consent to Pledgee and thereby bind
Company as set forth herein and in the Agreement.
Dated:________________, 199__. _________________________________,
a_______________________
By________________________________
Title:
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<PAGE> 1
Exhibit 10.107
Schedule of Omitted Documents
Security Agreement - Stock Pledge (Indirect Subsidiary) dated as of August 16,
1996 between BritWill HealthCare Company and Imperial Bank and Acknowledgment
and Consent of BritWill Investments - I, Inc.
Security Agreement - Stock Pledge (Indirect Subsidiary) dated as of August 16,
1996 between BritWill HealthCare Company and Imperial Bank and Acknowledgment
and Consent of BritWill Investments - II, Inc.
Security Agreement - Stock Pledge (Indirect Subsidiary) dated as of August 16,
1996 between BritWill HealthCare Company and Imperial Bank and Acknowledgment
and Consent of BritWill Funding Corporation
Security Agreement - Stock Pledge (Indirect Subsidiary) dated as of August 16,
1996 between BritWill Investments - II, Inc. and Imperial Bank and
Acknowledgment and Consent of Emory Care Center, Inc.
<PAGE> 2
Exhibit 10.107
SECURITY AGREEMENT - STOCK PLEDGE
(INDIRECT SUBSIDIARY)
This SECURITY AGREEMENT - STOCK PLEDGE (this "Agreement"),
dated as of August __, 1996, is entered into by and between
_______________________, a ___________________________ ("Pledgor"), with its
chief executive office located at ________________________, and IMPERIAL BANK, a
California banking corporation ("Pledgee"), with reference to the following
facts:
RECITALS
A. Pledgor and Unison HealthCare Corporation, a Delaware corporation
("Borrower"), are contemporaneously herewith entering into or have previously
entered into that certain Loan Agreement, dated as of August _, 1996 (as the
same may be amended, restated, modified or supplemented from time to time in
accordance with its terms, the "Loan Agreement").
B. Pledgor acknowledges that it will directly and materially benefit
from the proceeds of the loan made or loans under the Loan Agreement, and in
consideration thereof, Pledgor has agreed to provide security for Borrower's
obligations under the Loan Agreement by pledging to Pledgee all of Pledgor's
right, title and interest in and to all of the capital stock of Company, now
owned or hereafter acquired by Pledgor.
AGREEMENT
NOW THEREFORE, in consideration of the mutual promises, covenants,
conditions, representations, and warranties hereinafter set forth and for other
good and valuable consideration, the parties hereto mutually agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
(a) DEFINITIONS. All initially capitalized terms used but not
defined in this Agreement shall have the meanings assigned to such terms in the
Loan Agreement. In addition, the following terms, as used in this Agreement,
have the following meanings:
"Code" means the California Uniform Commercial Code,
as amended and supplemented from time to time, and any successor statute;
provided, however, with respect to any Collateral consisting of "uncertificated
securities" (as defined in Division 8 of the Code), "Code" shall mean the
Uniform Commercial Code as adopted in the state of organization of the Company,
as amended and supplemented from time to time, and any successor statute.
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"Collateral" means all of the following:
(i) ____________________________ (_________) shares
of the outstanding Common Stock, $__ par value, of Company, which shares
constitute ______________ percent (__%) of the outstanding capital stock of
Company, and all of the hereafter-acquired shares of Common Stock of Company in
which Pledgor has an interest at any time while this Agreement is in effect
(collectively, the "Shares");
(ii) All of Pledgor's presently existing and
hereafter arising stock subscription warrants, stock options, or other rights to
purchase Company's capital stock and all rights represented thereby (the
"Options"); and
(iii) The proceeds of each of the foregoing,
including any and all dividends, cash, stock, instruments, and other property
from time to time received, receivable, or otherwise distributed in respect of
or in exchange for any of the Shares or Options (the "Proceeds").
"Company" means_______________________.
"Event of Default" has the meaning given to such term
in Section 10.
"Secured Obligations" means Obligations (as defined
in the Loan Agreement) and the obligations of Pledgor hereunder.
"'33 Act" means the Securities Act of 1933, as
amended and supplemented from time to time, and any successor statute, and any
and all rules promulgated in connection therewith.
(b) CONSTRUCTION. Unless the context of this Agreement clearly
requires otherwise, references to the plural include the singular, references to
the singular include the plural, and the term "including" is not limiting. The
words "hereof," "herein," "hereby," "hereunder," and other similar terms
refer to this Agreement as a whole and not to any particular provision of this
Agreement. Any reference herein to any document includes any and all
alterations, amendments, extensions, modifications, renewals, or supplements
thereto or thereof, as applicable. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against Pledgee or Pledgor,
whether under any rule of construction or otherwise. On the contrary, this
Agreement has been reviewed by Pledgor, Pledgee, and their respective counsel,
and shall be construed and interpreted according to the ordinary meaning of the
words used so as to fairly accomplish the purposes and intentions of Pledgee and
Pledgor.
2. PLEDGE. As security for the prompt and complete payment and
performance of the Secured Obligations, Pledgor hereby delivers, pledges, and
grants to
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Pledgee a continuing security interest in all of Pledgor's now-owned or
hereafter-acquired right, title, and interest in and to the Collateral. All
certificates or instruments representing or evidencing the Collateral shall be
delivered promptly to and held by Pledgee pursuant hereto and shall be in
suitable form for transfer or assignment in blank, all in form and substance
satisfactory to Pledgee. In the event that the securities that comprise the
Collateral are uncertificated or in book entry form, then Pledgor shall take
such actions as may be required to cause Company to register or enter, as the
case may be, such Collateral in the name of Pledgee, and otherwise take such
actions as Pledgee may require for Pledgee's security interest therein to be
perfected in accordance with Sections 8313 and 8321 of the Code. In addition,
Pledgor shall provide Pledgee with an opinion of counsel satisfactory to
Pledgee, to the effect that Pledgee has a perfected security interest in the
Collateral and such other opinions as Pledgee may require, in form and substance
satisfactory to Pledgee.
3. FURTHER ASSURANCES. Pledgor agrees that it shall cooperate with
Pledgee and shall execute and deliver, or cause to be executed and delivered, to
Pledgee all stock powers, proxies, assignments, financing statements,
instruments, and other documents, and shall take all further action, at the
expense of Pledgor, from time to time requested by Pledgee, in order to maintain
a continuing, first-priority, perfected security interest in the Collateral in
favor of Pledgee, and to enable Pledgee to exercise and enforce its rights and
remedies hereunder with respect to the Collateral, and Pledgor agrees that it
shall execute and deliver to Pledgee at Pledgee's request any further
applications, agreements, documents and instruments, and shall perform any and
all acts deemed necessary by Pledgee to carry into effect the terms, conditions,
and provisions of this Agreement and the transactions connected herewith. Should
Pledgor fail to execute or deliver any such applications, agreements, documents,
financing statements and instruments, or to perform any such acts, Pledgor
acknowledges that Pledgee may execute and deliver the same and perform such acts
in the name of Pledgor and on its behalf as its attorney-in-fact in accordance
with Section 12.
4. PLEDGEE'S DUTIES. Pledgee shall not have any duties with respect to
the Collateral other than the duty to use reasonable care if the Collateral is
in its possession. In accordance with Section 9207 of the Code, Pledgee shall be
deemed to have used reasonable care if it observes substantially the same
standard of care with respect to the custody or preservation of the Collateral
as it observes with respect to similar assets owned by Pledgee. Without limiting
the generality of the foregoing, Pledgee shall be under no obligation to take
any steps necessary to preserve rights in the Collateral against any other
parties, to sell the same if it threatens to decline in value, or to exercise
any rights represented thereby (including rights with respect to calls,
conversions, exchanges, maturities, or tenders); provided, however, that at any
time that an Event of Default is continuing Pledgee may, at its option, do so,
and any and all expenses incurred in connection therewith shall be for the
account of Pledgor.
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5. VOTING RIGHTS; DIVIDENDS; ETC.
5.1 During the term of this Agreement, and as long as no Event
of Default is continuing:
(a) Pledgor shall be entitled to exercise any and all
voting and other consensual rights pertaining to the Shares or any part thereof;
provided, however, no vote shall be cast or any consent, waiver or ratification
given or any action taken which would violate or be inconsistent with the terms
of this Agreement, the Loan Agreement or any other instrument or agreement
referred to therein or herein, or which could have the effect of impairing the
value of the Collateral or any part thereof or the position or interest of
Pledgee therein.
(b) Pledgor shall be entitled to receive and retain
any and all dividends and distributions paid in respect of the Shares not
otherwise prohibited by the Loan Agreement; provided, however, that any and all:
(i) dividends and distributions paid or
payable other than in cash in respect of, and any and all additional Shares or
instruments or other property received, receivable, or otherwise distributed in
respect of, or in exchange for, any Shares;
(ii) dividends and distributions paid or
payable in cash in respect of any Shares in connection with a partial or total
liquidation or dissolution, merger, consolidation of Company, or any exchange of
stock, conveyance of assets, or similar corporate reorganization; and
(iii) cash paid with respect to, payable, or
otherwise distributed on redemption of, or in exchange for, any Shares,
shall be forthwith delivered to Pledgee to hold as Collateral and shall, if
received by Pledgor, be received in trust for the benefit of Pledgee, be
segregated from the other property or funds of Pledgor, and be forthwith
delivered to Pledgee as Collateral in the same form as so received (with any
necessary endorsement), and, if deemed appropriate by Pledgee, Pledgor shall
take such actions, including the actions described in Section 2, as Pledgee
may require.
5.2 If an Event of Default shall be continuing or any amounts
shall be due and payable (whether by acceleration, maturity, or otherwise) under
any of the Secured Obligations, all rights of Pledgor to exercise the voting and
other consensual rights that it would otherwise be entitled to exercise pursuant
to Section 5.1(a) and to receive the dividends and distributions that it would
otherwise be authorized to receive and retain pursuant to Section 5.1(b)
shall, at Pledgee's option, cease, and all such rights shall, at Pledgee's
option, thereupon become vested in Pledgee, and Pledgee shall, at its option,
thereupon have the sole right to exercise such voting and other consensual
rights and to
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receive and hold as Collateral such dividends and interest payments. Any
payments received by Pledgor contrary to the provisions of this Section 5.2
shall be held in trust by Pledgor for the benefit of Pledgee, shall be
segregated from other funds of Pledgor, and shall be promptly paid over to
Pledgee, with any necessary endorsement.
6. REPRESENTATIONS, WARRANTIES, AND COVENANTS. Pledgor warrants,
represents, and covenants that on the date hereof and the date of funding the
Loan Two:
6.1 There are no restrictions upon the transfer of any of the
Collateral to or by Pledgee and Pledgor is the sole beneficial owner of the
Collateral and has the right to pledge and grant a security interest in or
otherwise transfer such Collateral free of any encumbrances or rights of third
parties.
6.2 All of the Collateral is and shall remain free from all
liens, claims, encumbrances, and purchase-money or other security interests
except as created hereby. Pledgor shall not, without Pledgee's prior written
consent, sell or otherwise dispose of any of the Collateral.
6.3 The execution and delivery of this Agreement, and the
delivery to Pledgee of the Shares creates a valid, perfected, and first-priority
security interest in the Collateral in favor of Pledgee, and all actions
necessary or desirable to such perfection have been duly taken.
6.4 No authorization or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required either:
(a) for the grant by Pledgor of the security interest granted hereby or for the
execution, delivery, or performance of this Agreement by Pledgor; (b) for the
perfection of or exercise by Pledgee of its rights and remedies hereunder
(except as may have been taken by or at the direction of Pledgor or as may be
required in connection with a disposition of the Collateral by laws affecting
the offering and sale of securities generally); or (c) for the exercise by
Pledgee of the voting or other rights provided for in this Agreement or the
remedies in respect of the Collateral pursuant to this Agreement (except as may
be required in connection with a disposition of the Collateral by laws affecting
the offering and sale of securities generally).
6.5 The pledge of the Collateral pursuant to this Agreement,
and the making of the loans in accordance with the terms of the Loan Agreement,
does not violate Regulation G, T, U, or X of the Board of Governors of the
Federal Reserve System.
6.6 Company presently has issued and outstanding
__________________ (____________) shares of Common Stock of which ___________
(___%) is owned by Pledgor and they constitute, respectively, all of the capital
stock of Company and the Shares referenced herein.
6.7 There are no presently existing Options.
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6.8 All of the outstanding Shares have been duly and validly
issued by Company, and they are fully paid and nonassessable.
6.9 Pledgor has made its own arrangements for keeping informed
of changes or potential changes affecting the Collateral (including, but not
limited to, rights to convert, rights to subscribe, payment of dividends,
reorganization or other exchanges, tender offers, and voting rights), and
Pledgor agrees that Pledgee shall not have any responsibility or liability for
informing Pledgor of any such changes or potential changes or for taking any
action or omitting to take any action with respect thereto.
6.10 Pledgor's chief executive office is located at the
address indicated in the preamble hereof. Pledgor shall at all times keep its
books and records concerning the Collateral at its chief executive office.
Pledgor shall not change the location of its chief executive office without
giving Pledgee at least thirty (30) days' prior written notice thereof.
6.11 Pledgor will prevent the Company from issuing any
additional Collateral unless Pledgee is satisfied, in its sole and absolute
discretion, that all actions have been taken which are necessary to perfect
Pledgee's security interest in such Collateral.
7. SHARE ADJUSTMENTS. In the event that during the term of this
Agreement any reclassification, readjustment, or other change is declared or
made in the capital structure of Company, or any Option is exercised, all new
substituted and additional shares, options, or other securities, issued or
issuable to Pledgor by reason of any such change or exercise shall be delivered
to and held by Pledgee under the terms of this Agreement in the same manner as
the Collateral originally pledged hereunder.
8. OPTIONS. In the event that during the term of this Agreement Options
shall be issued or exercised in connection with the Collateral, such Options
acquired by Pledgor shall be immediately assigned by Pledgor to Pledgee and all
new shares or other securities so acquired by Pledgor shall also be immediately
assigned to Pledgee to be held under the terms of this Agreement in the same
manner as the Collateral originally pledged hereunder.
9. CONSENT. Pledgor hereby consents that, from time to time, before or
after the occurrence or existence of any Event of Default with or without notice
to or assent from Pledgor, any other security at any time held by or available
to Pledgee for any of the Secured Obligations or any other security at any time
held by or available to Pledgee of any other person, firm, or corporation
secondarily or otherwise liable for any of the Secured Obligations, may be
exchanged, surrendered, or released and any of the Secured Obligations may be
changed, altered, renewed, extended, continued, surrendered, compromised,
waived, or released, in whole or in part, as Pledgee may see fit. Pledgor shall
remain bound under this Agreement notwithstanding any such exchange, surrender,
release,
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alteration, renewal, extension, continuance, compromise, waiver, or inaction, or
extension of further credit.
10. EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an event of default ("Event of Default") under this Agreement:
10.1 The occurrence of an Event of Default under the Loan
Agreement;
10.2 Pledgor shall breach, or be in default of, any of its
agreements, covenants and obligations hereunder; or
10.3 Any representation or warranty made by Pledgor hereunder
shall prove to have been untrue in any material respect when made.
11. REMEDIES UPON DEFAULT.
11.1 Upon the occurrence of an Event of Default, Pledgee shall
have, in addition to any other rights given by law or in this Agreement, in the
Loan Agreement, or in any other agreement between Pledgee and Pledgor, all of
the rights and remedies with respect to the Collateral of a secured party under
the Code, and also shall have, without limitation, the following rights, which
Pledgor hereby agrees to be commercially reasonable:
(a) to receive all amounts payable in respect of the
Collateral to Pledgor under Section 5.1(b) hereof;
(b) to register all or any part of the Collateral on
the books of the Company in Pledgee's name or the name of its nominee or
nominees;
(c) to vote all or any part of the Shares (whether or
not transferred into the name of the Pledgee) in accordance with Section 5.2
hereof, and give all consents, waivers and ratifications in respect of the
Collateral and otherwise act with respect thereto as though it were the outright
owner thereof; PLEDGOR HEREBY IRREVOCABLY CONSTITUTES AND APPOINTS PLEDGEE THE
PROXY AND ATTORNEY-IN-FACT OF PLEDGOR, COUPLED WITH AN INTEREST, WITH FULL POWER
OF SUBSTITUTION FOR ANY AND ALL OF SUCH PURPOSES; WHICH PROXY AND POWER OF
ATTORNEY SHALL CONTINUE IN FULL FORCE AND EFFECT AND TERMINATE UPON THE EARLIER
TO OCCUR OF (a) THE INDEFEASIBLE PAYMENT IN FULL OF THE SECURED OBLIGATIONS, OR
(b) TEN (10) YEARS FROM THE DATE HEREOF.
(d) at any time or from time to time, to sell, assign
and deliver, or grant options to purchase, all or any part of the Collateral, or
any interest
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therein, at any public or private sale, without demand of performance,
advertisement or notice of intention to sell or of the time or place of sale or
adjournment thereof or to redeem or otherwise (all of which are hereby waived by
Pledgor), for cash, on credit or for other property, for immediate or future
delivery without any assumption of credit risk, and for such price or prices and
on such terms as the Pledgee in its absolute discretion may determine; provided,
that at least five (5) days notice of the time and place of any such sale shall
be given to Pledgor. Pledgee shall not be obligated to make any such sale of
Collateral regardless of whether any such notice of sale has therefore been
given. Pledgor hereby waives any other requirement of notice, demand, or
advertisement for sale, to the extent permitted by law. Pledgor hereby waives
and releases to the fullest extent permitted by law any right or equity of
redemption with respect to the Collateral, whether before or after sale
hereunder, and all rights, if any, of marshalling the Collateral and any other
security for the Secured Obligations or otherwise. At any such sale, unless
prohibited by applicable law, Pledgee may bid for and purchase all or any part
of the Collateral so sold free from any such right or equity of redemption.
Pledgee shall not be liable for failure to collect or realize upon any or all of
the Collateral or for any delay in so doing nor shall Pledgee be under any
obligation to take any action whatsoever with regard thereto;
(e) to buy the Collateral, in its own name, or in the
name of a designee or nominee. Pledgee shall have the right to execute any
document or form, in its name or in the name of the Pledgor, that may be
necessary or desirable in connection with such sale of the Collateral.
(f) to sell all or any part of the Collateral by a
private placement, restricting bidders and prospective purchasers to those who
will represent and agree that they are purchasing for investment only and not
for distribution. In so doing, Pledgee may solicit offers to buy the Collateral,
or any part of it for cash, from a limited number of investors deemed by
Pledgee, in its reasonable judgment, to be responsible parties who might be
interested in purchasing the Collateral. If Pledgee shall solicit such offers
from not less than four (4) such investors, then the acceptance by Pledgee of
the highest offer obtained therefore shall be deemed to be a commercial
reasonable method of disposition of such Collateral, even though the sales price
established and/or obtained may be substantially less than the price that would
be obtained pursuant to a public offering. Notwithstanding the foregoing, should
Pledgee determine that, prior to any public offering of any securities contained
in the Collateral, such securities should be registered under the '33 Act and/or
registered or qualified under any other federal or state law, and that such
registration and/or qualification is not practical, Pledgor agrees that it will
be commercially reasonable if a private sale is arranged so as to avoid a public
offering even if offers are solicited from fewer than four (4) investors, and
even though the sales price established and/or obtained may be substantially
less than the price that would be obtained pursuant to a public offering.
11.2 If Pledgee shall determine to exercise its right to sell
all or any of the Collateral, and if, in the opinion of counsel for Pledgee, it
is necessary, or if, in the
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opinion of Pledgee, it is advisable, to have the Collateral, or the portion
thereof to be sold, registered under the provisions of the '33 Act, the Pledgor
agrees, at its own expense (as more fully provided in Section 11.3):
(a) to execute and deliver, and to use its best
efforts to cause Company and its directors and officers to execute and deliver
all such instruments and documents, and to do or cause to be done all other
such acts and things, as may be necessary or, in the opinion of the Pledgee,
advisable to register the Collateral, or the portion thereof to be sold, under
the provisions of the '33 Act and to cause the registration statement relating
thereto to become effective and to remain effective for such period as
prospectuses are required by law to be furnished, and to make or cause to be
made all amendments and supplements thereto and to the related prospectus that,
in the opinion of Pledgee, are necessary or advisable, all in conformity with
the requirements of the '33 Act and the rules and regulations of the Securities
and Exchange Commission applicable thereto;
(b) to use its best efforts to cause Company to agree
to make, and to make available to its security holders as soon as practicable,
an earnings statement (which need not be audited) covering a period of at least
twelve (12) months, beginning with the first month after the effective date of
any such registration statement, which earnings statement will satisfy the
provisions of Section 11(a) of the '33 Act;
(c) to use its best efforts to qualify the Collateral
under state Blue Sky or securities laws and to obtain the approval of any
governmental authorities for the sale of the Collateral, as requested by
Pledgee; and
(d) at the request of Pledgee, to indemnify and hold
harmless Pledgee and any underwriters (and any Person controlling Pledgee or
such underwriters) from and against any loss, liability, claim, damage, and
expenses (and reasonable counsel fees incurred in connection therewith) under
the '33 Act or otherwise insofar as such loss, liability, claim, damage, or
expense arises out of or is based upon any untrue statement or alleged untrue
statement of a material fact contained in such registration statement or
prospectus or in any preliminary prospectus or any amendment or supplement
thereto, or arises out of or is based upon any omission or alleged omission to
state therein a material fact required to be stated or necessary to make the
statements therein not misleading, such indemnification to remain operative
regardless of any investigation made by or on behalf of Pledgee or any
underwriters (or any Person controlling Pledgee or such underwriters).
11.3 Expenses payable by Pledgor in connection with any
disposition under Section 11.2 shall include, but shall not be limited to, all
costs of a registration under the '33 Act of any Collateral or of sale of any
Collateral pursuant to Regulation A under the '33 Act, brokers' or underwriters'
commissions, fees, or discounts, accounting and legal fees, costs of printing
and other expenses of transfer and sale.
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12. PLEDGEE AS PLEDGOR'S ATTORNEY-IN-FACT. Pledgor hereby irrevocably
appoints Pledgee as its attorney-in-fact, coupled with an interest, at any time
after the occurrence and during the continuance of an Event of Default, (i) to
arrange for the register of the Collateral on the books of Company to the name
of Pledgee or to the name of Pledgee's nominee and (ii) to receive, endorse and
collect all instruments made payable to Pledgor of any dividend, distribution or
other payment on account of the Collateral, or any part thereof, and to give
full discharge for the same and to execute and file governmental notifications
and reporting forms. Pledgor further authorizes Pledgee to perform any and all
acts which Pledgee deems necessary for the protection and preservation of the
Collateral or of the value of Pledgee's security interest therein, including but
not limited to receiving income thereon as additional security hereunder, all at
Pledgor's expense, and Pledgor agrees to repay Pledgee promptly upon demand any
amounts expended hereunder by Pledgee, together with interest thereon. Pledgor
further grants to Pledgee a power of attorney coupled with an interest to
execute all agreements, forms, applications, documents and instruments and to
take all actions and do all things as could be executed, taken, or done by
Pledgor in connection with the protection and preservation of the Collateral or
this Agreement. This power of attorney is irrevocable and authorizes Pledgee to
act for Pledgor in connection with the matters described herein without notice
to or demand upon Pledgor.
13. GENERAL PROVISIONS.
13.1 CUMULATIVE REMEDIES; NO PRIOR RECOURSE TO COLLATERAL. The
enumeration herein of Pledgee's rights and remedies is not intended to be
exclusive, and such rights and remedies are in addition to and not by way of
limitation of any other rights or remedies that the Pledgee may have under the
Loan Agreement, the Credit Documents, the Code, or other applicable law. Pledgee
shall have the right, in its sole discretion, to determine which rights and
remedies are to be exercised and in which order. The exercise of one right or
remedy shall not preclude the exercise of any others, all of which shall be
cumulative.
13.2 NO IMPLIED WAIVERS. No act, failure, or delay by Pledgee
shall constitute a waiver of any of its rights and remedies. No single or
partial waiver by Pledgee of any provision of this Agreement or any other Loan
Document, or of a breach or default hereunder or thereunder, or of any right or
remedy which the Pledgee may have, shall operate as a waiver of any other
provision, breach, default, right, or remedy or of the same provision, breach,
default, right, or remedy on a future occasion. No waiver by Pledgee shall
affect its rights to require strict performance of this Agreement.
13.3 NOTICES. All notices or demands by any party hereto to
the other party and relating to this Agreement shall be sent in accordance with
the terms of Section 9.1 of the Loan Agreement as follows:
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If to Pledgor: _______________________________
_______________________________
Attn:_________________________
Telefacsimile No: ___________
If to Pledgee: (as set forth in Section 9.1 of the Loan
Agreement)
13.4 SUCCESSORS AND ASSIGNS. This Agreement shall bind the
successors and assigns of Pledgor, and shall inure to the benefit of the
successors and assigns of Pledgee; provided, however, that Pledgor may not
assign this Agreement nor delegate any of its duties hereunder without Pledgee's
prior written consent and any prohibited assignment shall be absolutely void.
Pledgee may assign this Agreement and its rights and duties hereunder and no
consent or approval by Pledgor is required in connection with any such
assignment. Pledgee reserves the right to sell, assign, transfer, negotiate, or
grant participations in all or any part of, or any interest in Pledgee's rights
and benefits hereunder. In connection with any such assignment or participation,
Pledgee may disclose all documents and information which Pledgee now or
hereafter may have relating to Pledgor or Pledgor's business to any prospective
or actual Transferee.
13.5 SECTION HEADINGS. Headings and numbers have been set
forth herein for convenience only. Unless the contrary is compelled by the
context, everything contained in each section applies equally to this entire
Agreement.
13.6 SEVERABILITY OF PROVISIONS. If any provision of this
Agreement is for any reason held to be invalid, illegal or unenforceable in any
respect, that provision shall not affect the validity, legality or
enforceability of any other provision of this Agreement.
13.7 ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This Agreement
constitutes the entire agreement between Pledgor and Pledgee pertaining to the
subject matter contained herein. Any provision of this Agreement may be amended
or waived if, but only if, such amendment or waiver is in writing and is signed
by the party asserted to be bound thereby, and then such amendment or waiver
shall be effective only in the specific instance and specific purpose for which
given.
13.8 COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may
be executed in any number of counterparts and by different parties on separate
counterparts, each of which, when executed and delivered, shall be deemed to be
an original, and all of which, when taken together, shall constitute but one and
the same Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of a manually executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver a manually executed
counterpart of this Agreement but the failure to deliver a manually executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement.
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13.9 TERMINATION BY PLEDGEE. After termination of the Loan
Agreement and when Pledgee has received payment and performance, in full, of the
Secured Obligations, Pledgee shall execute and deliver to Pledgor a termination
of all of the security interests granted by Pledgor hereunder and, to the extent
they have been delivered to Pledgee and not disposed of in accordance with this
Agreement, certificates evidencing the Shares.
14. GOVERNING LAW; JURISDICTION.
14.1 GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED TO HAVE
BEEN MADE IN THE STATE OF CALIFORNIA AND THE VALIDITY, CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT HEREOF, AND THE RIGHTS OF THE PARTIES HERETO,
SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW.
14.2 JURISDICTION AND VENUE. THE PARTIES HERETO AGREE THAT ANY
ACTION OR PROCEEDING PURSUANT TO OR ARISING IN CONNECTION WITH THIS AGREEMENT
SHALL BE HELD ONLY IN THE CITY AND COUNTY OF LOS ANGELES, STATE OF CALIFORNIA,
OR AT THE SOLE OPTION OF PLEDGOR, IN ANY OTHER FORUM IN WHICH PLEDGOR INITIATES
PROCEEDINGS AND WHICH HAS JURISDICTION OVER THE SUBJECT MATTER AND PARTIES IN
CONTROVERSY. THE PARTIES HERETO HEREBY WAIVE ANY RIGHT EACH MAY HAVE TO ASSERT
THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY
PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION AND STIPULATE THAT ANY
FORUM LOCATED IN THE CITY AND COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, SHALL
HAVE IN PERSONAM JURISDICTION AND VENUE OVER EACH SUCH PARTY FOR THE PURPOSE OF
ADJUDICATING, ARBITRATING, OR RESOLVING ANY SUCH DISPUTE, CONTROVERSY, OR
PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT. SERVICE OF PROCESS
SUFFICIENT FOR PERSONAL JURISDICTION IN ANY ACTION AGAINST PLEDGOR MAY BE MADE
BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO ITS ADDRESS
SPECIFIED FOR NOTICES PURSUANT TO SECTION 13.3 HEREOF.
15. WAIVER OF JURY TRIAL. PLEDGOR AND PLEDGEE EACH HEREBY
EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY ACTION, CAUSE OF ACTION,
CLAIM, DEMAND, OR PROCEEDING ARISING UNDER OR WITH RESPECT TO THIS AGREEMENT OR
THE LOAN DOCUMENTS, OR IN ANY WAY CONNECTED WITH, RELATED TO, OR INCIDENTAL TO
THE DEALINGS OF WITH RESPECT TO THIS AGREEMENT, THE LOAN DOCUMENTS OR THE
TRANSACTIONS RELATED HERETO AND
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<PAGE> 14
THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER
SOUNDING IN CONTRACT, TORT, OR OTHERWISE. PLEDGOR AND PLEDGEE EACH HEREBY AGREES
THAT ANY SUCH ACTION, CAUSE OF ACTION, CLAIM, DEMAND, OR PROCEEDING SHALL BE
DECIDED BY A COURT TRIAL WITHOUT A JURY AND THAT EITHER PARTY MAY FILE AN
ORIGINAL COUNTERPART OF THIS SECTION 15 WITH ANY COURT OR OTHER TRIBUNAL AS
WRITTEN EVIDENCE OF THE CONSENT OF THE OTHER PARTY TO THE WAIVER OF ITS RIGHT TO
TRIAL BY JURY.
16. WAIVERS.
16.1 Pledgor hereby waives: (1) notice of acceptance hereof;
(2) notice of any loans or other financial accommodations made or extended under
the Loan Agreement or the Loan Documents or the creation or existence of any
Secured Obligations; (3) notice of the amount of the Secured Obligations,
subject, however, to Pledgor's right to make inquiry of Pledgee to ascertain the
amount of the Secured Obligations at any reasonable time; (4) notice of any
adverse change in the financial condition of Borrower or of any other fact that
might increase Pledgor's risk hereunder; (5) notice of presentment for payment,
demand, protest, and notice thereof as to any promissory notes or other
instruments among the Loan Agreement or the Loan Documents; (6) notice of any
event of default under the Loan Agreement or the Loan Documents; and (7) all
other notices (except if such notice is specifically required to be given to
Pledgor hereunder or under the Loan Agreement or any Loan Document to which
Pledgor is a party) and demands to which Pledgor might otherwise be entitled.
16.2 Pledgor hereby waives his right under Sections 2845 or
2850 of the California Civil Code, or otherwise, to require Pledgee to institute
suit against, or to exhaust any remedies which Pledgee has or may have against,
Borrower or any third party, or against any collateral for the Secured
Obligations provided by Borrower, Pledgor or any third party. Pledgor further
waives any defense arising by reason of any disability or other defense (other
than the defense that the Secured Obligations shall have been fully and finally
performed and indefeasibly paid) of Borrower or by reason of the cessation from
any cause whatsoever of the liability of Borrower in respect thereof.
16.3 Pledgor hereby waives: (1) any rights to assert against
Pledgee any defense (legal or equitable), set-off, counterclaim, or claim which
Pledgor may now or at any time hereafter have against Borrower or any other
party liable to Pledgee; (2) any defense, set-off, counterclaim, or claim, of
any kind or nature, arising directly or indirectly from the present or future
lack of perfection, sufficiency, validity, or enforceability of the Secured
Obligations or any security therefor; (3) any defense Pledgor has to performance
hereunder, and any right Pledgor has to be exonerated, provided by Sections
2819, 2822 or 2825 of the California Civil Code, or otherwise, arising by reason
of (i) any claim or defense based upon an election of remedies by Pledgee
including any defense based upon an election of remedies by Pledgee under the
provisions of Sections 580a, 580d and 726 of
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<PAGE> 15
the California Code of Civil Procedure, or any similar law of California or any
other jurisdiction, (ii) the impairment or suspension of Pledgee's rights or
remedies against Borrower, (iii) the alteration by Pledgee of the Secured
Obligations, any discharge of any of Borrower's obligations to Pledgee by
operation of law as a result of Pledgee's intervention or omission or (iv) the
acceptance by Pledgee of anything in partial satisfaction of the Secured
Obligations; (4) the benefit of any statute of limitations affecting Pledgor's
liability hereunder or the enforcement thereof, and any act which shall defer or
delay the operation of any statute of limitations applicable to the Secured
Obligations shall similarly operate to defer or delay the operation of such
statute of limitations applicable to Pledgor's liability hereunder.
16.4 Pledgor hereby waives any right of subrogation Pledgor
has or may have against Borrower with respect to the Secured Obligations. In
addition, Pledgor hereby waives any right to proceed against Borrower, now or
hereafter, for contribution, indemnity, reimbursement, and any other suretyship
rights and claims, whether direct or indirect, liquidated or contingent, whether
arising under express or implied contract or by operation of law, which Pledgor
may now have or hereafter have against Borrower with respect to the Secured
Obligations. Pledgor also hereby waives any rights to recourse to or with
respect to any asset of Borrower. Pledgor agrees that in light of the
immediately foregoing waivers, the execution of this Agreement shall not be
deemed to make Pledgor a "creditor" of Borrower, and that for purposes of
Sections 547 and 550 of the Bankruptcy Code, Pledgor shall not be deemed a
"creditor" of Borrower.
16.5 Pledgor hereby waives any and all defenses in his favor
based upon an election of remedies by Pledgee which destroys, diminishes, or
affects the Pledgor's subrogation rights against Borrower or any other party
and/or the Pledgor's rights to proceed against Borrower or any other party for
reimbursement, contribution, indemnity, or otherwise, including without
limitation any election(s) by Pledgee to conduct a nonjudicial foreclosure sale
under any deed(s) of trust, and further including without limitation any and all
defenses, rights, or estoppels which might otherwise arise under or in
connection with Sections 580a, 580d or 726 of the California Code of Civil
Procedure as a result of any such election(s) or otherwise. Pledgor acknowledges
and agrees that he is knowingly waiving in advance as a result of the foregoing
sentence a complete or partial defense to this Agreement he may later have had
arising from Sections 580a, 580d or 726 of the California Code of Civil
Procedure based upon Pledgee's subsequent election to conduct a private
nonjudicial foreclosure sale, even though such election would destroy, diminish,
or affect Pledgor's rights of subrogation against Borrower or any other party
and the Pledgor's rights to pursue Borrower or such other party for
reimbursement contribution, indemnity, or otherwise.
16.6 WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER OR
OTHER PROVISION SET FORTH IN THIS AGREEMENT, PLEDGOR HEREBY WAIVES AND AGREES
NOT TO ASSERT ANY AND ALL BENEFITS OR DEFENSES ARISING DIRECTLY OR INDIRECTLY
UNDER ANY
14
<PAGE> 16
ONE OR MORE OF CALIFORNIA CIVIL CODE SECTIONS 2799, 2808, 2809, 2810, 2815,
2819, 2820, 2821, 2822, 2825, 2838, 2839, 2845, 2848, 2849, AND 2850,
CALIFORNIA CODE OF CIVIL PROCEDURE SECTIONS 580a, 580b, 580c, 580d, AND 726,
AND CHAPTER 2 OF TITLE 14 OF THE CALIFORNIA CIVIL CODE.
17. RELEASES. Pledgor consents and agrees that, without notice to or by
Pledgor and without affecting or impairing the obligations of Pledgor hereunder,
Pledgee may, by action or inaction:
17.1 compromise, settle, extend the duration or the time
for the payment of, or discharge the performance of,
or may refuse to or otherwise not enforce the Loan
Agreement or the Loan Documents;
17.2 release all or any one or more Persons to any one or
more of the Loan Agreement or the Loan Documents or
grant other indulgences to Borrower or any other such
Persons;
17.3 amend or modify in any manner and at any time (or
from time to time) any of the Loan Agreement or the
Loan Documents; or
17.4 release or substitute any other guarantor of the
Obligations, or any other Person which has provided
security for the Obligations, or enforce, exchange,
release, or waive any security for the Obligations or
any guaranty of the Obligations, or any portion
thereof.
18. NO ELECTION. Pledgee shall have the right to seek recourse against
Pledgor and the Collateral to the fullest extent provided for herein, and no
election by Pledgee to proceed in one form of action or proceeding, or against
any party, or on any obligation, shall constitute a waiver of Pledgee's right to
proceed in any other form of action or proceeding or against other parties
unless Pledgee has expressly waived such right in writing. Specifically, but
without limiting the generality of the foregoing, no action or proceeding by
Pledgee under any document or instrument evidencing the Secured Obligations
shall serve to diminish the liability of Pledgor under this Agreement except to
the extent that Pledgee finally and unconditionally shall have realized
indefeasible payment by such action or proceeding.
19. INDEFEASIBLE PAYMENT. The Secured Obligations shall not be
considered indefeasibly paid for purposes of this Agreement unless and until all
payments to Pledgee are no longer subject to any right on the part of any
Person, including Borrower, Borrower as a debtor in possession, or any trustee
(whether appointed under the Bankruptcy Code or otherwise) of Borrower or any of
Borrower's Assets, to invalidate or set aside such
15
<PAGE> 17
payments or to seek to recoup the amount of such payments or any portion
thereof, or to declare same to be fraudulent or preferential. In the event that,
for any reason, any portion of such payments to Pledgee is set aside or
restored, whether voluntarily or involuntarily, after the making thereof, then
the obligation intended to be satisfied thereby shall be revived and continued
in full force and effect as if said payment or payments had not been made.
20. FINANCIAL CONDITION OF BORROWER. Pledgor represents and warrants to
Pledgee that Pledgor is currently informed of the financial condition of
Borrower and of all other circumstances which a diligent inquiry would reveal
and which bear upon the risk of nonpayment of the Secured Obligations. Pledgor
further represents and warrants to Pledgee that Pledgor has read and understands
the terms and conditions of the Loan Agreement and the Loan Documents. Pledgor
hereby covenants that Pledgor will continue to keep informed of Borrower's
financial condition, the financial condition of other Persons liable for the
Obligations, if any, and of all other circumstances which bear upon the risk of
nonpayment or nonperformance of the Secured Obligations.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first written above.
"PLEDGOR"
_____________________________________________,
a____________________
By:___________________________________________
Title:_________________________________
"Pledgee"
IMPERIAL BANK,
a California banking corporation
By:___________________________________________
Title:_________________________________
16
<PAGE> 18
ACKNOWLEDGMENT AND CONSENT
_________________________, a ________________
corporation ("Company") hereby acknowledges and consents to the terms of the
foregoing Security Agreement - Stock Pledge (the "Agreement"), dated as of
_________________, 199__ by and between ________________, a ____________________
("Pledgor"), and Imperial Bank, a California banking corporation ("Pledgee").
Company agrees that it will honor the terms of, and will not take any action
contrary to, the terms of the Agreement, including without limitation, Section
6.11 thereof. Company further acknowledges and agrees that it has received a
copy of the Agreement and has registered the pledge of the Collateral (as
defined in the Agreement) in the name of Pledgee. Company acknowledges that, in
entering into the Loan Agreement (as defined in the Agreement), Pledgee is
relying on the Agreement and on Company's agreement herein; and Company agrees
that any offset or claim Company may now or hereafter have against Pledgor (or
against Pledgor's interests, claims or rights) shall be subordinate to the
claims, rights and interests of Pledgee under the Agreement. The signatories
below hereby represent and warrant to Pledgee that they are duly authorized to
execute and deliver this Acknowledgment and Consent to Pledgee and thereby bind
Company as set forth herein and in the Agreement.
Dated:_________________________, 199__. ___________________________________,
a_________________________
By__________________________________
Title:
17
<PAGE> 1
EXHIBIT 10.108
SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT (this "Agreement"), dated as of August 16,
1996, is entered into among BRUCE H. WHITEHEAD, as agent for one hundred
percent (100%) of the former shareholders of BritWill HealthCare Company, a
Delaware corporation, pursuant to a Certain Collection Agency Agreement, dated
as of August 10, 1995 ("Subordinate Creditor"), UNISON HEALTHCARE CORPORATION,
a Delaware corporation ("Borrower"), and IMPERIAL BANK, a California banking
corporation ("Senior Creditor").
RECITALS:
1. Borrower executed and delivered to Subordinate Creditor a Second
Amended and Restated Subordinated Promissory Note dated as of August 10, 1995
(which, as it may have been renewed, extended or rearranged is called
"Subordinate Note"), in the original principal sum of Eight Million Dollars
($8,000,000). Borrower is also a party to a Contingent Payment Agreement, dated
as of August 10, 1995, with Subordinate Creditor and BritWill HealthCare
Company, a Delaware corporation (which, as it may have been amended or restated
is called "Contingent Payment Agreement").
2. Borrower executed and delivered to Senior Creditor a Promissory
Note dated as of August 16, 1996, and may hereafter execute and deliver a
second Promissory Note (which, as they may have been or may hereafter be
renewed, extended and rearranged, are called "Senior Notes"), in the aggregate
original principal sum of up to Seven Million Five Hundred Thousand Dollars
($7,500,000). The Senior Notes have been and/or will be issued pursuant to a
Loan Agreement dated as of August 16, 1996 (which, as it may be amended,
supplemented or restated from time to time, is called "Loan Agreement") between
Borrower and Senior Creditor.
3. As a condition to its advancing funds to Borrower, Senior Creditor
has required that Borrower's obligations under the Subordinate Note and the
Contingent Payment Agreement be subordinated to Borrower's Indebtedness under
the Loan Agreement and the Senior Notes.
4. Borrower, Subordinate Creditor and Senior Creditor now agree to
subordinate the payment and performance of the Subordinate Note and the
Contingent Payment Agreement to the payment and performance of the Senior
Notes, all as set forth in the succeeding provisions of this Agreement (which
shall control over any conflicting or inconsistent recitals above).
<PAGE> 2
AGREEMENTS:
In consideration of the premises and the mutual agreements herein set
forth, Borrower, Subordinate Creditor and Senior Creditor hereby agree as
follows:
1. As used in this Agreement, the following terms shall have the
respective meanings indicated:
(a) Senior Indebtedness shall mean all indebtedness and
obligations now existing or hereafter created of Borrower to Senior Creditor
arising under or incurred pursuant to the Loan Agreement and any other
documents executed or delivered in connection therewith including, without
limitation, all indebtedness evidenced by the Senior Notes in the original
principal amount of up to Seven Million Five Hundred Thousand Dollars
($7,500,000) and all renewals, extensions, rearrangements, refundings and
modifications thereof agreed to by Borrower. The Senior Indebtedness shall
include amounts accruing subsequent to the filing of any bankruptcy,
receivership, insolvency or like petition. Without limiting the generality of
the foregoing, Senior Indebtedness shall include all obligations for fees, to
indemnify, to reimburse for expenses and to reimburse for advances (whether for
the payment of taxes, insurance premiums, the preservation or protection of
property or the title thereto or for any other reason).
(b) Subordinated Indebtedness shall mean all indebtedness and
obligations now existing or hereafter created of Borrower to Subordinate
Creditor arising under or incurred pursuant to or evidenced by the Subordinate
Note, the Contingent Payment Agreement, and all renewals, extensions,
rearrangements, refundings and modifications of the Subordinate Note and the
Contingent Payment Agreement permitted by Senior Creditor, and all indebtedness
and obligations arising under or incurred pursuant to any other documents
executed or delivered in connection therewith. Senior Creditor shall not be
deemed to have waived its rights under the subordination provisions contained in
that certain Promissory Note, dated as of May 6, 1996, in the original principal
amount of One Million Dollars ($1,000,000) made by Borrower in favor of
Subordinate Creditor by not including such promissory note in the foregoing
definition of Subordinated Indebtedness. Senior Creditor is relying on the
subordination provisions contained in such promissory note and all of such
rights are expressly reserved by Senior Creditor. Such promissory note to be
paid $500,000 plus interest at closing and $500,000 plus interest on October 1,
1996.
2. (a) Unless and until all Senior Indebtedness shall have been
fully paid and satisfied and the obligation of Senior Creditor to make any
further loans or advances to Borrower shall have ceased and terminated,
Subordinate Creditor will not: (i) ask, demand or receive any security for the
Subordinated indebtedness in addition to the security described on Exhibit A
attached hereto and incorporated herein ("Permitted Subordinated Liens"), or
(ii) amend the Subordinate Note or the Contingent
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<PAGE> 3
Payment Agreement or any other document existing in connection with the
Subordinated Indebtedness without the prior written consent of Senior Creditor,
which consent may be withheld in Senior Creditor's sole and absolute
discretion. Except as otherwise provided in Section 2(b) hereof, unless and
until all Senior Indebtedness shall have been fully paid and satisfied and the
obligation of Senior Creditor to make any further loans or advances to Borrower
shall have ceased and terminated, or unless an event of default has occurred
under the Subordinated Indebtedness and Subordinated Creditor has given Senior
Creditor notice of such event of default and a period of nine (9) months has
elapsed after Subordinated Creditor has given Senior Creditor such notice of
event of default, Subordinate Creditor will not: (i) ask, demand, sue for, take
or receive, or retain, from Borrower or any other person or entity, by setoff
or in any other manner, payment of all or any part of the Subordinated
Indebtedness, or (ii) declare the Subordinated Indebtedness due and payable by
reason of any default or for any other reason, or bring or join with any
creditor in bringing any proceeding against Borrower under any bankruptcy,
reorganization, readjustment or arrangement of debt, suspension of payments,
receivership, liquidation or insolvency or similar law or statute now or
hereafter in effect ("Proceedings"). Notwithstanding the immediately preceding
sentence, if an event of default has occurred under the Subordinated
Indebtedness and Subordinated Creditor has given Senior Creditor notice of such
event of default and a period of forty five (45) days has elapsed after
Subordinated Creditor has given Senior Creditor such notice of event of
default, Subordinate Creditor may exercise its rights in respect of the
Permitted Subordinated Liens on certain outstanding shares of stock of Borrower
which have been pledged to Subordinate Creditor by certain shareholders of
Borrower to secure the obligations under the Subordinated Indebtedness.
Subordinate Creditor hereby directs Borrower to make, and Borrower hereby
agrees to make, such prior payment of the Senior Indebtedness to Senior
Creditor.
(b) Notwithstanding the foregoing, Borrower may pay, and Subordinate
Creditor may accept and apply, regularly scheduled payments (but not
prepayments) of principal and interest accruing on the Subordinated Indebtedness
evidenced by the Subordinated Note and the Contingent Payment Agreement so long
as (i) no Event of Default (as defined in the Loan Agreement) under Section
7.1(a) of the Loan Agreement has occurred which has not been fully cured to the
satisfaction of Senior Creditor, or would result from such payment, or (ii) the
Obligations (as defined in the Loan Agreement) have not become due and payable
pursuant to Section 7.2 of the Loan Agreement. As of the date of this
Agreement, Section 7.1(a) of the Loan Agreement states:
"Borrower fails to pay on or before the fifth day following the
due date thereof, any payment of interest due on the Loans, the Funding
Fees, any Bank Expenses, or any other amount payable hereunder other
than payments of principal required hereunder, or Borrower fails to pay
on or before the due date thereof, any payment of principal required
hereunder."
3
<PAGE> 4
Senior Creditor agrees to use reasonable efforts to send Subordinate Creditor a
copy of any notice of an Event of Default that Senior Creditor sends to
Borrower under the Loan Agreement, if any; provided, however, that the failure
of Senior Creditor to do so shall not in any way affect the rights and
obligations of the parties under this Agreement.
3. (a) Upon any distribution of the assets of Borrower in connection
with any dissolution, winding up, liquidation or reorganization of Borrower
(whether in Proceedings or upon an assignment for the benefit of creditors or
any other marshalling of the assets and liabilities of Borrower or otherwise),
Senior Creditor shall first be entitled to receive payment in full of all
Senior Indebtedness before Subordinate Creditor shall be entitled to receive
any payment in respect of the Subordinated Indebtedness. Upon any such
dissolution, winding up, liquidation or reorganization, any payment or
distribution of assets of Borrower of any kind or character, whether in cash,
property or securities, to which Subordinate Creditor would be entitled except
for the provisions of this Agreement (including any such payment or
distribution which may be payable or deliverable by virtue of the provisions of
any securities which are subordinated as junior in right of payment to the
Subordinated Indebtedness) shall be made by the liquidating trustee or agent or
other persons making such payment or distribution (whether a trustee in
bankruptcy, a receiver or liquidating trustee or otherwise) (a "Paying Party"),
or if received by Subordinate Creditor, by Subordinate Creditor, directly to
Senior Creditor, to the extent necessary to pay in full the Senior Indebtedness
remaining unpaid, after giving effect to any concurrent payment or distribution
to Senior Creditor. Subordinate Creditor hereby authorizes and directs each
Paying Party to pay over to Senior Creditor upon demand by Senior Creditor, all
such payments or distributions without the necessity of any inquiry as to the
status or balance of the Senior Indebtedness, and without further notice to or
consent of Subordinate Creditor. In furtherance of the foregoing, but not by
way of limitation thereof, in the event Borrower is subject to any Proceeding,
with the result that Borrower is excused from the obligation to pay all or part
of the interest otherwise payable in respect of the Senior Indebtedness during
the period subsequent to the commencement of any such Proceeding, Subordinate
Creditor agrees that all or such part of such interest, as the case may be,
shall be payable out of, and to that extent diminish and be at the expense of,
reorganization dividends or distributions in respect of the Subordinated
Indebtedness.
(b) In furtherance of the priority of payment granted to Senior
Creditor hereunder, Subordinate Creditor hereby irrevocably authorizes and
empowers Senior Creditor to demand, sue for, collect and receive every such
payment or distribution and give acquittance therefor, to execute, sign,
endorse, transfer and deliver any and all receipts and instruments, and to file
claims and take such other proceedings, all in the name of Subordinate
Creditor, or otherwise, as Senior Creditor may deem necessary or advisable for
the enforcement of this Agreement, but Senior Creditor has no obligation
4
<PAGE> 5
to do so. Subordinate Creditor hereby (i) agrees duly and promptly to take such
action as may be required by Senior Creditor to collect the Subordinated
Indebtedness for the account of Senior Creditor and/or to file appropriate
proofs of claim in respect of the Subordinated Indebtedness, (ii) authorizes
and empowers Senior Creditor to vote the full amount of the Subordinated
Indebtedness in any bankruptcy, reorganization or similar proceeding affecting
Borrower and in any meeting of creditors of Borrower as Senior Creditor may
deem necessary or advisable for the preservation and/or enforcement of Senior
Creditor's rights under this Agreement and/or the Senior Notes and the Loan
Agreement, (iii) agrees to execute and deliver to Senior Creditor or its
representatives on demand such powers of attorney, proofs of claim and other
instruments as may be requested by Senior Creditor or its representatives in
order to enable Senior Creditor to enforce any and all claims upon or with
respect to the Subordinated Indebtedness, to collect and receive any and all
such payments or distributions which may be payable or deliverable at any time
upon or with respect to the Subordinated Indebtedness, and to vote the full
amount of the Subordinated Indebtedness in any proceeding or meeting referred
to in clause (ii) of this subparagraph (b) as Senior Creditor may deem
necessary or advisable for the preservation and/or enforcement of Senior
Creditor's rights under this Agreement and/or the Senior Notes and the Loan
Agreement.
(c) In the event any payment or distribution of assets of Borrower of
any kind or character, whether in cash, property or securities, and whether or
not pursuant to any dissolution, winding up, liquidation or reorganization, not
permitted by or in accordance with the provisions of this Agreement shall be
received by Subordinate Creditor, such payment or distribution to Subordinate
Creditor shall not be commingled with other funds and shall be held in trust
for the benefit of, and shall be paid over or delivered to, Senior Creditor, or
to its representative, in precisely the form received (except for the
endorsement or assignment of Subordinate Creditor where necessary). In the
event of any failure by Subordinate Creditor to make any such endorsement or
assignment, Senior Creditor is hereby irrevocably authorized to make same.
(d) Notwithstanding the terms and provisions of this Agreement, unless
and until all Senior Indebtedness shall have been fully paid and satisfied and
the obligation of Senior Creditor to make any further loans or advances to
Borrower shall have ceased and terminated, Subordinate Creditor shall not be
entitled to be subrogated to any of the rights of Senior Creditor against
Borrower or any other person or entity or other collateral security or rights
of offset held by Senior Creditor for the payment of the Senior Indebtedness,
nor shall Subordinate Creditor have any right of indemnity, reimbursement or
contribution against Borrower or any other person or entity for any payment of
the Senior Indebtedness, and Subordinate Creditor hereby expressly waives each
and every such right of subrogation, indemnity, reimbursement and contribution.
5
<PAGE> 6
(e) The provisions of this Agreement are and are intended solely for
the purpose of defining the relative rights of Subordinate Creditor and Senior
Creditor, and are solely for the benefit of Senior Creditor and may not be
relied upon or enforced by any party other than Senior Creditor, and nothing
contained in this Agreement is intended to or shall impair the obligation of
Borrower, which is unconditional and absolute, to pay to Subordinate Creditor
the principal of and interest on the Subordinated Indebtedness as and when the
same shall become due and payable in accordance with its terms, or to affect
the relative rights of Subordinate Creditor and creditors of Borrower other
than Senior Creditor.
(f) Subordinate Creditor hereby agrees that Senior Creditor may, at any
time and from time to time, without the consent of or notice to Subordinate
Creditor, and without impairing or releasing the obligations of Subordinate
Creditor hereunder (i) to the extent permitted by the Loan Agreement or by any
other document executed in connection therewith, or agreed to by Borrower,
change the manner, place or terms of payment or change or extend the time of
payment of, or renew or alter, the Senior Indebtedness or the security
therefor, or otherwise amend in any manner the Loan Agreement or any document
executed in connection therewith; provided, however, that without the consent
of the Subordinate Creditor, Section 7.1(a) of the Loan Agreement shall not be
amended and the Loan Agreement and the Senior Notes shall not be amended to
increase the amount of the Loans or to extend the maturity date of the loans
past August 31, 1999; (ii) exercise or refrain from exercising any rights
against Borrower and others; (iii) apply any sums by whomsoever paid or however
realized to the Senior Indebtedness; (iv) sell, exchange, release, surrender,
realize upon or otherwise deal with in any manner and in any order any property
whatsoever and by whomsoever at any time pledged or mortgaged to secure, or
howsoever securing, any Senior Indebtedness; (v) release anyone liable in any
manner for the payment or collection of any Senior Indebtedness; and (vi)
settle or compromise all or any part of the Senior Indebtedness, and subordinate
the payment of any part of the Senior Indebtedness to the payment of any other
indebtedness (including any other part of the Senior Indebtedness). No
invalidity, irregularity or unenforceability of all or any part of the Senior
Indebtedness shall affect, impair or be a defense to this Agreement.
4. Subordinate Creditor represents and warrants that no liens, security
interests or assignments exist to secure any Subordinated Indebtedness other
than the Permitted Subordinated Liens, and agrees that no further liens,
security interests or assignments will arise or will be taken in the future to
secure any Subordinated Indebtedness.
5. Subordinate Creditor represents to Senior Creditor that the
Subordinated Indebtedness is in good standing and in full force and effect and
no breaches or defaults exist thereunder which have not been cured or waived,
that all accrued interest on the
6
<PAGE> 7
Subordinate Note has been paid in full through August 10, 1996 and that the
outstanding principal balance of the Subordinate Note on this date is
$8,000,000.
6. This Agreement extends to and covers all amounts due on the
Senior Indebtedness both before and after any filing of any Proceeding by or
against Borrower, and Senior Creditor shall be entitled to amounts accruing on
the Senior Indebtedness from the date of filing of said Proceeding to the date
of full and final payment of the Senior Indebtedness.
7. No part of the Subordinated Indebtedness or any instrument
evidencing or securing the same has been heretofore transferred or assigned.
Subordinate Creditor will not transfer or assign any part of the Subordinated
Indebtedness nor any instrument evidencing the same while the Senior
Indebtedness remains unpaid, without the prior written consent of Senior
Creditor which such consent shall not be unreasonably withheld. As a condition
to any such proposed transfer or assignment, the proposed transferee/assignee
and Borrower shall execute and deliver to Senior Creditor an agreement in form
and substance satisfactory to Senior Creditor in its reasonable discretion
pursuant to which the transferee/assignee agrees to be bound by the terms and
conditions of this Agreement. Subordinate Creditor shall remain liable for all
obligations hereunder, notwithstanding any such permitted transfer or
assignment. Except as otherwise consented to by Senior Creditor, any instrument
evidencing the Subordinated Indebtedness will contain a conspicuous legend
referring specifically to this Agreement and in form and content satisfactory
to Senior Creditor. Subordinate Creditor will promptly deliver a copy of such
legended instruments to Senior Creditor.
8. In the event of a breach by any party hereto of any of the
provisions of this Agreement, or in the event any representation or warranty
contained herein or furnished to Senior Creditor by any party hereto shall
prove to have been false when made, Senior Creditor shall have all rights
provided to it under law or equity, including without limitation the right to
sue the breaching party or parties to recover damages suffered by Senior
Creditor as a result of such breach, and the right to obtain injunctive relief.
9. Subordinate Creditor shall give, execute and deliver any
notice, statement, instrument, document, agreement or other papers, and shall
permit Senior Creditor, upon request, to make any notation or endorsement upon
any promissory note or other instrument or documents evidencing or securing the
Subordinated Indebtedness, that may be necessary or desirable, or that Senior
Creditor any reasonable request, in order to create, preserve or validate the
rights of Senior Creditor hereunder, to enable Senior Creditor to exercise or
enforce its rights hereunder, or otherwise to effect the purposes of this
Agreement.
7
<PAGE> 8
10. This Agreement is a continuing one, and all Senior Indebtedness to
which it applies or may apply under the terms hereof shall conclusively be
presumed to have been created in reliance herein.
11. Borrower hereby agrees to pay upon demand all attorneys' fees and
expenses reasonably incurred by Senior Creditor in connection with the
enforcement of its rights under this Agreement.
12. Subordinate Creditor and Borrower agree that, if at any time all
or any part of any payment previously applied by Senior Creditor to the Senior
Indebtedness is or must be returned by Senior Creditor--or recovered from
Senior Creditor--for any reason (including the order of any bankruptcy court),
this Agreement shall automatically be reinstated to the same effect, as if the
prior application had not been made, and, in addition, Borrower hereby agrees
to indemnify Senior Creditor against, and to save and hold Senior Creditor
harmless from any required return by Senior Creditor--or recovery from Senior
Creditor--of any such payments because of its being deemed preferential under
applicable bankruptcy, receivership or insolvency laws, or for any other
reason.
13. Subordinate Creditor acknowledges that it has received a copy and
is familiar with the terms of and conditions of the Senior Notes, the Loan
Agreement and the other documents executed or delivered in connection therewith
and that it approves all such terms and conditions and consents to the
execution and delivery thereof and of this Agreement by Borrower, and to the
performance of each thereof by Borrower.
14. Any notice, request or other communication required or permitted
to be given hereunder shall be given in writing by delivering it against
receipt for it, by depositing it with an overnight delivery service or by
depositing it in a receptacle maintained by the United States Postal Service,
postage prepaid, registered or certified mail, return receipt requested,
addressed to the respective parties at the following addresses (and if so
given, shall be deemed given on the second business day after mailing:
If to Subordinate Creditor:
Bruce H. Whitehead
c/o BritWill Investments
8111 Preston Road, Suite 715
Dallas, TX 75225
Telephone: (214) 365-9090
Facsimile: (214) 365-9191
8
<PAGE> 9
If to Borrower:
Unison HealthCare Corporation
7272 E. Indian School Road, Suite 214
Scottsdale, Arizona 85251
Attn: Chief Financial Officer
Telephone: (602) 423-1954
Facsimile: (602) 481-6479
If to Senior Creditor:
Imperial Bank
Attn: Mark W. Campbell
Regional Vice President
201 North Figueroa Street
Los Angeles, California 90012
Telephone: (213) 484-3738
Facsimile: (213) 484-3721
Borrower's address for notice may be changed at any time and from time to time,
but only after thirty (30) days' advance written notice to the other parties
and shall be the most recent such address furnished in writing by Borrower to
the other parties. Subordinate Creditor's and Senior Creditor's respective
addresses for notice may be changed at any time and from time to time, but only
after ten (10) days' advance written notice to Borrower and each such party's
address for notice shall be the most recent such address furnished in writing
by such party to Borrower. Actual notice, however and from whomever given or
received, shall always be effective when received.
15. This Agreement shall not be changed orally but shall be changed
only by agreement in writing signed by Subordinate Creditor and Senior Creditor
(without any necessity for notice to or consent by Borrower, which are
expressly WAIVED by Borrower). No course of dealing between the parties, no
usage of trade and no parole or extrinsic evidence of any nature shall be used
to supplement or modify any of the terms or provisions of this Agreement.
16. If any provision of this Agreement is held to be illegal, invalid
or unenforceable under present or future laws, the legality, validity and
enforceability of the remaining provisions of this Agreement shall not be
affected thereby, and this Agreement shall be liberally construed so as to
carry out the intent of the parties to it.
9
<PAGE> 10
17. This Agreement (a) shall be binding upon the parties hereto and
their respective successors and assigns; (b) may be modified or amended only by
a writing and signed by each party hereto; (c) shall be governed by and
construed in accordance with the laws of the State of California, (d) may be
executed in several counterparts, and by the parties hereto on separate
counterparts and each counterpart when so executed and delivered shall
constitute an original agreement, and all such separate counterparts shall
constitute but one and the same agreement; and (e) embodies the entire agreement
and understanding between the parties with respect to the subject matter hereof
and supersedes all prior agreements, consents and understandings relating to
such subject matter.
18. THE PARTIES HERETO AGREE THAT ANY ACTION OR PROCEEDING PURSUANT TO
OR ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE HELD ONLY IN THE CITY AND
COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, OR AT THE SOLE OPTION OF SENIOR
CREDITOR, IN ANY OTHER FORUM IN WHICH SENIOR CREDITOR INITIATES PROCEEDINGS AND
WHICH HAS JURISDICTION OVER THE SUBJECT MATTER AND PARTIES IN CONTROVERSY, THE
PARTIES HERETO HEREBY WAIVE ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF
FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS
BROUGHT IN ACCORDANCE WITH THIS SECTION 18 AND STIPULATE THAT ANY FORUM LOCATED
IN THE CITY AND COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, SHALL HAVE IN
PERSONAM JURISDICTION AND VENUE OVER EACH SUCH PARTY FOR THE PURPOSE OF
ADJUDICATING, ARBITRATING, OR RESOLVING ANY SUCH DISPUTE, CONTROVERSY, OR
PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE LOAN DOCUMENTS.
SERVICE OF PROCESS SUFFICIENT FOR PERSONAL JURISDICTION IN ANY ACTION AGAINST
SUBORDINATE CREDITOR MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN
RECEIPT REQUESTED, TO ITS ADDRESS SPECIFIED FOR NOTICES PURSUANT TO SECTION 14
HEREINABOVE.
19. EACH OF THE PARTIES HERETO HEREBY EXPRESSLY WAIVES ANY RIGHT TO
TRIAL BY JURY OF ANY ACTION, CAUSE OF ACTION, CLAIM, DEMAND, OR PROCEEDING
ARISING UNDER OR WITH RESPECT TO THIS AGREEMENT, IN ANY WAY CONNECTED WITH,
RELATED TO, OR INCIDENTAL TO THE DEALINGS OF WITH RESPECT TO THIS AGREEMENT OR
THE TRANSACTIONS RELATED HERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE. EACH OF THE
PARTIES HERETO HEREBY AGREES THAT ANY SUCH ACTION, CAUSE OF ACTION, CLAIM,
DEMAND, OR PROCEEDING SHALL BE DECIDED BY A COURT TRIAL WITHOUT A JURY AND THAT
EITHER PARTY MAY FILE AN ORIGINAL COUNTERPART OF THIS SECTION 19 WITH
10
<PAGE> 11
ANY COURT OR OTHER TRIBUNAL AS WRITTEN EVIDENCE OF THE CONSENT OF THE OTHER
PARTY TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.
EXECUTED as of the date first above written.
/s/ Bruce H. Whitehead
-------------------------------
BRUCE H. WHITEHEAD, as agent
UNISON HEALTHCARE CORPORATION
By: /s/ Jerry M. Walker
---------------------------
Title: President
IMPERIAL BANK
By: /s/ Thomas H. Shinkle
---------------------------
Title:
11
<PAGE> 12
Exhibit A
Permitted Subordinated Liens
Liens created by the "Pledge Agreements" as defined in the third full
paragraph on page 7 of the Subordinated Note, so long as such liens do not
attach to any property or assets of any kind whatsoever owned by Borrower or in
which Borrower has an interest.
12
<PAGE> 1
EXHIBIT 10.109
PROMISSORY NOTE
$771,004.60 August 30, 1996 Scottsdale, Arizona
FOR VALUE RECEIVED, Unison HealthCare Corporation, a Delaware
corporation ("Borrower"), promises to pay to the order of Red Line Healthcare
Corporation, a Minnesota corporation ("Creditor", which term also includes any
other owner or holder of this Note), the sum of Seven Hundred Seventy-one
Thousand Four and 60/100 Dollars ($771,004.60), together with interest (based on
a 365-day year) on the principal amount from time to time outstanding from the
date set forth below until maturity, at the rate of nine percent (9%) per annum
(the "Interest Rate"), said principal and interest being payable in lawful money
of the United States of America at 8121 10th Avenue North, Golden Valley,
Minnesota 55427, Attn: Julie Moore, or such other place as Creditor may
hereafter designate in writing.
This Note shall be due and payable as follows:
a. No interest shall accrue hereunder prior to August 1, 1996.
Beginning as of August 1, 1996, interest shall begin to accrue
at the Interest Rate;
b. Borrower shall pay monthly installments of accrued interest
only in the amount of $5,893.43 on September 1, 1996, and the
amount of $5,703.32 on October 1, 1996;
c. Borrower shall pay monthly installments of principal and
interest commencing on November 1, 1996, and continuing on the
first day of each and every month thereafter, through and
including April 1, 1997 as follows: (i) November 1, 1996 --
$116,036.95; (ii) December 1, 1996 -- $115,032.08; (iii)
January 1, 1997 -- $114,353.11; (iv) February 1, 1997 --
$113,511.19; (v) March 1, 1997 -- $112,424.84; (vi) April 1,
1997 -- $111,827.35; and (vii) May 1, 1997 -- the remaining
balance due and payable, including all unpaid, accrued
interest;
d. This Note shall mature on the earlier of (i) May 1, 1997, or
(ii) 60 days after the completion of the placement and funding
of any private or public offering of equity securities by
Borrower after the date hereof. All sums owing hereunder shall
become due and payable on the maturity date.
Payments shall be applied at Creditor's option and may be applied first
to interest and then to principal.
If Borrower fails to pay the Note or any installment hereof, whether
principal or interest, when due, and such failure shall continue for a period of
thirty (30) days after the delivery of notice of such failure to Borrower, then
such failure shall constitute an "Event of Default" hereunder and Creditor may,
to the extent permitted by applicable law, declare this Note due and payable,
whereupon the entire unpaid principal balance of this Note and all accrued
unpaid
<PAGE> 2
interest thereon becomes at once mature and due and payable without presentment,
demand, protest or notice of any kind (including, but not limited to, notice of
intention to accelerate and notice of acceleration), all of which are hereby
expressly waived by Borrower. Failure by Creditor to exercise such option at any
time does not constitute a waiver by Creditor to exercise the same at any other
time.
All past due principal and interest of this Note, whether due as the
result of acceleration of maturity or otherwise, shall bear interest at the rate
of fourteen percent (14%) per annum from the date the payment thereof becomes
due until the same have been fully discharged by payment. Principal and interest
payments shall be deemed past due if not paid on their due date.
Borrower shall have the right to prepay this Note in whole or in part
at any time.
Creditor shall have, in addition to all other rights and remedies
available at law or in equity, the right at any time during any ninety (90) day
period commencing upon an Event of Default to elect to convert the outstanding
principal balance owing on this Note into common stock of Unison by sending
written notice of such election to Unison on the attached Conversion Notice
form. Upon any such conversion, Unison shall issue to Creditor the number of
shares (including fractional shares) that results from dividing the product of
the outstanding Note principal balance and 1.4 by 12.75 (i.e., (principal
balance x 1.4)/12.75). In addition to providing the Conversion Notice, to
convert, Creditor must (i) surrender the Note to Unison as the conversion agent,
and (ii) furnish appropriate endorsements and transfer documents if required in
connection therewith.
To the fullest extent permitted by law, Borrower and any and all
sureties, guarantors and endorsers of this Note and all other parties now or
hereafter liable hereon, severally waive demand, presentment for payment,
protest, notice of any kind (including, but not limited to, notice of dishonor,
notice of protest, notice of intention to accelerate and notice of acceleration)
and diligence in collecting and bringing suit against any party hereto and agree
(i) to all extensions and partial payments, with or without notice, before or
after maturity, (ii) to any substitution exchange or release of any security now
or hereafter given for this Note, (iii) that no judgment taken against any party
operates to terminate any lien, security interest or other interest of Creditor
in any collateral securing the payment of this Note, (iv) to the release of any
party primarily or secondarily liable hereon, and (v) that it will not be
necessary for Creditor, in order to enforce payment of this Note, to first
institute or exhaust Creditor's remedies against Borrower or any other party
liable therefor or against any security for this Note.
If there is a default hereunder and this Note is placed in the hands of
an attorney for collection (whether or not suit is filed), or if this Note is
collected by suit or legal proceedings or through the probate court or
bankruptcy proceedings or is the subject of any such proceedings, Borrower
agrees to pay reasonable attorneys' fees and expenses of collection, in addition
to all sums then due hereon (including principal and interest).
Borrower agrees to an effective rate of interest that is the rate
stated above plus any additional rate of interest resulting from any other
charges in the nature of interest paid or to be paid by or on behalf of
Borrower, or any benefit received or to be received by Creditor, in
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<PAGE> 3
connection with this Note. No provision of this Note is intended to or shall
require or permit Creditor, directly or indirectly, to take, collect or receive
in money, goods or in any other form, any interest (including amounts deemed by
law to be interest) in excess of the maximum rate of interest permitted by
applicable law. If any amount due from or paid by Borrower shall be determined
by a court of competent jurisdiction to be interest in excess of such maximum
rate, Borrower shall not be obligated to pay such excess and, if paid, such
excess shall be applied against the unpaid principal balance of this Note, or if
and to the extent that this Note has been paid in full, such excess shall be
remitted to Borrower.
In addition to any other remedies, any holder of this Note may, if it
chooses, upon any default under this Note, exercise a right of offset against
any amounts such holder may owe to Borrower.
Creditor may assign this Note by sending written notice of such
assignment to Unison on the attached Assignment form, subject to the requirement
that the registrar may require upon such an assignment that Creditor, among
other things, furnish appropriate endorsements and transfer documents and to pay
any taxes and fees required by law.
Borrower agrees to provide to Creditor copies of Borrower's 10-Qs,
8-Ks, and, if applicable, its 10-K for the year ended 1996, as filed after the
date hereof with the SEC, promptly after filing.
Creditor acknowledges that this Note and any Unison common stock
obtained in payment hereof or upon the conversion hereof is being or will be
acquired by Creditor for its own account and not with the view to, or for resale
in connection with, any distribution or public offering thereof within the
meaning of the Securities Act of 1933, as amended (the "1933 Act"). Creditor
understands that the Unison stock it obtains has not been registered under the
1933 Act by reason of its issuance in transactions exempt from the registration
and prospectus delivery requirements of the 1933 Act pursuant to Section 4(2)
thereof and agrees to deliver to Unison, if requested by Unison an investment
letter in customary form. Creditor understands that the Unison stock it obtains
may not be sold, transferred or otherwise disposed of without registration under
the 1933 Act or an exemption therefrom, and that in the absence of an effective
registration statement covering the Unison stock it obtains, or an available
exemption from registration under the 1933 Act, Creditor must hold its Unison
stock indefinitely. In particular, Creditor is aware that the Unison stock it
obtains may not be sold pursuant to Rule 144 promulgated under the 1933 Act
unless all of the conditions of that Rule are met. Creditor further understands
that the certificates representing the Unison stock it obtains will bear a
legend substantially in the following form and agrees that it will hold such
shares subject thereto:
THE SHARES REPRESENTED BY THIS CERTIFICATE AND ANY SHARES THAT
MAY BE ISSUED UPON THE CONVERSION OF SUCH SHARES HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
UNDER ANY STATE SECURITIES LAWS.
-3-
<PAGE> 4
NEITHER THIS SECURITY NOR ANY PORTION HEREOF OR INTEREST
HEREIN MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR
OTHERWISE DISPOSED OF UNLESS THE SAME IS REGISTERED UNDER SAID
ACT AND APPLICABLE STATE SECURITIES LAWS OR UNLESS AN
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE AND THE COMPANY
SHALL HAVE RECEIVED, AT THE EXPENSE OF THE HOLDER HEREOF,
EVIDENCE OF SUCH EXEMPTION REASONABLY SATISFACTORY TO THE
COMPANY (WHICH MAY INCLUDE, AMONG OTHER THINGS, AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY).
Creditor has (i) such knowledge and experience in financial and
business matters that Creditor is capable of evaluating independently the risks
and merits of purchasing Unison stock; (ii) independently evaluated the risks
and merits of purchasing Unison stock and has independently determined that
Unison stock is a suitable investment for Creditor; and (iii) sufficient
financial resources to bear the loss of its entire investment in Unison stock.
REGISTRATION RIGHTS
At any time within two (2) weeks of maturity or after an Event of
Default, Borrower shall advise Creditor, by written notice at least two (2)
weeks prior to the filing of any new registration statement under the 1933 Act
covering any securities of Borrower, for its own account or for the account of
others, except for any registration statement filed on Form S-4 or S-8 or
successor form, and will, during such period of time, upon the written request
of Creditor, include in any such new registration statement, such information as
may be required to permit a public offering of the stock obtained by Creditor
through a conversion of this Note (the "Creditor Stock"). Borrower shall supply
prospectuses and such other documents as Creditor may reasonably request in
order to facilitate the public sale or other disposition of the Creditor Stock,
use its reasonable efforts to register and qualify any of the Creditor Stock for
sale in such reasonable number of states as may reasonably designate (but if in
a non-underwritten offering, not to exceed five (5) states, unless Borrower
otherwise agrees in writing; provided that the maximum number of states in any
offering shall be five (5) if Borrower's common stock ceases to be listed on
either the Nasdaq National Market or the New York Stock Exchange) and do any and
all other reasonable acts and things which may be necessary to enable Creditor
to consummate the public sale or other disposition of the Creditor Stock;
provided, however, that Creditor shall furnish information and indemnification
as set forth below.
In consideration of the piggy-back registration rights provided above,
Creditor agrees as follows:
Whenever a registration statement and/or preliminary or final
prospectus relating to the Creditor Stock is filed under the 1933 Act, amended
or supplemented, Creditor will indemnify
-4-
<PAGE> 5
and hold harmless Borrower, each of its directors, officers, agents,
representatives (including legal counsel, accountants and underwriters), and
each person, if any, who controls Borrower (within the meaning of said Act)
against any and all actions, losses, claims, damages or liabilities, joint or
several, to which Borrower or any such director, officer or controlling person
may become subject, under said Act or otherwise, insofar as such losses, claims,
damages or liabilities, or actions with respect thereto, arise out of or are
based upon (1) any untrue or alleged untrue statement of any material fact
contained in said registration statement, said preliminary prospectus, said
final prospectus, or said amendment or supplement, or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such
action, loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in said registration statement, said preliminary prospectus, said final
prospectus or said amendment or supplement in reliance upon and in conformity
with information furnished by Creditor or on behalf of Creditor by Creditor's
counsel for use in the preparation thereof, or (2) Creditor's failure to comply
with any legal requirement applicable to sales of Borrower's common stock,
including, without limitation, applicable prospectus delivery requirements; and
will reimburse Borrower or any such director, officer, agent, representative or
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action.
If the registration of which Borrower gives notice is for a public
offering involving an underwriting, Borrower agrees to so advise Creditor as a
part of its written notice. In such event the right of Creditor to registration
shall be conditioned upon Creditor's participation in such underwriting and the
inclusion of the Creditor Stock in the underwriting to the extent provided
herein. Creditor, if proposing to distribute its Creditor Stock through such
underwriting, agrees to enter into (together with Borrower and the other holders
distributing their securities through such underwriting) an underwriting
agreement (in customary form) with the underwriter or underwriters selected for
such underwriting by Borrower.
Notwithstanding any other provision of this section on Registration
Rights, if the managing underwriter of any underwritten distribution advises
Borrower and Creditor that in its good faith judgment the number of shares of
Borrower's common stock and other securities requested to be registered exceeds
the number of shares of Borrower's common stock and other securities which can
be sold in such offering, then (i) the number of shares of Borrower's common
stock and other securities so requested to be included in the offering shall be
reduced to the number of shares which in the good faith judgment of the managing
underwriter can be sold in such offering; provided that the shares to be issued
by Borrower shall be given priority over any other shares, and (ii) after
allowing for the shares to be issued by Borrower, the remaining, reduced number
of shares available for registration shall be allocated among Creditor and the
any other holders of securities seeking registration proportionately, as nearly
as practicable, and all other securities shall not be included in such
registration and shall be withheld from the market by Creditor and the other
holders thereof for a period, not to exceed one hundred eighty (180) days, which
the managing underwriter reasonably determines is
-5-
<PAGE> 6
necessary to effect the underwritten public offering. In the event that the
number of shares of Creditor Stock is reduced pursuant to (i), above, Creditor
shall have the right to exercise the registration rights, subject to the same
limitations and obligations of Creditor, provided in this Note a total of two
additional times; provided, however, that such additional registration rights
may not be exercised to the extent that Creditor may then sell the remaining
shares of Creditor Stock without registration under the 1933 Act by virtue of
Rule 144 thereunder.
With respect to each inclusion of shares of Creditor Stock in a
registration statement, Borrower agrees to bear all fees, costs and expenses
incidental to such registration and the public offering in connection therewith;
provided, however, that if Creditor participates in such registration, Creditor
agrees to bear its own legal fees and disbursements as well as a pro rata share
of the underwriting, broker or other selling discount and commissions.
UNISON HEALTHCARE CORPORATION
By: /s/ Jerome L. Joseph
--------------------------
Name: Jerome L. Joseph
------------------------
Title: Treasurer
-----------------------
All terms of this Note acknowledged
and agreed to this 30 day of August, 1996:
RED LINE HEALTHCARE CORPORATION,
a Minnesota corporation
By: /s/ John A. Gappa
----------------------------------------------
Name: John A. Gappa
--------------------------------------------
Title: Vice President and Chief Financial Officer
-------------------------------------------
-6-
<PAGE> 7
ASSIGNMENT FORM
If you the holder want to assign this Note, fill in the form below and
have Your signature guaranteed:
I or we assign and transfer this Note to
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax I.D. number)
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
- -------------------------------------------------
agent to transfer this Note on the books of . The agent may
substitute another to act for him.
Date: Your Signature:
--------------------- ---------------------------
(SIGN EXACTLY AS YOUR NAME APPEARS ON THE OTHER SIDE OF THIS NOTE).
Signature Guarantee:
-----------------------------
<PAGE> 8
CONVERSION NOTICE
To convert this Note into Common Stock of Unison HealthCare
Corporation, check the line below:
----------
If you want the stock certificate made out in another person's name, fill in the
form below:
(Insert other person's soc. sec. or tax I.D. no.)
- -------------------------------------------------
- -------------------------------------------------
- -------------------------------------------------
- -------------------------------------------------
(Print or type other person's name, address and zip code).
Date: Your Signature:
--------------------- -------------------------------------
(SIGN EXACTLY AS YOUR NAME APPEARS ON THE OTHER SIDE OF THIS NOTE).
Signature Guarantee:
------------------------------------------------------------
<PAGE> 1
EXHIBIT 10.110
RECEIVABLES PURCHASE AND SALE AGREEMENT
This Receivables Purchase and Sale Agreement (the "Agreement") is
entered into as of August 8, 1996, between HEALTHPARTNERS FUNDING, L.P., a
Delaware limited partnership (the "Purchaser") and SUNBELT THERAPY MANAGEMENT
SERVICES, INC., an Arizona corporation, HENDERSON & ASSOCIATES REHABILITATION,
INC., an Alabama corporation, DECATUR SPORTSFIT & WELLNESS CENTER, INC., an
Alabama corporation, THERAPY HEALTH SYSTEMS, INC., a Mississippi corporation,
SUNBELT THERAPY MANAGEMENT SERVICES, INC., an Alabama corporation, QUEST
PHARMACIES, INC., an Arizona corporation, and SUNQUEST SPC, INC., an Arizona
corporation (collectively, the "Seller").
WITNESSETH
WHEREAS, Purchaser is in the business of purchasing receivables; and
WHEREAS, Seller is desirous of selling to Purchaser certain of its receivables
generated in the ordinary course of Seller's business; and
WHEREAS, Purchaser and Seller wish to confirm the terms and conditions pursuant
to which certain receivables of Seller will be sold to Purchaser during the term
of this Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions.
The following definitions shall apply to the following terms wherever
used in the Purchase Documents (such definitions to be equally applicable to
both the singular and plural forms of such terms), except where the terms are
expressly defined otherwise or where the context clearly requires otherwise:
Affiliate (or a Person "affiliated with" a specified Person). Any
Person directly or indirectly, through one or more intermediaries, controlling
or controlled by, or under direct or indirect common control with, another
Person. A person shall be deemed to control another Person for the purposes of
this definition if such first Person possesses, directly or indirectly, the
power to direct, or to cause the direction of, the management and policies of
the second Person, whether through the ownership of voting securities, through
common directors, trustees or officers, by contract or otherwise.
<PAGE> 2
Agreement. This Receivables Purchase and Sale Agreement, with any and
all exhibits and schedules attached hereto, and any and all amendments,
supplements and modifications hereof.
Authorized Persons. The Persons designated in writing from time to time
by the Seller on behalf of Seller with respect to all matters involving this
Agreement.
Bankruptcy Event. With respect to any Person, when: (a) a receiver,
custodian, liquidator or trustee of any of its assets is appointed by court
order; (b) an order for relief under any bankruptcy, reorganization or
insolvency Law is entered after the filing of a petition by or against it; (c)
any of its assets are sequestered or attached by court order; (d) a petition to
reorganize or rehabilitate it under any bankruptcy, reorganization or insolvency
Laws is filed against it and is not dismissed within thirty (30) days of the
filing thereof; (e) such Person requests reorganization, arrangement,
composition, readjustment, dissolution, rehabilitation, liquidation or similar
relief under any provision of any present or future Law or consents to the
filing of any petition against it under such Law; or (f) such Person makes a
general assignment for the benefit of its creditors, admits in writing its
inability to pay its debts generally as they become due, generally fails to pay
its debts as they become due, consents to the appointment of a receiver, trustee
or liquidator of all or any part of its assets, or otherwise commits any similar
act.
Batch. A group of Eligible Receivables periodically submitted by Seller
to Purchaser for Purchase pursuant to the terms hereof or a group of Eligible
Receivables actually purchased, as applicable.
Business Day. A day other than Saturday or Sunday on which the United
States Post Office is open for regular business in the State of Maryland.
Claim Date. The date of submission of a claim to the Insurer obligated
to pay a Receivable.
Collection Period. The period from the Purchase Date of a Batch through
and including one hundred twenty (120) days from such Purchase Date; provided
that at the option of the Purchaser the Collection Period may be extended
pursuant to a written notification to Seller together with the terms of such
extension.
Collections. All cash collections or cash proceeds received by the
Purchaser or by the Seller on behalf of the Purchaser in respect of any
Purchased Receivables or Related Security or other Receivables of Seller, as
appropriate.
Commitment. One Million and No/100 Dollars ($1,000,000.00).
<PAGE> 3
Delinquent Purchased Receivable. A Purchased Receivable which, (i)
remains unpaid in whole or in part more than one hundred twenty (120) days after
the Claim Date thereof or at the expiration of the Collection Period applicable
thereto or (ii) is not recoverable as determined in good faith by Purchaser.
Eligible Insurer. An Insurer approved by the Purchaser.
Eligible Receivable. A Receivable which satisfies all of the following
criteria:
(a) such Receivable is a bona fide undisputed contractual or other
obligation owed to Seller by an Eligible Insurer or under a Government Program
(or assigned to Seller by a Patient) that arises from the Seller having
performed Medical Services with respect to a Patient entitled to coverage under
a Government Program or insurance benefits under an insurance policy between the
Patient and the Insurer;
(b) such Receivable is genuine and in all respects what it purports to
be, and is not evidenced by a judgment;
(c) such Receivable arises out of a completed, bona fide sale and
delivery of goods or rendition of services by Seller in the ordinary course of
its business and in accordance with the terms and conditions of all purchase
orders, contracts, certification, participation, certificate of need, or other
documents relating thereto and forming a part of the contract between Seller and
the account debtor;
(d) such Receivable is for a liquidated amount maturing as stated in a
duplicate claim or invoice covering such sale or rendition of services, a copy
of which has been furnished or is available to Purchaser;
(e) such Receivable is not, and will not (by voluntary act or omission
by Seller), be in the future, subject to any offset, lien, deduction, defense,
dispute, counterclaim or any other adverse condition, and each such Receivable
is absolutely owing to Seller and is not contingent in any respect or for any
reason;
(f) there are no facts, events or occurrences which in any way impair
the validity or enforceability of any Receivables or tend to reduce the amount
payable thereunder from the face amount of the claim or invoice and statements
delivered to Purchaser with respect thereto;
(g) to the best of Seller's knowledge, (i) the account debtor had the
capacity to contract at the time any contract or other document giving rise to
the Receivable was executed, and (ii) such account debtor is solvent;
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(h) to the best of Seller's knowledge, there are no proceedings or
actions which are threatened or pending against any account debtor which might
result in any material adverse change in such account debtor's financial
condition or the collectibility of such Receivable;
(i) such Receivable has been billed and forwarded to the account debtor
for payment in accordance with applicable laws and in compliance and conformity
with any and requisite procedures, requirements and regulations governing
payment by such account debtor with respect to such Receivable, and such
Receivable if due pursuant to a Government Program is properly payable directly
to Seller;
(j) Seller has obtained and currently has all certificates of need,
Medicaid and Medicare provider numbers, licenses, permits and authorizations as
necessary in the generation of such Receivables;
(k) if owed by an Eligible Insurer the insurance claim related thereto
has been verified by a process approved by the Purchaser and has been forwarded
to the Insurer for payment; and
(l) such Receivable is not an Excluded Receivable.
Excluded Receivables. The following Receivables shall not constitute
Eligible Receivables;
(a) Receivables that are evidenced by promissory notes or other
instruments or chattel paper;
(b) Receivables that represent amounts due from Affiliates or employees
of the Seller;
(c) Receivables that are subject to any Lien;
(d) Receivables that represent amounts due from a payor located outside
the United States of America;
(e) Receivables payable in any currency other than United States
dollars;
(f) Receivables that represent amounts due from an Insurer with respect
to which a Bankruptcy Event has occurred and is continuing.
Government Programs. Medicare, Medicaid, Title V Maternal and Child
Health Services Block Grant Program and the Title XX Social Services Block
Grant Program.
Initial Offer. As defined in Section 2.1.
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Initial Payment. With respect to a Batch, an amount equal to
eighty-five percent (85%) of the Purchase Price for a Batch, payable on the
Purchase Date.
Insurer. A Person that insures a Patient against certain of the costs
incurred in the receipt by such Patient of Medical Services.
Investment. At any time, that portion of the Purchase Price actually
paid by the Purchaser to Seller for Purchased Receivables which have not been
re-assigned by Purchaser to Seller, less all Collections with respect thereto
which have been received by the Purchaser.
Law or Laws. Statute(s), law(s), ordinance(s), regulation(s), order(s),
writ(s), injunction(s) or decree(s) of any political or governmental body or
tribunal (federal, state, county, municipal, foreign or domestic, or otherwise)
having competent jurisdiction.
Lien. Any claim, mortgage, pledge, security interest, encumbrance, lien
or charge of any kind (including without limitation, any agreement to allow or
give any of the foregoing), any conditional sale or other title retention
agreement, or any lease in the nature thereof, or the interest of the lessor
under any capitalized lease obligation.
Medical Services. Medical and health care services provided to a
Patient, including, but not limited to, medical and health care services
provided to a Patient and performed by Seller which are covered by a policy of
insurance issued by an Insurer, and includes physician services, nurse and
therapist services, dental services, hospital services, skilled nursing facility
services, comprehensive outpatient rehabilitation services, home health care
services, and medicine or health care equipment provided by Seller to a Patient
for a necessary or specifically requested valid and proper medical or health
purpose.
Medicare and Medicaid. As the context may require, the Medicare program
existing pursuant to 42 U.S.C. Section 1395 et seq., and regulations adopted
under the authority thereof, the Medicaid program adopted by any state pursuant
to 42 U.S.C. Section 1396 et seq., and regulations adopted under the authority
thereof, and every intermediary, carrier and administrator of any of such
programs.
Net Outstanding Balance. As of any date, the balance of the Verified
Net Claim Payment Amount applicable to a Purchased Receivable.
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Offer. Each offer by the Seller to sell Eligible Receivable(s) to the
Purchaser pursuant to an Offer Letter, including the Initial Offer.
Offer Letter. A letter from the Seller to the Purchaser supplying the
information specified in the form attached hereto as Exhibit A or in such other
form as Purchaser may direct.
Patient. Any Person receiving Medical Services from Seller and all
Persons legally liable to pay Seller for such Medical Services other than
Insurers.
Person. An individual, corporation, partnership, limited liability
company, joint venture, trust, incorporated organization, or any juridical
and/or business entity, or a government or any agency or political subdivision
thereof.
Purchase Date. For Eligible Receivable(s), the effective date of an
Offer, which shall be a Business Day at least two (2) Business Days after
receipt by the Purchaser of an Offer Letter with respect to such Eligible
Receivable(s).
Purchase Discount. An amount equal to one percent (1.00%) per thirty
(30) day period of the outstanding "Batch Payoff" (the Investment plus accrued
Purchase Discounts) for a Batch of Eligible Receivables purchased under this
Agreement.
Purchase Documents. This Agreement, each Offer Letter, each Purchased
Receivables Statement and all future amendments, supplements or modifications of
each of the foregoing, and all other documents, certificates and agreements
executed or delivered (or to be executed or delivered) pursuant to any of the
foregoing documents.
Purchase Price. For each Batch of Eligible Receivables purchased by the
Purchaser hereunder, the Verified Net Claim Payment Amount thereof on the
Purchase Date, less the servicing fee portion of the Purchase Discount.
Purchased Receivables. Eligible Receivables, and the Related Security
therefor, which have been purchased by the Purchaser pursuant to an Offer Letter
by payment of the Initial Payment therefor.
Receivable. An "account" (as defined in the Uniform Commercial Code as
in effect in the State of Maryland) generated by the Seller in the ordinary
course of its business of providing Medical Services.
Related Security. (a) All of the Seller's interest in all rights,
security, guarantees, indemnities, payment or performance bonds, insurance
policies, warranties and other agreements and
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arrangements supporting or securing payment of a Receivable; (b) all of the
Seller's rights as a provider of Medical Services, other services, seller of
goods or unpaid seller or lienor, including, without limitation, attachment,
replevin and reclamation; (c) all files, records (including, without limitation,
computerized records and all applicable medical records), books, ledger cards
(including, without limitation, computer programs, tapes and related electronic
data processing software) and writings of the Seller or in which it has interest
in any way relating to the foregoing; and (d) all proceeds and products of the
foregoing or any Receivable.
Replacement Date. The fifth (5th) Business Day after any Purchased
Receivable ceases to be an Eligible Receivable or becomes a Delinquent Purchased
Receivable.
Reserve. With respect to a Batch, an amount equal to the Purchase Price
for such Batch less the Initial Payment applicable thereto, which Reserve shall
be held and applied in the manner set forth in Section 2.3.
Settlement Date. Friday of each week if such day is a Business Day or
any other mutually agreed upon day.
Termination Event. (a) The Seller fails to remit immediately to the
Purchaser all or any portion of any Collection with respect to a Purchased
Receivable which it may receive; (b) the occurrence of a Bankruptcy Event with
respect to the Seller; (c) the Seller fails to assign to the Purchaser
additional Eligible Receivable after the Purchaser has exercised the option
described in Section 2.6 hereof; (d) Seller fails to cooperate in any reasonable
verification of the estimated net collectable value of its Receivables by
Purchaser; (e) the Seller has breached any of its representations or warranties
set forth in this Agreement or fails to honor any other obligations set forth in
this Agreement; or (f) an Event of Default shall have occurred under that
certain Loan and Security Agreement dated as of February 16, 1996, as amended,
by and among Purchaser, Unison Healthcare Corporation ("Unison"), and certain
subsidiaries and affiliates of Unison.
Verified Net Claim Payment Amount. The dollar amount payable to Seller
by an Eligible Insurer obligated on a Receivable, a claim for which has been
submitted to the Insurer, less any and all deductions deemed applicable by
Purchaser in its sole discretion, and verified by Purchaser.
2. Purchase, Sale and Collection of Receivables.
2.1 Revolving Purchases. On the date on which all conditions precedent
described in Section 4 hereof have been satisfied, the Seller may offer Batches
of Eligible Receivables
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for sale to the Purchaser on any Business Day (the first such offer is referred
to herein as the "Initial Offer").
2.2 Offer Procedures.
(a) At least two (2) Business Days prior to the Purchase Date of any Offer, the
Seller shall deliver to the Purchaser with respect to each Offer (i) an Offer
Letter, duly executed by Authorized Persons of the Seller, certifying that each
Receivable subject to such Offer Letter is an Eligible Receivable and containing
the other information specified therein, and attached to which shall be a
printout or listing describing the Insurer, the gross claim amount of each
Eligible Receivable in the Batch subject to the Offer Letter, the Verified
Net Claim Payment Amount of the Batch if then available and such other
information as the Purchaser shall require and (ii) an Assignment of Receivables
in the form attached hereto as Exhibit B, duly executed by Authorized Persons of
the Seller.
(b) Each Offer of Eligible Receivables for sale to the Purchaser shall be
subject to the condition that the Purchaser's total Investment in Purchased
Receivables shall at no time exceed the Commitment. The Purchaser may, in its
sole discretion, accept or reject all or part of any Offer. If the Purchaser
accepts all or any part of any Offer, the Purchaser shall (i) if not earlier
determined determine the Verified Net Claim Payment Amount of the Batch, (ii)
advise Seller thereof, (iii) notify the Seller of such acceptance no later than
10:00 a.m. on the Purchase Date, and (iv) make the Initial Payment therefor to
the Seller no later than 2:00 p.m. on the Purchase Date. Seller understands and
agrees that except for its rights in the Reserve applicable to a Batch as set
forth herein, payment of the Initial Payment shall complete the transfer to the
Purchaser of full legal and beneficial title to and full and absolute ownership
of the Purchased Receivables and all Related Security therefor and Seller shall
have no further ownership rights therein. Notwithstanding the foregoing, with
respect to any Purchased Receivable which represents an obligation under a
Government Program, Seller shall retain the right to receipt of payment and any
right to demand or otherwise make a claim under such a Government Program.
2.3 Reserve. Each Reserve account applicable to a Batch shall be held
as additional security for Seller's obligations hereunder (and Seller hereby
grants a Security Interest therein to Purchaser) and may be credited, charged,
or applied against such obligations of Seller, including adjustments to the
Purchase Discount. A Reserve (or a portion thereof as provided below) shall be
released and paid to Seller on the earlier to occur of (i) the Settlement Date
next following receipt by Purchaser of the aggregate Verified Net Claim Payment
Amount of the respective Batch or (ii) the Settlement Date next following the
expiration
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of the Collection Period applicable to the Batch; provided that if at the
expiration of the Collection Period, Purchaser shall have received Collections
in an amount (a) less than the sum of the Initial Payment plus the Purchase
Discount (as the same may be adjusted) for the Batch, the Reserve account shall
be canceled, all uncollected Purchased Receivables in the Batch shall be
re-assigned to Seller without recourse or warranties of any kind and, at its
option, Purchaser may offset the difference between the Collections received and
the sum of the Initial Payment plus the Purchase Discount from any other Reserve
account for any other Batch of Purchased Receivables or from amounts due Seller
from the purchase of other Batches or Purchaser may exercise the Replacement
Option in Section 2.6, or (b) more than the sum of the Initial Payment plus the
Purchase Discount (as adjusted), but less than the Verified Net Claim Payment
Amount for such Batch, Purchaser shall release to Seller such portion of the
Reserve account equal to the excess received; the balance of the Reserve account
applicable to the Batch shall be canceled and all uncollected Purchased
Receivables in the Batch shall be reassigned to Seller without recourse or
warranties of any kind. Seller understands and agrees that a Reserve account may
represent accounting entries and not cash balances.
2.4 Reserve-Settlement. On each Settlement Date, Purchaser shall
release any amounts in any Reserve account that Seller is then entitled to
pursuant to the terms hereof. Such settlement shall be accompanied by a
settlement statement in a form prepared by Purchaser. If any Settlement Date is
also a Purchase Date or Replacement Date, the aggregate amount to be remitted to
Seller by Purchaser shall be netted or credited against any amounts then due
Purchaser.
2.5 Reports. At such times during a Collection Period as Seller shall
request but not more frequently than weekly, Purchaser shall submit to Seller,
or cause a third party to submit to Seller, a Purchased Receivables Statement or
other acceptable report reporting the status of Collections with respect to all
Batches of Purchased Receivables, together with a reconciliation of Purchaser's
Investment in Purchased Receivables as of the date of the report.
2. 6 Replacement Option.
(a) If the Net Outstanding Balance of any Purchased Receivable is either (i)
reduced or cancelled as a result of any defective, rejected, repossessed or
returned services, any cash discount or any retainage or any other adjustment,
or (ii) reduced or cancelled as a result of any dispute, setoff or by agreement,
in respect of any claim by the Insurer thereof or by a Patient against the
Seller, then the Purchaser shall have the option of requiring the Seller to
replace such Purchased Receivable by assigning to the Purchaser, on the next
Replacement Date, addi-
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tional Eligible Receivables with an aggregate Verified Net Claim Payment Amount
on such Replacement Date of at least one hundred percent (100%) of the amount of
such reduction, adjustment or cancellation.
(b) If any Purchased Receivable ceases to be an Eligible Receivable or any
Purchased Receivable becomes a Delinquent Purchased Receivable (unless such
Delinquent Purchased Receivable is the result of the bankruptcy, insolvency or
financial inability to pay of the Insurer thereof as demonstrated by the Seller
to the reasonable satisfaction of the Purchaser), then the Purchaser shall have
the option of requiring the Seller to replace such Purchased Receivable by
assigning to the Purchaser, on the next Replacement Date, additional Eligible
Receivables with an aggregate Verified Net Claim Payment Amount on such
Replacement Date equal to at least one hundred percent (100%) of the Net
Outstanding Balance of the replaced Purchased Receivable.
(c) On the Purchase Date following the Replacement Date, in lieu of the
provisions of paragraphs (a) and (b) above, the Purchaser may elect to reduce
the aggregate Purchase Price for Eligible Receivables purchased by the Purchaser
on such date by one hundred percent (100%) of the Net Outstanding Balance then
remaining unpaid on any Purchased Receivable being replaced.
(d) If the Purchaser elects to exercise the replacement option described above
with respect to any Purchased Receivable(s), the Purchaser will,
contemporaneously with the assignment of the required amount of additional
Eligible Receivables on the Replacement Date, re-assign the replaced Purchased
Receivable(s) to the Seller without recourse or warranties of any kind.
2.7 No Assumption. The Purchaser does not, and shall not be deemed to,
assume any obligations of the Seller relating to any Receivables or the
transactions giving rise to any Receivables.
2.8 Receivables Purchase Transaction; Not a Loan. The transactions
contemplated by this Agreement are purchases of Receivables. The Purchase Price
paid for the Purchased Receivables by the Purchaser does not constitute a loan
to the Seller, and the Seller shall not have any obligation to repay such
Purchase Price or any other obligation with respect to Purchased Receivables
except as specified herein. In the event, however, that a court of competent
jurisdiction were to hold that the transactions evidenced by this Agreement
constitute loans rather than purchases and sales of Receivables, it is the
intention of the parties hereto that this Agreement shall constitute a security
agreement under the Uniform Commercial Code and other applicable law, and that
Seller shall be deemed to have granted to Purchaser a first priority security
interest in all of Seller's right, title and interest in and to the Receivables
and
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the Related Security pursuant to the terms of the Purchase Documents. The
Purchaser's ownership of the Purchased Receivables constitutes full and absolute
ownership of all right, title and interest in such Receivables free and clear of
any redemption or conditional ownership by Seller.
2.9 Security Interest in Other Assets. As additional security for
Seller's obligations hereunder, Seller hereby grants a Security Interest in such
other assets of Seller as Purchaser and Seller shall agree, which agreement
shall be evidenced by a Financing Statement executed by Seller.
3. Representations and Warranties of the Seller. To induce the Purchaser to
enter into this Agreement, each entity comprising Seller represents and
warrants to the Purchaser as follows:
3.1 Existence. The Seller is a corporation or other entity duly
organized or formed, validly existing and in good standing under the laws of its
state of incorporation or formation. The Seller is duly qualified to transact
business, and is in good standing, in each jurisdiction where the nature of its
business or properties requires such qualification. The Seller has all requisite
power, authority, licenses, permits and approvals material to the ownership and
operation of its properties and to the carrying on of its business.
3.2 Capacity. The Seller has all requisite power and authority to
execute and deliver, and to perform under this Agreement and the other Purchase
Documents.
3.3 Authorization. The execution and delivery of, and performance by
the Seller under, this Agreement and the other Purchase Documents, have been
duly authorized by all requisite action; are not in contravention of any
applicable Law; are not in contravention of the terms of its Articles or
Certificate of Incorporation or other formation documents, or bylaws (if a
corporation), the terms of any credit or loan agreement, indenture, lease,
franchise, marketing agreement, license, mortgage or deed of trust, or other
material agreement, undertaking or arrangement (written or oral) to which the
Seller is a party or by which it (or any of its assets) may be bound; and will
not give rise to the creation of any Lien upon any of the assets of the Seller.
3.4 Validity. This Agreement and the other Purchase Documents, when
executed and delivered by all parties thereto, will constitute the valid, legal
and binding obligation of the Seller, enforceable against the Seller in
accordance with its terms.
3.5 Consent. No consent, approval or authorization of, registration
with or declaration to any tribunal, Person or
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entity, including, without limitation, the Patients or the insurers obligated on
the Purchased Receivables, or approval by the stockholders of the Seller (if
Seller is a corporation), is required in connection with the execution and
delivery of this Agreement and the other Purchase Documents or in connection
with the performance by the Seller of any covenant or agreement contained herein
or therein.
3.6 Defaults Under Other Documents. The Seller is not, nor will the
execution, delivery, performance of or compliance with the terms of this
Agreement and the other Purchase Documents cause the Seller to be, in default or
in violation (nor has any event or condition occurred which, with notice or
lapse of time, or both, would constitute a default violation.) under (a) its
Articles or Certificate of Incorporation or other formation documents, or bylaws
(if a corporation), or (b) any credit or loan agreement, indenture, lease,
franchise, marketing agreement, license, mortgage or deed of trust, or other
material agreement, undertaking or arrangement (written or oral) to which it is
a party or by which it (or its assets) may be bound.
3.7 Compliance with Laws. The Seller is not, and the execution,
delivery and performance of, and compliance with, the terms of this Agreement
and the other Purchase Documents will not cause the Seller to be, in violation
of any Laws in any respect that could have any material adverse effect
whatsoever upon (a) the validity, performance or enforceability of any of the
terms of this Agreement and the other Purchase Documents, or (b) the financial
condition or business operations of the Seller.
3.8 Place of Business. The place of business of the Seller, or the
Seller's chief executive office if the Seller has more than one place of
business, is located at the address of the Seller set forth herein, and the
Seller keeps its books and records regarding its Receivables at that address.
3.9 Receivables. The Seller (a) is the sole owner of all right, title
and interest in and to all of its Receivables (including the Purchased
Receivables) free and clear of any Lien and (b) has not sold, assigned,
hypothecated, pledged or granted any Lien or security interest in all or any
portion of such Receivables.
4. Conditions Precedent. The Seller shall not be deemed to have made the Initial
Offer until all requirements set forth in this Section 4 are satisfied and the
Purchaser has received the documentation set forth in this Section 4:
4.1 Formation Documents and Certificates. Copies of the Articles or
Certificate of Incorporation or other formation documents, and all amendments
thereto, of the Seller, to be accompanied by (i)a certificate of the Secretary
of State of its
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jurisdiction of incorporation or formation, dated as of a date no more than ten
(10) days prior to the date of the Initial offer, to the effect that such copies
are correct and complete, and (ii) a certificate of its Secretary, dated as of
the date of the Initial offer, that each such copy is correct and complete and
that no changes have occurred therein after the date of the foregoing official
certificate.
4.2 Bylaws. Copies of the bylaws, and all amendments thereto, of the
Seller, to be accompanied by a certificate, dated as of the date of the Initial
Offer, of its Secretary (or other officer) that such copies are correct and
complete.
4.3 Good Standing. A certificate of the Secretary of State of Seller's
jurisdiction of incorporation or formation bearing a date not more than (10)
days prior to the date of the Initial offer, to the effect that the Seller is a
corporation or other entity duly organized and in good standing under the Laws
of the State of its incorporation.
4.4 Incumbency. Certificates of incumbency of all officers of the
Seller who will be authorized to execute or attest any of the Purchase Documents
on behalf of the Seller, executed by an officer of the Seller, dated as of the
date of the Initial Offer.
4.5 Resolutions. Copies of resolutions of the board of directors of the
Seller, approving the execution of this Agreement and the other Purchase
Documents and authorizing the performance of the obligations of the Seller
contemplated in this Agreement and in the other Purchase Documents, accompanied
by a certificate of its Secretary, dated as of the date of the Initial offer,
that such copies are complete and correct copies of resolutions duly adopted at
a meeting of (which may be held by conference telephone or similar communication
equipment by means of which all Persons participating in a meeting can hear each
other if permitted by applicable Law) or by the unanimous written consent of (if
permitted by applicable Law) such board of directors, and that such resolutions
have not been amended, modified or revoked in any respect, and are in full force
and effect as of the date of the Initial Offer.
4.6 Financing Statements. All financing statements requested by the
Purchaser to evidence the sale of Receivables pursuant to this Agreement or
otherwise required by this Agreement, duly executed by the Seller and filed in
the appropriate jurisdictions.
4.7 Opinion of Counsel. Unless waived by Purchaser, the opinion of
counsel to the Seller, addressed to the Purchaser, to the effect that such
counsel has examined this Agreement and such other documents and matters as such
counsel deemed necessary to reach the conclusions stated in the opinion, which
conclusions
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shall include the following: (i) the Seller is a corporation or other entity
duly organized, validly existing and in good standing under the laws of its
state of incorporation or formation; (ii) to the best knowledge of such counsel,
the Seller is duly qualified to transact business, and is in good standing, in
each jurisdiction where the nature of its business or properties requires such
qualifications; (iii) the Seller has all requisite power and authority to
execute and deliver and perform under, this Agreement; (iv) the execution and
delivery of, and performance by the Seller under, this Agreement (A) have been
duly authorized by all requisite action, (B) to the best knowledge of such
counsel, are not in contravention of any applicable Law, and (C) are not in
contravention of its Articles or Certificate of Incorporation or other formation
documents or bylaws (if a corporation), or to the best knowledge of such
counsel, the terms of any credit or loan agreement, indenture, lease, franchise,
marketing agreement, license, mortgage or deed of trust, or other material
agreement, undertaking or arrangement (written or oral) to which the Seller is a
party or by which it (or any of its assets) may be bound; (v) this Agreement,
when executed and delivered by all parties hereto, will constitute the valid,
legal and binding obligation of the Seller, enforceable, subject to customary
qualifications, in accordance with its terms; (vi) to the best knowledge of such
counsel, no consent, approval or authorization of, registration with or
declaration to any tribunal, Person or entity, including without limitation, the
Patients or Insurers obligated on the Receivables, is required in connection
with the execution and delivery of this Agreement, the sale of the Receivables
to the Purchaser in accordance with the terms hereof or in connection with the
performance by the Seller of any covenant or agreement contained herein; (vii)
no approval by the shareholders of the Seller is required in connection with the
execution and delivery of this Agreement or in connection with the performance
by the Seller of any covenant or agreement contained herein; (viii) Receivables
owned by the Seller are not subject to any Lien, other than the Purchaser's
interest therein; and (ix) upon the filing of UCC-1 Financing Statements in the
appropriate offices Purchaser will have a valid and perfected security interest
in Seller's Receivables.
4.8 Closing Certificate. Certificates of the Seller, duly executed by
Authorized Persons of the Seller, dated as of the date of the Initial Offer,
certifying that the representations and warranties contained herein are true
and correct as of such date, and that no Termination Event has occurred as of
such date.
4.9 UCC Searches. Copies of Certificates on form UCC-11 of the
Secretary of State of each jurisdiction where the Seller has its chief executive
office or keeps its books and records regarding Receivables, and copies of all
financing statements listed thereon, evidencing that no Person (other than the
Purchaser) has an interest in or Lien on any Receivables owned by
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the Seller, whether such interest or Lien arises because such Receivables are
proceeds of inventory or otherwise.
4.10 Other Documents. Any and all other documents or certificates
reasonably requested by the Purchaser in connection with the purchase of
Eligible Receivables pursuant to this Agreement.
4.11 Commitment Fee. Seller shall have paid Purchaser a commitment fee
equal to one half of one percent (0.5%) of the Commitment.
5. Covenants of the Seller.
5.1 Collection by the Seller. From and after the date of the Initial
Offer, the Seller, as independent contractor on behalf of the Purchaser in
accordance with the requirements of this Agreement, shall assist Purchaser and
its representatives in collecting all payments on the Purchased Receivables and,
if required by Purchaser, all other receivables of Seller, and cause such
Collections to be remitted to the Purchaser as provided herein. If under any
bankruptcy, insolvency, fraudulent transfer or other law affecting the rights of
creditors generally, the Purchaser is required by a court to return to any
Person any amount of Collections previously received by the Purchaser, the
Seller agrees to promptly assign to the Purchaser, without setoff, deduction or
counterclaim of any kind, additional Eligible Receivables with a Verified Net
Claim Payment Amount on such date of at least one hundred percent (100%) of such
amount of Collections required to be returned. In addition to the foregoing,
Seller (i) shall provide prompt written notice to each private indemnity,
managed care or other Insurer who either is currently or becomes an account
debtor with respect to Purchased Receivables that the Purchased Receivables
applicable to such Insurer have been sold to Purchaser, and (ii) hereby
authorizes Purchaser to send any and all similar notices to such Insurers.
5.2 Operations. The Seller shall assist in collecting the Purchased
Receivables in an orderly and efficient manner consistent with good business
practices and in accordance with all applicable Laws. The Seller shall not
modify the terms of any Purchased Receivables so as to impair the value or
collectibility thereof.
5.3 Payment of Collections. The Seller shall instruct all Insurers
obligated to pay Purchased Receivables and if required by Purchaser, all other
Receivables of Seller, to make all payments thereon to such lockbox or other
account(s) as the Purchaser, or any lender to the Purchaser, may direct,
provided that payments from payors under Government Programs shall be made to
such account(s) or otherwise in compliance with all applicable Laws, rules or
regulations applicable to such payments. If the
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<PAGE> 16
Seller shall receive any payments on any Purchased Receivables, such payments
shall be promptly delivered, uncashed by the Seller and without commingling such
payments with other funds of the Seller, to the Purchaser or as directed by the
Purchaser.
5.4 Records. The Seller shall at all times maintain full and accurate
books and records regarding the Purchased Receivables and Collections thereon
in accordance with generally accepted accounting principles. Such books and
records shall be marked to indicate the ownership interest of the Purchaser
in the Purchased Receivables. Subject to any prohibitions or any Law, such
books and records, together with other financial and business information
concerning Seller and all applicable medical records, shall be available for
inspection, audit and copying by the Purchaser and its representatives during
reasonable business hours.
5.5 Relationship of Parties. The Seiler shall have the status of and
act as an independent contractor in the collection of Purchased Receivables on
behalf of the Purchaser, and shall in no event be, or be deemed to be, an agent
of the Purchaser. Furthermore, this Agreement shall not be construed to create
a partnership or joint venture between the Purchaser and the Seller.
5.6 Duty of Care. In the administration and collection of the Purchased
Receivables and in all actions contemplated by this Agreement, the Seller shall
use the same degree of care that the Seller uses in the collection of any other
accounts receivable owned by the Seller.
5.7 Notice of Changes. The Seller shall notify Purchaser in writing at
least thirty (30) Business Days prior to the date of change of its name, the
location of its chief executive office, its principal place of business, or the
place where it keeps its books and records. No later than fifteen (15) days
after the occurrence of any of the aforementioned changes, the Seller shall
deliver to the Purchaser acknowledgment copies of amendments on form UCC-3
reflecting such change duly executed and duly filed before the effective date of
the change in each jurisdiction in which UCC-1 filings were made in order to
evidence the sale of Receivables pursuant to this Agreement.
5.8 Patient Compliance. Seller shall ensure that Patients have
satisfied all conditions precedent to the Insurer's obligation to pay at least
the Verified Net Claim Payment Amount under insurance policies relating to
Purchased Receivables.
6. Certain Rights.
6.1 Notice to Insurers. At any time after the date of the Initial
Offer, the Purchaser may (i) terminate any duties of the
16
<PAGE> 17
Seller with respect to assisting in the collection of the Purchased Receivables,
and (ii) upon five (5) days prior written notice to Seller, notify any Insurers
obligated on the Purchased Receivables (other than payors under Government
Programs if such notification would be ineffectual or unlawful) (A) of the sale
and assignment of the Purchased Receivables to the Purchaser, and (B) to make
all payments on the Purchased Receivables directly to the Purchaser or its
designee. Upon the receipt of such notice, the Seller shall promptly deliver to
the Purchaser or its designee all books and records (including, without
limitation, computerized records and all applicable medical records) relating to
the Purchased Receivables.
6.2 Termination. Unless terminated by either Purchaser or Seller
pursuant to any of the provisions of this section 6.2, the term of this
Agreement shall be one (1) year from the date of this Agreement, and shall
automatically extend for successive one (1) year terms. At any time, either (i)
immediately upon the occurrence of a Termination Event, or (ii) upon thirty (30)
days prior written notice to the Seller from the Purchaser, the Purchaser may
terminate this Agreement and the Commitment of the Purchaser to purchase
Eligible Receivables. Seller may terminate this Agreement at any time upon at
least thirty (30) days prior written notice to Purchaser, without any obligation
to pay a termination fee.
From and after any termination pursuant to this Section 6.2, the Seller
shall not make any further Offers; provided however, the Seller shall continue
to comply with all of its obligations hereunder, including obligations with
respect to outstanding Purchased Receivables. Upon the occurrence of a
Termination Event, Purchaser shall have, in addition to all other rights and
remedies under the Purchase Documents, all other rights and remedies provided
under the applicable Uniform Commercial Code and other applicable law, which
rights shall be cumulative.
7. General Provisions.
7.1 Assigns. Seller may not assign any of its rights or duties
hereunder without the prior written consent of the Purchaser and any attempt to
do so shall be void. Purchaser may, without the consent of Seller, assign all or
any portion of its rights hereunder by way of participations or otherwise to
such other entities that such Purchaser may select.
7.2 modifications and Waivers. No delay on the part of any party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver of any right, power or privilege hereunder operate
as a waiver of any other right, power or privilege hereunder, nor shall any
single or partial exercise of any right, power or privilege hereunder. All
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<PAGE> 18
rights and remedies herein provided are cumulative and are not exclusive of any
rights or remedies which the parties hereto may otherwise have at law or in
equity. No waiver shall be valid in the absence of the written and signed
consent of the party against which enforcement of such is sought.
7.3 Notice. Except as otherwise specifically provided herein, any
notice hereunder shall be in writing (including telegraphic or telecopy
communication) and, if mailed, shall be deemed to be given three (3) days after
being sent by registered or certified mail, postage prepaid, or if telegraphed
when delivered to the telegraph company, or if telecopied when transmitted or
otherwise when delivered in person to the addressee and a receipt given for,
in all such instances addressed to the parties as set forth on the signature
page hereof, or as such other address as the addressee may, by written notice
received by the other party hereto, designate as the appropriate address for
purposes of notice hereunder.
7.4 Amendment. This Agreement may be amended, supplemented or modified,
and the observance of any term or provision hereof may be waived, only with the
written consent of the Seller and the Purchaser.
7.5 CHOICE OF LAW. THIS AGREEMENT, AND THE VALIDITY AND ENFORCEMENT
HEREOF, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE
LAWS OF THE STATE OF MARYLAND.
7.6 Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or invalidity without invalidating the
remaining portions hereof or thereof or affecting the validity or enforceability
of such provisions in any other jurisdiction.
7.7 ENTIRETY. THIS AGREEMENT EMBODIES THE ENTIRE AGREEMENT AMONG THE
PARTIES HERETO AND SUPERSEDES ALL PRIOR AGREEMENTS AND UNDERSTANDINGS, IF ANY,
RELATING TO THE SUBJECT MATTER HEREOF. THIS WRITTEN AGREEMENT REPRESENTS THE
FINAL AGREEMENT AMONG THE PARTIES HERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES HERETO.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES HERETO.
7.8 Execution. This Agreement may be executed in one or more
counterparts, each of which for all purposes is to be deemed an original. It
shall not be necessary in making proof of this Agreement to produce or account
for more than one such counterpart.
7.9 Survival. All covenants, agreements, undertakings, indemnities,
representations, and warranties made herein shall
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<PAGE> 19
survive both the execution and the termination hereof, and shall not be affected
by any investigation made by any party.
7.10 Money. All references herein to "Dollars," "dollars," the sign "$"
"money," "payments," or other similar financial or monetary terms are references
to currency of the United States of America.
7.11 Headings. The headings, captions, and arrangements used in this
Agreement are for convenience only and shall not be deemed to limit, amplify or
modify the terms of this Agreement.
7.12 Sections, Etc. All references to "Section ," "Sections ,"
"Subsection," "Paragraph" or "paragraphs" contained herein are, unless
specifically indicated otherwise, reference to articles, sections, subsections
and paragraphs of this Agreement. All references to "Exhibits" and "Schedules"
contained herein are references to Exhibits and Schedules attached hereto, all
of which are made a part hereof for all purposes, the same as if set forth
herein verbatim, it being understood that if any Exhibit or Schedule attached
hereto which is to be executed and delivered, contains blanks or is otherwise
required to be updated from time to time, the same shall be completed correctly
and in accordance with the terms and provisions contained herein and as
contemplated herein prior to or at the time of the execution and delivery
thereof.
7.13 Third Party Beneficiaries. It is expressly agreed and understood
among the parties to this Agreement that no provisions of this Agreement are
intended to benefit any third party and no third party is entitled to rely upon
any provisions contained herein; provided that any participant or assignee of
the Purchaser shall be entitled to the benefits hereof.
7.14 Further Assurances. The Seller shall furnish to Purchaser at
Purchaser's request such additional information concerning the Purchased
Receivables or Related Security as Purchaser may from time to time reasonably
request in order to establish compliance with the terms and conditions of this
Agreement, and execute, acknowledge and deliver, or cause to be executed,
acknowledged or delivered, such supplements hereto and such further instruments
and documents as may reasonably be required or appropriate and permitted by Law
to further express the intention, or to facilitate the performance, of this
Agreement.
7.15 Fees and Expenses. Seller agrees to pay, whether or not the
conditions precedent set forth in Section 4 hereof are satisfied, all
out-of-pocket charges and expenses incurred by Purchaser (including, without
limitation, Purchaser's fees and expenses, whether payable to outside counsel or
Purchaser's general counsel) in connection with the negotiation, preparation and
execution of each of the Purchase Documents. The Seller
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<PAGE> 20
shall also pay to the Purchaser (or any assignee or participant) the
out-of-pocket costs, fees and expenses (including reasonable attorney's fees and
auditing fees) incurred by the Purchaser (or any assignee or participant)
incident to the exercise of the rights of the Purchaser and the enforcement of
the Seller's obligations hereunder, or the bankruptcy or insolvency of the
Seller, within fifteen (15) days of the receipt of notice thereof. Upon request,
Seller will reimburse Purchaser (or any assignee or participant) certain routine
expenses, including credit research, filing searches, filing fees, wire transfer
costs, overnight mail and travel expenses.
7.16 Indemnity. The Seller hereby indemnifies and holds harmless
Purchaser (or any assignee or participant) against any and all liabilities,
obligations, losses, damages, penalties, action, judgments, suits, claims,
costs, expenses and disbursements of any kind or nature whatsoever (including,
without limitation, reasonable attorneys, fees) which may be imposed on,
incurred by or asserted against the Purchaser (or any assignee or participant)
due to any action or inaction of the Seller, or through the Seller, in any way
relating to, or arising out of, this Agreement or any of the transactions
contemplated herein. The indemnities contained in this Section shall survive any
termination of this Agreement.
7.17 Limited Power of Attorney. The Seller hereby irrevocably
constitutes and appoints Purchaser (or any assignee or participant) as its agent
and attorney-in-fact for so long as any Purchased Receivables are uncollected
for the limited purposes of (i)preparing, executing on behalf of Seller and
filing for record any notices or other instruments which Purchaser (or any
assignee or participant) determines is necessary to protect its interests in
Purchased Receivables, (ii) preparing, executing on behalf of Seller and/or
delivering all documents, instruments or information pertaining to any Related
Security which Purchaser (or any assignee or participant) determines is
necessary, including without limitation, delivering any medical records or other
records or information to an Insurer to aid in the collection of a Purchased
Receivable, and (iii) receiving and endorsing for Seller any drafts, checks or
other payment instruments and cash evidencing Purchased Receivables or any
Related Security or any other Receivables of Seller then being collected by
Purchaser (or any assignee or participant) and depositing the same in accordance
with the provisions of this Agreement. If requested by Purchaser (or any
assignee or participant), Seller shall execute and deliver to Purchaser (or any
assignee or participant) a separate Power of Attorney in favor of Purchaser (or
any assignee or participant) evidencing the foregoing Power of Attorney which
may be filed of record and provided to third parties if so determined by
Purchaser (or any assignee or participant).
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<PAGE> 21
7.18 Joint and Several Liability; Binding obligations. Each entity
comprising the Seller and executing this Agreement on behalf of the Seller shall
be jointly and severally liable for all of the obligations of the Seller
contained in this Agreement. In addition, each entity comprising the Seller
hereby acknowledges and agrees that all of the representations, warranties,
covenants, obligations, conditions, agreements, indemnities and other terms
contained in this Agreement shall be applicable to and shall be binding upon
each individual entity comprising the Seller, and shall be binding upon all such
entities when taken together.
21
<PAGE> 22
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first written above.
PURCHASER:
HEALTHPARTNERS FUNDING, L.P.
c/o HealthPartners Financial Corporation
2 Wisconsin Circle
Suite 320
Chevy Chase, MD 20815
Tel: (301) 961-1640
Fax- (301) 664-9860
ATTEST: HEALTHPARTNERS FUNDING, L.P.
(Seal)
By: HealthPartners Financial
Corporation
By: By:
--------------------- -------------------------
Name: Name:
Title: Title:
SELLER:
Address for notice purposes for all entities comprising Seller:
c/o Unison Healthcare Corporation
7272 East Indian School Road
Suite 214
Scottsdale, AZ 85251
Attention: Mr. Paul Contris, Chief
Financial Officer
Telephone: (602) 423-1954
Telecopier: (602) 423-1929
ATTEST: SUNBELT THERAPY MANAGEMENT
SERVICES, INC., an
(Seal) Arizona corporation
By:/s/ Craig R. Clark By: /s/ Jerry M. Walker
--------------------- -----------------------
Name: Craig R. Clark Name: Jerry M. Walker
Name:
Title: Title:
(ADDITIONAL SIGNATURES FOLLOW]
22
<PAGE> 23
ATTEST: HENDERSON & ASSOCIATES
REHABILITATION, INC., an
(Seal) Alabama corporation
By: /s/ Craig R. Clark By: /s/ Jerry M. Walker
---------------------------- ---------------------------
Name: Craig R. Clark Name: Jerry M. Walker
Title: Vice President Title: President
ATTEST: DECATUR SPORTSFIT & WELLNESS
CENTER, INC., an Alabama
(Seal) corporation
By: /s/ Craig R. Clark By: /s/ Jerry M. Walker
---------------------------- --------------------------
Name: Craig R. Clark Name: Jerry M. Walker
Title: Vice President Title: President
ATTEST: THERAPY HEALTH SYSTEMS, INC., a
Mississippi corporation
(Seal)
By: /s/ Craig R. Clark By: /s/ Jerry M. Walker
---------------------------- ---------------------------
Name: Craig R. Clark Name: Jerry M. Walker
Title: Vice President Title: President
ATTEST: SUNBELT THERAPY MANAGEMENT
SERVICES, INC., an
(Seal) Alabama corporation
By: /s/ Craig R. Clark By: /s/ Jerry M. Walker
---------------------------- ---------------------------
Name: Craig R. Clark Name: Jerry M. Walker
Title: Vice President Title: President
ATTEST: QUEST PHARMACIES, INC., an
(Seal) Arizona corporation
By: /s/ Craig R. Clark By: /s/ Jerry M. Walker
---------------------------- ---------------------------
Name: Craig R. Clark Name: Jerry M. Walker
Title: Vice President Title: President
[ADDITIONAL SIGNATURES FOLLOW]
23
<PAGE> 24
ATTEST: SUNQUEST SPC, INC., an
(Seal) Arizona corporation
By: /s/ Craig R. Clark By: /s/ Jerry M. Walker
---------------------------- ---------------------------
Name: Craig R. Clark Name: Jerry M. Walker
Title: Vice President Title: President
24
<PAGE> 1
EXHIBIT 10.111
LINC ANTHEM CORPORATION LINC Anthem Corporation
MASTER LEASE AGREEMENT 303 East Wacker Drive
Chicago, Illinois 60601
(312) 946-7300
LESSEE: UNISON HEALTHCARE CORPORATION
ADDRESS: 7272 East Indian School Road, Suite 214
Scottsdale, AZ 85251
MASTER LEASE AGREEMENT NO. 6305
DATE:
-------------
LINC ANTHEM CORPORATION ("Lessor") hereby leases to Lessee and Lessee leases
from Lessor, in accordance with the terms and conditions hereinafter set forth,
the equipment and property together with all replacements, substitutions,
additions, accessories, alterations and repairs incorporated therein or now or
hereafter affixed thereto (herein collectively referred to as the "Equipment")
described in each Equipment Schedule which may be executed by Lessor and Lessee
from time to time (individually a "Schedule" and collectively, the
"Schedules"), each of which is made a part hereof. For all purposes of this
Master Lease Agreement ("Lease"), each Schedule relating to one or more items
of Equipment shall be deemed a separate lease incorporating all of the terms
and provisions of this Lease. In the event of a conflict between the terms of
this Lease and the terms and conditions of a Schedule, the terms and conditions
of the Schedule shall govern and control that Schedule.
- --------------------------------------------------------------------------------
1. TERM AND RENTAL. The term of this Lease (the "Minimum Lease Term") for any
item of Equipment shall be set forth in the Schedule relating to such item of
Equipment and shall commence (the "Commencement Date") on the acceptance Date
("Acceptance Date"), which shall be the applicable of: (1) the date of delivery
of the Equipment to Lessee; (2) in the case of Equipment which is the subject
of a sale and leaseback between Lessor and Lessee, the date upon which Lessor
purchases such Equipment from Lessee; or (3) in the case of Equipment requiring
installation, the date of installation of the Equipment. If the Acceptance Date
is other than the first day of a calendar month, then the Commencement Date of
the Minimum Lease Term set forth in any Schedule shall be the first day of the
calendar month following the month which includes the Acceptance Date and
Lessee shall pay to Lessor, in addition to all other sums due hereunder, an
amount equal to one-thirtieth of the amount of the average monthly rental
payment due or to become due hereunder multiplied by the number of days from
and including the Acceptance Date to the Commencement Date of the Minimum Lease
Term set forth in the Schedule. Lessee agrees to pay the total rental for the
entire term hereof, which shall be the total amount of all rental payments set
forth in the Schedule, plus such additional amounts as may become due hereunder
or pursuant to any written modification hereof or additional written agreement
hereto. Except as otherwise specified in the Schedule, rental payments
hereunder shall be monthly and shall be payable in advance on the first day of
each month during the term of this Lease beginning with the Commencement Date
of the Minimum Lease Term and shall be sent to the address of the Lessor
specified in this Lease or in the Schedule or as otherwise directed by the
Lessor in writing. Rental payments or any other payments due hereunder not
made on or before the due date shall be overdue and shall be subject to a
service charge in an amount equal to two percent (2%) per month of the overdue
payments or the maximum rate permitted by law whichever is less (the "Service
Charge Rate"). If Lessor shall at any time accept a rental payment after it
shall become due, such acceptance shall not constitute or be construed as a
waiver of any or all of Lessor's rights hereunder, including without limitation
those rights of Lessor set forth in Sections 12 and 13 hereof.
<PAGE> 2
2. TITLE. This is an agreement of lease only. Lessee shall have no right, title
or interest in or to the Equipment leased hereunder, except as to the use
thereof subject to the terms and conditions of this Lease. All of the Equipment
shall remain personal property (whether or not the Equipment may at any time
become attached or affixed to real property). The Equipment is and shall remain
the sole and exclusive property of Lessor or its assignees. All replacements,
substitutions, modifications, repairs, alterations, additions and accessories
incorporated in or affixed to the Equipment (herein collectively called
"additions" and included in the definition of "Equipment"), whether before or
after the Commencement Date, shall become the property of Lessor upon being so
incorporated or affixed and shall be returned to Lessor as provided in Section
3. Upon the request of Lessor, Lessee will affix to the Equipment labels or
other markings supplied by Lessor indicating its ownership of the Equipment and
shall keep the same affixed for the entire term of this Lease. Lessee agrees to
promptly execute and deliver or cause to be executed and delivered to Lessor
and Lessor is hereby authorized to record or file, any statement and/or
instrument requested by Lessor for the purpose of showing Lessor's interest in
the Equipment, including without limitation, financing statements, security
agreements, and waivers with respect to rights in the Equipment from any owners
or mortgagees of any real estate where the Equipment may be located. In the
event that Lessee fails or refuses to execute and/or file Uniform Commercial
Code financing statements or other instruments or recordings which Lessor
or its assignee reasonably deems necessary to perfect or maintain perfection
of Lessor's or its assignee's interests hereunder, Lessee hereby appoints
Lessor as Lessee's limited attorney-in-fact to execute and record all documents
necessary to perfect or maintain the perfection of Lessor's interests hereunder.
Lessee shall pay Lessor for any costs and fees relating to any filings hereunder
including, but not limited to, costs, fees, searches, document preparation,
documentary stamps, privilege taxes and reasonable attorney's fees. If any item
of Equipment includes computer software, Lessee shall execute and deliver and
shall cause Seller (as hereinafter defined) to deliver all such documents as
are necessary to effectuate assignment of all applicable software licenses to
Lessor. Lessee shall at its expense: (i) indemnify, protect and defend Lessor's
title to the Equipment from and against all persons claiming against or through
Lessee; (ii) at all times keep the Equipment free from any and all liens,
encumbrances, attachments, levies, executions, burdens, charges or legal
process of any and every type whatsoever; (iii) give Lessor immediate written
notice of any breach of this Lease described in clause (ii); and (iv)
indemnify, protect and save Lessor harmless from any loss, cost or expense
(including reasonable attorneys' fees) caused by the Lessee's breach of any of
the provisions of this Lease, whether incurred by Lessor in pursuing its rights
against Lessee or defending against any claims or defenses asserted by or
through Lessee.
<PAGE> 3
3. ACCEPTANCE AND RETURN OF EQUIPMENT. Lessor shall, at any time prior to
unconditional acceptance of all Equipment by Lessee, have the right to
cancel this Lease with respect to such Equipment (and if the Equipment or any
portion thereof has not previously been delivered, Lessor may refuse to pay for
the Equipment or any portion thereof or refuse to cause the same to be
delivered) if: (a) the Acceptance Data with respect to any item of Equipment to
be leased pursuant to any Schedule has not occurred within sixty (60) days of
the estimated Acceptance Date set forth in such Schedule or (b) there shall be,
in the reasonable judgment of Lessor, a material adverse change in the
financial condition or credit standing of Lessee or of any guarantor of
Lessee's performance under this Lease since the date of the most recent
financial statements of Lessee or of such guarantor submitted to Lessor. Upon
any cancellation by Lessor pursuant to this Section or the provisions of any
Schedule, Lessee shall forthwith reimburse to Lessor all sums paid by Lessor
with respect to such Equipment plus all costs and expenses of Lessor incurred
in connection with such Equipment and any interest or rentals due hereunder in
connection with such Equipment and shall pay to Lessor all other sums then due
hereunder, whereupon if Lessee is not then in default and has fully performed
all of its obligations hereunder, Lessor will, upon request of Lessee, transfer
to Lessee without warranty or recourse any rights that Lessor may then have
with respect to such Equipment. Lessee agrees to promptly execute and deliver
to Lessor (in no event later than 15 days after the Acceptance Date) a
confirmation by Lessee of unconditional acceptance of the Equipment in the form
supplied by Lessor (the "Equipment Acceptance"). Lessee agrees, before
execution of the aforesaid Equipment Acceptance, to inform Lessor in writing of
any defects in the Equipment, or in the installation thereof, which have come
to the attention of Lessee or its agents and which might give rise to a claim
by Lessee against the Seller or any other person. If Lessee fails to give
notice to Lessor of any such defects or fails to deliver to Lessor the
Equipment Acceptance as provided herein, it shall be deemed an acknowledgement
by Lessee (for purposes of this Lease only) that no such defects in the
Equipment or its installation exist and it shall be conclusively presumed,
solely as between Lessor and its assignees and Lessee, that such Equipment has
been unconditionally accepted by Lessee for lease hereunder. Except as
otherwise provided in any Schedule, Lessee shall provide Lessor ninety (90)
days prior written notice by registered or certified mail of its intention to
return the Equipment upon expiration of the Minimum Lease Term. Upon expiration
or the cancellation or termination of the Lease with respect to any Equipment,
Lessee shall, at its own expense, assemble, crate, insure and deliver all of
the Equipment and all of the service records and all software and software
documentation subject to this Lease and any Schedules hereto to Lessor in the
same good condition and repair as when received, reasonable wear and tear
resulting only from proper use thereof excepted, to such reasonable destination
within the continental United States as Lessor shall designate. Lessee shall,
immediately prior to such return of each item of Equipment, provide to Lessor a
letter from the manufacturer of the Equipment or another service organization
reasonably acceptable to Lessor certifying that said item is in good working
order, reasonable wear and tear resulting only from proper use thereof
excepted, that such item is eligible for a maintenance agreement by such
manufacturer and all software is included thereon. If any computer software
requires relicensing when removed from Lessee's premises, Lessee shall bear all
costs of such relicensing. If Lessee fails for any reason to provide the notice
set forth above or to re-deliver the Equipment back to Lessor in accordance
with the terms set forth above, Lessee shall pay to Lessor, at Lessor's
election, an amount equal to the highest monthly payment set forth in the
Schedule for a period of not less than three (3) months ("Holdover Period") and
at the end of such Holdover Period, Lessee shall return the Equipment to Lessor
as provided herein. If Lessee fails or refuses to return the Equipment as
provided herein at the end of any Holdover Period, the term of such Schedule
shall be deemed to have been automatically renewed for successive Holdover
Periods until Lessee returns the Equipment in accordance with the terms set
forth above and during which time, Lessee shall pay to Lessor, at Lessor's
option, an amount equal to one hundred percent (100%) of the highest monthly
payment set forth in the Schedule or the highest rate permitted by law,
whichever is less, for each month or portion thereof, until Lessee so returns
the Equipment to Lessor.
<PAGE> 4
4. DISCLAIMER OF WARRANTIES. LESSEE HAS EXCLUSIVELY SELECTED AND CHOSEN THE
TYPE, DESIGN, CONFIGURATION, SPECIFICATION AND QUALITY OF THE EQUIPMENT HEREIN
LEASED AND THE VENDOR, DEALER, SELLER, MANUFACTURER OR SUPPLIER THEREOF (HEREIN
COLLECTIVELY CALLED "SELLER"), AS SET FORTH IN THE SCHEDULES. LESSOR MAKES NO
REPRESENTATION OR WARRANTY, EITHER EXPRESS OR IMPLIED, AS TO ANY MATTER
WHATSOEVER, INCLUDING WITHOUT LIMITATION, THE CONDITION OF THE EQUIPMENT, ITS
MERCHANTABILITY OR ITS FITNESS, ADAPTABILITY, ANY IMPLIED WARRANTY OF QUIET
ENJOYMENT OR NON-INTERFERENCE OR SUITABILITY FOR ANY PARTICULAR PURPOSE, AND,
LESSEE LEASES, HIRES AND RENTS THE EQUIPMENT "AS IS." Lessee understands and
agrees that neither Seller, nor any agent of Seller, is an agent of Lessor or
is in any manner authorized to waive or alter any term or condition of this
Lease. Lessor shall not be liable for any loss or damage suffered by Lessee or
by any other person or entity, direct or indirect or consequential, including,
but not limited to, business interruption and injury to persons or property,
resulting from non-delivery or late delivery, installation, failure or faulty
operation, condition, suitability or use of the Equipment leased by Lessee
hereunder, or for any failure of any representations, warranties or covenants
made by the Seller. Any claims of Lessee shall not be made against Lessor but
shall be made, if at all, solely and exclusively against Seller, or any persons
other than the Lessor. Lessor hereby authorizes Lessee to enforce during the
term of this Lease, in its name, but at Lessee's sole effort and expense, all
warranties, agreements or representations, if any, which may have been made by
Seller to Lessor or to Lessee, and Lessor hereby assigns to Lessee solely for
the limited purpose of making and prosecuting any such claim, all rights which
Lessor may have against Seller for breach of warranty or other representation
respecting the Equipment.
5. CARE, TRANSFER AND USE OF EQUIPMENT. Lessee, at its own expense, shall
maintain the Equipment in good operating condition, repair and appearance in
accordance with Seller's specifications and in compliance with all applicable
laws and regulations and shall protect the Equipment from deterioration except
for reasonable wear and tear resulting only from proper use thereof. When
generally offered, Lessee shall, at its expense, keep a maintenance contract in
full force and effect, throughout the term of this Lease and any Schedule
hereto. The disrepair or inoperability of the Equipment regardless of the cause
thereof shall not relieve Lessee of the obligation to pay rental hereunder.
Lessee shall not make any modification, alteration or addition to the Equipment
(other than normal operating accessories or controls). Lessee will not, and
will not permit anyone other than the authorized field engineering
representatives of Seller or other maintenance organization reasonably
acceptable to Lessor to effect any inspection, adjustment, preventative or
remedial maintenance or repair to the Equipment. Lessee may not (a) relocate or
operate the Equipment at locations other than the premises of Lessee specified
in the applicable Schedule (the "Premises"), except with Lessor's prior written
consent, which shall not be unreasonably withheld if such other location is
within the continental United States, or (b) SELL, CONVEY, TRANSFER, ENCUMBER,
<PAGE> 5
PART WITH POSSESSION OF, OR ASSIGN ANY ITEM OF EQUIPMENT OR ANY OF ITS RIGHTS
HEREUNDER, AND ANY SUCH PURPORTED TRANSACTION SHALL BE NULL AND VOID
AND OF NO FORCE OR EFFECT. In the event of a relocation of the Equipment or
any item thereof to which Lessor consents, all costs (including any additional
property taxes or other taxes and any additional expense of insurance coverage)
resulting from any such relocation, shall be promptly paid by Lessee upon
presentation to Lessee of evidence supporting such cost. Lessor shall have the
right during normal hours upon reasonable notice to Lessee, subject to
applicable laws and regulations, to enter Lessee's Premises in order to
inspect, observe, affix labels or other markings, or to exhibit the Equipment
to prospective purchasers or future lessees thereof, or to otherwise protect
Lessor's interest therein.
6. NET LEASE. THIS LEASE AND ANY SCHEDULE HERETO IS A NET LEASE, AND ALL
PAYMENTS HEREUNDER ARE NET TO LESSOR. All taxes, assessments, licenses, and
other charges (including, without limitation personal property taxes and sales,
use and leasing taxes and penalties and interest on such taxes) imposed, levied
or assessed on the ownership, possession, rental or use of the Equipment after
delivery of the Equipment to Lessee and thereafter during the term of this
Lease and any Schedule hereto (except for Lessor's federal or state net income
taxes) shall be paid by Lessee when due and before the same shall become
delinquent, whether such taxes are assessed or would ordinarily be assessed
against Lessor or Lessee. To the extent possible under applicable law, for
personal property or advalorem tax return purposes only, Lessee shall include
the Equipment on such returns as may be required, which returns shall be timely
filed by it. In any event, Lessee shall file all tax returns required for
itself or Lessor and Lessor hereby appoints Lessee as its attorney-in-fact for
such purpose. In case of failure by Lessee to so pay said taxes, assessments,
licenses or other charges, Lessor may pay all or any part of such items, in
which event the amount so paid by Lessor including any interest or penalties
thereon and reasonable attorneys' fees incurred by Lessor in pursuing its
rights against Lessee or defending against any claims or defenses asserted by
or through Lessee shall be immediately paid by Lessee to Lessor as additional
rental hereunder. Lessee shall promptly pay all costs, expenses and obligations
of every kind and nature incurred in connection with the use or operation of
the Equipment which may arise or become due during the term of this Lease and
any Schedule hereto, whether or not specifically mentioned herein. In case of
failure by Lessee to comply with any provision of this Lease and any Schedule
hereto, Lessor shall have the right, but not the obligation, to effect such
compliance on behalf of Lessee. In such event, all costs and expenses incurred
by Lessor in effecting such compliance shall be immediately paid by Lessee to
Lessor as additional rental hereunder.
7. INDEMNITY. Lessee shall and does hereby agree to indemnify, defend and hold
Lessor and its assigns harmless from and against any and all taxes described in
Section 6 above, liability, loss, costs, injury, damage, penalties, suits,
judgements, demands, claims, expenses and disbursements (including without
limitation, reasonable attorneys' fees incurred by Lessor in pursuing its
rights against Lessee or defending against any claims or defenses asserted by
or through Lessee) of any kind whatsoever arising out of, on account of, or in
connection with this Lease and the Equipment leased hereunder, including,
without limitation, its manufacture, selection, purchase, delivery, rejection,
installation, ownership, possession, leasing, renting, operation, control, use,
maintenance and the return thereof. This indemnity shall survive the Minimum
Lease Term or earlier cancellation or termination of this Lease and any
Schedule hereto.
8. INSURANCE. Commencing on the date that risk of loss or damage passes to
Lessor from the Seller and continuing until Lessee has re-delivered possession
of the Equipment to Lessor, Lessee shall, at its own expense, keep the Equipment
(including all additions thereto) insured against all risks of loss or damage
from every and any cause whatsoever in such amounts (but in no event less than
the greater of the replacement value thereof or the amount set forth in the
applicable Casualty Schedule, whichever is higher), with such deductibles and
<PAGE> 6
exclusions as approved by Lessor and in such form as is satisfactory to Lessor.
All such insurance policies shall protect Lessor and Lessor's assignee(s) as
loss payees as their interests may appear. Lessee shall also, at its own
expense, carry public liability insurance, with Lessor and Lessor's assignee(s)
as an additional insured, in such amounts with such companies and in such form
as is satisfactory to Lessor, with respect to injury to person or property
resulting from or based in any way upon or in any way connected with or relating
to the installation, use or alleged use, or operation of any or all of the
Equipment, or its location or condition. Not less than ten days prior to the
Acceptance Date, Lessee shall deliver to Lessor satisfactory evidence of such
insurance and shall further deliver evidence of renewal of each such policy not
less than thirty (30) days prior to expiration thereof. Each such policy shall
contain an endorsement providing that the insurer will give Lessor not less than
thirty (30) days prior written notice of the effective date of any alteration,
change, cancellation, or modification of such policy or the failure by Lessee to
timely pay all required premiums, costs or charges with respect thereto. Upon
Lessor's request, Lessee shall cause its insurance agent(s) to execute and
deliver to Lessor Loss Payable Clause Endorsement and Additional Insured
Endorsement (bodily injury and property damage liability insurance) forms
provided to Lessee by Lessor. In case of the failure to procure or maintain such
insurance, Lessor shall have the right, but not the obligation, to obtain such
insurance and any premium paid by Lessor shall be immediately due and payable by
Lessee to Lessor as additional rent hereunder. The maintenance of any policy or
policies of insurance pursuant to this Section shall not limit any obligation or
liability of Lessee pursuant to Sections 7 or 9 or any other provision of this
Lease and any Schedule hereto.
9. RISK OF LOSS. Until such time as the Equipment is returned and delivered to
and accepted by Lessor, pursuant to the terms of this Lease and any Schedule
hereto, Lessee hereby assumes and shall bear the entire risk of loss, damage,
theft and destruction of the Equipment, or any portion thereof, from any cause
whatsoever ("Equipment Loss"). Without limitation of the foregoing, no
Equipment Loss shall relieve Lessee in any way from its obligations hereunder.
Lessee shall promptly notify Lessor in writing of any Equipment Loss. In the
event of any such Equipment Loss, Lessee shall: (a) in the event Lessor
determines such Equipment to be repairable, promptly place, at Lessee's expense,
the Equipment in good repair, condition and working order in accordance with
Seller's specifications and to the satisfaction of Lessor; or (b) in the event
of an actual or constructive total loss of any item of Equipment, at Lessor's
option: (i) promptly replace, at Lessee's expense, the Equipment with like
equipment of the same or a later model with the same additions as the
Equipment, and in good repair, condition and working order in accordance with
the Seller's specifications and to the satisfaction of Lessor; or (ii)
immediately pay to Lessor the amount obtained by multiplying the Actual
Equipment Cost as specified in the applicable Schedule by the percentage
contained in the applicable Casualty Schedule for the date of such Equipment
Loss plus, any unpaid rentals or any amounts due hereunder or, if no Casualty
Schedule has been made a part of any applicable Schedule, an amount equal to
the present value of the total amount of unpaid rentals and all other amounts
due and to become due under any applicable Schedule during the term thereof as
of the date of any payment, discounted at a rate equal to discount rate of the
Federal Reserve Bank of Chicago as of the Commencement Date of the Lease with
<PAGE> 7
respect to each applicable Schedule, plus an additional amount equal to the
fair market value of the Equipment immediately prior to the loss, theft,
damage, or destruction, but in no event shall the amount of such fair market
value be less than twenty percent (20%) of the actual cost of the Equipment. In
the event Lessee is required to repair or replace any such item of Equipment
pursuant to Subsections (a) or (b)(i) of the preceding sentence, the insurance
proceeds received by Lessor, if any, pursuant to Section 8, after the use of
such funds to pay any unpaid amounts then due hereunder, shall be paid to
Lessee or, if applicable, to a third party repairing or replacing the Equipment
upon Lessee's furnishing proof satisfactory to Lessor that such repair or
replacement has been completed in a satisfactory manner. In the event Lessor
elects option (b)(ii), Lessee shall be entitled to a credit against the payment
required by said Subsection in an amount equal to such insurance proceeds
actually received by Lessor pursuant to Section 8 on account of such Equipment,
and, upon payment by Lessee to Lessor of all of the sums required pursuant to
Subsection (b)(ii), the applicable Schedule shall terminate with respect to
such item of Equipment and Lessee shall be entitled to whatever interest Lessor
may have in such item "as is, where is" and "with all faults" in its then
condition and location without warranties of any type whatsoever, express or
implied.
10. COVENANTS OF LESSEE. Lessee agrees that its obligations under this Lease
and any Schedule hereto, including without limitation, the obligation to pay
rental, are irrevocable and absolute, shall not abate for any reason whatsoever
(including any claims against Lessor), and shall continue in full force and
effect regardless of any inability of Lessee to use the Equipment or any part
thereof for any reason whatsoever including, without limitation, war, act of
God, storms, governmental regulations, strike or other labor troubles, loss,
damage, destruction, disrepair, obsolescence, failure of or delay in delivery
of the Equipment, or failure of the Equipment to properly operate for any
cause. In the event of any alleged claim (including a claim which would
otherwise be in the nature of a set-off) against Lessor, Lessee shall fully
perform and pay its obligations hereunder (including all rents, without set-off
or defense of any kind) and its only exclusive recourse against Lessor shall be
by a separate action. Lessee agrees to furnish promptly to Lessor the annual
financial statements of Lessee (and of any guarantors of Lessee's performance
under this Lease and any Schedule hereto), prepared in accordance with
generally accepted accounting principles and certified by independent
certified public accountants, and such interim financial statements of Lessee
as Lessor may require during the entire term of this Lease and any Schedule
hereto. Lessee, if requested, shall provide at Lessee's expense an opinion of
its counsel acceptable to Lessor affirming the covenants, representations and
warranties of Lessee under this Lease and any Schedule hereto.
11. REPRESENTATIONS AND WARRANTIES. In order to induce Lessor in enter into
this Lease and any Schedule hereto and to lease the Equipment to Lessee
hereunder, Lessee represents and warrants that: (a) FINANCIAL STATEMENTS. (i)
applications, financial statements, and reports which have been submitted by
Lessee and any Obligors (as hereinafter defined) to Lessor are, and all
information hereafter furnished by Lessee and Obligors to Lessor will be, true
and correct in all material respects as of the date submitted; (ii) as of the
date hereof, the date of any Schedule and any Acceptance Date, there has been no
material adverse change in any matter stated in such applications, financial
statements and reports; and, (iii) none of the foregoing omit or omitted to
state any material fact. (b) ORGANIZATION. Lessee is an organizational entity
described on the signature page hereof and is duly organized, validly existing
and is duly qualified to do business and is in good standing in each State in
which the Equipment will be located. (c) AUTHORITY. Lessee has full power,
authority and right to execute, deliver and perform this Lease and any Schedule
hereto, and the execution, delivery and performance hereof has been authorized
by all necessary action of Lessee. (d) ENFORCEABILITY. This Lease and any
Schedule or other document executed in connection therewith has been duly
executed and delivered by Lessee and any Obligor and constitutes a legal, valid
and binding obligation of Lessee and any Obligor enforceable in accordance with
its terms. (e) CONSENTS. The execution, delivery and performance of this Lease
<PAGE> 8
and any Schedule hereto does not require any approval or consent of any
stockholders, partners or proprietors or of any trustee or holders of any
indebtedness or obligations of Lessee, and will not contravene any law,
regulation, judgment or decree applicable to Lessee, or the certificate of
incorporation, partnership agreement, by-laws or other governing documents of
Lessee, or contravene the provisions of, or constitute a default under, or
result in the creation of any lien upon any property of Lessee under any
mortgage, instrument or other agreement to which Lessee is a party or by which
Lessee or its assets may be bound or affected. Except as disclosed, no
authorization, approval, license, filing or registration with any court or
governmental agency or instrumentality is necessary in connection with the
execution, delivery, performance, validity and enforceability of this Lease and
any Schedule hereto. (f) TITLE. On each Commencement Date, Lessor shall have
good and marketable title to the items of Equipment which is subject to this
Lease and any Schedule hereto on such date, free and clear of all liens, except
the lien of Seller which will be released upon receipt of payment. Lessee
warrants that no party has a security interest in the Equipment which will not
be released on or before payment by Lessor to Seller of the Equipment and that
the Equipment is and shall at all times remain personal property regardless of
how it may be affixed to any real property. (g) LITIGATION. There is no action,
suit, investigation or proceeding by or before any court, arbitrator, agency or
governmental authority pending or threatened against or affecting Lessee: (i)
which involves the Equipment or the transactions contemplated by this Lease and
any Schedule hereto; or (ii) which, if adversely determined, could have a
material adverse effect on the financial condition, business or operation of
Lessee.
12. EVENTS OF DEFAULT. An event of default ("Event of Default") shall occur
hereunder if Lessee or any Obligor ("Obligor" shall include any guarantor or
surety of any obligations of Lessee to Lessor under this Lease and any Schedule
hereto): (i) fails to pay any installment of rent or other payment required
hereunder when due; or (ii) attempts to or does remove from the Premises
(except a relocation with Lessor's consent as provided in Section 5), sell,
transfer, encumber, part with possession of, or sublet any item of the
Equipment; or (iii) shall suffer or have suffered, in the reasonable judgment
of Lessor, a material adverse change in its financial condition since the date
of the last financial statements submitted to Lessor, and as a result thereof
Lessor deems itself to be insecure, or any of the statements or other documents
or information submitted at any time heretofore or hereafter by Lessee or
Obligor to Lessor has misstated or shall misstate or has failed or shall fail to
state a material fact; or (iv) breaches or shall have breached any
representation or warranty made or given by Lessee or Obligor in this Lease or
in any other document furnished to Lessor in connection herewith, or any such
representation or warranty shall be untrue or, by reason of failure to state a
material fact or otherwise, shall be misleading; or (v) fails to perform or
observe any other covenant, condition or agreement to be performed or observed
by it hereunder, and such failure or breach shall continue unremedied for a
period of ten days after the earlier of (a) the date on which Lessee obtains,
or should have obtained knowledge of such failure or breach, or (b) the date on
which notice thereof shall be given by Lessor to Lessee; or (vi) shall become
insolvent or bankrupt or make an assignment for the benefit of creditors or
consent to the appointment of a trustee or receiver, or a trustee or receiver
shall be appointed for a substantial part of its property without its consent,
<PAGE> 9
or bankruptcy or reorganization or insolvency proceeding shall be instituted
by or against Lessee or Obligor; or (vii) conveys, sells, transfers or assigns
substantially all of Lessee's or Obligor's assets or ceases doing business
as a going concern, or, if a corporation, ceases to be in good standing or
files a statement of intent to dissolve, or abandons any or all of the
Equipment; or (viii) shall be in breach of or default under any lease or
other agreement at any time executed with Lessor or any other lessor or with
any lender to Lessee or Obligor.
13. REMEDIES. Upon the occurrence of an Event of Default (the "Default
Date") set forth in Section 12 and at any time thereafter, Lessor may, in its
sole and absolute discretion, do any one or more of the following: (a) upon
notice to Lessee cancel all or any portion of this Lease and some or all
Schedules executed pursuant thereto; (b) enter Lessee's Premises and without
removal of the Equipment, render the Equipment unusable or, require Lessee to
assemble the Equipment and make it available to Lessor at a place designated by
Lessor, and/or dispose of the Equipment by sale or otherwise (all of which
determinations may be made by Lessor in its sole and absolute discretion)
without any duty to account for such action or inaction or for any proceeds or
profits with respect thereto; (c) declare immediately due and payable all sums
due and to become due hereunder for the full term of the Lease (including any
renewal or purchase obligations which Lessee has contracted to pay); (d) with
or without canceling this Lease, recover from Lessee damages, in an amount
equal to the sum of: (i) all unpaid rent and other amounts that became due and
payable on, or prior to, the Default Date, (ii) the present value of all future
rentals and other amounts described in the Lease and not included in (i) above
discounted to the Default Date at a rate equal to the discount rate of the
Federal Reserve Bank of Chicago as of the Commencement Date of the Lease with
respect to each Schedule (which discount rate, Lessee agrees is a commercially
reasonable rate which takes into account the facts and circumstances at the
time such Schedule commenced), (iii) all commercially reasonable costs and
expenses incurred by Lessor in enforcing Lessor's rights under this Lease or
defending against any claims or defenses asserted by or through Lessee,
including but not limited to, costs of repossession, recovery, storage, repair,
sale, release and reasonable attorneys' fees, (iv) the estimated residual value
of the Equipment as of the expiration of the Lease, (v) any indemnity amount
payable to Lessor; and (vi) interest on all of the foregoing from the Default
Date until the date payment is received by Lessor at 2 1/2% in excess of the
Prime Rate (or its equivalent) per annum in effect on the date of such payment
at the First National Bank of Chicago) or the highest rate permitted by law,
whichever is less; (e) exercise any other right or remedy which may be
available to it under the Uniform Commercial Code or any other applicable law.
Lessor reserves the right, in its sole and absolute discretion, to release or
sell any or all of the Equipment at a public auction or in a private sale, at
such time, on such terms and with such notice as Lessor shall in its sole and
absolute discretion deem reasonable. In such event, without any duty on
Lessor's part to effect any such re-lease or sale of the Equipment, Lessor will
credit the present value of any proceeds from such sale or re-lease actually
received and retainable by it (net of any and all costs or expenses) discounted
from the date of Lessor's receipt thereof to the Default Date at 2 1/2% in
excess of the Prime Rate (or its equivalent) per annum in effect on the date of
such payment at the First National Bank of Chicago, or the highest rate
permitted by law, whichever is less to the amounts due to Lessor from Lessee
under the provisions of (c), (d) and/or (e) above. A cancellation of this Lease
shall occur only upon notice by Lessor and only as to such items of Equipment
as Lessor specifically elects to cancel and this Lease shall continue in full
force and effect as to the remaining items of Equipment, if any. If this Lease
and/or any Schedule is deemed at any time to be one intended as security,
Lessee agrees that the Equipment shall secure, in addition to the indebtedness
set forth herein, any other indebtedness at any time owing by Lessee to Lessor.
No remedy referred to in this Section is intended to be exclusive, but shall be
cumulative and in addition to any other remedy referred to above or otherwise
available to Lessor at law or in equity. No express or implied waiver by Lessor
of any default shall constitute a waiver of any other default by Lessee or a
waiver of any of Lessor's rights.
<PAGE> 10
14. ASSIGNMENT BY LESSOR. LESSOR MAY (WITH OR WITHOUT NOTICE TO LESSEE) SELL,
TRANSFER, ASSIGN OR GRANT A SECURITY INTEREST IN ALL OR ANY PART OF ITS
INTEREST IN THIS LEASE, ANY SCHEDULE, ANY ITEMS OF EQUIPMENT OR ANY AMOUNT
PAYABLE HEREUNDER. In such an event, Lessee shall, upon receipt of notice,
acknowledge any such sale, transfer, assignment or grant of a security interest
and shall pay its obligations hereunder or amounts equal thereto to the
respective transferee, assignee or secured party in the manner specified in any
instructions received from Lessor. Notwithstanding any such sale, transfer,
assignment or grant of a security interest by Lessor and so long as no event of
default shall have occurred hereunder, neither Lessor nor any transferee,
assignee or secured party shall interfere with Lessee's right of use or quiet
enjoyment of the Equipment. In the event of such sale, transfer, assignment or
grant of a security interest in all or any part of this Lease and any Schedule
hereto, or in the Equipment or in sums payable hereunder, as aforesaid, Lessee
agrees to execute such documents as may be reasonably necessary to evidence,
secure and complete such sale, transfer, assignment or grant of a security
interest and to perfect the transferee's, assignee's or secured party's
interest therein and Lessee further agrees that the rights of any transferee,
assignee or secured party shall not be subject to any defense, set-off of
counterclaim that Lessee may have against Lessor or any other party, including
the Seller, which defenses, set-offs and counterclaims shall be asserted only
against such party, and that any such transferee, assignee or secured party
shall have all of Lessor's rights hereunder, but shall assume none of Lessor's
obligations hereunder. Lessee acknowledges that any assignment or transfer by
Lessor shall not materially change Lessee's duties or obligations under this
Lease nor materially increase the burdens and risks imposed on Lessee. Lessee
agrees that Lessor may assign or transfer this Lease or Lessor's interest in
the Equipment even if said assignment or transfer could be deemed to materially
affect the interests of Lessee. Nothing in the preceding sentence shall affect
or impair the provisions of Section 4, Section 10 or any other provision of
this Lease.
15. AMENDMENTS. This Lease and any Schedule hereto contain the entire agreement
between the parties with respect to the Equipment, this Lease and any Schedule
hereto and there is no agreement or understanding, oral or written, which is not
set forth herein. This Lease and any Schedule hereto may not be altered,
modified, terminated or discharged except by a writing signed by the party
against whom such alteration, modification, termination or discharge is sought.
Lessee's Initials
-----
16. LAW. This Lease and any Schedule hereto shall be binding only when accepted
by Lessor at its corporate headquarters in Illinois and shall in all respects
be governed and construed, and the rights and the liabilities of the parties
hereto determined, except for local filing requirements, in accordance with the
laws of the State of Illinois. LESSEE WAIVES TRIAL BY JURY AND SUBMITS TO THE
JURISDICTION OF THE FEDERAL DISTRICT COURTS OF COMPETENT JURISDICTION OR ANY
STATE COURT WITHIN THE STATE OF ILLINOIS AND WAIVES ANY RIGHT TO ASSERT THAT
ANY ACTION INSTITUTED BY LESSOR IN ANY SUCH COURT IS IN THE IMPROPER VENUE OR
SHOULD BE TRANSFERRED TO A MORE CONVENIENT FORUM.
<PAGE> 11
17. INVALIDITY. In the event that any provision of this Lease and any Schedule
hereto shall be unenforceable in whole or in part, such provision shall be
limited to the extent necessary to render the same valid, or shall be excised
from this Lease or any Schedule hereto, as circumstances may require, and this
Lease and the applicable Schedule shall be construed as if said provision had
been incorporated herein as so limited, or as if said provision had not been
included herein, as the case may be without invalidating any of the remaining
provisions hereof.
18. MISCELLANEOUS. All notices and demands relating hereto shall be in writing
and mailed by certified mail, return receipt requested, to Lessor or Lessee at
their respective addresses above or shown in the Schedule, or at any other
address designated by notice served in accordance herewith. Notice shall become
effective when deposited in the United States mail, with proper postage
prepaid, addressed to the party intended to be served at the address designated
herein. All obligations of Lessee shall survive the termination or expiration of
this Lease and any Schedule hereto. Should Lessor permit use by Lessee of any
Equipment beyond the Minimum Lease Term, or, if applicable, any exercised
extension or renewal term, the lease obligations of Lessee shall continue and
such permissive use shall not be construed as a renewal of the term thereof, or
as a waiver of any right or continuation of any obligation of Lessor hereunder,
and Lessor may take possession of any such Equipment at any time upon demand.
If more than one Lessee is named in this Lease, the liability of each shall be
joint and several. Lessee shall, upon request of Lessor form time to time,
perform all acts and execute and deliver to Lessor all documents which Lessor
deems reasonably necessary to implement this Lease and any Schedule hereto,
including, without limitation, certificates addressed to such persons as Lessor
may direct stating that this Lease and the Schedule hereto is in full force and
effect, that there are no amendments or modifications thereto, that Lessor is
not in default hereof or breach hereunder, setting forth the date to which
rentals due hereunder have been paid, and stating such other matters as Lessor
may request. This Lease and any Schedule hereto shall be binding upon the
parties and their successors, legal representatives and assigns. Lessee's
successors and assigns shall include, without limitation, a receiver,
debtor-in-possession, or trustee of or for Lessee. IF any person, firm,
corporation or other entity shall guarantee this Lease and the performance by
Lessee of its obligations hereunder, all of the terms and provisions hereof
shall be duly applicable to such Obligor.
19. LESSEE'S WAIVERS. To the extent permitted by applicable law, Lessee hereby
waives any and all rights and remedies conferred upon a Lessee by Article 2A of
the Uniform Commercial Code as adopted in any jurisdiction, including but not
limited to Lessee's rights to: (i) cancel this Lease; (ii) repudiate this
Lease; (iii) reject the Equipment; (iv) revoke acceptance of the Equipment; (v)
recover damages from Lessor for any breaches of warranty or for any other
reason; (vi) claim a security interest in the Equipment in Lessee's possession
or control for any reason (vii) deduct all or any part of any claimed damages
resulting from Lessor's default, if any, under this Lease; (viii) accept
partial delivery of the Equipment (ix) "cover" by making any purchase or lease
of or contract to purchase or lease Equipment in substitution for those due from
Lessor; (x) recover any general, special, incidental, or consequential damages
for any reason whatsoever; and (xi) specific performance, replevin, detinue,
sequestration, claim, and delivery of the like for any Equipment identified to
this Lease. To the extent permitted by applicable law, Lessee also hereby waives
any rights now or hereafter conferred by statute or otherwise which may require
Lessor to sell, lease or otherwise use any Equipment in mitigation of Lessor's
damages as set forth in Paragraph 13 or which may otherwise limit or modify any
of Leasor's rights or remedies under Paragraph 13. Any action by Lessee against
Lessor for any default by Lessor under this Lease, including breach of warranty
or indemnity, shall be commenced within one (1) year after any such cause of
action accrues.
<PAGE> 12
20. COUNTERPARTS. This Lease may be executed in any number of counterparts,
each of which shall be deemed an original. Each Schedule shall be executed in
three (3) serially numbered counterparts each of which shall be deemed an
original but only counterpart number 1 shall constitute "chattel paper" or
"collateral" within the meaning of the Uniform Commercial Code in any
jurisdiction.
21. ADDENDUM. ("X" if applicable) [ X ] See addendum(s) attached hereto and
made a part hereof.
THE PERSON EXECUTING THIS LEASE FOR AND ON BEHALF OF LESSEE WARRANTS AND
REPRESENTS, WHICH WARRANTY AND REPRESENTATION SHALL SURVIVE THE EXPIRATION OR
TERMINATION OF THIS LEASE, THAT THIS LEASE AND THE EXECUTION HEREOF HAS BEEN
DULY AND VALIDLY AUTHORIZED BY LESSEE, CONSTITUTES A VALID AND BINDING
OBLIGATION OF LESSEE AND THAT HE HAS AUTHORITY TO MAKE SUCH EXECUTION FOR AND
ON BEHALF OF LESSEE.
IN WITNESS WHEREOF, this Lease has been executed by Lessee this 4th day of
June, 1996.
ACCEPTED AT CHICAGO, ILLINOIS
UNISON HEALTHCARE CORPORATION LINC ANTHEM CORPORATION
(Lessee) (a Delaware Corporation) (Lessor)
By: /s/ Craig R. Clark By: /s/ Paul Cortellini
----------------------------- ------------------------
Title: EVP & CFO Title:
-------------------------- ---------------------
<PAGE> 13
ADDENDUM NO. 001 TO
MASTER LEASE AGREEMENT NO. 6305
DATED AS OF _____________, 19__
BETWEEN
LINC ANTHEM CORPORATION, AS LESSOR AND
UNISON HEALTHCARE CORPORATION, AS LESSEE
This Addendum is attached to and forms part of that certain Master Lease
Agreement No. 6305 ("Lease") dated as of ________________, 19__ between LINC
Anthem Corporation ("Lessor") and UNISON HEALTHCARE CORPORATION ("Lessee"),
agreeing as follows:
I. Terms defined in the Lease shall have the same meanings herein unless
otherwise expressly set forth herein or otherwise required by the
context hereof.
II. The following shall be added to the terms of the Lease and are hereby
incorporated therein by reference.
PROGRESS PAYMENTS
(a) _____ By Lessee. Lessee shall timely pay to the manufacturer(s) or
supplier(s) of the Equipment all progress payments required in respect
of the Equipment and simultaneously with the making of such payment
provide Lessor with the manufacturer'(s') or supplier'(s') invoice
therefor and evidence of Lessee's payment thereof. Upon delivery by
Lessee of Lessee's Equipment Acceptance Form, and provided at such time
no Event of Default shall have occurred and be continuing hereunder or
under the Lease, Lessor shall reimburse Lessee for all such progress
payments so made by Lessee within 30 days after delivery by Lessee of
Lessee's Equipment Acceptance Form.
(b) x By Lessor. Not less than 30 days prior to the due date
-----
thereof, Lessee shall deliver to Lessor Lessee's authorization in the
form of Annex I to this Addendum to make a progress payment and,
provided on such due date no Event of Default have occurred and be
continuing hereunder or under the Lease, Lessor shall make the progress
payment set forth to the manufacturer(s) or supplier(s) also set forth
in such authorization. In respect of such progress payments so made by
Lessor, Lessee agrees as follows:
(i) to pay the Lessor of Lessor's Assignee a daily rental amount equal
to the product of the aggregate amount of progress payments actually
made by Lessor multiplied by the Lease Rate Factor as set forth in each
applicable Equipment Schedule divided by thirty (30) from the date such
progress payments are in fact made. Such payment shall be made by Lessee
to Lessor immediately upon Lessee's receipt of a written request
therefor (but not more than one such payment shall be made within any
given period of thirty (30) days) accompanied by evidence reasonably
satisfactory to Lessee indicating the amount and date of payment by
Lessor of the progress payments in respect of which such payment is
requested;
(ii) in the event Lessee shall not deliver Lessee's Equipment
Acceptance Form in respect of the Equipment to Lessor on or before 3
months from the date of the first progress payment made hereunder
(unless such period is extended by mutual agreement of Lessor and
Lessee), to pay to Lessor or Lessor's Assignee, upon demand, an amount
equal to the sum of all progress payments theretofore made by Lessor
pursuant to this provision, together with unpaid daily rental amounts
thereon;
<PAGE> 14
(iii) Lessee acknowledges and understands that Lessor may elect to
borrow all or a portion of the progress payments required of Lessor
under this provision and that as security therefor, Lessor may assign
Lessor's rights hereunder to the lender of such amounts so borrowed.
Lessee agrees, without notice to Lessee, Lessor may make such assignment
in connection with any such borrowing and for the protection and benefit
of Lessor and any such assignee, the rights of Lessor or its assignee in
and to such payments shall be absolute and unconditional under all
circumstances, notwithstanding: (i) any setoff, abatement, reduction,
counterclaim, recoupment, defense or other right which Lessee may have
against Lessor, the manufacturer(s) or seller(s) of the Equipment, or
any other person for any reason whatsoever; or (ii) any defect in
condition, operation, fitness for use, damage or destruction of the
Equipment, or failure of the manufacturer(s) or supplier(s) to deliver
the Equipment for any reason whatsoever; or (iii)or any insolvency,
bankruptcy, reorganization or similar proceedings instituted by or
against the Lessor or Lessee.
(c) Lessee shall and does hereby agree to indemnify, defend and
hold Lessor and its assigns harmless from and against any and all taxes
described in Section 6 of the Lease and any and all liability, loss,
costs, injury, damage, penalties, suits, judgements, demands, claims,
expenses and disbursements (including without limitation, reasonable
attorneys' fees) of any kind whatsoever arising out of, on account of,
or in connection with this Addendum, the Lease and the Equipment leased
thereunder, including, without limitation, its manufacture, selection,
purchase, delivery, rejection, installation, ownership, possession,
leasing, renting, operation, control, use, maintenance and the return
thereof. This indemnity shall survive the Minimum Lease Term or earlier
cancellation or termination of this Addendum, the Lease and any Schedule
hereto.
III. Except as modified or amended hereby all other terms and conditions set
forth in the Lease shall remain in full force and effect and unmodified or
amended and Lessee hereby confirms and ratifies its agreements set forth
therein.
IN WITNESS WHEREOF, this Addendum has been executed this 4th day of June, 1996.
UNISON HEALTHCARE CORPORATION
(Lessee)
By: /s/ Craig R. Clark
-----------------------------------
Title: EVP and CFO
--------------------------------
LINC ANTHEM CORPORATION
(Lessor)
By: /s/ Paul Cortellini
-----------------------------------
Title:
--------------------------------
<PAGE> 15
ADDENDUM NO. 002 TO
MASTER LEASE NO. 6305
DATED AS OF _____________, 19__
BETWEEN
LINC ANTHEM CORPORATION, AS LESSOR AND
UNISON HEALTHCARE CORPORATION, AS LESSEE
This Addendum is attached to and forms part of that certain Master Lease
Agreement No. 6305 ("Lease") dated as of ________________, 19__ between LINC
Anthem Corporation ("Lessor") and UNISON HEALTHCARE CORPORATION ("Lessee"),
agreeing as follows:
I. Terms defined in the Lease shall have the same meanings herein unless
otherwise expressly set forth herein or otherwise required by the
context hereof.
II. The following shall be added to the terms of the Lease and are hereby
incorporated therein by reference.
23. SPECIAL ACKNOWLEDGEMENT OF INTENT.
Notwithstanding any provisions of the Lease to the contrary, Lessor and
Lessee hereby further agree that notwithstanding Lessor's and Lessee's
intention that this Lease, including any Schedule hereto, is to be construed as
a lease, in the event that either one of them is instead construed to involve a
loan of money and any amounts due hereunder are deemed to constitute interest,
then without waiving any claim or defense to the contrary, no such amounts
deemed to constitute interest due hereunder which are contracted for, charged
or collected shall exceed 18% per annum or such other lesser maximum rate of
interest allowed from time to time by applicable state or federal law
(collectively, the "Highest Lawful Rate"). Regardless of any provision of this
Lease or any Schedule hereto to the contrary, the aggregate of all such amounts
deemed to constitute interest in excess of the Highest Lawful Rate, such
amounts shall be deemed a prepayment of such portion of amounts due hereunder
as are deemed to constitute principal amounts and if all amounts so deemed to
constitute principal plus other lawful amounts due hereunder including any
purchase option amounts then due or payable, late charges, taxes or
reimbursement or indemnity payments due from Lessee have been or are thereby
paid in full, any remaining excess shall immediately be refunded to Lessee. In
determining whether or not amounts deemed to constitute interest contracted
for, charged or collected exceed the Highest Lawful Rate, to the maximum
extent permitted by law, (a) amounts due hereunder for late charges, taxes or
other reimbursements or indemnity payments due from Lessee shall be
characterized as principal, or as a nonusurious expense, fee or premium rather
than interest, (b) amounts due hereunder after acceleration of rental amounts
by reason of an Event of Default or otherwise, or prepaid, shall not be deemed
to constitute interest (but any portion of such amounts deemed to constitute
interest contracted for, charged or collected in connection with such
acceleration or prepayment may never exceed the Highest Lawful Rate) and (c)
all amounts deemed to constitute interest shall be amortized, prorated,
allocated and spread, in equal parts, throughout the entire term of this Lease
(and/or any Schedule hereto) so that the interest rate is uniform throughout
the entire term of this Lease after giving effort to the timing of payments
actually received by Lessor. Lessor may from time to time, as to current and
future rental balances owed on this Lease, implement any interest rate ceiling
under applicable state or federal law and/or revise the index, formula or
provision used to compute the interest rate applicable to any determination of
amounts deemed to constitute interest on amounts deemed principal under this
Lease, but not in excess of the Highest Lawful Rate by notice at any time to
Lessee if and to the extent permitted by and in the matter provided in such
law.
IN WITNESS WHEREOF, this Addendum has been executed this 4th day of June, 1996.
UNISON HEALTHCARE CORPORATION
(Lesee)
By: /s/ Craig R. Clark
-----------------------------------
Title: EVP and CFO
--------------------------------
LINC ANTHEM CORPORATION
(Lessor)
By: /s/ Paul Cortellini
-----------------------------------
Title:
--------------------------------
<PAGE> 1
EXHIBIT 21
<TABLE>
<CAPTION>
SUBSIDIARY STATE OF INCORPORATION
- ------------------------------------------------------------------------ ----------------------
<S> <C>
SunQuest SPC, Inc....................................................... Arizona
BritWill HealthCare Company............................................. Delaware
Quest Pharmacies, Inc................................................... Arizona
Sunbelt Therapy Management Services, Inc................................ Arizona
Decatur Sports Fit & Wellness Center, Inc............................... Alabama
Therapy Health Systems, Inc............................................. Mississippi
Henderson & Associates Rehabilitation, Inc.............................. Alabama
Sunbelt Therapy Management Services, Inc................................ Alabama
BritWill Investments -- I, Inc.......................................... Delaware
BritWill Investments -- II, Inc......................................... Delaware
BritWill Funding Corporation............................................ Delaware
Emory Care Center, Inc.................................................. Texas
</TABLE>
